UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended March 29, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from to
Commission File Number: 1-1553
THE BLACK & DECKER CORPORATION
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(Exact name of registrant as specified in its charter)
Maryland 52-0248090
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
701 East Joppa Road Towson, Maryland 21286
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(Address of principal executive offices) (Zip Code)
(410) 716-3900
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address, and former fiscal
year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. X YES NO
The number of shares of Common Stock outstanding as of March 29, 1998:
94,996,681
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The exhibit index as required by item 601(a) of Regulation S-K is included in
this report.
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2
THE BLACK & DECKER CORPORATION AND SUBSIDIARIES
INDEX - FORM 10-Q
March 29, 1998
Page
PART I - FINANCIAL INFORMATION
Consolidated Statement of Earnings (Unaudited)
For the Three Months Ended March 29, 1998 and March 30, 1997 3
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Consolidated Balance Sheet
March 29, 1998 (Unaudited) and December 31, 1997 4
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Consolidated Statement of Changes in Stockholders' Equity (Unaudited)
For the Three Months Ended March 29, 1998 and March 30, 1997 5
----------------
Consolidated Statement of Cash Flows (Unaudited)
For the Three Months Ended March 29, 1998 and March 30, 1997 6
----------------
Notes to Consolidated Financial Statements (Unaudited) 7
-------------------------
Management's Discussion and Analysis of Financial Condition and
Results of Operations 12
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PART II - OTHER INFORMATION 23
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SIGNATURES 26
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3
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF EARNINGS (Unaudited)
The Black & Decker Corporation and Subsidiaries
(Dollars in Millions Except Per Share Amounts)
Three Months Ended
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March 29, 1998 March 30, 1997
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<S> <C> <C>
Sales $ 1,008.3 $ 1,015.0
Cost of goods sold 658.3 650.5
Selling, general, and administrative expenses 279.9 291.2
Write-off of goodwill 900.0 -
Restructuring costs 140.0 -
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Operating Income (Loss) (969.9) 73.3
Interest expense (net of interest income) 28.4 30.6
Other income (expense) .3 (2.3)
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Earnings (Loss) Before Income Taxes (998.0) 40.4
Income taxes (benefit) (26.6) 14.1
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Net Earnings (Loss) $ (971.4) $ 26.3
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Net Earnings (Loss) Per Common Share -- Basic $ (10.21) $ .28
===========================================================================================
Shares Used in Computing Basic Earnings Per Share
(in Millions) 95.1 94.4
===========================================================================================
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Net Earnings (Loss) Per Common Share -- Assuming
Dilution $ (10.21) $ .27
===========================================================================================
Shares Used in Computing Diluted Earnings Per
Share (in Millions) 95.1 96.0
===========================================================================================
Dividends Per Common Share $ .12 $ .12
===========================================================================================
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
</FN>
</TABLE>
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4
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
The Black & Decker Corporation and Subsidiaries
(Dollars in Millions Except Per Share Amount)
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March 29, 1998
(Unaudited) December 31, 1997
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<S> <C> <C>
Assets
Cash and cash equivalents $ 98.8 $ 246.8
Trade receivables 831.6 931.4
Inventories 827.4 774.7
Other current assets 187.9 125.9
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Total Current Assets 1,945.7 2,078.8
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Property, Plant, and Equipment 877.3 915.1
Goodwill 959.2 1,877.3
Other Assets 491.7 489.5
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$ 4,273.9 $ 5,360.7
=============================================================================================
Liabilities and Stockholders' Equity
Short-term borrowings $ 74.7 $ 178.3
Current maturities of long-term debt 164.6 60.5
Trade accounts payable 411.6 372.0
Other accrued liabilities 714.4 761.8
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Total Current Liabilities 1,365.3 1,372.6
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Long-Term Debt 1,570.6 1,623.7
Deferred Income Taxes 58.3 57.7
Postretirement Benefits 303.5 304.2
Other Long-Term Liabilities 204.0 211.1
Stockholders' Equity
Common stock, par value $.50 per share
(outstanding: March 29, 1998--94,996,681 shares;
December 31, 1997--94,842,544 shares) 47.5 47.4
Capital in excess of par value 1,261.6 1,278.2
Retained earnings (deficit) (420.9) 562.0
Accumulated other comprehensive income (116.0) (96.2)
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Total Stockholders' Equity 772.2 1,791.4
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$ 4,273.9 $ 5,360.7
=============================================================================================
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
</FN>
</TABLE>
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5
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
EQUITY (Unaudited)
The Black & Decker Corporation and Subsidiaries
(Dollars in Millions Except Per Share Amounts)
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Accumulated
Outstanding Capital in Retained Other Total
Common Par Excess of Earnings Comprehensive Stockholders'
Shares Value Par Value (Deficit) Income Equity
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 94,248,807 $ 47.1 $ 1,261.7 $ 380.2 $ (56.6) $ 1,632.4
Comprehensive income:
Net earnings -- -- -- 26.3 -- 26.3
Foreign currency translation
adjustments, less effect of
hedging activities (net of tax) -- -- -- -- (43.9) (43.9)
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Comprehensive income (loss) -- -- -- 26.3 (43.9) (17.6)
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Cash dividends ($.12 per share) -- -- -- (11.3) -- (11.3)
Common stock issued under
employee benefit plans 168,157 .1 4.8 -- -- 4.9
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Balance at March 30, 1997 94,416,964 $ 47.2 $ 1,266.5 $ 395.2 $ (100.5) $ 1,608.4
===================================================================================================================
Balance at December 31, 1997 94,842,544 $ 47.4 $ 1,278.2 $ 562.0 $ (96.2) $ 1,791.4
Comprehensive income:
Net loss -- -- -- (971.4) -- (971.4)
Foreign currency translation
adjustments, less effect of
hedging activities (net of tax) -- -- -- -- (19.8) (19.8)
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Comprehensive income (loss) -- -- -- (971.4) (19.8) (991.2)
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Cash dividends ($.12 per share) -- -- -- (11.5) -- (11.5)
Purchase and retirement of
common stock (681,000) (.3) (33.5) -- -- (33.8)
Common stock issued under
employee benefit plans 835,137 .4 16.9 -- -- 17.3
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Balance at March 29, 1998 94,996,681 $ 47.5 $ 1,261.6 $ (420.9) $ (116.0) $ 772.2
===================================================================================================================
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
</FN>
</TABLE>
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6
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
The Black & Decker Corporation and Subsidiaries
(Dollars in Millions)
Three Months Ended
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March 29, 1998 March 30, 1997
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<S> <C> <C>
Operating Activities
Net earnings (loss) $ (971.4) $ 26.3
Adjustments to reconcile net earnings (loss) to cash flow from
operating activities:
Non-cash charges and credits:
Goodwill write-off 900.0 -
Restructuring charges 100.0 -
Depreciation and amortization 43.8 54.7
Other 6.2 (2.7)
Changes in selected working capital items:
Trade receivables 89.4 49.2
Inventories (64.0) (120.3)
Trade accounts payable 43.8 (36.4)
Restructuring spending (4.6) -
Other assets and liabilities (129.4) (42.5)
Net decrease in receivables sold - (59.0)
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Cash Flow From Operating Activities 13.8 (130.7)
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Investing Activities
Proceeds from disposal of assets 3.3 2.6
Capital expenditures (32.2) (40.2)
Cash inflow from hedging activities 82.3 15.0
Cash outflow from hedging activities (81.5) (14.4)
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Cash Flow From Investing Activities (28.1) (37.0)
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Cash Flow Before Financing Activities (14.3) (167.7)
Financing Activities
Net decrease in short-term borrowings (97.4) (56.6)
Proceeds from long-term debt (including revolving credit facility) 202.6 400.0
Payments on long-term debt (including revolving credit facility) (162.0) (183.6)
Redemption of preferred stock of subsidiary (41.7) -
Purchase of common stock (33.8) -
Issuance of common stock 11.8 1.1
Cash dividends (11.5) (11.3)
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Cash Flow From Financing Activities (132.0) 149.6
Effect of exchange rate changes on cash (1.7) (4.1)
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Decrease In Cash And Cash Equivalents (148.0) (22.2)
Cash and cash equivalents at beginning of period 246.8 141.8
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Cash And Cash Equivalents At End Of Period $ 98.8 $ 119.6
=======================================================================================================
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
</FN>
</TABLE>
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7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The Black & Decker Corporation and Subsidiaries
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and do not include all the
information and notes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, the unaudited
consolidated financial statements include all adjustments consisting only of
normal recurring accruals considered necessary for a fair presentation of the
financial position and the results of operations.
