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 September 27, 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 of (I.R.S. Employer Identification No.)
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 September 27, 1998:
87,865,949
The exhibit index as required by item 601(a) of Regulation S-K is included in
this report.
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THE BLACK & DECKER CORPORATION AND SUBSIDIARIES
INDEX - FORM 10-Q
September 27, 1998
Page
PART I - FINANCIAL INFORMATION
Consolidated Statement of Earnings (Unaudited) For the Three
Months and Nine Months Ended September 27, 1998 and September 28, 1997 3
------
Consolidated Balance Sheet
September 27, 1998 (Unaudited) and December 31, 1997 4
-----------------------
Consolidated Statement of Changes in Stockholders' Equity (Unaudited)
For the Nine Months Ended September 27, 1998 and September 28, 1997 5
---------
Consolidated Statement of Cash Flows (Unaudited)
For the Nine Months Ended September 27, 1998 and September 28, 1997 6
---------
Notes to Consolidated Financial Statements (Unaudited) 7
-------------------------
Management's Discussion and Analysis of Financial Condition and
Results of Operations 14
------------------------------------------------------
Quantitative and Qualitative Disclosures About Market Risk 30
--------------------
PART II - OTHER INFORMATION 31
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SIGNATURES 41
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PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
<TABLE>
CONSOLIDATED STATEMENT OF EARNINGS (Unaudited)
The Black & Decker Corporation and Subsidiaries
(Dollars in Millions Except Per Share Amounts)
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 27, 1998 September 28, 1997 September 27, 1998 September 28, 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 1,107.7 $ 1,224.9 $ 3,285.7 $ 3,422.1
Cost of goods sold 709.0 788.9 2,139.2 2,201.2
Selling, general, and
administrative expenses 270.1 309.3 835.5 916.6
Write-off of goodwill - - 900.0 -
Restructuring and exit costs 14.2 - 154.2 -
Gain on sale of businesses 26.9 - 63.4 -
- ---------------------------------------------------------------------------------------------------------------------
Operating Income (Loss) 141.3 126.7 (679.8) 304.3
Interest expense (net of
interest income) 29.1 32.7 87.3 93.9
Other expense 3.8 4.2 6.2 10.1
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Earnings (Loss) Before Income
Taxes 108.4 89.8 (773.3) 200.3
Income taxes 41.8 31.4 73.1 70.1
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Net Earnings (Loss) $ 66.6 $ 58.4 $ (846.4) $ 130.2
=====================================================================================================================
Net Earnings (Loss) Per Common
Share-- Basic $ .73 $ .62 $ (9.06) $ 1.38
=====================================================================================================================
Shares Used in Computing Basic
Earnings Per Share (in Millions) 90.9 94.8 93.4 94.5
=====================================================================================================================
Net Earnings (Loss) Per Common
Share-- Assuming Dilution $ .72 $ .60 $ (9.06) $ 1.35
=====================================================================================================================
Shares Used in Computing Diluted
Earnings Per Share (in Millions) 92.6 96.9 93.4 96.4
=====================================================================================================================
Dividends Per Common Share $ .12 $ .12 $ .36 $ .36
=====================================================================================================================
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
</FN>
</TABLE>
<PAGE>
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<TABLE>
CONSOLIDATED BALANCE SHEET
The Black & Decker Corporation and Subsidiaries
(Dollars in Millions Except Per Share Amount)
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
September 27, 1998 December 31, 1997
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<S> <C> <C>
Assets
Cash and cash equivalents $ 143.3 $ 246.8
Trade receivables 815.8 931.4
Inventories 749.3 774.7
Other current assets 180.0 125.9
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Total Current Assets 1,888.4 2,078.8
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Property, Plant, and Equipment 740.9 915.1
Goodwill 839.4 1,877.3
Other Assets 489.4 489.5
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$ 3,958.1 $ 5,360.7
===================================================================================================================
Liabilities and Stockholders' Equity
Short-term borrowings $ 61.0 $ 178.3
Current maturities of long-term debt 60.4 60.5
Trade accounts payable 366.7 372.0
Other accrued liabilities 776.7 761.8
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Total Current Liabilities 1,264.8 1,372.6
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Long-Term Debt 1,671.3 1,623.7
Deferred Income Taxes 55.0 57.7
Postretirement Benefits 265.5 304.2
Other Long-Term Liabilities 183.8 211.1
Stockholders' Equity
Common stock, par value $.50 per share
(outstanding: September 27, 1998--87,865,949 shares;
December 31, 1997--94,842,544 shares) 43.9 47.4
Capital in excess of par value 885.1 1,278.2
Retained earnings (deficit) (317.7) 562.0
Accumulated other comprehensive income (93.6) (96.2)
- -------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 517.7 1,791.4
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$ 3,958.1 $ 5,360.7
===================================================================================================================
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
</FN>
</TABLE>
<PAGE>
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<TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY (Unaudited)
The Black & Decker Corporation and Subsidiaries
(Dollars in Millions Except Per Share Amounts)
<CAPTION>
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Accumulated
Outstanding Capital in Retained Other Com- Total
Common Par Excess of Earnings prehensive Stockholders'
Shares Value Par Value (Deficit) Income Equity
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<S> <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 -- -- -- 130.2 -- 130.2
Foreign currency translation
adjustments, less effect of
hedging activities (net of tax) -- -- -- -- (48.3) (48.3)
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Comprehensive income (loss) -- -- -- 130.2 (48.3) 81.9
- ---------------------------------------------------------------------------------------------------------------------
Cash dividends ($.36 per share) -- -- -- (34.1) -- (34.1)
Common stock issued under
employee benefit plans 560,154 .3 12.9 -- -- 13.2
- ---------------------------------------------------------------------------------------------------------------------
Balance at September 28, 1997 94,808,961 $ 47.4 $ 1,274.6 $ 476.3 $ (104.9) $ 1,693.4
=====================================================================================================================
Balance at December 31, 1997 94,842,544 $ 47.4 $ 1,278.2 $ 562.0 $ (96.2) $ 1,791.4
Comprehensive income:
Net loss -- -- -- (846.4) -- (846.4)
Foreign currency translation
adjustments, less effect of
hedging activities (net of tax) -- -- -- -- (33.0) (33.0)
Write-off of accumulated
foreign currency transla-
tion adjustments due to
sale of businesses -- -- -- -- 35.6 35.6
- ---------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) -- -- -- (846.4) 2.6 (843.8)
- ---------------------------------------------------------------------------------------------------------------------
Cash dividends ($.36 per share) -- -- -- (33.3) -- (33.3)
Purchase and retirement of
common stock (8,059,900) (4.0) (416.1) -- -- (420.1)
Common stock issued under
employee benefit plans 1,083,305 .5 23.0 -- -- 23.5
- ---------------------------------------------------------------------------------------------------------------------
Balance at September 27, 1998 87,865,949 $ 43.9 $ 885.1 $ (317.7) $ (93.6) $ 517.7
=====================================================================================================================
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
</FN>
</TABLE>
<PAGE>
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<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
The Black & Decker Corporation and Subsidiaries
(Dollars in Millions)
<CAPTION>
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Nine Months Ended
September 27, 1998 September 28, 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net earnings (loss) $ (846.4) $ 130.2
Adjustments to reconcile net earnings (loss) to cash flow
from operating activities:
Gain on sale of businesses (63.4) -
Non-cash charges and credits:
Goodwill write-off 900.0 -
Restructuring charges and exit costs 154.2 -
Depreciation and amortization 122.3 163.1
Other 2.6 (2.6)
Changes in selected working capital items (excluding, for 1998,
effects of the household products and glass container-forming
and inspection equipment businesses sold):
Trade receivables (50.1) (93.9)
Inventories (83.4) (220.8)
Trade accounts payable 31.6 33.4
Restructuring spending (27.9) -
Other assets and liabilities (78.0) (45.4)
Net decrease in receivables sold - (134.0)
- ---------------------------------------------------------------------------------------------------------------------
Cash Flow From Operating Activities 61.5 (170.0)
- ---------------------------------------------------------------------------------------------------------------------
Investing Activities
Proceeds from sale of businesses, net of selling expenses 481.8 -
Proceeds from disposal of assets 19.1 4.1
Capital expenditures (92.4) (132.2)
Cash inflow from hedging activities 239.2 303.4
Cash outflow from hedging activities (231.6) (281.9)
- ---------------------------------------------------------------------------------------------------------------------
Cash Flow From Investing Activities 416.1 (106.6)
- ---------------------------------------------------------------------------------------------------------------------
Cash Flow Before Financing Activities 477.6 (276.6)
Financing Activities
Net decrease in short-term borrowings (112.7) (75.3)
Proceeds from long-term debt (including revolving credit facility) 585.6 647.5
Payments on long-term debt (including revolving credit facility) (569.8) (219.2)
Debt issue costs paid (2.7) -
Redemption of preferred stock of subsidiary (41.7) -
Purchase of common stock (420.1) -
Issuance of common stock 18.0 9.3
Cash dividends (33.3) (34.1)
- ---------------------------------------------------------------------------------------------------------------------
Cash Flow From Financing Activities (576.7) 328.2
Effect of exchange rate changes on cash (4.4) (6.1)
- ---------------------------------------------------------------------------------------------------------------------
Decrease In Cash And Cash Equivalents (103.5) 45.5
Cash and cash equivalents at beginning of period 246.8 141.8
- ---------------------------------------------------------------------------------------------------------------------
Cash And Cash Equivalents At End Of Period $ 143.3 $ 187.3
=====================================================================================================================
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
</FN>
</TABLE>
<PAGE>
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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- and nine-month periods ended September 27,
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 comprehensive income, which is the sum of net income and other
comprehensive income. Other comprehensive income represents total
non-stockholder changes in equity. The Corporation has included its presentation
of comprehensive income in the accompanying Consolidated Statement of Changes in
Stockholders' Equity for the nine months ended September 27, 1998 and September
28, 1997. Comprehensive income for the three months ended September 27, 1998 and
September 28, 1997, was $89.8 million and $44.3 million, respectively. 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."
