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https://cdn.kscope.io/55616b6fda32a528fa9db77fe62defa0-stanleyimage.jpg
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

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

For the quarterly period ended June 29, 2019.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from [            ] to [            ]

Commission File Number 001-05224
STANLEY BLACK & DECKER, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CT
 
06-0548860
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
 
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
1000 STANLEY DRIVE
NEW BRITAIN, CT 06053
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)

REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE 860 225-5111
Securities registered pursuant to Section 12(b) of the Act:
Title Of Each Class
Trading Symbol
Name Of Each Exchange On Which Registered
Common Stock
- $2.50 Par Value per Share
SWK
New York Stock Exchange
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     No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer
 
þ
  
Accelerated Filer
 
¨
 
 
 
 
Non-Accelerated Filer
 
¨
  
Smaller Reporting Company
 
 
 
 
 
 
 
 
 
 
 
 
Emerging Growth Company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  No
151,743,308 shares of the registrant’s common stock were outstanding as of July 19, 2019.



TABLE OF CONTENTS
 
 
 



Table of Contents

PART I — FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

STANLEY BLACK & DECKER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
THREE AND SIX MONTHS ENDED JUNE 29, 2019 AND JUNE 30, 2018
(Unaudited, Millions of Dollars, Except Per Share Amounts)
 
 
Second Quarter
 
Year-to-Date
 
2019
 
2018
 
2019
 
2018
Net Sales
$
3,761.3

 
$
3,643.6

 
$
7,094.9

 
$
6,852.9

Costs and Expenses
 
 
 
 
 
 
 
Cost of sales
$
2,461.5

 
$
2,356.5

 
$
4,689.5

 
$
4,400.1

Selling, general and administrative
776.2

 
801.8

 
1,536.8

 
1,580.6

Provision for doubtful accounts
6.1

 
4.0

 
24.4

 
10.8

Other, net
62.2

 
119.3

 
127.6

 
177.3

(Gain) loss on sales of businesses
(17.2
)
 
0.8

 
(17.2
)
 
0.8

Restructuring charges
8.5

 
13.4

 
17.2

 
36.3

Interest expense
72.4

 
69.0

 
146.8

 
132.2

Interest income
(12.1
)
 
(15.6
)
 
(28.7
)
 
(31.4
)
 
$
3,357.6

 
$
3,349.2

 
$
6,496.4

 
$
6,306.7

Earnings before income taxes and equity interest
403.7

 
294.4

 
598.5

 
546.2

Income taxes
51.6

 
1.0

 
76.3

 
82.7

Net earnings before equity interest
$
352.1

 
$
293.4

 
$
522.2

 
$
463.5

Share of net earnings of equity method investment
5.3

 

 
5.6

 

Net earnings
$
357.4

 
$
293.4

 
$
527.8

 
$
463.5

Less: Net gain (loss) attributable to non-controlling interests
1.1

 
(0.2
)
 
1.6

 
(0.7
)
Net Earnings Attributable to Common Shareowners
$
356.3

 
$
293.6

 
$
526.2

 
$
464.2

Total Comprehensive Income Attributable to Common Shareowners
$
355.6

 
$
14.5

 
$
526.5

 
$
280.9

Earnings per share of common stock:
 
 
 
 
 
 
 
Basic
$
2.41

 
$
1.96

 
$
3.56

 
$
3.09

Diluted
$
2.37

 
$
1.93

 
$
3.50

 
$
3.03

Dividends per share of common stock
$
0.66

 
$
0.63

 
$
1.32

 
$
1.26

Weighted-average shares outstanding (in thousands):
 
 
 
 
 
 
 
Basic
148,099

 
149,748

 
147,982

 
150,101

Diluted
150,358

 
152,494

 
150,139

 
153,124

See Notes to (Unaudited) Condensed Consolidated Financial Statements.