Operating results for the three-month period ended March 29, 1998, are not
necessarily indicative of the results that may be expected for a full fiscal
year. For further information, refer to the consolidated financial statements
and notes included in the Corporation's Annual Report on Form 10-K for the year
ended December 31, 1997.
Effective January 1, 1998, the Corporation adopted Statement of Financial
Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income. SFAS No.
130 requires that, as part of a full set of financial statements, entities must
present other comprehensive income, which represents total non-stockholder
changes in equity. The Corporation has included its presentation of other
comprehensive income in the accompanying Consolidated Statement of Changes in
Stockholders' Equity for the three months ended March 29, 1998 and March 30,
1997. In connection with the adoption of SFAS No. 130, the Corporation has
changed the designation of its "Equity adjustment from translation" component of
stockholders' equity in the accompanying Consolidated Balance Sheet to
"Accumulated other comprehensive income."
NOTE 2: STRATEGIC REPOSITIONING
Overview: A comprehensive strategic repositioning plan, designed to intensify
focus on core operations and improve operating performance, was approved by the
Corporation's Board of Directors on January 26, 1998. The program includes the
following components: (i) divestiture of the recreational products business, the
glass container-forming and inspection equipment business, and the household
products business in North America, Latin America, and Australia; (ii) the
repurchase of up to 10% of the Corporation's outstanding common stock; and (iii)
a restructuring of the Corporation's remaining businesses. Also on January 26,
1998, the Board of Directors elected to authorize a change in the basis upon
which the Corporation evaluates goodwill for impairment.
Divestitures: The Corporation has engaged investment bankers to assist in the
divestitures of the recreational products business, the glass container-forming
and inspection equipment business, and the household products business in North
America, Latin America, and Australia. The recreational products and household
products businesses are components of the Consumer and Home Improvement Products
(Consumer) segment; the glass container-forming and inspection equipment
business is a component of the Commercial and Industrial Products (Commercial)
segment.
The Corporation expects aggregate net proceeds from the sales of these
businesses to exceed $500 million. Net proceeds from the sales of these
businesses, together with cash generated by remaining operations, are expected
to be utilized in the repurchase of up to 10% of the Corporation's outstanding
common stock and to fund the restructuring program described below. During the
quarter ended March 29, 1998, the Corporation reached agreement regarding the
sale of assets of the household
<PAGE>
8
products business in Australia, the proceeds of which are immaterial. The
remaining divestitures are expected to be completed during 1998.
As more fully described in Note 8, on May 11, 1998, the Corporation
announced that had entered into a definitive agreement for the sale of the
Corporation's household products business (other than certain assets associated
with the Corporation's cleaning and lighting products, such as the
Dustbuster(R), SnakeLight(R), ScumBusterTM, and FloorBuster(R) products) in
North America, Central America, and Latin America (excluding Brazil, Uruguay,
and Paraguay).
Sales of the businesses to be divested, in aggregate, were $140.9 million
and $152.8 million for the three months ended March 29, 1998, and March 30,
1997, respectively.
Repurchase of Common Stock: On January 26, 1998, the Board of Directors
authorized the repurchase of up to 10%, or 9,484,254 shares, of the
Corporation's outstanding common stock over the next two years. A combination of
net proceeds from the sale of divested businesses and cash flow from remaining
operations will be used to fund the stock repurchase program. Prior to the
receipt of proceeds from the sale of divested businesses, the Corporation also
may utilize its existing borrowing facilities to fund a portion of the stock
repurchase program.
During the three months ended March 29, 1998, the Corporation repurchased
681,000 shares of common stock at an aggregate cost of $33.8 million.
Restructuring Charge: The restructuring program, which will be completed over a
period of two years, is being undertaken to reduce fixed costs and simplify the
supply chain and new product introduction processes. During the three months
ended March 29, 1998, the Corporation commenced this program and recognized a
restructuring charge in the amount of $140.0 million. The Corporation
anticipates that additional restructuring charges will be recognized over the
course of the two-year program.
The major component of the restructuring charge relates to the elimination
of approximately 3,700 positions. As a result, an accrual of $102.7 million,
principally associated with European businesses in the Consumer segment, was
included in the restructuring charge. Included in that severance accrual was
$8.1 million related to severance actions taken in the businesses to be divested
and with respect to the closure of a facility outside the United States, not
expected to be a component of the businesses to be divested, that manufactures
household products predominantly for sale in the United States.
In order to reduce fixed costs and simplify the supply chain and new product
introduction processes, the Corporation will take actions to rationalize certain
manufacturing, sales, and administrative operations resulting in the closure of
a number of facilities. As a result, the restructuring charge also included a
$27.5 million write-down to fair value--less, if applicable, costs to sell--of
certain land, buildings, and equipment. Included in that $27.5 million
write-down was $9.0 million related to the closure of a facility outside the
United States that manufactures household products predominantly for sale in the
United States. The remainder of the write-down to fair value primarily relates
to long-lived assets of European businesses in the Consumer segment.
The remaining restructuring charge of $9.8 million, principally associated
with European businesses in the Consumer segment, relates to the accrual of
future expenditures, principally consisting of lease and other contractual
obligations, for which no future benefit will be realized.
Change in Accounting for Goodwill: On a periodic basis through December 31,
1997, the Corporation estimated the future undiscounted cash flows of the
businesses to which goodwill related in order to determine that the carrying
value of the goodwill had not been impaired.
