ACQUISITIONS

2018 ACQUISITIONS

Nelson Fasteners Systems

On April 2, 2018, the Company acquired the industrial business of Nelson Fastener Systems ("Nelson") from the Doncasters Group, for $430.4 million, net of cash acquired and an estimated working capital adjustment. Nelson is complementary to the Company's product offerings, enhances its presence in the general industrial end markets, expands its portfolio of highly-engineered fastening solutions, and will deliver cost synergies. The results of Nelson are being consolidated into the Industrial segment.

The Nelson acquisition is being accounted for as a business combination, which requires, among other things, the assets acquired and liabilities assumed to be recognized at their fair values as of the acquisition date. The estimated fair value of identifiable net assets acquired, which includes $67.5 million of working capital and $174.0 million of intangible assets, is $227.0 million. The related goodwill is $203.4 million. The amount allocated to intangible assets includes $150.0 million for customer relationships. The useful lives assigned to the intangible assets range from 12 to 15 years.

Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the expected cost synergies of the combined business, assembled workforce, and the going concern nature of Nelson. Goodwill is not expected to be deductible for tax purposes.

The purchase price allocation for Nelson is preliminary in all respects. During the measurement period, the Company expects to record adjustments relating to the finalization of intangible assets, inventory and property, plant and equipment valuations, working capital accounts, leases, pension liabilities, various opening balance sheet contingencies, including environmental remediation, and various income tax matters, amongst others.

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 complete its purchase price allocation as soon as reasonably possible within the measurement period.

Other 2018 Acquisitions

During the second quarter of 2018, the Company completed four smaller acquisitions for a total purchase price of $84.3 million, net of cash acquired. The estimated fair value of the identifiable net assets acquired, which includes $13.9 million of working capital and $36.8 million of intangible assets, is $30.6 million. The related goodwill is $53.7 million. The amount allocated to intangible assets includes $24.4 million for customer relationships. The useful lives assigned to intangible assets ranges from 10 and 12 years.

The purchase price allocation for these acquisitions is preliminary in all respects. During the measurement period, the Company expects to record adjustments relating to the finalization of valuations for intangible assets, working capital accounts, and various opening balance sheet contingencies and various income tax matters, amongst others. These adjustments are not expected to have a material impact on the Company’s condensed consolidated financial statements.

2017 ACQUISITIONS

Newell Tools

On March 9, 2017, the Company acquired Newell Tools for approximately $1.86 billion, net of cash acquired. The Newell Tools results have been consolidated into the Company's Tools & Storage segment.

The Newell Tools acquisition was accounted for as a business combination. The purchase price allocation for Newell Tools was completed during the first quarter of 2018. The measurement period adjustments recorded in the first quarter of 2018 did not have a material impact to the Company's condensed consolidated financial statements. The following table summarizes the estimated fair values of major assets acquired and liabilities assumed:



(Millions of Dollars)
Cash and cash equivalents	$	20.0
Accounts and notes receivable, net	19.7
Inventories, net	195.5
Prepaid expenses and other current assets	27.1
Property, plant and equipment, net	112.4
Trade names	283.0
Customer relationships	548.0
Other assets	8.8
Accounts payable	(70.3		)
Accrued expenses	(40.7		)
Deferred taxes	(269.4		)
Other liabilities	(7.9		)
Total identifiable net assets	$	826.2
Goodwill	1,031.8
Total consideration paid	$	1,858.0

The trade names were determined to have indefinite lives. The weighted-average useful life assigned to the customer relationships is 15 years.

Goodwill was 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 Newell Tools. It is estimated that $15.7 million of goodwill, relating to the pre-acquisition historical tax basis of goodwill, will be deductible for tax purposes.

Refer to Note E, Acquisitions, of the Company's Form 10-K for the year ended December 30, 2017 for further discussion.

Craftsman Brand

On March 8, 2017, the Company purchased the Craftsman® brand from Sears Holdings Corporation ("Sears Holdings") for a total estimated cash purchase price of $916.2 million on a discounted basis, which consists of an initial cash payment of $568.2 million, a cash payment due in March 2020 with an estimated present value at acquisition date of $234.0 million, and future payments to Sears Holdings of between 2.5% and 3.5% on sales of Craftsman products in new Stanley Black & Decker channels through March 2032, which was valued at $114.0 million at the acquisition date based on estimated future sales projections. Refer to Note M, Fair Value Measurements, for additional details. In addition, as part of the acquisition the Company also granted a perpetual license to Sears Holdings to continue selling Craftsman®-branded products in Sears Holdings-related channels. The perpetual license will be royalty-free until March 2032, which represents an estimated value of approximately $293.0 million, and 3% thereafter. The Craftsman results have been consolidated into the Company's Tools & Storage segment.

