(STANLEY BLACK & DECKER, INC. LOGO)

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

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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		(I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION)		IDENTIFICATION NUMBER)
1000 STANLEY DRIVE
NEW BRITAIN, CONNECTICUT		06053
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)		(ZIP CODE)

(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 o

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 o

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 o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

166,007,224 shares of the registrant’s common stock were outstanding as of October 29, 2010

 

 

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION	3
ITEM 1. FINANCIAL STATEMENTS	3
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	37
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	47
ITEM 4. CONTROLS AND PROCEDURES	47
PART II — OTHER INFORMATION	49
ITEM 1A. RISK FACTORS	49
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	49
ITEM 6. EXHIBITS	50
SIGNATURE	51
EX-31.I.A
EX-31.I.B
EX-32.I
EX-32.II
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

STANLEY BLACK & DECKER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED OCTOBER 2, 2010 AND OCTOBER 3, 2009
(Unaudited, Millions of Dollars, Except Per Share Amounts)

		Third Quarter								Year to Date
		2010				2009				2010				2009
NET SALES		$	2,369.1			$	935.5			$	5,996.7			$	2,767.7
COSTS AND EXPENSES
Cost of sales			1,514.8				549.1				3,917.5				1,653.6
Selling, general and administrative			579.3				248.6				1,538.9				749.4
Provision for doubtful accounts			3.3				2.8				10.4				10.0
Other, net			52.3				33.6				182.3				95.1
Restructuring charges and asset impairments			24.8				6.6				208.0				25.6
Gain on debt extinguishment			—				—				—				(43.8	)
Interest expense			29.2				15.5				75.3				48.7
Interest income			(2.5	)			(0.5	)			(5.9	)			(2.1	)
			2,201.2				855.7				5,926.5				2,536.5
Earnings from continuing operations before income taxes			167.9				79.8				70.2				231.2
Income taxes on continuing operations			44.8				17.7				9.3				58.1
Net earnings from continuing operations			123.1				62.1				60.9				173.1
Less: Net earnings (loss) attributable to non-controlling interests			(0.1	)			0.3				0.5				2.2
NET EARNINGS FROM CONTINUING OPERATIONS ATTRIBUTABLE TO STANLEY BLACK & DECKER, INC.			123.2				61.8				60.4				170.9
NET LOSS FROM DISCONTINUED OPERATIONS (net of income tax benefit of $0.9 and $2.5 for the three and nine months ended October 3, 2009, respectively)			—				(1.4	)			—				(3.3	)
NET EARNINGS ATTRIBUTABLE TO STANLEY BLACK & DECKER, INC.		$	123.2			$	60.4			$	60.4			$	167.6
BASIC EARNINGS (LOSS) PER SHARE OF COMMON STOCK
Continuing operations		$	0.74			$	0.77			$	0.43			$	2.15
Discontinued operations			—				(0.02	)			—				(0.04	)
Total basic earnings per share of common stock		$	0.74			$	0.75			$	0.43			$	2.11
DILUTED EARNINGS (LOSS) PER SHARE OF COMMON STOCK
Continuing operations		$	0.73			$	0.77			$	0.42			$	2.14
Discontinued operations			—				(0.02	)			—				(0.04	)
Total diluted earnings per share of common stock		$	0.73			$	0.75			$	0.42			$	2.10
DIVIDENDS PER SHARE OF COMMON STOCK		$	0.34			$	0.33			$	1.00			$	0.97
AVERAGE SHARES OUTSTANDING (in thousands):
Basic			165,793				79,966				141,071				79,499
Diluted			168,889				80,565				143,766				79,951

See notes to condensed consolidated financial statements.

STANLEY BLACK & DECKER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 2, 2010 AND JANUARY 2, 2010
(Unaudited, Millions of Dollars, Except Per Share Amounts)

		2010				2009
ASSETS
Current Assets
Cash and cash equivalents		$	1,635.9			$	400.7
Accounts and notes receivable, net			1,699.4				532.0
Inventories, net			1,396.8				366.2
Prepaid expenses			110.2				73.2
Other current assets			260.0				39.8
Total Current Assets			5,102.3				1,411.9
Property, Plant and Equipment, net			1,141.8				575.9
Goodwill			5,366.8				1,818.4
Customer Relationships, net			896.2				413.4
Trade Names, net			1,842.2				331.1
Other Intangible Assets, net			150.3				31.9
Other Assets			373.1				186.5
Total Assets		$	14,872.7			$	4,769.1
LIABILITIES AND SHAREOWNERS’ EQUITY
Current Liabilities
Short-term borrowings		$	305.7			$	90.4
Current maturities of long-term debt			421.8				208.0
Accounts payable			1,014.4				410.1
Accrued expenses			1,415.2				483.5
Total Current Liabilities			3,157.1				1,192.0
Long-Term Debt			2,719.2				1,084.7
Post-Retirement Benefits			895.5				136.7
Deferred Taxes			433.4				120.4
Other Liabilities			729.9				223.8
Commitments and Contingencies (Note R)
Stanley Black & Decker, Inc. Shareowners’ Equity
Common stock, par value $2.50 per share			440.7				230.9
Authorized 300,000,000 shares Issued 176,091,572 and 92,343,410 at October 2, 2010 and January 2, 2010, respectively
Additional paid in capital			4,944.6				126.7
Retained earnings			2,219.9				2,295.5
Accumulated other comprehensive loss			(174.8	)			(76.5	)
ESOP			(76.1	)			(80.8	)
			7,354.3				2,495.8
Less: cost of common stock in treasury			445.1				509.7
Stanley Black & Decker, Inc. Shareowners’ Equity			6,909.2				1,986.1
Non-controlling interests			28.4				25.4
Total Equity			6,937.6				2,011.5
Total Liabilities and Shareowners’ Equity		$	14,872.7			$	4,769.1

See notes to condensed consolidated financial statements.

