Good morning and welcome to the Q4 and Fiscal Year 2014 Stanley Black & Decker Incorporated Earnings Conference Call. My name is John. I’ll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I’ll now turn the call over to Vice President of Investor and Government Relations, Greg Waybright. You may begin.

Thank you, John. Good morning, everyone, and thank you all for joining us for Stanley Black & Decker's fourth quarter 2014 conference call. On the call, in addition to myself, is John Lundgren, Chairman and CEO; Jim Loree, President and COO; and Don Allan, Senior Vice President and CFO. Our earnings release, which was issued earlier this morning, and a supplemental presentation, which we will refer to during the call, are available on the IR section of our Web site as well as on our iPhone and iPad app. A replay of this morning's call will also be available beginning at 2 p.m. today. The replay number and access code are in our press release. This morning, John, Jim and Don will review our fourth quarter results and various other matters, followed by a Q&A session. Consistent with prior calls, we’re going to be sticking with just one question per caller. And as we normally do, we will be making some forward-looking statements during the call. Such statements are based on assumptions of future events that may not prove to be accurate, and as such, they involve risk and uncertainty. It is, therefore, possible that actual results may differ materially from any forward-looking statements that we might make today. We direct you to the cautionary statements in the 8K that we filed with our press release and in our most recent '34 Act filing. I’ll now turn the call over to our Chairman and CEO, John Lundgren.

Thanks, Greg, and good morning, everybody. We’ve got a great deal to talk about this morning. So I’m going to run very quickly through the highlights. So Jim Loree and Don Allan can get into more detail and then we can jump right into the Q&A. Looking at fourth quarter highlights, revenue expanded 7% organically led by CDIY was up 11% and strong performance in industrial up 5%. But it's also noticeable that Security expanded in the quarter with mid single-digit organic growth in North American emerging markets and flat performance in Europe. Operating margin for the quarter was 13.7% which was up 50 basis points versus the prior year. Volume, sharp cost focus and pricing benefits were partially offset by the currency headwinds. The currency issues that you’ve heard a lot about intensified in the fourth quarter, as we absorbed a headwind of approximately $30 million in the fourth quarter, which was $10 million worse than we expected. And that brought the total for the year to approximately $85 million of foreign exchange headwinds, a combination of translational and transactional. The Security turnaround continues and we were encouraged that the European operating margin rate improved sequentially and versus prior year by approximately 110 basis points. Our fourth quarter capped an encouraging year. So I'll just take a minute and look at the results for the total year, revenues up 5% organically with CDIY delivering 7%, Industrial 5%, and Security flat. Earnings per share grew 14% on an adjusted basis and now have converged with our GAAP earnings per share. Free cash flow was a record almost $1 billion as the team delivered over one full working capital turn improvement up to the level of 9.2 working capital turns for the total Company. And our cash flow return on investment…

Okay. Thank you, John. Along those lines we’ve made a very determined effort over the past two years to ramp up organic growth and importantly translated into operating leverage. So it's fulfilling to close out 2014 with a record 7% organic growth quarter, our highest full year OM rates since the Stanley Black & Decker merger and record full-year EPS and cash flow. We also, as John mentioned, achieved 9.2 working capital turns, a first for us, which contributed to a 130% cash conversion ratio for the year. And it's especially encouraging that all this was accomplished in the face of $85 million or about little more than $0.40 a share of unplanned currency headwinds amidst a slowing global growth environment outside the U.S. It's clear that our operating management team is executing at a high level and it’s charged up and more than prepared to continue to drive results in a challenging environment. For the business level commentary, I’ll start with CDIY, which served up another outstanding quarter. Organic growth was 11% against the 6% comp in 4Q ’13. All major geographies contributed, with North America up 14%, Europe once again overcoming challenging end markets, up 7% organically, and emerging markets up 7%. Total revenue was also up 7% and operating margin grew 18% demonstrating impressive operating leverage. Gains resulted from cost leveraged, modestly positive price, operations productivity, and tight SG&A cost management, which more than offset severe currency headwinds. Across the global CDIY product lines, organic strength was once again broad-based with professional power tools up an exceptional 20% and Tools and Storage up 10%, Fastening & Accessories 7% and Consumer products up 2%. CDIY new product development momentum in concert with a business wide commitment to commercial excellence and continued exploitation of the revenue synergies from the…