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, which is required
to be adopted for years beginning after June 15, 1999. Early adoption of SFAS
No. 133 is permitted as of the beginning of any fiscal quarter after its
issuance. SFAS No. 133 will require the Corporation to recognize all derivatives
on the balance sheet at fair value. Derivatives that do not qualify as hedges
under the new standard must be adjusted to fair value through income. If a
derivative qualifies as a hedge, depending on the nature of the hedge, changes
in the fair value of derivatives will either be offset against the change in
fair value of the hedged assets, liabilities, or firm commitments through
earnings or recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's change in
value will be immediately recognized in earnings.
The Corporation has not yet determined when it will adopt SFAS No. 133,
although early adoption is considered possible due to the new standard's more
favorable treatment of certain foreign currency hedges than that afforded under
prior accounting standards. Further, the Corporation has not yet determined what
effect SFAS No. 133 will have on its earnings and financial position.
<PAGE>
-8-
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. As announced in January
1998, the program includes the following components: (i) the divestiture of the
household products business in North America, Latin America, and Australia, the
recreational products business, and the glass container-forming and inspection
equipment business; (ii) the repurchase of up to 10% of the Corporation's
outstanding common stock over a two-year period; 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 taken actions to divest its household products
business in North America, Latin America, and Australia, recreational products
business, and glass container-forming and inspection equipment business. The
Corporation has elected to retain the cleaning and lighting products component
of the household products business. 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.
On June 26, 1998, the Corporation closed on the sale to Windmere-Durable
Holdings, Inc. of its 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 the United
States, Canada, Mexico, Central America, the Caribbean, and South America
(excluding Brazil) for $315.0 million. The Corporation received gross proceeds
of $288.0 million at closing and $27.0 million was held in escrow pending
transfer of assets associated with the household products business in Mexico.
The $27.0 million held in escrow was received by the Corporation in July 1998 in
connection with the transfer of the Mexican assets. As part of the transaction,
the Corporation retained certain liabilities and 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. During
the nine months ended September 27, 1998, the Corporation also completed the
sale of its household products business in Australia, the proceeds from which
were immaterial. With respect to its household products business in Brazil, the
Corporation continues to evaluate various alternatives.
On September 22, 1998, the Corporation announced that it had closed on the
sale of its glass container-forming and inspection equipment business, Emhart
Glass, to Bucher Holding A.G. In connection with the sale, the Corporation
received cash of $178.7 million.
As more fully described in Note 8 of Notes to Consolidated Financial
Statements, subsequent to the end of the third quarter of 1998, the Corporation
completed the recapitalization of its recreational products business.
<PAGE>
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The aforementioned sales of the household products business and glass
container-forming and inspection equipment business and recapitalization of the
recreational products business are expected to result in net cash proceeds,
after selling expenses, taxes, and liabilities retained, of approximately $525
million. Net proceeds from the sales or recapitalization of these businesses,
augmented by cash generated by remaining operations, have been and are expected
to be utilized in the repurchase of a portion of the Corporation's outstanding
common stock and to fund the restructuring program described below.
Sales of the divested businesses, in aggregate, were $66.0 million and
$187.4 million for the three months ended September 27, 1998, and September 28,
1997, respectively, and $331.2 million and $489.9 million for the nine months
ended September 27, 1998, and September 28, 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 a two-year period. In October 1998,
the Corporation announced that the Board had authorized the repurchase of an
additional 1,000,000 shares of the Corporation's common stock. A combination of
net proceeds from the sale of divested businesses and cash flow from remaining
operations have been and will be used to fund the stock repurchase program.
Prior to the receipt of proceeds from the sale of divested businesses, the
Corporation utilized its existing borrowing facilities to fund a portion of the
stock repurchase program.
During the nine months ended September 27, 1998, the Corporation repurchased
8,059,900 shares of common stock at an aggregate cost of $420.1 million. The
aggregate cost of $420.1 million is net of $1.4 million in premiums received in
connection with the Corporation's sale of put options on 800,000 shares of its
common stock. As of September 27, 1998, put options on 600,000 shares of the
Corporation's common stock were outstanding, with an average strike price of
$54.98.
Restructuring Charge: The restructuring program, announced in January 1998, will
be completed over a period of two years and is being undertaken to reduce fixed
costs and simplify the supply chain and new product introduction processes.
During the first quarter of 1998, the Corporation commenced the restructuring
program and recorded a restructuring charge of $140.0 million. During the three
months ended September 27, 1998, the Corporation recognized additional
restructuring charges, principally associated with the acceptance of a voluntary
retirement plan by certain employees in the United States, recognized a gain on
the sale of a facility exited as part of the plan, and reduced previously
established accruals to reflect the identification of less costly exit
strategies and higher than anticipated workforce attrition. The net effect of
these actions was to recognize an additional restructuring charge of $14.2
million during the quarter ended September 27, 1998. 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, as modified, relates to the
elimination of approximately 4,900 positions. As a result, an accrual of $123.0
million, principally associated with European businesses in the Consumer
segment, was included in the restructuring charge. Included in that accrual were
costs of approximately $30 million related to the acceptance of a voluntary
retirement plan by certain employees in the United States. Also included in that
<PAGE>
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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 in Kuantan, Malaysia,
that manufactured household products predominantly for sale in the United States
and was not included in the assets sold with the household products business.
To reduce fixed costs and simplify the supply chain and new product
introduction processes, the Corporation is taking 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
$19.8 million write-down to fair value--less, if applicable, costs to sell--of
certain land, buildings, and equipment. Included in that $19.8 million
write-down was $9.0 million related to the closure of the Malaysian facility
described above. 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 $11.4 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.
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
included an estimate of the proceeds from the 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, $900.0 million of goodwill was
written off through a charge to operations during the first quarter of 1998.
That goodwill write-off represented a per-share net loss of $9.64 both on a
basic and diluted basis for the nine-month period ended
<PAGE>
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September 27, 1998. 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
one of the divested businesses, 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:
<TABLE>
<CAPTION>
September 27, 1998 December 31, 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FIFO cost
Raw materials and work-in-process $ 200.4 $ 199.4
Finished products 570.8 599.4
- ----------------------------------------------------------------------------------------------------------------
771.2 798.8
Excess of FIFO cost over LIFO inventory value (21.9) (24.1)
- ----------------------------------------------------------------------------------------------------------------
$ 749.3 $ 774.7
================================================================================================================
</TABLE>
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.
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 written off through a charge to operations during
the first quarter of 1998, and has been reflected in the Consolidated Statement
of Earnings as "Write-off of goodwill" for the nine months ended September 27,
1998. 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 one of the
divested businesses, 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.
In addition, goodwill related to the Corporation's household products and
glass container-forming and inspection equipment businesses was written off in
connection with the sale of those businesses during the nine months ended
September 27, 1998.
<PAGE>
-12-
Goodwill at the end of each period, in millions of dollars, was as follows:
<TABLE>
<CAPTION>
September 27, 1998 December 31, 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Goodwill $ 1,397.9 $ 2,499.9
Less accumulated amortization 558.5 622.6
- ----------------------------------------------------------------------------------------------------------------
$ 839.4 $ 1,877.3
================================================================================================================
</TABLE>
During the quarter ending December 31, 1998, goodwill in the amount of $77.4
million associated with the Corporation's recreational products business will be
written off in connection with the recapitalization of that business.
NOTE 5: LONG-TERM DEBT
In June 1998, a wholly owned subsidiary of the Corporation issued senior
unsecured notes that were guaranteed by the Corporation in the amount of $300.0
million. Of that amount, $150.0 million bear interest at a fixed rate of 6.55%
and are due in 2007, and $150.0 million bear interest at a fixed rate of 7.05%
and are due in 2028. Proceeds from the issuance of the senior unsecured notes
were used to repay indebtedness outstanding under the Corporation's unsecured
revolving credit facility.
Indebtedness of subsidiaries of the Corporation in the aggregate principal
amounts of $888.2 million and $776.0 million were included in the Consolidated
Balance Sheet at September 27, 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 September 28, 1997, the
Corporation had sold $78.0 million of receivables under this program. The
discount on sale of receivables is included in "Other 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:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 27, 1998 September 28, 1997 September 27, 1998 September 28, 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest expense $34.7 $33.6 $107.0 $99.0
Interest (income) (5.6) (.9) (19.7) (5.1)
- ----------------------------------------------------------------------------------------------------------------
$29.1 $32.7 $ 87.3 $93.9
==================================================================================================================
</TABLE>
<PAGE>
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NOTE 8: SUBSEQUENT EVENTS
On September 30, 1998, the Corporation announced that it had completed the
recapitalization of its recreational products business, True Temper Sports, with
an affiliate of Cornerstone Equity Investors, LLC. In connection with the
transaction, the Corporation received $177.7 million in cash and a senior
increasing rate discount note in an initial accreted amount of $25.0 million. In
addition, the Corporation retained approximately 6% of preferred and common
stock of the recapitalized company, now known as True Temper Corporation, valued
at approximately $4 million.
<PAGE>
-14-
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Corporation reported net earnings of $66.6 million or $.72 per share on a
diluted basis for the three-month period ended September 27, 1998. Included in
net earnings for the quarter ended September 27, 1998, were a $7.7 million
after-tax restructuring charge ($14.2 million before tax) or $.08 per share on a
diluted basis and an after-tax gain on sale of businesses of $9.2 million ($26.9
million before tax) or $.10 per share on a diluted basis. Excluding the
restructuring charge and the gain on sale of businesses, net earnings were $65.1
million or $.70 per diluted share for the quarter ended September 27, 1998,
compared to net earnings of $58.4 million or $.60 per share on a diluted basis
for the corresponding period in 1997.
