UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) January 25, 1999
--------------------
THE BLACK & DECKER CORPORATION
(Exact name of registrant as specified in its charter)
Maryland 1-1553 52-0248090
(State of Incorporation) (Commission File Number) (I.R.S. Employer
Identification Number)
Towson, Maryland 21286
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 410-716-3900
Not Applicable
(Former name or former address, if changed since last report)
<PAGE>
ITEM 5. OTHER EVENTS
On January 25, 1999, the Corporation reported its earnings for the three and
twelve months ended December 31, 1998. Attached to this Current Report on Form
8-K as Exhibit 99 is a copy of the Corporation's related press release dated
January 25, 1999.
FORWARD LOOKING STATEMENTS
This Current Report on Form 8-K 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 1998 and scheduled for introduction
in 1999; 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 in
Corporation's Quarterly Report on Form 10-Q for the quarter ended September 27,
1998; and the continuation of modest economic growth in the United States and
Europe and gradual improvement in the economic environment in Asia and Latin
America.
In addition to the foregoing, the Corporation's ability to realize the
anticipated benefits of the restructuring actions undertaken in 1998 is
dependent upon current market conditions, as well as the timing and
effectiveness of the relocation or consolidation of production and
administrative processes. The ability to realize the benefits inherent in the
balance of the restructuring actions is dependent on the selection and
implementation of economically viable projects in addition to the restructuring
actions taken to date. The ability to achieve certain sales and profitability
targets and cash flow projections also is dependent upon the Corporation's
ability to identify appropriate selected acquisitions that are complementary to
the Corporation's existing businesses at acquisition prices that are consistent
with these objectives.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Exhibit 99 Press Release of the Corporation dated January 25, 1999.
<PAGE>
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 hereunto duly authorized.
THE BLACK & DECKER CORPORATION
By /s/STEPHEN F. REEVES
---------------------------
Stephen F. Reeves
Vice President and Controller
Barbara B. Lucas
Senior Vice President - Public Affairs
410/716-2980
F. Robert Hunter, III
Vice President - Investor Relations
410/716-3979
FOR IMMEDIATE RELEASE: Monday, January 25, 1999
SUBJECT: Black & Decker Reports Fourth Quarter and Full-Year Results for 1998;
Earns $2.63 Per Diluted Share, Excluding Non-Recurring Items, For Full
Year; Reduces Net Debt by Nearly $350 Million
TOWSON, MD - The Black & Decker Corporation (NYSE:BDK) today announced that net
earnings for the fourth quarter of 1998 were $91.6 million, or $1.03 per diluted
share, compared to $97.0 million, or $1.00 per diluted share, for the same
period of 1997. Excluding non-recurring items consisting of a $9.6 million
after-tax charge ($.11 per diluted share) for restructuring under a two-year
program announced in January 1998 and a $3.1 million after-tax gain ($.04 per
diluted share) on the sale of a business, net earnings were $98.1 million, or
$1.10 per diluted share, an increase of 10% over earnings per diluted share for
the same period of 1997. Net earnings for the fourth quarter included after-tax
restructuring-related expenses of $6.6 million ($.08 per diluted share).
Excluding non-recurring items and restructuring-related expenses, earnings per
diluted share for the quarter were $1.18.
Sales declined in the fourth quarter of 1998 to $1.27 billion from
$1.52 billion in the same period of 1997, largely as a result of business
divestitures. Sales in core businesses - Power Tools and Accessories, Building
Products (which includes security hardware and plumbing products), and Fastening
and Assembly Systems - declined 1% compared to exceptionally strong performance
in the same period last year. Excluding lower sales of cleaning and lighting
products in North America, sales in core businesses increased 2%. Foreign
currency translation had no effect on sales in the quarter.
