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 July 4, 1999
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 1-1553
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THE BLACK & DECKER CORPORATION
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(Exact name of registrant as specified in its charter)
Maryland 52-0248090
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
701 East Joppa Road Towson, Maryland 21286
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(Address of principal executive offices) (Zip Code)
(410) 716-3900
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address, and former fiscal year, if
changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. X YES NO
The number of shares of Common Stock outstanding as of July 30, 1999: 87,051,820
The exhibit index as required by item 601(a) of Regulation S-K is included in
this report.
<PAGE>
2
THE BLACK & DECKER CORPORATION
INDEX - FORM 10-Q
July 4, 1999
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Earnings (Unaudited)
For the Three Months and Six Months Ended July 4, 1999
and June 28, 1998 3
Consolidated Balance Sheet
July 4, 1999 (Unaudited) and December 31, 1998 4
Consolidated Statement of Stockholders' Equity (Unaudited)
For the Six Months Ended July 4, 1999 and June 28, 1998 5
Consolidated Statement of Cash Flows (Unaudited)
For the Six Months Ended July 4, 1999 and June 28, 1998 6
Notes to Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 28
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 29
Item 2. Changes in Securities and Use of Proceeds 30
Item 5. Other Information 30
Item 6. Exhibits and Reports on Form 8-K 30
SIGNATURES 32
<PAGE>
3
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 Six Months Ended
July 4, 1999 June 28, 1998 July 4, 1999 June 28, 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 1,084.2 $ 1,169.7 $ 2,062.7 $ 2,178.0
Cost of goods sold 671.2 771.9 1,299.4 1,430.2
Selling, general, and
administrative expenses 285.9 285.5 557.8 565.4
Write-off of goodwill - - - 900.0
Restructuring and exit costs - - - 140.0
Gain on sale of businesses - 36.5 - 36.5
- ------------------------------------------------------------------------------------------------------
Operating Income (Loss) 127.1 148.8 205.5 (821.1)
Interest expense (net of
interest income) 22.5 29.8 44.7 58.2
Other (income) expense .7 2.7 (.8) 2.4
- ------------------------------------------------------------------------------------------------------
Earnings (Loss) Before Income
Taxes 103.9 116.3 161.6 (881.7)
Income taxes 33.2 57.9 51.7 31.3
- ------------------------------------------------------------------------------------------------------
Net Earnings (Loss) $ 70.7 $ 58.4 $ 109.9 $ (913.0)
======================================================================================================
Net Earnings (Loss) Per Common
Share -- Basic $ .81 $ .62 $ 1.26 $ (9.65)
======================================================================================================
Shares Used in Computing Basic
Earnings Per Share (in Millions) 87.0 94.1 87.1 94.6
======================================================================================================
Net Earnings (Loss) Per Common
Share -- Assuming Dilution $ .80 $ .61 $ 1.24 $ (9.65)
======================================================================================================
Shares Used in Computing Diluted
Earnings Per Share (in Millions) 88.4 95.8 88.5 94.6
======================================================================================================
Dividends Per Common Share $ .12 $ .12 $ .24 $ .24
======================================================================================================
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
</FN>
</TABLE>
<PAGE>
4
<TABLE>
CONSOLIDATED BALANCE SHEET
The Black & Decker Corporation and Subsidiaries
(Dollars in Millions Except Per Share Amount)
<CAPTION>
- --------------------------------------------------------------------------------------------
July 4, 1999
(Unaudited) December 31, 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 134.7 $ 87.9
Trade receivables 797.1 792.4
Inventories 806.5 636.9
Other current assets 200.8 234.6
- --------------------------------------------------------------------------------------------
Total Current Assets 1,939.1 1,751.8
- --------------------------------------------------------------------------------------------
Property, Plant, and Equipment 701.4 727.6
Goodwill 742.1 768.7
Other Assets 629.5 604.4
- --------------------------------------------------------------------------------------------
$ 4,012.1 $ 3,852.5
============================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings $ 421.9 $ 152.5
Current maturities of long-term debt 58.7 59.2
Trade accounts payable 399.0 348.8
Other accrued liabilities 687.5 814.2
- --------------------------------------------------------------------------------------------
Total Current Liabilities 1,567.1 1,374.7
- --------------------------------------------------------------------------------------------
Long-Term Debt 1,058.7 1,148.9
Deferred Income Taxes 276.8 279.9
Postretirement Benefits 261.4 263.5
Other Long-Term Liabilities 231.6 211.5
Stockholders' Equity
Common stock, par value $.50 per share 43.5 43.7
Capital in excess of par value 839.6 871.4
Retained earnings (deficit) (147.6) (236.6)
Accumulated other comprehensive income (loss) (119.0) (104.5)
- --------------------------------------------------------------------------------------------
Total Stockholders' Equity 616.5 574.0
- --------------------------------------------------------------------------------------------
$ 4,012.1 $ 3,852.5
============================================================================================
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
</FN>
</TABLE>
<PAGE>
5
<TABLE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)
The Black & Decker Corporation and Subsidiaries
(Dollars in Millions Except Per Share Amounts)
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
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, 1997 94,842,544 $ 47.4 $1,278.2 $ 562.0 $ (96.2) $1,791.4
Comprehensive income:
Net loss -- -- -- (913.0) -- (913.0)
Foreign currency translation
adjustments, less effect of
hedging activities (net of tax) -- -- -- -- (20.6) (20.6)
- ----------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) -- -- -- (913.0) (20.6) (933.6)
- ----------------------------------------------------------------------------------------------------------------------
Cash dividends ($.24 per share) -- -- -- (22.7) -- (22.7)
Purchase and retirement of
common stock (2,876,000) (1.4) (153.3) -- -- (154.7)
Common stock issued under
employee benefit plans 990,050 .5 20.4 -- -- 20.9
- ----------------------------------------------------------------------------------------------------------------------
Balance at June 28, 1998 92,956,594 $ 46.5 $1,145.3 $ (373.7) $ (116.8) $ 701.3
======================================================================================================================
Balance at December 31, 1998 87,498,424 $ 43.7 $ 871.4 $ (236.6) $ (104.5) $ 574.0
Comprehensive income:
Net earnings -- -- -- 109.9 -- 109.9
Foreign currency translation
adjustments, less effect of
hedging activities (net of tax) -- -- -- -- (14.5) (14.5)
- ----------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) -- -- -- 109.9 (14.5) 95.4
- ----------------------------------------------------------------------------------------------------------------------
Cash dividends ($.24 per share) -- -- -- (20.9) -- (20.9)
Purchase and retirement of
common stock (790,900) (.4) (41.3) -- -- (41.7)
Common stock issued under
employee benefit plans 270,858 .2 9.5 -- -- 9.7
- ----------------------------------------------------------------------------------------------------------------------
Balance at July 4, 1999 86,978,382 $ 43.5 $ 839.6 $ (147.6) $ (119.0) $ 616.5
======================================================================================================================
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
</FN>
</TABLE>
<PAGE>
6
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
The Black & Decker Corporation and Subsidiaries
(Dollars in Millions)
<CAPTION>
- ------------------------------------------------------------------------------------------
Six Months Ended
July 4, 1999 June 28, 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) $ 109.9 $ (913.0)
Adjustments to reconcile net earnings (loss)
to cash flow from operating activities:
Gain on sale of businesses - (36.5)
Non-cash charges and credits:
Depreciation and amortization 80.6 76.6
Goodwill write-off - 900.0
Restructuring charges and exit costs - 140.0
Other (2.2) 5.6
Changes in selected working capital items
(excluding, for 1998, effects of
household products business sold):
Trade receivables (26.1) (3.3)
Inventories (188.7) (53.5)
Trade accounts payable 56.4 2.8
Restructuring spending (14.7) (13.0)
Changes in other assets and liabilities (63.9) (99.6)
- ------------------------------------------------------------------------------------------
Cash Flow From Operating Activities (48.7) 6.1
- ------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from sale of business - 288.0
Proceeds from disposal of assets 19.0 3.9
Capital expenditures (67.9) (59.8)
Cash inflow from hedging activities 406.6 168.7
Cash outflow from hedging activities (378.4) (166.0)
- ------------------------------------------------------------------------------------------
Cash Flow From Investing Activities (20.7) 234.8
- ------------------------------------------------------------------------------------------
Cash Flow Before Financing Activities (69.4) 240.9
FINANCING ACTIVITIES
Net decrease in short-term borrowings (99.0) (84.6)
Proceeds from long-term debt (including
revolving credit facility) 781.5 576.4
Payments on long-term debt (including
revolving credit facility) (507.2) (569.7)
Redemption of preferred stock of subsidiary - (41.7)
Purchase of common stock (41.7) (154.7)
Issuance of common stock 6.5 15.3
Cash dividends (20.9) (22.7)
- ------------------------------------------------------------------------------------------
Cash Flow From Financing Activities 119.2 (281.7)
Effect of exchange rate changes on cash (3.0) (1.9)
- ------------------------------------------------------------------------------------------
Increase (Decrease) In Cash And Cash Equivalents 46.8 (42.7)
Cash and cash equivalents at beginning of period 87.9 246.8
- ------------------------------------------------------------------------------------------
Cash And Cash Equivalents At End Of Period $ 134.7 $ 204.1
==========================================================================================
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
</FN>
</TABLE>
<PAGE>
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The Black & Decker Corporation and Subsidiaries
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and do not include all the
information and notes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, the unaudited
consolidated financial statements include all adjustments, consisting only of
normal recurring accruals, considered necessary for a fair presentation of the
financial position and the results of operations.
Operating results for the three- and six-month periods ended July 4, 1999,
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, 1998.
Certain amounts presented for the six months ended June 28, 1998, have been
reclassified to conform with the 1999 presentation.
Statement of Financial Accounting Standards (SFAS) No. 130, Reporting
Comprehensive Income, 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. For the six months ended July 4, 1999,
and June 28, 1998, the Corporation has presented comprehensive income in the
accompanying Consolidated Statement of Stockholders' Equity. Comprehensive
income for the three months ended July 4, 1999, and June 28, 1998, was $77.1
million and $57.6 million, respectively.
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, 2000. 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 what effect SFAS No. 133 will have on its earnings and financial
position.