During the quarter ended September 27, 1998, the Corporation closed on the
sale of its glass container-forming and inspection equipment business, Emhart
Glass, to Bucher Holding A.G. On September 30, 1998, the Corporation completed
the recapitalization of its recreational products business, True Temper Sports,
concluding part of the Corporation's strategic repositioning plan. The sale or
recapitalization of these businesses, together with the sale earlier in 1998 of
the household products business (excluding certain assets associated with the
Corporation's cleaning and lighting products) in North America, Australia, and
Latin America (excluding Brazil), are expected to result in net cash proceeds,
after selling expenses, taxes, and liabilities retained, of approximately $525
million.
The Corporation reported a net loss of $846.4 million or $9.06 per share
on a diluted basis for the nine-month period ended September 27, 1998, compared
to net earnings of $130.2 million or $1.35 per share on a diluted basis for the
nine-month period ended September 28, 1997. Excluding the effects of the
restructuring charge of $154.2 million ($107.7 million after-tax), the goodwill
write-off of $900.0 million recognized in the first quarter of 1998, and the
gain on sale of businesses of $63.4 million ($13.4 million after-tax), net
earnings for the nine months ended September 27, 1998, would have been $147.9
million or $1.55 per share on a diluted basis.
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, the Corporation has taken actions to divest or
recapitalize its non-strategic businesses, which consist of True Temper Sports,
Emhart Glass, and the household products business in North America, Latin
America, and Australia.
<PAGE>
-15-
On June 26, 1998, the Corporation closed on the sale of its household
products business in North America, Central America, the Caribbean and South
America (excluding Brazil) for $315.0 million. The Corporation received gross
proceeds of $288.0 million at closing and $27.0 million were held in escrow
pending transfer of assets associated with the household products business in
Mexico. The $27.0 million held in escrow was received by the Corporation in July
1998 in connection with the transfer of assets associated with the household
products business in Mexico. During the nine months ended September 27, 1998,
the Corporation also completed the sale of its household products business in
Australia, the proceeds from which were immaterial. In connection with the sale
of the household products businesses, the Corporation retained its cleaning and
lighting product lines, which include, among other things, the Dustbuster(R)
cordless vacuum. The Corporation is continuing to evaluate various alternatives
for its household products business in Brazil.
On September 22, 1998, the Corporation announced that it had closed on the
sale of its glass container-forming and inspection equipment business, Emhart
Glass, to Bucher Holding A.G. In connection with the sale, the Corporation
received cash of $178.7 million.
Subsequent to the end of the third quarter of 1998, the Corporation
completed the recapitalization of its recreational products business, True
Temper Sports, with an affiliate of Cornerstone Equity Investors, LLC. On
September 30, 1998, the Corporation received $177.7 million in cash and a senior
increasing rate discount note in an initial accreted amount of $25.0 million in
connection with the recapitalization. The note received by the Corporation bears
interest at a variable rate. In addition, the Corporation retained approximately
6% of preferred and common stock of the recapitalized company, now known as True
Temper Corporation, valued at approximately $4 million.
The sales or recapitalization of these businesses are expected to result in
net cash proceeds, after selling expenses, taxes, and liabilities retained, of
approximately $525 million.
The pre-tax gain on sale of businesses of $26.9 million ($9.2 million after
tax) recognized by the Corporation during the quarter ended September 27, 1998,
principally represents the gain on the sale of the glass container-forming and
inspection equipment business and is net of losses recognized in the second
quarter of 1998 in anticipation of the sale. The pre-tax gain on the sale of
businesses of $63.4 million ($13.4 million net of tax) recognized by the
Corporation during the nine months ended September 27, 1998, represents the gain
on the sale of the household products business (excluding certain assets
associated with the cleaning and lighting product lines) in North America,
Central America, the Caribbean, and South America (excluding Brazil) and the
glass container-forming and inspection equipment business, and is net of losses
recognized in connection with the anticipated exit from the household products
business in Brazil. 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
<PAGE>
-16-
expected fair value less costs to sell, and to cease 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, augmented by free cash
flow generated by the remaining businesses, have been and will be used to fund
the second element of the strategic repositioning plan-the repurchase of
approximately 11% of the Corporation's outstanding common shares over a two-year
period. During the nine months ended September 27, 1998, the Corporation
repurchased 8,059,900 common shares at an aggregate cost of $420.1 million,
which is net of $1.4 million in premiums received in connection with the
Corporation's sale of put options on 800,000 shares of its common stock. During
the period from September 28, 1998, through November 10, 1998, the Corporation
purchased an additional 965,500 common shares at an aggregate cost of $44.1
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 businesses 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.
This restructuring program is estimated to result in a pre-tax charge of up
to $225 million, of which $154.2 million was recognized during the nine months
ended September 27, 1998 ($107.7 million after tax), with the balance to be
recognized as the program progresses over a two-year period. During the first
quarter of 1998, the Corporation commenced the restructuring plan and recognized
a restructuring charge of $140.0 million. During the three months ended
September 27, 1998, the Corporation recognized additional restructuring charges,
principally associated with the acceptance of a voluntary retirement plan by
certain employees in the United States, recognized a gain on the sale of a
facility exited as part of the plan, and reduced previously established accruals
to reflect the identification of less costly exit strategies and higher than
anticipated workforce attrition. The net effect of these actions was to
recognize an additional pre-tax restructuring charge of $14.2 million during the
third quarter of 1998 ($7.7 million after tax).
<PAGE>
-17-
A summary of the Corporation's restructuring activity through September 27,
1998, follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Reserve As Reversal of
Established in Previous Reserve Reserve
the First Quarter Utilization of Reserve and Accrual of at Septem-
(Dollars in Millions) of 1998 Cash Non-Cash New Reserve ber 27, 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Severance benefits and cost
of voluntary retirement
program $102.7 $(24.1) $(28.3) $20.3 $70.6
Write-down to net realiz-
able value of certain land,
buildings, and equipment 27.5 - (17.9) (7.7) 1.9
Other charges 9.8 (3.8) (.3) 1.6 7.3
- -------------------------------------------------------------------------------------------------------------------
Total $140.0 $(27.9) $(46.5) $14.2 $79.8
===================================================================================================================
</TABLE>
In the above table, the $28.3 million non-cash utilization of the reserve
established for severance benefits and costs of voluntary retirement program
represents the present value of payments to be made as a result of the voluntary
retirement program. Those payments will be made from the assets of the
Corporation's pension plan trust rather than from working capital of the
Corporation.
In addition to the restructuring charge, it is anticipated that related
expenses of approximately $60 million will be charged to operations over a
two-year period as the restructuring program progresses. These related expenses,
which are incremental to the plans being implemented, do not qualify as
restructuring or exit costs under generally accepted accounting principles.
During the three and nine months ended September 27, 1998, the Corporation
recognized $6.3 million and $34.7 million of expenses, respectively, related to
the restructuring program and divestitures in operating income. Included in
those restructuring-related expenses were inventory write-downs associated with
products in the retained cleaning and lighting business that will be
discontinued. Cash spending on the restructuring program during 1998 is expected
to range between $60 million to $70 million.
Benefits from the restructuring charge taken in the first nine months of
1998, estimated at more than $70 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 and voluntary retirement accrual included in the $154.2 million
restructuring charge taken in the nine months ended September 27, 1998, related
to the elimination of approximately 4,900 positions. As the Corporation shifts
certain production and other activities and replaces certain employees who
retired under the United States voluntary retirement program, it is anticipated
that an additional 2,100 positions will be created. As a result, the
Corporation's estimate of annual, pre-tax savings in excess of $70 million,
expected once the restructuring actions taken in the first nine months of 1998
are fully implemented, reflects the savings from a net reduction of
approximately 2,800 positions. The Corporation's estimate of savings was based
upon a comparison to the pre-restructuring cost base, and actual
<PAGE>
-18-
savings may be mitigated by such factors as continued economic deterioration in
foreign markets and decisions to increase costs in such areas as research and
development.
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 previously
discussed, 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 was
recognized during the first quarter of 1998 ($9.64 per share both on a basic and
diluted basis for the nine months ended September 27, 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 businesses and
includes a $40.0 million write-down of goodwill associated with one of the
divested businesses, 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 sold, goodwill amortization declined from $15.7
million for the three months ended September 28, 1997 ($47.6 million for the
first nine months of 1997) to $6.3 million for the three months ended September
27, 1998 ($18.7 million for the first nine months of 1998).
<PAGE>
-19-
SALES
The following chart sets forth an analysis of the consolidated changes in sales
for the three- and nine-month periods ended September 27, 1998 and September 28,
1997.
<TABLE>
<CAPTION>
ANALYSIS OF CHANGES IN SALES
- ------------------------------------------------------------------------------------------------------------------
For the Three Months Ended For the Nine Months Ended
(Dollars in Millions) September 27, 1998 September 28, 1997 September 27, 1998 September 28, 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total sales $1,107.7 $1,224.9 $3,285.7 $3,422.1
Unit volume - existing 1% 9% 2% 3%
- disposed (9)% - (3)% -
Price (1)% (2)% (1)% (1)%
Currency (1)% (4)% (2)% (3)%
- ------------------------------------------------------------------------------------------------------------------
Change in total sales (10)% 3% (4)% (1)%
==================================================================================================================
<FN>
Note: In the above table and in the following discussion, existing unit volume
relates to businesses where period-to-period comparability exists.
Disposed unit volume relates to businesses where period-to-period
comparability does not exist due to the sale of a particular business.
For the three- and nine-month periods ended September 27, 1998, disposed
unit volume relates to third quarter sales of the household products
business (excluding assets associated with the cleaning and lighting
product lines retained by the Corporation) in North America, Australia,
Central America, the Caribbean, and South America (excluding Brazil)
which was sold during the first six months of 1998. Because the
Corporation sold its glass container-forming and inspection equipment
business, Emhart Glass, at the end of the third quarter of 1998,
period-to-period comparability exists during the three- and nine- month
periods ended September 27, 1998, and the results of that business are
included in existing unit volume. The results of the recreational
products business, True Temper Sports also are included in existing unit
volume for the three- and nine-month periods ended September 27, 1998.