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9
As a consequence of the strategic repositioning plan, the Corporation
elected to change its method of measuring goodwill impairment from an
undiscounted cash flow approach to a discounted cash flow approach effective
January 1, 1998. On a periodic basis, the Corporation estimates the future
discounted cash flows of the businesses to which goodwill relates. When such
estimate of the future discounted cash flows, net of the carrying amount of
tangible net assets, is less than the carrying amount of goodwill, the
difference will be charged to operations. For purposes of determining the future
discounted cash flows of the businesses to which goodwill relates, the
Corporation, based upon historical results, current projections, and internal
earnings targets, determines the projected future operating cash flows, net of
income tax payments, of the individual businesses. These projected future cash
flows are then discounted at a rate corresponding to the Corporation's estimated
cost of capital, which also is the hurdle rate used by the Corporation in making
investment decisions. Future discounted cash flows for the recreational products
business, the glass container-forming and inspection equipment business, and the
household products business in North America, Latin America, and Australia
include an estimate of the proceeds from the eventual sale of such businesses,
net of associated selling expenses and taxes. The Corporation believes that
measurement of the value of goodwill through a discounted cash flow approach is
preferable in that such a measurement facilitates the timely identification of
impairment of the carrying value of investments in businesses and provides a
more current and, with respect to the businesses to be sold, more realistic
valuation than the undiscounted approach.
In connection with the Corporation's change in accounting policy with
respect to measurement of goodwill impairment described above, $900.0 million of
goodwill was written off through a charge to operations during the first quarter
of 1998, resulting in a per-share net loss of $9.46 both on a basic and diluted
basis. That write-down, which relates to goodwill associated with the security
hardware, plumbing products, and fastening and assembly systems businesses and
includes a $40.0 million write-down of goodwill associated with a business to be
sold, represents the amount necessary to write-down the carrying values of
goodwill for those businesses to the Corporation's best estimate, as of January
1, 1998, of those businesses' future discounted cash flows using the methodology
described in the preceding paragraph. This change represents a change in
accounting principle which is indistinguishable from a change in estimate.
NOTE 3: INVENTORIES
The components of inventory at the end of each period, in millions of dollars,
consisted of the following:
March 29, 1998 December 31, 1997
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FIFO cost
Raw materials and work-in-process $ 202.3 $ 199.4
Finished products 650.0 599.4
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852.3 798.8
Excess of FIFO cost over LIFO
inventory value (24.9) (24.1)
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$ 827.4 $ 774.7
================================================================================
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.
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10
NOTE 4: GOODWILL
In connection with the Corporation's change in accounting policy with respect to
measurement of goodwill impairment as discussed in Note 2, goodwill in the
amount of $900.0 million was charged to operations during the three months ended
March 29, 1998, and has been reflected in the Consolidated Statement of Earnings
as "Write-off of goodwill". That write-down, which relates to goodwill
associated with the security hardware, plumbing products, and fastening and
assembly systems businesses and includes a $40.0 million write-down of goodwill
associated with a business to be sold, represents the amount necessary to
write-down the carrying values of goodwill for those businesses to the
Corporation's best estimate, as of January 1, 1998, of those businesses' future
discounted cash flows using the methodology described in Note 2.
Goodwill at the end of each period, in millions of dollars, was as follows:
March 29, 1998 December 31, 1997
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Goodwill $1,588.3 $ 2,499.9
Less accumulated amortization 629.1 622.6
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$ 959.2 $ 1,877.3
================================================================================
NOTE 5: LONG-TERM DEBT
Indebtedness of subsidiaries of the Corporation in the aggregate principal
amounts of $800.5 million and $776.0 million were included in the Consolidated
Balance Sheet at March 29, 1998 and December 31, 1997, respectively, under the
captions short-term borrowings, current maturities of long-term debt, and
long-term debt.
NOTE 6: SALE OF RECEIVABLES
As more fully described in Note 2 of Notes to Consolidated Financial Statements
included in the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1997, the Corporation voluntarily terminated its sale of
receivables program in December 1997 as the program was no longer deemed
necessary to support its liquidity requirements. As of March 30, 1997, the
Corporation had sold $153.0 million of receivables under this program. The
discount on sale of receivables is included in "Other income/(expense)."
NOTE 7: INTEREST EXPENSE (NET OF INTEREST INCOME)
Interest expense (net of interest income) for each period, in millions of
dollars, consisted of the following:
Three Months Ended
March 29, 1998 March 30, 1997
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Interest expense $ 36.6 $ 33.3
Interest (income) (8.2) (2.7)
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$ 28.4 $ 30.6
================================================================================
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11
NOTE 8: SUBSEQUENT EVENTS
On May 11, 1998, the Corporation announced that it had entered into a definitive
agreement with Windmere-Durable Holdings, Inc. for the sale of the Corporation's
household products business (other than certain assets associated with the
Corporation's cleaning and lighting products, such as the Dustbuster,
SnakeLight, ScumBuster, and FloorBuster products) in North America, Central
America, and South America (excluding Brazil, Uruguay, and Paraguay) for a
purchase price of $315 million. As part of the transaction, the Corporation is
retaining certain liabilities and has agreed to license the Black & Decker name
to Windmere in existing household product categories for a period of six and
one-half years on a royalty-free basis, with extension options upon request of
Windmere and at the discretion of the Corporation on a royalty-bearing basis. At
the request of Windmere, additional product categories may be licensed at the
Corporation's option on a royalty-bearing basis. The transaction is expected to
close within 60 days, subject to the receipt of regulatory and other necessary
approvals.
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12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
A comprehensive strategic repositioning plan, designed to intensify focus on
core operations and improve operating performance, was approved by the
Corporation's Board of Directors on January 26, 1998. The plan, more fully
described below under the heading "Strategic Repositioning" and in Note 2 of
Notes to Consolidated Financial Statements, includes the following components:
(i) divestiture of the recreational products business, the glass
container-forming and inspection equipment business, and the household products
business in North America, Latin America, and Australia; (ii) the repurchase of
up to 10% of the Corporation's outstanding common stock; and (iii) a
restructuring of remaining businesses. The restructuring program is expected to
take approximately two years to complete and to result in a pre-tax charge of up
to $225 million. During the quarter ended March 29, 1998, the Corporation
recognized a pre-tax restructuring charge of $140.0 million ($100.0 million net
of tax). The balance of the restructuring charge is expected to be recognized
over the remaining course of the program.
On January 26, 1998, the Board of Directors also elected to authorize a
change in the basis upon which the Corporation evaluates goodwill for
impairment. The effect of this accounting change resulted in a write-off of
$900.0 million of goodwill through a non-cash charge to operations during the
first quarter of 1998.
As a result of the restructuring charge and goodwill write-off recognized
during the three months ended March 29, 1998, the Corporation reported a net
loss of $971.4 million or $10.21 per share on a diluted basis for the
three-month period ended March 29, 1998, compared to net earnings of $26.3
million or $.27 per share on a diluted basis for the three-month period ended
March 30, 1997. Excluding both the restructuring charge and goodwill write-off,
net earnings for the quarter ended March 29, 1998, would have been $28.6 million
or $.29 per share on a diluted basis.
As more fully described in Note 8 of Notes to Consolidated Financial
Statements, on May 11, 1998, the Corporation announced that it had entered into
a definitive agreement for the sale of the Corporation's household products
business (other than certain assets associated with the Corporation's cleaning
and lighting products, such as the Dustbuster, SnakeLight, ScumBuster, and
FloorBuster products) in North America, Central America, and Latin America
(excluding Brazil, Uruguay, and Paraguay).
STRATEGIC REPOSITIONING
As more fully described in Note 2 of Notes to Consolidated Financial Statements,
on January 26, 1998, the Board of Directors approved a comprehensive strategic
repositioning of the Corporation, consisting of three separate elements.
