Innovate. Execute. Grow
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INNOVATE. EXECUTE. GROW. 2014 ANNUAL REPORT YEARINREVIEW.STANLEYBLACKANDDECKER.COM 01 Stanley Black & Decker is advancing global stewardship principles across our entire value chain. In 2014 we publicly shared our commitment to be economically, environmentally and socially responsible in everything that we do by unveiling ECOSMART— our company’s name for sustainability. ECOSMART emphasizes our commitment to a sustainable future and aligns with our Stanley Fulfillment System, ensuring that our products with sustainable attributes maximize their business attributes, too. In 2014, for the fourth consecutive year, we were listed on the Dow Jones Sustainability North American Index, the last two years in the IEQ Machinery and Electrical Equipment category, in recognition of our economic, environmental and social performance. We also achieved the highest attainable score on both the CDP Climate Disclosure Leadership Index and the CDP Climate Performance Leadership Index, acknowledging our ability to measure, verify, manage and reduce our energy demand and resultant carbon footprint. As we go forward, it is our aspiration to secure recognition from the Dow Jones Sustainability Index on a global level. As we build on our commitment to sustainability, we have continued with a smaller page count for this year’s Annual Report, a tradition we started in 2009. We have also transitioned to “Notice and Access” which has allowed us to reduce our print run significantly. Visit yearinreview.stanleyblackanddecker.com to view stories and pictures that bring exciting aspects of the Stanley Black & Decker story to life, to explore our financials, review our sustainable practices, and to read about our businesses, our brands and our plans for growth. To review our accomplishments in environmental waste reduction, energy conservation and water reduction, as well as other sustainability results, visit www.stanleyblackanddecker.com/company/sustainability. FRONT COVER: Top: DeWALT’s 8V MAX Gyroscopic Screwdriver is the first professional-grade, battery-powered screwdriver to incorporate gyroscopic technology for precise speed control with a twist of the wrist. Bottom: The world’s leading automakers rely on STANLEY Engineered Fastening. INSIDE FRONT COVER: Top: The BLACK+DECKER Drill/Driver with AutoSense Technology is the first drill/driver designed to intuitively understand when to stop screws flush with the work surface; this innovative cordless power tool with AutoSense Technology features an electronic clutch that has proven to be three times more accurate than a mechanical clutch. Bottom: Integrating Electronic Article Surveillance with video systems and centralized monitoring helps Big Lots! create a safer, more secure and more shopper-friendly environment. INSIDE BACK COVER: Top: With lightweight polymer construction, a high force-to-weight ratio and ergonomic benefits, POP ProSet Rivet tools keep production lines running at full speed. Bottom: STANLEY Security is building momentum in key vertical markets including retail, healthcare, financial and higher education. BACK COVER: Top: Stanley Black & Decker is expanding the number of tools we build in the USA using materials and components from all over the world. Bottom: MobileView Analytics from STANLEY Healthcare transform real- time information into visual dashboards so providers can make better decisions, identify process improvement opportunities and apply predictive analytics to optimize performance. 02 Stanley Black & Decker 2014 Annual Report LETTER TO SHAREHOLDERS 2014 SUMMARY OF RESULTS In 2014 Stanley Black & Decker made significant progress towards our long-term • Total revenues increased 4% to a record $11.3 billion, with organic financial objectives while continuing to growth of 5% position for a strong future. • Operating margin increased to 13.6%* compared to 12.7%* in 2013, a 90 basis point increase in the face of approximately $85 million We achieved record earnings per share 2015 and beyond. As a result of the of foreign currency headwinds and free cash flow and a cash conversion overall Company’s strong financial • Earnings per share increased 14% to ratio of over 130% while delivering performance, we exited the year with a record $5.67* from $4.98* in 2013 5% organic growth in a slower global a strong balance sheet and, consistent GDP environment. We enjoyed share with our near-term capital allocation • Free cash flow totaled a record gains in many of our businesses, most plan, we are positioned to ramp up our $1 billion, up $477 million from 2013, notably CDIY and Engineered Fastening, planned stock repurchases in 2015. and we rewarded our shareholders as well as success with our Vertical with our 47th consecutive annual