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Table of Contents

STANLEY BLACK & DECKER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 29, 2019 AND DECEMBER 29, 2018
(Unaudited, Millions of Dollars, Except Per Share Amounts) 
 
June 29,
2019
 
December 29,
2018
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
310.7

 
$
288.7

Accounts and notes receivable, net
1,823.9

 
1,607.8

Inventories, net
2,863.2

 
2,373.5

Other current assets
347.4

 
299.4

Total Current Assets
5,345.2

 
4,569.4

Property, plant and equipment, net
1,933.3

 
1,915.2

Goodwill
9,244.0

 
8,956.7

Intangibles, net
3,710.9

 
3,484.4

Other assets
1,290.2

 
482.3

Total Assets
$
21,523.6

 
$
19,408.0

LIABILITIES AND SHAREOWNERS' EQUITY
 
 
 
Current Liabilities
 
 
 
Short-term borrowings
$
1,461.6

 
$
376.1

Current maturities of long-term debt
3.1

 
2.5

Accounts payable
2,323.8

 
2,233.2

Accrued expenses
1,864.6

 
1,389.8

Total Current Liabilities
5,653.1

 
4,001.6

Long-term debt
3,909.1

 
3,819.8

Deferred taxes
730.5

 
705.3

Post-retirement benefits
575.4

 
595.4

Other liabilities
2,422.2

 
2,446.0

Commitments and Contingencies (Notes R and S)


 


Shareowners’ Equity
 
 
 
Stanley Black & Decker, Inc. Shareowners’ Equity
 
 
 
Preferred stock, without par value:
Authorized 10,000,000 shares in 2019 and 2018
Issued and outstanding 750,000 shares in 2019 and 2018
750.0

 
750.0

Common stock, par value $2.50 per share:
Authorized 300,000,000 shares in 2019 and 2018
Issued 176,902,738 shares in 2019 and 2018
442.3

 
442.3

Retained earnings
6,549.9

 
6,219.0

Additional paid in capital
4,641.1

 
4,621.0

Accumulated other comprehensive loss
(1,814.0
)
 
(1,814.3
)
ESOP
(3.4
)
 
(10.5
)
 
10,565.9

 
10,207.5

Less: cost of common stock in treasury
(2,337.9
)
 
(2,371.3
)
Stanley Black & Decker, Inc. Shareowners’ Equity
8,228.0

 
7,836.2

Non-controlling interests
5.3

 
3.7

Total Shareowners’ Equity
8,233.3

 
7,839.9

Total Liabilities and Shareowners’ Equity
$
21,523.6

 
$
19,408.0

See Notes to (Unaudited) Condensed Consolidated Financial Statements.

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STANLEY BLACK & DECKER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE AND SIX MONTHS ENDED JUNE 29, 2019 AND JUNE 30, 2018
(Unaudited, Millions of Dollars)
 
 
Second Quarter
 
Year-to-Date
 
2019
 
2018
 
2019
 
2018
OPERATING ACTIVITIES
 
 
 
 
 
 
 
Net earnings
$
357.4

 
$
293.4

 
$
527.8

 
$
463.5

Adjustments to reconcile net earnings to cash provided by (used in) operating activities:

 

 
 
 
 
Depreciation and amortization of property, plant and equipment
93.7

 
83.2

 
187.7

 
164.5

Amortization of intangibles
48.0

 
44.5

 
91.8

 
86.8

(Gain) loss on sales of businesses
(17.2
)
 
0.8

 
(17.2
)
 
0.8

Share of net earnings of equity method investment
(5.3
)
 

 
(5.6
)
 

Changes in working capital
35.9

 
(185.0
)
 
(580.9
)
 
(729.3
)
Changes in other assets and liabilities
(11.5
)
 
(38.9
)
 
(133.9
)
 
(137.7
)
Cash provided by (used in) operating activities
501.0

 
198.0

 
69.7

 
(151.4
)
INVESTING ACTIVITIES
 
 
 
 
 
 
 
Capital and software expenditures
(97.2
)
 
(111.7
)
 
