UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(AMENDMENT NO. 1)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER
December 31, 1994 1-1553
THE BLACK & DECKER CORPORATION
(Exact name of registrant as specified in its charter)
Maryland 52-0248090
(State of Incorporation) (I.R.S. Employer Identification Number)
Towson, Maryland 21286
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 410-716-3900
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, par value $.50 per share New York Stock Exchange
Pacific Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 twelve 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 X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in part III of
this Form 10-K or any amendment to this Form 10-K. (X)
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of February 20, 1995 was $2,123,113,850.
The number of shares of Common Stock outstanding as of February 20,
1995 was 84,924,554.
THE BLACK & DECKER CORPORATION AND SUBSIDIARIES
The undersigned hereby amends the following items, financial
statements, exhibits or other portions of its Annual Report on
Form 10-K for the year ended December 31, 1994 by deleting those
items in their entirety and inserting in their place the
following:
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (as amended
on April 24, 1995, to correct a typographical error in
Note 8 -- in the original filing, the table headings were
reversed)
The following consolidated financial statements of the
Corporation and its subsidiaries are included herein as indicated
below:
Consolidated Financial Statements
Consolidated Statement of Earnings
- years ended December 31, 1994, 1993, and 1992
Consolidated Balance Sheet
- December 31, 1994 and 1993
Consolidated Statement of Cash Flows
- years ended December 31, 1994, 1993, and 1992
Notes to Consolidated Financial Statements
Report of Independent Auditors
<TABLE>
CONSOLIDATED STATEMENT OF EARNINGS
The Black & Decker Corporation and Subsidiaries
(Dollars in Millions Except Per Share Amounts)
<CAPTION>
Year Ended December 31
1994 1993 1992
<S> <C> <C> <C>
REVENUES
Product sales $4,365.2 $4,121.5 $4,045.7
Information technology and services 883.1 760.7 733.9
TOTAL REVENUES 5,248.3 4,882.2 4,779.6
Cost of revenues
Products 2,769.7 2,657.4 2,577.2
Information technology and services 677.9 575.1 550.3
Marketing and administrative expenses 1,407.0 1,320.7 1,310.5
Restructuring costs (credits) - (6.3) 142.4
OPERATING INCOME 393.7 335.3 199.2
Interest expense (net of interest income of $7.0
for 1994, $8.3 for 1993, and $10.8 for 1992) 188.1 171.7 216.8
Other expense 15.5 7.7 11.4
EARNINGS (LOSS) BEFORE INCOME TAXES, EXTRAORDINARY ITEM,
AND CUMULATIVE EFFECTS OF CHANGES IN ACCOUNTING PRINCIPLES 190.1 155.9 (29.0)
Income taxes 62.7 60.7 44.3
NET EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEM AND
CUMULATIVE EFFECTS OF CHANGES IN ACCOUNTING PRINCIPLES 127.4 95.2 (73.3)
Extraordinary loss from early extinguishment of debt - - (22.7)
Cumulative effect to January 1, 1993, of change in
accounting principle for postemployment benefits - (29.2) -
Cumulative effect to January 1, 1992, of change in
accounting principle for postretirement benefits - - (249.8)
Cumulative effect to January 1, 1992, of change
in accounting principle for income taxes - - 12.2
NET EARNINGS (LOSS) $ 127.4 $ 66.0 $ (333.6)
NET EARNINGS (LOSS) APPLICABLE TO COMMON SHARES $ 115.8 $ 54.4 $ (345.2)
NET EARNINGS (LOSS) PER COMMON SHARE:
Net earnings (loss) before extraordinary item and
cumulative effects of changes in accounting principles $ 1.37 $ 1.00 $ (1.11)
Extraordinary loss from early extinguishment of debt - - (.30)
Cumulative effect adjustment for postemployment benefits - (.35) -
Cumulative effect adjustment for postretirement benefits - - (3.27)
Cumulative effect adjustment for income taxes - - .16
NET EARNINGS (LOSS) PER COMMON SHARE $ 1.37 $ .65 $ (4.52)
AVERAGE COMMON SHARES OUTSTANDING (in Millions) 84.3 83.6 76.3
See Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
CONSOLIDATED BALANCE SHEET
The Black & Decker Corporation and Subsidiaries
(Millions of Dollars)
<CAPTION>
December 31
1994 1993
<S> <C> <C> <
ASSETS
Cash and cash equivalents $ 65.9 $ 82.0
Trade receivables, less allowances of $41.5 ($38.5 for 1993) 910.9 832.1
Inventories 723.0 728.9
Other current assets 133.4 121.1
TOTAL CURRENT ASSETS 1,833.2 1,764.1
PROPERTY, PLANT AND EQUIPMENT 858.1 796.2
GOODWILL 2,293.0 2,333.6
OTHER ASSETS 449.4 416.7
$5,433.7 $5,310.6
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings $ 549.0 $ 332.3
Current maturities of long-term debt 121.1 163.1
Trade accounts payable 405.2 307.3
Other accrued liabilities 804.5 705.8
TOTAL CURRENT LIABILITIES 1,879.8 1,508.5
LONG-TERM DEBT 1,723.2 2,069.2
DEFERRED INCOME TAXES 45.4 47.9
POSTRETIREMENT BENEFITS 328.2 319.3
OTHER LONG-TERM LIABILITIES 287.7 316.8
STOCKHOLDERS' EQUITY
Convertible preferred stock (outstanding: December 31, 1994
and 1993-150,000 shares) 150.0 150.0
Common stock (outstanding: December 31, 1994-84,688,803 shares,
December 31, 1993-83,845,194 shares) 42.3 41.9
Capital in excess of par value 1,049.1 1,034.8
Retained earnings (deficit) 24.6 (57.5)
Equity adjustment from translation (96.6) (120.3)
TOTAL STOCKHOLDERS' EQUITY 1,169.4 1,048.9
$5,433.7 $5,310.6
See Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
The Black & Decker Corporation and Subsidiaries
(Millions of Dollars)
<CAPTION>
Year Ended December 31
1994 1993 1992
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) $ 127.4 $ 66.0 $ (333.6)
Adjustments to reconcile net earnings (loss)
to cash flow from operating activities:
Non-cash charges and credits:
Depreciation and amortization 213.6 200.5 204.1
Restructuring costs (credits) - (6.3) 142.4
Extraordinary loss - - 22.7
Cumulative effect of changes in accounting principles - 29.2 237.6
Other 1.9 (.4) 14.1
Changes in selected working capital items:
Trade receivables (85.9) (65.3) (90.5)
Inventories 27.6 (33.9) (20.1)
Trade accounts payable 90.5 47.4 26.9
Restructuring (47.3) (24.8) (25.8)
Other assets and liabilities 56.1 (82.8) (58.4)
CASH FLOW FROM OPERATING ACTIVITIES
BEFORE SALE OF RECEIVABLES 383.9 129.6 119.4
Sale of receivables 26.0 6.5 5.2
CASH FLOW FROM OPERATING ACTIVITIES 409.9 136.1 124.6
INVESTING ACTIVITIES
Proceeds from disposal of assets and businesses 13.5 114.6 9.8
Capital expenditures (198.5) (209.9) (184.0)
Cash inflow from hedging activities 1,070.4 1,096.6 1,653.0
Cash outflow from hedging activities (1,105.9) (1,085.1) (1,724.6)
CASH FLOW FROM INVESTING ACTIVITIES (220.5) (83.8) (245.8)
CASH FLOW BEFORE FINANCING ACTIVITIES 189.4 52.3 (121.2)
FINANCING ACTIVITIES
Net increase (decrease) in short-term borrowings 217.4 (14.1) 169.9
Proceeds from long-term debt
(including revolving credit facility) 1,226.7 2,008.3 2,055.3
Payments on long-term debt
(including revolving credit facility) (1,622.8) (1,989.4) (2,539.4)
Issuance of equity interest in a subsidiary 4.3 4.4 -
Issuance of common stock 8.8 6.4 477.5
Cash dividends (45.3) (45.1) (43.5)
CASH FLOW FROM FINANCING ACTIVITIES (210.9) (29.5) 119.8
Effect of exchange rate changes on cash 5.4 (7.1) (7.8)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (16.1) 15.7 (9.2)
Cash and cash equivalents at beginning of year 82.0 66.3 75.5
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 65.9 $ 82.0 $ 66.3
See Notes to Consolidated Financial Statements
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Black & Decker Corporation and Subsidiaries
NOTE 1: SUMMARY OF ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial
statements include the accounts of the Corporation and its
subsidiaries. Intercompany transactions have been eliminated.
