SWK-Q1-2013
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 2013.
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from [            ] to [            ]
Commission File Number 001-05224 
STANLEY BLACK & DECKER, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CONNECTICUT
 
06-0548860
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
 
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
 
 
\\nbc-prd-hypfs-01\K
 
 
1000 STANLEY DRIVE
NEW BRITAIN, CONNECTICUT
 
06053
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
 
(ZIP CODE)
(860) 225-5111
(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
þ
 
  
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨
(Do not check if a smaller reporting company)
  
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ
161,916,159 shares of the registrant’s common stock were outstanding as of April 17, 2013

Table of Contents

TABLE OF CONTENTS
 
 
 


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Table of Contents

PART I — FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

STANLEY BLACK & DECKER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 30, 2013 AND MARCH 31, 2012
(Unaudited, Millions of Dollars, Except Per Share Amounts)
 
 
Year-to-Date
 
2013
 
2012
Net Sales
$
2,487.2

 
$
2,426.1

Costs and Expenses
 
 
 
Cost of sales
$
1,576.3

 
$
1,514.1

Selling, general and administrative
668.1

 
635.0

Provision for doubtful accounts
1.8

 
2.3

Other-net
71.0

 
67.9

Restructuring charges and asset impairments
42.9

 
40.0

Interest expense
39.9

 
33.9

Interest income
(3.2
)
 
(2.5
)
 
$
2,396.8

 
$
2,290.7

Earnings from continuing operations before income taxes
90.4

 
135.4

Income taxes on continuing operations
8.8

 
29.8

Earnings from continuing operations
$
81.6

 
$
105.6

Less: Net loss attributable to non-controlling interests
(0.4
)
 
(0.7
)
Net earnings from continuing operations attributable to common shareowners
82.0

 
106.3

Net (loss) earnings from discontinued operations
$
(0.9
)
 
$
15.5

Net Earnings Attributable to Common Shareowners
$
81.1

 
$
121.8

Total Comprehensive (Loss) Income Attributable to Common Shareowners
$
(61.1
)
 
$
198.7

Basic earnings (loss) per share of common stock:
 
 
 
Continuing operations
$
0.53

 
$
0.65

Discontinued operations
(0.01
)
 
0.09

Total basic earnings per share of common stock
$
0.52

 
$
0.74

Diluted earnings (loss) per share of common stock:
 
 
 
Continuing operations
$
0.52

 
$
0.63

Discontinued operations
(0.01
)
 
0.09

Total diluted earnings per share of common stock
$
0.51

 
$
0.72

Dividends per shares of common stock
$
0.49

 
$
0.41

Weighted Average Shares Outstanding (in thousands):
 
 
 
Basic
155,552

 
164,530

Diluted
158,994

 
168,948

See notes to (unaudited) condensed consolidated financial statements.



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STANLEY BLACK & DECKER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 30, 2013 AND DECEMBER 29, 2012
(Unaudited, Millions of Dollars, Except Per Share Amounts)
 

March 30,
2013
 
December 29,
2012
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
557.5

 
$
716.0

Accounts and notes receivable, net
1,782.7

 
1,537.6

Inventories, net
1,539.7

 
1,316.0

Assets held for sale
83.9

 
135.2

Other current assets
462.1

 
394.1

Total Current Assets
4,425.9

 
4,098.9

Property, Plant and Equipment, net
1,354.6

 
1,333.6

Goodwill
7,338.9

 
7,021.1

Intangibles, net
3,340.5

 
2,934.4

Other Assets
437.6

 
456.0

Total Assets
$
16,897.5

 
$
15,844.0

Liabilities and Shareowners’ Equity
 
 
 
Current Liabilities
 
 
 
Short-term borrowings
$
1,331.9

 
$
1.1

Current maturities of long-term debt
10.6

 
10.4

Accounts payable
1,514.8

 
1,349.7

Accrued expenses
1,267.6

 
1,681.5

Liabilities held for sale
7.7

 
30.9

Total Current Liabilities
4,132.6

 
3,073.6

Long-Term Debt
3,494.1

 
3,526.5

Deferred Taxes
1,033.4

 
946.9

Post-retirement Benefits
782.9

 
816.3

Other Liabilities
795.4

 
753.6

Commitments and Contingencies (Note R)
—

 
—

Shareowners’ Equity
 
 
 
Stanley Black & Decker, Inc. Shareowners’ Equity
 
 
 
Preferred stock, without par value:
        Authorized and unissued 10,000,000 shares
 
 
 
Common stock, par value $2.50 per share:
Authorized 300,000,000 shares in 2013 and 2012
 
 
 
Issued 176,906,265 shares in 2013 and 2012
442.3

 
442.3

Retained earnings
3,304.8

 
3,299.5

Additional paid in capital
4,435.9

 
4,473.5

Accumulated other comprehensive loss
(530.2
)
 
(388.0
)
ESOP
(61.4
)
 
(62.8
)
 
7,591.4

 
7,764.5

Less: cost of common stock in treasury
(976.7
)
 
(1,097.4
)
Stanley Black & Decker, Inc. Shareowners’ Equity
6,614.7

 
6,667.1

Non-controlling interests
44.4

 
60.0

Total Shareowners’ Equity
6,659.1

 
6,727.1

Total Liabilities and Shareowners’ Equity
$
16,897.5

 
$
15,844.0

See notes to (unaudited) condensed consolidated financial statements.

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STANLEY BLACK & DECKER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 30, 2013 AND MARCH 31, 2012
(Unaudited, Millions of Dollars)
 
 
Year-to-Date
 
2013
 
2012
OPERATING ACTIVITIES
 
 
 
Net earnings attributable to common shareowners
$
81.1

 
$
121.8

Adjustments to reconcile net earnings to cash used in operating activities:
 
 
 
Depreciation and amortization of property, plant and equipment
58.5

 
63.2

Amortization of intangibles
47.3

 
52.6

Asset Impairments
16.5

 
—

Changes in working capital
(195.0
)
 
(152.2
)
Changes in other assets and liabilities
(155.9
)
 
(117.7
)
Cash used in operating activities
(147.5
)
 
(32.3
)
INVESTING ACTIVITIES
 
 
 
Capital expenditures
(79.5
)
 
(61.5
)
Business acquisitions, net of cash acquired
(853.9
)
 
(114.7
)
Proceeds from sale of assets
1.0

 
1.9

(Payments) proceeds on net investment hedge settlements
(9.2
)
 
2.0

Cash used in investing activities
(941.6
)
 
(172.3
)
FINANCING ACTIVITIES
 
 
 
Payments on long-term debt
(0.6
)
 
(0.3
)
Stock purchase contract fees
(0.8
)
 
(0.8
)
Net short-term borrowings
1,330.5

 
196.8

Cash dividends on common stock
(79.1
)
 
(69.9
)
Payment on forward stock purchase contract
(350.0
)
 
—

Termination of interest rate swaps
—

 
35.8

Termination of forward starting interest rate swap
—

 
(56.4
)
Proceeds from issuances of common stock
83.2

 
64.6

Purchases of common stock for treasury
(21.1
)
 
(10.9
)
Cash provided by financing activities
962.1

 
158.9

Effect of exchange rate changes on cash and cash equivalents
(31.5
)
 
22.4

Change in cash and cash equivalents
(158.5
)
 
(23.3
)
Cash and cash equivalents, beginning of period
716.0

 
906.9

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
557.5

 
$
883.6

See notes to (unaudited) condensed consolidated financial statements.


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STANLEY BLACK & DECKER, INC. AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 30, 2013

A.
Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (hereinafter referred to as “generally accepted accounting principles”) for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations for the interim periods have been included and are of a normal, recurring nature. Operating results for the three months ended March 30, 2013 are not necessarily indicative of the results that may be expected for a full fiscal year. For further information, refer to the consolidated financial statements and footnotes included in Stanley Black & Decker, Inc.’s (the “Company”) Form 10-K for the year ended December 29, 2012.
In December 2012, the Company sold its Hardware & Home Improvement business ("HHI"), including the residential portion of Tong Lung, to Spectrum Brands Holdings, Inc. ("Spectrum") for approximately $1.4 billion in cash. The purchase and sale agreement stipulated that the sale occur in a First and Second Closing. The First Closing, which excluded the residential portion of the Tong Lung business, occurred on December 17, 2012. The Second Closing occurred on April 8, 2013 in which the residential portion of the Tong Lung business was sold for $93.5 million in cash. The operating results of the residential portion of Tong Lung have been reported as discontinued operations in the Consolidated Statements of Operations and Comprehensive Income for the three months ended March 30, 2013, while the operating results of HHI have been reported as discontinued operations for the three months ended March 31, 2012. Net sales for discontinued operations totaled $22.3 million and $226.8 million for the three months ended March 30, 2013 and March 31, 2012, respectively. Assets and liabilities held for sale relating to the residential portion of the Tong Lung business totaled $83.9 million and $7.7 million, respectively, as of March 30, 2013, and $133.4 million and $30.3 million, respectively, as of December 29, 2012. For further information regarding the HHI divestiture, refer to the Company's Form 10-K for the year ended December 29, 2012.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements. While management believes that the estimates and assumptions used in the preparation of the financial statements are appropriate, actual results could differ from these estimates.

B.
New Accounting Standards
In February 2013, the Financial Accounting Standards Board ("FASB") issued ASU 2013-02, "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income." This standard requires additional disclosures regarding the reporting of reclassifications out of accumulated other comprehensive income (AOCI). This ASU is effective for reporting periods beginning after December 15, 2012. The Company adopted this guidance during the first quarter of 2013.
In July 2012, the FASB issued ASU 2012-02, "Intangibles - Goodwill and Other (Topic 350)" - Testing Indefinite-Lived Intangibles Assets for Impairment (revised standard). The revised standard is intended to reduce the costs and complexity of the annual impairment testing by providing entities an option to perform a "qualitative" assessment to determine whether further impairment testing is necessary. This ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The Company did not early adopt this guidance for its 2012 annual impairment testing. The Company will adopt this guidance for its 2013 annual impairment testing.