(186.8
)
 
(218.0
)
Proceeds (payments) from sales of businesses, net of cash sold
76.7

 
(1.7
)
 
76.7

 
(1.9
)
Business acquisitions, net of cash acquired
0.2

 
(505.6
)
 
(676.0
)
 
(506.8
)
Purchase of investments
(8.3
)
 
(6.3
)
 
(253.7
)
 
(10.3
)
   Net investment hedge settlements

 
37.8

 
3.9

 
20.3

Other
(3.6
)
 

 
(3.6
)
 
2.9

Cash used in investing activities
(32.2
)
 
(587.5
)
 
(1,039.5
)
 
(713.8
)
FINANCING ACTIVITIES
 
 
 
 
 
 
 
Payment on long-term debt

 

 
(400.0
)
 

Proceeds from debt issuance, net of fees
(0.7
)
 

 
496.2

 

Stock purchase contract fees
(10.1
)
 
(10.1
)
 
(20.2
)
 
(20.2
)
Net short-term (repayments) borrowings
(330.6
)
 
753.6

 
1,089.3

 
1,135.6

Premium paid on equity option

 

 

 
(57.3
)
Proceeds from issuances of common stock
14.4

 
9.5

 
24.6

 
22.6

Purchases of common stock for treasury
(1.1
)
 
(201.3
)
 
(9.2
)
 
(212.7
)
Cash dividends on common stock
(97.7
)
 
(94.2
)
 
(195.3
)
 
(189.1
)
Other
(4.1
)
 

 
(7.1
)
 
(5.5
)
Cash (used in) provided by financing activities
(429.9
)
 
457.5

 
978.3

 
673.4

Effect of exchange rate changes on cash, cash equivalents and restricted cash
0.2

 
(87.8
)
 
5.0

 
(59.9
)
Change in cash, cash equivalents and restricted cash
39.1

 
(19.8
)
 
13.5

 
(251.7
)
Cash, cash equivalents and restricted cash, beginning of period
285.8

 
423.2

 
311.4

 
655.1

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD
$
324.9

 
$
403.4

 
$
324.9

 
$
403.4

The following table provides a reconciliation of the cash, cash equivalents and restricted cash balances as of June 29, 2019 and December 29, 2018, as shown above:
 
June 29, 2019
 
December 29, 2018
Cash and cash equivalents
$
310.7

 
$
288.7

Restricted cash included in Other current assets
14.2

 
22.7

Cash, cash equivalents and restricted cash
$
324.9

 
$
311.4

See Notes to (Unaudited) Condensed Consolidated Financial Statements.

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STANLEY BLACK & DECKER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
THREE AND SIX MONTHS ENDED JUNE 29, 2019 AND JUNE 30, 2018
(Unaudited, Millions of Dollars, Except Per Share Amounts)

 
Preferred
Stock
 
Common
Stock
 
Additional
Paid In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
ESOP
 
Treasury
Stock
 
Non-
Controlling
Interests
 
Shareowners’
Equity
Balance December 29, 2018
$
750.0

 
$
442.3

 
$
4,621.0

 
$
6,219.0

 
$
(1,814.3
)
 
$
(10.5
)
 
$
(2,371.3
)
 
$
3.7

 
$
7,839.9

Net earnings

 

 

 
169.9

 

 

 

 
0.5

 
170.4

Other comprehensive income

 

 

 

 
1.0

 

 

 

 
1.0

Cash dividends declared — $0.66 per share

 

 

 
(97.6
)
 

 

 

 

 
(97.6
)
Issuance of common stock (284,438)

 

 
(15.2
)
 

 

 

 
25.4

 

 
10.2

Repurchase of common stock (61,663 shares)

 

 

 

 

 

 
(8.1
)
 

 
(8.1
)
Stock-based compensation related

 

 
16.7

 

 

 

 

 

 
16.7

ESOP

 

 

 

 

 
4.2

 

 

