Kathryn H. White Vanek - Vice President of Investor & Government Relations
John F. Lundgren - Chairman of the Board, Chief Executive Officer and Chairman of Executive Committee
Craig A. Douglas - Vice President and Treasurer
Stanley Black & Decker, Inc. (SWK) Annual Meeting of Shareholders April 16, 2013 9:30 AM ET
Kathryn H. White Vanek
Good morning, everybody, and welcome. My name is Kate Vanek, Stanley Black & Decker's Vice President of Investor and Government Relations.
If you don't mind, I'd love to cover just a little bit of administrative info before we get started this morning. Thank you, all, so much for taking your time out of your day to come today.
If you haven't done so already, please turn off your cellphone or put it in silent mode.
We distributed an agenda, and you'll notice there are 9 items. After reviewing all of the Items involving votes, numbers 2 through 5 on your agenda, we will provide an opportunity for you to ask questions about those items. In addition, you'll note that Item 8 is a general Q&A or question-and-answer period. At that time, we'll entertain any questions you might have on the topic.
We will have roving microphones and we'd appreciate if you use them so that everyone in attendance can hear your question. Please identify yourself before asking your question. And finally, when you ask your question, please be considerate of others who may be waiting to ask something of their own by keeping yours as brief as possible. We want to thank you, in advance for this.
I would like us now to all please welcome John Lundgren, our Chairman and Chief Executive Officer, who will conduct the meeting. Thank you.
John F. Lundgren
Kate, thanks very much, and good morning, ladies and gentlemen, and welcome to the 170th Annual Meeting of Shareholders.
As Kate said, I'm John Lundgren, Chairman and Chief Executive of Stanley Black & Decker. And some of the members of the senior management team are on the stage with me this morning. If you can stand up when I call you, please. Jim Loree, our President and Chief Operating Officer; Don Allan, our Senior Vice President and Chief Financial Officer; and Bruce Beatt, our Senior Vice President, General Counsel and Corporate Secretary.
Like many other companies, we limit our agenda to the required business and questions from the shareholders, and we observe the rules of procedure that you did receive when you entered the room this morning. There will be an opportunity for discussion following the four items of business. And after all the items have been voted upon, there will also be an opportunity for questions of general interest to any of the shareholders who are here this morning.
I do have before me an affidavit of the mailing stating that the notice of this meeting, a proxy statement, proxy and annual report were distributed on March 15, 2013, to all shareholders of record as of the close of business on February 25, 2013. Therefore, I declare that the meeting has been properly called. The inspectors of election have also informed me that a quorum is present, so we will proceed.
We are webcasting, as well as recording this meeting, so if you're interested in listening to either of those, you can contact Bruce Beatt.
To simplify the balloting, we will defer voting until all business items listed in the meeting notice have been presented.
The first order of business today is the election of directors, and there are 9 nominees, including myself, for election to the board, which if elected, will constitute the entire Board of Directors. Each elected director will serve until the 2014 Annual Meeting and until his or her successor is elected and qualified. Eight of the nominees are present here this morning. The nominees and their background have been included in your proxy statement.
And I'd ask the nominees for election to the board who are present just to please stand as I read the names of the nominees: George W. Buckley, Patrick D. Campbell, Carlos M. Cardoso, Robert B. Coutts, Benjamin H. Griswold IV, John Lundgren, Anthony Luiso, Robert L. Ryan, and Mrs. Parrs, Marianne Parrs, has an irreconcilable schedule conflict and is not with us this morning. Thanks, gentlemen.
The persons named in the proxy statement have been nominated as directors of the corporation. No other nominations have been made in accordance with our bylaws so the nominations are closed.
The second item of business is to approve the Stanley Black & Decker Long-Term Incentive Plan. The Board of Directors adopted the plan subject to shareholder approval on February 19, 2013. And the purpose of the 2013 plan is to provide appropriate incentives and rewards to key employees and certain other individuals who are contributing to the company's future success and prosperity, thus enabling the value of the company for its shareholders and enabling the company to attract and retain exceptionally-qualified individuals, upon whom, in a large measure, the continued progress, growth and profitability of the company depend. There's a lot more information regarding the proposed plan and that can be found as well in the proxy statement. The Board of Directors has recommended our shareholders vote for this plan.
The third item of business is to ratify the selection of Ernst & Young as the independent registered public accounting firm for the corporation for fiscal 2013, and we do have senior partners from and managers from Ernst & Young present with us today.
And the fourth item of business is an advisory vote on the compensation of the executive officers. This advisory vote gives the shareholders the opportunity to express their views about the compensation the company pays its executive officers, as described in the proxy statement. The Board of Directors has recommended shareholders vote for the executive officer compensation program. The program, which has been designed to be competitive, to reward performance that creates shareholder value while maintaining an appropriate balance between profitability and stability and encourage executives to drive efficiencies by using our capital judiciously.