Revenue Recognition: Revenue from information technology and
services (PRC) consists of revenue generated primarily for
contracted services. Revenue on contracts is recognized on the
basis of an estimated percentage of completion of services
rendered and, accordingly, amounts for unbilled services are
included in accounts receivable. Product sales include sales of
manufactured and externally sourced products and related service
and repair of such products.
Foreign Currency Translation: The financial statements of the
Corporation's subsidiaries outside the United States, except for
those subsidiaries located in highly inflationary economies, are
generally measured using the local currency as the functional
currency. Assets, including goodwill, and liabilities of these
subsidiaries are translated at the rates of exchange as of the
balance sheet date. The resultant translation adjustments are
included in equity adjustment from translation, a separate
component of stockholders' equity. Income and expense items are
translated at average monthly rates of exchange. Gains and losses
from foreign currency transactions are included in net earnings.
For subsidiaries operating in highly inflationary economies,
gains and losses from balance sheet translation adjustments are
included in net earnings.
Cash and Cash Equivalents: Cash and cash equivalents includes
cash on hand, demand deposits, and short-term investments with
original maturities of three months or less.
Inventories: Inventories are stated at the lower of cost or
market. The cost of United States inventories is based primarily
on the last-in, first-out (LIFO) method; all other inventories
are based on the first-in, first-out (FIFO) method.
Property and Depreciation: Property, plant and equipment is
stated at cost. Depreciation is computed generally on the
straight-line method for financial reporting purposes and on
accelerated and straight-line methods for tax reporting purposes.
Goodwill and Other Intangibles: Goodwill and other intangibles
are amortized on the straight-line method over periods ranging up
to 40 years. On a periodic basis, the Corporation estimates the
future undiscounted cash flows of the businesses to which
goodwill relates in order to ensure that the carrying value of
such goodwill has not been impaired.
Product Development Costs: Costs associated with the development
of new products and changes to existing products are charged to
operations as incurred. Product development costs associated with
PRC that are specific to negotiated contracts are generally
chargeable to and recoverable under the terms of the contracts
and are not included as product development costs. Product
development costs were $91.7 million in 1994, $93.0 million in
1993, and $95.6 million in 1992.
Postretirement Benefits: The Corporation and its subsidiaries
have pension plans covering substantially all of their employees.
The Corporation's employees are primarily covered by non-
contributory defined benefit plans. The plans are funded in
conformity with the funding requirements of applicable government
regulations. Generally, benefits are based on age, years of
service, and the level of compensation during the final years of
employment. Prior service costs for defined benefit plans are
generally amortized over the estimated remaining service periods
of employees.
Certain employees of the Corporation are covered by defined
contribution plans. The Corporation's contributions to the plans
are based on a percentage of employee compensation or employee
contributions. The plans are funded on a current basis.
In addition to pension benefits, the Corporation provides
certain postretirement medical, dental, and life insurance
benefits, principally to certain United States employees.
Retirees in other countries are generally covered by government-
sponsored programs.
The Corporation uses the corridor approach in the valuation
of defined benefit plans and other postretirement benefits. The
corridor approach defers all actuarial gains and losses resulting
from variances between actual results and economic estimates or
actuarial assumptions. These unrecognized gains and losses are
amortized when the net gains and losses exceed 10% of the
accumulated postretirement benefit obligation at the beginning of
the year. The amount in excess of the corridor is amortized over
the average remaining service period to retirement date of active
plan participants or, for retired participants, the average
remaining life expectancy.
Derivative Financial Instruments: Derivative financial
instruments are used by the Corporation principally in the
management of its interest rate and foreign currency exposures.
Amounts to be paid or received under interest rate swap
agreements are accrued as interest rates change and are
recognized over the life of the swap agreements as an adjustment
to interest expense. The related amounts payable to, or
receivable from, the counterparties are included in other accrued
liabilities. The fair value of the swap agreements is not
recognized in the consolidated financial statements since they
are accounted for as hedges.
The costs of interest rate cap agreements are included in
interest expense ratably over the lives of the agreements.
Payments to be received as a result of the cap agreements are
accrued as a reduction of interest expense. The unamortized costs
of the cap agreements are included in other assets.
In the case of an early termination of an interest rate swap
or cap, gains or losses resulting from the early termination are
deferred and amortized as an adjustment to the yield of the
related debt instrument over the remaining period originally
covered by the terminated swap or cap.
Gains and losses on hedges of net investments are not
included in the income statement, but are reflected in the
balance sheet in the equity adjustment from translation component
of stockholders' equity, with the related amounts due to or from
the counterparties included in other liabilities or other assets.
Gains and losses on the Corporation's foreign currency
transaction hedges are recognized in income and offset the
foreign exchange gains and losses on the underlying transactions.
Gains and losses of foreign currency firm commitment hedges are
deferred and included in the basis of the transactions underlying
the commitments.
Net Earnings (Loss) Per Common Share: Net earnings (loss) per
common share are computed by dividing net earnings (loss), after
deducting preferred stock dividends, by the weighted average
number of common shares outstanding during each year. Fully
diluted earnings per share are not materially different from
earnings per common share.
Reclassifications: Certain prior years' amounts in the
consolidated financial statements have been reclassified to
conform to the presentation used for 1994.
NOTE 2: TRADE RECEIVABLES
Trade receivables at December 31, 1994, included unbilled costs
and retainages under long-term contracts of PRC in the amount of
$162.9 million, of which $15.8 million is not expected to be
collected within one year. Unbilled amounts can be invoiced upon
reaching certain milestones and upon completion of contract
audits.
Concentration of Credit: The Corporation sells products and
services to customers in diversified industries and geographic
regions and, therefore, has no significant concentrations of
credit. The Corporation continuously evaluates the
creditworthiness of its customers and generally does not require
collateral.
Sale of Receivables Program: In 1994, the Corporation negotiated
a seasonal expansion of the capacity of its sale of receivables
program from $200.0 million to $275.0 million during the period
from October 1, 1994, through January 31, 1995. Receivables sold
under this program are not subject to any significant recourse
provisions. At December 31, 1994, the Corporation had sold $244.0
million of receivables under this program compared to $218.0
million at December 31, 1993. The discount on the sale of
receivables is included in other expense.
NOTE 3: INVENTORIES
The classification of inventories at the end of each year, in
millions of dollars, was as follows:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
FIFO cost
Raw materials and work-in-process $ 220.4 $ 206.2
Finished products 543.8 567.4
764.2 773.6
Excess of FIFO cost over
LIFO inventory value (41.2) (44.7)
$ 723.0 $ 728.9
</TABLE>
The cost of United States inventories stated under the LIFO
method was approximately 48% and 52% of the value of total
inventories at December 31, 1994 and 1993, respectively.
NOTE 4: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at the end of each year, in
millions of dollars, consisted of the following:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Property, plant and equipment at cost:
Land and improvements $ 68.3 $ 67.8
Buildings 348.0 346.4
Machinery and equipment 1,357.8 1,203.4
1,774.1 1,617.6
Less accumulated depreciation 916.0 821.4
$ 858.1 $ 796.2
</TABLE>
Depreciation expense charged to operations was $134.6 million in
1994, $126.3 million in 1993, and $125.8 million in 1992.
NOTE 5: GOODWILL
Goodwill at the end of each year, in millions of dollars, was as
follows:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Goodwill $2,735.5 $2,699.9
Less accumulated amortization 442.5 366.3
$2,293.0 $2,333.6
</TABLE>
NOTE 6: OTHER ACCRUED LIABILITIES
Other accrued liabilities at the end of each year, in millions of
dollars, included the following:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Salaries and wages $ 108.0 $ 81.2
Employee benefits 60.8 76.7
Restructuring 21.2 65.3
All other 614.5 482.6
$ 804.5 $ 705.8
</TABLE>
All other at December 31, 1994 and 1993, primarily consisted of
accruals for trade discounts and allowances, insurance, warranty
costs, advertising, interest, and income and other taxes.
NOTE 7: SHORT-TERM BORROWINGS
Short-term borrowings at December 31, 1994 and 1993, included
unsecured money market loans in the amounts of $293.3 million and
$195.0 million, respectively, at contracted interest rates based
on a margin over the London interbank borrowing rate (LIBOR).