The Craftsman® brand acquisition was accounted for as a business combination. The purchase price allocation for Craftsman was completed during the first quarter of 2018. The measurement period adjustments recorded in the first quarter of 2018 did not have a material impact on the Company's condensed consolidated financial statements. The estimated fair value of identifiable net assets acquired, which includes $40.2 million of working capital and $418.0 million of intangible assets, is $482.6 million. The related goodwill is $726.6 million. The amount allocated to intangible assets includes $396.0 million of an indefinite-lived trade name. The useful life assigned to the customer relationships is 17 years.

Goodwill was 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 and the going concern nature of the Craftsman® brand. It is estimated that $442.7 million of goodwill will be deductible for tax purposes.

Refer to Note E, Acquisitions, of the Company's Form 10-K for the year ended December 30, 2017 for further discussion.

Other 2017 Acquisitions

During 2017, the Company completed four smaller acquisitions for a total purchase price of $182.9 million, net of cash acquired, which are being consolidated into the Company's Tools & Storage and Security segments. The estimated fair value of the identifiable net assets acquired, which includes $38.2 million of working capital and $54.4 million of intangible assets, is $89.4 million. The related goodwill is $93.5 million. The amount allocated to intangible assets includes $51.4 million for customer relationships. The useful lives assigned to the customer relationships range between 10 and 15 years.

The purchase price allocation for these acquisitions is substantially complete. The Company will complete its purchase price allocation in the third quarter of 2018. Any measurement period adjustments resulting from the finalization of the Company's purchase accounting assessment are not expected to be material.

ACTUAL AND PRO-FORMA IMPACT OF THE ACQUISTIONS

Actual Impact from Acquisitions

The net sales and net losses from 2018 acquisitions included in the Company's Consolidated Statements of Operations and Comprehensive Income are $66.1 million and $11.3 million, respectively, for both the three and six months ended June 30, 2018. These amounts include amortization relating to inventory step-up and intangible assets recorded upon acquisition, transaction costs, and other integration-related costs.

Pro-forma Impact from Acquisitions

The following table presents supplemental pro-forma information as if the 2017 and 2018 acquisitions had occurred on January 1, 2017. The pro-forma consolidated results are not necessarily indicative of what the Company’s consolidated net sales and net earnings would have been had the Company completed the acquisitions on January 1, 2017. In addition, the pro-forma consolidated results do not purport to project the future results of the Company.



	Second Quarter				Year-to-Date
(Millions of Dollars, except per share amounts)	2018		2017		2018		2017
Net sales	$	3,651.4	$	3,394.1	$	6,930.2	$	6,505.4
Net earnings attributable to common shareowners	$	306.6	$	276.9	$	480.4	$	667.7
Diluted earnings per share	$	2.01	$	1.82	$	3.14	$	4.40

2018 Pro-forma Results

The 2018 pro-forma results were calculated by combining the results of Stanley Black & Decker with the stand-alone results of the 2018 acquisitions for their respective pre-acquisition periods. Accordingly the following adjustments were made:


•	Elimination of the historical pre-acquisition intangible asset amortization expense and the addition of intangible asset amortization expense related to intangibles valued as part of the purchase price allocation that would have been incurred from December 31, 2017 to the acquisition dates.


•	Additional depreciation expense for the property, plant, and equipment fair value adjustments that would have been incurred from December 31, 2017 to the acquisition date of Nelson.


•	Because the 2018 acquisitions were assumed to occur on January 1, 2017, there were no deal costs or inventory step-up amortization factored into the 2018 pro-forma year, as such expenses would have occurred in the first year following the acquisition.

2017 Pro-forma Results

The 2017 pro-forma results were calculated by combining the results of Stanley Black & Decker with the stand-alone results of the 2017 and 2018 acquisitions for their respective pre-acquisition periods. Accordingly the following adjustments were made:

•

Elimination of the historical pre-acquisition intangible asset amortization expense and the addition of intangible asset amortization expense related to intangibles valued as part of the purchase price allocation that would have been incurred from January 1, 2017 to the acquisition dates of Newell Tools and Craftsman and from January 1, 2017 to July 1, 2017 for the remaining 2017 and 2018 acquisitions.


•	Additional depreciation expense for the property, plant, and equipment fair value adjustments that would have been incurred from January 1, 2017 to the acquisition date of Newell Tools and from January 1, 2017 to July 1, 2017 for Nelson.


•	Additional expense for deal costs and inventory step-up, which would have been amortized as the corresponding inventory was sold.