STANLEY BLACK & DECKER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE AND NINE MONTHS ENDED OCTOBER 2, 2010 AND OCTOBER 3, 2009
(Unaudited, Millions of Dollars)

		Third Quarter								Year to Date
		2010				2009				2010				2009
OPERATING ACTIVITIES
Net earnings		$	123.1			$	60.7			$	60.9			$	169.8
Less: Net earnings (loss) attributable to non-controlling interest			(0.1	)			0.3				0.5				2.2
Net earnings attributable to Stanley Black & Decker, Inc			123.2				60.4				60.4				167.6
Depreciation and amortization			86.4				51.9				238.8				148.8
Inventory step-up amortization			13.3				—				172.6				—
Stock-based compensation			13.4				5.4				63.4				14.3
Asset impairments			14.6				0.2				22.4				1.2
Changes in working capital			(72.8	)			32.4				(183.2	)			16.8
Changes in other assets and liabilities			21.0				26.0				13.0				(100.7	)
Cash provided by operating activities			199.1				176.3				387.4				248.0
INVESTING ACTIVITIES
Capital expenditures and capitalized software			(45.9	)			(18.4	)			(103.1	)			(65.2	)
Business acquisitions and asset disposals			(460.6	)			(15.3	)			(478.7	)			(20.1	)
Cash acquired from Black & Decker			—				—				949.4				—
Interest rate swap terminations			—				—				30.0				—
Proceeds from net investment hedge settlements			28.2				—				44.0				—
Payments on net investment hedge settlements			—				—				(16.1	)			—
Cash (used in)/provided by investing activities			(478.3	)			(33.7	)			425.5				(85.3	)
FINANCING ACTIVITIES
Payments on long-term debt			(0.9	)			(1.6	)			(202.5	)			(63.2	)
Proceeds from debt issuance, net of $3.4 million of issuance costs			396.3				—				396.3				—
Stock purchase contract fees			—				(3.8	)			(7.7	)			(11.4	)
Net short-term borrowings (repayments)			(38.6	)			(105.1	)			40.2				(57.7	)
Cash dividends on common stock			(56.3	)			(26.3	)			(145.2	)			(76.9	)
Proceeds from the issuance of common stock			14.3				27.2				375.2				34.8
Purchase of common stock for treasury			—				(0.1	)			(2.2	)			(0.8	)
Termination of forward starting interest rate swap			(48.4	)			—				(48.4	)			—
Cash received for settlement of/(premium paid for) share repurchase option, net			—				7.2				—				(9.2	)
Other			—				—				—				4.0
Cash provided by/(used in) financing activities			266.4				(102.5	)			405.7				(180.4	)
Effect of exchange rate changes on cash and cash equivalents			50.3				11.0				16.6				13.5
Change in cash and cash equivalents			37.5				51.1				1,235.2				(4.2	)
Cash and cash equivalents, beginning of period			1,598.4				156.3				400.7				211.6
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	1,635.9			$	207.4			$	1,635.9			$	207.4

See notes to condensed consolidated financial statements.

STANLEY BLACK & DECKER, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Shareowners’ Equity
Periods ended October 2, 2010 and October 3, 2009
(Millions of Dollars, Except Per Share Amounts)

														Accumulated
						Additional								Other
		Common				Paid In				Retained				Comprehensive								Treasury				Non-controlling				Shareowners’
		Stock				Capital				Earnings				Income (Loss)				ESOP				Stock				Interests				Equity
Balance January 2, 2010		$	230.9			$	126.7			$	2,295.5			$	(76.5	)		$	(80.8	)		$	(509.7	)		$	25.4			$	2,011.5
Comprehensive income:
Net earnings											60.4																0.5				60.9
Currency translation adjustment and other															(24.7	)															(24.7	)
Cash flow hedge, net of tax															(74.3	)															(74.3	)
Change in pension															0.7																0.7
Total comprehensive income (loss)											60.4				(98.3	)											0.5				(37.4	)
Cash dividends declared — $1.00 per share											(137.5	)																			(137.5	)
Equity purchase contracts - stock issuance			12.9				307.1																								320.0
Issuance of common stock							(22.3	)															68.1								45.8
Black & Decker consideration paid			196.9				4,458.9																0.4								4,656.2
Repurchase of common stock (36,973 shares)																							(2.2	)							(2.2	)
Non-controlling interest buyout							0.7																				(0.7	)			—
Non-controlling interests of acquired businesses																											3.2				3.2
Equity option							1.7																(1.7	)							—
Other, stock-based compensation related							63.4																								63.4
Tax benefit related to stock options exercised							8.4																								8.4
ESOP and related tax benefit											1.5								4.7												6.2
Balance October 2, 2010		$	440.7			$	4,944.6			$	2,219.9			$	(174.8	)		$	(76.1	)		$	(445.1	)		$	28.4			$	6,937.6

														Accumulated
						Additional								Other
		Common				Paid In				Retained				Comprehensive								Treasury				Non-controlling				Shareowners’
		Stock				Capital				Earnings				Income (Loss)				ESOP				Stock				Interests				Equity
Balance January 3, 2009		$	230.9			$	91.5			$	2,199.9			$	(152.0	)		$	(87.2	)		$	(576.8	)		$	18.5			$	1,724.8
Comprehensive income:
Net earnings											167.6																2.2				169.8
Less: Redeemable interest reclassified to liabilities																											(0.2	)			(0.2	)
Currency translation adjustment and other															74.3																74.3
Cash flow hedge, net of tax															(5.0	)															(5.0	)
Change in pension															(4.3	)															(4.3	)
Total comprehensive income											167.6				65.0												2.0				234.6
Cash dividends declared — $0.97 per share											(76.9	)																			(76.9	)
Issuance of common stock											(16.5	)											52.0								35.5
Repurchase of common stock (24,851 shares)																							(0.8	)							(0.8	)
Equity option							(9.2	)																							(9.2	)
Other, stock-based compensation related							14.3																								14.3
Fees related to capital stock sale							(0.8	)																							(0.8	)
Formation of a joint venture																											4.0				4.0
Tax effect related to stock options exercised							3.3																								3.3
ESOP and related tax benefit											1.5								4.8												6.3
Balance October 3, 2009		$	230.9			$	99.1			$	2,275.6			$	(87.0	)		$	(82.4	)		$	(525.6	)		$	24.5			$	1,935.1

See notes to condensed consolidated financial statements.

STANLEY BLACK & DECKER, INC. AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 2, 2010

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 and nine months ended October 2, 2010, 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 The Stanley Works and Subsidiaries’ (collectively, the “Company”) Form 10-K for the year ended January 2, 2010.

On March 12, 2010 a wholly owned subsidiary of The Stanley Works was merged with and into The Black & Decker Corporation (“Black & Decker”), with the result that Black & Decker became a wholly owned subsidiary of The Stanley Works (the “Merger”). In connection with the Merger, The Stanley Works changed its name to Stanley Black & Decker, Inc. The results of the operations and cash flows of Black & Decker have been included in the Company’s condensed consolidated financial statements from the time of the consummation of the Merger on March 12, 2010 (See Note F, Merger and Acquisitions).

Other comprehensive income (loss) for the nine month periods ended October 2, 2010 and October 3, 2009 is presented in the Consolidated Statements of Changes in Shareowners’ Equity. Other comprehensive income for the three month periods ended October 2, 2010 and October 3, 2009 was $332.7 million and $97.3 million, respectively, primarily pertaining to the currency translation impact.