These loans are payable on demand with a one-to-five day notice
period. Short-term borrowings at December 31, 1994, also included
$75.0 million of competitive bid rate loans under the
Corporation's unsecured revolving credit facility, as more fully
described in Note 8. Short-term borrowings in the amounts of
$180.7 million and $102.1 million at December 31, 1994 and 1993,
respectively, primarily consisted of borrowings of subsidiaries
outside the United States under the terms of uncommitted lines of
credit or other short-term borrowing arrangements. Short-term
borrowings also included commercial paper of $35.2 million at
December 31, 1993. The weighted average interest rate on short-
term borrowings outstanding at December 31, 1994 and 1993, was
7.0% and 4.3%, respectively.
Under terms of uncommitted lines of credit at December 31,
1994, certain of the Corporation's subsidiaries outside the
United States may borrow up to an additional $314.2 million on
such terms as may be mutually agreed upon. These arrangements do
not have termination dates and are reviewed periodically. No
material compensating balances are required or maintained.
NOTE 8: LONG-TERM DEBT
The composition of long-term debt at the end of each year, in
millions of dollars, was as follows:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Revolving credit facility
expiring 1997 $ 426.2 $1,086.7
7.50% notes due 2003 500.0 500.0
6.625% notes due 2000 250.0 250.0
7.0% notes due 2006 250.0 -
Medium Term Notes due from
1996 through 2002 151.8 -
9.25% sinking fund debentures
maturing 2016 150.0 150.0
6.75% deutsche mark bearer bonds
maturing 1995 111.4 102.7
5.75% deutsche mark bearer bonds
maturing 1994 - 58.7
8.375% notes due 1997 - 100.0
Other loans due through 2009 37.6 19.7
Less current maturities of
long-term debt (121.1) (163.1)
Less debt discounts (32.7) (35.5)
$1,723.2 $2,069.2
</TABLE>
During 1994, the Corporation filed a shelf registration statement
to issue up to $500 million in debt securities, which may consist
of debentures, notes, or other unsecured evidences of
indebtedness. These debt securities (the Medium Term Notes) may
be offered in separate series in amounts, at prices, and on terms
to be determined by market conditions at the time of sale. The
net proceeds from the sale of the Medium Term Notes will be
available for general corporate purposes, which may include, but
are not limited to, refinancing of indebtedness, working capital,
and capital expenditures. As of December 31, 1994, the
Corporation had issued $151.8 million aggregate principal amount
of the Medium Term Notes under this shelf registration statement.
Of that amount, a total of $109.8 million bear interest at fixed
rates ranging from 6.93% to 8.88%, while the remainder bear
interest at variable rates.
As a result of the issuance of public debt, the Corporation
reduced the amount of credit available under its unsecured
revolving credit facility (the Credit Facility) from $2.15
billion as of December 31, 1993, to $1.7 billion as of December
31, 1994. In January 1995, the Corporation reduced the amount of
credit available under the Credit Facility to $1.4 billion. The
amount available for borrowing under the Credit Facility at
December 31, 1994, was $1,198.8 million ($898.8 million after the
January 1995 reduction in the amount available for borrowing).
The Corporation renegotiated the pricing of borrowings under
the Credit Facility in October 1994. Borrowing options under the
Credit Facility are at LIBOR plus .4375% (LIBOR plus .50%, prior
to October 1994), or at other variable rates set forth therein.
The interest rate margin over LIBOR declines as the Corporation's
leverage ratio improves. The Corporation also is able to borrow
by means of competitive bid rate loans under the Credit Facility.
Competitive bid rate loans are made through an auction process at
then-current market rates and are classified as short-term
borrowings in the consolidated balance sheet. In addition to
interest payable on the principal amount of indebtedness
outstanding from time to time under the Credit Facility, the
Corporation is required to pay an annual facility fee to each
bank equal to .175% (.25%, prior to October 1994) of the amount
of the bank's commitment, whether used or unused.
The Credit Facility includes various customary covenants,
including covenants limiting the ability of the Corporation and
its subsidiaries to pledge assets or incur liens on assets and
financial covenants requiring the Corporation to maintain a
specified leverage ratio and to achieve certain levels of cash
flow to fixed expense coverage. As of December 31, 1994, the
Corporation was in compliance with all terms and conditions of
the Credit Facility. The Corporation expects to continue to meet
the covenants imposed by the Credit Facility over the next 12
months. Meeting the cash flow coverage ratio is dependent upon
the level of future earnings and interest rates, each of which
can have a significant impact on the ratio.
The 9.25% sinking fund debentures are obligations of Emhart
Corporation (Emhart), a wholly owned subsidiary, and are callable
at prices decreasing from 103.2% of face amount as of
December 31, 1994, to 100% in 2006. Commencing in August 1997,
annual sinking fund payments of $8.0 million are required.
The 6.75% deutsche mark bearer bonds are obligations of
Emhart and are guaranteed by the Corporation. The bonds, which
are callable at the option of Emhart at a price of 100.5% of face
amount beginning in October 1994, mature in October 1995 and have
been classified as current maturities. The 9.25% sinking fund
debentures and 6.75% deutsche mark bearer bonds include certain
restrictions on liens on assets and impose limitations on sale-
leaseback transactions.
Indebtedness of subsidiaries of the Corporation, including
the obligations of Emhart noted above, in the aggregate principal
amounts of $773.8 million and $852.4 million were included in the
consolidated balance sheet at December 31, 1994 and 1993,
respectively, under the captions short-term borrowings, current
maturities of long-term debt, and long-term debt.
In 1992, the Corporation recognized a $22.7 million
extraordinary loss, which represented the unamortized debt issue
costs related to debt repaid in connection with the Corporation's
refinancing of its previous term loan and revolving credit
facility and the early extinguishment of debt following the sale
by the Corporation of 20.7 million shares of common stock earlier
in 1992.
Principal payments on long-term debt obligations due over
the next five years are as follows: $121.1 million in 1995, $19.8
million in 1996, $461.9 million in 1997, $65.8 million in 1998,
and $63.3 million in 1999. Interest payments were $185.0 million
for 1994, $165.0 million for 1993, and $240.0 million for 1992.
NOTE 9: DERIVATIVE FINANCIAL INSTRUMENTS
The Corporation is exposed to market risks arising from changes
in interest rates. With products and services marketed in over
100 countries and with manufacturing sites in 15 countries, the
Corporation also is exposed to risks arising from changes in
foreign exchange rates. As an end user of derivative financial
instruments, the Corporation utilizes derivatives to manage these
risks by creating offsetting market positions. The Corporation's
use of derivatives with respect to interest rate and foreign
currency exposures is discussed below.
Credit Exposure: The Corporation is exposed to credit-related
losses in the event of nonperformance by counterparties to
certain derivative financial instruments. The Corporation
monitors the creditworthiness of the counterparties and presently
does not expect default by any of the counterparties. The
Corporation does not obtain collateral in connection with its
derivative financial instruments.
The credit exposure that results from interest rate and
foreign exchange contracts is represented by the fair value of
contracts with a positive fair value as of the reporting date, as
indicated below. Some derivatives are not subject to credit
exposures. The fair value of all financial instruments is
summarized in Note 10.
Interest Rate Risk Management: The Corporation manages its
interest rate risk, primarily through the use of interest rate
swap and cap agreements, in order to achieve a cost effective mix
of fixed to variable rate indebtedness. The Corporation seeks to
issue debt opportunistically, whether fixed or variable, at the
lowest possible cost and then, based upon its assessment of the
future interest rate environment, may, through the use of
interest rate derivatives, convert such debt from fixed to
variable or from variable to fixed interest rates. Similarly, the
Corporation may, at times, seek to limit the impacts of rising
interest rates on its variable rate debt through the use of
interest rate caps.
The amounts exchanged by the counterparties to interest rate
swap and cap agreements normally are based upon notional amounts
and other terms, generally related to interest rates, of the
derivatives. While the notional amounts of interest rate swaps
and caps form part of the basis for the amounts exchanged by the
counterparties, the notional amounts are not themselves exchanged
and, therefore, do not represent a measure of the Corporation's
exposure as an end user of derivative financial instruments.