</FN>
</TABLE>
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 has sold the household
products business (excluding assets associated with the cleaning and lighting
product lines retained by the Corporation) in North America, Australia, Central
America, the Caribbean, and South America (excluding Brazil) and Emhart Glass.
In addition, subsequent to September 27, 1998, the Corporation recapitalized its
recreational products business, True Temper Sports. The results of operations
and financial positions of these businesses have been included in the
consolidated financial statements through the dates of consummation of the
respective transactions.
<PAGE>
-20-
The following chart sets forth an analysis of the change in sales for the
three and nine months ended September 27, 1998, compared to the three and nine
months ended September 28, 1997, by geographic area for each business segment.
<TABLE>
ANALYSIS OF CHANGES IN SALES
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 27, 1998
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
United States Europe Other Total
(Dollars in Millions) 3 Months 9 Months 3 Months 9 Months 3 Months 9 Months 3 Months 9 Months
- -------------------------------------------------------------------------------------------------------------------------
Consumer
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total sales $608.3 $1,702.4 $257.7 $802.3 $88.5 $310.2 $ 954.5 $2,814.9
Unit volume - existing 4% 5% 5% 6% (8)% (9)% 2% 4%
- disposed (11)% (4)% -% -% (26)% (10)% (10)% (4)%
Price (1)% (1)% -% -% (1)% (1)% (1)% (1)%
Currency -% -% 1% (4)% (6)% (5)% (1)% (2)%
- -------------------------------------------------------------------------------------------------------------------------
(8)% -% 6% 2% (41)% (25)% (10)% (3)%
- -------------------------------------------------------------------------------------------------------------------------
Commercial
Total sales $ 66.3 $ 208.9 $ 65.6 $195.9 $ 21.3 $ 66.0 $ 153.2 $ 470.8
Unit volume (1)% (6)% (3)% 3% (20)% (21)% (5)% (5)%
Price (2)% (1)% -% -% (1)% (1)% (1)% (1)%
Currency -% -% 1% (3)% (12)% (7)% (2)% (2)%
- -------------------------------------------------------------------------------------------------------------------------
(3)% (7)% (2)% -% (33)% (29)% (8)% (8)%
- -------------------------------------------------------------------------------------------------------------------------
Consolidated
Total sales $674.6 $1,911.3 $323.3 $998.2 $109.8 $376.2 $1,107.7 $3,285.7
Unit volume - existing 3% 4% 3% 5% (10)% (11)% 1% 2%
- disposed (10)% (4)% -% -% (22)% (8)% (9)% (3)%
Price (1)% (1)% -% -% (1)% (1)% (1)% (1)%
Currency -% -% 1% (3)% (7)% (6)% (1)% (2)%
- -------------------------------------------------------------------------------------------------------------------------
Change in total sales (8)% (1)% 4% 2% (40)% (26)% (10)% (4)%
=========================================================================================================================
<FN>
Note: The characterization of businesses as "existing" or "disposed" in this
table is that same as in the table on the preceding page.
</FN>
</TABLE>
The negative effects of a stronger United States dollar compared to most
major foreign currencies caused a decrease in the Corporation's consolidated
sales from the prior year's level of 1% and 2% for the three and nine months
ended September 27, 1998, respectively. Pricing actions had a 1% negative effect
on sales for both the three-and nine-month periods ended September 27, 1998,
compared to the corresponding periods in 1997. Existing unit volume increased by
1% for the three-month period ended September 27, 1998, compared to the prior
year's level. For the nine-month period ended September 27, 1998, existing unit
volume increased 2% over the 1997 level. The Corporation's sale of its household
products business (excluding the cleaning and lighting product lines retained by
the Corporation) in North America, Australia, Central America, the Caribbean,
and South America (excluding Brazil)
<PAGE>
-21-
(referred to herein as the "sold household products business") during the first
six months of 1998 had a 9% and 3% negative impact on consolidated sales for the
three and nine months ended September 27, 1998, respectively.
Sales in the Corporation's Consumer businesses in the United States
decreased by 8% for the three-month period ended September 27, 1998, from the
1997 level while sales for the nine-month period ended September 27, 1998,
equaled the 1997 level.
Despite competitive pressures that continued to constrain pricing, sales in
the domestic power tools business increased at a double-digit rate during the
three- and nine-month periods ended September 27, 1998, compared to the
corresponding periods in 1997. The domestic power tools business benefited from
the strength of the DEWALT(R) professional power tools line, due largely to
products introduced over the past year but those benefits were partially offset
by weakness during the same periods in sales of consumer power tools. Sales in
the domestic security hardware business increased at a high single-digit rate
for the three-month period ended September 27, 1998, and at a mid-single digit
rate for the nine-month period ended September 27, 1998, both compared to the
corresponding periods in 1997. Sales gains in the domestic security hardware
business during the third quarter of 1998 were principally due to strong sales
of TITAN(R) products as well as opening price point locksets. In addition, sales
gains in the first nine months of 1998 were driven by the introduction of the
AccessOneTM Remote Keyless Entry lock and The Society Brass Collection(R),
principally in the second quarter of 1998. Sales in the domestic plumbing
products business decreased at a mid single-digit rate during the three-month
period ended September 27, 1998, from the 1997 level but increased at a mid
single-digit rate for the nine months ended September 27, 1998, over the
corresponding level in 1997. Sales in the domestic accessories business
decreased by mid-single digit rates for the three- and nine-month periods ended
September 27, 1998, compared to the corresponding 1997 periods principally due
to SKU reduction efforts in that business. Sales in the recreational products
business increased at a mid-single digit rate and at a double-digit rate for the
three and nine months ended September 27, 1998, respectively. Sharply lower
sales were experienced in the first half of 1998 in the domestic household
products business, compared to the corresponding period in 1997, adversely
impacting existing unit volume comparisons for the nine-month period ended
September 27, 1998. Significant sales declines also were experienced during the
three and nine months ended September 27, 1998, in the cleaning and lighting
business, previously part of the household products business but retained by the
Corporation, most significantly with respect to the ScumBuster(R) cordless
submersible scrubber. The Corporation anticipates that negative comparisons to
the prior year with respect to the retained cleaning and lighting business will
continue to affect the Corporation's 1998 results.
Excluding the effect of changes in foreign exchange rates, sales in the
Corporation's Consumer businesses in Europe improved by 5% and 6% for the three
and nine months ended September 27, 1998, respectively, over the corresponding
periods in 1997. Increased sales in Europe of consumer and professional power
tools and accessories, outdoor lawn and garden tools, security hardware, and
product service during the three and nine months ended September 27, 1998, as
compared to the prior year's levels more than offset declines during those
periods in sales of household products.
<PAGE>
-22-
Sales of the Corporation's Consumer businesses in Other geographic areas
for the three and nine months ended September 27, 1998, decreased by 35% and
20%, respectively, from the same periods in 1997, excluding the negative effect
of changes in foreign exchange rates during 1998. The impact on the third
quarter's comparison of the sold household products business, the continuing
effect of the Asian economic crisis as well as sales weakness in Latin America,
were the principal reasons for the declines.
Excluding the negative effect of changes in foreign exchange rates, sales in
the Corporation's Commercial businesses decreased by 6% during both the three
and nine months ended September 27, 1998, from the prior year's levels. Lower
automotive sales during 1998 due to softness in Asia and the effects of the
now-settled General Motors strike in the United States contributed to a low
single-digit rate decline in sales, exclusive of negative currency effects, in
the Corporation's fastening and assembly systems business during the quarter
ended September 28, 1998. Despite these factors, sales in the fastening and
assembly systems business increased at a low single-digit rate for nine months
ended September 27, 1998, compared to the corresponding period in 1997,
exclusive of negative currency comparisons due, in part, to the strength of
European automotive sales. Sharply lower sales, exclusive of negative currency
effects, were realized in the Emhart Glass business during the three and nine
months ended September 27, 1998, compared to the corresponding periods in 1997.
EARNINGS
Operating income for the three-month period ended September 27, 1998, excluding
the restructuring charge of $14.2 million and gain on sale of businesses of
$26.9 million, was $128.6 million, or 11.6% of sales, compared to $126.7
million, or 10.3% of sales, for the corresponding period in 1997. An operating
loss of $679.8 million was recognized for the nine months ended September 27,
1998, compared to operating income of $304.3 million for the corresponding
period in 1997. Excluding the effects of the $154.2 million restructuring
charge, the $900.0 million write-off of goodwill, and the $63.4 million gain on
sale of businesses, operating income for the first nine months of 1998 was
$311.0 million, or 9.5% of sales, compared to $304.3 million, or 8.9% of sales,
for the first nine months of 1997.
Operating results for the three and nine months ended September 27, 1998,
included $6.3 million and $34.7 million, respectively, of expenses directly
related to the strategic repositioning plan that do not qualify as restructuring
or exit costs under generally accepted accounting principles
("restructuring-related expenses"). Included in these amounts is the write-down
to net realizable value of cleaning and lighting inventories that are being
discontinued in connection with the assumption of those product lines in North
America by the Corporation's power tool business. Excluding the effects of these
restructuring-related expenses, the restructuring charge, and the gain on sale
of businesses, operating income would have increased by 6.5% from $126.7
million, or 10.3% of sales, for the quarter ended September 28, 1997, to $134.9
million, or 12.2% of sales, for the quarter ended September 27, 1998. Excluding
the effects of these restructuring-related expenses, the restructuring charge,
the goodwill write-off, and the gain on sale of businesses, operating income
would have increased by 13.6% from $304.3 million, or 8.9% of sales, for the
nine months ended September 28, 1997, to $345.7
<PAGE>
-23-
million, or 10.5% of sales, for the nine months ended September 27, 1998. In
addition to the realization of benefits from restructuring actions taken in
1998, a major contributor to these improvements was the $9.4 million and $28.9
million reduction in the level of goodwill amortization experienced in the three
and nine months ended September 27, 1998, respectively, as compared to the
corresponding periods in 1997. This reduced level of goodwill amortization was a
result of the goodwill write-off and cessation of amortization of goodwill
associated with the divested businesses. The lower level of goodwill
amortization experienced in the first three quarters of 1998 will continue in
future periods.