B. New Accounting Standards

Implemented:

In December 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2009-16, “Accounting for Transfers of Financial Assets”. This ASU eliminates the concept of a “qualifying special-purpose entity,” clarifies when a transferor of financial assets has surrendered control over the transferred financial assets, defines specific conditions for reporting a transfer of a portion of a financial asset as a sale, requires that a transferor recognize and initially measure at fair value all assets obtained and liabilities incurred as a result of a transfer of financial assets accounted for as a sale, and requires enhanced disclosures to provide financial statement users with greater transparency about a transferor’s continuing involvement with transferred financial assets. The adoption of this ASU did not have any impact on the consolidated financial statements.

In December 2009, the FASB issued ASU No. 2009-17, “Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.” This ASU eliminates the concept of a “qualifying special-purpose entity,” replaces the quantitative approach for determining which enterprise has a controlling financial interest in a variable interest entity with a qualitative approach focused on identifying which enterprise has a controlling financial interest through the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance. Additionally, this ASU requires enhanced disclosures that provide users of financial statements with more information about an enterprise’s involvement in a variable interest entity. The adoption of the ASU did not have a significant impact on the consolidated financial statements.

Not Yet Implemented:

In October 2009, the FASB issued ASU 2009-13, “Revenue Recognition (Topic 605) — Multiple-Deliverable Revenue Arrangements.” This ASU eliminates the requirement that all undelivered elements must have objective and reliable evidence of fair value before a company can recognize the portion of the consideration that is attributable to items that already have been delivered. This may allow some companies to recognize revenue on transactions that involve multiple deliverables earlier than under the current requirements. Additionally, under the new guidance, the relative selling price method is required to be used in allocating consideration between deliverables and the residual value method will no longer be permitted. This ASU is effective prospectively for revenue

arrangements entered into or materially modified beginning in fiscal 2011. A company may elect, but will not be required, to adopt the amendments in this ASU retrospectively for all prior periods. Management is currently evaluating the requirements of this ASU and has not yet determined the impact, if any, that it will have on the consolidated financial statements.

In July 2010, the FASB issued ASU No. 2010-20, “Disclosures About the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” This ASU amends existing disclosures to require a company to provide a greater level of disaggregated information about the credit quality of its financing receivables and its allowance for credit losses. Additional disclosures from this ASU require a company to disclose credit quality indicators, past due information and modifications of its financing receivables. The ASU will be effective for interim and annual reporting periods beginning on or after December 15, 2010, except for specific disclosures which are required for interim and annual periods ending on or after December 15, 2010. The adoption of this ASU is not expected to have an impact on the consolidated financial statements.

C. Earnings Per Share

The following table reconciles the weighted-average shares outstanding used to calculate basic and diluted earnings per share for the three months and nine months ended October 2, 2010 and October 3, 2009:

		Third Quarter								Year to Date
		2010				2009				2010				2009
Numerator (in millions):
Net Earnings attributable to Stanley Black & Decker, Inc.		$	123.2			$	60.4			$	60.4			$	167.6
Less earnings attributable to participating RSUs			0.3				0.1				0.1				0.2
Net Earnings — basic		$	122.9			$	60.3			$	60.3			$	167.4
Net Earnings — dilutive		$	123.2			$	60.4			$	60.4			$	167.6
Denominator (in thousands):
Basic earnings per share — weighted-average shares			165,793				79,966				141,071				79,499
Dilutive effect of stock options and awards			3,096				599				2,695				452
Diluted earnings per share — weighted-average shares			168,889				80,565				143,766				79,951
Earnings per share of common stock:
Basic		$	0.74			$	0.75			$	0.43			$	2.11
Diluted		$	0.73			$	0.75			$	0.42			$	2.10

In connection with the Merger, the Company issued 78.5 million shares, 5.8 million options and 0.4 million restricted stock awards and restricted stock units to former Black & Decker shareowners and employees. These outstanding shares and equity awards were fully included in the calculation of weighted-average shares outstanding for the three months ended October 2, 2010. The impact of the outstanding shares and equity awards associated with the merger was included in the calculation of weighted-average shares outstanding from the merger date to October 2, 2010 in the year-to-date calculation. The weighted-average impact of these shares for the full year 2010 will result in an increase in the weighted-average shares outstanding from those reported for the nine months ended October 2, 2010.

The following weighted-average stock options, restricted shares and awards, other equity awards, and warrants were outstanding during the three and nine months ended October 2, 2010 and October 3, 2009, but were not included in the computation of diluted shares outstanding because the effect would be anti-dilutive (in thousands):

		Third Quarter								Year to Date
		2010				2009				2010				2009
Number of stock options			3,670				3,085				2,712				4,132
Number of stock warrants			4,939				4,939				4,939				4,939
Number of Equity Purchase Contracts			—				5,893				3,325				5,889

As more fully disclosed in Note H, Long-Term Debt, on May 17, 2010, the Company issued 5.2 million shares in conjunction with the Equity Purchase Contracts, whose holders were required to purchase common stock for $320.0 million cash. Prior to the May 17, 2010 settlement date, these shares were anti-dilutive as reported in the table above.

The Equity Purchase Contracts were not dilutive at any time prior to their maturity in May 2010 because the holders were required to pay the Company the higher of approximately $54.17 or then market price. Additionally, the Company has Convertible Notes outstanding which may

result in the Company delivering shares of common stock in May 2012. As of October 2, 2010 and October 3, 2009, there were no shares related to the Convertible Notes included in the calculation of diluted earnings per share because the effect of these conversion options was not dilutive. The Company intends to net share settle the conversion value, if any, of these Convertible Notes at their maturity in May 2012. Furthermore, there is a convertible notes hedge in place which would fully offset any such shares that may be delivered pertaining to the Convertible Notes. These Convertible Notes as well as the related Equity Purchase Contracts and convertible notes hedge are discussed more fully in Note H, Long-Term Debt and Financing Arrangements of this Form 10-Q, as well as in Note H, Long-Term Debt and Financing Arrangements of The Stanley Works Form 10-K for the year ended January 2, 2010.

D. Accounts and Notes Receivable

In December 2009, the Company entered into an accounts receivable sale program that is scheduled to expire on December 28, 2010, whereby it is required to sell certain of its trade accounts receivables at fair value to a wholly-owned, 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 Accounting Standards Codification (“ASC”) 860 “Transfers and Servicing”. 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 October 2, 2010, 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.