In December 2011, the FASB issued guidance enhancing disclosure requirements on the nature of an entity's right to offset and related arrangements associated with its financial and derivative instruments. The new guidance requires the disclosure of the gross amounts subject to rights of set-off, amounts offset in accordance with the accounting standards followed, and the related net exposure. The new disclosure requirements are effective for annual reporting periods beginning on or after January 1, 2013 and interim periods therein. The adoption of this guidance did not have a material impact to the Company's consolidated financial statements.


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C.
Earnings Per Share
The following table reconciles net earnings attributable to common shareowners and the weighted-average shares outstanding used to calculate basic and diluted earnings per share for the three months ended March 30, 2013 and March 31, 2012:
 
 
Year-to-Date
 
2013
 
2012
Numerator (in millions):
 
 
 
Net earnings from continuing operations attributable to common shareowners
$
82.0

 
$
106.3

Net (loss) earnings from discontinued operations
(0.9
)
 
15.5

Net earnings attributable to common shareowners
$
81.1

 
$
121.8

Less: Earnings attributable to participating restricted stock units (“RSU’s”)
(0.1
)
 
(0.2
)
Net Earnings — basic
$
81.0

 
$
121.6

Net Earnings — dilutive
$
81.1

 
$
121.8


 
Year-to-Date
 
2013
 
2012
Denominator (in thousands):
 
 
 
Basic earnings per share — weighted-average shares
155,552

 
164,530

Dilutive effect of stock options, awards and convertible preferred units and notes
3,442

 
4,418

Diluted earnings per share — weighted-average shares
158,994

 
168,948

Earnings per share of common stock:
 
 
 
Basic earnings per share of common stock:
 
 
 
Continuing operations
$
0.53

 
$
0.65

Discontinued operations
(0.01
)
 
0.09

Total basic earnings per share of common stock
$
0.52

 
$
0.74

Diluted earnings per share of common stock:
 
 
 
Continuing operations
$
0.52

 
$
0.63

Discontinued operations
(0.01
)
 
0.09

Total dilutive earnings per share of common stock
$
0.51

 
$
0.72

The following weighted-average stock options and warrants were not included in the computation of diluted shares outstanding because the effect would be anti-dilutive (in thousands):
 
Year-to-Date
 
2013
 
2012
Number of stock options
995

 
1,686

Number of stock warrants
—

 
4,939

During August and September 2012, 4,938,624 stock warrants expired which were associated with the $320.0 million convertible notes that matured in May 2012. No shares were issued upon their expiration as the warrants were out of the money.


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D.     Financing Receivables
Long-term trade financing receivables of $146.4 million at both March 30, 2013 and December 29, 2012 are reported within other assets in the Condensed Consolidated Balance Sheets. Financing receivables and long-term financing receivables are predominately related to certain security equipment leases with commercial businesses. Generally, the Company retains legal title to any equipment leases and bears the right to repossess such equipment in an event of default. All financing receivables are interest bearing and the Company has not classified any financing receivables as held-for-sale. Interest income earned from financing receivables that are not delinquent is recorded on the effective interest method. The Company considers any financing receivable that has not been collected within 90 days of original billing date as past-due or delinquent. Additionally, the Company considers the credit quality of all past-due or delinquent financing receivables as nonperforming.
The Company has an accounts receivable sale program that expires on December 11, 2014. According to the terms of that program the Company is required to sell certain of its trade accounts receivables at fair value to a wholly owned, consolidated, bankruptcy-remote special purpose subsidiary (“BRS”). The BRS, in turn, must sell such receivables to a third-party financial institution (“Purchaser”) for cash and a deferred purchase price receivable. The Purchaser’s maximum cash investment in the receivables at any time is $100.0 million. The purpose of the program is to provide liquidity to the Company. The Company accounts for these transfers as sales under ASC 860 “Transfers and Servicing”. Receivables are derecognized from the Company’s Consolidated Balance Sheets when the BRS sells those receivables to the Purchaser. The Company has no retained interests in the transferred receivables, other than collection and administrative responsibilities and its right to the deferred purchase price receivable. At March 30, 2013, the Company did not record a servicing asset or liability related to its retained responsibility, based on its assessment of the servicing fee, market values for similar transactions and its cost of servicing the receivables sold.
At March 30, 2013 and December 29, 2012, $55.2 million and $80.0 million, respectively, of net receivables were derecognized. Gross receivables sold amounted to $262.0 million ($238.9 million, net) and $257.1 million ($228.3 million, net) for the three months ended March 30, 2013 and March 31, 2012, respectively. These sales resulted in pre-tax losses of $0.6 million for both the three months ended March 30, 2013 and March 31, 2012. Proceeds from transfers of receivables to the Purchaser totaled $192.4 million and $197.4 million for the three months ended March 30, 2013 and March 31, 2012, respectively. Collections of previously sold receivables, including deferred purchase price receivables, and all fees, which are settled one month in arrears, resulted in payments to the Purchaser of $217.1 million and $229.0 million for the three months ended March 30, 2013 and March 31, 2012, respectively. Servicing fees amounted to $0.1 million and less than $0.1 million for the three months ended March 30, 2013 and March 31, 2012, respectively.
The Company’s risk of loss following the sale of the receivables is limited to the deferred purchase price receivable, which was $110.4 million at March 30, 2013 and $45.0 million at December 29, 2012. The deferred purchase price receivable will be repaid in cash as receivables are collected, generally within 30 days, and as such the carrying value of the receivable recorded approximates fair value. There were no delinquencies and credit losses on receivables sold for the three months ended March 30, 2013. Delinquencies and credit losses on receivables sold were less than $0.1 million for the three months ended March 31, 2012. Cash inflows related to the deferred purchase price receivable totaled $73.6 million and $63.5 million for the three months ended March 30, 2013 and March 31, 2012, respectively. All cash flows under the program are reported as a component of changes in accounts receivable within operating activities in the condensed consolidated statements of cash flows since all the cash from the Purchaser is either: 1) received upon the initial sale of the receivable; or 2) from the ultimate collection of the underlying receivables and the underlying receivables are not subject to significant risks, other than credit risk, given their short-term nature.

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E.
Inventories
The components of inventories, net at March 30, 2013 and December 29, 2012 are as follows (in millions):
 
 
2013
 
2012
Finished products
$
1,144.7

 
$
962.0

Work in process
133.5

 
124.1

Raw materials
261.5

 
229.9

Total
$
1,539.7

 
$
1,316.0



F.
Acquisitions

INFASTECH
On February 27, 2013, the Company acquired Infastech for a total purchase price of $826.4 million, net of cash acquired. Infastech designs, manufactures and distributes highly-engineered fastening technologies and applications for a diverse blue-chip customer base in the industrial, electronics, automotive, construction and aerospace end markets. The acquisition of Infastech adds to the Company's strong positioning in specialty engineered fastening, an industry with solid growth prospects, and further expands the Company's global footprint with its strong concentration in fast-growing emerging markets. Infastech is headquartered in Hong Kong and is being consolidated into the Company's Industrial segment.

The Infastech acquisition has been accounted for using the acquisition method of accounting which requires, among other things, the assets acquired and liabilities assumed to be recognized at their fair values as of the acquisition date. The following table summarizes the estimated fair values of major assets acquired and liabilities assumed:
(Millions of Dollars)
 
Cash and cash equivalents
$
82.0

Accounts and notes receivable, net
118.4

Inventories, net
90.5

Prepaid expenses and other current assets
6.0

Property, plant and equipment
39.8

Trade names
20.0

Customer relationships
380.0

Technology
57.0

Other assets
3.8

Short-term borrowings
(0.2
)
Accounts payable
(98.6
)
Accrued expenses
(32.0
)
Deferred taxes
(125.4
)
Other liabilities
(2.5
)
Total identifiable net assets
$
538.8

Goodwill
369.6

Total consideration transferred
$
908.4


The weighted average useful lives assigned to the trade names, customer relationships, and technology were 15 years, 20 years and 10 years, respectively.

Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the expected cost synergies of the combined business, assembled workforce, and the going concern nature of Infastech.

The purchase price allocation for Infastech is preliminary in all respects. During the measurement period, the Company expects to record adjustments relating to the finalization of intangible valuations, various opening balance sheet contingencies and various income tax matters, amongst others. The Company will complete its purchase price allocation as soon as possible

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within the measurement period. The finalization of the Company's purchase accounting assessment will result in changes in the valuation of assets acquired and liabilities assumed, which the Company does not expect to be material.

The Company also completed a smaller acquisition within our Security segment during the first quarter of 2013.

2012 ACQUISITIONS
During 2012, the Company completed seven acquisitions for a total purchase price of $696.0 million, net of cash acquired. The largest of these acquisitions were AeroScout Inc. (“AeroScout”), which was purchased for $238.8 million, net of cash acquired, and Powers Fasteners, Inc. (“Powers”), which was purchased for $220.5 million, net of cash acquired. AeroScout develops, manufactures, and sells Real-Time Locating Systems ("RTLS") primarily to healthcare and certain industrial customers. Powers distributes fastening products such as mechanical anchors, adhesive anchoring systems, and powered forced-entry systems, mainly for commercial construction end customers. AeroScout was purchased in the second quarter of 2012 and has been integrated within the Security and Industrial segments. Powers was also purchased in the second quarter of 2012 and is part of the CDIY segment. The combined assets acquired for these acquisitions, including $185.4 million of intangible assets and $7.7 million of cash, was approximately $298.7 million, and the combined liabilities assumed were approximately $108.4 million. The related goodwill associated with these two acquisitions is approximately $276.7 million. The total purchase price for the acquisitions was allocated to the assets acquired and liabilities assumed based on their estimated fair values. The purchase accounting for these acquisitions is substantially complete with the exception of certain minor items.