NOTE 2: STRATEGIC REPOSITIONING
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, 1998, on January 26, 1998, the Corporation's Board of Directors
approved a comprehensive strategic repositioning plan designed to intensify
focus on core operations and improve operating
<PAGE>
8
performance. The plan 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 then outstanding common stock over a two-year period; and (iii) a
restructuring of the Corporation's remaining businesses.
The Corporation sold its household products business (other than certain
assets associated with the Corporation's cleaning and lighting products) in
North America, Central America, the Caribbean, South America (excluding Brazil),
and Australia, principally in the second quarter of 1998. The Corporation
continues to evaluate various alternatives with respect to its household
products business in Brazil. The Corporation completed the sale of Emhart Glass,
its glass container-forming and inspection equipment business, during the third
quarter of 1998, and completed the recapitalization of True Temper Sports, its
recreational products business, during the fourth quarter of 1998.
As of December 31, 1998, the Corporation had repurchased 9,025,400 shares
of its outstanding common stock under the strategic repositioning plan, of which
2,876,000 shares were repurchased during the six months ended June 28, 1998, at
an aggregate cost of $154.7 million (which is net of $.7 million in premiums
received in connection with the Corporation's sale of put options on 400,000
shares of its common stock). During the first quarter of 1999, the Corporation
repurchased an additional 610,900 shares of common stock at an aggregate cost of
$32.1 million, completing the stock repurchase element of the strategic
repositioning plan. Subsequent to the announcement of the strategic
repositioning, the Corporation's Board of Directors authorized the repurchase of
an incremental 2,000,000 shares of the Corporation's outstanding common stock
with the intention of reducing the dilutive effect of stock issuances under
various stock-based employee benefit plans.
The restructuring program announced in January 1998 will be completed over
a period of two years and is being undertaken to reduce fixed costs. During the
six months ended June 28, 1998, the Corporation recognized restructuring and
exit costs of $140.0 million.
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. 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 $9.51 both
on a basic and diluted basis for the six-month period ended June 28, 1998. The
write-off of goodwill related to the Building Products segment and the Fastening
and Assembly Systems segment and included a $40.0 million write-down of goodwill
associated with one of the divested businesses, and represented 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. This change represented a change in accounting principle
that is indistinguishable from a change in estimate.
<PAGE>
9
NOTE 3: INVENTORIES
The components of inventory at the end of each period, in millions of dollars,
consisted of the following:
<TABLE>
<CAPTION>
July 4, 1999 December 31, 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
FIFO cost:
Raw materials and work-in-process $ 191.1 $ 173.5
Finished products 628.3 482.3
- -----------------------------------------------------------------------------------------------
819.4 655.8
Excess of FIFO cost over LIFO inventory value (12.9) (18.9)
- -----------------------------------------------------------------------------------------------
$ 806.5 $ 636.9
===============================================================================================
</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
Goodwill at the end of each period, in millions of dollars, was as follows:
<TABLE>
<CAPTION>
July 4, 1999 December 31, 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Goodwill $ 1,287.1 $ 1,300.9
Less accumulated amortization 545.0 532.2
- -----------------------------------------------------------------------------------------------
$ 742.1 $ 768.7
===============================================================================================
</TABLE>
NOTE 5: LONG-TERM DEBT
Indebtedness of subsidiaries of the Corporation in the aggregate principal
amounts of $714.3 million and $412.4 million were included in the Consolidated
Balance Sheet at July 4, 1999, and December 31, 1998, respectively, under the
captions short-term borrowings, current maturities of long-term debt, and
long-term debt.
NOTE 6: 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 Six Months Ended
July 4, 1999 June 28, 1998 July 4, 1999 June 28, 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest expense $29.7 $35.7 $59.9 $72.3
Interest (income) (7.2) (5.9) (15.2) (14.1)
- -----------------------------------------------------------------------------------------------
$22.5 $29.8 $44.7 $58.2
===============================================================================================
</TABLE>
<PAGE>
10
NOTE 7: BUSINESS SEGMENTS
The following table provides selected financial data for the Corporation's
business segments (in millions of dollars):
<TABLE>
<CAPTION>
Reportable Business Segments
----------------------------------------- Corporate,
Power Fasten- Adjust-
Tools ing & Currency ments,
& Acces- Building Assembly All Translation & Elimi- Consoli-
Three Months Ended July 4, 1999 sories Products Systems Total Others Adjustments nations dated
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated customers $ 761.3 $ 215.1 $ 128.0 $1,104.4 $ -- $ (20.2) $ -- $1,084.2
Segment profit (loss) (for
Consolidated, operating
income) 86.7 28.8 22.4 137.9 -- (2.2) (8.6) 127.1
Depreciation and amortization 21.0 8.6 3.8 33.4 -- (.5) 6.8 39.7
Capital expenditures 23.3 9.6 5.5 38.4 -- (.6) .1 37.9
Three Months Ended June 28, 1998
- -----------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 712.7 $ 214.7 $ 117.6 $1,045.0 $135.8 $ (11.1) $ -- $1,169.7
Segment profit (loss) (for
Consolidated, operating
income before gain on sale
of businesses) 66.5 31.8 20.9 119.2 8.1 (1.6) (13.4) 112.3
Depreciation and amortization 21.7 6.5 3.6 31.8 -- (.3) 6.3 37.8
Capital expenditures 13.0 4.3 4.1 21.4 6.4 (.3) .1 27.6
Six Months Ended July 4, 1999
- -----------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $1,404.3 $ 429.9 $ 254.4 $2,088.6 $ -- $ (25.9) $ -- $2,062.7
Segment profit (loss) (for
Consolidated, operating
income) 126.3 54.8 43.6 224.7 -- (2.7) (16.5) 205.5
Depreciation and amortization 42.3 17.4 7.7 67.4 -- (.8) 14.0 80.6
Capital expenditures 43.4 16.8 8.6 68.8 -- (1.1) .2 67.9
Six Months Ended June 28, 1998
- -----------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $1,294.3 $ 404.3 $ 235.9 $1,934.5 $266.0 $ (22.5) $ -- $2,178.0
Segment profit (loss) (for
Consolidated, operating
income before restructuring
and exit costs, write-off of
goodwill, and gain on sale
of businesses) 98.4 56.6 40.1 195.1 12.2 (3.4) (21.5) 182.4
Depreciation and amortization 44.5 12.6 6.8 63.9 -- (.7) 13.4 76.6
Capital expenditures 30.5 13.6 6.1 50.2 9.9 (.6) .3 59.8
</TABLE>
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
<PAGE>
11
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. In 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
(excluding Brazil), 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 preceding table under the caption "All Others." The results of the household
products businesses 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 above 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
Notes to Consolidated Financial Statements included in the Corporation's Annual
Report on Form 10-K for 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 preceding table under the captions "Reportable Business
Segments," "All Others," and "Corporate, Adjustments, & Eliminations" are
reflected at the Corporation's current budgeted exchange rates. The amounts
included in the preceding table 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.
<PAGE>
12
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 the
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 reportable 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 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.
Amounts in the preceding table under the caption "Corporate, Adjustments, &
Eliminations" on the lines entitled "Depreciation and amortization" represent
depreciation of Corporate property and consolidated goodwill amortization.
<PAGE>
13
The reconciliation of segment profit to the Corporation's earnings (loss)
before income taxes for each period, in millions of dollars, is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
- --------------------------------------------------------------------------------------------------------------------------
July 4, 1999 June 28, 1998 July 4, 1999 June 28, 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Segment profit for total reportable business segments $ 137.9 $119.2 $224.7 $ 195.1
Segment profit for all other businesses - 8.1 - 12.2
Items excluded from segment profit:
Adjustment of budgeted foreign exchange rates to
actual rates (2.2) (1.6) (2.7) (3.4)
Depreciation of Corporate property and amortization
of goodwill (6.8) (6.3) (14.0) (13.4)
Adjustment to businesses' postretirement benefit
expenses booked in consolidation 8.4 8.2 16.6 16.5
Adjustment to eliminate net interest and non-operating
expenses from results of certain operations in Brazil,
Mexico, Venezuela, and Turkey .6 1.1 1.1 2.6
Other adjustments booked in consolidation directly
related to reportable business segments .1 (17.6) (3.6) (19.0)
Amounts allocated to businesses in arriving at segment
profit in excess of (less than) Corporate center operating
expenses, eliminations, and other amounts
identified above (10.9) 1.2 (16.6) (8.2)
- --------------------------------------------------------------------------------------------------------------------------
Operating income before restructuring and exit costs,
write-off of goodwill, and gain on sale of businesses 127.1 112.3 205.5 182.4
Restructuring and exit costs - - - 140.0
Write-off of goodwill - - - 900.0
Gain on sale of businesses - 36.5 - 36.5
- --------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 127.1 148.8 205.5 (821.1)
Interest expense, net of interest income 22.5 29.8 44.7 58.2
Other (income) expense .7 2.7 (.8) 2.4
- --------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before taxes $ 103.9 $116.3 $161.6 $(881.7)
==========================================================================================================================
</TABLE>
<PAGE>
14
NOTE 8: EARNINGS PER SHARE
The computations of basic and diluted earnings per share for each period are as
follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(Amounts in Millions Except Per Share Data) July 4, 1999 June 28, 1998 July 4, 1999 June 28, 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Net earnings (loss) $70.7 $58.4 $109.9 $ (913.0)
======================================================================================================================
Denominator:
Average number of common shares outstanding
for basic earnings per share 87.0 94.1 87.1 94.6
Employee stock options and stock issuable
under employee benefit plans 1.4 1.7 1.4 - (a)
- ----------------------------------------------------------------------------------------------------------------------
Average number of common shares outstanding
for diluted earnings per share 88.4 95.8 88.5 94.6
======================================================================================================================
Basic earnings (loss) per share $ .81 $ .62 $ 1.26 $ (9.65)
======================================================================================================================
Diluted earnings (loss) per share $ .80 $ .61 $ 1.24 $ (9.65)
======================================================================================================================
<FN>
(a) Due to the net loss incurred by the Corporation for the six-month period
ended June 28, 1998, the assumed exercise of stock options and stock
issuable under employee benefit plans is anti-dilutive. Accordingly, the
effect of 1.8 million shares, representing the dilutive effect of those
stock options and shares issuable, was excluded from the calculation of
diluted earnings per share for the six months ended June 28, 1998. As a
result, the financial statements reflect diluted earnings per share equal to
basic earnings per share for the six months ended June 28, 1998.