Improvements in operating income as a percentage of sales, exclusive of, for
the nine months ended September 27, 1998, the goodwill write-off and, for the
three and nine months ended September 27, 1998, the restructuring charge, the
gain on sale of businesses and restructuring-related expenses, were experienced
in the Corporation's power tools and accessories business, where strong
improvements in the United States and Canada offset declines in most other
geographic regions; fastening and assembly systems business; recreational
products business; and, for the nine month ended September 27, 1998, plumbing
products business.
Gross margin as a percentage of sales was 36.0% and 35.6% for the
three-month periods ended September 27, 1998, and September 28, 1997,
respectively. Gross margin as a percentage of sales was 34.9% for the first nine
months of 1998, compared to 35.7% for the corresponding period in 1997. The
decline in gross margin during the nine months ended September 27, 1998,
compared to the corresponding period in 1997 primarily resulted from adverse
foreign exchange effects on product costs, principally in the European
operations, competitive pressures that continued to constrain pricing, and
restructuring-related expenses, partially offset by increased productivity net
of inflation. While those factors also impacted gross margin for the quarter
ended September 27, 1998, compared to that of the prior year, the absence of
lower margin household products in the third quarter of 1998 due to the sale of
that business earlier in 1998 contributed to the increase in gross margin as a
percentage of sales.
Selling, general, and administrative expenses as a percentage of sales for
the three-month period ended September 27, 1998, were 24.4% compared to 25.3%
for the comparable period in 1997. Selling, general, and administrative expenses
as a percentage of sales for the nine-month period ended September 27, 1998,
were 25.4%, compared to 26.8% for the comparable period in 1997. These
improvements were the result of lower goodwill amortization in the three and
nine months ended September 27, 1998, compared to the corresponding periods in
1997, as a result of the goodwill write-off and cessation of amortization of
goodwill related to the businesses to be sold, as well as benefits realized from
restructuring actions taken in 1998.
Net interest expense (interest expense less interest income) was $29.1
million and $87.3 million for the three and nine months ended September 27,
1998, respectively, compared to $32.7 million and $93.9 million for the three
and nine months ended September 28, 1997, respectively. The lower level of net
interest expense in the three and nine months ended September 27, 1998, as
compared to the corresponding periods in 1997 was primarily the result of a
lower level of net debt (total debt less cash and cash equivalents) due to
improved cash flows from operating activities and more favorable interest rates
in 1998.
<PAGE>
-24-
The Corporation maintains a portfolio of interest rate hedge instruments for
the purpose of managing interest rate exposure. During the nine months ended
September 27, 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 $250.0 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 $300.0 million. Deferred gains
and losses on the early termination of interest rate swaps as of September 27,
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 $375.0
million during the nine months ended September 27, 1998.
Other expense for the three and nine months ended September 27, 1998,
principally consisted of currency losses. Other expense for the three and nine
months ended September 28, 1997, primarily included the discount on the sale of
receivables as well as currency losses.
Income tax expense of $41.8 million for the quarter ended September 27,
1998, included an income tax benefit of $6.5 million related to the pre-tax
restructuring charge and income tax expense of $17.7 million related to the gain
on sale of businesses, both recognized during that quarter. Excluding the taxes
associated with the restructuring charge and the gain on sale of businesses, the
Corporation's reported tax rate would have been 32% in the third quarter of
1998, compared to a tax rate of 35% in the third quarter of 1997.
Income tax expense of $73.1 million was recognized on the Corporation's
pre-tax loss of $773.3 million for the nine months ended September 27, 1998.
Excluding an income tax benefit of $46.5 million related to the pre-tax
restructuring charge of $154.2 million, the non-deductible write-off of goodwill
in the amount of $900.0 million recognized in the first quarter of 1998, and tax
expense of $50.0 million recognized on the gain on sale of businesses, the
Corporation's reported tax rate would have been 32% in the first nine months of
1998, compared to a tax rate of 35% in the first nine months of 1997.
This decrease in the effective tax rate in 1998 resulted from the lower
amount of goodwill amortization, which is not tax deductible, due to the
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 net earnings of $66.6 million, or $.73 per basic
share and $.72 per diluted share, for the three months ended September 27, 1998.
Excluding the after-tax restructuring charge of $7.7 million and the after-tax
gain on sale of businesses of $9.2 million both recognized in the third quarter
of 1998, net earnings were $65.1 million, or $.72 per basic share and $.70 per
diluted share, for the three-month period ended September 27, 1998, compared to
$58.4 million, or $.62 per basic share and $.60 per diluted share, for the
three-month period ended September 28, 1997.
<PAGE>
-25-
The Corporation reported a net loss of $846.4 million, or $9.06 per share
both on a basic and diluted basis, for the nine-month period ended September 27,
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 nine
months ended September 27, 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 goodwill
write-off and the after-tax restructuring charge and gain on sale of businesses,
would have been $147.9 million or $1.55 per share on this diluted basis for the
nine-month period ended September 27, 1998, compared to net earnings of $130.2
million or $1.35 per share on a diluted basis for the nine-month period ended
September 28, 1997.
Interest Rate Sensitivity
As a result of the significant changes during the nine months ended September
27, 1998, previously described, in the Corporation's interest rate hedge
portfolio, the following table provides information as of September 27, 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.
<PAGE>
-26-
<TABLE>
Notional Principal Amounts and Interest Rate Detail by Contractual Maturity Dates
<CAPTION>
Year Ending Dec. 31, Fair Value
3 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
Fixed to variable rates (all
U.S. dollar denominated) $ -- $ -- $50.0 $ -- $ -- $ 375.0 $ 425.0 $ (15.1)
Average pay rate (a)
Average receive rate 5.54% 6.02% 5.96%
Fixed U.S. rates to fixed
foreign rates (b)
To Japanese yen $ -- $100.0 $ -- $ -- $ -- $ -- $ 100.0 $ (21.1)
Average pay rate (in
Japanese yen) (c) 1.99% 1.99%
Average receive rate 6.66% 6.66%
To deutsche marks $ -- $100.0 $ -- $ -- $ -- $ -- $ 100.0 $ (9.4)
Average pay rate (in
deutsche marks) (d) 4.73% 4.73%
Average receive rate 6.64% 6.64%
To Dutch guilders $ -- $ 50.0 $ -- $ -- $ -- $ -- $ 50.0 $ (5.3)
Average pay rate (in
Dutch guilders) (e) 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 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.
(c) The average pay rate (in Japanese yen) is based upon a notional principal
amount of 10.9 billion Japanese yen.
(d) The average pay rate (in deutsche marks) is based upon a notional principal
amount of 153.3 million deutsche marks.
(e) The average pay rate (in Dutch guilders) is based upon a notional principal
amount of 85.9 million Dutch guilders.
</FN>
</TABLE>
Impact of Year 2000
The year 2000 issue stems from the fact that many computer programs were written
using two, rather than four, digits to identify the applicable year. As a
result, computer programs with time-sensitive software or electronic equipment
with embedded time-sensitive technology may recognize a two-digit code for any
year in the next century as related to this century. For example, "00", entered
in a date-field for the year 2000, may be interpreted as the year 1900,
resulting in system or equipment failures or miscalculations and disruptions of
operations, including, among other things, a temporary inability to process
transactions or engage in other normal business activities.
In order to improve operating performance over the last several years, the
Corporation has undertaken or commenced a number of significant systems
initiatives. Although many of these initiatives were unrelated to concerns over
the year 2000 issue, an ancillary benefit of the systems initiatives is that the
resulting systems are year 2000 compliant. Based upon a recent assessment, the
Corporation has determined that the incremental cost of ensuring that its
remaining computer systems are year 2000 compliant is not expected to have a
material adverse effect on the Corporation.
<PAGE>
-27-
The Corporation is taking action to ensure that it is adequately prepared
for the year 2000. These actions, being separately undertaken by each of the
Corporation's businesses and monitored by the Corporation on a central basis,
are categorized into the following phases: (i) awareness, during which the
businesses conduct year 2000 awareness meetings and establish year 2000 project
offices; (ii) assessment, during which the businesses complete inventories of
year 2000 issues, determine remediation strategies, and assign priorities to
various remediation efforts based, in part, on the significance of the
individual system or location to the businesses' overall operations; (iii)
remediation, during which the businesses take the necessary actions to renovate,
upgrade, replace, or retire systems that are not year 2000 compliant; (iv)
testing, during which remediation actions are evaluated for effectiveness; and
(v) implementation of the remediation actions to the production environment.
These phases are being evaluated separately for each of the businesses'
significant year 2000 exposures, which consist of: (i) software and hardware;
(ii) manufacturing equipment; (iii) facilities equipment; (iv) key customers;
(v) key suppliers; and (vi) products. In general, the awareness and remediation
phases have been completed or substantially completed for each of the
businesses' significant year 2000 exposures with respect to software and
hardware, manufacturing equipment, and facilities equipment. Surveys of key
customers and suppliers for year 2000 compliance generally have been completed
or are underway. Evaluation of the Corporation's products has been completed
without identification of any significant year 2000 impact. The businesses have
established key milestones for completion of the remediation, testing, and
implementation phases. In general, these milestones call for completion of the
testing and implementation phases for all critical systems by no later than
mid-1999 so that any slippage in the milestones for these critical systems can
be corrected in the third quarter of 1999. For non-critical systems, these
milestones generally call for completion of the remediation phase by no later
than mid-1999 and completion of the testing and implementation phases by no
later than the third quarter of 1999 so that any slippage in milestones can be
corrected in the fourth quarter of 1999.