Five smaller acquisitions were completed during 2012 for a total purchase price of $236.7 million. The largest of these acquisitions were Lista North America (“Lista”), which was purchased for $89.7 million, net of cash acquired, and Tong Lung Metal Industry Co. ("Tong Lung"), which the Company purchased an 89% controlling share for $102.8 million, net of cash acquired, and assumed $20.1 million of short term debt. In January 2013, the Company purchased the remaining outstanding shares of Tong Lung for approximately $12 million. Lista's storage and workbench solutions complement the Industrial & Automotive Repair division's tool, storage, radio frequency identification ("RFID")-enabled systems, and specialty supply product and service offerings. Tong Lung manufactures and sells commercial and residential locksets. The residential portion of the business was part of the December 2012 HHI sale and closed on April 8, 2013. Refer to Note U, Subsequent Events, for further discussion. Lista was purchased in the first quarter of 2012 and is part of the Industrial segment. Tong Lung was purchased in the third quarter of 2012 and is part of the Security segment. The purchase accounting for these acquisitions is complete.
ACTUAL AND PRO-FORMA IMPACT FROM ACQUISITIONS
Actual Impact from Acquisitions
The Company's Consolidated Statements of Operations and Comprehensive Income for the first quarter of 2013 include $48.4 million in net sales and $3.9 million in net losses from 2013 acquisitions. These amounts include amortization relating to inventory step-up and intangible assets recorded upon acquisition.
Pro-forma Impact from Acquisitions
The following table presents supplemental pro-forma information as if the Infastech, AeroScout, Powers, and other 2013 and 2012 acquisitions had occurred on January 2, 2012. This pro-forma information includes acquisition-related charges for the period. The pro-forma consolidated results are not necessarily indicative of what the Company’s consolidated net earnings would have been had the Company completed these acquisitions on January 2, 2012. In addition, the pro-forma consolidated results do not reflect the expected realization of any cost savings associated with the acquisitions.
 
Year-to-Date
(Millions of Dollars, except per share amounts)
2013
 
2012
Net sales
$
2,575.5

 
$
2,619.8

Net earnings attributable to common shareowners
98.6

 
106.1

Diluted earnings per share-continuing operations
0.62

 
0.63

The 2013 pro-forma results were calculated by combining the results of Stanley Black & Decker with the stand-alone results of the 2013 acquisitions for their respective pre-acquisition periods. The following adjustments were made to account for certain costs which would have been incurred during this pre-acquisition period:
•
Elimination of the historical pre-acquisition intangible asset amortization expense and the addition of intangible asset amortization expense related to intangibles valued as part of the purchase price allocation that would have been incurred from January 1, 2013 to the acquisition dates, adjusted for the applicable tax impact.

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•
Because the 2013 acquisitions were assumed to occur on January 1, 2012, there were no deal costs or inventory step-up amortization factored into the 2013 pro-forma year, as such expenses would have occurred in the first year following the acquisition.
The 2012 pro-forma results were calculated by combining the results of Stanley Black & Decker with the stand-alone results of the 2012 and 2013 acquisitions for their respective pre-acquisition periods. The following adjustments were made to account for certain costs which would have been incurred during this pre-acquisition period:
•
Elimination of the historical pre-acquisition intangible asset amortization expense and the addition of intangible asset amortization expense related to intangibles valued as part of the purchase price allocation that would have been incurred from January 1, 2012 to March 31, 2012.
•
Additional expense for deal costs and inventory step-up, where applicable, which would have been amortized as the corresponding inventory was sold.
•
Reduced revenue for fair value adjustments made to deferred revenue, where applicable.
•
Because the 2013 acquisitions were funded using existing sources of liquidity, additional interest expense was factored into the 2012 pro-forma year.
•
The modifications above were adjusted for the applicable tax impact.



G.
Goodwill
Changes in the carrying amount of goodwill by segment are as follows:
(Millions of Dollars)
CDIY
 
Industrial
 
Security
 
Total
Balance December 29, 2012
$
3,030.5

 
$
1,394.3

 
$
2,596.3

 
$
7,021.1

Addition from acquisitions
1.1

 
367.8

 
42.0

 
410.9

Foreign currency translation
(44.2
)
 
(31.4
)
 
(17.5
)
 
(93.1
)
Balance March 30, 2013
$
2,987.4

 
$
1,730.7

 
$
2,620.8

 
$
7,338.9


H.
Long-Term Debt and Financing Arrangements
Long-term debt and financing arrangements at March 30, 2013 and December 29, 2012 follow:
 
 
Interest Rate
 
2013
 
2012
Notes payable due 2016
5.75%
 
325.1

 
326.8

Notes payable due in 2018 (junior subordinated)
4.25%
 
632.5

 
632.5

Notes payable due 2021
3.40%
 
410.7

 
417.1

Notes payable due 2022
2.90%
 
799.3

 
799.3

Notes payable due 2028
7.05%
 
164.7

 
169.6

Notes payable due 2040
5.20%
 
384.7

 
404.4

Notes payable due 2052 (junior subordinated)
5.75%
 
750.0

 
750.0

Other, payable in varying amounts through 2021
0.00% – 7.14%
 
37.7

 
37.2

Total long-term debt, including current maturities
 
 
$
3,504.7

 
$
3,536.9

Less: Current maturities of long-term debt
 
 
(10.6
)
 
(10.4
)
Long-term debt
 
 
$
3,494.1

 
$
3,526.5

At March 30, 2013, the Company's carrying value of the $300.0 million note payable due in 2016 includes $15.0 million associated with fair value adjustments made in purchase accounting as well as $10.1 million pertaining to the unamortized gain on a previously terminated fixed-to-floating interest rate swap.
At March 30, 2013, the Company had a fixed-to-floating interest rate swap on its $400.0 million notes payable due in 2021. The carrying value of the notes payable due in 2021 includes $15.9 million pertaining to the unamortized gain on previously terminated swaps partially offset by $4.9 million pertaining to fair value adjustments of the active swap and $0.3 million unamortized discount on the notes.

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At March 30, 2013, the Company had a fixed-to-floating interest rate swaps on its $150.0 million notes payable due in 2028. The carrying value of the notes payable due in 2028 includes $16.2 million associated with fair value adjustments made in purchase accounting slightly offset by $1.5 million pertaining to fair value adjustment of the swaps.
At March 30, 2013, the Company had a fixed-to-floating interest rate swap on its $400.0 million notes payable due in 2040. The carrying value of the notes payable due in 2040 includes a $15.0 million loss pertaining to the fair value adjustment of the swap and $0.3 million pertaining to unamortized discount on the notes.
Unamortized gains and fair value adjustments associated with interest rate swaps and the impact of terminated swaps are more fully discussed in Note I, Derivative Financial Instruments.
At March 30, 2013, the Company had $1,331.1 million of borrowings outstanding against the Company’s $2.0 billion commercial paper program. At December 29, 2012, the Company had no commercial paper borrowings outstanding.


I.     Derivative Financial Instruments
The Company is exposed to market risk from changes in foreign currency exchange rates, interest rates, stock prices and commodity prices. As part of the Company’s risk management program, a variety of financial instruments such as interest rate swaps, currency swaps, purchased currency options, foreign exchange contracts and commodity contracts are used to mitigate interest rate exposure, foreign currency exposure and commodity price exposure.
Financial instruments are not utilized for speculative purposes. If the Company elects to do so and if the instrument meets the criteria specified in Accounting Standards Codification ("ASC") 815, management designates its derivative instruments as cash flow hedges, fair value hedges or net investment hedges. Generally, commodity price exposures are not hedged with derivative financial instruments and instead are actively managed through customer pricing initiatives, procurement-driven cost reduction initiatives and other productivity improvement projects.

A summary of the fair value of the Company’s derivatives recorded in the Consolidated Balance Sheets at March 30, 2013 and December 29, 2012 follows (in millions): 
 
Balance Sheet
Classification
 
2013
 
2012
 
Balance Sheet
Classification
 
2013
 
2012
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
 
 
 
Interest Rate Contracts Fair Value
Other current assets
 
20.3

 
18.5

 
Accrued expenses
 
2.1

 
3.3

 
LT other assets
 
—

 
6.4

 
LT other 
liabilities
 
32.8

 
4.6

Foreign Exchange Contracts Cash Flow
Other current assets
 
2.4

 
—

 
Accrued expenses
 
1.1

 
2.6

Net Investment Hedge
Other current assets
 
42.3

 
0.2

 
Accrued expenses
 
1.6

 
25.7

 
 
 
$
65.0

 
$
25.1

 
 
 
$
37.6

 
$
36.2

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
 
 
Foreign Exchange Contracts
Other current assets
 
$
32.3

 
$
73.9

 
Accrued expenses
 
$
89.3

 
$
46.4

 
LT other assets
 
—

 
—

 
LT other liabilities
 
5.1

 
8.9

 
 
 
$
32.3

 
$
73.9

 
 
 
$
94.4

 
$
55.3

The counterparties to all of the above mentioned financial instruments are major international financial institutions. The Company is exposed to credit risk for net exchanges under these agreements, but not for the notional amounts. The credit risk is limited to the asset amounts noted above. The Company limits its exposure and concentration of risk by contracting with diverse financial institutions and does not anticipate non-performance by any of its counterparties. Further, as more fully discussed in Note M, Fair Value Measurements, the Company considers non-performance risk of its counterparties at each reporting period and adjusts the carrying value of these assets accordingly. The risk of default is considered remote.

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Table of Contents

During the first three months of 2013 and 2012, respectively, significant cash flows related to derivatives including those that are separately discussed in Cash Flow Hedges, Fair Value Hedges and Net Investment Hedges below resulted in net cash received of $22.5 million and cash paid of $35.6 million respectively.
CASH FLOW HEDGES
There was an $87.0 million and $93.5 million after-tax loss as of March 30, 2013 and December 29, 2012, respectively, reported for cash flow hedge effectiveness in accumulated other comprehensive loss. An after-tax loss of $11.8 million is expected to be reclassified to earnings as the hedged transactions occur or as amounts are amortized within the next twelve months. The ultimate amount recognized will vary based on fluctuations of the hedged currencies and interest rates through the maturity dates.
The tables below detail pre-tax amounts reclassified from accumulated other comprehensive income (loss) into earnings for active derivative financial instruments during the periods in which the underlying hedged transactions affected earnings for the three months ended March 30, 2013 and March 31, 2012 (in millions): 
Year-to-date 2013
(In millions)
Gain (Loss)
Recorded in  OCI
 
Classification of
Gain (Loss)
Reclassified from
OCI to Income
 
Gain (Loss)
Reclassified from
OCI to Income
(Effective Portion)
 
Gain (Loss)
Recognized  in
Income
(Ineffective Portion*)
Foreign Exchange Contracts
$
3.1

 
Cost of Sales
 
$
(1.8
)
 
$
—

 
Year-to-date 2012
(In millions)
Gain (Loss)
Recorded in  OCI
 
Classification of
Gain (Loss)
Reclassified from
OCI to Income
 
Gain (Loss)
Reclassified from
OCI to Income
(Effective Portion)
 
Gain (Loss)
Recognized  in
Income
(Ineffective Portion*)
Interest Rate Contracts
$
1.4

 
Interest expense
 
$
—

 
$
—

Foreign Exchange Contracts
$
(1.2
)
 
Cost of sales
 
$
4.9

 
—

 * Includes ineffective portion and amount excluded from effectiveness testing on derivatives.
For the three months ended March 30, 2013, the hedged items’ impact to the Consolidated Statement of Operations and Comprehensive Income was a gain of $1.8 million in Cost of Sales, which is offsetting the loss shown above. For the three months ended March 31, 2012, the hedged items’ impact to the Consolidated Statement of Operations and Comprehensive Income was a loss of $4.9 million in Cost of Sales. There was no impact related to the interest rate contracts’ hedged items and the impact of de-designated hedges was immaterial for all periods presented.
For the three months ended March 30, 2013 and March 31, 2012, an after-tax loss of $3.5 million and an after tax gain of $2.3 million respectively, was reclassified from Accumulated other comprehensive income (loss) into earnings (inclusive of the gain/loss amortization on terminated derivative instruments) during the periods in which the underlying hedged transactions affected earnings.