Is there any discussion on the 4 items of business? Okay. Ballots are available for shareholders who have not voted by proxy or have voted by proxy but wish to change their vote. If you voted by proxy and do not wish to change your vote, there's absolutely no reason to cast the ballot at this time. Do raise your hand if you need a ballot or if you wish to change your vote.
John F. Lundgren
Okay. The polls are closed. And the inspector of the election will tally the ballots. We will then report on the voting results. And while they do their work, let's review the company's 2012 results briefly. We'll then open the meeting for any general questions that you may have.
John F. Lundgren
Wow. If you think back 170 years, you think about the different business activities contained in that video, it's fair to say that we were involved in exactly none of those activities 170 years ago. Yet today, we're a leader in engineered fastening, security solutions, oil and gas pipeline services and much more, thanks to the one thing that Frederick Stanley brought to this company 170 years ago: the agility and flexibility needed to adapt and change when the conditions demand it.
Never has that ability been more evident than in 2012 as we continued the transformation into a diverse, global growth company with roughly half our business in construction and do-it-yourself, a quarter of our business in security and a quarter of our business in industrial businesses such as infrastructure, engineered fastening and automotive repair.
Along the way, as you can see, Stanley Black & Decker has become a growth company, with 16% compounded annual growth rate over the past 10 years. This growth has been positive for our employees, who now number more than 46,000 and who are now more diverse in terms of background, geographies and skill sets than any time in our history.
And those employees are rewarded with promotions to positions of leadership based on their contributions to our growth. And in the past 3 years, we've increased our leadership population by 10%, promoted 20% of our leaders, and I think of even greater importance, increased the participation in our high-potential early leadership program by 47% because that's our future.
And these employees are also making a real impact across the country and around world. This year, we made a significant commitment to the Wounded Warriors Project and to several other organizations focused on ensuring that our returning heroes are treated with the dignity and respect that they have earned. Oh, that picture, you can see is, in addition to the 2 handsome gentlemen on the side, Jim Loree and myself, is Sgt. Dan Evans (ph), who helped us at our annual management meeting introduce Wounded Warriors and what their mission is. He is a double amputee, lost his legs in an IUD in Afghanistan. He since climbed Mount Kilimanjaro and done a whole lot of other fantastic things. And I can tell you, this is something our entire organization is standing behind.
In addition to what we've done last year in our commitment to this program, we've committed to hiring more than 100 veterans before the end of 2013. They're great sources of talent for many of our businesses, particularly security and mech tools.
And we've also been recognized externally for our progress. In 2012, Fortune Magazine again named Stanley Black & Decker as one of the world's most admired companies. The company was named to the Dow Jones Sustainability Index for the second year in a row, recognizing our environmental stewardship efforts across all of our global operations.
Time Magazine named the Black & Decker Gyro as one of the most innovative products of 2012. And we were once again named one of the most innovative companies in the world in a study done by the Patent Board and published in the Wall Street Journal.
In fact, innovation continued to be a large part of our story in 2012. In our CDIY business, new products drove more than $500 million of sales since the merger, and we've launched more than 1,000 brand-new products, including 350 products never before seen in the world. We continue to win new business with major customers like the Munich Airport in Germany, pictured here, which recently became our largest customer for integrated automatic doors used on their automated people mover system. We also recorded several wins with major retailers here in the U.S. like Kohl's and the Simon Property Group, entertaining -- excuse me, integrating comprehensive security solutions into very complex environments.
And we really took a long look at our security offerings for schools after the horrific shootings at Sandy Hook, really close to our headquarters here, as you all know. Our team designed and installed an entire security system for the new Stanley (sic) [Sandy] Hook Elementary School, and we're stepping up our efforts to secure similar schools across the country. Take just a minute and watch a short video that relates to this specific effort.
John F. Lundgren
And I'd like to point out those weren't actors that you saw on the video. They were Stanley Security Solutions employees and their children, filmed on location at the Hamilton Southeastern High School in Fishers, Indiana, less than 10 minutes from our Security Solutions headquarters. We included our employees and their children in the video to show that this team that works so hard day in and day out to ensure the safety in our schools has a real stake in the game. When we develop the security solutions that safeguard and protect thousands of schools across the country, it's families like yours and ours that we have in mind.
This year, within our Advanced Industrial Solutions platform, we also introduced our first line of what we generically call Smart tools with embedded RFID technology. This enables customers to know where their tools and accessories are at all times within their facility. It's especially important for people in airplane hangars, on military bases or in other critical applications where mechanics need to know where every single socket is, for instance, before a plane can fly or before a Hummer can leave its garage. These tools make facilities and workers both safer and more productive, and we believe they're the future of the industrial tool market.
Innovation and customer wins drove an 8% increase in revenue for the company in 2012 and enabled the company to maintain its growth trajectory despite the continued economic softness. That revenue growth resulted in earnings per share growth of 1%, essentially flat to the prior year, but up 12% if normalized for the much lower tax rate in 2011.