(more)
<PAGE>
Page Two
For the full year 1998, the Corporation reported a net loss, related to
a write-off of goodwill and restructuring charges, of $754.8 million or $8.22
per share. Because results for the full year were a loss, the calculation of
reported net earnings per share on a diluted basis excludes stock options,
which, if included, would be anti-dilutive and would decrease the per-share
loss. For comparative purposes, however, the dilutive effect of these options
has been included for the evaluation of the Corporation's performance that
follows. Excluding non-recurring items consisting of the goodwill write-off,
after-tax restructuring charges, and after-tax gains on the sales of businesses,
net earnings for 1998 would have been $246.0 million, or $2.63 per share on this
diluted basis, compared to $227.2 million, or $2.35 per diluted share, reported
for 1997. This represents a 12% increase in earnings per share. The adjusted net
earnings amount for 1998 includes after-tax restructuring-related expenses of
$30.2 million, or $.32 per share. Excluding non-recurring items and
restructuring-related expenses, earnings per diluted share for 1998 increased to
$2.95.
For the full year 1998, sales declined to $4.56 billion from $4.94
billion in 1997. The decline was entirely related to divested businesses. Sales
increased 2% excluding divested businesses and the effects of foreign currency
translation, and 4% if lower sales of cleaning and lighting products in North
America also are excluded.
Nolan D. Archibald, Chairman and Chief Executive Officer, commented,
"This was a year of dynamic change at Black & Decker. In addition to achieving
significant progress in the strategic repositioning of our company, we achieved
record sales levels in each of our core businesses. Excluding non-recurring
items, earnings per diluted share rose 12% for the year to $2.63, representing
six consecutive years of improvement and yielding a five-year compound annual
growth rate of 22%. Despite restructuring spending, improved working capital
management and lower capital expenditures helped to boost free cash flow to $188
million. The increased free cash flow, along with excellent proceeds from our
divestiture program, enabled us to reduce net debt by nearly $350 million, from
$1.62 billion to $1.27 billion. We also maintained operating income margin in
core businesses while absorbing nearly $45 million in restructuring-related
expenses.
(more)
<PAGE>
Page Three
"Although most of the restructuring-related expenses were in Power
Tools and Accessories, this business remained solidly profitable. Sales
increased in this business, as strong growth in professional power tools and
lawn and garden tools, combined with modest improvement in consumer power tools,
more than compensated for flat results in accessories and a nearly $90 million
decline in cleaning and lighting products. The cleaning and lighting product
lines are being radically restructured as we integrate them into our power tools
organization, and we expect to improve their results significantly this year.
Geographically, sales and profitability improvement in Power Tools and
Accessories was due largely to exceptional performance in North America.
"Building Products achieved record sales in 1998, reporting increases
in both security hardware and plumbing products operations. Higher operating
income in plumbing products, associated with productivity and manufacturing
improvements compared to a difficult 1997, more than offset a slight decline in
security hardware associated with manufacturing inefficiencies. Fastening and
Assembly Systems generated both record sales and record operating income despite
strong pressure from the recession in Japan and the General Motors automotive
strike in North America.
"With respect to our strategic repositioning, we completed the first
component of our plan during 1998 by divesting underperforming and non-strategic
businesses. The sale of Household Products in North America and Latin America
(excluding Brazil), Emhart Glass, and True Temper Sports generated aggregate net
proceeds far in excess of our original projections. We also substantially
completed the second component, well ahead of schedule, with the repurchase of
approximately nine million shares of Black & Decker common stock during the
year.
"We have made substantial progress on the third component - the
restructuring of our core businesses. We closed power tool manufacturing
operations in Canada, Singapore, and Italy during 1998 and began the process of
streamlining our European Power Tools and Accessories unit to create a more
cost-effective, pan-European structure. Major ongoing activities to support this
objective include the centralization of finance and support services and the
installation of advanced supply-chain management systems. We also are in the
early stages of consolidating distribution in continental Europe to improve
customer service while improving inventory management and reducing
transportation costs.