The notional amounts of the Corporation's interest rate
derivatives at the end of each year, in millions of dollars, were
as follows:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Interest rate swaps:
Fixed to variable rates $850.0 $700.0
Variable to fixed rates 750.0 700.0
Rate basis swaps 200.0 200.0
U.S. rates to foreign rates 175.0 100.0
Interest rate caps purchased $100.0 $250.0
</TABLE>
The Corporation's portfolio of interest rate swap instruments as
of December 31, 1994, included $850 million notional amounts of
fixed to variable rate swaps with a weighted average fixed rate
receipt of 6.19%. The basis of the variable rates paid is LIBOR.
The majority of the fixed to variable rate swaps contain
provisions that permit, during a portion of the terms of swaps,
the setting of the variable rates at either the beginning or the
end of the reset periods, at the option of the counterparties.
The reset periods generally occur every three to six months. Of
these swaps to variable rates, $100 million mature in 1998, with
the remainder maturing in the years 2000 through 2004. A total of
$300 million of these swaps, maturing in 2003, contains
provisions that permit the counterparties to terminate the swap,
without penalty, beginning in 1998.
As of December 31, 1994, the portfolio also included $750
million notional amounts of variable to fixed rate swaps with a
weighted average fixed rate payment of 5.56%. The basis of the
variable rate received is LIBOR. A total of $150 million of the
variable to fixed rate swaps included caps limiting interest rate
movements to .25% between reset dates, which generally occur
every three months. The maturities of these swaps, by notional
amounts, are as follows: $200 million in 1995, $150 million in
1996, $200 million in 1997, and $200 million in 1998.
As of December 31, 1994, the portfolio also contained $200
million notional amounts of rate basis swaps, which swap to the
higher of a specified fixed rate or LIBOR minus a specified
spread, with a weighted average fixed rate payment of 5.93% or a
weighted average variable rate payment of LIBOR minus 1.30%. The
basis of the variable rates received is LIBOR. Rates under these
rate basis swaps are generally reset every six months. The
maturities of these swaps, by notional amounts, are as follows:
$50 million in 1995, $100 million in 1996, and $50 million in
1997. At December 31, 1994, payments under these swaps were based
on the weighted average fixed rate payment provisions of the swap
agreements.
The remainder of the interest rate swap portfolio as of
December 31, 1994, consisted of $175 million notional amounts of
interest rate swaps that swap from United States dollars into
foreign currencies. Of that amount, $150 million swapped from
fixed rate United States dollars (with a weighted average fixed
rate of 6.75%) into fixed rate Japanese yen (with a weighted
average fixed rate of 4.68%). Of the $150 million notional
amounts, $100 million mature in 1996 and the balance in 1997. A
total of $25 million notional amounts of interest rate swaps,
maturing in 1997, swapped from variable rate United States
dollars (with the variable rate based on LIBOR) into fixed rate
Swiss francs (with a weighted average fixed rate of 5.17%).
As of December 31, 1994, the Corporation also had $100
million notional amounts of interest rate caps, which have the
effect of limiting the Corporation's exposure to high interest
rates. The maturities, by notional amounts, and cap rates of
these agreements are as follows: $50 million in 1995, with a cap
rate of 6%; and $50 million in 1997, with a cap rate of 7%.
The Corporation's credit exposure on its interest rate
derivatives as of December 31, 1994 and 1993, was $22.2 million
and $15.3 million, respectively. Deferred gains and losses on the
early termination of interest rate swaps as of December 31, 1994
and 1993, were not significant.
Foreign Currency Management: The Corporation enters into various
foreign exchange contracts in managing its foreign exchange
risks. The contractual amounts of foreign currency derivative
financial instruments (principally, forward exchange contracts
and options) are generally exchanged by the counterparties.
In order to limit the volatility of reported equity, the
Corporation hedges a portion of its net investment in
subsidiaries located outside the United States, where
practicable, except for those subsidiaries located in highly
inflationary economies, through the use of foreign currency
forward contracts, foreign currency swaps, and purchased foreign
currency options with little or no intrinsic value at the
inception of the options. Prior to 1994, the Corporation
generally operated under a full hedge policy, hedging the net
assets, including goodwill, of its subsidiaries outside the
United States. During 1994, the Corporation determined that the
benefits of the full hedge policy no longer exceeded its costs
and, accordingly, elected to hedge only a portion, generally
limited to tangible net worth, of its net investment in
subsidiaries outside the United States.
Through its foreign currency hedging activities, the
Corporation seeks to minimize the risk that the eventual cash
flows resulting from the sales of products outside the United
States will be affected by changes in exchange rates. Foreign
currency commitment and transaction exposures generally are the
responsibility of the Corporation's individual operating units to
manage as an integral part of their business. Management responds
to foreign exchange movements through many alternative means,
such as pricing actions, changes in cost structure, and changes
in hedging strategies.
The Corporation hedges its foreign currency transaction and
firm purchase commitment exposures, including firm intercompany
foreign currency purchases, based on management's judgment,
generally through the use of forward exchange contracts and
purchased options with little or no intrinsic value at the
inception of the options. Some of the contracts involve the
exchange of two foreign currencies, according to the local needs
of the subsidiaries. The Corporation utilizes some natural hedges
to mitigate its transaction and commitment exposures.
Intercompany foreign currency purchase commitments are considered
to be firm when performance under the commitments is probable
because of sufficiently large disincentives to the Corporation
for nonperformance. Deferred gains and losses on intercompany
purchases hedged are recognized in cost of sales when the related
inventory is sold or when a hedged purchase is no longer expected
to occur.
The following table summarizes the contractual amounts of
the Corporation's forward exchange contracts and options as of
December 31, 1994 and 1993, in millions of United States dollars,
including details by major currency as of December 31, 1994.
Foreign currency amounts are translated at current rates as of
the reporting date. The "Buy" amounts represent the United States
dollar equivalent of commitments to purchase currencies, and the
"Sell" amounts represent the United States dollar equivalent of
commitments to sell currencies.
<TABLE>
<CAPTION>
Forward Exchange Contracts Purchased Options
As of December 31, 1994 Buy Sell Buy Sell
<S> <C> <C> <C> <C>
United States dollar $1,045.3 $ (877.5) $236.4 $ (12.1)
Pound sterling 260.5 (221.0) - (76.6)
Deutsche mark 297.9 (165.7) - (79.0)
Dutch guilder 69.9 (45.0) - (31.3)
Swedish krona 52.1 (86.2) 15.3 -
Japanese yen 16.6 (182.3) 6.0 -
French franc 20.1 (83.4) - -
Canadian dollar 246.1 (182.3) - (34.5)
Italian lira 39.4 (42.8) - -
Swiss franc 35.3 (61.9) 9.0 (3.2)
Other 37.3 (189.0) - (25.6)
Total $2,120.5 $(2,137.1) $266.7 $(262.3)
As of December 31, 1993
Total $1,881.7 $(1,867.9) $414.9 $(408.2)
</TABLE>
The Corporation's credit exposure on its foreign currency
derivatives as of December 31, 1994 and 1993, was $43.2 million
and $26.6 million, respectively.
Gross deferred realized gains and losses on commitment
hedges were not significant at December 31, 1994 and 1993.
Substantially all of the amounts deferred at December 31, 1994,
are expected to be recognized in earnings during 1995, when the
gains or losses on the underlying transactions will also be
recognized.
NOTE 10: FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument represents the amount at
which the instrument could be exchanged in a current transaction
between willing parties, other than in a forced sale or
liquidation. Significant differences can arise between the fair
value and carrying amount of financial instruments that are
recognized at historical cost amounts.
The following methods and assumptions were used by the
Corporation in estimating fair value disclosures for financial
instruments:
Cash and cash equivalents, trade receivables, certain other
current assets, short-term borrowings, and current maturity of
long-term debt: The amounts reported in the consolidated balance
sheet approximate fair value.
Long-term debt: Publicly traded debt is valued based on quoted
market values. The amount reported in the consolidated balance
sheet for the remaining long-term debt approximates fair value
since such debt was either variable rate debt or fixed rate debt
that had been recently issued as of the reporting date.
Interest rate hedges: The fair value of interest rate hedges,
including interest rate swaps and caps, reflects the estimated
amounts that the Corporation would receive or pay to terminate
the contracts at the reporting date, thereby taking into account
unrealized gains and losses of open contracts as of the reporting
date.
Foreign exchange contracts: Foreign exchange forward and option
contracts are estimated using prices established by financial
institutions for comparable instruments.