As of October 2, 2010 and January 2, 2010, $30.6 million and $35.2 million of net receivables were derecognized. Net receivables sold amounted to $125.4 million and $371.4 million for the three and nine months ended October 2, 2010, respectively. These sales resulted in a pre-tax loss of $0.4 million and $1.1 million for the three and nine months ended October 2, 2010, respectively. Cash flows related to new transfers, collections of previously sold receivables, including deferred purchase price receivables, and all fees are settled one month in arrears, and netted to a $2.9 million payment to the Purchaser for the three months ended October 2, 2010 and a $4.6 million payment to the Purchaser for the nine months ended October 2, 2010. Servicing fees amounted to less than $0.1 million and $0.2 million for the three and nine months ended October 2, 2010, respectively. The Company’s risk of loss following the sale of the receivables is limited to the deferred purchase price, which was $25.4 million at October 2, 2010 and $17.7 million at January 2, 2010. 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. Delinquencies and credit losses on receivables sold in 2010 were less than $0.1 million and $0.2 million for the three and nine months ended October 2, 2010, respectively. Cash inflows related to the deferred purchase price receivable totaled $44.9 million and $130.6 million for the three and nine months ended October 2, 2010, respectively. All cash flows under the program are reported as a component of changes in working capital within operating activities in the condensed consolidated statement 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.

E. Inventories

The components of inventories at October 2, 2010 and January 2, 2010 are as follows (in millions):

		2010				2009
Finished products		$	1,024.9			$	252.8
Work in process			123.5				49.0
Raw materials			248.4				64.4
Total inventories		$	1,396.8			$	366.2

As more fully disclosed in Note F, Merger and Acquisitions, in connection with the Merger, the Company acquired inventory with a fair value of $1.071 billion.

F. Merger and Acquisitions

MERGER WITH BLACK & DECKER

On March 12, 2010 (the “merger date”), a wholly owned subsidiary of The Stanley Works (“Stanley”) was merged with and into Black & Decker, with the result that Black & Decker became a wholly owned subsidiary of The Stanley Works. As part of the Merger, Black & Decker stockholders received 1.275 shares of Stanley stock for each share outstanding as of the merger date. All of the outstanding Black & Decker shares and equity based awards were exchanged for Stanley shares and equity awards as part of the Merger. Fractional shares generated by the conversion ratio were cash settled for $0.3 million. After the exchange was completed, pre-merger Stanley shareowners retained ownership of 50.5% of the combined Company. In conjunction with consummating the Merger, the name of the combined Company was changed to “Stanley Black & Decker, Inc”.

Black & Decker is a global manufacturer and marketer of power tools and accessories, hardware and home improvement products, and technology-based fastening systems. The Merger creates a larger and more globally diversified company with a broad array of products and services with significant exposure to growing and profitable product areas. Stanley and Black & Decker’s product lines are generally complementary, and do not present areas of significant overlap. By combining the two companies, there will be significant cost saving opportunities through reductions in corporate overhead, business unit and purchasing consolidation, and by combining elements of manufacturing and distribution.

Based on the closing price of Stanley common stock on the merger date, the consideration received by Black & Decker shareholders in the Merger had a value of approximately $4.657 billion as detailed below.

		Conversion
(in millions)		Calculation				Fair Value
Black & Decker common stock outstanding as of the merger date			61.571
Multiplied by Stanley’s stock price as of the merger date multiplied by the exchange ratio of 1.275 ($57.86 * 1.275)		$	73.77			$	4,542.2
Fair value of the vested and unvested stock options pertaining to pre-merger service issued to replace existing grants at closing (a)							91.7
Fair value of unvested restricted stock and restricted stock units pertaining to pre-merger service issued to replace existing grants at closing (a)							12.2
Other vested equity awards (a)							10.1
Cash paid to settle fractional shares							0.3
Total fair value of consideration transferred						$	4,656.5

						Fair value
						Recognized as				Fair Value to be
		Number of				Consideration				Recognized as Future
Award type		Awards				Paid				Compensation Cost
Stock options			5.8			$	91.7			$	14.1
Restricted stock units and awards			0.4				12.2				12.8
Other vested equity awards			0.2				10.1				—
Total			6.4			$	114.0			$	26.9

The following assumptions were used for the Black-Scholes valuation of the pre-merger Black & Decker stock options in the determination of consideration paid:

Stock price		$57.86
Post conversion strike price		$23.53 – $74.11
Average expected volatility		32%
Dividend yield		0.7%
Weighted-average risk-free interest rate		1.4%
Weighted-average expected term		2.9 years
Weighted-average fair value per option		$18.72

The expected volatility is based on two equally weighted components: the first component is the average historical volatility which is based on daily observations and duration consistent with the expected life assumption; the second component is the market implied volatility of traded options. The average expected term of the option is based on historical employee stock option exercise behavior as well as the remaining contractual exercise term. The risk-free interest rate is based on U.S. treasury securities with maturities equal to the expected life of the option. The fair value of restricted stock and restricted stock units and other vested equity awards was $57.86 per share. Total compensation expense recognized during the three and nine months ended October 2, 2010 for the options, restricted stock, and restricted stock awards that were assumed as part of the Merger was $2.7 million and $6.2 million, respectively.

The transaction has been accounted for using the acquisition method of accounting which requires, among other things, the assets acquired and liabilities assumed be recognized at their fair values as of the merger date. The following table summarizes the estimated fair values of major assets acquired and liabilities assumed as part of the Merger:

(Millions of Dollars)		2010
Cash		$	949.4
Accounts and notes receivable			907.2
Inventory			1,071.3
Prepaid expenses and other current assets			305.5
Property, plant and equipment			571.3
Trade names			1,505.5
Customer relationships			383.7
Licenses, technology and patents			112.3
Other assets			199.7
Short-term borrowings			(175.0	)
Accounts payable			(479.6	)
Accrued expenses and other current liabilities			(871.6	)
Long-term debt			(1,657.1	)
Post-retirement benefits			(762.8	)
Deferred taxes			(309.9	)
Other liabilities			(451.3	)
Total identifiable net assets		$	1,298.6
Goodwill			3,357.9
Total consideration transferred		$	4,656.5

As of the merger date, the expected fair value of accounts receivable approximated the historical cost. The gross contractual receivable was $951.7 million, of which $44.5 million is not expected to be collectible.

The amount allocated to trade names includes $1.362 billion for indefinite-lived trade names. The weighted-average useful lives assigned to the finite-lived intangible assets are trade names — 14 years; customer relationships — 15 years; and licenses, technology and patents — 12 years.