(more)
<PAGE>
Page Four
"In 1999, we will continue to pursue these and other restructuring
projects throughout the company, including further rationalization of North
American manufacturing and distribution operations for which we booked a
restructuring charge in the fourth quarter of 1998. Based on our progress to
date, total restructuring charges over the duration of the program are likely to
be significantly less than the $250 million projected at the outset. We still
expect, however, to achieve annual savings of approximately $100 million, as
originally planned."
This release includes 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. By their nature, all forward-looking statements involve
risks and uncertainties. For a more detailed discussion of the risks and
uncertainties that may affect Black & Decker's operating and financial results
and its ability to achieve the financial objectives discussed in this press
release, interested parties should review Black & Decker's reports filed with
the Securities and Exchange Commission, including the Current Report on Form
8-K, to be filed January 26, 1999.
Black & Decker is a leading global manufacturer and marketer of power
tools, hardware, and building products used in and around the home and for
commercial applications.
* * *
<PAGE>
THE BLACK & DECKER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(Dollars in Millions Except Per Share Amounts)
Year Ended
---------------------------------------
December 31, 1998 December 31, 1997
------------------ ------------------
SALES $ 4,559.9 $ 4,940.5
Cost of goods sold 2,951.0 3,169.2
Selling, general, and
administrative expenses 1,124.9 1,282.0
Write-off of goodwill 900.0 -
Restructuring and exit costs 164.7 -
Gain on sale of businesses 114.5 -
------------------ ------------------
OPERATING INCOME (LOSS) (466.2) 489.3
Interest expense
(net of interest income) 114.4 124.6
Other expense 7.7 15.2
------------------ ------------------
EARNINGS (LOSS) BEFORE INCOME TAXES (588.3) 349.5
Income taxes 166.5 122.3
------------------ ------------------
NET EARNINGS (LOSS) $ (754.8) $ 227.2
================== ==================
NET EARNINGS (LOSS) PER COMMON
SHARE - BASIC $ (8.22) $ 2.40
================== ==================
Shares Used in Computing Basic
Earnings Per Share (in Millions) 91.8 94.6
================== ==================
NET EARNINGS (LOSS) PER COMMON
SHARE - ASSUMING DILUTION $ (8.22) $ 2.35
================== ==================
Shares Used in Computing Diluted
Earnings Per Share (in Millions) 91.8 96.5
================== ==================
<PAGE>
THE BLACK & DECKER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(Dollars in Millions Except Per Share Amounts)
Three Months Ended
---------------------------------------
December 31, 1998 December 31, 1997
------------------ ------------------
SALES $ 1,274.2 $ 1,518.4
Cost of goods sold 811.8 968.0
Selling, general, and
administrative expenses 289.4 365.4
Restructuring and exit costs 10.5 -
Gain on sale of businesses 51.1 -
------------------ ------------------
OPERATING INCOME 213.6 185.0
Interest expense
(net of interest income) 27.1 30.7
Other expense 1.5 5.1
------------------ ------------------
EARNINGS BEFORE INCOME TAXES 185.0 149.2
Income taxes 93.4 52.2
------------------ ------------------
NET EARNINGS $ 91.6 $ 97.0
================== ==================
NET EARNINGS PER COMMON
SHARE - BASIC $ 1.05 $ 1.02
================== ==================
Shares Used in Computing Basic
Earnings Per Share (in Millions) 87.3 94.8
================== ==================
NET EARNINGS PER COMMON
SHARE - ASSUMING DILUTION $ 1.03 $ 1.00
================== ==================
Shares Used in Computing Diluted
Earnings Per Share (in Millions) 88.9 96.9
================== ==================
<PAGE>
THE BLACK & DECKER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Millions of Dollars)
December 31, 1998 December 31, 1997
------------------ ------------------
ASSETS