Interest Rate Contract: The Company enters into interest rate swap agreements in order to obtain the lowest cost source of funds within a targeted range of variable to fixed-rate debt proportions. At March 30, 2013, and December 29, 2012, all interest rate swaps designated as cash flow hedges had been terminated.
In December 2009, the Company executed forward starting interest rate swaps with an aggregate notional amount of $400 million fixing 10 years of interest payments at 4.78%. The objective of the hedge was to offset the expected variability on future payments associated with the interest rate on debt instruments. In January 2012, contracts with a total notional amount of $240 million of these contracts were terminated. The terminations resulted in cash payments of $56.4 million, which was recorded in accumulated other comprehensive loss and will be amortized to earnings over future periods. The cash flows stemming from the termination of such interest rate swaps designated as cash flow hedges are presented within financing activities in the Consolidated Statement of Cash Flows.
Foreign Currency Contracts
Forward Contracts: Through its global businesses, the Company enters into transactions and makes investments denominated in multiple currencies that give rise to foreign currency risk. The Company and its subsidiaries regularly purchase inventory from subsidiaries with non-U.S. dollar functional currencies which creates currency-related volatility in the Company’s results of operations. The Company utilizes forward contracts to hedge these forecasted purchases of inventory. Gains and losses reclassified from accumulated other comprehensive loss for the effective and ineffective portions of the hedge as well as any amounts excluded from effectiveness testing are recorded in cost of sales. Gains and losses incurred after a hedge has been de-designated are not recorded in Accumulated other comprehensive income, but are recorded directly to the Consolidated Statement of Operations and

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Table of Contents

Comprehensive Income in other-net. At March 30, 2013, the notional value of forward currency contracts outstanding was $124.8 million, all of which was designated, and matures at various dates through 2013. At December 29, 2012, the notional value of forward currency contracts outstanding was $154.0 million, all of which was designated, maturing at various dates through 2013.
Purchased Option Contracts: The Company and its subsidiaries have entered into various inter-company transactions whereby the notional values are denominated in currencies other than the functional currencies of the party executing the trade. In order to better match the cash flows of its inter-company obligations with cash flows from operations, the Company enters into purchased option contracts. Gains and losses reclassified from accumulated other comprehensive income (loss) for the effective and ineffective portions of the hedge as well as any amounts excluded from effectiveness testing are recorded in cost of sales. At March 30, 2013, the notional value of purchased option contracts was $126.0 million maturing at various dates through 2013. As of December 29, 2012, the notional value of purchased option contracts was $173.0 million, maturing at various dates through 2013.
FAIR VALUE HEDGES
Interest Rate Risk: In an effort to optimize the mix of fixed versus floating rate debt in the Company’s capital structure, the Company enters into interest rate swaps. In October 2012, the Company entered into interest rate swaps with notional values which equaled the Company's $400 million 3.4% notes due in 2021 and the Company's $400 million 5.2% notes due in 2040. In January 2012, the Company entered into interest rate swaps with notional values which equaled the Company's $150 million 7.05% notes due in 2028. These interest rate swaps effectively converted the Company's fixed rate debt to floating rate debt based on LIBOR, thereby hedging the fluctuation in fair value resulting from changes in interest rates.
In January 2012, the Company terminated interest rate swaps with notional values equal to the Company’s $300 million 4.75% notes due in 2014, $300 million 5.75% notes due in 2016, $200 million 4.9% notes due in 2012 and $250 million 6.15% notes due in 2013. These terminations resulted in cash receipts of $35.8 million. The resulting gain of $28.0 million was deferred and will be amortized to earnings over the remaining life of the notes. In July 2012, the Company repurchased the $250 million 6.15% notes due in 2013 and $300 million 4.75% notes due 2014 and, as a result, $11.1 million of the previously deferred gain was recognized in earnings at that time.
The changes in fair value of the interest rate swaps during the period were recognized in earnings as well as the offsetting changes in fair value of the underlying notes. The notional value of open contracts was $950 million as of both March 30, 2013 and December 29, 2012. A summary of the fair value adjustments relating to these swaps is as follows (in millions):
 
 
Year-to-Date 2013
Year-to-Date 2012
Income Statement
Classification
Gain/(Loss)  on
Swaps
 
Gain /(Loss)  on
Borrowings
Gain/(Loss)  on
Swaps
 
Gain /(Loss)  on
Borrowings
Interest Expense
$(30.4)
 
$30.4
$
(2.6
)
 
$
2.6


In addition to the amounts in the table above, the net swap accruals for each period and amortization of the gains on terminated swaps are also reported as a reduction of interest expense and totaled $6.0 million and $6.6 million for the three months ended March 30, 2013 and March 31, 2012, respectively. Interest expense on the underlying debt was $11.4 million and $9.7 million for the three months ended March 30, 2013 and March 31, 2012, respectively.

NET INVESTMENT HEDGES
Foreign Exchange Contracts: The Company utilizes net investment hedges to offset the translation adjustment arising from re-measurement of its investment in the assets and liabilities of its foreign subsidiaries. The total after-tax amounts in accumulated other comprehensive loss were losses of $26.8 million and $63.3 million at March 30, 2013 and December 29, 2012, respectively. As of March 30, 2013, the Company had foreign exchange contracts that mature at various dates through January 2014 with notional values totaling $956.4 million outstanding hedging a portion of its pound sterling denominated net investment. As of December 29, 2012, the Company had foreign exchange contracts that mature at various dates through October 2013 with notional values totaling $940.6 million outstanding hedging a portion of its pound sterling denominated net investment. For the first three months of 2013, maturing foreign exchange contracts resulted in net cash payments of $9.2 million. For the first three months of 2012, maturing foreign exchange contracts resulted in net cash receipts of $2.0 million. Gains and losses on net investment hedges remain in accumulated other comprehensive income (loss) until disposal of the underlying assets.
The pre-tax gain or loss from year-to-date fair value changed was as follows (in millions):

14
Table of Contents

 
Year-to-Date 2013
 
Year-to-Date 2012
Income Statement
Classification
Amount
Recorded in  OCI
Gain (Loss)
 
Effective Portion
Recorded in 
Income
Statement
 
Ineffective
Portion*
Recorded in
Income
Statement
 
Amount
Recorded in  OCI
Gain (Loss)
 
Effective Portion
Recorded in 
Income
Statement
 
Ineffective
Portion*
Recorded in
Income
Statement
Other-net
$
58.8

 
$
—

 
$
—

 
$
(31.8
)
 
$
—

 
$
—

 * Includes ineffective portion and amount excluded from effectiveness testing.
UNDESIGNATED HEDGES
Foreign Exchange Contracts: Currency swaps and foreign exchange forward contracts are used to reduce risks arising from the change in fair value of certain foreign currency denominated assets and liabilities (such as affiliate loans, payables and receivables). The objective of these practices is to minimize the impact of foreign currency fluctuations on operating results. The total notional amount of the contracts outstanding at March 30, 2013 was $3.2 billion of forward contracts and $99.4 million in currency swaps, maturing at various dates primarily through January 2014 with the currency swap maturing in December 2014. The total notional amount of the contracts outstanding at December 29, 2012 was $4.3 billion of forward contracts and $105.6 million in currency swaps. The income statement impacts related to derivatives not designated as hedging instruments for 2013 and 2012 are as follows (in millions):
 
Derivatives Not
Designated as Hedging
Instruments under ASC 815
Income Statement
Classification
 
Year-to-Date 2013
Amount of Gain (Loss)
Recorded in Income on
Derivative
 
Year-to-Date 2012
Amount of Gain (Loss)
Recorded in Income on
Derivative
Foreign Exchange Contracts
Other-net
 
$
(60.6
)
 
$
(8.7
)

J.
Equity Arrangements
In January 2013, the Company elected to prepay the forward share purchase contract on its common stock for $362.7 million. This contract obligated the Company to pay $350.0 million, plus an additional amount related to the forward component of the contract, to the financial institution counterparty not later than August 2013, or earlier at the Company’s option, for the 5,581,400 shares purchased. The reduction of common shares outstanding was recorded at the inception of the forward share purchase contract and factored into the calculation of weighted average shares outstanding.
In December 2012, the Company entered into a forward starting accelerated share repurchase (“ASR”) contract with certain financial institutions to purchase $850 million of the Company's common stock. The Company paid $850 million to the financial institutions and received an initial delivery of 9,345,794 shares, which reduced the Company's shares outstanding at December 29, 2012. The value of the initial shares received on the date of purchase was $680 million, reflecting a $72.76 price per share which was recorded as a treasury share purchase for purposes of calculating earnings per share. In accordance with ASC 815-40, the Company recorded the remaining $170 million as a forward contract indexed to its own common stock in additional paid in capital. In April 2013, the Company settled the contract for approximately 1.6 million shares. These shares will be delivered by the financial institutions in the second quarter of 2013 and were determined by the average price per share paid by the financial institutions during the purchase period. The average price is calculated using the volume weighted average price ("VWAP") of the Company's stock (inclusive of a VWAP discount) during that period. For further information, see Note U, Subsequent Events.