Thank you, Jim. We are very pleased with our 2014 cash flow performance, which resulted in $991 million of free cash flow, just shy of a $1 billion. The free cash flow to net income conversion ratio was a healthy 130% as you just heard from Jim. As we experienced during the majority of 2014, our free cash flow benefited from increased operational earnings, lower restructuring payments, and reduced capital expenditures. The Q4 free cash flow was stronger than expected due to these factors combined with an outstanding working capital turn performance. Due to certain seasonality aspects of our CDIY business, we experienced a significant positive working capital benefit in the fourth quarter of every year. As a result, we tend to generate approximately 60% of our annual free cash flow in the fourth quarter. However, our businesses performed above and beyond this seasonality trend, and drove working capital turns to 9.2 times which is up more than a full turn versus 2013. We indicated in October that our objective was to push towards the year-end. Our businesses did an excellent job exceeding this expectation through the continued use of the Stanley fulfillment system. It is exciting to see our long-term objective of 10 working capital turns very close on the horizon, hopefully within the next two years. This strong cash flow performance allowed us to achieve our debt deleveraging goals for 2014 and we were able to commence the previously communicated share repurchase program in the fourth quarter through the use of some equity forward share repurchase derivatives. Now let's review our 2015 EPS and cash flow outlook on Page 10. As indicated by John earlier, we’re establishing 2015 guidance at $5.65 to $5.85 of EPS, and free cash flow of at least $1 billion. As indicated throughout 2014…

Great. Don, thank you. John, we can now open the call to Q&A, please.

Thank you. We'll now begin the question-and-answer session. [Operator Instructions] And our first question is from Nigel Coe from Morgan Stanley. Please go ahead.

Thanks. Good morning and congratulations on your kind of growth this quarter. Just wanted to focus on price here and -- in light of the raw material deflation, have the discussions with your key customers change in any materially way? And on top of that, given the currency move, have you seen any change in behavior from your European and Japanese competitors?

So this is Jim. The deflation at this point is not material. It’s significant, but not material, and its spread over many, many different businesses and product lines and so forth. So, for any given skew or any given product line, it’s probably no more than a point or two of the total selling price. And we don’t -- we don’t entertain price adjustments unless there is really material inflation, that’s when the customers will get more interested in doing that. And likewise it works the same way on the other side when we have inflation. We don’t pursue inflation based price increases with our major customers until it becomes material. So it’s a -- there is a healthy understanding that for these types of immaterial moves that we don’t rock the boat, if you will. So that’s the kind of approach there. As long as it kind of continues at this pace, we’re looking at maybe $40 million, $50 million of deflation across a 12 -- almost a $12 billion revenue base. And then, the second part of the question …?

Well it was on behavior from our European and Japanese customers [indiscernible] it’s important to note where their production is. So, go ahead James.

So, if you look at Bosch and Makita everybody has global footprints with concentration in China. And most folks are using either renminbi or dollar denominated currencies to basically set purchase prices, so -- or the -- and the manufacturing costs are obviously established in those regions as well. Now, so then you take Makita, well Makita has more Japanese manufacturing than say some of the others. Bosch has more European manufacturing than the others. So I’d say it’s probably for them some opportunity to shift some production to these areas where the currency has gone down. But recognize that in both Japan and in Europe that the labor rates are exceptionally high relative to the emerging markets. So it really takes some pretty significant currency movements on a sustained basis to make it a practical reality for them to be able to shift a lot of manufacturing. And we also have a fairly substantial ability to shift production into Europe with our manufacturing footprint there. We really don’t have much of a Japanese footprint at all. So, there is some movement that’s possible. I think it’s really at the margin and not really a significant impact.

Our next question is from Tim Wojs from Baird. Please go ahead.

Yes. Hi, guys. I guess, just to talk about the CDIY outperformance there. I think in the press release you talked about share gains. I’m just curious where the share gain is coming from? Is it more shelf space at retail or is it better sell-through, is it just better product? Maybe just a little bit more color there and then maybe what's in the pipeline around sustaining that growth rate as we get into 2015?