Cash and cash equivalents $ 87.9 $ 246.8
Trade receivables 792.4 931.4
Inventories 636.9 774.7
Other current assets 234.6 125.9
------------------ ------------------
TOTAL CURRENT ASSETS 1,751.8 2,078.8
------------------ ------------------
PROPERTY, PLANT, AND EQUIPMENT 727.6 915.1
GOODWILL 768.7 1,877.3
OTHER ASSETS 604.4 489.5
------------------ ------------------
$ 3,852.5 $ 5,360.7
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings $ 152.5 $ 178.3
Current maturities of long-term debt 59.2 60.5
Trade accounts payable 348.8 372.0
Other accrued liabilities 814.2 761.8
------------------ ------------------
TOTAL CURRENT LIABILITIES 1,374.7 1,372.6
------------------ ------------------
LONG-TERM DEBT 1,148.9 1,623.7
DEFERRED INCOME TAXES 279.9 57.7
POSTRETIREMENT BENEFITS 263.5 304.2
OTHER LONG-TERM LIABILITIES 211.5 211.1
STOCKHOLDERS' EQUITY 574.0 1,791.4
------------------ ------------------
$ 3,852.5 $ 5,360.7
================== ==================
<PAGE>
THE BLACK & DECKER CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL EARNINGS INFORMATION (Unaudited)
YEAR ENDED DECEMBER 31, 1998
(Dollars in Millions Except Per Share Amounts)
Less: Less:
Non- Restructuring-
As Recurring Related As
Reported Items Costs Adjusted
-------- -------- ---------- --------
SALES $4,559.9 $4,559.9
Cost of goods sold 2,951.0 $ (32.8) 2,918.2
Selling, general, and
administrative expenses 1,124.9 (11.6) 1,113.3
Write-off of goodwill 900.0 $ (900.0) - -
Restructuring and exit costs 164.7 (164.7) - -
Gain on sale of businesses 114.5 (114.5) - -
-------- -------- ---------- --------
OPERATING INCOME (LOSS) (466.2) 950.2 44.4 528.4
Interest and other expenses 122.1 - - 122.1
-------- -------- ---------- --------
EARNINGS (LOSS) BEFORE
INCOME TAXES (588.3) 950.2 44.4 406.3
Income taxes 166.5 (50.6)(A) 14.2 130.1
-------- -------- ---------- --------
NET EARNINGS (LOSS) $ (754.8) $1,000.8 $ 30.2 $ 276.2
======== ======== ========== ========
Shares Used in Computing
Diluted Earnings Per
Share (in Millions) (B) 91.8 93.5 93.5
======== ========== ========
NET EARNINGS (LOSS) PER COMMON
SHARE - ASSUMING DILUTION $ (8.22) $ 0.32 $ 2.95
======== ========== ========
- -----------------------------------------------
(A) Adjustment represents net tax effect of gain on sale of businesses and
restructuring and exit costs.
(B) Option conversion is anti-dilutive due to the loss reported for the
year. Excluding the goodwill write-off, restructuring charge, gain on
sale of businesses, and restructuring-related costs, results for the
year would have been positive. Accordingly, 1.7 million shares have
been added to the diluted share count on an "as adjusted" basis.
<PAGE>
THE BLACK & DECKER CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL EARNINGS INFORMATION (Unaudited)
THREE MONTHS ENDED DECEMBER 31, 1998
(Dollars in Millions Except Per Share Amounts)
Less: Less:
Non- Restructuring-
As Recurring Related As
Reported Items Costs Adjusted
-------- -------- ---------- --------
SALES $1,274.2 $1,274.2
Cost of goods sold 811.8 $ (6.3) 805.5
Selling, general, and
administrative expenses 289.4 (3.4) 286.0
Restructuring and exit costs 10.5 $ (10.5) - -
Gain on sale of businesses 51.1 (51.1) - -
-------- -------- ---------- --------
OPERATING INCOME 213.6 (40.6) 9.7 182.7
Interest and other expenses 28.6 - - 28.6
-------- -------- ---------- --------
EARNINGS BEFORE INCOME TAXES 185.0 (40.6) 9.7 154.1
Income taxes 93.4 (47.1)(A) 3.1 49.4
-------- -------- ---------- --------
NET EARNINGS $ 91.6 $ 6.5 $ 6.6 $ 104.7
======== ======== ========== ========
Shares Used in Computing
Diluted Earnings Per
Share (in Millions) 88.9 88.9 88.9 88.9
======== ======== ========== ========
NET EARNINGS PER COMMON
SHARE - ASSUMING DILUTION $ 1.03 $ 0.07 $ 0.08 $ 1.18
======== ======== ========== ========
- -------------------------------------------------
(A) Adjustment represents net tax effect of gain on sale of businesses and
restructuring and exit costs.