The following table sets forth the carrying amounts and fair
values of the Corporation's financial instruments, except for
those financial instruments noted above for which the carrying
values approximate fair values, at the end of each year, in
millions of dollars:
<TABLE>
<CAPTION>
1994 1993
Carrying Fair Carrying Fair
Assets (Liabilities) Amount Value Amount Value
<S> <C> <C> <C> <C>
Non-derivatives:
Long-term debt $(1,723.2) $(1,637.3) $(2,069.2) $(2,088.3)
Derivatives relating to:
Debt
Assets .6 22.2 5.1 15.3
Liabilities (1.4) (101.8) (.9) (36.2)
Foreign currency
Assets 38.0 43.2 35.0 26.6
Liabilities (43.9) (62.6) (8.5) (10.8)
</TABLE>
The carrying amounts of debt-related derivatives are included in
the consolidated balance sheet under the caption accrued
liabilities. The carrying amounts of foreign currency-related
derivatives related to net investment and commitment hedges are
included in the consolidated balance sheet under the captions
other current assets and other current liabilities. The carrying
amounts of foreign currency-related derivatives related to
transaction hedges are reflected in the same balance sheet
caption as the hedged transaction.
NOTE 11: INCOME TAXES
Earnings (loss) before income taxes, extraordinary item, and
cumulative effects of changes in accounting principles, for each
year, in millions of dollars, were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
United States $ 24.9 $ 52.3 $(131.4)
Other countries 165.2 103.6 102.4
$ 190.1 $ 155.9 $ (29.0)
</TABLE>
Significant components of income taxes (benefits) for each year,
in millions of dollars, were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Current:
United States $ 5.2 $ 7.6 $ 4.3
Other countries 43.7 32.3 36.4
Withholding on
remittances from
other countries 1.4 1.0 (1.0)
50.3 40.9 39.7
Deferred:
United States 15.5 21.7 -
Other countries (3.1) (1.9) 4.6
12.4 19.8 4.6
$ 62.7 $ 60.7 $ 44.3
</TABLE>
During 1994 and 1993, the Corporation utilized United States tax
loss carryforwards and capital loss carryforwards obtained in a
prior business combination. The effect of utilizing these
carryforwards was to recognize deferred income tax expense and to
reduce goodwill by $15.5 million in 1994 and by $21.7 million in
1993.
In 1993 and 1992, no income tax benefits were recorded on
the cumulative effect adjustments for postemployment and
postretirement benefits or the extraordinary loss from early
extinguishment of debt. The tax assets related to these
adjustments, which are predominantly in the United States, have
been offset by a corresponding increase in the deferred tax asset
valuation allowance. Income tax expense recorded directly as an
adjustment to equity as a result of hedging activities in 1994,
1993, and 1992 was not significant.
Income tax payments were $44.6 million for 1994, $92.2
million for 1993, and $32.8 million for 1992. Taxes paid during
1993 included $49 million of previously accrued tax payments
relating to settlement of prior year tax audit issues.
Deferred tax liabilities (assets), in millions of dollars,
were composed of the following:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Deferred tax liabilities:
Fixed assets $ 53.4 $ 54.5
Postretirement benefits 31.2 24.9
Other 19.8 25.6
Gross deferred tax liabilities 104.4 105.0
Deferred tax assets:
Bad debt allowance (5.3) (5.7)
Inventories (17.3) (36.3)
Postretirement benefits (20.1) (24.3)
Fixed assets (5.7) (5.8)
Other accruals (136.7) (126.2)
Tax loss carryforwards (144.3) (186.7)
Tax credit and capital loss
carryforwards (55.1) (52.4)
Gross deferred tax assets (384.5) (437.4)
Deferred tax assets' valuation
allowance 317.9 363.7
Net deferred tax liability $ 37.8 $ 31.3
</TABLE>
Deferred income taxes are included in the consolidated balance
sheet under the captions other current assets, other accrued
liabilities, and deferred income taxes.
Net deferred tax assets (prior to the valuation allowance)
of $49 million as of December 31, 1994, resulted from a prior
business combination and, accordingly, will result in a reduction
of goodwill if realized for financial reporting purposes.
During the year ended December 31, 1994, the deferred tax
asset valuation allowance decreased by $45.8 million. This net
decrease is mainly due to utilization of tax loss carryforwards
and capital loss carryforwards.
Tax basis carryforwards at December 31, 1994, consisted of
net operating losses (NOLs) expiring from 1995 to 2010, capital
loss carryforwards expiring from 1995 to 1996, and other tax
credits expiring from 1998 to 2006.
At December 31, 1994, unremitted earnings of subsidiaries
outside the United States were approximately $1,347 million on
which no United States taxes have been provided. The
Corporation's intention is to reinvest these earnings permanently
or to repatriate the earnings only when tax effective to do so.
It is not practicable to estimate the amount of additional tax
that might be payable upon repatriation of foreign earnings;
however, the Corporation believes that United States foreign tax
credits would largely eliminate any United States tax and offset
any foreign withholding tax.
A reconciliation of income taxes at the federal statutory
rate to the Corporation's income taxes for each year, in millions
of dollars, is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Income taxes at federal
statutory rate $ 66.5 $ 54.6 $ (9.9)
Lower effective taxes
on earnings of
other countries (18.7) (15.0) (14.7)
Effect of net operating loss
carryforwards (14.3) (11.9) 12.1
Withholding on remittances
from other countries 1.4 1.0 2.7
Amortization and write-off
of goodwill 25.6 24.8 53.9
Other-net 2.2 7.2 .2
Income taxes $ 62.7 $ 60.7 $ 44.3
</TABLE>
NOTE 12: POSTEMPLOYMENT AND POSTRETIREMENT BENEFITS
Net pension cost (credit) for all domestic defined benefit plans
included the following components for each year, in millions of
dollars:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Service cost $ 14.0 $ 11.8 $ 10.0
Interest cost on projected
benefit obligation 45.6 44.0 45.1
Actual return on assets (20.8) (98.6) (58.3)
Net amortization and deferral (38.2) 33.4 (13.6)
Net pension cost (credit) $ .6 $ (9.4) $(16.8)
</TABLE>
The funded status of the domestic defined benefit plans for each
year, in millions of dollars, was as follows:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit $ 492.9 $ 562.0
Accumulated benefit $ 505.4 $ 575.0
Projected benefit $ 553.1 $ 646.4
Plan assets at fair value 686.6 707.9
Plan assets in excess of
projected benefit obligation 133.5 61.5
Unrecognized net loss 79.6 163.5
Unrecognized prior service cost 6.3 7.4
Unrecognized net asset at date
of adoption net of amortization (5.3) (8.6)
Net pension asset recognized in
the consolidated balance sheet $ 214.1 $ 223.8
Discount rates 9.0% 7.0%
Salary scales 5.0-6.0% 5.0-6.0%
Expected return on plan assets 10.5% 10.5%
</TABLE>
Net pension credit for defined benefit plans outside the United
States for each year, in millions of dollars, included the
following components:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Service cost $ 8.5 $ 7.7 $ 7.6
Interest cost on projected
benefit obligation 19.0 19.1 20.9
Actual return on assets 11.3 (65.9) (43.0)
Net amortization and deferral (40.8) 38.4 10.5
Net pension credit $ (2.0) $ (.7) $ (4.0)
</TABLE>
The funded status of the defined benefit pension plans outside
the United States for each year, in millions of dollars, was as
follows:
<TABLE>
<CAPTION>
1994 1993
Plans Where Assets Exceeded
Accumulated Benefits
<S> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit $ 161.8 $ 150.9
Accumulated benefit $ 162.7 $ 152.0
Projected benefit $ 184.9 $ 177.9
Plan assets at fair value 275.2 277.7
Plan assets in excess of
projected benefit obligation 90.3 99.8
Unrecognized net loss (gain) 8.1 (16.3)
Unrecognized prior service cost 14.1 13.1
Unrecognized net asset at date
of adoption net of amortization (15.9) (16.8)
Net pension asset recognized in
the consolidated balance sheet $ 96.6 $ 79.8
Discount rates 5.0-9.0% 4.5-8.0%
Salary scales 3.5-5.0% 3.0-4.5%
Expected return on plan assets 5.5-12.0% 5.5-12.0%
</TABLE>
<TABLE>
<CAPTION>
1994 1993
Plans Where Accumulated Benefits
Exceeded Assets
<S> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit $ 51.0 $ 45.0
Accumulated benefit $ 55.3 $ 52.6
Projected benefit $ 63.9 $ 62.2
Plan assets at fair value - -
Projected benefit obligation in
excess of plan assets (63.9) (62.2)
Unrecognized net (gain) loss (7.2) .7
Unrecognized prior service cost 2.4 2.3
Unrecognized net liability at date of
adoption net of amortization 1.8 3.0
Net pension liability recognized in
the consolidated balance sheet $ (66.9) $ (56.2)
Discount rates 7.0-10.0% 6.5-8.5%
Salary scales 4.0-7.0% 4.0-6.0%
</TABLE>
Assets of domestic plans and plans outside the United States
consist principally of investments in equity securities, debt
securities, and cash equivalents.