</FN>
</TABLE>
<PAGE>
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Corporation reported net earnings of $70.7 million or $.80 per share on a
diluted basis for the three months ended July 4, 1999, compared to net earnings
of $58.4 million or $.61 per share on a diluted basis for the three months ended
June 28, 1998. Included in net earnings for the quarter ended June 28, 1998, was
an after-tax gain on sale of businesses of $4.2 million ($36.5 million before
tax) or $.04 per share on a diluted basis. Excluding the gain on sale of
businesses, net earnings were $54.2 million or $.57 per share on a diluted basis
for the quarter ended June 28, 1998.
The Corporation reported net earnings of $109.9 million or $1.24 per share
on a diluted basis for the six months ended July 4, 1999, compared to a net loss
of $913.0 million or $9.65 per share on a diluted basis for the six months ended
June 28, 1998. Excluding the effects of the restructuring charge of $140.0
million ($100.0 million after tax) and the goodwill write-off of $900.0 million,
both recognized in the first quarter of 1998, and the after-tax gain on sale of
businesses recognized in the second quarter of 1998, net earnings for the six
months ended June 28, 1998, would have been $82.8 million or $.86 per share on a
diluted basis.
STRATEGIC REPOSITIONING
As more fully described in Note 2 of Notes to Consolidated Financial Statements
and in Management's Discussion and Analysis of Financial Condition and Results
of Operations under the caption "Strategic Repositioning" included in the
Corporation's Annual Report on Form 10-K for the year ended December 31, 1998,
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. The Corporation substantially completed this aspect of
the strategic repositioning plan through the sale or recapitalization of the
following non-strategic businesses: True Temper Sports, its recreational
products business, in the fourth quarter of 1998; Emhart Glass, its glass
container-forming and inspection equipment business, in the third quarter of
1998; and the household products business (other than certain assets associated
with the Corporation's cleaning and lighting business) in North America, Latin
America (excluding Brazil), and Australia, the majority of which was sold in the
second quarter of 1998.
The net proceeds from the sale of these businesses were used to fund the
second element of the strategic repositioning plan-the planned repurchase of
approximately 10% of the Corporation's then outstanding common shares over a
two-year period. As of December 31, 1998, the Corporation had repurchased
9,025,400 shares of its outstanding common stock under the strategic
repositioning plan, of which 2,876,000 shares were repurchased during the six
months ended June 28, 1998, at an aggregate cost of $154.7 million (which is net
of $.7 million in premiums received in connection with the Corporation's sale of
put options on 400,000 shares of its common stock). During the first quarter of
1999, the
<PAGE>
16
Corporation repurchased an additional 610,900 shares of common stock at an
aggregate cost of $32.1 million, completing the stock repurchase element of the
strategic repositioning plan.
The third element of the strategic repositioning plan involves a major
restructuring program, which is being undertaken to reduce fixed costs. As part
of the restructuring program, the Corporation is making 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 are being 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 is rationalizing its manufacturing plant network, resulting
in the closure of a number of manufacturing plants. The restructuring program
also includes actions to improve the cost position of other businesses.
This restructuring program resulted in a pre-tax charge of $140.0 million
during the first quarter of 1998 ($100.0 million after tax). During the three
months ended April 4, 1999, the Corporation recognized $8.9 million of
additional pre-tax restructuring and exit costs associated with restructuring of
North American accessories packaging operations and Latin American power tools
operations, and as a result of the settlement of claims associated with a
divested business. That $8.9 million charge was offset, however, by a gain
realized on the sale in the first quarter of 1999 of a facility, exited as part
of the restructuring actions taken in 1998, that had a fair value exceeding its
net book value at the time of the 1998 charge. Additional actions are possible
as the program progresses in 1999.
A summary of the Corporation's restructuring activity during the six months
ended July 4, 1999, is as follows:
<TABLE>
<CAPTION>
Reserve Established Utilization of Reserve
Reserve at in 1999, Net of ---------------------- Reserve at
(Dollars in Millions) December 31, 1998 Gain Recognized Cash Non-Cash July 4, 1999
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Severance benefits and cost of
voluntary retirement program $39.9 $4.4 $(10.8) $ - $33.5
Asset write-offs - .5 - (.5) -
Other charges 10.9 (4.9) (3.9) 3.0 5.1
- ----------------------------------------------------------------------------------------------------------------------
Total $50.8 $ - $(14.7) $2.5 $38.6
======================================================================================================================
</TABLE>
In the preceding table, the negative $2.5 million non-cash reserve usage in
1999 represents $6.4 million of non-cash reserve usage offset by the $8.9
million gain on the sale of the facility described above.
In addition to the restructuring charge, the Corporation anticipates that
related expenses of approximately $60 million will be charged to operations over
a two-year period as the restructuring program progresses, $44.4 million of
which were recognized during the year ended December 31, 1998. 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-month periods ended July 4, 1999, and June 28, 1998, the
Corporation recognized $2.3 million and $22.8 million, respectively, of expenses
related to the restructuring program. During the six month periods ended
July 4, 1999, and June 28, 1999, the
<PAGE>
17
Corporation recognized $5.8 million and $28.4 million, respectively, of
restructuring-related expenses.
Benefits from the restructuring actions taken in 1998 and 1999 are expected
to approximate $100 million on an annual, pre-tax basis once the restructuring
plan is fully implemented. Those benefits will be mitigated, however, by other
factors impacting the Corporation's results.
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 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 sold businesses, realistic valuation than
the undiscounted approach. The adoption of this discounted cash flow approach,
however, may result in greater earnings volatility because decreases in
projected discounted cash flows of certain businesses will result in timely
recognition of future impairment. This change in method of measuring goodwill
impairment represents a change in accounting principle that is indistinguishable
from a change in estimate.
In connection with this change in accounting with respect to the
measurement of goodwill impairment, the Corporation recognized a non-cash charge
of $900.0 million in the first quarter of 1998 ($9.51 per share both on a basic
and diluted basis for the six months ended June 28, 1998). The $900.0 million
write-down, which related to goodwill associated with the Corporation's
Fastening and Assembly Systems segment and the Building Products segment and
included a $40.0 million write-down of goodwill associated with one of the
divested businesses, represented 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
included in the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1998.
<PAGE>
18
RESULTS OF OPERATIONS
Sales
The following chart sets forth an analysis of the consolidated changes in sales
for the three- and six-month periods ended July 4, 1999, and June 28, 1998:
<TABLE>
<CAPTION>
ANALYSIS OF CHANGES IN SALES
- -----------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
(Dollars in Millions) July 4, 1999 June 28, 1998 July 4, 1999 June 28, 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total sales $1,084.2 $1,169.7 $2,062.7 $2,178.0
Unit volume - existing 8 % 2 % 10 % 3 %
- disposed (12)% -- % (13)% --%
Price (1)% (1)% (1)% (1)%
Currency (2)% (2)% (1)% (3)%
- -----------------------------------------------------------------------------------------------------------------------
Change in total sales (7)% (1)% (5)% (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 or recapitalization of a
particular business. For the three and six months ended July 4, 1999,
disposed unit volume relates to 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); the glass
container-forming and inspection equipment business, Emhart Glass; and
the recreational products business, True Temper Sports; all of which were
sold or recapitalized during 1998.
</FN>
</TABLE>
Total consolidated sales for the three and six months ended July 4, 1999,
declined from the corresponding 1998 level. The negative effects of a stronger
United States dollar compared to other foreign currencies caused a decrease in
the Corporation's consolidated sales from the prior year's level of 2% and 1%
for the three and six months ended July 4, 1999, respectively. Pricing actions,
taken in response to competitive pressures and as a result of volume-related
price reductions associated with higher unit volumes in the North American power
tools and accessories business, had a 1% negative effect on sales for both the
three and six months ended July 4, 1999, as compared to the corresponding
periods in 1998. Total unit volume declined during the three and six months
ended July 4, 1999, from the 1998 levels, as unit volume growth in the
Corporation's existing businesses was more than offset by unit volume declines
associated with the divested household products, recreational products, and
glass container-forming and inspection equipment businesses. A contributing
factor to the growth in existing unit volume for the six months ended
July 4, 1999, was the inclusion of four additional business days in the first
half of 1999 as compared to the first half of 1998 due to the timing
of the Corporation's fiscal calendar.
Earnings
Operating income for the three months ended July 4, 1999, was $127.1 million, or
11.7% of sales, compared to operating income of $112.3 million (excluding the
gain on sale of businesses of $36.5 million), or 9.6% of sales, for the
corresponding period in 1998. Operating income for the
<PAGE>
19
six months ended July 4, 1999, was $205.5 million, or 10.0% of sales, compared
to an operating loss of $821.1 million for the corresponding period in 1998.
Excluding the effects of the $140.0 million restructuring charge and the $900.0
million write-off of goodwill, both recognized in the first quarter of 1998, and
the gain on sale of businesses recognized in the second quarter of 1998,
operating income for the first six months of 1998 was $182.4 million, or 8.4% of
sales.
Operating results for the three months ended July 4, 1999, and
June 28, 1998, included $2.3 million and $22.8 million, respectively, of
expenses directly related to the restructuring program undertaken that do not
qualify as restructuring or exit costs under generally accepted accounting
principles. Excluding the effects of these restructuring-related expenses, as
well as the gain on sale of businesses recognized in 1998, operating income for
the three months ended July 4, 1999, would have decreased by 4% from $135.1
million for the second quarter of 1998 to $129.4 million for the second
quarter of 1999. However, on this same basis, operating income as a percentage
of sales increased from 11.5% for the second quarter of 1998 to 11.9% for the
second quarter of 1999. Operating results for the six months ended July 4, 1999,
and June 28, 1998, included $5.8 million and $28.4 million, respectively, of
restructuring-related expenses. Excluding the effects of these
restructuring-related expenses, as well as the restructuring charge, the
goodwill write-off, and the gain on sale of businesses, all recognized in the
first half of 1998, operating income for the six months ended July 4, 1999,
would have slightly increased from $210.8 million for the first half of 1998 to
$211.3 million for the first half of 1999. On this same basis, operating income
as a percentage of sales increased from 9.7% for the first half of 1998 to 10.2%
for the first half of 1999.