Management believes that the Corporation has an effective program in place
to resolve the year 2000 issue in a timely manner. As noted above, the
Corporation has not yet completed all necessary phases of its year 2000 program.
In the event that the Corporation does not complete any additional phases, the
Corporation would be unable to take customer orders, manufacture or ship
products, invoice customers, or collect payments. Further, while the Corporation
has undertaken surveys of key customers and suppliers to determine the extent to
which the Corporation's interface systems are vulnerable to those third parties'
failure to remediate their own year 2000 issues, there is no guarantee that the
systems of other companies on which the Corporation's systems rely will be
timely converted and would not have an adverse effect on the Corporation's
systems. In addition, disruptions to the economy generally resulting from year
2000 issues could also materially adversely affect the Corporation. The amount
of potential liability and lost revenue cannot be reasonably estimated at this
time.
The Corporation has contingency plans for certain critical applications and
will develop such plans for other critical applications in the event that
remediation milestones are not achieved. Such contingency plans involve
consideration of a number of possible actions, including, to the extent
necessary, manual workarounds, increasing inventories, and adjusting staffing
strategies.
<PAGE>
-28-
FINANCIAL CONDITION
Operating activities generated cash of $61.5 million for the nine months ended
September 27, 1998, compared to $36.0 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 nine
months ended September 27, 1998, as compared to the corresponding period in
1997.
Investing activities for the nine months ended September 27, 1998,
generated cash of $416.1 million due principally to the receipt of $481.8
million of proceeds, net of selling expenses paid, from the sale of the
household products business in North America, Central America, the Caribbean and
South America (excluding Brazil) and of the glass container-forming and
inspection equipment business. Excluding those proceeds, investing activities
for the nine months ended September 27, 1998, used cash of $65.7 million
compared to $106.6 million in 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 nine months of 1998 compared to the corresponding
period in 1997.
Financing activities used cash of $576.7 million for the nine months ended
September 27, 1998, compared to cash generated of $328.2 million in the first
nine months of 1997. The increase in cash used in financing activities during
the first nine months of 1998 over the corresponding period 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 in 1998 due, in part, to increased cash from operating activities and the
receipt of proceeds from the sale of the household products business in North
America, Central America, the Caribbean, and South America (excluding Brazil)
and of the glass container-forming and inspection equipment business
During the nine months ended September 27, 1998, a wholly owned subsidiary
of the Corporation issued $300.0 million of fixed rate, senior unsecured notes
that were guaranteed by the Corporation, of which $150.0 million is due in 2007
and the balance is due in 2028. Proceeds of that debt issuance were used to
repay borrowings outstanding under the Corporation's revolving credit facility.
In addition, during that period, the Corporation retired $182.2 million of
long-term indebtedness in advance of their scheduled maturities. As a result of
changes in the Corporation's debt portfolio, average debt maturity was 5.9 years
at September 27, 1998, compared to 3.9 years at December 31, 1997. These changes
in the Corporation's debt portfolio, coupled with changes in the Corporation's
interest rate hedge portfolio described above, had the effect of decreasing the
Corporation's variable rate debt to total debt ratio from 63% at December 31,
1997, to 57% at September 27, 1998.
<PAGE>
-29-
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 (net of selling expenses and related taxes paid), 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 nine
months ended September 27, 1998, the Corporation experienced negative free cash
flow of $49.9 million compared to negative free cash flow of $166.0 million for
the corresponding period in 1997. This $116.1 million improvement in free cash
flow during the first nine 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 risks 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
maintaining mutually beneficial relationships with key distributors or
penetrating new channels 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 in the Corporation's
Annual Report on Form 10-K for the year ended December 31, 1997, and updated
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
<PAGE>
-30-
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.
The incremental costs of the year 2000 program and the time by which the
Corporation believes that it will complete the year 2000 remediation, testing
and implementation phases, as well as new systems initiatives that are year 2000
compliant, are based upon management's best estimates, which were derived using
numerous assumptions of future events, including the continued availability of
certain resources and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ materially from
those anticipated. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in this area, the ability to locate and correct are relevant computer codes, and
similar uncertainties.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required under this Item is included in Item 2 of Part I of this
report under the caption "Interest Rate Sensitivity" and in the seventh
paragraph under the caption "Earnings" and is incorporated by reference herein.
In addition, reference is made to Item 7A of the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1997.
<PAGE>
-31-
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. 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 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.
As of September 27, 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.
<PAGE>
-32-
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 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
As indicated in Note 2 of Notes to Consolidated Financial Statements under the
heading "Repurchase of Common Stock," in connection with the Corporation's stock
repurchase program the Corporation sold put options on 800,000 shares of its
Common Stock during the nine months ended September 27, 1998. Included in that
amount were 400,000 put options sold during the quarter ended September 27,
1998. The put options were sold in a series of transactions with an investment
banking firm subject to customary transfer restrictions in reliance upon the
exemption from registration in Section 4(2) of the Securities Act of 1933. The
Corporation received aggregate premiums of $.7 million in connection with the
put options sold during the third quarter of 1998. Each of the put options is
exercisable on a single fixed date specified in the option contract. The average
strike price of the put options sold during the quarter ended September 27,
1998, was $55.91.
ITEM 5 OTHER INFORMATION
THE BLACK & DECKER CORPORATION
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following unaudited pro forma consolidated balance sheet as of
September 27, 1998, and unaudited pro forma consolidated statement of earnings
for the nine months ended September 27, 1998, have been prepared by the
Corporation to give effect to the sale of the household products business
(excluding certain assets associated with the Corporation's cleaning and
lighting products) in North America, Australia, Central America, the Caribbean,
and South America (excluding Brazil) and the glass container-forming and
inspection equipment business, Emhart Glass, and the recapitalization of the
recreational products business, True Temper Sports (collectively, the "Divested
Businesses"). For additional information with respect to the Divested
Businesses, see Note 2 of Notes to Unaudited Consolidated Financial Statements
and Management's Discussion and Analysis of Financial Condition and Results of
Operations under the caption "Strategic Repositioning".
<PAGE>
-33-
The unaudited pro forma consolidated statement of earnings for the nine
months ended September 27, 1998, was prepared using the Corporation's unaudited
statement of earnings for the nine months ended September 27, 1998, and assumes
that the sales of the Divested Businesses took place on January 1, 1998. The
unaudited pro forma consolidated balance sheet as of September 27, 1998, was
prepared from the unaudited consolidated balance sheet of the Corporation as of
September 27, 1998, and assumes that the sales of the Divested Businesses took
place as of September 27, 1998.
These pro forma financial statements have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
or the financial condition which would actually have resulted had the sales of
the Divested Businesses been made on the dates or for the periods indicated or
which may result in the future. Further, these pro forma financial statements
have been prepared using information available as of the date of this filing. As
a result, certain amounts included herein are preliminary in nature and,
therefore, will be subject to adjustment in the future.
The actual financial statements of the Corporation will reflect the sales
of the Divested Businesses only from the respective actual sales dates forward.
<PAGE>
-34-
<TABLE>
Pro Forma Consolidated Statement of Earnings (Unaudited)
The Black & Decker Corporation and Subsidiaries
Nine Months Ended September 27, 1998
(Dollars in Millions Except Per Share Amounts
<CAPTION>
Less:
Divested Pro Forma Pro Forma
As Reported Businesses Adjustments As Adjusted
---------------- ---------------- ------------ ----------------
<S> <C> <C> <C>
Sales $ 3,285.7 $ 331.2 $ 2,954.5
Cost of goods sold 2,139.2 235.4 1,903.8
Selling, general and administrative
expenses 835.5 75.7 759.8
Write-off of goodwill 900.0 40.0 860.0
Restructuring and exit costs 154.2 17.1 137.1
Gain (loss) on sale of businesses 63.4 76.1 (12.7)
---------------- ---------------- ----------------
Operating Income (Loss) (679.8) 39.1 (718.9)
Interest expense (net of interest income) 87.3 0.1 $(20.6)(a) 66.6
Other expense 6.2 1.0 5.2
---------------- ---------------- ------------ ----------------
Earnings (Loss) Before Income Taxes (773.3) 38.0 20.6 (790.7)
Income taxes 73.1 54.6 7.2 (b) 25.7
---------------- ---------------- ------------ ----------------
Net Earnings (Loss) $ (846.4) $ (16.6) $ 13.4 $ (816.4)
================ ================ ============ ================
Net Earnings (Loss) Per Common
Share--Basic $ (9.06) $ (8.74)
================ ================
Shares Used in Computing Basic
Earnings Per Share (in Millions) 93.4 93.4
================ ================
Net Earnings (Loss) Per Common
Share--Assuming Dilution $ (9.06) $ (8.74)(c)
================ ================
Shares Used in Computing Diluted
Earnings Per Share (in Millions) 93.4 93.4
================ ================
<FN>
See notes to unaudited pro forma consolidated financial statements.
</FN>
</TABLE>
<PAGE>
-35-
Notes to Unaudited Pro Forma Consolidated Statement of Earnings
Less: Divested Businesses
To eliminate the results of Divested Businesses--True Temper Sports, Emhart
Glass, and the household products business (excluding certain assets associated
with the Corporation's cleaning and lighting products) in North America,
Australia, Central America, the Caribbean, and South America (excluding Brazil).
The results of the Divested Businesses eliminated do not reflect charges for
certain Corporate overhead expenses historically allocated by the Corporation to
these businesses. For the nine months ended September 27, 1998, such charges
were approximately $5.5 million. While the Corporation is taking action to
realign its Corporate overhead structure in light of the sale of the Divested
Businesses, such actions are prospective in nature and projected savings
resulting from these actions are not reflected in the pro forma consolidated
results.