The expected returns on plan assets during 1992 for defined
benefit plans were 11.0% for plans in the United States and 5.5%
to 12.0% for funded plans outside the United States.
Expense for defined contribution plans amounted to $20.5
million, $18.4 million, and $18.2 million in 1994, 1993, and
1992, respectively.
The Corporation has several unfunded health care plans that
provide certain postretirement medical, dental, and life
insurance benefits for most United States employees. The
postretirement medical and dental plans are contributory and
include certain cost-sharing features, such as deductibles and
co-payments.
The Corporation adopted SFAS No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions," as of
January 1, 1992. As a result of the adoption, a $249.8 million
cumulative effect adjustment was recorded as a reduction of net
earnings during 1992.
Net periodic postretirement benefit expense, in millions of
dollars, included the following components:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Service expense $ 1.8 $ 1.7 $ 2.7
Interest expense 12.9 14.8 19.8
Net amortization (8.0) (7.7) (1.7)
Net periodic postretirement
benefit expense $ 6.7 $ 8.8 $ 20.8
</TABLE>
The reconciliation of the accumulated postretirement benefit
obligation to the liability recognized in the consolidated
balance sheet, in millions of dollars, was as follows:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Accumulated postretirement
benefit obligation
Retirees $133.1 $150.4
Fully eligible active participants 10.7 25.6
Other active participants 22.2 29.6
Total 166.0 205.6
Unrecognized prior service cost 63.5 69.5
Unrecognized net gain (loss) 15.8 (25.5)
Net postretirement benefit liability
recognized in the consolidated
balance sheet $245.3 $249.6
</TABLE>
The health care cost trend rate used to determine the
postretirement benefit obligation was 10.75% for 1994, 8.75% for
1995, decreases gradually to an ultimate rate of 4.75% in 2001
and remains at that level thereafter. The trend rate is a
significant factor in determining the amounts reported. The
effect of a 1% annual increase in these assumed health care cost
trend rates would increase the accumulated postretirement benefit
obligation by approximately $7.1 million. The effect of a 1%
increase on the aggregate of the service and interest cost
components of net periodic postretirement benefit cost is
immaterial. An assumed discount rate of 9.0% was used to measure
the accumulated postretirement benefit obligation for 1994
compared to 7.0% used in 1993.
As of January 1, 1993, the Corporation adopted SFAS No. 112,
"Employers' Accounting for Postemployment Benefits," which
addresses the accounting for certain benefits provided to former
employees prior to retirement. For the Corporation, these
benefits primarily relate to disability and workers' compensation
benefits. Prior to January 1, 1993, the Corporation recognized
the cost of providing these benefits principally on the cash
basis. Commencing in 1993, the Corporation began to accrue these
benefits when payment of such benefits is probable and when
sufficient information exists to make reasonable estimates of the
amounts to be paid. As a result of the adoption of SFAS No. 112,
a $29.2 million cumulative effect adjustment was recorded as a
reduction of net income during 1993.
NOTE 13: STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Dollars in Millions Except Per Share Amounts)
Equity
Outstanding Outstanding Capital in Retained Adjustment
Preferred Common $.50 Excess of Earnings From
Shares Amount Shares Par Value Par Value (Deficit) Translation
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1991 150,000 $150.0 61,860,619 $30.9 $ 561.9 $ 298.1 $(13.8)
Net loss - - - - - (333.6) -
Cash dividends
- Common ($.40 per share) - - - - - (31.3) -
- Preferred - - - - - (11.6) -
Sale of common stock - - 20,700,000 10.4 455.0 - -
Common stock issued under
employee benefit plans - - 867,487 .4 11.7 - -
Valuation changes, less net
effect of hedging activities - - - - - - (54.1)
Balance at December 31, 1992 150,000 150.0 83,428,106 41.7 1,028.6 (78.4) (67.9)
Net earnings - - - - - 66.0 -
Cash dividends
- Common ($.40 per share) - - - - - (33.5) -
- Preferred - - - - - (11.6) -
Common stock issued under
employee benefit plans - - 417,088 .2 6.2 - -
Valuation changes, less net
effect of hedging activities - - - - - - (52.4)
Balance at December 31, 1993 150,000 150.0 83,845,194 41.9 1,034.8 (57.5) (120.3)
Net earnings - - - - - 127.4 -
Cash dividends
- Common ($.40 per share) - - - - - (33.7) -
- Preferred - - - - - (11.6) -
Common stock issued under
employee benefit plans - - 843,609 .4 14.3 - -
Valuation changes, less net
effect of hedging activities - - - - - - 23.7
Balance at December 31, 1994 150,000 $150.0 84,688,803 $42.3 $1,049.1 $ 24.6 $(96.6)
</TABLE>
The Corporation has one class of $.50 par value common stock with
150,000,000 authorized shares. The Corporation has authorized
5,000,000 shares of preferred stock without par value, of which
1,500,000 shares have been designated as Series A Junior
Participating Preferred Stock (Series A) and 150,000 shares have
been designated as Series B Cumulative Convertible Preferred
Stock (Series B).
In May 1992, the Corporation sold 20,700,000 shares of
common stock at $23.25 per share. Net proceeds of $465.4 million
were used to reduce debt.
Holders of Series B stock are entitled to dividends, payable
quarterly, at an annual rate of $77.50 per share. In accordance
with the terms of the Articles Supplementary that set forth the
terms and conditions of the Series B stock, each share of Series
B stock now is convertible into 42 1/3 shares of common stock and
is entitled to 42 1/3 votes on matters submitted generally to the
stockholders of the Corporation. The conversion rate and the
number of votes per share are subject to adjustment under certain
circumstances pursuant to anti-dilution provisions. The
Corporation has reserved 6,350,000 shares of common stock for
issuance upon conversion of the shares of Series B stock. The
shares of Series B stock are not redeemable at the option of the
Corporation until September 2001. For a 90-day period thereafter,
the Corporation is entitled to redeem all, but not less than all,
of the shares of Series B stock at a redemption price equal to
the current market price of the shares of common stock into which
the Series B stock is then convertible. The shares of Series B
stock are not subject to redemption at the option of the holders
of the shares under any circumstances. The Corporation also has
the option, after September 1996, to require the conversion of
the shares of Series B stock into shares of common stock if the
current market price of the shares of common stock is at least
equal to $39.45 per share (subject to adjustment) for a period of
20 trading days out of 30 consecutive trading days.
In connection with the sale of the Series B stock, the
Corporation and the purchaser of Series B stock entered into a
standstill agreement that includes, among other things,
provisions limiting the purchaser's ownership and voting of
shares of the Corporation's capital stock, provisions limiting
actions by the purchaser with respect to the Corporation, and
provisions generally restricting the purchaser's equity interest
to 15%. The standstill agreement expires in September 2001.
The Corporation has a Stockholder Rights Plan pursuant to
which, under certain conditions, each stockholder has share
purchase rights for each outstanding share of common stock and
Series B stock of the Corporation. The Corporation has reserved
1,500,000 shares of Series A stock for possible issuance upon
exercise of the rights.
NOTE 14: STOCK OPTION AND PURCHASE PLANS
Under various stock option plans, options to purchase common
stock may be granted until 2002. Options generally are granted at
fair market value at the date of grant, are exercisable in
installments beginning one year from the date of grant, and
expire 10 years after the date of grant. The plans permit the
issuance of either incentive stock options or non-qualified stock
options, which, for certain of the plans, may be accompanied by
stock or cash appreciation rights or limited stock appreciation
rights issued simultaneously with the grant of the stock options.