Gross margin as a percentage of sales was 38.1% and 34.0% for the
three-month periods ended July 4, 1999, and June 28, 1998, respectively. Gross
margin as a percentage of sales was 37.0% and 34.3% for the six-month periods
ended July 4, 1999, and June 28, 1998, respectively. The increase in gross
margin during the three- and six-month periods ended July 4, 1999, compared to
the corresponding periods in 1998, primarily resulted from cost benefits from
restructuring actions taken, significantly lower restructuring-related expenses,
increased productivity, and the absence of lower margin products in the divested
businesses, partially offset by negative pricing actions.
Selling, general, and administrative expenses as a percentage of total
sales were 26.4% and 24.4% for the three-month periods ended July 4, 1999, and
June 28, 1998, respectively. Selling, general, and administrative expenses as a
percentage of total sales were 27.0% and 26.0% for the six-month periods ended
July 4, 1999, and June 28, 1998, respectively. The increase in selling, general,
and administrative expenses as a percentage of total sales during the three- and
six- month periods ended July 4, 1999, resulted, in part, from higher research
and development expenditures and increased promotional activities, particularly
in the power tools and accessories business in North America which increased the
number of end-user specialists.
<PAGE>
20
Net interest expense (interest expense less interest income) for the three-
and six-month periods ended July 4, 1999, was $22.5 million and $44.7 million,
respectively, as compared to $29.8 million and $58.2 million for the three- and
six-month periods ended June 28, 1998, respectively. The lower level of net
interest expense in the three and six months ended July 4, 1999, as compared to
the corresponding periods in 1998 was primarily the result of lower average
borrowing levels.
The Corporation maintains a portfolio of interest rate hedge instruments
for the purpose of managing interest rate exposure. During the six months ended
July 4, 1999, the Corporation entered into new fixed to variable rate interest
rate swaps with an aggregate notional principal amount of $25.0 million. In
addition, interest rate swaps with an aggregate notional principal amount of
$250.0 million, which swapped from fixed United States dollars to fixed foreign
currencies, matured during the six months ended July 4, 1999. The variable rate
debt to total debt ratio, after taking interest rate hedges into account, was
59% at July 4, 1999, compared to 47% at December 31, 1998.
Other (income) expense for the three- and six-month periods ended
July 4, 1999, was not significant. Other expense for the three- and six-month
periods ended June 28, 1998, principally consisted of currency losses.
The Corporation recognized income tax expense of $33.2 million on pre-tax
earnings of $103.9 million, which equates to a reported tax rate of 32%, for the
second quarter of 1999. The Corporation recognized income tax expense of $57.9
million for the second quarter of 1998, including income tax expense of $32.3
million related to the $36.5 million pre-tax gain on sale of businesses
recognized during that quarter. Excluding the taxes associated with the gain on
sale of businesses, the Corporation's reported tax rate for the second quarter
of 1998 would have been 32%.
The Corporation recognized income tax expense of $51.7 million on pre-tax
earnings of $161.6 million during the six months ended July 4, 1999, which
equates to a reported tax rate of 32%. The Corporation recognized income tax
expense of $31.3 million for the six months ended June 28, 1998, on a pre-tax
loss of $881.7 million. Excluding the income tax benefit of $40.0 million
related to the pre-tax restructuring charge of $140.0 million and the
non-deductible write-off of goodwill in the amount of $900.0 million, both
recognized in the first quarter of 1998, and the $32.3 million of tax expense
recognized on the gain on sale of businesses in the second quarter of 1998, the
Corporation's reported tax rate for the six months ended June 28, 1998, would
have been 32%.
The Corporation reported net income of $70.7 million, or $.80 per share on
a diluted basis, for the three months ended July 4, 1999. The Corporation
reported net earnings of $58.4 million, or $.61 per share on a diluted basis,
for the three months ended June 28, 1998. Excluding the after-tax gain on sale
of businesses of $4.2 million recognized in the second quarter of 1998, net
earnings were $54.2 million, or $.57 per diluted share for the three months
ended June 28, 1998.
The Corporation reported net income of $109.9 million, or $1.24 per share
on a diluted basis, for the six months ended July 4, 1999. The Corporation
reported a net loss of $913.0 million, or $9.65 per share both on a basic and
diluted basis, for the six months ended June 28, 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 six months ended June 28, 1998, the
calculation of reported earnings per share on a diluted basis excludes the
impact of stock options,
<PAGE>
21
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 $82.8 million or $.86 per
share on this diluted basis for the six months ended June 28, 1998.
Business Segments
As more fully described in Note 7 of Notes to Consolidated Financial Statements,
the Corporation operates in three reportable business segments: Power Tools and
Accessories, Building Products, and Fastening and Assembly Systems.
Expenses (income) directly related to reportable business segments booked
in consolidation and, thus, excluded from segment profit for the Corporation's
reportable business segments were $(.1) million and $3.6 million for the three
and six months ended July 4, 1999, respectively, and $17.6 million and $19.0
million for the three and six months ended June 28, 1998, respectively. As
discussed in Management's Discussion and Analysis of Financial Condition and
Results of Operations under the heading "Business Segments" included in the
Corporation's Annual Report on Form 10-K for the year ended December 31, 1998,
the segment-related expenses excluded from segment profit in 1998 primarily
related to unbudgeted restructuring-related expenses, including an $11.5 million
write-down of cleaning and lighting inventory to net realizable value associated
with the product line rationalization undertaken in the second quarter of 1998
to integrate the retained cleaning and lighting business into the Power Tools
and Accessories operations. These segment-related expenses excluded from segment
profit are generally non-recurring in nature.
Power Tools and Accessories
- ---------------------------
Segment sales and profit for the Power Tools and Accessories segment, determined
on the basis described in Note 7 of Notes to Consolidated Financial Statements,
were as follows (in millions of dollars):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
July 4, 1999 June 28, 1998 July 4, 1999 June 28, 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers $761.3 $712.7 $1,404.3 $1,294.3
Segment profit 86.7 66.5 126.3 98.4
</TABLE>
Sales to unaffiliated customers in the Power Tools and Accessories segment
during the second quarter of 1999 increased 6.8% over the 1998 level despite
negative pricing actions taken in response to competitive pressures and as a
result of volume-related price reductions. Sales of power tool products in North
America benefited from double-digit rates of growth in sales of the DEWALT(R)
professional power tools and consumer power tools lines due, in part, to new
product introductions. Sales of accessories in North America grew at a high
single-digit rate in the
<PAGE>
22
second quarter of 1999 over the 1998 level, substantially offsetting lower sales
of outdoor products during the quarter ended July 4, 1999.
Sales in Europe increased at a low single-digit rate in the second quarter
of 1999 over the 1998 level. This improvement during 1999 was mainly driven by
sales growth in professional power tools, as increased sales of outdoor products
and accessories were substantially offset by lower sales of consumer power tools
and household products.
Sales in other geographic areas declined at a double-digit rate in the
second quarter of 1999 from the 1998 levels.
Sales to unaffiliated customers in the Power Tools and Accessories segment
during the first half of 1999 increased 8.5% over the 1998 level despite the
negative impact of pricing actions as discussed previously. Sales of power tool
products in North America benefited from double-digit rates of growth in sales
of DEWALT professional power tools and consumer power tools. In addition, sales
of accessories in North America during 1999 increased at a double-digit rate
over the 1998 level. Sales of outdoor products in North America during the first
half of 1999 increased at a mid single-digit rate over the corresponding period
in 1998.
Sales in Europe during the first half of 1999 approximated the 1998 level.
Sales in other geographic areas declined at a double-digit rate in the
first half of 1999 from the 1998 levels.
Segment profit as a percentage of sales for the Power Tools and Accessories
segment was 11.4% and 9.0% for the three- and six-month periods ended July 4,
1999, respectively, compared to 9.3% and 7.6%, for the three- and six-month
periods ended June 28, 1998, respectively. This improvement was driven by higher
gross margins across all major geographic areas, which were the result of
restructuring benefits and higher manufacturing volumes that more than offset
negative price pressures.
Building Products
- -----------------
Segment sales and profit for the Building Products segment, determined on the
basis described in Note 7 of Notes to Consolidated Financial Statements, were as
follows (in millions of dollars):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
July 4, 1999 June 28, 1998 July 4, 1999 June 28, 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers $215.1 $214.7 $429.9 $404.3
Segment profit 28.8 31.8 54.8 56.6
</TABLE>
Sales to unaffiliated customers in the Building Products segment for the
quarter ended July 4, 1999, approximated the 1998 level. While sales of security
hardware for the second quarter of 1999 benefited from a mid single-digit rate
of growth in North America and a double-digit rate of growth in Latin America,
those increases were substantially offset by decreased sales of plumbing
products in North America and by lower sales of security hardware in other
geographic areas.
Sales to unaffiliated customers in the Building Products segment increased
by 6.3% for the six months ended July 4, 1999, over the 1998 level, due
principally to a double-digit rate of growth in sales of security hardware in
North America. That growth, supplemented by strong sales in Latin
<PAGE>
23
America during the first half of 1999, was partially offset by decreased sales
of plumbing products in North America and by lower sales of security hardware in
other geographic areas, excluding Europe. Sales of security hardware in Europe
for the first half of 1999 approximated the prior year's level.
Segment profit as a percentage of sales for the Building Products segment
was 13.4% and 12.7% for the three and six months ended July 4, 1999,
respectively, compared to 14.8% and 14.0% for the three and six months ended
June 28, 1998, respectively. Segment profit as a percentage of sales in both the
three and six months ended July 4, 1999, declined from the 1999 levels as
decreased profitability with respect to security hardware products, more than
offset profitability gains in plumbing products which stemmed from productivity
initiatives and headcount reductions. The decreased profitability with respect
to security hardware products principally resulted from excess fixed costs, a
shift in sales mix to lower margin products, manufacturing inefficiencies, and
higher administrative expenses, including increased promotion.