The first element of the strategic repositioning plan is to focus the
Corporation on its core operations--that is, those strategic businesses that the
Corporation believes are capable of delivering superior operating and financial
performance. As a result, investment bankers have been retained to assist in
selling non-strategic businesses. These non-strategic businesses consist of the
recreational products business, True Temper Sports; the glass container-forming
and inspection equipment business, Emhart Glass; and the household products
business in North America and Latin America. The Corporation expects that the
divestitures of these businesses will be completed in 1998.
<PAGE>
13
During the quarter ended March 29, 1998, an agreement was reached to sell
the household products business in Australia, also a non-strategic business. As
more fully described in Note 8 of Notes to Consolidated Financial Statements, on
May 11, 1998, the Corporation announced that it had entered into a definitive
agreement for the sale of the Corporation's household products business (other
than certain assets associated with the Corporation's cleaning and lighting
products, such as the Dustbuster, SnakeLight, ScumBuster, and FloorBuster
products) in North America, Central America, and Latin America (excluding
Brazil, Uruguay, and Paraguay).
Because True Temper Sports, Emhart Glass, and the household products
business in North America, Latin America, and Australia are not treated as
discontinued operations under generally accepted accounting principles, they
remain a part of the Corporation's reported results from continuing operations
until their sale. Under the accounting prescribed by Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of, the Corporation is required
to reflect the long-lived assets of these businesses at the lower of their
carrying amounts or their expected fair value less costs to sell. The
Corporation anticipates that aggregate net proceeds in excess of $500 million
will be received for these businesses. The Corporation does not expect to
recognize an impairment loss on the long-lived assets of True Temper Sports,
Emhart Glass, or the household products business in North America and Latin
America and will not recognize any such loss on the sale of the household
products business in Australia. The Corporation will periodically assess the
expected fair value less costs to sell these businesses. In the event that the
expected fair value less costs to sell these businesses declines prior to the
closing of the sales to an amount less than their carrying values, the
Corporation will recognize impairment losses on the underlying long-lived assets
of these businesses. Because the estimate of fair value less costs to sell these
businesses exceeds their carrying amounts after the goodwill write-down
described below, the Corporation has ceased depreciation of the businesses'
fixed assets and amortization of goodwill related to these businesses during the
period held for sale.
The net proceeds from the sales of these businesses, together with free cash
flow generated by the remaining businesses, will be used to fund the second
element of the strategic repositioning plan--that is, the repurchase of up to
10% of the Corporation's outstanding common shares over the next two years.
During the quarter ended March 29, 1998, the Corporation repurchased 681,000
common shares at an aggregate cost of $33.8 million. As it did during the first
quarter of 1998, the Corporation may borrow to finance a portion of its
repurchase of common shares prior to the receipt of proceeds from the sales of
divested businesses. During the period from March 30, 1998, through May 8, 1998,
the Corporation purchased an additional 698,400 common shares at an aggregate
cost of $36.2 million.
The third element of the strategic repositioning plan involves a major
restructuring program. That restructuring program is being undertaken to reduce
fixed costs and to simplify the supply chain and new product introduction
processes. As part of the restructuring program, the Corporation expects to make
significant changes to its European power tools and accessories business by
consolidating distribution and transportation and centralizing finance,
marketing, and support services. These changes in Europe will be accompanied by
investment in state-of-the-art information systems similar to the investments
being made in the North American business. In addition, the worldwide power
tools and accessories business will rationalize its manufacturing plant and
design center network, resulting in the closure of a number of manufacturing
plants and design centers. The restructuring program also will include actions
to improve the cost position of other businesses.
<PAGE>
14
This restructuring program is estimated to result in a pre-tax charge of up
to $225 million, of which $140.0 million was recognized in the first quarter of
1998, with the balance to be recognized as the program progresses over the next
two years. In addition to the restructuring charge, related expenses of
approximately $60 million will be charged to operations over the next two years
as the restructuring program progresses. These related expenses, which are
incremental to the plans being implemented, do not qualify as exit costs under
generally accepted accounting principles.
The major component of the $140.0 million restructuring charge ($100.0
million net of tax) recognized in the first quarter of 1998 related to the
accrual of severance benefits in the amount of $102.7 million, principally
associated with European businesses in the Consumer segment. During the quarter,
the Corporation recognized $5.6 million of expenses related to the restructuring
program and divestitures in operating income. Cash spending on the restructuring
program during 1998 is expected to approximate $100 million.
Benefits from the restructuring charge taken in the first quarter of 1998,
estimated at more than $60 million on an annual, pre-tax basis once fully
implemented, are not expected to become evident until some time in 1999, as the
1998 benefits are likely to be offset by related expenses associated with the
program. As indicated in Note 2 of Notes to Consolidated Financial Statements,
the severance accrual included in the $140.0 million restructuring charge taken
in the first quarter of 1998 related to the elimination of approximately 3,700
positions. As the Corporation shifts certain production and other activities, it
is anticipated that an additional 1,300 positions will be created. As a result,
the Corporation's estimate of annual, pre-tax savings in excess of $60.0
million, expected once the restructuring actions taken in the first quarter of
1998 are fully implemented, reflects the savings from a net reduction of
approximately 2,400 positions.
As a consequence of the strategic repositioning plan, the Corporation
elected to change its method of measuring goodwill impairment from an
undiscounted cash flow approach to a discounted cash flow approach, effective
January 1, 1998. The Corporation believes that measurement of the value of
goodwill through the discounted cash flow approach, as more fully described in
Note 2 of Notes to Consolidated Financial Statements, is preferable in that the
discounted cash flow measurement facilitates the timely identification of
impairment of the carrying value of investments in businesses and provides a
more current and, with respect to the businesses to be sold, realistic valuation
than the undiscounted approach. The adoption of this discounted cash flow
approach, however, may result in greater earnings volatility since decreases in
projected discounted cash flows of certain businesses will, as discussed above,
result in timely recognition of future impairment.
In connection with this change in accounting with respect to the measurement
of goodwill impairment, a non-cash charge of $900.0 million ($9.46 per share
both on a basic and diluted basis) was recognized during the three months ended
March 29, 1998. The $900.0 million write-down, which relates to goodwill
associated with the Corporation's security hardware, plumbing products, and
fastening and assembly systems business and includes a $40.0 million write-down
of goodwill associated with a business to be sold, represents the amount
necessary to reduce the carrying values of goodwill for those businesses to the
Corporation's best estimate, as of January 1, 1998, of those businesses' future
discounted cash flows using the methodology described in Note 2 of Notes to
Consolidated Financial Statements. As a result of the goodwill write-off and the
cessation of goodwill amortization related to the businesses to be sold,
goodwill amortization declined from $16.0 million in the first quarter of 1997
to $6.5 million in the first quarter of 1998.
<PAGE>
15
SALES
The following chart sets forth an analysis of the consolidated changes in sales
for the three-month periods ended March 29, 1998 and March 30, 1997.
ANALYSIS OF CHANGES IN SALES
- --------------------------------------------------------------------------------
For the Three Months Ended
(Dollars in Millions) March 29, 1998 March 30, 1997
- --------------------------------------------------------------------------------
Total sales $ 1,008.3 $ 1,015.0
Unit volume 3% (2)%
Price (1)% - %
Currency (3)% (3)%
- --------------------------------------------------------------------------------
Change in total sales (1)% (5)%
================================================================================
The Corporation operates in two business segments: Consumer, including
consumer and professional power tools and accessories, household products,
security hardware, outdoor products (composed of electric lawn and garden tools
and recreational products), plumbing products, and product service; and
Commercial, including fastening and assembly systems and glass container-forming
and inspection equipment. As discussed above and in Note 2 of Notes to
Consolidated Financial Statements, the Corporation expects to sell the
recreational products and glass container-forming and inspection equipment
businesses as well as a portion of the household products business. The results
of operations and financial positions of these businesses will be included in
the consolidated financial statements through the dates of consummation of the
sales.