Additionally, certain plans allow for the granting of stock
appreciation rights on a stand-alone basis.
As of December 31, 1994, 75,375 incentive stock options,
5,719,967 non-qualified stock options without cash appreciation
rights, and 235,000 non-qualified stock options with cash
appreciation rights were outstanding under domestic plans. There
were 421,940 stock options outstanding under the Corporation's
United Kingdom plan.
Under all plans, there were 963,505 shares of common stock
reserved for future grants as of December 31, 1994. Transactions
are summarized as follows:
<TABLE>
<CAPTION>
Stock Options
Outstanding Price Range
<S> <C> <C>
December 31, 1993 6,436,111 $ 9.88-25.25
Granted 761,050 17.63-23.38
Exercised 343,702 9.88-21.63
Canceled or expired 401,177 9.88-25.25
December 31, 1994 6,452,282 9.88-25.25
Shares exercisable at
December 31, 1994 4,335,838 9.88-25.25
Shares exercised
during the year ended
December 31, 1993 330,024 9.88-20.88
Shares exercised
during the year ended
December 31, 1992 535,426 9.88-25.25
</TABLE>
Under the 1991 Employees Stock Purchase Plan (and its predecessor
plan), employees may subscribe to purchase shares of the
Corporation's common stock at the lower of 90% of market value on
the date offered or on the date purchased.
Transactions under these plans are summarized as follows:
<TABLE>
<CAPTION>
Common Shares
Subscribed Prices
<S> <S> <C>
December 31, 1993 216,629 $16.50
Subscriptions 157,815 19.13
Purchases 208,529 16.25
Cancellations 13,035 16.25-19.13
December 31, 1994 152,880 19.13
Shares purchased
during the year ended
December 31, 1993 87,064 16.75
Shares purchased
during the year ended
December 31, 1992 332,061 11.50
</TABLE>
NOTE 15: BUSINESS SEGMENTS AND GEOGRAPHIC AREAS
BUSINESS SEGMENTS
(Millions of Dollars)
<TABLE>
<CAPTION>
Consumer & Home Commercial & Information
Improvement Industrial Technology Corporate &
1994 Products Products & Services Eliminations Consolidated
<S> <C> <C> <C> <C>
Sales to unaffiliated customers $3,773.8 $ 591.4 $ 883.1 $ - $5,248.3
Operating income 293.7 52.6 37.2 10.2 393.7
Operating income excluding goodwill amortization 350.6 68.7 40.4 10.2 469.9
Identifiable assets 4,686.2 1,390.0 523.5 (1,166.0) 5,433.7
Capital expenditures 166.5 12.4 17.0 2.6 198.5
Depreciation 101.5 13.9 15.2 4.0 134.6
1993
Sales to unaffiliated customers $3,529.6 $ 591.9 $ 760.7 $ - $4,882.2
Operating income 215.8 76.5 28.9 14.1 335.3
Operating income excluding restructuring
costs and credits and goodwill amortization 280.8 73.2 32.0 14.1 400.1
Identifiable assets 4,693.9 1,375.5 494.2 (1,253.0) 5,310.6
Capital expenditures 171.7 13.9 19.6 4.7 209.9
Depreciation 94.2 13.4 15.0 3.7 126.3
1992
Sales to unaffiliated customers $3,379.0 $ 666.7 $ 733.9 $ - $4,779.6
Operating income 218.4 (44.7) 18.6 6.9 199.2
Operating income excluding restructuring
costs and credits and goodwill amortization 307.5 80.4 21.7 6.9 416.5
Identifiable assets 4,753.7 1,390.6 426.1 (1,178.5) 5,391.9
Capital expenditures 152.3 9.3 16.3 6.1 184.0
Depreciation 93.8 15.7 12.7 3.6 125.8
</TABLE>
<TABLE>
GEOGRAPHIC AREAS
(Millions of Dollars)
<CAPTION>
United Corporate &
1994 States Europe Other Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers $3,292.4 $1,279.3 $ 676.6 $ - $5,248.3
Sales and transfers between geographic areas 234.9 147.6 213.7 (596.2) -
Total sales $3,527.3 $1,426.9 $ 890.3 $ (596.2) $5,248.3
Operating income $ 254.2 $ 114.6 $ 14.7 $ 10.2 $ 393.7
Identifiable assets $3,723.5 $2,305.9 $ 670.8 $(1,266.5) $5,433.7
1993
<S>
Sales to unaffiliated customers $3,069.3 $1,200.3 $ 612.6 $ - $4,882.2
Sales and transfers between geographic areas 236.5 143.3 208.9 (588.7) -
Total sales $3,305.8 $1,343.6 $ 821.5 $ (588.7) $4,882.2
Operating income $ 213.9 $ 101.5 $ 5.8 $ 14.1 $ 335.3
Identifiable assets $3,661.2 $2,255.0 $ 622.7 $(1,228.3) $5,310.6
1992
Sales to unaffiliated customers $2,805.6 $1,392.0 $ 582.0 $ - $4,779.6
Sales and transfers between geographic areas 225.4 132.5 169.0 (526.9) -
Total sales $3,031.0 $1,524.5 $ 751.0 $ (526.9) $4,779.6
Operating income $ 162.2 $ 26.8 $ 3.3 $ 6.9 $ 199.2
Identifiable assets $3,578.0 $2,355.7 $ 637.0 $(1,178.8) $5,391.9
</TABLE>
The Corporation operates in three business segments: Consumer
and Home Improvement Products, including consumer and
professional power tools and accessories, household products,
security hardware, outdoor products (composed of electric lawn
and garden and recreational products), plumbing products, and
product service; Commercial and Industrial Products, including
fastening systems and glass container-making equipment; and
Information Technology and Services, including government and
commercial systems development, consulting, and other related
services.
Approximately 14% of 1994, 13% of 1993, and 12% of 1992
total revenues were from contracts with the United States
government and government agencies. Substantially all of these
revenues are included in the Information Technology and Services
segment.
For 1993, the Consumer and Home Improvement Products segment
included charges of $29.0 million for plant closures and
reorganizations offset by a gain of $15.9 million for the sale of
Corbin Russwin. The Commercial and Industrial segment included a
gain of $19.4 million for the sale of Dynapert.
For 1992, restructuring costs in the amount of $35.5 million
were charged to the Consumer and Home Improvement Products
segment and $106.9 million to the Commercial and Industrial
segment.
In the geographic area table, United States includes all
domestic operations and an intercompany manufacturing facility
outside the United States, which manufactures products
predominantly for sale in the United States. Other includes
subsidiaries located in Canada, Latin America, Australia, and the
Far East.
For 1993, restructuring credits in the amount of $6.3
million were included in the United States geographic segment.
For 1992, restructuring costs of $31.5 million, $93.9
million, and $17.0 million were charged to the United States,
Europe, and Other geographic segments, respectively.
Transfers between geographic areas are accounted for at cost
plus a reasonable profit. Transfers between business segments are
not significant. Identifiable assets are those assets identified
with the operations in each area or segment, including goodwill.
Corporate assets included in corporate and eliminations were
$242.3 million at December 31, 1994, $217.5 million at
December 31, 1993, and $282.0 million at December 31, 1992, and
consist principally of cash and cash equivalents, other current
assets, property, and other sundry assets. The remainder of
corporate and eliminations includes certain pension credits and
amounts to eliminate intercompany items, including income and
expense, accounts receivable and payable, and intercompany profit
in inventory.
NOTE 16: OTHER EXPENSE
Other expense for 1994, 1993, and 1992 primarily included the
costs associated with the sale of receivables program.
NOTE 17: LEASES
The Corporation leases certain service centers, offices,
warehouses, and equipment. Generally, the leases carry renewal
provisions and require the Corporation to pay maintenance costs.