Fastening and Assembly Systems
- ------------------------------
Segment sales and profit for the Fastening and Assembly Systems segment,
determined on the basis described in Note 7 of Notes to Consolidated Financial
Statements, were as follows (in millions of dollars):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
July 4, 1999 June 28, 1998 July 4, 1999 June 28, 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers $128.0 $117.6 $254.4 $235.9
Segment profit 22.4 20.9 43.6 40.1
</TABLE>
Sales to unaffiliated customers in the Fastening and Assembly Systems
segment increased by 8.8% and 7.8% for the three- and six-month periods ending
July 4, 1999, respectively, over the 1998 levels, as strong sales to automotive
customers in North America and Europe offset weakness in the European industrial
sector.
Segment profit as a percentage of sales for the Fastening and Assembly
Systems segment was 17.5% for the three months ended July 4, 1999, compared to
17.8% for the corresponding period in 1998, and was 17.1% for the six months
ended July 4, 1999, compared to 17.0% for the six months ended June 28, 1998.
<PAGE>
24
INTEREST RATE SENSITIVITY
Due to the change during the six months ended July 4, 1999, described
previously, in the Corporation's interest rate hedge portfolio, the following
table provides information as of July 4, 1999, about the 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, 1998.
Notional Principal Amounts and Interest Rate Detail by Contractual Maturity
Dates
<TABLE>
<CAPTION>
Year Ending Dec. 31, Fair Value
6 Mos. Ending -------------------------------------- (Assets)/
(U.S. Dollars in Millions) Dec. 31, 1999 2000 2001 2002 2003 Thereafter Total Liabilities
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed to variable rate
interest rate swaps (a) $ -- $50.0 $ -- $ -- $125.0 $ 275.0 $ 450.0 $ 13.4
Average pay rate (b)
Average receive rate 5.54% 6.02% 6.01% 5.96%
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) All U.S. dollar denominated.
(b) The average pay rate is based upon 6-month forward LIBOR, except for
$150.0 million in notional amount which matures after 2003 and is based
upon 3-month forward LIBOR.
</FN>
</TABLE>
IMPACT OF YEAR 2000
The year 2000 ("Y2K") issue arises out of the fact that many computer programs
were written using two digits to identify the applicable year rather than four
digits. As a result, computer programs with date-sensitive software or equipment
with embedded date-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." This
error may result in system or equipment failures or miscalculations and
disruptions of operations, including, among other things, an inability to
process transactions or engage in other normal business activities.
The Corporation has taken and is taking action to minimize the impact of
Y2K issues in its business. These actions, which are being separately undertaken
by each of the Corporation's businesses and monitored by the Corporation on a
centralized basis, are categorized into the following phases: (i) awareness,
during which the businesses conduct Y2K awareness meetings and establish Y2K
project offices; (ii) assessment, during which the businesses complete
inventories of Y2K 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 Y2K compliant; (iv) testing,
during which remediation actions are evaluated for effectiveness; and (v)
implementation, during which remediation actions are integrated into the
production environment. These phases are being evaluated separately for each of
the businesses' significant Y2K exposures, which consist of: (i) software and
hardware; (ii) manufacturing equipment; (iii) facilities equipment; (iv) key
customers; (v) key suppliers; and (vi) products.
<PAGE>
25
For each of the businesses' significant Y2K exposures, the awareness,
assessment and remediation phases have been completed and approximately 90% to
95% of the testing and implementation phases have been completed with the
balance scheduled for completion in the third quarter of 1999. Surveys of key
customers, suppliers, and partners for Y2K compliance generally have been
completed, with a response rate in the 80% to 100% range. Follow-up surveys and
visits have been done for key suppliers. Selective customer review meetings have
been held, and others are planned. The Corporation has been certified for
electronic data interface (EDI) transactions by the National Retailers
Federation. Contingency planning with critical suppliers is planned or is, in
some cases, completed. Evaluation of the Corporation's products has been
completed without identification of any significant Y2K impact. To date, the
Corporation has not discovered any significant Y2K issues related to embedded
systems.
Each of the Corporation's businesses have established key milestones for
completion of any remaining remediation, testing, and implementation phases of
the Y2K program. In general, these milestones specified the completion of
implementation of all critical systems by no later than the end of the second
quarter of 1999, and were met as discussed previously. For non-critical systems,
these milestones generally call for completion of the remediation phase by no
later than the end of the second quarter of 1999 and completion of the testing
and implementation phases by no later than the end of the third quarter of 1999
so that any slippage in milestones can be corrected in the fourth quarter of
1999.
In order to improve operating performance over the last several years, the
Corporation has undertaken or commenced a number of significant systems
initiatives, including a major reengineering of supply-chain and distribution
systems throughout the world. In the North American Power Tools business, for
example, the Corporation has implemented advanced supply-chain management
systems and SAP information systems. Although the Corporation's systems
initiatives were unrelated to concerns over the Y2K issue, an ancillary benefit
of many of these systems improvements is that the new systems are Y2K compliant.
During the last several years, the Corporation has spent approximately $12
million to address issues related to the Y2K problem. During the remainder of
1999, the Corporation expects to spend an additional $2 million to address Y2K
issues. These costs include internal information systems resources redirected to
the Corporation's Y2K program. Other costs for implementing systems improvements
within the Corporation that were planned primarily for operational and
supply-chain improvements and were not accelerated as a result of Y2K concerns
are not included in the foregoing costs. The external costs associated with
these systems improvements, which are significant, generally have been
capitalized as part of other assets. The internal information systems department
costs that are included above as Y2K costs are expensed as incurred, are being
funded by cash flow from operations, and are not expected to have a material
adverse effect on the Corporation.
As noted above, the Corporation has not yet completed all necessary phases
of its Y2K program. In the event that the Corporation does not fully complete
any additional phases of its program, significant subsidiaries of the
Corporation would be unable to take customer orders, manufacture or ship
products, invoice customers, or collect payments. In addition, although the
Corporation has undertaken surveys and other follow-up activities of key
customers, suppliers, and partners to determine the extent to which the
Corporation's interface systems are vulnerable to those third parties' failure
to remediate their own Y2K issues, there is no guarantee that the systems of
other companies on which the Corporation's systems rely will be timely
converted. If
<PAGE>
26
those systems are not updated or otherwise are not Y2K compliant, the inability
of the Corporation to interface effectively with these third parties could have
a material adverse effect on the Corporation and its financial condition and
operating and financial performance. In addition, disruptions to the economy
generally resulting from Y2K 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
continues to develop such plans for other critical applications with its
customers, suppliers, and partners during 1999 based on risks and business
impact. Such contingency plans involve consideration of a number of possible
actions, including, to the extent necessary, manual workarounds, temporary
increases in inventories, and adjustments to staffing strategies. The
Corporation is also considering methods for "early warning" of problems related
to Y2K with rapid escalation and resolution through teams of in-house and
outside experts.
FINANCIAL CONDITION
Operating activities used cash of $48.7 million for the six months ended July 4,
1999, compared to $6.1 million of cash provided for the corresponding period in
1998. This decreased cash generation was principally the result of an increase
in working capital in the first half of 1999, as compared to the corresponding
period in 1998. The working capital increase primarily relates to increased
inventories to support higher sales and to improve service levels, net of the
related increase in accounts payable, and to higher trade receivables due to
sales growth in the Corporation's existing businesses.
Investing activities for the six months ended July 4, 1999, used cash of
$20.7 million compared to $234.8 million of cash provided in the corresponding
period in 1998. The decrease in cash from investing activities was principally
related to the receipt of $288.0 million of proceeds from the sale of the
household products business in North America and Latin America (excluding Mexico
and Brazil) in the first half of 1998. Excluding the $288.0 million of sales
proceeds, investing activities for the six months ended June 28, 1998, used cash
of $53.2 million compared to $20.7 million in cash used in the corresponding
period in 1999. This lower cash usage in 1999 primarily resulted from increases
in net cash inflow from hedging activities as a result of the maturities of
certain interest rate swaps that swapped from fixed United States dollars to
fixed foreign currencies. As more fully described in Note 1 of Notes to
Consolidated Financial Statements included in the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1998, the cash effects of the exchange
of notional principal amounts on interest rate swaps that swapped from fixed
United States dollars to fixed foreign currencies are included in the
Consolidated Statement of Cash Flows as cash flow from investing activities
because such amounts were designated as hedges of net investments in
subsidiaries located outside of the United States.
Financing activities generated cash of $119.2 million for the six months
ended July 4, 1999, compared to cash used of $281.7 million in the first six
months of 1998. This change is primarily the result of an increase in borrowings
at July 4, 1999, compared to the 1998 year-end level, to support working capital
requirements, compared to a decrease in borrowings at June 28, 1998, compared to
the 1997 year-end level due, in part, to debt reductions which occurred with the
net proceeds from the sale of the household products business in June 1998. In
addition, cash usage
<PAGE>
27
for financing activities was higher in the first half of 1998 compared to the
1999 levels due to increased levels of stock repurchased by the Corporation in
1998 over that repurchased in 1999 and the redemption of preferred stock of a
subsidiary in 1998.
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. The
Corporation has modified its definition of free cash flow to be cash flow from
operating activities of continuing operations, less capital expenditures of
continuing operations, plus proceeds from the disposal of assets (excluding
proceeds from business sales). The revised definition is intended to represent
cash generation available to all capital providers. The Corporation's prior
definition was oriented towards creditors. Free cash flow can now be derived
directly from the relevant captions on the Consolidated Statement of Cash Flows.
Based on the revised definition, during the six months ended July 4, 1999,
the Corporation experienced negative free cash flow of $97.6 million compared to
negative free cash flow of $49.8 million for the corresponding period in 1998.
The increased level of negative free cash flow for the six months ended July 4,
1999, compared to the corresponding period in 1998, was primarily a result of
lower cash flow from operating activities.
Average debt maturity was 5.4 years at July 4, 1999, compared to 6.7 years
at December 31, 1998, principally as a result of higher levels of short-term
borrowings. At July 4, 1999, borrowings in the amount of $372.2 million under
the Corporation's unsecured revolving credit facility were included in
short-term borrowings.