The results of the household products business (excluding certain assets
associated with the Corporation's cleaning and lighting products) in North
America, Australia, Central America, the Caribbean, and South America (excluding
Brazil) included in the results of the Divested Businesses eliminated from the
Corporation's historical results to arrive at the pro forma consolidated results
are based upon certain assumptions and allocations. The household products
businesses sold were jointly operated with the cleaning and lighting products
businesses retained by the Corporation. Further, the Corporation's divested
household products businesses in Australia, Central America, the Caribbean, and
Latin America (excluding Brazil) were operated jointly with the Corporation's
power tools and accessories businesses. Accordingly, the results of the
household products businesses, included in the results of the Divested
Businesses, were determined using certain assumptions and allocations that the
Corporation believes are reasonable under the circumstances.
Pro Forma Adjustments
For purposes of the pro forma statement of earnings, it was assumed that the net
cash proceeds from the Divestitures of $525 million were used to reduce
indebtedness.
For pro forma purposes, no interest income was assumed recognized on the note
received by the Corporation in connection with the recapitalization of True
Temper Sports. Such note, however, is interest bearing, with interest being
added to the accreted amount of the note and not paid in cash.
<PAGE>
-36-
(a) To reflect a pro forma reduction in net interest expense of $20.6 million
based upon the Corporation's weighted average borrowing rate for the
nine-month period ended September 27, 1998, of 6.39%. The pro forma
adjustment is net of estimated actual interest earned on proceeds received
during the nine-month period ended September 27, 1998. The effect of a 1/8%
change in the Corporation's weighted average borrowing rate would impact
pro forma net interest expense by $.5 million for the nine months ended
September 27, 1998.
(b) To reflect income taxes on entry (a) at the federal statutory rate.
(c) Excluding the after-tax effect of the restructuring charge, the goodwill
write-off, and the impairment loss on sale of businesses, pro forma net
earnings for the nine months ended September 27, 1998, would have been
$149.1 million. Because the Corporation had a net loss on a pro forma basis
for the nine months ended September 27, 1998, the calculation of pro forma
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 pro forma loss. For comparative purposes, the Corporation
believes that the dilutive effect of stock options should be considered
when evaluating the Corporation's pro forma performance, if the effects of
the restructuring charge, goodwill write-off and impairment loss on sale of
businesses were excluded. If the dilutive effect of stock options were
considered, pro forma net earnings, excluding the after-tax effect of the
restructuring charge, the goodwill write-off, and the impairment loss on
sale of businesses, would have been $1.57 per share on this diluted basis.
<PAGE>
-37-
<TABLE>
Pro Forma Consolidated Balance Sheet (Unaudited)
The Black & Decker Corporation and Subsidiaries
September 27, 1998
(Millions of Dollars)
<CAPTION>
Less:
Divested Pro Forma Pro Forma
As Reported Businesses Adjustments As Adjusted
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 143.3 $ 143.3
Trade receivables 815.8 $ 11.5 804.3
Inventories 749.3 9.4 739.9
Other current assets 180.0 0.2 179.8
---------------- ---------------- ----------------
Total Current Assets 1,888.4 21.1 1,867.3
---------------- ---------------- ----------------
Property, Plant, and Equipment 740.9 23.5 717.4
Goodwill 839.4 77.4 762.0
Other Assets 489.4 0.2 $ 29.0 518.2
---------------- ---------------- ---------------- ----------------
$ 3,958.1 $ 122.2 $ 29.0 $ 3,864.9
================ ================ ================ ================
Liabilities and Stockholders' Equity
Short-term borrowings $ 61.0 $ (61.0) $ -
Current maturities of long-term debt 60.4 (35.8) 24.6
Trade accounts payable 366.7 $ 5.5 361.2
Other accrued liabilities 776.7 2.8 (16.2) 757.7
---------------- ---------------- ---------------- ----------------
Total Current Liabilities 1,264.8 8.3 (113.0) 1,143.5
---------------- ---------------- ---------------- ----------------
Long-Term Debt 1,671.3 1,671.3
Deferred Income Taxes 55.0 55.0
Postretirement Benefits 265.5 265.5
Other Long-Term Liabilities 183.8 0.2 183.6
Stockholders' Equity
Common stock 43.9 43.9
Other stockholders' equity 473.8 113.7 142.0 502.1
---------------- ---------------- ---------------- ----------------
Total Stockholders' Equity 517.7 113.7 142.0 546.0
---------------- ---------------- ---------------- ----------------
$ 3,958.1 $ 122.2 $ 29.0 $ 3,864.9
================ ================ ================ ================
<FN>
See notes to unaudited pro forma consolidated financial statements.
</FN>
</TABLE>
<PAGE>
-38-
Notes to Unaudited Pro Forma Consolidated Balance Sheet
The Corporation's historical consolidated balance sheet as of September 27,
1998, reflects the sale of Emhart Glass and the household products business
(excluding certain assets associated with cleaning and lighting products) in
North America, Australia, Central America, the Caribbean, and South America
(excluding Brazil), the receipt of $493.7 million in cash proceeds through that
date, and a reduction of indebtedness with those cash proceeds after deducting
selling expenses and taxes.
Less: Divested Businesses
To eliminate the assets sold and liabilities assumed of the recreational
products business, True Temper Sports, included in the Corporation's historical
consolidated balance sheet at September 27, 1998.
Pro Forma Adjustments
For purposes of the unaudited pro forma consolidated balance sheet, it was
assumed that: (i) the gross proceeds from the sales of the Divested Businesses
were reduced by taxes and other selling expenses and the payment of certain
liabilities retained by the Corporation; and (ii) that these net proceeds were
used to reduce indebtedness at September 27, 1998.
<PAGE>
-39-
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
Exhibit No. Description
2(a)(i) Amendment No. 1 to Transaction Agreement dated as of June 26,
1998, by and between The Black & Decker Corporation and
Windmere-Durable Holdings, Inc., included in the Corporation's
Quarterly Report on Form 10-Q for the quarter ended June 28,
1998, is incorporated herein by reference.
2(a)(ii) Letter Agreement dated as of July 29, 1998, between The Black &
Decker Corporation and Windmere-Durable Holdings, Inc.,
included in the Corporation's Current Report on Form 8-K filed
on October 15, 1998, is incorporated herein by reference.
2(a)(iii) Amendment No. 3 dated as of September 23, 1998, to the
Transaction Agreement dated as of May 10, 1998, by and between
The Black & Decker Corporation and Windmere-Durable Holdings,
Inc., included in the Corporation's Current Report on Form 8-K
filed on October 15, 1998, is incorporated herein by reference.
2(a)(iv) Amendment No. 4, dated as of October 15, 1998, to the
Transaction Agreement dated as of May 10, 1998, by and between
The Black & Decker Corporation and Windmere-Durable Holdings,
Inc.
2(b)(i) Reorganization, Recapitalization and Stock Purchase Agreement
dated as of June 29, 1998, by and between The Black & Decker
Corporation, True Temper Sports, Inc. and TTSI LLC, included in
the Corporation's Quarterly Report on Form 10-Q for the quarter
ended June 28, 1998, is incorporated herein by reference.
2(b)(ii) Amendment No. 1 to Reorganization, Recapitalization and Stock
Purchase Agreement dated as of August 1, 1998, by and between
The Black & Decker Corporation, True Temper Sports, Inc. and
TTSI LLC, included in the Corporation's Quarterly Report on
Form 10-Q for the quarter ended June 28, 1998, is incorporated
herein by reference.
2(b)(iii) Amendment No. 2 dated as of September 30, 1998, to the
Reorganization, Recapitalization and Stock Purchase Agreement
dated as of June 29, 1998, by and between The Black & Decker
Corporation, True Temper Corporation, and True Temper Sports,
LLC, included in the Corporation's Current Report on Form 8-K
filed on October 15, 1998, is incorporated herein by reference.
2(c)(i) Transaction Agreement dated as of July 12, 1998, by and between
The Black & Decker Corporation and Bucher Holding A.G.,
included in the Corporation's Quarterly Report on Form 10-Q for
the quarter ended June 28, 1998, is incorporated herein by
reference.
<PAGE>
-40-
Exhibit No. Description
2(c)(ii) Amendment No. 1 dated as of September 21, 1998, to the
Transaction Agreement dated as of July 12, 1998, by and between
The Black & Decker Corporation and Bucher Holding A.G.,
included in the Corporation's Current Report on Form 8-K filed
on October 15, 1998, is incorporated herein by reference.
11 Computation of Earnings Per Share.
12 Computation of Ratios.
27 Financial Data Schedule.
99(a) Securities Purchase Agreement dated as of September 30, 1998,
among True Temper Corporation and Emhart Inc., included in the
Corporation's Current Report on Form 8-K filed on October 15,
1998, is incorporated herein by reference.
99(b) Warrant Agreement among True Temper Corporation and Emhart Inc.
dated as of September 30, 1998, included in the Corporation's
Current Report on Form 8-K filed on October 15, 1998, is
incorporated herein by reference.
99(c) Debt Registration Rights Agreement among True Temper
Corporation and Emhart Inc. dated as of September 30, 1998,
included in the Corporation's Current Report on Form 8-K filed
on October 15, 1998, is incorporated herein by reference.
99(d) Equity Registration Rights Agreement among True Temper
Corporation and Emhart Inc. dated as of September 30, 1998,
included in the Corporation's Current Report on Form 8-K filed
on October 15, 1998, is incorporated herein by reference.
---------------------
On July 16, 1998, the Corporation filed a Current Report on Form 8-K with the
Securities and Exchange 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 quarter ended June 28, 1998. On September 23, 1998, the
Corporation filed a Current Report on Form 8-K with the Securities and Exchange
Commission. This Current Report on Form 8-K, filed pursuant to Item 5 of that
Form, stated that the Corporation had closed on the sale of its glass
container-making and inspection equipment business, Emhart Glass, to Bucher
Holdings A.G. of Switzerland. The Corporation did not file any other reports on
Form 8-K during the three-month period ended September 27, 1998.
All other items were not applicable.