<PAGE>
Supplemental Information About Business Segments (Unaudited)
(Millions of Dollars)
Reportable Business Segments
--------------------------------------------
Power Fastening
Tools &
Year Ended & Building Assembly
December 31, 1998 Accessories Products Systems Total
- ------------------------------------------------------------------------------
Sales to unaffiliated customers $2,946.4 $ 851.1 $ 463.0 $4,260.5
Segment profit (loss) (for
Consolidated, operating
income before restructuring
and exit costs, write-off of
goodwill, and gain on sale
of businesses) 293.4 125.2 76.6 495.2
Depreciation and amortization 88.2 27.1 13.4 128.7
Capital expenditures 79.1 36.5 16.2 131.8
Year Ended
December 31, 1997
- ------------------------------------------------------------------------------
Sales to unaffiliated customers $2,936.4 $ 804.8 $ 451.3 $4,192.5
Segment profit (loss) (for
Consolidated, operating income) 290.7 121.3 69.7 481.7
Depreciation and amortization 87.5 24.7 11.9 124.1
Capital expenditures 113.2 47.3 15.4 175.9
Three Months Ended
December 31, 1998
- ------------------------------------------------------------------------------
Sales to unaffiliated customers $ 922.3 $ 230.6 $ 118.8 $1,271.7
Segment profit (loss) (for
Consolidated, operating
income before restructuring
and exit costs, write-off of
goodwill, and gain on sale
of businesses) 121.4 36.6 18.8 176.8
Depreciation and amortization 22.9 7.4 3.2 33.5
Capital expenditures 33.1 13.3 5.4 51.8
Three Months Ended
December 31, 1997
- ------------------------------------------------------------------------------
Sales to unaffiliated customers $ 954.0 $ 216.8 $ 114.9 $1,285.7
Segment profit (loss) (for
Consolidated, operating income) 121.6 35.3 16.3 173.2
Depreciation and amortization 21.3 5.8 2.6 29.7
Capital expenditures 33.6 22.6 8.6 64.8
<PAGE>
Supplemental Information About Business Segments (Unaudited)
(Millions of Dollars)
Corporate,
Currency Adjustments,
Year Ended All Translation & Consoli-
December 31, 1998 Others Adjustments Eliminations dated
- ------------------------------------------------------------------------------
Sales to unaffiliated customers $ 333.6 $ (34.2) $ -- $4,559.9
Segment profit (loss) (for
Consolidated, operating
income before restructuring
and exit costs, write-off of
goodwill, and gain on sale
of businesses) 16.5 (4.4) (23.3) 484.0
Depreciation and amortization -- (1.1) 27.6 155.2
Capital expenditures 13.3 (1.1) 2.0 146.0
Year Ended
December 31, 1997
- ------------------------------------------------------------------------------
Sales to unaffiliated customers $ 718.1 $ 29.9 $ -- $4,940.5
Segment profit (loss) (for
Consolidated, operating income) 61.7 (2.3) (51.8) 489.3
Depreciation and amortization 24.4 (.3) 66.0 214.2
Capital expenditures 25.3 (.2) 2.1 203.1
Three Months Ended
December 31, 1998
- ------------------------------------------------------------------------------
Sales to unaffiliated customers $ -- $ 2.5 $ -- $1,274.2
Segment profit (loss) (for
Consolidated, operating
income before restructuring
and exit costs, write-off of
goodwill, and gain on sale
of businesses) -- .1 (3.9) 173.0
Depreciation and amortization -- -- 7.2 40.7
Capital expenditures .2 -- 1.6 53.6
Three Months Ended
December 31, 1997
- ------------------------------------------------------------------------------
Sales to unaffiliated customers $ 233.0 $ (.3) $ -- $1,518.4
Segment profit (loss) (for
Consolidated, operating income) 29.6 (1.2) (16.6) 185.0
Depreciation and amortization 5.3 (.2) 16.3 51.1
Capital expenditures 5.8 (.1) .4 70.9
<PAGE>