In November 2012, the Company purchased from certain financial institutions over the counter “out-of-the-money” capped call options, subject to adjustments for standard anti-dilution provisions, on 10,094,144 shares of its common stock for an aggregate premium of $29.5 million, or an average of $2.92 per share. The purpose of the capped call options is to reduce share price volatility on potential future share repurchases. In accordance with ASC 815-40 the premium paid was recorded as a reduction of Shareowners’ equity. The average lower strike price is $71.43 and the average upper strike price is $79.75, subject to customary market adjustments. The aggregate fair value of the remaining options at March 30, 2013 was $13.1 million. The remaining capped call options were net-share settled in April 2013 for approximately 0.6 million shares. These shares will be delivered by the financial institutions in the second quarter of 2013.
Convertible Preferred Units and Equity Option
As described more fully in Note H, Long-Term Debt and Financing Arrangements, of the Company’s Form 10-K for the year ended December 29, 2012, in November 2010 the Company issued Convertible Preferred Units comprised of $632,500,000 of Notes due November 17, 2018 and Purchase Contracts. There have been no changes to the terms of the Convertible Preferred Units. The Purchase Contracts obligate the holders to purchase, on the earlier of (i) November 17, 2015 (the Purchase Contract

15
Table of Contents

Settlement date) or (ii) the triggered early settlement date, 6,325,000 shares, for $100 per share, of the Company’s 4.75% Series B Cumulative Convertible Preferred Stock (the “Convertible Preferred Stock”), resulting in cash proceeds to the Company of up to $632.5 million.
Following the issuance of Convertible Preferred Stock upon settlement of a holder’s Purchase Contracts, a holder of Convertible Preferred Stock may, at its option, at any time and from time to time, convert some or all of its outstanding shares of Convertible Preferred Stock at a conversion rate of 1.3333 shares of the Company’s common stock per share of Convertible Preferred Stock (subject to customary anti-dilution provisions), which is equivalent to an initial conversion price of approximately $75.00 per share of common stock. Assuming conversion of the 6,325,000 shares of Convertible Preferred Stock at the 1.3333 initial conversion rate a total of 8,433,123 shares of the Company’s common stock may be issued upon conversion. As of March 30, 2013, due to the customary anti-dilution provisions, the conversion rate on the Convertible Preferred Stock is 1.3501 (equivalent to a conversion price of approximately $74.07 per common share). In the event that holders elect to settle their Purchase Contracts prior to November 17, 2015, the Company will deliver a number of shares of Convertible Preferred Stock equal to 85% of the Purchase Contracts tendered, together with cash in lieu of fractional shares. Upon a conversion on or after November 15, 2015 the Company may elect to pay or deliver, as the case may be, solely shares of common stock, together with cash in lieu of fractional shares (“physical settlement”), solely cash (“cash settlement”), or a combination of cash and common stock (“combination settlement”). The Company may redeem some or all of the Convertible Preferred Stock on or after December 22, 2015 at a redemption price equal to 100% of the $100 liquidation preference per share plus accrued and unpaid dividends to the redemption date.
In November 2010, contemporaneously with the issuance of the Convertible Preferred Units described above, the Company paid $50.3 million, or an average of $5.97 per option, to enter into capped call transactions (equity options) on 8,433,123 shares of common stock with certain major financial institutions. The purpose of the capped call transactions is to offset the common shares that may be deliverable upon conversion of shares of Convertible Preferred Stock. With respect to the impact on the Company, the capped call transactions and the Convertible Preferred Stock, when taken together, result in the economic equivalent of having the conversion price on the Convertible Preferred Stock at $96.73 , the upper strike price of the capped call (as of March 30, 2013). Refer to Note H, Long-Term Debt and Financing Arrangements, and Note J, Capital Stock, of the Company’s Form 10-K for the year ended December 29, 2012 for further discussion. In accordance with ASC 815-40 the $50.3 million premium paid was recorded as a reduction to equity.
The capped call transactions cover, subject to customary anti-dilution adjustments, the number of shares of common stock equal to the number of shares of common stock underlying the maximum number of shares of Convertible Preferred Stock issuable upon settlement of the Purchase Contracts. Each of the capped call transactions has a term of approximately 5 years and initially had a lower strike price of $75.00, which corresponded to the initial conversion price of the Convertible Preferred Stock, and an upper strike price of $97.95, which was approximately 60% higher than the closing price of the common stock on November 1, 2010. The capped call transactions may be settled by net share settlement (the default settlement method) or, at the Company’s option and subject to certain conditions, cash settlement, physical settlement or modified physical settlement. The aggregate fair value of the options at March 30, 2013 was $80.3 million.

K.     Accumulated Other Comprehensive Income (Loss)

The table below sets forth the changes to the components of accumulated other comprehensive income (loss) for the three months ended March 30, 2013 (in millions):
 
Currency translation adjustment
Unrealized (losses) gains on cash flow hedges, net of tax
Unrealized (losses) gains on net investment hedges, net of tax
Pension (losses) gains, net of tax
Total
Balance - December 29, 2012
29.4

(93.5
)
(63.3
)
(260.6
)
(388.0
)
Other comprehensive (loss) income before reclassifications
(194.5
)
3.0

36.5

7.5

(147.5
)
Reclassification adjustments to earnings
—

3.5

—

1.8

5.3

Net other comprehensive (loss) income
(194.5
)
6.5

36.5

9.3

(142.2
)
Balance - March 30, 2013
(165.1
)
(87.0
)
(26.8
)
(251.3
)
(530.2
)


16
Table of Contents

The reclassifications out of accumulated other comprehensive income (loss) for the three months ended March 30, 2013 were as follows (in millions):
Reclassifications from accumulated other comprehensive income (loss) to earnings
Reclassification adjustments
Affected line item in Consolidated Statements of Operations And Comprehensive Income
Realized losses on cash flow hedges
(5.6)
Cost of sales
Tax effect
2.1
Income taxes on continuing operations
Realized losses on cash flow hedges, net of tax
(3.5)
 
Amortization of defined benefit pension items:
 
 
Actuarial losses
(1.6)
Cost of sales
Actuarial losses
(1.0)
Selling, general and administrative
Total before taxes
(2.6)
 
Tax effect
0.8
Income taxes on continuing operations
Amortization of defined benefit pension items, net of tax
(1.8)
 


L.     Net Periodic Benefit Cost — Defined Benefit Plans
Following are the components of net periodic benefit cost for the three months ended March 30, 2013 and March 31, 2012 (in millions): 
 
Year-to-Date
 
Pension Benefits
 
Other Benefits
 
U.S. Plans
 
Non-U.S. Plans
 
All Plans
 
2013
 
2012
 
2013
 
2012
 
2013
 
2012
Service cost
$
1.9

 
$
1.7

 
$
3.5

 
$
2.9

 
$
0.2

 
$
0.2

Interest cost
13.3

 
15.5

 
11.0

 
11.8

 
0.6

 
0.7

Expected return on plan assets
(16.1
)
 
(16.7
)
 
(10.5
)
 
(11.0
)
 
—

 
—

Amortization of prior service cost (credit)
0.3

 
0.2

 
0.1

 
0.1

 
(0.3
)
 
(0.3
)
Amortization of net loss
1.6

 
1.5

 
1.2

 
0.8

 
—

 
—

Curtailment (gain) loss
—

 
—

 
(0.1
)
 
0.3

 
—

 
—

Net periodic cost
$
1.0

 
$
2.2

 
$
5.2

 
$
4.9

 
$
0.5

 
$
0.6


M.
Fair Value Measurements
FASB ASC 820 "Fair Value Measurement" defines, establishes a consistent framework for measuring, and expands disclosure requirements about fair value. ASC 820 requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs create the following fair value hierarchy:
Level 1 — Quoted prices for identical instruments in active markets.
Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs and significant value drivers are observable.
Level 3 — Instruments that are valued using unobservable inputs.
The Company holds various derivative financial instruments that are employed to manage risks, including foreign currency and interest rate exposures. These financial instruments are carried at fair value and are included within the scope of ASC 820. The Company determines the fair value of derivatives through the use of matrix or model pricing, which utilizes verifiable inputs such as market interest and currency rates. When determining the fair value of these financial instruments for which Level 1 evidence does not exist, the Company considers various factors including the following: exchange or market price quotations of similar instruments, time value and volatility factors, the Company’s own credit rating and the credit rating of the counter-party.
The following table presents the Company’s financial assets and liabilities that are measured at fair value on a recurring basis for each of the hierarchy levels (millions of dollars):

17
Table of Contents

 
Total Carrying
Value
 
Level 1
 
Level 2
March 30, 2013:
 
 
 
 
 
Money market fund
$
9.7

 
$
9.7

 
$
—

Derivative assets
$
97.3

 
$
—

 
$
97.3

Derivative liabilities
$
132.0

 
$
—

 
$
132.0

December 29, 2012:
 
 
 
 
 
Money market fund
$
68.0

 
$
68.0

 
$
—

Derivative assets
$
99.0

 
$
—

 
$
99.0

Derivative liabilities
$
91.5

 
$
—

 
$
91.5

The Company had no financial assets or liabilities measured using Level 3 inputs, nor any assets measured at fair value on a non-recurring basis during 2013 and 2012.
Refer to Note I, Derivative Financial Instruments, for more details regarding derivative financial instruments, and Note H, Long-Term Debt and Financing Arrangements, for more information regarding carrying values of the long-term debt shown below. 
The following table presents the carrying values and fair values of the Company's financial assets and liabilities, as well as the Company's debt, as of March 30, 2013 and December 29, 2012 (millions of dollars):
 
March 30, 2013
 
December 29, 2012
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
Long-term debt, including current portion
$
3,504.7

 
$
3,639.1

 
$
3,536.9

 
$
3,677.3

Derivative assets
$
97.3

 
$
97.3

 
$
99.0

 
$
99.0

Derivative liabilities
$
132.0

 
$
132.0

 
$
91.5

 
$
91.5

The fair values of long-term debt instruments are considered Level 2 instruments within the fair value hierarchy and are estimated using a discounted cash flow analysis, based on the Company’s marginal borrowing rates. The differences in carrying values in long-term debt are attributable to the stated interest rates differing from the Company's marginal borrowing rates. The fair value of the Company’s variable rate short term borrowings approximate their carrying value at March 30, 2013 and December 29, 2012. The fair values of foreign currency and interest rate swap agreements, comprising the derivative assets and liabilities in the table above, are based on current settlement values.
As discussed in Note D, Financing Receivables, the Company has a deferred purchase price receivable related to sales of trade receivables. The deferred purchase price receivable will be repaid in cash as receivables are collected, generally within 30 days, and as such the carrying value of the receivable approximates fair value.