Yes, Tim, this is John. The answer is all of the above. You saw the organic growth rate particularly in Europe where the market is flat at best. And as Jim pointed out in his segment overview, we’ve had six consecutive quarters of organic growth averaging 7%. So when you’re growing 7% in the market that’s growing 0% to 2% on a very best case, there’s a significant share gain in Europe. We’re gaining share in U.S. Again, I think Jim gave some of the wide, but to help we’ve recouped all of the lost share when legacy Black & Decker was a little bit slow, but for very good reason that we’ve talked about to convert from NiCad to Lithium-ion. That share gain has been -- that share loss has been completely recaptured and we’ve got the offense on the field specifically with the brushless initiative that Jim talked about. That represents about 20% of the market and we’ve about 40% of it. So that’s driving particularly our top professional power tool gains in North America. I think the other bright spot specifically is, is sell-through. On occasion this time if you’re our -- our customers it’s quite well-known. Keep a very close eye on their inventories in the month of January because that’s the end of their fiscal year. January tends to be a slow shipment month and we make up for some of that in February and March. The sell-through was outstanding in December and January. So it’s sell-in and sell-through which translates to share gains. Again, when our organic growth is about 2x the rate of the market it has to be share gain as long as it’s selling through. Lastly, it’s been overwhelmingly driven by both ongoing and arguably breakthrough, new product introduction. Our vitality index is in the 30s which is quite high for a business of that nature. Both in Europe and the U.S., the sources has been a little bit different. U.S. has been professional power tools primarily. Europe it’s been right across the board. Hand tools, power tools and even home products, some tremendous innovation in a segment of the business or sub-segment that’s more important in Europe than it is in the U.S. But doing particularly well and the words in the press release said expanded customer relationships, that’s exactly what that means. We’ve gotten new distribution with customers particularly in Europe but elsewhere, expanded shelf space and new distribution displacing both competitors and in some cases private label that’s also helped that growth. So simple answer all of the above, but that gives us a lot more color on where it’s coming from.

And maybe just to follow on very briefly. When you take last year, $300 million of revenue from new product introductions in CDIY over a 1000 skews and then put those new products to work by leveraging them across our -- what I call in my comments, our leading array of brands. But the flexibility that we’ve with our brands with DeWalt, with Black & Decker, with Bostitch, with Stanley FatMax which is growing significantly, Porter Cable and so on. The ability to leverage those new products across those brands and then across the global geographies at the same time with a scale that we’ve managed to put together with both hand tools and power tools in the global footprint of the company, that’s how we’re doing it. And then the other term I used was commercial excellence. We’ve committed to commercial excellence, and that means all those cylinders in that commercial engine are hitting at the same time. You put all that together and that’s what we’ve created is this commercial machine which is out there gaining share in many, many different places around the world.

Yes, Jim thanks for that. And just without being more specific than we need to be on this call, just one anecdote or great example of what Jim talked about. Stanley FatMax power tools, certain North American customers and certain large retail customers elsewhere in the world, it’s the fast -- one of the fastest growing power tool brands in the market and four years ago that didn’t exist, because Stanley didn’t have the capability to make a power tool that would merit or justify putting the FatMax name on it. And its as Jim suggested, it’s a tremendous synergy from a merger that’s now four years, almost five in the rearview mirror, but still continues to show some great results in terms of our top line opportunity and brand penetration.

Our next question is from Jeremie Capron from CLSA.

Hi, good morning. A question on the reorganization that you talked about, in terms of combining the various tools businesses under a single umbrella. Can you give us a little more detail in terms of the timeline here and what's the ultimate goal that we’re looking at a single business division for IAR and CDIY? And the second leg to this question relates to the charges that were booked in the fourth quarter. It looks like you booked more charges than guided just three months ago, is this related to that combination or anything else in there?