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 1998 and 1999 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 difficulties
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, 1998 and updated
herein; the degree of working capital investment required to meet customer
service levels; gradual improvement in the economic environment in Asia and
Latin America; and economic growth in North America which more than offsets
economic softness in Europe.
<PAGE>
28
In addition to the foregoing, the Corporation's ability to realize the
anticipated benefits of the restructuring actions undertaken in 1998 and 1999 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.
The incremental costs of the year 2000 program and the time by which the
Corporation believes 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 all 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 sixth 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, 1998.
<PAGE>
29
THE BLACK & DECKER CORPORATION
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Corporation is involved in various lawsuits in the ordinary course of
business. The lawsuits primarily involve claims for damages arising out of the
use of the Corporation's products and allegations of patent and trademark
infringement. The Corporation is also involved in litigation and administrative
proceedings involving employment matters and commercial disputes. Some of these
lawsuits include claims for punitive as well as compensatory damages. The
Corporation, using current product sales data and historical trends, actuarially
calculates the estimate of its current exposure for product liability claims for
amounts in excess of established deductibles and accrues for the estimated
liability as described above up to the limits of the deductibles. All other
claims and lawsuits are handled on a case-by-case basis.
The Corporation is also involved in lawsuits and administrative proceedings
with respect to claims involving the discharge of hazardous substances into the
environment. Certain of these claims assert damages and liability for remedial
investigations and cleanup costs with respect to sites at which the Corporation
has been identified as a potentially responsible party under federal and state
environmental laws and regulations (off-site). Other matters involve sites that
the Corporation currently owns or has previously sold (on-site). For off-site
claims, the Corporation makes an assessment of the cost involved based on
environmental studies, prior experience at similar sites, and the experience of
other named parties. The Corporation also considers the ability of other parties
to share costs, the percentage of the Corporation's exposure relative to all
other parties, and the effects of inflation on these estimated costs. For
on-site matters associated with properties currently owned, an assessment is
made as to whether an investigation and remediation would be required under
applicable federal and state law. For on-site matters associated with properties
previously sold, the Corporation considers the terms of sale as well as
applicable federal and state laws to determine if the Corporation has any
remaining liability. If the Corporation is determined to have potential
liability for properties currently owned or previously sold, an estimate is made
of the total cost of investigation and remediation and other potential costs
associated with the site.
The Corporation's estimate of the costs associated with legal, product
liability, and environmental exposures is accrued if, in management's judgment,
the likelihood of a loss is probable. These accrued liabilities are not
discounted. Insurance recoveries for environmental and certain general liability
claims are not recognized until realized.
Reference is made to the discussion in Item 3 of Part I of the
Corporation's Annual Report on Form 10-K for the year ended December 31, 1998,
in respect of a suit filed against the Corporation by Emerson Electric Company
("Emerson") alleging that the Corporation made false representations in
connection with the sale of the Mallory Controls business to Emerson in 1991. As
previously reported, in October 1997 the United States District Court for the
Southern District of New York granted the Corporation's motion to dismiss
Emerson's claims for fraud and negligent misrepresentation. On June 2, 1999, the
District Court entered a dismissal with
<PAGE>
30
prejudice with respect to Emerson's breach of contract and contribution claims,
and Emerson subsequently noted its appeal with the United States Court of
Appeals for the Second Circuit with respect to the District Court's dismissal of
the fraud and negligent misrepresentation claims. The Corporation intends to
defend vigorously against the allegations made in this matter. In the opinion of
management, the ultimate resolution of the suit will not have a material adverse
effect on the Corporation.
As of July 4, 1999, the Corporation had no known probable but inestimable
exposures for awards and assessments in connection with environmental matters
and other litigation and administrative proceedings that could have a material
effect on the Corporation.
Management is of the opinion that the amounts accrued for awards or
assessments in connection with the environmental matters and other litigation
and administrative proceedings to which the Corporation is a party are adequate
and, accordingly, ultimate resolution of these matters will not have a material
adverse effect on the Corporation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the quarter ended July 4, 1999, the Corporation sold put options on
100,000 shares of its common stock. The put options were sold in a transaction
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 premiums of $156,000 on the sale of the
put options, which had a strike price of $50 and expired unexercised on July 26,
1999.
ITEM 5. OTHER INFORMATION
During the quarter ended July 4, 1999, the Corporation announced the resignation
of Dennis G. Heiner, former Executive Vice President of the Corporation and
President - Building Products Group. The Corporation also announced the
promotion of Christopher T. Metz to Vice President of the Corporation and
president of the Kwikset security hardware business, a component of the Building
Products Group.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit No. Description
2(a)(i) Amendment No. 5 dated as of April 30, 1999, to the
Transaction Agreement dated as of May 10, 1998, by
and between The Black & Decker Corporation and
Windmere-Durable Holdings, Inc.
2(a)(ii) Amendment No. 6 dated as of June 30, 1999, to the
Transaction Agreement dated as of May 10, 1998, by
and between The Black & Decker Corporation and
Windmere-Durable Holdings, Inc.
<PAGE>
31
2(b) Amendment No. 3 dated as of May 4, 1999, to the
Transaction Agreement dated as of July 12, 1998, by
and between The Black & Decker Corporation and Bucher
Holding AG.
10(a) The Black & Decker Corporation 1995 Stock Option Plan
for Non-Employee Directors, as amended.
10(b) Letter Agreement dated April 21, 1999, between the
Corporation and Joseph Galli.
10(c) Letter Agreement dated April 19, 1999, between the
Corporation and Paul F. McBride.
10(d) Severance Benefits Agreement dated April 27, 1999,
between the Corporation and Paul F. McBride.
12 Computation of Ratios.
27 Financial Data Schedule.
On April 22, 1999, the Corporation filed a Current Report on Form 8-K with the
Commission. That Current Report on Form 8-K, filed pursuant to Item 5 of that
Form, stated that, on April 21, 1999, the Corporation had reported its earnings
for the three months ended April 4, 1999.
The Corporation did not file any other reports on Form 8-K during the
three-month period ended July 4, 1999.
All other items were not applicable.
<PAGE>
32
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: August 18, 1999
EXHIBIT 2(a)(i)
AMENDMENT NO. 5 TO TRANSACTION AGREEMENT
This Amendment No. 5 to Transaction Agreement (this "Amendment") is
made as of the 30 day of April, 1999, 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,
Amendment No. 3 to Transaction Agreement dated as of September 23, 1998, and
Amendment No. 4 to Transaction Agreement dated as of October 15, 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 use 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, the 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 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), table top
ovens with new kind of heat source, portable microwave ovens,
steamers, rice cookers, choppers, can openers, mixers, food
processors, irons, breadmakers, skillets, electric WOKs,
electric griddles, slow cookers, electric knives, blenders,
juicers, grills, kettles and wafflebakers, 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 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 E. FENTON
Charles E. Fenton
WINDMERE-DURABLE HOLDINGS, INC.
By: /s/HARRY D. SCHULMAN
Harry D. Schulman
EXHIBIT 2(a)(ii)
AMENDMENT NO. 6 TO TRANSACTION AGREEMENT
This Amendment No. 6 to Transaction Agreement (this "Amendment") is
made as of the 30th day of June, 1999, 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,
Amendment No. 3 to Transaction Agreement dated as of September 23, 1998,
Amendment No. 4 to Transaction Agreement dated as of October 15, 1998, and
Amendment No. 5 to Transaction Agreement dated as of April 30, 1999 (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 use 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, the 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 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), table top
ovens with new kind of heat source, portable microwave ovens,
steamers, rice cookers, choppers, can openers, mixers, food
processors, irons, breadmakers, skillets, electric WOKs,
electric griddles, slow cookers, pressure cookers, electric
knives, blenders, juicers, grills, kettles and wafflebakers,
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 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 E. FENTON
Charles E. Fenton
WINDMERE-DURABLE HOLDINGS, INC.
By: /s/HARRY D. SCHULMAN
Harry D. Schulman
Exhibit 2(b)
AMENDMENT NO. 3
Dated as of May 4, 1999
to
TRANSACTION AGREEMENT
Dated as of July 12, 1998
By and Between
THE BLACK & DECKER CORPORATION
and
BUCHER HOLDING AG
<PAGE>
AMENDMENT NO. 3 TO TRANSACTION AGREEMENT
This Amendment No. 3 to Transaction Agreement ("Amendment No. 3") is
made as of the 4th day of May, 1999, by and between The Black & Decker
Corporation, a Maryland corporation ("Black & Decker"), and Bucher Holding AG, a
Swiss corporation ("Buyer").
W I T N E S S E T H:
WHEREAS, Black & Decker, through certain of its direct and indirect
Subsidiaries, was engaged in the Glass Machinery Business;
WHEREAS, Black & Decker and Buyer entered into a Transaction Agreement
dated as of July 12, 1998 (the "Agreement") pursuant to which Black & Decker
agreed to sell and Buyer agreed to purchase the Glass Machinery Business upon
the terms and subject to the conditions set forth therein;
WHEREAS, Black & Decker and Buyer entered into an Amendment No. 1 to
Transaction Agreement dated as of September 21, 1998 amending the Agreement (the
"First Amendment");
WHEREAS, Black & Decker and Buyer entered into an Amendment No. 2 to
Transaction Agreement dated as of November 20, 1999 amending the Agreement (the
"Second Amendment");
WHEREAS, Black & Decker and Buyer desire to amend certain of the
Agreement in accordance with the terms of this Amendment No. 3;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties contained herein, the parties agree as follows:
Section 1. Definitions. Capitalized terms used but not defined herein
have the meanings given to them in the Agreement. In addition, the following
term shall have the following meaning:
"Notice of Objections" means Buyer's February 5, 1999 notice of its
objections to the Proposed Final Net Tangible Asset Amount as provided by Black
& Decker to Buyer on November 20, 1998.