<PAGE>
-41-
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: November 11, 1998
EXHIBIT 2(a)(iv)
AMENDMENT NO. 4
Dated as of October 15, 1998
to
TRANSACTION AGREEMENT
Dated as of May 10, 1998
By and Between
THE BLACK & DECKER CORPORATION
and
WINDMERE-DURABLE HOLDINGS, INC.
<PAGE>
AMENDMENT NO. 4 TO TRANSACTION AGREEMENT
This Amendment No. 4 to Transaction Agreement (this "Amendment") is
made as of the 15th day of October 1998, by and between The Black & Decker
Corporation, a Maryland corporation ("Seller"), and Windmere-Durable Holdings,
Inc., a Florida corporation ("Buyer").
WITNESSETH
WHEREAS, Seller and Buyer have entered into a Transaction Agreement
dated as of May 10, 1998, as amended by Amendment No. 1 to Transaction Agreement
dated as of June 26, 1998, a letter agreement dated as of July 23, 1998, and
Amendment No. 3 to Transaction Agreement dated as of September 23, 1998 (as
amended, the "Agreement"), pursuant to which Seller transferred and caused the
Affiliated Transferors to transfer substantially all of the assets held, owned
by or used to conduct the HPG Business, and assigned certain liabilities
associated with the HPG Business, to Buyer or Buyer Companies designated by
Buyer, and Buyer received and caused such designated Buyer Companies to receive
such assets and assume such liabilities upon the terms and subject to the
conditions set forth in the Agreement; and
WHEREAS, Seller and Buyer desire to further amend the Agreement in
accordance with the terms of this Amendment;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties contained herein, the parties agree as follows:
Section 1. Capitalized terms used but not defined herein have the
meanings given to them in the Agreement.
Section 2. The second sentence of Section 5.06(d) of the Agreement is
deleted in its entirety and the following sentence is inserted in its place and
stead.
"Notwithstanding any provisions of this Section 5.06 to the
contrary, Seller Companies shall not be deemed to be in
violation of this Section 5.06 to the extent that, following the
Closing, Seller Companies sell (i) Cleaning and Lighting
Products in any of the Designated Countries, (ii) corded or
cordless vacuums (and any related accessories or attachments) in
any of the Designated Countries (other than Chile), (iii) corded
Dustbuster and Floor buster vacuums (and any related accessories
or attachments) in Chile, (iv) hair dryers ( and any related
accessories or attachments) in any of the Designated Countries
other than Mexico, Central America, South America (other than
Brazil) and the Caribbean or (v) any Excess Products that Buyer
Companies do not purchase pursuant to the right of first refusal
contemplated by the Manufacturing Agreement."
Section 3. The definition of "Cleaning and Lighting Products" set forth
in the Agreement is deleted in its entirety and the following is inserted in its
place and stead:
"Cleaning and Lighting Products" means hand held
vacuums, upright floor vacuums, floor polishers, battery powered
bathroom and outdoor cleaners sold under the Scumbuster(R) name,
flexible flashlights, flexible lanterns, leashlights and
rechargeable lights, together in each case with any related
accessories or attachments, but excluding (i) corded canister
and corded upright floor vacuums sold in Chile and related
accessories or attachments, and (ii) floor polishers sold in
Mexico, Central American, South American (other than Brazil) and
the Caribbean and any related accessories or attachments."
<PAGE>
Section 4. The definition of "Designated Products" set forth in the
Agreement is deleted in its entirety and the following is inserted in its place
and stead:
"Designated Products" means coffeemakers, espresso makers,
cappuccino makers, coffee mills, toasters, toaster ovens
(including those with convection features), steamers, rice
cookers, choppers, can openers, mixers, food processors, irons,
breadmakers, skillets, electric WOKs, electric griddles, slow
cookers, electric knives, blenders, juicers, juicers, grills,
kettles and wafflebaker, as well as floor polishers, hair dryers
and corded canister and corded upright floor vacuums sold in
Mexico, Central America, South America (other than Brazil) and
the Caribbean, together in each case with any related
accessories or attachments, and all products in the foregoing
categories under development in the HPG Business as of the
Closing Date or that have been under development in the HPG
Business at any time during the year prior to the Closing Date,
but excluding step stools, Cleaning and Lighting Products, shop,
construction and similar vacuums, and VersaPak(R) rechargeable
battery packs and chargers, together in each case with related
accessories or attachments. It is expressly understood and
agreed that floor polishers, hair dryers and corded canister and
corded upright floor vacuums (and any related accessories or
attachments) shall only be "Designated Products" to be the
extent and only to the extent sold in Mexico, Central America,
South America (other than Brazil) and the Caribbean."
IN WITNESS WHEREOF, the parties hereto caused this Amendment to be duly
executed by their respective authorized officers on the day and year first above
written.
THE BLACK & DECKER CORPORATION
By/S/CHARLES FENTON
----------------------------
WINDMERE-DURABLE-HOLDINGS, INC.
By/S/HARRY D. SHULMAN
----------------------------
<TABLE>
EXHIBIT 11(a)
THE BLACK & DECKER CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Amounts in Millions Except Per Share Data)
<CAPTION>
For The Three Months Ended
September 27, 1998 September 28, 1997
Amount Per Share Amount Per Share
Basic:
<S> <C> <C> <C> <C>
Average shares outstanding 90.9 94.8
==== ====
Net earnings $66.6 $.73 $58.4 $.62
===== ==== ===== ====
Diluted:
Average shares outstanding 90.9 94.8
Dilutive stock options and stock
issuable under employee benefit
plans--based on the Treasury
stock method using the average
market price 1.7 2.1
---- -----
Adjusted average shares outstanding
for diluted calculation 92.6 96.9
==== ====
Net earnings $66.6 $.72 $58.4 $.60
===== ==== ===== ====
</TABLE>
<PAGE>
<TABLE>
EXHIBIT 11(b)
THE BLACK & DECKER CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Amounts in Millions Except Per Share Data)
<CAPTION>
For The Nine Months Ended
September 27, 1998 September 28, 1997
Amount Per Share Amount Per Share
Basic:
<S> <C> <C> <C> <C>
Average shares outstanding 93.4 94.5
==== ====
Net earnings (loss) $(846.4) $(9.06) $130.2 $1.38
======== ======= ====== =====
Diluted:
Average shares outstanding 93.4 94.5
Dilutive stock options and stock
issuable under employee benefit
plans--based on the Treasury
stock method using the average
market price 1.7 (Note 1) 1.9
---- -----
Adjusted average shares outstanding
for diluted calculation 95.1 96.4
==== ====
Net earnings (loss) $(846.4) $(8.90) $130.2 $1.35
======== ======= ====== =====
<FN>
Notes: 1. Due to the net loss incurred by the Corporation for the
nine-month period ended September 27, 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 nine months ended September 27, 1998--both a loss of $9.06
per share.
</FN>
</TABLE>
EXHIBIT 12
<TABLE>
THE BLACK & DECKER CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Millions of Dollars Except Ratios)
<CAPTION>
Three Months Ended Nine Months Ended
September 27, 1998 September 27, 1998
------------------ ------------------
EARNINGS:
<S> <C> <C>
Earnings (loss) before income taxes (Notes 1 and 2) $ 108.4 $ (773.3)
Interest expense 34.7 107.0
Portion of rent expense representative of an
interest factor 6.3 18.9
------- --------
Adjusted earnings (loss) before income taxes and
fixed charges $ 149.4 $ (647.4)
======= ========
FIXED CHARGES:
Interest expense $ 34.7 $ 107.0
Portion of rent expense representative
of an interest factor 6.3 18.9
------- --------
Total fixed charges $ 41.0 $ 125.9
======= ========
RATIO OF EARNINGS TO FIXED
CHARGES (DEFICIENCY)
(Notes 1, 2 and 3) 3.64 --
======= ========
<FN>
Note:
1. Included in earnings (loss) before income taxes for the nine
months ended September 27, 1998, are restructuring charges in
the amount of $154.2, a write-off of goodwill in the amount of
$900.0, and a gain on the sale of businesses of $63.4.
2. Included in earnings before income taxes for the three months
ended September 27, 1998, are restructuring charges in the
amount of $14.2 and a gain on the sale of businesses of $26.9.
3. Earnings (loss) before income taxes for the nine months ended
September 27, 1998, were insufficient to cover fixed charges
by the amount of $773.3.
</FN>
</TABLE>
<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 nine months ended
September 27, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-27-1998
<CASH> 143,300
<SECURITIES> 0
<RECEIVABLES> 815,800<F1>
<ALLOWANCES> 0
<INVENTORY> 749,300
<CURRENT-ASSETS> 1,888,400
<PP&E> 740,900<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,958,100
<CURRENT-LIABILITIES> 1,264,800
<BONDS> 1,671,300
0
0
<COMMON> 43,900
<OTHER-SE> 473,800
<TOTAL-LIABILITY-AND-EQUITY> 3,958,100
<SALES> 3,285,700
<TOTAL-REVENUES> 3,285,700
<CGS> 2,139,200
<TOTAL-COSTS> 3,965,500<F3>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 107,000
<INCOME-PRETAX> (773,300)<F3>
<INCOME-TAX> 73,100<F4>
<INCOME-CONTINUING> (846,400)<F5>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (846,400)<F5>
<EPS-PRIMARY> (9.06)<F6>
<EPS-DILUTED> (9.06)
<FN>
<F1>Represents net trade receivables.
<F2>Represents net property, plant, and equipment.
<F3>Includes a pre-tax restructuring charge in the amount of $154,200, a
write-off of goodwill in the amount of $900,000 and a pre-tax gain on the
sale of businesses of $63,400.
<F4>Includes a $46,500 tax benefit associated with the restructuring charge and
$50,000 of tax expense resulting from the gain on the sale of businesses.
<F5>Includes a restructuring charge and a gain on the sale of businesses, net of
tax effects, in the amounts of $107,700 and $13,400, respectively, and
a write-off of goodwill in the amount of $900,000.
<F6>Represents basic earnings per share.
</FN>
</TABLE>