Yes, this is John. I’ll talk about the combination and Don can give you the specifics on the charges. You’re directionally right, but your logic is -- you don’t have quite all the background, but Don will touch on it. Look, the combination just makes tremendous sense. It isn’t the entire industrial segment importantly and CDIY. It’s our industrial tool business and our professional tool business, specifically the IAR business and industrial storage combined with CDIY to take -- to make about a $7 billion business and clearly the largest tool business in the world with leading positions in all four vertical markets as Jim discussed in his comments. I think very importantly there are modest cost savings associated with that which tail in comparison to the revenue synergies that was on in two areas. The combination of best practices in new product development, our product review board process and everything we do to reflect customer input and marketplace needs to more quickly develop, commercialize and introduce and sell-through new products across both of those businesses will be a tremendous advantage, secondly to apply technology that’s applicable or formally utilized in one business to the other and lastly the commercial excellence that Jim talked about, best people, best practices in each and every channel. So in this particular case, we’re very good at taking cost up, we’ve proven that. There will be some backroom efficiencies as a result of this. The driver here though is top line synergy, organic growth by combining the best of the best, not just similar, and we think of it as the next step in the evolution of the merger of Stanley Black & Decker. And there was enough going on that this natural, if you will, internal combination; it would have been premature to try to do that before now. We’re going to do it now. It will be reflected in our segment reporting going forward. Let me have Don talk about that a little bit and then give you a little more granularity on the charges.

Yes. So, as John just touched on, the segment reporting for the Company will change in the first quarter 10-Q because the completion of this combination of the two businesses will happen in the first quarter. So, we’ll still have three segments. We’ll have a tools and storage segment which will include CDIY and IAR. We’ll have an industrial segment which will include Engineered Fastening in our infrastructure businesses, and then we’ll have Security in the current format, so not a dramatic change just moving one business into another in that change. Related to restructuring specifically, we indicated in the October earnings call that, we were evaluating additional restructuring of up to $10 million to $25 million beyond the initial guidance of $25 million. We actually recorded about $54 million in the fourth quarter, so it was at the high-end of that range. So it was very close to our expectations. A portion of that was related to the combination of these two businesses. A lot of the charges that took place in the fourth quarter were more associated to the U.S. activities, and what's going to occur in 2015 are more related to European activity.

Our next question is from Rich Kwas from Wells Fargo.

Hi, good morning everyone.

Good morning.

Just a question around guidance, in terms of the CRC-Evans business, what type of decline are you assuming within industrial given the lower oil prices and that’s obviously a high margin business, so there is some margin impact. And then second, are you assuming any benefit within CDIY or even industrial with regards to the lower oil prices, meaning demand benefit or is that assumed to be potential optionality in terms of the organic growth guidance for the year?

Hi, Rich. It’s Don, I’ll take that. As far CRC-Evans goes, as John or Jim mentioned, just first of all a reminder, it is 3% of our total revenue just to give you a size -- sizing of it. It is considered a small pressure to us year-over-year. We do expect that business to probably see 10% or 20% of revenue decline, ’14 versus ’15, and it’s really just due to what we’ve seen of this halting of all the activity around construction pipeline or constructions of the pipeline. But frankly it’s not a very material impact to us, but it does have a marginal impact. Related to your question around gas prices and oil prices and how does that, could that have a positive impact on buying activity in CDIY or industrial and whether we factored that? We have not specifically factored that into our guidance. It’s something that certainly will evaluate as time goes on over the next 12 months, but right now that’s not specifically factored into our guidance.

Our next question is from Mike Dahl from Credit Suisse.

Hi, good morning. This is Patrick Murray on for Mike. So with respect to the FX headwinds, if we’re to see any incremental U.S. dollar appreciation over the course of the year, how much more opportunity beyond what you have incorporated into 2015 guidance do you see is opportunities to offset any incremental U.S. dollar strengthening?

Yes, I think we -- as I mentioned in my comments, we’ve done a lot of hedging activities to try to minimize the future impact. But if the dollar continued to strengthen versus all our major currencies like it has been over the last 30 days, there would be an impact. I gave an example of the euro where, if the euro did move to parity over the next five months, i.e. but he middle of the year, that would probably be about $12 million to $15 million additional headwind to us. So, certainly we’ve looked at those different sensitivities and scenarios and their possibility. As far as how we offset them, yes we have evaluated different options and -- if you remember that slide as I walk through, what we do, we first look at pricing with our customers in certain markets where we’re importing the products. So, if there’s changes related to those currencies we have to evaluate whether we want to go back with additional price increases. The second was commodities. So, if that environment generates more commodity deflation, do we have additional opportunities that we could go after with our suppliers, and then the third area was, cost rationalization? I don’t think there is a huge opportunity in that particular category, but there are few things that we could do if we saw a continued pressure around foreign currencies. So, I think we’ve done enough sensitivity analysis to feel comfortable that we can deal with a reasonable level of continued strengthening over the next three to six months.