Black & Decker has three primary areas of contingent liabilities: environmental, risk insurance (predominantly product liability and workers compensation) and uncertain tax liabilities. Additionally, Black & Decker is involved in various lawsuits in the ordinary course of business, including litigation and administrative proceedings involving commercial disputes and employment matters. Some of these lawsuits include claims for punitive as well as compensatory damages. The majority of the contingent liabilities will ultimately be recorded at fair value in purchase accounting, aside from those pertaining to uncertainty in income taxes which are an exception to the fair value basis of accounting; however certain environmental matters that are inherently legal contingencies in nature are recorded at the probable and estimable amount.

Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the expected revenue and cost synergies of the combined business, assembled workforce, and the going concern nature of Black & Decker. It is estimated that $167.7 million of goodwill, relating to Black & Decker’s pre-merger historical tax basis, will be deductible for tax purposes.

The purchase price allocation for Black & Decker is preliminary and adjustments will continue to be made during the measurement period. The measurement period adjustments recorded in the third quarter of 2010 did not have a significant impact on the Company’s consolidated statements of operations, balance sheet, or cash flows. The additional purchase price adjustments that are anticipated pertain to the following, among other items.

	•		Environmental remediation liabilities — completion of the assessment of these matters.
	•		Tax liabilities relating to the repatriation of unremitted earnings — As of December 31, 2009 Black & Decker had not provided for income taxes on unremitted earnings of approximately $2.1 billion from its international subsidiaries. Concurrent with the Merger the Company has made a determination to repatriate certain of these funds, making such amounts subject to both U.S. income and foreign withholding taxes. The Company is in the process of determining the tax consequence of such repatriation in accordance with ASC 740-30 and believes that the Company will ultimately record an adjustment to net tax liabilities up to approximately $600 million. Given the uncertainty of the outcome and the preliminary nature of the evaluation of the possible tax consequences, no tax liability has currently been provided. The Company anticipates completion of its evaluation by the end of fiscal 2010.

A single estimate of fair value results from a complex series of judgments about future events and uncertainties and relies heavily on estimates and assumptions. The Company’s judgments used to determine the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact the Company’s results from operations. The Company will finalize the Black & Decker purchase accounting for the various open items as soon as reasonably possible during the measurement period. The finalization of the Company’s purchase accounting assessment will result in changes in the valuation of assets and liabilities acquired which could be material.

OTHER 2010 ACQUISITIONS

In July 2010 the Company completed the acquisition of CRC-Evans International (“CRC Evans”) for $451.6 million, net of cash acquired and subject to certain adjustments including an earn-out provision with the previous CRC Evans’ shareholders. The net assets acquired, including $196.7 million of other intangible assets, is approximately $250.5 million and the related Goodwill is approximately $201.1 million. CRC Evans is a full line supplier of specialized tools, equipment and services used in the construction of large diameter oil and natural gas transmission pipelines. CRC Evans also sells and rents custom pipe handling and joint welding and coating equipment used in the construction of large and small diameter pipelines. The acquisition of CRC Evan’s diversifies the Company’s revenue base and provides the Company with a strategic and profitable growth platform. CRC Evans is included in the Company’s Industrial segment.

Under the earn-out provision, the total purchase price for CRC Evans is contingent upon 2010 earnings before interest, income taxes, depreciation and amortization. The earn-out performance period began on January 1, 2010 and ends on December 31, 2010. As of the acquisition date it was estimated that there would be no purchase price adjustment occurring at the end of the performance period. The probability of a significant increase or decrease in total consideration has been deemed to be equally unlikely. Accordingly, the Company has not recognized an asset or liability relating to contingent consideration. If there is a favorable or unfavorable change in consideration paid, relating to the contingent consideration feature of the purchase agreement, the resulting adjustment will be recorded as income or expense during the fourth quarter of 2010.

In March 2010, the Company completed the acquisition of Stanley Solutions de Sécurité (“SSDS”) (formerly known as ADT France) for $8.0 million, net of cash acquired. SSDS is a leading provider of security services, primarily for commercial businesses located in

France. SSDS has been consolidated into the Company’s Security segment. This acquisition added to our current business gives the Company the leading market share in France and expands the Company’s security footprint in Europe.

During 2010, the Company also completed five minor acquisitions, relating to the Company’s Industrial and Security segments. The combined purchase price of these acquisitions was $26.9 million.

The purchase accounting for the 2010 acquisitions is preliminary, principally with respect to finalization of intangible asset valuations, contingencies, deferred taxes, the valuation of property, plant and equipment and certain other items.

ACTUAL AND PRO FORMA IMPACT OF THE MERGER AND ACQUISITIONS

The following table presents information for the Black & Decker Merger and other 2010 acquisitions that is included in the Company’s consolidated statement of operations from the merger and acquisition dates through October 2, 2010 (in millions):

		Third Quarter				Year-to-Date
		2010				2010
Net sales		$	1,386.8			$	3,097.4
Earnings (loss) attributable to the Merger and acquisitions		$	57.6	(A)		$	(190.4	) (A)

The following table presents supplemental pro forma information as if the Merger and acquisitions had occurred on January 3, 2010 for the nine months ended October 2, 2010. The comparative 2009 columns were prepared as if the Merger and acquisitions had occurred on January 2, 2009 for the three and nine months ended October 3, 2009. As such, both years presented include merger and acquisition related charges. The pro forma consolidated results are not necessarily indicative of what the Company’s consolidated net earnings would have been had the Company completed the Merger and acquisitions on January 3, 2010, or January 2, 2009. In addition the pro forma consolidated results do not purport to project the future results of the combined Company nor do they reflect the expected realization of any cost savings associated with the Merger and acquisitions.

		Third Quarter				Year-to-Date
(Millions of Dollars, except per share amounts)		2009				2010				2009
Net sales		$	2,206.7			$	7,099.7			$	6,563.5
Net earnings (loss) attributable to the Merger and acquisitions		$	74.1			$	78.3			$	(132.9	)
Diluted earnings (loss) per share		$	0.47			$	0.54			$	(0.84	)

2010 Pro Forma Results — Year-to-date

The 2010 pro forma results were calculated by combining the results of Stanley Black & Decker with Black & Decker’s stand-alone results from January 3, 2010 through March 12, 2010. The pre-acquisition results of the acquisitions were also combined for their respective pre-acquisition periods. The following adjustments were made to account for certain costs which would have been incurred during this pre-Merger and pre-acquisition period.

