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Black & Decker Financial Statement Analysis

Essay by   •  January 5, 2011  •  3,186 Words (13 Pages)  •  2,203 Views

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Perspective

This analysis will review one of America’s largest and oldest organizations. Black & Decker Corporation (BDK) has had numerous acquisitions and mergers that have allowed it to become the organization as we know it today. Given past performance and growth excellence, it appears almost a certainty that BDK should be in an individual’s portfolio.

With the information age upon us, we have increasingly more ways in which to analyze a company and its financial statements. We will take a closer look at Black & Decker’s financials over the last 3 years and calculate if the future or present statistics are as profitable as BDK and history would have you believe.

In our analysis, we will look to make a recommendation to a potential investor who is interested in purchasing this stock and adding it to his/her portfolio.

Included in the data for our analysis will look at the balance sheets and income statements over the 2003-2005 timeframe. We will also consider financial criteria that include ratios, historical stock prices and future projections.

Is this investment sound? Is the organization sound? These are some of the questions that should be thought through when reading this analysis and managing our perspective.

It is important to consider that with all the information, for all the research, past performance is no guarantee for future performance.

History of Organization

Two young entrepreneurs Duncan Black, and Alonzo Decker founded a small machine shop in Baltimore, Maryland. This shop was created in the early 1900’s and has withstood the test of time. Today this company known as Black and Decker Ltd (BDK) is still going strong. It has had a long and eventful history, but on all accounts it is a larger entity. A global manufacturer of numerous product lines lead market share in their respective industries. It is now the world’s largest producer of power tools and accessories.

BDK was not always the global leader in tool and accessories, and was not until the late 20th century, almost 100 years later that it became a household name. BDK began as simply two men in a garage working on the production of innovative products. Trying to help men perform daily tasks around the house; and to help builders and contractors alike. It received its first patent in 1917 for a pistol grip and trigger switch on its drill, its first product. This began a cascade of events that created the modern day Black and Decker.

After receiving the patent, business expanded, and Duncan and Alonzo were able to build their first manufacturing plant in Baltimore Maryland. This facility was anything but modern, but was 12,000 square feet of potential. Over the next 5 years production and sales increased. In 1922 the company formed its first foreign subsidiary in Canada, and with it, its first wholly owned foreign assembly operations and sales. By 1925 international expansion continued, with the UK subsidiary.

In 1928, the acquisitions began with the purchase of Van Dorn Electric Tool Company of Cleveland, Ohio. This allowed BDK to enter the industrial power tools market. After this several additional acquisitions and subsidiary formations continued, until 1941 when war broke out. BDK converted most of its operations to manufacture gun shells, and other ordinance for the Allie effort. Power tools had become a secondary production focus due to legislative constraints.

After the war, BDK returned to its growing ways, and in 1950 produced its one millionth home utility power drill. Soon after, Duncan Black died leaving Alonzo Decker to take the helm as president. In his absence, they opened a 121,000 square foot plant in Hampstead, MD. This cemented their presence in the Baltimore region. Soon, thereafter Alonzo passed away.

BDK continued to produce and thrive while maintaining the company a family run organization. In the 70’s sales grew to $500 million a year. Global dominance in the power tools market was established. By 1979 annual sales grew to $1 billion per year.

In the 1980’s sales began to slump and a reorganization took place, plants were consolidated, and some were closed. With this reorganization there was an increased focus on marketing and sales. With the emphasis came a name change to the Black and Decker Corporation. A rebound soon took place. Double digit growth and the $2 billion per year sales benchmark were reached.

In the late 80’s and early 90’s, large acquisition catapulted BDK to the $5 billion in annual sales arena. Soon thereafter, BDK sold off 6 non-strategic business units to generate $700 million in cash to repay acquisition debt. In 1998, the strongest balance sheet on record is reported and sales of core products are at all time highs.

Key Historical Happenings 2003-2005

In 2003, Black & Decker purchased Baldwin Hardware Corporation and Weiser Lock Corporation from Masco, for a cash purchase price of $275 million. In 2004, Black & Decker announced the purchase of the tools group, Pentair, Inc. (PNR) for approximately $775 million in cash. PNR and its products offering had sales of $1.08 billion and operating profit of $82 million in 2003. This last acquisition was significant not only in the cash value of the deal, but also has increased the product offering of BDK significantly.

Product Portfolio

Black & Decker products are able to be purchased at 18 “brick-and-mortar” locations including Wal-Mart, Home Depot, Target, and Sears. Also, these products are available for purchase at 12 on-line retailers including Amazon.com and at the on-line sites of the previously stated retailers.

As for the product offering, there are of course too many to name here, but the key is to understand that acquisitions and mergers help BDK increase it product offerings. From power tools, no-power tools, from cleaning products to caulk guns, BDK has everything for the individual customer. BDK also has industrial products for the discriminating tradesman.

The paramount occurrence for our discussion is the acquisition of Pentair Inc. This acquisition took place during the time-frame of our analysis and includes a host of new products such as Porter-Cable, Delta, DeVilbiss Air Power, Oldham Saw, and the FLEX line.

Financial Analysis

Below are the ratios

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