The market clearly recognized our Markets initiative in Security. A sharp dividend increase performance as reflected in the focus on cost control and a proactive 19% increase in our share price in 2014 • Working capital turns increased by approach to managing pricing and mix compared to 2013, outperforming our over a full turn to 9.2 demonstrating led to margin expansion across much peer group (up 14%) and the overall the continued success of the Stanley of our portfolio despite severe foreign S&P (up 11%). Fulfillment System, with CDIY currency headwinds. A clear priority exceeding 10 turns for the first time in 2014 was addressing our Security Our long-term mission and objectives business’ recent underperformance. remain firmly in place — to continue * Excluding charges We were pleased with the progress to invest in building world-class on this front, as Security stabilized in franchises with sustainable strategic the first half of the year and continued characteristics that create exceptional forward on the path to recovery in shareholder value. Our opportunity is the second half. Our Vertical Markets significant across our businesses: we initiative has been a success in North plan to both leverage and build upon our America and the operational and existing scalable, world-class Tools and commercial improvements implemented Engineered Fastening platforms while in Security Europe have positioned this continuing to improve Security in order business for improved results during to reach its full potential. 01 2014 BUSINESS HIGHLIGHTS is primarily focused on the retail, financial, education and healthcare Notable 2014 highlights are summarized verticals, have exceeded initial below: expectations and we expect continued success in 2015. • Generated overall organic growth of 5%. Organic growth in CDIY was 7% • Stabilized our Security Europe led by its European (+9%) and North business. Europe’s operating margin American (+7%) operations, as share rate improved sequentially each gains were powered by new product quarter during 2014 and its fourth introductions and expanded retail quarter rate increased versus the partnerships. Engineered Fastening prior year. We also announced, in achieved 6% growth driven primarily December, the decision to divest by its automotive business volumes, Security’s Spain and Italy operations, which consistently outpaced global light allowing us to focus on the regions vehicle production. Our IAR business within Europe that provide the highest was up 5% organically as well. revenue and margin growth potential. • Improved the Company’s operating margin 90 basis points over 2013 to LEVERAGING OUR 13.6%* overcoming approximately WORLD-CLASS FRANCHISES $85 million of foreign currency headwinds. Our continued focus on Tools & Storage: Our consumer, surgical price actions and controlling professional and industrial tools expenses allowed us to realize strong businesses in the aggregate represent operating leverage in a challenging the world’s largest, best-positioned and business environment. most valuable global tools and storage franchise. Accordingly, we have recently • Posted record operating margins in taken steps to combine our CDIY and IAR CDIY and Engineered Fastening. For businesses into a unified organization, the year, CDIY’s operating margin rate which is expected to unlock yet another expanded 70 basis points to 15.7%* generation of cost and revenue synergy and Industrial’s operating margin rate opportunities across the enterprise. reached 16.0%,* up 140 basis points versus the prior year. We have gained share each year since the merger with Black & Decker through • Launched mid-price point tool and a relentless commitment to innovation, storage products for the emerging leveraging our strong brands and markets. This initiative resulted in expanding our customer partnerships. the Company posting organic growth We have successfully capitalized on of 5% within the emerging markets many of the growth opportunities we serve, outpacing the GDP rates afforded by the Black & Decker merger, of such markets by 1–2X amid very leveraging our brands, geographies challenging conditions. During the and scale. IAR has also harnessed year we launched approximately 1,000 electronics, software and RFID technology new mid-price point SKUs within to launch a successful foray into advanced the emerging markets, generating industrial solutions. revenues of over $30 million. Our recent thrust into emerging markets • Generated approximately $140 million through a globally coordinated, of revenues from Security’s Vertical combined CDIY/IAR organization with Markets initiative. Both orders and increased feet on the street and a revenues from this initiative, which host of new products — designed in * Excluding charges 02 Stanley Black & Decker