	•		Elimination of the historical pre-Merger and pre-acquisition intangible asset amortization expense and the addition of intangible asset amortization expense related to intangibles valued as part of the Merger and acquisitions that would have been incurred from January 3, 2010 to the merger and/or acquisition dates.
	•		Additional expense for the inventory step-up which would have been amortized as the corresponding inventory was sold.
	•		Additional expense relating to Merger-related compensation for key executives which would have been incurred from January 3, 2010 to March 12, 2010.
	•		Reduced interest expense for the Black & Decker debt fair value adjustment which would have been amortized from January 3, 2010 to March 12, 2010.

•

Additional depreciation related to property, plant and equipment fair value adjustments that would have been expensed prior to the Merger and acquisitions commencement dates.

•

The modifications above were adjusted for the applicable tax impact.

2009 Pro Forma Results — Year-to-date and Third Quarter

The 2009 pro forma results were calculated by taking the historical financial results of The Stanley Works and adding the historical results of Black & Decker and the acquisitions. Additionally the following adjustments were made to account for certain costs that would have been incurred in 2009 had the Merger and acquisitions occurred on January 2, 2009.

	•		Elimination of historical Black & Decker and acquisitions’ intangible asset amortization expense and addition of intangible asset amortization expense relating to intangibles valued as part of the Merger and acquisitions.
	•		Added expense for the inventory step-up which would have been amortized as the corresponding inventory was sold.
	•		Added the costs that were incurred to consummate the Merger and acquisitions during 2010.
	•		Added the Merger and acquisition-related restructuring charges which were incurred during 2010.
	•		Added compensation expense for Merger-related compensation for key executives.
	•		Added depreciation expense related to property, plant, and equipment fair value adjustments.
	•		Reduced interest expense for the debt fair value adjustment which would have been amortized during 2009.
	•		The modifications above were adjusted for the applicable tax impact.

G. Goodwill and Intangible Assets

Goodwill

Changes in the carrying amount of goodwill by segment are as follows (in millions):

		Construction
		& DIY				Industrial				Security				Total
Balance as of January 2, 2010		$	206.6			$	367.8			$	1,244.0			$	1,818.4
Goodwill associated with Black & Decker merger			2,553.1				398.6				406.2				3,357.9
Goodwill associated with other acquisitions			—				208.3				19.8				228.1
Foreign currency translation and other			(33.6	)			(1.1	)			(2.9	)			(37.6	)
Balance as of October 2, 2010		$	2,726.1			$	973.6			$	1,667.1			$	5,366.8

Intangible Assets

Intangible assets with definite lives at October 2, 2010 and January 2, 2010 were as follows (in millions):

		2010								2009
		Gross								Gross
		Carrying				Accumulated				Carrying				Accumulated
		Amount				Amortization				Amount				Amortization
Amortized Intangible Assets — Definite lives
Patents and copyrights		$	57.1			$	(40.2	)		$	53.1			$	(38.7	)
Trade names			230.0				(45.6	)			61.6				(35.1	)
Customer relationships			1,238.6				(342.4	)			680.5				(267.1	)
Other intangible assets			187.7				(54.3	)			58.0				(40.5	)
Total		$	1,713.4			$	(482.5	)		$	853.2			$	(381.4	)

Total indefinite-lived trade names are $1.658 billion at October 2, 2010 and $304.6 million at January 2, 2010. This increase is attributable to the Merger.

Aggregate intangible assets amortization expense by segment is as follows (in millions):

		Third Quarter								Year-to-Date
		2010				2009				2010				2009
CDIY		$	8.0			$	1.3			$	19.8			$	2.3
Industrial			7.7				1.2				14.9				3.6
Security			24.0				24.3				71.1				72.0
Total		$	39.7			$	26.8			$	105.8			$	77.9

Future amortization expense for the next five years amounts to $41.9 million for the fourth quarter of 2010, $168.8 million for 2011, $157.7 million for 2012, $143.4 million for 2013, $128.5 million for 2014, and $590.6 thereafter.

H. Long-Term Debt and Financing Arrangements

At October 2, 2010 and January 2, 2010, short-term borrowings are as follows (in millions):

		2010				2009
Commercial paper program		$	302.2			$	87.0
Other short-term borrowings			3.5				3.4
Total		$	305.7			$	90.4

On March 12, 2010, the Company amended its $800.0 million committed credit facility to include adjustments to the interest coverage ratio covenant for restructuring and merger-related items resulting from the Merger. The Company also entered into a $700.0 million, 364-day revolving credit facility effective March 12, 2010. The credit facilities are designated as a liquidity back-stop for the Company’s commercial paper program which was increased on March 12, 2010 to $1.5 billion. These changes to the Company’s short-term borrowing capacity were related to the Merger.

At October 2, 2010 and January 2, 2010, long-term debt is as follows (in millions):

			Interest Rate			2010				2009
Notes payable due 2010			5.00%			$	—			$	200.0
Notes payable due 2011			7.13%				414.7				—
Notes payable due 2012			4.90%				209.4				206.3
Convertible notes payable due in 2012			3 month LIBOR less 3.50%				302.4				294.5
Notes payable due 2013			6.15%				263.9				253.1
Notes payable due 2014			4.75%				312.8				—
Notes payable due 2014			8.95%				409.4				—
Notes payable due 2016			5.75%				325.2				—
Notes payable due 2028			7.05%				168.8				—
Notes payable due 2045 (subordinated)			5.90%				312.7				312.7
Notes payable due 2040			5.20%				399.7				—
Other loans through 2015			0.00% – 6.60%				22.0				26.1
Total long-term debt, including current maturities						$	3,141.0			$	1,292.7
Current maturities of long-term debt							421.8				208.0
Long-term debt						$	2,719.2			$	1,084.7

The Company acquired $1.832 billion of total debt and short-term borrowings in connection with the Merger which included $157.1 million to increase the debt balance to its estimated fair value. Principal amounts and maturities of the notes acquired in the Merger

are: $400.0 million due in 2011, $300.0 million due in 2014, $350.0 million due in 2014, $300.0 million due in 2016 and $150.0 million due in 2028. $175.0 million of assumed short-term borrowings was repaid in April 2010 with the proceeds from additional commercial paper borrowings. The Company executed a full and unconditional guarantee of the existing debt of The Black & Decker Corporation and Black & Decker Holdings, LLC (this guarantee is applicable to all of the Black & Decker outstanding notes payable), and Black & Decker executed a full and unconditional guarantee of the existing debt of the Company, excluding the Company’s Junior Subordinated Debt, including for payments of principal and interest and as such these notes rank equally in priority with the Company’s unsecured and unsubordinated debt. Refer to Note U, Parent and Subsidiary Debt Guarantees, for additional information pertaining to these debt guarantees.