N.
Other Costs and Expenses
Other-net is primarily comprised of intangible asset amortization expense, currency related gains or losses, environmental expense and merger and acquisition-related charges, primarily consisting of transaction costs. During the three months ended March 30, 2013 and March 31, 2012, Other-net included $15.6 million and $10.2 million in merger and acquisition-related costs, respectively.














18
Table of Contents

O.     Restructuring & Asset Impairments
A summary of the restructuring reserve activity from December 29, 2012 to March 30, 2013 is as follows (in millions): 
 
12/29/2012
 
Additions (Reversals), net
 
Usage
 
Currency
 
3/30/2013
2013 Actions
 
 
 
 
 
 
 
 
 
Severance and related costs
$
—

 
$
21.6

 
$
(1.6
)
 
$
(0.5
)
 
$
19.5

Facility closures
$
—

 
$
7.2

 
$
(3.6
)
 
$
(0.2
)
 
$
3.4

Asset Impairments
$
—

 
$
16.5

 
$
(16.5
)
 
$
—

 
$
—

Subtotal 2013 actions
$
—

 
$
45.3

 
$
(21.7
)
 
$
(0.7
)
 
$
22.9

Pre-2013 Actions
 
 
 
 
 
 
 
 
 
Severance and related costs
$
112.1

 
$
(2.5
)
 
$
(17.2
)
 
$
(2.5
)
 
$
89.9

Facility closures
13.1

 
0.1

 
(0.7
)
 
—

 
12.5

Subtotal Pre-2013 actions
$
125.2

 
$
(2.4
)
 
$
(17.9
)
 
$
(2.5
)
 
$
102.4

Total
$
125.2

 
$
42.9

 
$
(39.6
)
 
$
(3.2
)
 
$
125.3

In the first three months of 2013, the Company continued with restructuring activities primarily associated with the Black & Decker merger, Niscayah and other acquisitions, and recognized $45.3 million of restructuring charges related to activities initiated in the current year. Of those charges, $21.6 million relates to severance charges associated with the reduction of approximately 250 employees and $7.2 million relates to facility closure costs. The Company also recorded $16.5 million of asset impairment charges.
The majority of the $125.3 million of reserves remaining as of March 30, 2013 is expected to be utilized in 2013.
Segments: The $42.9 million of charges recognized in the first three months of 2013 includes: $1.0 million of net reserve reductions pertaining to the CDIY segment; $24.9 million of charges pertaining to the Security segment; $2.5 million of charges pertaining to the Industrial segment; and $16.5 million pertaining to Corporate charges.

P.
Income Taxes
The Company recognized income tax expense of $8.8 million for the three month period ended March 30, 2013, resulting in an effective tax rate of 9.7%. The effective tax rate differs from the U.S. statutory tax rate for the three month period ended March 30, 2013 primarily due to a portion of the Company's earnings realized in lower-taxed foreign jurisdictions, the acceleration of certain tax credits and the favorable impact of the enactment of U.S. tax legislation in January which had retroactive effect on the tax rate.
The Company recognized income tax expense of $29.8 million for the three month period ended March 31, 2012, resulting in an effective tax rate of 22.0%. The effective tax rate differs from the statutory tax rate for the three month period ended March 31, 2012, primarily due to a portion of the Company's earnings realized in lower-taxed foreign jurisdictions.
The Company is subject to the examination of its income tax returns by the Internal Revenue Service and other taxing authorities both domestically and internationally. The final outcome of the future tax consequences of these examinations and legal proceedings, as well as, the outcome of competent authority proceedings, changes and interpretation in regulatory tax laws, or expiration of statute of limitations could impact the Company's financial statements. Accordingly, the Company has tax reserves recorded for which it is reasonably possible that the amount of the unrecognized tax benefit will increase or decrease which could have a material effect on the financial results for any particular fiscal quarter or year. However, based on the uncertainties associated with litigation and the status of examinations, including the protocols of finalizing audits by the relevant tax authorities which could include formal legal proceedings, it is not possible to estimate the impact of any such change.

Q.
Business Segments
The Company classifies its business into three reportable segments, which also represent its operating segments: Construction & Do It Yourself (“CDIY”), Security, and Industrial.
The CDIY segment is comprised of the Professional Power Tool business, the Consumer Products Group, the Hand Tools & Storage business, and the Fastening & Accessories business. The Professional Power Tool business sells professional grade corded and cordless electric power tools and equipment including drills, impact wrenches and drivers, grinders, saws, routers and sanders. The Consumer Products Group sells corded and cordless electric power tools sold under the Black & Decker brand, lawn and garden products and home products. The Hand Tools & Storage business sells measuring and leveling tools,

19
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planes, hammers, demolition tools, knives, saws and chisels. The Fastening & Accessories business sells pneumatic tools and fasteners including nail guns, nails, staplers and staples, concrete and masonry anchors, as well as power tool accessories which include drill bits, router bits, abrasives and saw blades.
The Security segment is comprised of the Convergent Security Solutions ("CSS") and the Mechanical Access Solutions ("MAS") businesses. The CSS business designs, supplies and installs electronic security systems and provides electronic security services, including alarm monitoring, video surveillance, fire alarm monitoring, systems integration and system maintenance. Purchasers of these systems typically contract for ongoing security systems monitoring and maintenance at the time of initial equipment installation. The business also includes healthcare solutions, which markets medical carts and cabinets, asset tracking, infant protection, pediatric protection, patient protection, wander management, fall management, and emergency call products. The MAS business sells automatic doors, commercial hardware, locking mechanisms, electronic keyless entry systems, keying systems, tubular and mortise door locksets.
The Industrial segment is comprised of the Industrial and Automotive Repair ("IAR"), Engineered Fastening and Infrastructure businesses. The IAR business sells hand tools, power tools, and engineered storage solution products. The Engineered Fastening business primarily sells engineered fastening products and systems designed for specific applications. The product lines include stud welding systems, blind rivets and tools, blind inserts and tools, drawn arc weld studs, engineered plastic and mechanical fasteners, self-piercing riveting systems, precision nut running systems, micro fasteners, and high-strength structural fasteners & plastics. The Infrastructure business consists of the CRC-Evans business and the Company’s Hydraulics business. The product lines include custom pipe handling machinery, joint welding and coating machinery, weld inspection services and hydraulic tools and accessories.
The Company utilizes segment profit, which is defined as net sales minus cost of sales and selling, general, and administrative ("SG&A") inclusive of the provision for doubtful accounts (aside from corporate overhead expense), and segment profit as a percentage of net sales to assess the profitability of each segment. Segment profit excludes the corporate overhead expense element of SG&A, interest income, interest expense, other-net (inclusive of intangible asset amortization expense), restructuring, and income taxes. Refer to Note O, Restructuring & Asset Impairments, for the amount of restructuring charges and asset impairments by segment. Corporate overhead is comprised of world headquarters facility expenses, cost for the executive management team and costs for certain centralized functions that benefit the entire Company but are not directly attributable to the businesses, such as legal and corporate finance functions. Transactions between segments are not material. Segment assets primarily include accounts receivable, inventory, other current assets, property, plant and equipment, intangible assets and other miscellaneous assets.
 
Year-to-Date
 
2013
 
2012
NET SALES
 
 
 
CDIY
$
1,192.4

 
$
1,172.0

Security
599.4

 
592.1

Industrial
695.4

 
662.0

Total
$
2,487.2

 
$
2,426.1

SEGMENT PROFIT
 
 
 
CDIY
$
169.2

 
$
148.4

Security
55.3

 
69.8

Industrial
85.5

 
122.9

Segment profit
310.0

 
341.1

Corporate overhead
(69.0
)
 
(66.4
)
Other-net
(71.0
)
 
(67.9
)
Restructuring charges and asset impairments
(42.9
)
 
(40.0
)
Interest expense
(39.9
)
 
(33.9
)
Interest income
3.2

 
2.5

Earnings from continuing operations before income taxes
$
90.4

 
$
135.4

During the three months ended March 30, 2013 and March 31, 2012, the Company recorded $13.3 million and $2.3 million, respectively, of merger and acquisition-related charges associated with facility closures, which reduced segment gross profit, and an additional $8.8 million and $9.9 million, respectively, in SG&A primarily for integration costs associated with merger and acquisition-related activities These charges reduced segment profit by $3.3 million in CDIY, $6.4 million in Security and

20
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$12.4 million in Industrial for the three months ended March 30, 2013, and $3.3 million in CDIY, $6.9 million in Security, and $2.0 million for Industrial for the three months ended March 31, 2012.
Corporate overhead for the three months ended March 30, 2013 and March 31, 2012 includes $25.5 million and $17.5 million, respectively, of charges pertaining primarily to merger and acquisition-related employee charges and integration costs.

The following table is a summary of total assets by segment as of March 30, 2013 and December 29, 2012:
 
March 30,
2013
 
December 29,
2012
CDIY
$
7,671.1

 
$
7,437.9

Security
4,494.1

 
4,728.9

Industrial
4,618.8

 
3,456.9

 
16,784.0

 
15,623.7

Discontinued Operations
83.9

 
135.2

Corporate assets
29.6

 
85.1

Consolidated
$
16,897.5

 
$
15,844.0

Corporate assets primarily consist of cash, deferred taxes and property, plant and equipment.