<PAGE>
16
The following chart sets forth an analysis of the change in sales for the
three months ended March 29, 1998, compared to the three months ended March 30,
1997, by geographic area for each business segment.
<TABLE>
<CAPTION>
ANALYSIS OF CHANGES IN SALES
FOR THE THREE MONTHS ENDED MARCH 29, 1998
- -------------------------------------------------------------------------------------------------------------------
United
(Dollars in Millions) States Europe Other Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consumer
Total sales $ 483.4 $ 265.6 $ 98.4 $ 847.4
Unit volume 7 % 7 % (5)% 5 %
Price (2)% (1)% (1)% (1)%
Currency - % (7)% (6)% (3)%
- -------------------------------------------------------------------------------------------------------------------
5% (1)% (12)% 1%
- -------------------------------------------------------------------------------------------------------------------
Commercial
Total sales $ 71.0 $ 67.2 $ 22.7 $ 160.9
Unit volume (12)% 13 % (13)% (3)%
Price - % - % (1)% - %
Currency - % (7)% (4)% (3)%
- -------------------------------------------------------------------------------------------------------------------
(12)% 6 % (18)% (6)%
- -------------------------------------------------------------------------------------------------------------------
Consolidated
Total sales $ 554.4 $ 332.8 $ 121.1 $ 1,008.3
Unit volume 4 % 8 % (7)% 3 %
Price (2)% (1)% (1)% (1)%
Currency - % (7)% (5)% (3)%
- -------------------------------------------------------------------------------------------------------------------
Change in total sales 2 % - % (13)% (1)%
===================================================================================================================
</TABLE>
Unit volume increased 3% for the three-month period ended March 29, 1998,
over the prior year's level. Pricing actions resulted in a 1% decline in sales
for the three-month period ended March 29, 1998, compared to the corresponding
period in 1997. The negative effects of a stronger United States dollar compared
to most major foreign currencies resulted in a 3% decrease in the Corporation's
consolidated sales from the prior year's level for the quarter ended March 29,
1998.
Unit volume in the Consumer segment for the three months ended March 29,
1998, increased by 5% compared to last year.
Sales in the Corporation's Consumer businesses in the United States
increased by 5% for the three-month period ended March 29, 1998, over the 1997
level. Sales in the domestic power tools and accessories business for the
quarter ended March 29, 1998, increased at a high-single digit rate over the
corresponding quarter in 1997. The domestic power tools and accessories business
benefited from sales of professional products introduced in the latter part of
1997 and from strong outdoor sales, but that benefit was partially offset by
weakness in sales of consumer power tools and accessories in the first quarter
of 1998. Sales in the plumbing products and recreational products businesses
both
<PAGE>
17
increased at a double-digit rate during the quarter ended March 29, 1998, over
the corresponding quarter in 1997. Sales in the domestic security hardware
business during the quarter ended March 29, 1998, declined at a mid single-digit
rate from the prior year's level. A significant sales decline was experienced by
the Corporation's household products business in the first quarter of 1998,
compared to the corresponding period in 1997, due to sales declines in most
product categories but particularly with respect to the cleaning products line
and specifically with respect to the ScumBuster cordless submersible scrubber.
Excluding the significant negative effect of changes in foreign exchange
rates, sales in the Corporation's Consumer businesses in Europe increased by 6%
for the three months ended March 29, 1998, over the corresponding period in 1997
as increased sales of consumer and professional power tools and accessories,
security hardware, and product service more than offset decreased sales of
household products. Sales of outdoor products for the three months ended March
29, 1998, approximated the prior year's level.
Excluding the significant negative effect of changes in foreign exchange
rates, sales in the Corporation's Consumer businesses in Other geographic areas
decreased by 6% for the three months ended March 29, 1998, from the
corresponding period in 1997. The continuing effect of the Asian economic crisis
as well as pricing pressures experienced by Consumer businesses in certain
countries, in particular Brazil and Canada, were the primary factors in this
decrease.
Excluding the negative effect of changes in foreign exchange rates, sales in
the Corporation's Commercial businesses decreased by 3% during the three months
ended March 29, 1998, from the corresponding period in 1997. Exclusive of
negative currency effects, sales increased at a mid single-digit rate in the
Corporation's fastening and assembly systems business during the quarter ended
March 29, 1998, based upon the strength of demand in the United States and
Europe, partially offset by weakness in Asia. Offsetting this sales increase in
the fastening and assembly systems business were sharply lower sales, exclusive
of negative currency effects, in the glass container-forming and inspection
equipment business during the three months ended March 29, 1998, compared to the
first quarter of 1997.
EARNINGS
An operating loss of $969.9 million was recognized for the three months ended
March 29, 1998, compared to operating income of $73.3 million for the
corresponding period in 1997. Excluding the effects of the $140.0 million
restructuring charge and the $900.0 million write-off of goodwill, both
recognized in the first quarter of 1998, operating income for the first quarter
of 1998 decreased 4% from $73.3 million for the first quarter of 1997 to $70.1
million for the first quarter of 1998. Operating income as a percentage of
sales, excluding the restructuring charge and write-off of goodwill recognized
in the first quarter of 1998, was 7.0% for the three-month period ended March
29, 1998, compared to 7.2% for the corresponding period in 1997.
Operating results for the quarter ended March 29, 1998, included $5.6
million of expenses directly related to the restructuring program undertaken
that do not qualify as restructuring or exit costs under generally accepted
accounting principles. Excluding the effects of these restructuring-related
expenses, the restructuring charge, and the write-off of goodwill recognized in
1998, operating income for the three months ended March 29, 1998 would have
increased by 3% from $73.3 million, or 7.2% of sales, for the first quarter of
1997 to $75.7, or 7.5% of sales, for the first quarter of 1998. This improvement
in operating income as a percentage of sales was experienced in the
Corporation's domestic power tools and accessories business, European security
hardware business, plumbing products business,
<PAGE>
18
recreational products business, and fastening and assembly systems business,
offset by decreased profitability in the household products and glass
container-forming and inspection businesses, in the domestic security hardware
business, and in the power tools and accessories businesses outside the United
States. A principal factor in the improvement in operating income as a
percentage of sales, excluding the effects of restructuring-related expenses,
the restructuring charge, and the write-off of goodwill, was the $9.5 million
reduction in the level of goodwill amortization experienced in the first quarter
of 1998 as compared to the corresponding period in 1997 as a result of the
goodwill write-off and cessation of amortization of goodwill associated with the
businesses to be sold. The lower level of goodwill amortization experienced in
the first quarter of 1998 will continue in future periods.
Gross margin as a percentage of sales was 34.7% and 35.9% for the
three-month periods ended March 29, 1998, and March 30, 1997, respectively. The
decline in gross margin during the first quarter of 1998 compared to the prior
year primarily resulted from adverse foreign exchange effects on product costs,
principally in the European operations, and competitive pressures that continued
to constrain pricing, partially offset by increased productivity net of
inflation.