 
4.2

Balance March 30, 2019
$
750.0

 
$
442.3

 
$
4,622.5

 
$
6,291.3

 
$
(1,813.3
)
 
$
(6.3
)
 
$
(2,354.0
)
 
$
4.2

 
$
7,936.7

Net earnings

 

 

 
356.3

 

 

 

 
1.1

 
357.4

Other comprehensive loss

 

 

 

 
(0.7
)
 

 

 

 
(0.7
)
Cash dividends declared — $0.66 per share

 

 

 
(97.7
)
 

 

 

 

 
(97.7
)
Issuance of common stock (191,538)

 

 
(2.8
)
 

 

 

 
17.2

 

 
14.4

Repurchase of common stock (7,461 shares)

 

 

 

 

 

 
(1.1
)
 

 
(1.1
)
Stock-based compensation related

 

 
21.4

 

 

 

 

 

 
21.4

ESOP

 

 

 

 

 
2.9

 

 

 
2.9

Balance June 29, 2019
$
750.0

 
$
442.3

 
$
4,641.1

 
$
6,549.9

 
$
(1,814.0
)
 
$
(3.4
)
 
$
(2,337.9
)
 
$
5.3

 
$
8,233.3

 
Preferred
Stock
 
Common
Stock
 
Additional
Paid In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
ESOP
 
Treasury
Stock
 
Non-
Controlling
Interests
 
Shareowners’
Equity
Balance December 30, 2017
$
750.0

 
$
442.3

 
$
4,643.2

 
$
5,998.7

 
$
(1,589.1
)
 
$
(18.8
)
 
$
(1,924.1
)
 
$
2.8

 
$
8,305.0

Net earnings

 

 

 
170.6

 

 

 

 
(0.5
)
 
170.1

Other comprehensive income

 

 

 

 
95.8

 

 

 

 
95.8

Cash dividends declared — $0.63 per share

 

 

 
(94.8
)
 

 

 

 

 
(94.8
)
Issuance of common stock (325,214)

 

 
(13.0
)
 

 

 

 
26.1

 

 
13.1

Repurchase of common stock (69,880 shares)

 

 

 

 

 

 
(11.4
)
 

 
(11.4
)
Premium paid on equity option

 

 
(57.3
)
 

 

 

 

 

 
(57.3
)
Non-controlling interest dissolution

 

 

 

 

 

 

 
0.3

 
0.3

Stock-based compensation related

 

 
17.7

 

 

 

 

 

 
17.7

ESOP

 

 

 

 

 
3.3

 

 

 
3.3

Balance March 31, 2018
$
750.0

 
$
442.3

 
$
4,590.6

 
$
6,074.5

 
$
(1,493.3
)
 
$
(15.5
)
 
$
(1,909.4
)
 
$
2.6

 
$
8,441.8

Net earnings

 

 

 
293.6

 

 

 

 
(0.2
)
 
293.4

Other comprehensive income

 

 

 

 
(279.1
)
 

 

 

 
(279.1
)
Cash dividends declared — $0.63 per share

 

 

 
(94.2
)
 

 

 

 

 
(94.2
)
Issuance of common stock (123,154)

 

 
(0.8
)
 

 

 

 
10.3

 

 
9.5

Repurchase of common stock (1,408,563 shares)

 

 

 

 

 

 
(201.3
)
 

 
(201.3
)
Stock-based compensation related

 

 
16.6

 

 

 

 

 

 
16.6

ESOP

 

 

 

 

 
1.1

 

 

 
1.1

Balance June 30, 2018
$
750.0

 
$
442.3

 
$
4,606.4

 
$
6,273.9

 
$
(1,772.4
)
 
$
(14.4
)
 
$
(2,100.4
)
 
$
2.4

 
$
8,187.8


See Notes to (Unaudited) Condensed Consolidated Financial Statements.