Rental payments may be adjusted for increases in taxes and
insurance above specified amounts. Rental expense charged to
earnings for 1994, 1993, and 1992 amounted to $91.8 million,
$86.5 million, and $106.0 million, respectively. Capital leases
are immaterial in amount and are generally treated as operating
leases. Future minimum payments, in millions of dollars, under
non-cancelable operating leases with initial or remaining terms
of more than one year as of December 31, 1994, were as follows:
<TABLE>
<S> <C>
1995 $ 53.9
1996 38.9
1997 24.2
1998 16.2
1999 10.4
Thereafter 42.4
Total $186.0
</TABLE>
NOTE 18: RESTRUCTURING
During 1992, the Corporation commenced a restructuring of certain
of its operations and accrued costs of $142.4 million. Of this
amount, $98.9 million related to the Corporation's decision to
reorganize Dynapert, the Corporation's printed circuit board
assembly equipment business, including the withdrawal from the
manufacturing of surface-mount machinery in Europe. Costs
associated with the Dynapert restructuring included the write-off
of goodwill, write-down of property, plant and equipment,
termination of leases, employee severance, and anticipated losses
during the withdrawal period. The remainder of the restructuring
plan, which was substantially completed in 1994, included a
reduction of manufacturing capacity of other businesses at a cost
of $43.5 million. These costs related predominantly to operations
in Europe and included the write-down of property, plant and
equipment to net realizable value, relocation and transfer costs,
and employee severance and related costs.
During 1993, the Corporation substantially completed its
restructuring plan related to Dynapert by withdrawing from the
manufacture of surface-mount machinery. In addition, during the
fourth quarter of 1993, the Corporation sold the Dynapert
through-hole business at a gain of $19.4 million, which has been
reflected as a credit to restructuring costs. The combined 1993
revenues and operating income of the two businesses, including
the surface-mount machinery business that was liquidated,
amounted to $112.5 million and $9.0 million, respectively,
compared to revenues and operating loss of $138.1 million and
$(3.3) million, respectively, in 1992. In 1993, the Corporation
realized cash proceeds of approximately $108 million from the
sale of Dynapert and Corbin Russwin, which were used to reduce
debt.
Restructuring costs for 1993 also included a charge of $29.0
million for the closure and reorganization of certain
manufacturing sites. These costs primarily included the write-
down of property, plant and equipment to net realizable value and
employee severance and related costs. Of the total amount,
approximately $10 million represented cash spending. These plant
actions, which have been substantially completed during 1994,
were part of the Corporation's continuing effort to identify
opportunities to improve its manufacturing cost structure.
NOTE 19: LITIGATION AND CONTINGENT LIABILITIES
The Corporation is involved in various lawsuits in the ordinary
course of business. These lawsuits primarily involve claims for
damages arising out of the use of the Corporation's products and
allegations of patent and trademark infringement. The Corporation
is also involved in litigation and administrative proceedings
involving employment matters and commercial disputes. Some of
these lawsuits include claims for punitive as well as
compensatory damages. The Corporation, using current product
sales data and historical trends, actuarially calculates the
estimate of its current exposure for product liability. The
Corporation is insured for product liability claims for amounts
in excess of established deductibles and accrues for the
estimated liability as described above up to the limits of the
deductibles. All other claims and lawsuits are handled on a case-
by-case basis.
The Corporation also is involved in lawsuits and
administrative proceedings with respect to claims involving the
discharge of hazardous substances into the environment. Certain
of these claims assert damages and liability for remedial
investigations and cleanup costs with respect to sites at which
the Corporation has been identified as a potentially responsible
party under federal and state environmental laws and regulations
(off-site). Other matters involve sites that the Corporation
currently owns and operates or has previously sold (on-site). For
off-site claims, the Corporation makes an assessment of the cost
involved based on environmental studies, prior experience at
similar sites, and the experience of other named parties. The
Corporation also considers the ability of other parties to share
costs, the percentage of the Corporation's exposure relative to
all other parties, and the effects of inflation on these
estimated costs. For on-site matters associated with properties
currently owned, an assessment is made as to whether an
investigation and remediation would be required under applicable
federal and state law. For on-site matters associated with
properties previously sold, the Corporation considers the terms
of sale as well as applicable federal and state laws to determine
if the Corporation has any remaining liability. If the
Corporation is determined to have potential liability for
properties currently owned or previously sold, an estimate is
made of the total cost of investigation and remediation and other
potential costs associated with the site.
The Corporation's estimate of the costs associated with
legal, product liability, and environmental exposures is accrued
if, in management's judgment, the likelihood of a loss is
probable. These accrued liabilities are not discounted.
Insurance recoveries for environmental and certain general
liability claims are not recognized until realized. In the
opinion of management, amounts accrued for awards or assessments
in connection with these matters are adequate and, accordingly,
ultimate resolution of these matters will not have a material
effect on the Corporation.
As of December 31, 1994, the Corporation had no known
probable but inestimable exposures that could have a material
effect on the Corporation.
NOTE 20: QUARTERLY RESULTS (UNAUDITED)
(Millions of Dollars Except Per Share Data)
<TABLE>
<CAPTION>
Year Ended December 31, 1994 First Quarter Second Quarter Third Quarter Fourth Quarter
<S> <C> <C> <C> <C>
Total revenues $1,084.6 $1,221.2 $1,323.4 $1,619.1
Gross margin 370.7 421.3 447.2 561.5
Net earnings 14.6 23.0 29.3 60.5
Net earnings per common share .14 .24 .31 .68
Year Ended December 31, 1993
Total revenues $1,099.9 $1,155.9 $1,189.6 $1,436.8
Gross margin 379.9 397.6 385.0 487.2
Net earnings before cumulative effect
of change in accounting principle 13.9 19.5 19.5 42.3
Net earnings (loss) (15.3) 19.5 19.5 42.3
Per common share information:
Net earnings before cumulative effect
of change in accounting principle .13 .20 .20 .47
Net earnings (loss) (.22) .20 .20 .47
</TABLE>
The results for the first quarter of 1993 included a charge for
the cumulative effect of adopting SFAS No. 112, "Employers'
Accounting for Postemployment Benefits," effective as of
January 1, 1993, in the amount of $29.2 million or $.35 per
common share. The fourth quarter of 1993 included the gain on
sale of Dynapert and Corbin Russwin, substantially offset by the
charge for plant closures and reorganizations.
The three-month period ended July 4, 1993, included a tax
benefit of $1.4 million reflective of the cumulative year-to-date
adjustment of the effective tax rate that resulted from a change
in the mix between foreign and domestic earnings, primarily due
to increased operating income and lower interest expense in the
United States.
Earnings per common share calculations for each of the
quarters were based on the weighted average number of shares
outstanding for each period, and the sum of the quarters may not
necessarily be equal to the full year earnings per common share
amount.
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors of
The Black & Decker Corporation:
We have audited the accompanying consolidated balance sheets of
The Black & Decker Corporation as of December 31, 1994 and 1993,
and the related consolidated statements of earnings and cash
flows for each of the three years in the period ended
December 31, 1994. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These
financial statements and schedule are the responsibility of the
Corporation's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
consolidated financial position of The Black & Decker Corporation
at December 31, 1994 and 1993, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 1994, in conformity with generally
accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents
fairly in all material respects the information set forth
therein.
As discussed in Note 12 to the Financial Statements,
effective January 1, 1993, the Corporation changed its method of
accounting for postemployment benefits. As discussed in Notes 11
and 12 to the Financial Statements, effective January 1, 1992,
the Corporation changed its methods of accounting for income
taxes and postretirement benefits other than pensions.
/s/ ERNST & YOUNG LLP
Ernst & Young LLP
Baltimore, Maryland
February 9, 1995
The undersigned further amends the following item of its Annual Report
on Form 10-K for the year ended December 31, 1994, by adding to that
item the following:
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
Exhibit No. Exhibit
23 Consent of Independent Auditors
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this amendment to be signed on its behalf
by the undersigned, thereunto duly authorized.
THE BLACK & DECKER CORPORATION
Date: April 24, 1995 By: /s/ STEPHEN F. REEVES
Stephen F. Reeves
Corporate Controller
(principal accounting officer)
EXHIBIT 23
Consent of Independent Auditors
We consent to the incorporation by reference in the
following Registration Statements of our report dated
February 9, 1995, with respect to the consolidated financial
statements and schedule of The Black & Decker Corporation
included in the Annual Report (Form 10-K) for the year ended
December 31, 1994, as amended, included in this Form 10-K/A
(Amendment No. 1).
Registration Statement Number Description
2-75916 Form S-8
33-6610 Form S-8
33-6612 Form S-8
33-26917 Form S-8
33-26918 Form S-8
33-33251 Form S-8
33-39607 Form S-8
33-39608 Form S-3
33-47651 Form S-8
33-47652 Form S-8
33-53807 Form S-3
/s/ ERNST & YOUNG LLP
Ernst & Young LLP
Baltimore, Maryland
April 19, 1995