Yes. And I think to kind of remove the focus from three to six months which is, not what we’re hear to do necessarily, although I know its an important part of trying to build your model. Don, I think was -- hopefully was very helpful in talking about an equal split translation versus transactional. This year it was about, 2014 the FX impact was about 60% transactional, 40% translational. Next year it’s about 50-50, meaning a little less of it is in our control. On the transactional piece, Don talked about everything we can do short-term. Long-term, we were on a global supply chain network that I think Jim described quite eloquently, and the issue is moving sources of supply to the lower cost countries whether its commodities, labor costs, general cost to manufacture. The issue with that in the short-term that I think it’s important to understand, we make premium products in 70% of what we make in terms of tools or 67% are bought by people who do it for a living. The quality standards are extraordinarily high, and it’s very difficult to qualify material or component suppliers in places like Latin America and certain Asian markets quickly. So, despite the fact that opportunity exists, you can rest assure that our supply chain folks are working diligently and vigorously to qualify new suppliers on a longer term basis to allow us more flexibility to shift production -- meaningful pieces of production to weaker currency markets. But that’s something that happens over one to two years, not three to six months, and it’s just an important distinction not to understand.

Our next question is from Wini Clark from UBS.

Good morning. You noted your organic growth expectations are being muted in ’15 versus ’14 by headwinds outside the U.S. Can you talk a bit about what you’re expecting from emerging markets specifically, because while volatility continues their comps are not particularly difficult, and it seems like your MPP initiatives are gaining some momentum.

Yes, it’s Jim. We think that the emerging markets, all else equal in terms of no major change from where we are today, in terms of the environment. It will be slightly higher than our overall line average growth outlook. So, probably mid-single digits pushing, well maybe a little higher than that, but right in that kind of a range.

And our next question is from Jeff Sprague from Vertical Research.

Thank you. Good morning, gentlemen. We almost reached the milestone, and no security questions on the call, but I’m sorry, I’ll flip one in.

Thank you. Nobody was listening.

Yes, it’s nice that you didn’t have to spend that much time on it. But could you give us a little bit more detail on how attrition is running? Where you’re at on the commercial initiatives? And any color you can share just kind of on the sale process for Italy and Spain?

Yes, we’re in a good place on all of those. We’re not going to get ahead ourselves on Italy and Spain for obvious reasons, NDAs and things of that nature. I think Jim can give you a lot more granularity on attrition and a few of the other positive momentum.

I think as most people on the call that have been following us know that, we made tremendous progress on attrition in Europe in the last 12 months and really have put in real process. We have people, measurement systems that are tracking it, people that are accountable to manage it. And the results reflect the improvements that we’ve made with respect to the process. And so, getting to that 12% which was something that we put out there when we were running 17%, 18%, we did that within a year. That’s a huge, huge achievement because it enables us to actually have the opportunity to grow now. And what I mean by that is, with -- I’m taking Europe as an example. With recurring revenue as 40% of total revenue, if you are trading at close to 20% rate, you’re digging an 8% revenue hole every year before you even start originating new business. And so, when you get down to 10% to 12% which is more of the industry average, you have a hole that’s substantially smaller closer to 4% of total revenue, and you need order growth in the kind of -- in that range to be able to be flat if you will, and that’s kind of where we are now, where you saw the flat performance in Europe in 4Q. Now what we have to do here is, sustain the attrition at these levels which we think is very doable, and from there we have to kind of rev up the origination machine, but do it in a way where we are going after profitable business and not just cutting prices to get the business, because the other little variable in this whole equation is making sure that the gross margins that you’re taking on…