Aggregate annual principal maturities of long-term debt for each of the years from 2010 to 2014 are $5.8 million, $405.9 million, $524.0 million, $253.1 million, $653.3 million, respectively and $1.162 billion thereafter. These debt maturities represent the principal amounts to be paid and accordingly exclude the remaining $130.8 million of unamortized debt fair value adjustment as of October 2, 2010 which increased the Black & Decker debt, as well as $23.3 million of fair value adjustments and unamortized interest rate swap termination gains as described in Note I, Derivative Financial Instruments. These amounts are partially offset by $17.6 million of remaining accretion on the Stanley Convertible Notes as of October 2, 2010 that will gradually increase the debt to its $320.0 million principal amount due in May 2012 as discussed further in Note H, Long-Term Debt and Financing Arrangements of The Stanley Works Annual Report on Form 10-K for the fiscal year ended January 2, 2010.

On May 6, 2009, the Company repurchased $103.0 million of its Junior Subordinated Debt Securities for $58.7 million in cash. The pre-tax gain recorded associated with this extinguishment was $43.8 million, and the principal balance of the debt after this extinguishment at January 2, 2010 and October 2, 2010 was $312.7 million.

On August 31, 2010, the Company issued $400.0 million of senior unsecured Term Bonds, maturing on September 1, 2040. (“2040 Term Bonds”) with fixed interest payable semi-annually, in arrears at a rate of 5.20% per annum. The 2040 Term Bonds rank equally with all of the Company’s existing and future unsecured and unsubordinated debt. The 2040 Term Bonds are guaranteed on a senior unsecured basis by The Black & Decker Corporation, a subsidiary of the Company. The 2040 Term Bonds are not obligations of or guaranteed by any of the Company’s other subsidiaries. As a result, the 2040 Term Bonds are structurally subordinated to all debt and other liabilities of the Company’s subsidiaries other than The Black & Decker Corporation. The Company received net proceeds of $396.3 million which reflects a discount of $0.3 million to achieve a 5.20% interest rate and paid $3.4 million of fees associated with the transaction. The Company used the net proceeds from the offering primarily to reduce borrowings under its existing commercial paper program. The 2040 Term Bonds include a Change of Control provision that would apply should a Change of Control event (as defined in the Indenture governing the 2040 Term Bonds) occur. The Change of Control provision states that the holders of the Term Bonds may require the Company to repurchase, in cash, all of the outstanding 2040 Term Bonds for a purchase price at 101.0% of the original principal amount, plus any accrued and unpaid interest outstanding up to the repurchase date.

Equity Units: The terms of the Company’s Equity Units, including the Convertible Notes and Equity Purchase Contracts are more fully described in Note H, Long-Term Debt and Financing Arrangements, in The Stanley Works 2009 Annual Report on Form 10-K.

Convertible Notes: In May 2010, the Company completed the contractually required remarketing of the $320.0 million of Convertible Notes. Holders of $8.7 million of the Convertible Notes elected to participate in the remarketing. Following the remarketing, the Convertible Notes will bear interest at an annual rate of 3-month LIBOR minus 3.5%, reset quarterly (but not less than zero).

Equity Purchase Contracts: Pursuant to the terms of the Equity Purchase Contracts element of the Equity Units, the Company received $320.0 million in cash proceeds on May 17, 2010 when the holders of the Equity Units satisfied their obligation under the Equity Purchase Contracts to purchase shares of Stanley Black & Decker common stock. There were 5,180,776 common shares issued at $61.77 per share.

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 ASC 815, management designates its derivative instruments as cash flow hedges, fair value hedges or net investment hedges.

In the first quarter of 2010, the Company acquired a portfolio of derivative financial instruments in conjunction with the Merger, which Black & Decker entered into in the ordinary course of business. At the March 12, 2010 merger date, the Company established its intent for each derivative. The Company terminated all outstanding interest rate swaps and foreign currency forwards hedging future purchases of inventory denominated in a foreign currency. For other foreign currency forwards and commodity derivatives, the Company elected to leave the instruments in place as an economic hedge only and account for them as undesignated. Net investment hedges were re-designated.

A summary of the fair value of the Company’s derivatives recorded in the Consolidated Balance Sheets is as follows (in millions):

		Balance Sheet										Balance Sheet
		Classification		10/2/10				1/2/10				Classification		10/2/10				1/2/10
Derivatives designated as hedging instruments:
Interest Rate Contracts Cash Flow		Other current assets		$	—			$	—			Accrued expenses		$	—			$	2.2
		LT other assets			—				7.3			LT other liabilities			48.9				—
Interest Rate Contracts Fair Value		Other current assets			4.5				4.5			Accrued expenses			—				—
		LT other assets			13.8				0.1			LT other liabilities			—				2.7
Foreign Exchange Contracts Cash Flow		Other current assets			1.4				0.1			Accrued expenses			30.3				31.2
		LT other assets			—				—			LT other liabilities			—				—
Net Investment Hedge		Other current assets			13.5				—			Accrued expenses			25.9				29.1
				$	33.2			$	12.0					$	105.1			$	65.2
Derivatives not designated as hedging instruments:
Foreign Exchange Contracts		Other current assets		$	30.5			$	18.5			Accrued expenses		$	57.1			$	19.5
		LT other assets			—				2.8			LT other liabilities			5.1				—
				$	30.5			$	21.3					$	62.2			$	19.5

The counterparties to all of the Company’s derivative 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.

During the nine months ended October 2, 2010, significant cash flows related to derivatives including those that are separately discussed in Cash Flow Hedges, Net Investment Hedges and Undesignated Hedges below resulted in net cash paid of $47.2 million. The Company also received $30.0 million in March 2010 from the termination of $325.0 million notional of fixed to variable interest rate swaps that become undesignated at the merger date and as a result the cash inflow was reported within investing activities in the consolidated statement of cash flows. In the first quarter of 2009, significant cash flows related to derivatives included a cash payment of $10.5 million on a Great Britain pound currency swap maturity.