Section 2. Amendments. The Agreement, the First Amendment and the
Second Amendment are hereby amended as follows:
2.01. The parties agree that the Final Net Tangible Asset Amount is
$61,295,000. Such Final Net Tangible Asset Amount represents a $6,200,000
reduction of the Proposed Final Net Tangible Asset Amount which reduction of the
Exchange Consideration shall be allocated to Transferred Assets located in
Switzerland. On May 14, 1999, in accordance with Section 2.04(c) of the
Agreement, Black & Decker shall pay to Buyer the sum of $11,370,000 representing
the difference between $61,295,000 and $72,665,000. Notwithstanding any contrary
provision of the Agreement, no interest shall be due on such payment.
2.02. Section 2.04(f) is hereby amended by providing that the
$15,344,000 payment to be made by Buyer to Black & Decker thereunder shall be
made on May 14, 1999. Notwithstanding any contrary provision of the Agreement,
no interest shall be due on such payment.
2.03. Section 7.09 of the Agreement is hereby amended to provide that
Black & Decker will pay to Buyer the sum of $7,000,000 on May 14, 1999 as an
advance reimbursement of the restructuring costs that are described in such
section. Such payment shall fully satisfy all of Black & Decker's obligations
under Section 7.09 of the Agreement.
2.04. Section 10.02(b) of the Agreement is hereby amended by adding to
the end of such section the following clauses:
(v) the ALVER performance bond guaranteed by the Union Bank of
Switzerland as described in Sections B.2 and B.3 of the Notice of
Objections; and (vi) the ENAVA performance bond guaranteed by the
Midland Bank as described in Section D.2 of the Notice of Objections.
2.05. Section 10.04(b) of the Agreement is hereby amended by adding to
the end of such section the following clauses:
(iii) with respect to the matter described in Section
10.02(b)(v), to the extent of the first $200,000 of Damages incurred by
all Indemnified Parties as a result thereof; and
(iv) with respect to the matter described in Section
10.02(b)(vi), to the extent that the Damages incurred by all
Indemnified Parties as a result thereof exceed $92,000.
2.06. This Amendment No. 3 is intended by the parties to constitute a
settlement of all matters raised in the Notice of Objections and, except as
expressly provided for herein, Buyer hereby releases and discharges Black &
Decker from each and every obligation, claim, liability or expense for which
Black & Decker or any of its Affiliates may be or become liable to Buyer or any
of its Affiliates with respect to any and all of the matters raised in the
Notice of Objections.
IN WITNESS WHEREOF, the parties hereto caused this Amendment No. 3 to
be duly executed by their respective authorized officers on the day and year
first above written.
THE BLACK & DECKER CORPORATION
By: /s/CHARLES E. FENTON
Name: Charles E. Fenton
Title:
BUCHER HOLDING AG
By: /s/RUDOLF HAUSER
Name: Rudolf Hauser
Title:
Exhibit 10(a)
As Amended
2/12/98 and 4/27/99
THE BLACK & DECKER CORPORATION
1995 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
Attracting and retaining qualified individuals to serve as non-employee
directors is vital to the continued success of The Black & Decker Corporation.
To that end and to bind the interests of those individuals to the interests of
the Corporation and its stockholders, this stock option plan offers them an
attractive opportunity to acquire a proprietary interest in the Corporation.
ARTICLE 1:00
Definitions
1:01 The term "Board of Directors" shall mean the Board of Directors of the
Corporation.
1:02 The term "Change in Control" shall have the meaning provided in Section
7:02 of the Plan.
1:03 The term "Code" shall mean the Internal Revenue Code of 1986, as
amended, and any regulations promulgated thereunder.
1:04 The term "Common Stock" shall mean the shares of common stock, par
value $.50 per share, of the Corporation.
1:05 The term "Corporation" shall mean The Black & Decker Corporation.
1:06 The term "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
1:07 The term "Fair Market Value of a share of Common Stock" shall mean the
average of the high and low sale price per share of Common Stock as
finally reported in the New York Stock Exchange Composite Transactions
for the New York Stock Exchange, or if shares of Common Stock are not
sold on such date, the average of the high & low sole price per share
of Common Stock as finally reported in the New York Stock Exchange
Composite Transactions for the New York Stock Exchange for the most
recent prior date on which shares of Common Stock were sold.
1:08 The term "Limited Stock Appreciation Right" shall mean a limited tandem
stock appreciation right that entitles the holder to receive cash upon
a Change in Control pursuant to Article 7:00 of the Plan.
1:09 The term "Option" or "Stock Option" shall mean a right granted pursuant
to the Plan to purchase shares of Common Stock.
1:10 The term "Option Agreement" shall mean the written agreement
representing Options granted pursuant to the Plan as contemplated by
Article 5:00 of the Plan.
1:11 The term "Plan" shall mean The Black & Decker 1995 Stock Option Plan
for Non-Employee Directors as approved by the Board of Directors on
December 8, 1994, and adopted by the stockholders of the Corporation at
the 1995 Annual Meeting of Stockholders, as the same may be amended
from time to time.
ARTICLE 2:00
Effective Date of the Plan
2:01 The Plan shall become effective upon stockholder approval, provided
that such approval is received on or before May 31, 1995.
ARTICLE 3:00
Participation in the Plan
3:01 Participation in the Plan shall be limited to individuals who are
directors of the Corporation but not full-time employees of the
Corporation on the date of grant of an Option.
3:02 No member of the Board of Directors who is a full-time employee shall
be eligible to participate in the Plan. No director who owns
beneficially more than 10% of the total combined voting power of all
classes of stock of the Corporation shall be eligible to participate in
the Plan.
3:03 Upon initial election to the Board of Directors and upon each
successive reelection to the Board, a director who on the date of
election or reelection is not a full-time employee of the Corporation
shall automatically receive an Option to purchase 2,500 shares of
Common Stock, provided, however, that if the initial election occurs at
other than an annual meeting of stockholders, the number of shares
shall be prorated based on the number of months, rounded up to whole
months, in the twelve-month period ending at the next annual meeting of
stockholders.
ARTICLE 4:00
Stock Subject to the Plan
4:01 There shall be reserved for the granting of Option pursuant to the Plan
and for issuance and sale pursuant to such Options 150,000 shares of
Common Stock. To determine the number of shares of Common Stock
available at any time for the granting of Options, there shall be
deducted from the total number of reserved shares of Common Stock the
number of shares of Common Stock in respect of which Options have been
granted pursuant to the Plan that are still outstanding or have been
exercised. The shares of Common Stock to be issued upon the exercise of
Options granted pursuant to the Plan shall be made available from the
authorized and unissued shares of Common Stock. If for any reason
shares of Common Stock as to which an Option has been granted cease to
be subject to purchase thereunder, then such shares of Common Stock
again shall be available for issuance pursuant to the Plan. Except as
provided in Section 4:03, however, the aggregate number of shares of
Common Stock that may be issued upon the exercise of Options pursuant
to the Plan shall not exceed 150,000 shares.
4:02 Proceeds from the purchase of shares of Common Stock upon the exercise
of Options granted pursuant to the Plan shall be used for the general
business purposes of the Corporation.
4:03 Subject to the provisions of Section 7:02, in the event of
reorganization, recapitalization, stock split, stock dividend,
combination of shares of Common Stock, merger, consolidation, share
exchange, acquisition of property or stock, or any change in the
capital structure of the Corporation, the number and kind of shares
reserved for the granting of Options and the number, kind and price of
shares covered by Options granted pursuant to the Plan but not then
exercised shall be adjusted appropriately by resolution of the Board.
ARTICLE 5:00
Terms and Conditions of Options
5:01 Each Option granted pursuant to the Plan shall be evidenced by an
Option Agreement in such form as the Board of Directors from time to
time may determine.
5:02 The exercise price per share for Options shall be equal to the Fair
Market Value of a share of Common Stock on the date of grant of the
Options.
5:03 Subject to the other limitations set forth in the Plan, the term of the
Option shall be 10 years from the date on which it is granted.
5:04 Each Option shall become exercisable eleven months after the date the
Option was granted. If an Option holder does not purchase the full
number of shares of Common Stock that he or she at any time has become
entitled to purchase, he or she may purchase all or any part of those
shares of Common Stock at any subsequent time during the term of the
Option.
5:05 Options shall be nontransferable and nonassignable, except that Options
may be transferred by testamentary instrument or by the laws of descent
and distribution and may be transferred pursuant to a qualified
domestic relations order as defined by the Internal Revenue Code of
1986, as amended, or Title I of the Employee Retirement Income Security
Act.
5:06 If an Option holder ceases to be a director of the Corporation, his or
her Option and all rights thereunder shall terminate effective at the
close of business on the date the Option holder ceases to be a director
of the Corporation, except (i) to the extent previously exercised, (ii)
as provided in Section 5:07 and 5:08 and (iii) for a period of 30 days
after he or she ceases to be a director of the Corporation, the Option
holder shall be entitled to exercise any Option that was exercisable at
the close of business on the date the Option holder ceased to be a
director of the Corporation.
5:07 If an Option holder dies during the term of his or her Option without
having fully exercised the Option, the executor or administrator of his
or her estate or the person who inherits the right to exercise the
Option by bequest or inheritance shall have the right within three
years of the Option holder's death to purchase the number of shares of
Common Stock that the deceased Option holder was entitled to purchase
at the date of his or her death, after which the Option shall lapse,
provided that in no event may any Option be exercised after the
expiration of the term of the Option.
5:08 If an Option holder ceases to be a director of the Corporation without
having fully exercised his or her Option and (i) the Option holder is
65 years of age or older, or (ii) the Option holder has been a director
of the Corporation or any of its subsidiaries for at least 5 years,
then the Option holder shall have the right within three years of the
Option holder's termination as a director to purchase the number of
shares of Common Stock that the Option holder was entitled to purchase
at the date of termination, after which the Option shall lapse,
provided that in no event may any Option be exercised after the
expiration of the term of the Option.
5:09 The granting of an Option pursuant to the Plan shall not constitute or
be evidence of any agreement or understanding, express or implied, on
the part of the Corporation to continue the Option holder as a director
for any specified period.