You asked about process in Spain and Italy, and let me just say two things because, as I referenced before Jim spoke, we are just not in a position to provide a lot of insight on it due to NDAs and things of that nature. We’re very comfortable saying, we’ve got a great term in place, and it’s a good combination of tested and proven senior Stanley security leaders with some good help from our corporate business development team to oversee that process. The other thing, we’ve broken this out, recognized that Spain is 5, 6, 7 times the size of Italy relative to the size of the business and where the focus is. And as you know Jim alluded to, well our business was heavily focused on the financial institutions vertical and probably a third of the bank branches in Spain have closed in the last year and it’s a very difficult competitive environment. So we know it’s the right decision for the company. We do have a good team in place, process is underway, but that’s all we’re going to -- in a position to say about it for reasons that I know you’ll understand and respect.

Our next question is from Mike Wood from Macquarie Capital.

Hi, thank you. If I exclude the rest of the buybacks that you called out, the mid-point of your GAAP earnings is up about 5% from what you did in 2014. I’m curious with the free cash flow guidance you gave which is a starting point of 1% growth. Is there anything dragging down on cash flow growth next year, higher CapEx or any kind of working capital progress that you can discuss? Or should it more closely near the GAAP earnings growth?

I think when you look at cash flow for 2015; we have to factor in a couple of things. One, yes, there will be a little bit higher levels of CapEx, but nothing really dramatic and material. However the working capital component will be less of a positive and frankly is a modest negative next year, because what happens as you continue to grow, you have to basically get half a turn or a full turn improvement in your working capital turn just to get a positive impact in the cash flow statement. And as we get closer and closer to 10 turns which is a great thing, the amount of year-over-year benefit or improvement in turns is going to be smaller. And so, next year we might get three times, five times of a turn improvement in our working capital turns. But that actually will create -- could create a negative in cash flow depending on where revenue ends up. I know that’s really a big driver there. We don’t look at that as a major issue, its just one of the benefits of the great success that we’ve seen in working capital turns. And we still think cash flow is a great story, and will continue to be going forward.

And our last question is from Stephen Kim from Barclays.

Hi, guys, its John filling in for Steve today. Just kind of the commentary that we got over the course much of 2014 relating to the R&R [ph] market just that it was one of moderating year-over-year, but your sales in CDIY really accelerated over the course of the year. So, can you talk about maybe some specific product categories that you’ve seen for CDIY, and then was your commentary that sell through was strong in the fourth quarter meant to signal that these trends have persisted into the first quarter of ’15? Thanks.

Well, I assume you’re talking about the U.S. because the R&R [ph] data I think typically that what you look at comes from the U.S. I think all you have to do is look at the DIY performances from the major customers to understand that the R&R [ph] market is alive and well, yes the -- at least in the home centers. And if you look at housing starts, yes we’ve had some nice improvement there, and we know that over time that we kind of benefit from that as well. I mentioned that the U.S. demand in DIY is strong and it is, and our POS is even stronger than the underlying demand. And so, as a consequence as we finish out the year, our inventory levels are down about a week in retail over where we would normally expect them to be, which is just indicative of when you have sales of 14% positive organic growth in North America, nobody is going to plan for that, and I think that’s what, why you see that. Now as far as specific categories, its really -- if you go back to the professional power tools being up 20%, and I think that could be a clue as to, where the most significant growth has been, and a lot of that has to do with the cordless market and in specifically the DC brushless market. And so, I think its really flying off the shelves, and it’s a great -- and it’s a completely redesigned tool, and its price value combination is very, very competitive. Its performance characteristics really are untouchable in the market right now with -- by the competitors, and it does it at a price that is reasonable, slightly above competition. And that’s a driver, it’s not the only single -- it’s not the single driver, but it’s an important one. And really as John said we made tremendous progress in cordless in general over the last four years. And gaining back all that share that was lost in kind of the ’08, ’09, 2010 period, and so a combination of those things I think is just -- and growing, improving exceptionally strong relationships with the large customers at this point of time, very constructive relationships. End of Q&A

And I would now turn the call over to Greg Waybright for closing comments.

John, thank you. We would like to thank everyone again for calling in this morning and for your participation. And please contact me and/or Dennis if you’ve any further questions. Thank you.