Selling, general, and administrative expenses as a percentage of total sales
for the three-month period ended March 29, 1998, were 27.8% compared to 28.7%
for the comparable period in 1997. This improvement was the result of lower
goodwill amortization in the three months ended March 29, 1998, compared to the
corresponding period in 1997, as a result of the goodwill write-off and
cessation of amortization of goodwill related to the businesses to be sold.
Net interest expense (interest expense less interest income) for the
three-month period ended March 29, 1998, was $28.4 million as compared to $30.6
million for the three-month period ended March 30, 1997. The lower level of net
interest expense in the first quarter of 1998 as compared to the first quarter
of 1997 was primarily the result of more favorable debt mix in 1998 coupled with
a lower level of net debt (total debt less cash and cash equivalents) due to
improved cash flows from operating activities in 1998.
The Corporation maintains a portfolio of interest rate hedge instruments for
the purpose of managing interest rate exposure. During the quarter ended March
29, 1998, the Corporation's portfolio was reduced as a result of the following
scheduled maturities: (i) variable to fixed rate interest rate swaps with an
aggregate notional principal amount of $50.0 million; (ii) fixed to variable
rate interest rate swaps with an aggregate notional principal amount of $100.0
million; (iii) rate basis swaps with an aggregate notional principal amount of
$50.0 million; and (iv) interest rate swaps that swapped from fixed rate United
States dollars into fixed rate Japanese yen with an aggregate notional principal
amount of $15.0 million. The Corporation also reduced its portfolio as a result
of its termination of fixed to variable interest rate swaps with an aggregate
notional principal amount of $250.0 million and of termination by the
counterparties of fixed to variable rate interest rate swaps with an aggregate
notional principal amount of $100.0 million. Deferred gains and losses on the
early termination of interest rate swaps as of March 29, 1998, were not
significant. Partially offsetting these decreases in the interest rate hedge
portfolio, the Corporation entered into new fixed to variable rate interest rate
swaps with an aggregate notional principal amount of $250.0 million during the
quarter ended March 29, 1998. These changes in the Corporation's interest rate
hedge portfolio had the effect of decreasing the Corporation's variable rate
debt to total debt ratio from 63% at December 31, 1997, to 61% at March 29,
1998.
Other income for the three-month period ended March 29, 1998, was not
significant. Other expense for the three-month period ended March 30, 1997,
primarily included the discount on the sale of receivables.
<PAGE>
19
An income tax benefit of $26.6 million was recognized on the Corporation's
pre-tax loss of $998.0 million for the three months ended March 29, 1998.
Excluding the income tax benefit of $40.0 million related to the pre-tax
restructuring charge of $140.0 million and the non-deductible write-off of
goodwill in the amount of $900.0 million, both recognized in the quarter ended
March 29, 1998, the Corporation's reported tax rate on its continuing operations
for the first quarter of 1998 would have been 32% compared to a tax rate of 35%
in the first quarter of 1997. This decrease in the effective tax rate in 1998
resulted from the lower amount of goodwill amortization, which is not tax
deductible, in 1998 as compared to 1997 due to the $900.0 million write-off of
goodwill that occurred in the first quarter of 1998 as a result of the
Corporation's change in method of measuring goodwill impairment.
The Corporation reported a net loss of $971.4 million, or $10.21 per share
both on a basic and diluted basis, for the three-month period ended March 29,
1998, principally as a result of the restructuring charge and goodwill write-off
during that period.
Because the Corporation reported a net loss for the quarter ended March 29,
1998, the calculation of reported earnings per share on a diluted basis excludes
the impact of stock options since their inclusion would be anti-dilutive--that
is, decrease the per-share loss. For comparative purposes, however, the
Corporation believes that the dilutive effect of stock options should be
considered when evaluating the Corporation's performance excluding the
restructuring charge and goodwill write-off. If the dilutive effect of stock
options were considered, net earnings excluding the after-tax restructuring
charge and goodwill write-off would have been $28.6 million ($.29 per share on
this diluted basis)for the three-month period ended March 29, 1998, compared to
net earnings of $26.3 million or $.27 per share on a diluted basis for the
three-month period ended March 30, 1997.
<PAGE>
20
Interest Rate Sensitivity
As a result of the significant changes during the quarter ended March 29, 1998,
described above, in the Corporation's interest rate hedge portfolio, the
following table provides information as of March 29, 1998, about that portfolio.
This table should be read in conjunction with the information contained in
Management's Discussion and Analysis of Financial Condition and Results of
Operations under the heading "Interest Rate Sensitivity" included in the
Corporation's Annual Report on Form 10-K for the year ended December 31, 1997.
<TABLE>
<CAPTION>
Notional Principal Amounts and Interest Rate Detail by Contractual Maturity Dates
Year Ending Dec. 31, Fair Value
9 Mos. Ending ------------------------------------------------ (Assets)/
(U.S. Dollars in Millions) Dec. 31, 1998 1999 2000 2001 2002 Thereafter Total Liabilities
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Rate Derivatives
Interest Rate Swaps
(all U.S. dollar denomi-
nated except for U.S. rates
to foreign rates)
Fixed to variable rates $200.0 $ -- $50.0 $ -- $ -- $ 250.0 $ 500.0 $ 1.3
Average pay rate (a)
Average receive rate 6.50% 5.54% 6.02% 6.17%
Variable to fixed rates $200.0 $ -- $ -- $ -- $ -- $ -- $ 200.0 $ 1.5
Average pay rate 7.17% 7.17%
Average receive rate (b)
Fixed U.S. rates to fixed
foreign rates (c)
To Japanese yen $ -- $100.0 $ -- $ -- $ -- $ -- $ 100.0 $ (16.9)
Average pay rate (in
Japanese yen) (d) 1.99% 1.99%
Average receive rate 6.66% 6.66%
To deutsche marks $ -- $100.0 $ -- $ -- $ -- $ -- $ 100.0 $ (16.8)
Average pay rate (in
deutsche marks) (e) 4.73% 4.73%
Average receive rate 6.64% 6.64%
To Dutch guilders $ -- $ 50.0 $ -- $ -- $ -- $ -- $ 50.0 $ (8.8)
Average pay rate (in
Dutch guilders) (f) 4.58% 4.58%
Average receive rate 6.77% 6.77%
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) The average pay rate is based upon 6-month forward LIBOR.
(b) The average receive rate is based upon 3-month forward LIBOR.
(c) The indicated fair values of interest rate swaps that swap from fixed U.S.
rates to fixed foreign rates include the fair values of the exchange of the
notional principal amounts at the end of the swap terms as well as the
exchange of interest streams over the life of the swaps. The fair values of
the currency exchange are also included in the disclosures of foreign
currency exchange rate sensitivity included in the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1997.
(d) The average pay rate (in Japanese yen) is based upon a notional principal
amount of 10.9 billion Japanese yen.
(e) The average pay rate (in deutsche marks) is based upon a notional principal
amount of 153.3 million deutsche marks.
(f) The average pay rate (in Dutch guilders) is based upon a notional principal
amount of 85.9 million Dutch guilders.
