Letter to Shareholders

Long-term Financial Objectives

2010 was an extraordinary year for our Company, highlighted by the closing of the merger of Stanley Works and Black & Decker on March 12. Undoubtedly the most significant transaction in both companies' histories, the formation of this enterprise creates the undisputed tool industry leader with global scale, strong growth prospects and prodigious cash flow. Our Company, with its growing market capitalization and cash flow, combined with attractive growth platforms and business building capabilities, is continuing its journey to become a diversified industrial leader.

Financial results were solid in 2010, in spite of a weak economic underpinning in the developed countries. Total revenues were up 125% to $8.4 billion. Earnings grew 176%, while free cash flow increased $489 to $935 million, powered by benefits from the merger integration and the Stanley Fulfillment System (SFS).(1)

Our strong results are a manifestation of our Company's commitment to driving shareholder value through a strategy aligned with our long-term financial objectives as described below:

  • 4–6% organic revenue growth; 10–12% total revenue growth
  • Mid-teens EPS growth
  • Free cash flow greater than or equal to net income
  • Return on capital employed (ROCE) between 12% and 15%
  • Continued dividend growth
  • Strong investment grade credit rating

These objectives have been intact since 2004, with the exception of our revenue growth targets, which were increased from a previous range of 3–5% organic and 8–10% total growth following the merger, due to our continued footprint expansion into emerging markets and our higher free cash flow base which, in part, will fuel the expansion of our growth platforms. Since these objectives were established, total average annual revenue growth has been 25%. In the four years preceding the recent recession, our average organic revenue growth was 5% and, as a combined Company in 2010, our organic growth rate was 5%. Net income has grown at a 9% (1) compounded annual rate, slightly below our long-term target but strong nonetheless considering the near-trough stage in the cycle in which we operated during 2010. ROCE has averaged 13% during this seven-year period. (1)

At the same time, free cash flow has averaged 133% of net income and has grown at a 10% CAGR. (1) Our dividend has been increased every year without interruption and our credit ratings continue to be in strong investment grade territory. We are pleased with our performance versus these goals and are confident that we will see meaningful improvements in our net income CAGR in 2011 and 2012. We are also pleased with our stock performance which, as of December 31, 2010, had outperformed the S&P 500 Index on each of a one-year, three-year, five-year and ten-year basis. In fact, while the S&P 500 experienced no price appreciation at all during the last decade, our stock more than doubled, while paying a steady and growing dividend.

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(1) Excludes merger and acquisition-related charges/payments. Refer to 2010 Scorecard.