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Table of Contents

STANLEY BLACK & DECKER, INC. AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 29, 2019

A.
SIGNIFICANT ACCOUNTING POLICIES

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 six months ended June 29, 2019 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 Stanley Black & Decker, Inc.’s (the “Company”) Form 10-K for the year ended December 29, 2018, and subsequent related filings with the Securities and Exchange Commission ("SEC").

In May 2019, the Company sold its Sargent & Greenleaf mechanical locks business within the Security segment. The results of this business have been reported in the Condensed Consolidated Financial Statements through the date of sale in 2019.

In March 2019, the Company acquired the International Equipment Solutions Attachments businesses, Paladin and Pengo, ("IES Attachments"), a manufacturer of high quality, performance-driven heavy equipment attachment tools for off-highway applications. The IES Attachments acquisition is being accounted for as a business combination using the acquisition method of accounting. The results of IES Attachments subsequent to the date of acquisition are included in the Company's Industrial segment.

In January 2019, the Company acquired a 20 percent interest in MTD Holdings Inc. ("MTD"), a privately held global manufacturer of outdoor power equipment.  MTD manufactures and distributes gas-powered lawn tractors, zero turn mowers, walk behind mowers, snow throwers, trimmers, chain saws, utility vehicles and other outdoor power equipment. Under the terms of the agreement, the Company has the option to acquire the remaining 80 percent of MTD beginning on July 1, 2021 and ending on January 2, 2029. In the event the option is exercised, the companies have agreed to a valuation multiple based on MTD’s 2018 Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"), with an equitable sharing arrangement for future EBITDA growth. The Company is applying the equity method of accounting to the MTD investment.

In April 2018, the Company acquired the industrial business of Nelson Fastener Systems ("Nelson") from the Doncasters Group, which excluded Nelson's automotive stud welding business. The acquisition was accounted for as a business combination using the acquisition method of accounting and the results are included in the Company's Industrial segment for all periods subsequent to the date of acquisition.

Refer to Note F, Acquisitions and Investments, for further discussion of these transactions.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements. While management believes that the estimates and assumptions used in the preparation of the financial statements are appropriate, actual results could differ from these estimates. Certain amounts reported in the previous year have been reclassified to conform to the 2019 presentation.

Financial Instruments
Derivative financial instruments are employed to manage risks, including foreign currency, interest rate exposures and commodity prices and are not used for trading or speculative purposes. 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, may be used to mitigate interest rate exposure, foreign currency exposure and commodity price exposure. The Company recognizes all derivative instruments in the balance sheet at fair value.

Changes in the fair value of derivatives are recognized periodically either in earnings or in shareowners’ equity as a component of other comprehensive income (loss) ("OCI"), depending on whether the derivative financial instrument is undesignated or qualifies for hedge accounting and, if so, whether it represents a fair value, cash flow, or net investment hedge. Changes in the

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Table of Contents

fair value of derivatives accounted for as fair value hedges are recorded in earnings in the same caption as the changes in the fair value of the hedged items. Gains and losses on derivatives designated as cash flow hedges, to the extent they are included in the assessment of effectiveness, are recorded in OCI and subsequently reclassified to earnings to offset the impact of the hedged items when they occur. In the event it becomes probable the forecasted transaction to which a cash flow hedge relates will not occur, the derivative would be terminated and the amount in accumulated other comprehensive income (loss) would be recognized in earnings. Changes in the fair value of derivatives that are designated and qualify as a hedge of the net investment in foreign operations, to the extent they are included in the assessment of effectiveness, are reported in OCI and are deferred until disposal of the underlying assets. Gains and losses representing components excluded from the assessment of effectiveness for cash flow and fair value hedges are recognized in earnings on a straight-line basis in the same caption as the hedged item over the term of the hedge. Gains and losses representing components excluded from the assessment of effectiveness for net investment hedges are recognized in earnings on a straight-line basis in Other, net over the term of the hedge.

The net interest paid or received on interest rate swaps is recognized as interest expense. Gains and losses resulting from the early termination of interest rate swap agreements are deferred and amortized as adjustments to interest expense over the remaining period of the debt originally covered by the terminated swap.