</FN>
</TABLE>
<PAGE>
21
FINANCIAL CONDITION
Operating activities provided cash of $13.8 million for the three months ended
March 29, 1998, compared to $71.7 million of cash used before the sale of
receivables for the corresponding period in 1997. This increased cash generation
was principally the result of improved working capital management in the quarter
ended March 29, 1998, as compared to the corresponding quarter in 1997.
Investing activities for the three months ended March 29, 1998, used cash
of $28.1 million compared to $37.0 million of cash used in the corresponding
period in 1997. This lower cash usage in 1998 primarily resulted from a reduced
level of capital expenditures in the first quarter of 1998 compared to the
corresponding period in 1997.
Financing activities used cash of $132.0 million for the three months ended
March 29, 1998, compared to cash generated of $149.6 million in the first three
months of 1997. The increase in cash used in financing activities during the
first quarter of 1998 over the corresponding quarter in 1997 was principally the
result of cash expended for the stock repurchase program and for the redemption
of preferred stock of a subsidiary, coupled with lower borrowing levels. Average
debt maturity was 3.5 years at March 29, 1998, compared to 3.9 years at December
31, 1997. Included in current maturities of long-term debt at March 29, 1998,
was $105.0 million of long-term indebtedness which the Corporation retired
subsequent to that date and in advance of its scheduled maturity.
In addition to measuring its cash flow generation and usage based upon the
operating, investing, and financing classifications included in the Consolidated
Statement of Cash Flows, the Corporation also measures its free cash flow. Free
cash flow, a measure commonly employed by bond rating agencies and banks, is
defined by the Corporation as cash available for debt reduction (including
short-term borrowings), prior to the effects of cash received from divested
businesses, issuances of equity, and sales of receivables and to the effects of
cash paid for stock repurchases and for the redemption of stock of subsidiaries.
Free cash flow, a more inclusive measure of the Corporation's cash flow
generation than cash flow from operating activities included in the Consolidated
Statement of Cash Flows, considers items such as cash used for capital
expenditures and dividends, as well as net cash inflows or outflows from hedging
activities. During the three months ended March 29, 1998, the Corporation
experienced negative free cash flow of $34.8 million compared to negative free
cash flow of $110.0 million for the corresponding period in 1997. This $75.2
million improvement in free cash flow during the first three months of 1998 over
the 1997 level was primarily the result of improved working capital management.
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes statements that constitute "forward
looking statements" within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934 and that are
intended to come within the safe harbor protection provided by those sections.
By their nature, all forward looking statements involve risk and uncertainties.
Actual results may differ materially from those contemplated by the forward
looking statements for a number of reasons, including but not limited to: market
acceptance of the new products introduced in 1997 and 1998 and scheduled for
introduction in 1998; the level of sales generated from these new products
relative to expectations, based on the existing investments in productive
capacity and commitments of the Corporation to fund advertising and product
promotions in connection with the introduction of these new products; the
ability of the Corporation and its suppliers to meet scheduled timetables of new
product introductions; unforeseen competitive pressure or other difficulty in
penetrating new channels
<PAGE>
22
of distribution; adverse changes in currency exchange rates or raw material
commodity prices, both in absolute terms and relative to competitors' risk
profiles; delays in or unanticipated inefficiencies resulting from manufacturing
and administrative reorganization actions in progress or contemplated by the
strategic repositioning described herein; and the continuation of modest
economic growth in the United States and Europe and gradual improvement in the
economic environment in Asia.
In addition to the foregoing, the Corporation's ability to realize the
anticipated benefits during 1998 and in the future of the restructuring actions
undertaken in 1998 is dependent upon current market conditions, as well as the
timing and effectiveness of the relocation or consolidation of production and
administrative processes. The ability to realize the benefits inherent in the
balance of the restructuring actions is dependent on the selection and
implementation of economically viable projects in addition to the restructuring
actions taken to date. The ability to achieve certain sales and profitability
targets and cash flow projections also is dependent upon the Corporation's
ability to identify appropriate selected acquisitions that are complementary to
the repositioned business units at acquisition prices that are consistent with
these objectives.
There can be no assurance that the Corporation will consummate the sales of
the recreational products business, the glass container-forming and inspection
equipment business, and the household products business in North America and
Latin America. Further, the Corporation's ability to realize the aggregate net
proceeds from the sales of such businesses in excess of $500 million is
dependent upon the following factors: (i) with respect to the sale of the
household products business (excluding certain assets associated with the
Corporation's cleaning and lighting products) in North America, Central America,
and South America (excluding Brazil, Uruguay, and Paraguay), the Corporation's
receipt of regulatory and other necessary approvals; and (ii) with respect to
the sales of the recreational products business, the glass container-forming and
inspection equipment business, and the household products business in other
parts of South America, market conditions at the time of these sales.
<PAGE>
23
THE BLACK & DECKER CORPORATION
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
The Corporation is involved in various lawsuits in the ordinary course of
business. The 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 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 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.
Reference is made to the discussion in Item 3 of Part I of the Corporation's
Annual Report on Form 10-K for the year ended December 31, 1997, in respect of
the administrative complaint filed by the Consumer Product Safety Commission
("CPSC"). In connection with this proceeding, the Corporation has agreed to
modify its original recall plan and has entered into a settlement agreement with
the CPSC. On April 23, 1998, the CPSC entered an order approving the settlement
and dismissing the administrative complaint.
<PAGE>
24
As of March 29, 1998, the Corporation had no known probable but inestimable
exposures for awards and assessments in connection with environmental matters
and other litigation and administrative proceedings that could have a material
effect on the Corporation.
Management is of the opinion that the amounts accrued for awards or
assessments in connection with the environmental matters and other litigation
and administrative proceedings to which the Corporation is a party are adequate
and, accordingly, ultimate resolution of these matters will not have a material
adverse effect on the Corporation.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1998 Annual Meeting of Stockholders was held on April 28, 1998, for the
election of directors, to consider and approve an amendment to The Black &
Decker 1996 Stock Option Plan, to consider and approve The Black & Decker
Non-Employee Directors Stock Plan, to ratify the selection of Ernst & Young LLP
as independent public accountants for the Corporation for fiscal year 1998, and
to consider a stockholder proposal that was opposed by the Board of Directors. A
total of 87,728,959 of the 95,269,445 votes entitled to be cast at the meeting
were present in person or by proxy. At the meeting, the stockholders:
(1) Elected the following directors:
Number of Shares
Number of Shares AUTHORITY
Directors VOTED FOR WITHHELD
- -----------------------------------------------------------------------------
Nolan D. Archibald 87,293,295 435,664
Alonzo G. Decker, Jr. 87,265,397 463,562
Norman R. Augustine 87,299,526 429,433
Barbara L. Bowles 87,243,357 485,602
Malcolm Candlish 87,297,964 430,995
Anthony Luiso 87,303,086 425,873
Mark H. Willes 87,299,670 429,289
M. Cabell Woodward, Jr. 87,292,430 436,529
(2) Approved an amendment to The Black & Decker 1996 Stock Option Plan by
an affirmative vote of 83,304,270; votes against ratification were
3,897,598; and abstentions were 527,091.
(3) Approved The Black & Decker Non-Employee Directors Stock Plan by an
affirmative vote of 85,140,275; votes against ratification were
2,041,143; and abstentions were 547,541.
(4) Ratified the selection of Ernst & Young LLP as independent public
accountants for the Corporation for fiscal year 1998 by an affirmative
vote of 87,187,519; votes against ratification were 327,001; and
abstentions were 214,439.