R.
Commitments and Contingencies
The Company is involved in various legal proceedings relating to environmental issues, employment, product liability, workers’ compensation claims and other matters. The Company periodically reviews the status of these proceedings with both inside and outside counsel, as well as an actuary for risk insurance. Management believes that the ultimate disposition of these matters will not have a material adverse effect on operations or financial condition taken as a whole.
The amount recorded for identified contingent liabilities is based on estimates. Amounts recorded are reviewed periodically and adjusted to reflect additional technical and legal information that becomes available. Actual costs to be incurred in future periods may vary from the estimates, given the inherent uncertainties in evaluating certain exposures.
In connection with the 2010 merger with Black & Decker, the Company assumed certain commitments and contingent liabilities. Black & Decker is a party to litigation and administrative proceedings with respect to claims involving the discharge of hazardous substances into the environment. Some of these assert claims for damages and liability for remedial investigations and clean-up costs with respect to sites that have never been owned or operated by Black & Decker but at which Black & Decker has been identified as a potentially responsible party. Other matters involve current and former manufacturing facilities.
The Environmental Protection Agency (“EPA”) and the Santa Ana Regional Water Quality Control Board have each initiated administrative proceedings against Black & Decker and certain of its current or former affiliates alleging that Black & Decker and numerous other defendants are responsible to investigate and remediate alleged groundwater contamination in and adjacent to a 160-acre property located in Rialto, California. The EPA and the cities of Colton and Rialto, as well as Goodrich Corporation, also initiated lawsuits against Black & Decker and certain of its former or current affiliates in the Federal District Court for California, Central District alleging similar claims that Black & Decker is liable under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”), the Resource Conservation and Recovery Act, and state law for the discharge or release of hazardous substances into the environment and the contamination caused by those alleged releases. The City of Colton also has a companion case in California State court. The City of Riverside has a similar suit in California State Court with similar claims and the same parties. Both of these cases are currently stayed for all purposes. Certain defendants in that case have cross-claims against other defendants and have asserted claims against the State of California. The administrative proceedings and the lawsuits generally allege that West Coast Loading Corporation (“WCLC”), a defunct company that operated in Rialto between 1952 and 1957, and an as yet undefined number of other defendants are responsible for the release of perchlorate and solvents into the groundwater basin, and that Black & Decker and certain of its current or former affiliates are liable as a “successor” of WCLC. The Company's settlement discussions among the EPA and numerous other parties progressed throughout late 2012, culminating in the settlement of the EPA's claims against the Company, as well as all other administrative proceedings and lawsuits involving Black & Decker related to the WCLC site, except for the City of Riverside's state court lawsuit. (That lawsuit has been stayed and will, the Company believes, ultimately rendered moot by the implementation of an interim and final remedy at the site.)  This settlement is embodied in a Consent Decree that was filed with the United States District Court for the Central District of California on or about December 4, 2012.  The Consent Decree is a public document, subject to public comment and ultimately, court approval.  In substance, Emhart Industries, Inc. (a dissolved, former indirectly wholly-owned subsidiary of The Black & Decker Corporation) (“Emhart”) has agreed to be responsible for an interim remedy at the site, which remedy will be funded by (i) amounts gathered by EPA from

21
Table of Contents

multiple parties and placed in trust, and, to the extent necessary, (ii) Emhart's affiliate.  The interim remedy requires the construction of a water treatment facility and the filtering of ground water at or around the Rialto property for a period of approximately 30 years or more.
The EPA has asserted claims in federal court in Rhode Island against certain current and former affiliates of Black & Decker related to environmental contamination found at the Centredale Manor Restoration Project Superfund site, located in North Providence, Rhode Island. The EPA has discovered a variety of contaminants at the site, including but not limited to, dioxins, polychlorinated biphenyls, and pesticides. The EPA alleges that Black & Decker and certain of its current and former affiliates are liable for site clean-up costs under CERCLA as successors to the liability of Metro-Atlantic, Inc., a former operator at the site, and demanded reimbursement of the EPA’s costs related to this site. Black & Decker and certain of its current and former affiliates contest the EPA's allegation that they are responsible for the contamination, and have asserted contribution claims, counterclaims and cross-claims against a number of other potentially responsible parties, including the federal government as well as insurance carriers. The EPA released its Record of Decision ("ROD") in September 2012, which identified and described the EPA's selected remedial alternative for the site. Black & Decker and certain of its current and former affiliates are contesting the EPA's selection of the remedial alternative set forth in the ROD, on the grounds that the EPA's actions were arbitrary and capricious and otherwise not in accordance with law, and have proposed other equally-protective, more cost-effective alternatives. The Company's estimated remediation costs related to this Centredale site (including the EPA’s past costs as well as costs of additional investigation, remediation, and related costs such as EPA’s oversight costs, less escrowed funds contributed by primary potentially responsible parties (PRPs) who have reached settlement agreements with the EPA), which the Company considers to be probable and reasonably estimable, range from approximately $68.1 million to $139.7 million, with no amount within that range representing a more likely outcome until such time as the litigation is resolved through judgment of compromise. The Company’s reserve for this environmental remediation matter of $68.1 million reflects the fact that the EPA considers Metro-Atlantic, Inc. to be a primary source of contamination at the site. As the specific nature of the environmental remediation activities that may be mandated by the EPA at this site have not yet been finally determined through the on-going litigation, the ultimate remedial costs associated with the site may vary from the amount accrued by the Company at March 30, 2013.
In the normal course of business, the Company is involved in various lawsuits and claims. In addition, the Company is a party to a number of proceedings before federal and state regulatory agencies relating to environmental remediation. Also, the Company, along with many other companies, has been named as a PRP in a number of administrative proceedings for the remediation of various waste sites, including 31 active Superfund sites. Current laws potentially impose joint and several liabilities upon each PRP. In assessing its potential liability at these sites, the Company has considered the following: whether responsibility is being disputed, the terms of existing agreements, experience at similar sites, and the Company’s volumetric contribution at these sites.
The Company’s policy is to accrue environmental investigatory and remediation costs for identified sites when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. In the event that no amount in the range of probable loss is considered most likely, the minimum loss in the range is accrued. The amount of liability recorded is based on an evaluation of currently available facts with respect to each individual site and includes such factors as existing technology, presently enacted laws and regulations, and prior experience in remediation of contaminated sites. The liabilities recorded do not take into account any claims for recoveries from insurance or third parties. As assessments and remediation progress at individual sites, the amounts recorded are reviewed periodically and adjusted to reflect additional technical and legal information that becomes available. As of March 30, 2013 and December 29, 2012, the Company had reserves of $185.7 million and $188.0 million, respectively, for remediation activities associated with Company-owned properties, as well as for Superfund sites, for losses that are probable and estimable. Of the 2013 amount, $6.3 million is classified as current and $179.4 million as long-term which is expected to be paid over the estimated remediation period. As of March 30, 2013, the Company has recorded an asset of $24.3 million related to funding by EPA and placed in trust in accordance with the Consent Decree associated with WCLC, as previously discussed. Accordingly, the cash obligation as of March 30, 2013 of the Company associated with the aforementioned remediation activities is $161.4 million. The range of environmental remediation costs that is reasonably possible is $138.7 million to $278.3 million which is subject to change in the near term. The Company may be liable for environmental remediation of sites it no longer owns. Liabilities have been recorded on those sites in accordance with policy.
The amount recorded for identified contingent liabilities is based on estimates. Amounts recorded are reviewed periodically and adjusted to reflect additional technical and legal information that becomes available. Actual costs to be incurred in future periods may vary from the estimates, given the inherent uncertainties in evaluating certain exposures. Subject to the imprecision in estimating future contingent liability costs, the Company does not expect that any sum it may have to pay in connection with these matters in excess of the amounts recorded will have a materially adverse effect on its financial position, results of operations or liquidity.


22
Table of Contents

S.
Guarantees
The Company’s financial guarantees at March 30, 2013 are as follows (in millions):
(Millions of Dollars)
Term
 
Maximum
Potential
Payment
 
Carrying
Amount of
Liability
Guarantees on the residual values of leased properties
One to four years
 
$
26.4

 
$
—

Standby letters of credit
Up to three years
 
69.6

 
—

Commercial customer financing arrangements
Up to six years
 
17.2

 
13.2

Total
 
 
$
113.2

 
$
13.2

The Company has guaranteed a portion of the residual value arising from its synthetic lease program. This lease guarantee is for an amount up to $26.4 million while the fair value of the underlying building is estimated at $30.8 million. The related assets would be available to satisfy the guarantee obligations and therefore it is unlikely the Company will incur any future loss associated with this guarantee.
The Company provides various limited and full recourse guarantees to financial institutions that provide financing to U.S. and Canadian Mac Tool distributors for their initial purchase of the inventory and trucks necessary to function as a distributor. In addition, the Company provides limited and full recourse guarantees to financial institutions that extend credit to certain end retail customers of its U.S. Mac Tool distributors. The gross amount guaranteed in these arrangements is $17.2 million and the $13.2 million carrying value of the guarantees issued is recorded in debt and other liabilities as appropriate in the Condensed Consolidated Balance Sheets.
The Company provides product and service warranties which vary across its businesses. The types of warranties offered generally range from one year to limited lifetime, while certain products carry no warranty. Further, the Company sometimes incurs discretionary costs to service its products in connection with product performance issues. Historical warranty and service claim experience forms the basis for warranty obligations recognized. Adjustments are recorded to the warranty liability as new information becomes available.

The changes in the carrying amount of product and service warranties for the three months ended March 30, 2013 and March 31, 2012 are as follows (in millions): 
 
2013
 
2012
Balance beginning of period
$
124.0

 
$
124.9

Warranties and guarantees issued
18.0

 
20.4

Warranty payments and currency
(24.3
)
 
(20.7
)
Balance end of period
$
117.7

 
$
124.6



23
Table of Contents

T.
Parent and Subsidiary Debt Guarantees
The following debt obligations were issued by Stanley Black & Decker, Inc. (“Stanley”) and are fully and unconditionally guaranteed by The Black & Decker Corporation (“Black & Decker”), a 100% owned direct subsidiary of Stanley: 3.40% Notes due 2021; 2.90% Notes due 2022; and the 2040 Term Bonds (collectively, the “Stanley Notes”).
The following note was issued by Black & Decker and is fully and unconditionally guaranteed by Stanley: 5.75% Notes due 2016; (the “Black & Decker Note”).
The Stanley Notes and the Black & Decker Note were issued under indentures attached as Exhibits to the Company’s Annual Report on Form 10-K for the year ended December 29, 2012. The Black & Decker Note and Black & Decker’s guarantee of the Stanley Notes rank equally with all of Black & Decker’s other unsecured and unsubordinated indebtedness. The Stanley guarantee of the Black & Decker Note is an unsecured obligation of the Company, ranking equal in right of payment with all the Company’s existing and future unsecured and unsubordinated indebtedness.
The following tables, in accordance with Rule 3-10(e) of Regulation S-X for the Stanley Notes, and Rule 3-10(c) of Regulation S-X for the Black & Decker Note, present the condensed consolidating statements of operations and comprehensive income for the three months ended March 30, 2013, and March 31, 2012; and the condensed consolidating balance sheets as of March 30, 2013 and December 29, 2012; and the condensed consolidating statements of cash flows for the three months ended March 30, 2013, and March 31, 2012.
Stanley Black & Decker, Inc.
Condensed Consolidating Statements of Operations and Comprehensive Income
(Unaudited, Millions of Dollars)
Three Months Ended March 30, 2013
 
Parent Stanley
Black & Decker,
Inc.
 