As you can see, in 3 years after the Stanley Black & Decker merger, we've delivered nearly an 80% EPS growth to you, our shareholders, and at the same time, continued to hit our cash flow benchmarks, marking the second consecutive year with more than $1 billion in free cash flow. We remain committed to returning that cash flow to our shareholders in the form of dividends and stock buybacks. I'll speak about those in just a moment.
That cash flow has been driven by our continued commitment to SFS, or the Stanley Fulfillment System, and asset efficiency, exemplified by our consistent improvement with respect to working capital turns. This year, we reached 7.5 turns, which is dramatically better than our peers, but it's only a step on our path to reach our ultimate goal of 10 working capital turns by mid-decade.
However, despite strong results on a 3, 5 and 10-year basis, our results for the 1 year, 2012, in terms of stock price performance was lower than our peers and lower than many of the fund averages that we measure ourselves against. We've objectively looked at the recent performance and outlined a plan to regain our rightful place above our peers by focusing on organic growth.
Our historic organic growth rate over the past decade has been around 3%. That excludes the dramatic dip in 2009, and we've outlined a plan to focus on 6 key areas that we believe will bring our organic growth into a 4% to 6% range, which is our long-term target. These areas, very briefly, are emerging markets, where we expect explosive growth in our industry over the next 30 years; government sales, where we have solutions that can improve safety, security, productivity for many government institutions at the same time while reducing their costs; vertical markets, specifically within our Security segment, harnessing the power of all our products and services to create solutions tailored to specific markets such as the school video that we saw earlier; Smart tools and storage, also which you saw an example of; offshore oil and gas pipeline services through our infrastructure business; and last but certainly not least, continued progress with our revenue synergies as a result of the merger with Black & Decker.
We believe that taken together, these organic growth initiatives can deliver $850 million in organic growth over the planning horizon. And we believe that these initiatives will bring us back to our historic place in terms of outperformance versus the S&P 500 Index, a place where I've previously mentioned we've been for the past 3, 5 and 10 years, and that organic growth will become an important part of the way that we continue to deliver total shareholder value.
That value will be delivered to you both in the form of dividends, which we increased in 2012 for the 45th consecutive year, and in the form of share price appreciation. At the 3-year anniversary, we're confident in saying that the merger with Black & Decker was a resounding success on every measure, but particularly with respect to share price performance. Legacy Stanley shareholders have seen a 64% share price appreciation, and legacy Black & Decker shareholders have seen their stock value rise nearly 100% since the day we announced the merger a little over 3 years ago.
In conclusion, 2012 was a year of steady progress towards our mid-decade goals of becoming a $15 billion company with a diverse portfolio of growing businesses, a passion for productivity and efficiency and a focus on growth, particularly in emerging markets. We appreciate your continued confidence in the company's trajectory and are poised to deliver increased shareholder value each and every year ahead. Thank you.
Craig Douglas, our Vice President and Treasurer, has the report of the inspectors of the election. Craig, could I ask you to come to the podium and give us the results?
Craig A. Douglas
Thank you, John. Good morning. The holders of 139,114,012 shares of the common stock are present in person or by proxy at this meeting. These shares represent 86.2% of the 161,316,271 shares entitled to be voted at the meeting.
The first item on the agenda is the election of members to the Board of Directors. Each nominee received a vote of at least 122.7 million shares or 95.5% of the shares present at the meeting. The nominees have been elected by the shareholders.
On the second item, the approval of the company's 2013 Long-Term Incentive Plan, this report shows the resolution was approved by 112.2 million shares or 87.3% of the shares present at this meeting.
On the third item, the appointment of Ernst & Young as the company's auditors for 2013, the report shows that they were approved by 133.6 million shares or 96% of the shares present at this meeting.
And finally, on the fourth item, the advisory vote on the compensation of the executive officers, report shows there were at 119.4 million shares, or 92.5% of the shares present at this meeting, who have voted in favor of the resolution.
John F. Lundgren
Thanks, Greg. Based on the reported results, I declare that the nominees for the office of director have been duly elected. The company's 2013 Long-Term Incentive Plan has been approved. The selection of Ernst & Young has been ratified. And the company's executive compensation plan has been approved on an advisory basis.
At this point, we'll take questions of any general interest to the shareholders present today. And I'll remind you, if you have a question, please move to the microphone, or Marc Favreau, standing in the back of the room has a roving mic. State your name, number of shares you represent. And let's see if there are any questions from anyone in the audience.
John F. Lundgren
Taking it easy. Everybody happy? Great. This concludes our meeting. We invite everyone to stay, enjoy our product displays as well as refreshments. For those of you who didn't arrive early, the facilities team has done a really nice job giving you a snapshot of the many businesses we're in around the world, and I would encourage you to take a look at it if your schedules allow. Thank you for coming to our annual meeting. The meeting is adjourned.
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