(5) Rejected the stockholder proposal that was opposed by the Board of
Directors by a negative vote of 63,181,056; affirmative votes for the
stockholder proposal were 13,734,191; and abstentions were 954,999.
<PAGE>
25
No other matters were submitted to a vote of the stockholders at the meeting.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
Exhibit No. Description
10(a) The Black & Decker 1996 Stock Option Plan, as
amended, included as Exhibit 4 in the Corporation's
Registration Statement on Form S-8 (Reg. No.
333-51155), is incorporated herein by reference.
10(b) The Black & Decker Non-Employee Directors Stock Plan,
included as Exhibit A to the Proxy Statement of the
Corporation dated March 3, 1998, for the 1998 Annual
Meeting of Stockholders of the Corporation, is
incorporated herein by reference.
11 Computation of Earnings Per Share.
12 Computation of Ratios.
18 Letter re: Change in Accounting Principles.
27 Financial Data Schedule.
On January 27, 1998, the Corporation filed a Current Report on Form 8-K with the
Commission. This Current Report on Form 8-K, filed pursuant to Item 5 of that
Form, stated that the Corporation had reported its earnings for the three months
and year ended December 31, 1998, and announced a strategic repositioning,
including planned divestitures and global restructuring. That Current Report on
Form 8-K also included the Corporation's announcement that the Board of
Directors had approved a stock repurchase program.
The Corporation did not file any other reports on Form 8-K during the
three-month period ended March 29, 1998.
All other items were not applicable.
<PAGE>
26
THE BLACK & DECKER CORPORATION
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE BLACK & DECKER CORPORATION
By /s/ THOMAS M. SCHOEWE
Thomas M. Schoewe
Senior Vice President and
Chief Financial Officer
Principal Accounting Officer
By /s/ STEPHEN F. REEVES
Stephen F. Reeves
Vice President and Controller
Date: May 13, 1998
EXHIBIT 11
THE BLACK & DECKER CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Amounts in Millions Except Per Share Data)
<TABLE>
<CAPTION>
For The Three Months Ended
March 29,1998 March 30, 1997
Amount Per Share Amount Per Share
Basic:
<S> <C> <C> <C> <C>
Average shares outstanding 95.1 94.4
==== ====
Net earnings (loss) $(971.4) $(10.21) $26.3 $.28
======== ======== ===== ====
Diluted:
Average shares outstanding 95.1 94.4
Dilutive stock options and stock
issuable under employee benefit
plans--based on the Treasury
stock method using the average
market price 1.8 (Note 1) 1.6
---- -----
Adjusted average shares outstanding
for diluted calculation 96.9 96.0
==== ====
Net earnings (loss) $(971.4) $(10.03) $26.3 $.27
======== ======== ===== ====
<FN>
Notes: 1. Due to the net loss incurred by the Corporation for the
three-month period ended March 29, 1998, the assumed exercise of
stock options and stock issuable under employee benefit plans is
anti-dilutive and, therefore, is not used in the calculation of
diluted earnings per share included in the financial statements.
As a result, the financial statements reflect diluted earnings
per share equal to basic earnings per share for the quarter
ended March 29, 1998--both a loss of $10.21 per share.
</FN>
</TABLE>
EXHIBIT 12
THE BLACK & DECKER CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Millions of Dollars Except Ratio)
Three Months Ended
March 29, 1998
EARNINGS:
Earnings (loss) before income taxes (Note 1) $(998.0)
Interest expense 36.6
Portion of rent expense representative
of an interest factor 6.3
---------
Adjusted earnings from continuing
operations before taxes and
fixed charges $(955.1)
=========
FIXED CHARGES:
Interest expense $ 36.6
Portion of rent expense representative
of an interest factor 6.3
---------
Total fixed charges $ 42.9
=========
RATIO OF EARNINGS TO FIXED
CHARGES (DEFICIENCY) (Notes 1 and 2) --
=========
Note: 1. Included in earnings (loss) before income taxes are
restructuring charges in the amount of $140.0 and a write-off
of goodwill in the amount of $900.0.
2. Earnings (loss) before income taxes are insufficient to cover
fixed charges by the amount of $998.0.
EXHIBIT 18
Mr. Stephen F. Reeves
Vice President and Controller
The Black & Decker Corporation
701 East Joppa Road
Towson, Maryland 21286
Dear Sir:
Note 2 of Notes to the consolidated financial statements of The Black & Decker
Corporation included in its Form 10-Q for the three months ended March 29, 1998
describes a change in the method of accounting for determining goodwill
impairment from the undiscounted cash flow method to the discounted cash flow
method. You have advised us that you believe that the change is to a preferable
method in your circumstance because the measurement of the value of goodwill
through a discounted cash flow approach facilitates the timely identification of
impairment of the carrying value of investments in businesses and provides a
more current and, with respect to the Corporation's non-strategic businesses to
be sold, realistic valuation than the undiscounted cash flow approach.
There are no authoritative criteria for determining a preferable method for
determining goodwill impairment based on the particular facts and circumstances;
however, we conclude that the change in the method of accounting for determining
goodwill impairment is to an acceptable alternative method which, based on your
business judgment to make this change for the reason cited above, is preferable
in your circumstances. We have not conducted an audit in accordance with
generally accepted auditing standards of any financial statements of the
Corporation as of any date or for any period subsequent to December 31, 1997,
and therefore we do not express any opinion on any financial statements of The
Black & Decker Corporation subsequent to that date.
Very truly yours,
/s/ Ernst & Young LLP
Baltimore, Maryland
May 11, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains financial information extracted from the Corporation's
unaudited interim financial statements as of and for the three months ended
March 29, 1998, and the accompanying footnotes and is qualified in its entirety
by the reference to such financial statements.
</LEGEND>
<CIK> 0000012355
<NAME> THE BLACK & DECKER CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-29-1998
<CASH> 98,800
<SECURITIES> 0
<RECEIVABLES> 831,600<F1>
<ALLOWANCES> 0
<INVENTORY> 827,400
<CURRENT-ASSETS> 1,945,700
<PP&E> 877,300<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,273,900
<CURRENT-LIABILITIES> 1,365,300
<BONDS> 1,570,600
0
0
<COMMON> 47,500
<OTHER-SE> 724,700
<TOTAL-LIABILITY-AND-EQUITY> 4,273,900
<SALES> 1,008,300
<TOTAL-REVENUES> 1,008,300
<CGS> 658,300
<TOTAL-COSTS> 1,978,200<F3>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,600
<INCOME-PRETAX> (998,000)<F3>
<INCOME-TAX> (26,600)<F4>
<INCOME-CONTINUING> (971,400)<F5>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (971,400)<F5>
<EPS-PRIMARY> (10.21)<F6>
<EPS-DILUTED> (10.21)
<FN>
<F1>Represents net trade receivables.
<F2>Represents net property, plant, and equipment.
<F3>Includes a pre-tax restructuring charge in the amount of $140,000 and a
write-off of goodwill in the amount of $900,000.
<F4>Includes a $40,000 tax benefit associated with the restructuring charge
recognized during the three months ended March 29,1998.
<F5>Includes a restructuring charge, net of tax benefit, in the amount of
$100,000 and a write-off of goodwill in the amount of $900,000.
<F6>Represents basic earnings per share.
</FN>
</TABLE>