Changes in the fair value of derivatives not designated as hedges are reported in Other, net in the consolidated statements of operations. Refer to Note I, Financial Instruments, for further discussion.

Revenue Recognition

The Company’s revenues result from the sale of goods or services and reflect the consideration to which the Company expects to be entitled. The Company records revenue based on a five-step model in accordance with Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers ("ASC 606"). For its customer contracts, the Company identifies the performance obligations (goods or services), determines the transaction price, allocates the contract transaction price to the performance obligations, and recognizes the revenue when (or as) the performance obligation is transferred to the customer. A good or service is transferred when (or as) the customer obtains control of that good or service. The majority of the Company’s revenues are recorded at a point in time from the sale of tangible products.

A portion of the Company’s revenues within the Security and Infrastructure businesses is generated from equipment leased to customers. Customer arrangements are identified as leases if they include transfer of a tangible asset which is provided to the customer in exchange for payments typically at fixed rates payable monthly, quarterly or annually. Customer leases may include terms to allow for extension of leases for a short period of time, but typically do not provide for customer termination prior to the initial term. Some customer leases include terms to allow the customer to purchase the underlying asset, which occurs occasionally, and virtually no customer leases include residual value guarantee clauses. Within the Security business, the underlying asset typically has no value at termination of the customer lease, so no residual value asset is recorded in the financial statements. For Infrastructure business leases, underlying assets are assessed for functionality at termination of the lease and, if necessary, an impairment to the leased asset value is recorded.

Provisions for customer volume rebates, product returns, discounts and allowances are variable consideration and are recorded as a reduction of revenue in the same period the related sales are recorded. Such provisions are calculated using historical averages adjusted for any expected changes due to current business conditions. Consideration given to customers for cooperative advertising is recognized as a reduction of revenue except to the extent that there is a distinct good or service and evidence of the fair value of the advertising, in which case the expense is classified as selling, general, and administrative expense.

The Company’s revenues can be generated from contracts with multiple performance obligations. When a sales agreement involves multiple performance obligations, each obligation is separately identified (including equipment lease obligations) and the transaction price is allocated based on the amount of consideration the Company expects to be entitled to in exchange for transferring the promised good or service to the customer.

Sales of security monitoring systems may have multiple performance obligations, including equipment, installation and monitoring or maintenance services. In most instances, the Company allocates the appropriate amount of consideration to each performance obligation based on the standalone selling price ("SSP") of the distinct goods or services performance obligation. In circumstances where SSP is not observable, the Company allocates the consideration for the performance obligations by utilizing one of the following methods: expected cost plus margin, the residual approach, or a mix of these estimation methods.


8

Table of Contents

For performance obligations that the Company satisfies over time, revenue is recognized by consistently applying a method of measuring progress toward complete satisfaction of that performance obligation. The Company utilizes the method that most accurately depicts the progress toward completion of the performance obligation.

The Company’s contract sales for the installation of security intruder systems and other construction-related projects are generally recorded under the input method. The input method recognizes revenue on the basis of the Company’s efforts or inputs to the satisfaction of a performance obligation relative to the total inputs expected to satisfy that performance obligation. Revenue recognized on security contracts in process are based upon the allocated contract price and related total inputs of the project at completion. The extent of progress toward completion is generally measured using input methods based on labor metrics. Revisions to these estimates as contracts progress have the effect of increasing or decreasing profits each period. Provisions for anticipated losses are made in the period in which they become determinable. The revenues for monitoring and monitoring-related services are recognized as services are rendered over the contractual period.

The Company utilizes the output method for contract sales in the Oil & Gas product line. The output method recognizes revenue based on direct measurements of the customer value of the goods or services transferred to date relative to the remaining goods or services promised under the contract. The output method includes methods such as surveys of performance completed to date, appraisals of results achieved, milestones reached, time elapsed, and units produced or units delivered.