CASH FLOW HEDGES There was a $69.5 million after-tax loss and a $4.8 million after-tax gain reported for cash flow hedge effectiveness in Accumulated other comprehensive income as of October 2, 2010 and January 2, 2010, respectively. A loss of $11.7 million is expected to be reclassified to earnings as the hedged transactions occur or as amounts are amortized within the next 12 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 into earnings for active derivative financial instruments during the periods in which the underlying hedged transactions affected earnings for the nine months ended October 2, 2010 and October 3, 2009 (in millions):

						Classification of		Gain (Loss)				Gain (Loss)
						Gain (Loss)		Reclassified from				Recognized in
		Gain (Loss)				Reclassified from		OCI to Income				Income
Year-to-date 2010		Recorded in OCI				OCI to Income		(Effective Portion)				(Ineffective Portion*)
Interest Rate Contracts		$	(56.4	)		Interest expense		$	(1.6	)		$	—
Foreign Exchange Contracts		$	(11.0	)		Cost of sales		$	1.0			$	—
Foreign Exchange Contracts		$	6.5			Other, net		$	7.9			$	—

						Classification of		Gain (Loss)				Gain (Loss)
						Gain (Loss)		Reclassified from				Recognized in
		Gain (Loss)				Reclassified from		OCI to Income				Income
Year-to-date 2009		Recorded in OCI				OCI to Income		(Effective Portion)				(Ineffective Portion*)
Interest Rate Contracts		$	(0.1	)		Interest expense		$	(3.5	)		$	—
Foreign Exchange Contracts		$	(0.4	)		Cost of sales		$	4.8			$	—
Foreign Exchange Contracts		$	(10.3	)		Other, net		$	(6.4	)		$	—

For the third quarter and first nine months of 2010, the hedged items’ impact to the income statement was a gain of $14.8 million and a loss of $7.9 million, respectively, in Other, net and losses of $0.7 million and $1.0 million, respectively, in Cost of sales. For the third quarter and first nine months of 2009, the hedged items’ impact to the income statement was a gain of $6.4 million and $7.3 million, respectively, in Other, net and a loss of approximately $0.9 million and $4.8 million, respectively, in Cost of sales. There was no impact related to the interest rate contracts’ hedged items for any period presented. The impact of de-designated hedges was less than $0.1 million for the third quarter and first nine months of 2010. The impact of de-designated hedges was a pre-tax loss of $0.1 million and $0.9 million for the third quarter and first nine months of 2009, respectively.

For the third quarter and first nine months of 2010, an after-tax loss of $8.0 million and a gain of $4.6 million, respectively, was reclassified from Accumulated other comprehensive income into earnings (inclusive of the gain/loss amortization on terminated derivative financial instruments) during the periods in which the underlying hedged transactions affected earnings. For the third quarter and first nine months of 2009, an after-tax loss of $6.0 million and $4.2 million, respectively, was reclassified from Accumulated other comprehensive income into earnings during the periods in which the underlying hedged transactions affected earnings.

Interest Rate Contracts

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 October 2, 2010, the Company had $400.0 million of forward starting swaps outstanding fixing the interest rate on the expected refinancing of debt in 2012. At January 2, 2010, the Company had outstanding contracts fixing the interest rate on its $320.0 million floating rate convertible notes and $400.0 million of forward starting swaps outstanding fixing the interest rate on the expected refinancing of debt in 2012.

In connection with the August 31, 2010 issuance of the $400 million of senior unsecured 2040 Term Bonds, as discussed in Note H, Long Term Debt and Financing Arrangements, the Company terminated two forward-starting interest rate swaps resulting in cash payments of $48.4 million. This loss ($30.0 million on an after-tax basis) was recorded in Accumulated other comprehensive income and will be amortized to earnings over the first ten years in which the interest expense related to the 2040 Term Bonds is recognized. 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 income 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 October 2, 2010, the notional value of the forward currency contracts outstanding was $180.5 million, of which $70.5 million has been de-designated, maturing at various dates through 2011. As of January 2, 2010, there were no outstanding hedge contracts.

Currency swaps: 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 currency swaps. The notional value

of the currency swaps used to hedge the exposure was $150.0 million on both October 2, 2010 and January 2, 2010. These contracts mature in November 2010.

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. The U.S. dollar equivalent notional value of option contracts outstanding as of October 2, 2010 was $109.4 million, of which $36.7 has been de-designated, maturing at various dates through 2011. There were no such outstanding option contracts as of January 2, 2010.

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. The notional value of open contracts for all periods presented was $450.0 million. A summary of the fair value adjustments relating to these swaps is as follows (in millions):

		Third Quarter 2010								Year-to-Date 2010
Income Statement		Gain/(Loss) on				Gain /(Loss) on				Gain/(Loss) on				Gain /(Loss) on
Classification		Swaps				Borrowings				Swaps				Borrowings
Interest Expense		$	5.8			$	(5.8	)		$	12.1			$	(12.1	)

		Third Quarter 2009								Year-to-Date 2009
Income Statement		Gain/(Loss) on				Gain /(Loss) on				Gain/(Loss) on				Gain /(Loss) on
Classification		Swaps				Borrowings				Swaps				Borrowings
Interest Expense		$	5.4			$	(5.4	)		$	(0.5	)		$	0.5

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 in interest expense and totaled $2.9 million and $8.8 million reported as a reduction of interest expense for the third quarter and first nine months of 2010, respectively, and $2.9 million and $8.7 million reported as a reduction of interest expense for the third quarter and first nine months of 2009, respectively. Interest expense on the underlying debt was $6.3 million and $18.9 million for the third quarter and first nine months of 2010, respectively, and $6.3 million and $18.9 million for the third quarter and first nine months of 2009, respectively.

NET INVESTMENT HEDGES

Foreign Exchange Contracts: The Company utilizes net investment hedges to offset the translation adjustment arising from remeasurement of its investment in the assets and liabilities of its foreign subsidiaries. The total after-tax amounts in Accumulated other comprehensive income were a loss of $28.3 million at October 2, 2010 and a loss of $11.8 million at January 2, 2010. As of October 2, 2010, the Company had foreign exchange contracts that mature in March 2011 with notional values totaling $223.1 million outstanding hedging a portion of its euro denominated net investment and foreign exchange contracts that mature at various dates through January 2011 with notional values of $1.1 billion outstanding hedging a portion of its pound sterling denominated net investment. The Company had foreign exchange contracts mature in the third quarter and year-to-date periods of 2010 resulting in cash receipts of $28.2 million and $44.0 million, respectively. The Company had a foreign exchange contract mature in the first quarter of 2010 resulting in a cash payment of $16.1 million. Gains and losses on net investment hedges remain in Accumulated other comprehensive income until disposal of the underlying assets. The details of the pre-tax amounts are below (in millions):

Third Quarter 2010

Year-to-Date 2010

Effective

Ineffective

Effective

Ineffective

Amount

Portion

Portion*

Amount

Portion

Portion*

Recorded

Recorded in

Recorded in

Recorded in

Recorded in

Recorded in

Income Statement

in OCI

Income

Income

OCI

Income

Income

Classification

Gain (Loss)

Statement

Statement

Gain (Loss)

Statement

Statement

Other, net

$

(79.1

)

$

—

$

—

$

(24.8

)

$

—

$

—