The reconciliation of segment profit to the Corporation's earnings (loss)
before income taxes for each year, in millions of dollars, is as follows:
Year
Ended December 31,
1998 1997
- ------------------------------------------------------------------------------
Segment profit for total reportable business segments $ 495.2 $ 481.7
Segment profit for all other businesses 16.5 61.7
Items excluded from segment profit:
Adjustment of budgeted foreign exchange rates to
actual rates (4.4) (2.3)
Depreciation of Corporate property and amortization
of goodwill (27.6) (66.0)
Adjustment to businesses' postretirement benefit
expenses booked in consolidation 24.4 23.8
Adjustment to eliminate net interest and non-operating
expenses from results of certain operations in Brazil,
Mexico, Venezuela, and Turkey 5.7 3.6
Other adjustments booked in consolidation directly
related to reportable business segments (20.4) (17.6)
Amounts allocated to businesses in arriving at segment
profit in excess of (less than) Corporate center
operating expenses, eliminations, and other amounts
identified above (5.4) 4.4
- ------------------------------------------------------------------------------
Operating income before restructuring and exit costs,
write-off of goodwill, and gain on sale of businesses 484.0 489.3
Restructuring and exit costs 164.7 --
Write-off of goodwill 900.0 --
Gain on sale of businesses 114.5 --
- ------------------------------------------------------------------------------
Operating income (loss) (466.2) 489.3
Interest expense, net of interest income 114.4 124.6
Other expense 7.7 15.2
- ------------------------------------------------------------------------------
Earnings (loss) before taxes $ (588.3) $ 349.5
==============================================================================
<PAGE>
Three Months
Ended December 31,
1998 1997
- ------------------------------------------------------------------------------
Segment profit for total reportable business segments $ 176.8 $ 173.2
Segment profit for all other businesses -- 29.6
Items excluded from segment profit:
Adjustment of budgeted foreign exchange rates to
actual rates .1 (1.2)
Depreciation of Corporate property and amortization
of goodwill (7.2) (16.3)
Adjustment to businesses' postretirement benefit
expenses booked in consolidation (.3) (.6)
Adjustment to eliminate net interest and non-operating
expenses from results of certain operations in Brazil,
Mexico, Venezuela, and Turkey 1.5 2.2
Other adjustments booked in consolidation directly
related to reportable business segments (1.7) (.1)
Amounts allocated to businesses in arriving at segment
profit in excess of (less than) Corporate center
operating expenses, eliminations, and other amounts
identified above (3.8) (1.8)
- ------------------------------------------------------------------------------
Operating income before restructuring and exit costs,
write-off of goodwill, and gain on sale of businesses 173.0 185.0
Restructuring and exit costs 10.5 --
Write-off of goodwill -- --
Gain on sale of businesses 51.1 --
- ------------------------------------------------------------------------------
Operating income (loss) 213.6 185.0
Interest expense, net of interest income 27.1 30.7
Other expense 1.5 5.1
- ------------------------------------------------------------------------------
Earnings (loss) before taxes $ 185.0 $ 149.2
==============================================================================
<PAGE>
Basis of Presentation:
The Corporation operates in three reportable business segments: Power
Tools and Accessories, Building Products, and Fastening and Assembly Systems.