Contract assets or liabilities result from transactions with revenue recorded over time. If the measure of remaining rights exceeds the measure of the remaining performance obligations, the Company records a contract asset. Conversely, if the measure of the remaining performance obligations exceeds the measure of the remaining rights, the Company records a contract liability.

Incremental costs of obtaining or fulfilling a contract with a customer that are expected to be recovered are recognized and classified in Other current assets or Other assets, as appropriate, in the consolidated balance sheet and are typically amortized over the contract period. The Company recognizes the incremental costs of obtaining or fulfilling a contract as expense when incurred if the amortization period of the asset is one year or less.

Customer billings for services not yet rendered are deferred and recognized as revenue as the services are rendered. The associated deferred revenue is included in Accrued expenses or Other liabilities, as appropriate, in the consolidated balance sheet.

Refer to Note D, Accounts and Notes Receivable, for further discussion.

B.    NEW ACCOUNTING STANDARDS

NEW ACCOUNTING STANDARDS ADOPTED — In February 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220). The new guidance permits, but does not require, companies to reclassify the stranded tax effects of the Tax Cuts and Jobs Act (the “Act”) on items within accumulated other comprehensive income to retained earnings. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company adopted this standard in the first quarter of 2019 and did not elect to reclassify the stranded tax effects of the Act on items within accumulated other comprehensive income to retained earnings. The Company uses the portfolio method for releasing the stranded tax effects from accumulated other comprehensive income.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) ("new lease standard"). The objective of the new lease standard is to increase transparency and comparability among organizations by requiring recognition of all lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. In March 2019, the FASB issued ASU 2019-01, Codification Improvements, Leases (Topic 842), and in July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, and ASU 2018-11, Targeted Improvements, Leases (Topic 842). In December 2018, the FASB issued ASU 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors. These ASUs provide clarification on how to apply certain aspects of the new lease standard and allow entities to initially apply the standards from the adoption date. The Company adopted these standards in the first quarter of 2019 utilizing the new transition method to apply the standards from the adoption date. The Company recorded lease liabilities and a right-of-use asset in its consolidated balance sheet upon adoption. The standards did not impact the Company's consolidated statements of operations or retained earnings. Refer to Note D, Accounts and Notes Receivable, and Note S, Commitments and Guarantees, for further discussion.

RECENTLY ISSUED ACCOUNTING STANDARDS NOT YET ADOPTED — In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for

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Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. The standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the timing of adopting the new guidance as well as the impact it may have on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20). The standard modifies disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The ASU is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820). The standard modifies disclosure requirements of fair value measurements. The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the timing of adopting the new guidance as well as the impact it may have on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350). The new standard simplifies the subsequent measurement of goodwill by eliminating the second step of the goodwill impairment test. This ASU will be applied prospectively and is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the timing of its adoption of this standard.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326). The new standard amends guidance on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.

C.
EARNINGS PER SHARE
The following table reconciles net earnings attributable to common shareowners and the weighted-average shares outstanding used to calculate basic and diluted earnings per share for the three and six months ended June 29, 2019 and June 30, 2018:
 
Second Quarter
 
Year-to-Date
 
2019
 
2018
 
2019
 
2018
Numerator (in millions):
 
 
 
 
 
 
 
Net Earnings Attributable to Common Shareowners
$
356.3

 
$
293.6

 
$
526.2

 
$
464.2

 
 
 
 
 
 
 
 
Denominator (in thousands):
 
 
 
 
 
 
 
Basic weighted-average shares outstanding
148,099

 
149,748

 
147,982

 
150,101

Dilutive effect of stock contracts and awards
2,259

 
2,746

 
2,157

 
3,023

Diluted weighted-average shares outstanding
150,358

 
152,494

 
150,139

 
153,124

Earnings per share of common stock:
 
 
 
 
 
 
 
Basic
$
2.41

 
$
1.96

 
$
3.56

 
$
3.09

Diluted
$
2.37

 
$
1.93