The Black &
Decker
Corporation
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
NET SALES
$
311.8

 
$
—

 
$
2,261.9

 
$
(86.5
)
 
$
2,487.2

COSTS AND EXPENSES
 
 
 
 
 
 
 
 
 
Cost of sales
231.4

 
—

 
1,416.2

 
(71.3
)
 
1,576.3

Selling, general and administrative
170.8

 
0.7

 
513.6

 
(15.2
)
 
669.9

Other - net
(20.2
)
 
(15.5
)
 
106.7

 
—

 
71.0

Restructuring charges and asset impairments
16.5

 
—

 
26.4

 
—

 
42.9

Interest expense, net
30.3

 
6.6

 
(0.2
)
 
—

 
36.7

 
428.8

 
(8.2
)
 
2,062.7

 
(86.5
)
 
2,396.8

(Loss) earnings from continuing operations before income taxes (benefit) and equity in earnings of subsidiaries
(117.0
)
 
8.2

 
199.2

 
—

 
90.4

Income taxes (benefit) on continuing operations before equity in earnings of subsidiaries
(43.3
)
 
3.0

 
49.1

 
—

 
8.8

Equity in earnings of subsidiaries
155.7

 
114.9

 
—

 
(270.6
)
 
—

Earnings from continuing operations
82.0

 
120.1

 
150.1

 
(270.6
)
 
81.6

Less: net loss attributable to non-controlling interests
—

 
—

 
(0.4
)
 
—

 
(0.4
)
Net earnings from continuing operations attributable to common shareholders
$
82.0

 
$
120.1

 
$
150.5

 
$
(270.6
)
 
$
82.0

Net loss from discontinued operations
$
(0.9
)
 
$
—

 
$
(0.9
)
 
$
0.9

 
$
(0.9
)
NET EARNINGS ATTRIBUTABLE TO COMMON SHAREOWNERS
$
81.1

 
$
120.1

 
$
149.6

 
$
(269.7
)
 
$
81.1

Total Comprehensive (Loss) Income Attributable to Common Shareowners
$
(61.1
)
 
$
26.4

 
$
(53.1
)
 
$
26.7

 
$
(61.1
)


24
Table of Contents

Stanley Black & Decker, Inc.
Condensed Consolidating Statements of Operations and Comprehensive Income
(Unaudited, Millions of Dollars)
Three Months Ended March 31, 2012 

Parent Stanley
Black & Decker,
Inc.

The Black &
Decker
Corporation

Non-Guarantor
Subsidiaries

Eliminations

Consolidated
NET SALES
$
338.4

 
$
—

 
$
2,177.7

 
$
(90.0
)
 
$
2,426.1

COSTS AND EXPENSES
 
 
 
 
 
 
 
 
 
Cost of sales
220.3

 
—

 
1,365.3

 
(71.5
)
 
1,514.1

Selling, general and administrative
168.4

 
6.1

 
481.3

 
(18.5
)
 
637.3

Other - net
(12.9
)
 
(17.8
)
 
98.6

 
—

 
67.9

Restructuring charges and asset impairments
—

 
—

 
40.0

 
—

 
40.0

Interest expense, net
20.4

 
11.7

 
(0.7
)
 
—

 
31.4

 
396.2

 
—

 
1,984.5

 
(90.0
)
 
2,290.7

(Loss) earnings from continuing operations before income taxes and equity in earnings of subsidiaries
(57.8
)
 
—

 
193.2

 
—

 
135.4

Income taxes (benefit) on continuing operations before equity in earnings of subsidiaries
(17.9
)
 
—

 
47.7

 
—

 
29.8

Equity in earnings of subsidiaries
146.2

 
109.0

 
—

 
(255.2
)
 
—

Earnings from continuing operations
106.3

 
109.0

 
145.5

 
(255.2
)
 
105.6

Less: net loss attributable to non-controlling interests
—

 
—

 
(0.7
)
 
—

 
(0.7
)
Net earnings from continuing operations attributable to common shareholders
$
106.3

 
$
109.0

 
$
146.2

 
$
(255.2
)
 
$
106.3

Net earnings from discontinued operations
$
15.5

 
$
14.5

 
$
15.5

 
$
(30.0
)
 
$
15.5

NET EARNINGS ATTRIBUTABLE TO COMMON SHAREOWNERS
$
121.8

 
$
123.5

 
$
161.7

 
$
(285.2
)
 
$
121.8

Total Comprehensive Income Attributable to Common Shareowners
$
198.7

 
$
54.0

 
$
270.0

 
$
(324.0
)
 
$
198.7







25
Table of Contents

Stanley Black & Decker, Inc.
Condensed Consolidating Balance Sheet
(Unaudited, Millions of Dollars)
March 30, 2013
 
 
Parent Stanley
Black & Decker,
Inc.
 
The Black &
Decker
Corporation
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current Assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
1.0

 
$
0.3

 
$
556.2

 
$
—

 
$
557.5

Accounts and notes receivable, net
86.0

 
—

 
1,696.7

 
—

 
1,782.7

Inventories, net
152.6

 
—

 
1,387.1

 
—

 
1,539.7

Assets held for sale
—

 
—

 
83.9

 


 
83.9

Other current assets
126.9

 
—

 
335.2

 
—

 
462.1

Total Current Assets
366.5

 
0.3

 
4,059.1

 
—

 
4,425.9

Property, plant and equipment, net
200.0

 
—

 
1,154.6

 
—

 
1,354.6

Goodwill and intangibles, net
148.2

 
1,412.7

 
9,118.5

 
—

 
10,679.4

Investment in subsidiaries
10,574.1

 
2,883.8

 
—

 
(13,457.9
)
 
—

Intercompany receivables
—

 
7,604.9

 
8,397.4

 
(16,002.3
)
 
—

Other assets
55.1

 
70.1

 
312.4

 
—

 
437.6

Total Assets
$
11,343.9

 
$
11,971.8

 
$
23,042.0

 
$
(29,460.2
)
 
$
16,897.5

LIABILITIES AND SHAREOWNERS’ EQUITY
 
 
 
 
 
 
 
 
 
Current Liabilities
 
 
 
 
 
 
 
 
 
Short-term borrowings
$
1,330.6

 
$
—

 
$
1.3

 
$
—

 
$
1,331.9

Current maturities of long-term debt
5.5

 
2.8

 
2.3

 
—

 
10.6

Accounts payable and accrued expenses
122.9

 
4.4

 
2,655.1

 
—

 
2,782.4

Liabilities held for sale
—

 
—

 
7.7

 


 
7.7

Total Current Liabilities
1,459.0

 
7.2

 
2,666.4

 
—

 
4,132.6

Long-term debt
3,001.2

 
322.3

 
170.6

 
—

 
3,494.1

Other liabilities
12.7

 
659.0

 
1,940.0

 
—

 
2,611.7

Intercompany payables
256.3

 
8,615.2

 
7,130.8

 
(16,002.3
)
 
—

Accumulated other comprehensive loss
(530.2
)
 
(794.9
)
 
(336.5
)
 
1,131.4

 
(530.2
)
Other shareowners’ equity
7,144.9

 
3,163.0

 
11,426.3

 
(14,589.3
)
 
7,144.9

Non-controlling interests
—

 
—

 
44.4

 
—

 
44.4

Total Shareowners’ Equity
6,614.7

 
2,368.1

 
11,134.2

 
(13,457.9
)
 
6,659.1

Total Liabilities and Shareowners’ Equity
$
11,343.9

 
$
11,971.8

 
$
23,042.0

 
$
(29,460.2
)
 
$
16,897.5



26
Table of Contents

Stanley Black & Decker, Inc.
Condensed Consolidating Balance Sheet
(Millions of Dollars)
December 29, 2012
 
 
Parent
Stanley Black &
Decker, Inc.
 
The Black &
Decker
Corporation
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current Assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
83.5

 
$
1.5

 
$
631.0

 
$
—

 
$
716.0

Accounts and notes receivable, net
111.5

 
0.7

 
1,425.4

 
—

 
1,537.6

Inventories, net
139.9

 
—

 
1,176.1

 
—

 
1,316.0

Assets held for sale
—

 
—

 
135.2

 
—

 
135.2

Other current assets
46.8

 
—

 
347.3

 
—

 
394.1

Total Current Assets
381.7

 
2.2

 
3,715.0

 
—

 
4,098.9

Property, plant and equipment, net
217.4

 
—

 
1,116.2

 
—

 
1,333.6

Goodwill and intangibles, net
148.2

 
1,415.1

 
8,392.2

 
—

 
9,955.5

Investment in subsidiaries
10,530.1

 
2,861.9

 
—

 
(13,392.0
)
 
—

Intercompany receivables
—

 
7,763.2

 
8,916.7

 
(16,679.9
)
 
—

Other assets
57.8

 
70.1

 
328.1

 
—

 
456.0

Total Assets
$
11,335.2

 
$
12,112.5

 
$
22,468.2

 
$
(30,071.9
)
 
$
15,844.0

LIABILITIES AND SHAREOWNERS’ EQUITY
 
 
 
 
 
 
 
 
 
Current Liabilities
 
 
 
 
 
 
 
 
 
Short-term borrowings
$
—

 
$
—

 
$
1.1

 
$
—

 
$
1.1

Current maturities of long-term debt
5.3

 
2.8

 
2.3

 
—

 
10.4

Accounts payable and accrued expenses
288.6

 
37.7

 
2,704.9

 
—

 
3,031.2

Liabilities held for sale
—

 
—

 
30.9