The Power Tools and Accessories segment has worldwide responsibility for the
manufacture and sale of consumer and professional power tools and accessories,
cleaning and lighting products, and electric lawn and garden tools as well as
for product service. In addition, the Power Tools and Accessories segment has
responsibility for the sale of plumbing products to customers outside North
America and for sales of the retained household products business. The
Building Products segment has worldwide responsibility for the manufacture and
sale of security hardware and for the manufacture of plumbing products as well
as responsibility for the sale of plumbing products to customers in North
America. The Fastening and Assembly Systems segment has worldwide
responsibility for the manufacture and sale of fastening and assembly systems.
The Corporation also operated several businesses that do not constitute
reportable business segments. These businesses included the manufacture and
sale of glass container-forming and inspection equipment, as well as
recreational and household products. During 1998, the Corporation completed
the sale or recapitalization of its glass container-forming and inspection
equipment business, Emhart Glass; its recreational products business, True
Temper Sports; and its household products business (excluding certain assets
associated with the Corporation's cleaning and lighting products) in North
America, Latin America (excluding Brazil), and Australia. 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, and 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. Amounts relating to these businesses are included in
the segment table above under the caption "All Others". The results of the
household products business included under the caption "All Others" are based
upon certain assumptions and allocations. The household products businesses
sold during 1998 were jointly operated with the cleaning and lighting products
businesses retained by the Corporation. Further, the Corporation's divested
household products businesses in Australia 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 segment table under the caption "All Others" were
determined using certain assumptions and allocations that the Corporation
believes are reasonable under the circumstances.
The Corporation assesses the performance of its reportable business
segments based upon a number of factors, including segment profit. In general,
segments follow the same accounting policies as those described in Note 1 of
the Corporation's Annual Report on Form 10-K for the year ended December 31,
1997, as updated through the Corporation's Quarterly Reports on Form 10-Q
during the year ended December 31, 1998, except with respect to foreign
currency translation and except as further indicated below. The financial
statements of a segment's operating units located outside the United States,
except those units operating in highly inflationary economies, are measured
using the local currency as the functional currency. For these units located
outside the United States, segment assets and elements of segment profit are
translated using budgeted rates of exchange. Budgeted rates of exchange are
established annually, and once established all prior period segment data is
restated to reflect the newly established budgeted rates of exchange. The
amounts included in the segment table above under the captions "Reportable
Business Segments", "All Other", and "Corporate, Adjustments, & Eliminations"
are reflected at the Corporation's current budgeted exchange rates. The
amounts included in the segment table above under the caption "Currency
Translation Adjustments" represent the difference between consolidated amounts
determined using budgeted rates of exchange and those determined based upon
the rates of exchange applicable under accounting principles generally
accepted in the United States.
Segment profit excludes interest income and expense, non-operating income
and expense, goodwill amortization, adjustments to eliminate intercompany
profit in inventory, and income tax expense. In addition, segment profit
excludes restructuring and exit costs and, for 1998, the write-off of goodwill
and gain on sale of businesses. For certain operations located in Brazil,
Mexico, Venezuela, and Turkey, segment profit is reduced by net interest
expense and non-operating expenses. In determining segment profit, expenses
relating to pension and other postretirement benefits are based solely upon
estimated service costs. Corporate expenses are allocated to each segment
based upon budgeted amounts. No corporate expenses have been allocated to
divested businesses. While sales and transfers between segments are accounted
for at cost plus a reasonable profit, the effects of intersegment sales are
excluded from the computation of segment profit. Intercompany profit in
inventory is excluded from segment assets and is recognized as a reduction of
cost of sales by the selling segment when the related inventory is sold to an
unaffiliated customer. Because the Corporation compensates the management of
its various businesses on, among other factors, segment profit, the
Corporation may elect to record certain segment-related income or expense
items of an unusual or nonrecurring nature in consolidation rather than
reflect such items in segment profit. In addition, certain segment-related
items of income or expense may be recorded in consolidation in one period and
transferred to the Corporation's various segments in a later period.