ARTICLE 6:00
Methods of Exercise of Options
6:01 An Option holder (or other person or persons, if any, entitled to
exercise an Option hereunder) desiring to exercise an Option granted
pursuant to the Plan as to all or part of the shares of Common Stock
covered by the Option shall (i) notify the Corporation in writing at is
principal office at 701 East Joppa Road, Towson, Maryland 21286, to
that effect, specifying the number of shares of Common Stock to be
purchased and the method of payment therefor, and (ii) make payment or
provision for payment for the shares of Common Stock so purchased in
accordance with this Article 6:00. Such written notice may be given by
means of a facsimile transmission. If a facsimile transmission is used,
the Option holder should mail the original executed copy of the written
notice to the Corporation promptly thereafter.
6:02 Payment or provision for payment shall be made as follows:
(a) The Option holder shall deliver to the Corporation at the
address set forth in Section 6:01 United States currency in an
amount equal to the aggregate purchase price of the shares of
Common Stock as to which such exercise relates; or
(b) The Option holder shall tender to the Corporation shares of
Common Stock already owned by the Option holder that, together
with any cash tendered therewith, have an aggregate fair
market value (determined based on the Fair Market Value of a
share of Common Stock on the date the notice set forth in
Section 6:01 is received by the Corporation) equal to the
aggregate purchase price of the shares of Common Stock as to
which such exercise relates; or
(c) The Option holder shall deliver to the Corporation an exercise
notice together with irrevocable instructions to a broker to
deliver promptly to the Corporation the amount of sale or loan
proceeds necessary to pay the aggregate purchase price of the
shares of Common Stock as to which such exercise relates and
to sell the shares of Common Stock to be issued upon exercise
of the Option and deliver the cash proceeds less commissions
and brokerage fees to the Option holder or to deliver the
remaining shares of Common Stock to the Option holder.
Notwithstanding the foregoing provisions, the Board of Directors may
limit the methods in which an Option may be exercised by any person
and, in processing any purported exercise of an Option granted pursuant
to the Plan, may refuse to recognize the method of exercise selected by
the Option holder (other than the method of exercise set forth in
Section 6:02(a)) if, in the opinion of counsel to the Corporation, (i)
the Option holder is or within the six months preceding such exercise
was subject to reporting under Section 16(a) of the Exchange Act and
(ii) there is a substantial likelihood that the method of exercise
selected by the Option holder would subject the Option holder to a
substantial risk of liability under Section 16 of the Exchange Act.
6:03 In addition to the alternative methods of exercise set forth in Section
6:02, the Option holder shall be entitled, at or prior to the time the
written notice provided for in Section 6:01 is delivered to the
Corporation, to elect to have the Corporation withhold from the shares
of Common Stock to be delivered upon exercise of the Option that number
of shares of Common Stock (determined based on the Fair Market Value of
a share of Common Stock on the date the notice set forth in Section
6:01 is received by the Corporation) necessary to satisfy any
withholding taxes attributable to the exercise of the Option.
Alternatively the holder may elect to deliver previously owned shares
of Common Stock upon exercise of the Stock Option to satisfy any
withholding taxes attributable to the exercise of the Stock Option. The
maximum amount that an Option holder may elect to have withheld from
the shares of Common Stock otherwise deliverable upon exercise or the
maximum number of previously owned shares an Option holder may deliver
shall be equal to his or her federal and state withholding.
Notwithstanding the foregoing provisions, the Board of Directors may
include in the Option Agreement relating to any such Option provisions
limiting or eliminating the Option holder's ability to pay his or her
withholding tax obligation with shares of Common Stock or, if no such
provisions are included in the Option Agreement but in the opinion of
the Board of Directors such withholding would have an adverse tax or
accounting effect to the Corporation, at or prior to exercise of the
Option, the Board of Directors may so limit or eliminate the Option
holder's ability to pay withholding tax obligations with shares of
Common Stock. Notwithstanding the foregoing provisions, a holder of an
Option may not elect any of the methods of satisfying his or her
withholding tax obligation in respect of any exercise if, in the
opinion of counsel to the Corporation, (i) the holder of the Stock
Option is or within the six months preceding such exercise was subject
to reporting under Section 16(a) of the Exchange Act and (ii) there is
a substantial likelihood that the election or timing of the election
would subject the holder to a substantial risk of liability under
Section 16 of the Exchange Act.
6:04 An Option holder at any time may elect in writing to abandon an Option
in respect of all or part of the number of shares of Common Stock as to
which the Option shall not have been exercised.
6:05 An Option holder shall have none of the rights of a stockholder of the
Corporation until the shares of Common Stock covered by the Option are
issued upon exercise of the Option.
ARTICLE 7:00
Limited Stock Appreciation Rights
7:01 Option holders shall have Limited Stock Appreciation Rights entitling
Option holders to receive, in connection with a Change in Control (as
defined in Section 7:02), a cash payment in cancellation of all of
their Options that are outstanding on the date the Change in Control
occurs (whether or not such Options are then presently exercisable if
they have been held for a period of at least six months from the date
of acquisition to the date of cash settlement), which payment shall be
equal to the number of shares covered by the cancelled Options
multiplied by the excess over the exercise price of the Options of the
higher of (i) the Fair Market Value of a share of Common Stock on the
date of the Change in Control or (ii) the highest per share price paid
for the shares of Common Stock in connection with the Change in Control
(with the value of any noncash consideration paid in connection with
the Change in Control to be determined by the Board of Directors in its
sole and absolute discretion). For purposes of this Section 7:01 as
well as the other provisions of this Plan, once an Option or portion of
an Option has terminated, lapsed or expired, or has been abandoned, in
accordance with the provisions of the Plan, the Option (or the portion
of the Option) that has terminated, lapsed or expired, or has been
abandoned, shall cease to be outstanding, Limited Stock Appreciation
Rights shall not be exercisable at the discretion of the holder but
shall automatically be exercised upon a Change in Control.
7:02 For purposes of Section 7:01, a "Change in Control" shall mean a change
in control of the Corporation of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Exchange Act, whether or not the Corporation is
in fact required to comply therewith, provided that, without
limitation, such a Change in Control shall be deemed to have occurred
if (A) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act), other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Corporation or any of
its subsidiaries, or a corporation owned, directly or indirectly, by
the stockholders of the Corporation, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Corporation representing 20% or more
of the combined voting power of the Corporation's then outstanding
securities; or (B) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board of
Directors and any new director (other than a director designated by a
person who has entered into an agreement with the Corporation to effect
a transaction described in clauses (A) or (C) of this Section 7:02)
whose election by the Board of Directors or nomination for election by
the Corporation's stockholders was approved by a vote of at least
two-thirds of the directors then still in office who either were
directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any
reason to constitute a majority thereof; or (C) the stockholders of the
Corporation approve a merger, share exchange or consolidation of the
Corporation with any other corporation, other than a merger, share
exchange or consolidation which would result in the voting securities
of the Corporation outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) at least 60% of the combined
voting power of the voting securities of the Corporation or such
surviving entity outstanding immediately after such merger, share
exchange or consolidation, or the stockholders of the Corporation
approve a plan of complete liquidation of the Corporation or an
agreement for the sale or disposition by the Corporation of all or
substantially all the Corporation's assets.
ARTICLE 8:00
Amendments and Discontinuance of the Plan
8:01 The Board of Directors shall have the right at any time and from time
to time to amend, modify, or discontinue the Plan provided that, except
as provided in Section 4:03, no such amendment, modification, or
discontinuance of the Plan shall (i) revoke or alter the terms of any
valid Option or Limited Stock Appreciation right previously granted
pursuant to the Plan, (ii) increase the number of shares of Common
Stock to be reserved for issuance and sale pursuant to Options or Stock
Appreciation Rights granted pursuant to the Plan, (iii) decrease the
price determined pursuant to the provisions of Section 5:02 or increase
the amount of cash that a holder of a Limited Stock Appreciation Right
is entitled to receive upon exercise of a Limited Stock Appreciation
Right, (iv) change the class of individuals to whom Options or Limited
Stock Appreciation Rights may be granted pursuant to the Plan, or (v)
provide for Options or Limited Stock Appreciation Rights exercisable
more than 10 years after the date granted. Notwithstanding the
foregoing, the provisions of the Plan that determine the amount, price
or timing of benefits or the grant of exercise of Options as Limited
Stock Appreciation Rights shall not be amended more than once every six
months, unless the amendment would be consistent with the provisions of
Rule 16b-3(c)(2)(ii) promulgated under the Exchange Act (or any
successor provision thereto).
ARTICLE 9:00
Plan Subject to Governmental Laws and Regulations
9:01 The Plan and the grant and exercise of Options and Limited Stock
Appreciation Rights pursuant to the Plan shall be subject to all
applicable governmental laws and regulations. Notwithstanding any other
provision of the Plan to the contrary, the Board of Directors may in
its sole and absolute discretion make such changes in the Plan as may
be required to conform the Plan to such laws and regulations.
ARTICLE 10:00
Duration of the Plan
10:01 No Option or Limited Stock Appreciation Right shall be granted pursuant
to the Plan after the close of business on April 30, 2005.
Exhibit 10(b)
[BLACK & DECKER LETTERHEAD]
April 21, 1999
By Hand Delivery
Mr. Joseph Galli
21 Oakridge Court
Timonium, Maryland 21093
Dear Joe:
This letter states the Corporation's agreement with you concerning the
termination of your employment. It supersedes all prior agreements but does not
affect any benefits to which you may be entitled under any pension plan or
thrift plan.
1. Your resignation as Executive Vice President and an employee of the
Corporation and as an officer and director of any subsidiaries of the
Corporation will be effective today.
2. You will receive $500,000 per year payable in monthly installments
(less tax withholding) for a period of two years without regard to your earnings
from other employment, and for a period of one year you will receive the
benefits provided under Section 2.4 of the Corporation's Executive Salary
Continuance Plan (the "Plan"). In addition to the benefits provided under that
Section, the Corporation for a period of one year will provide the special
benefits heretofore provided for your son, Mathew. The Corporation will also
provide outplacement services with an outplacement firm of your choice for a
period of six months from the date of this letter.
3. Your stock options will continue to vest as though your employment
had continued through December 31, 1999 as shown on the attached schedule, and
will remain exercisable for a period of three years from the date of this
letter. In addition, 35,000 of the 60,000 options that would have vested on
April 23, 2000 will vest on that date and remain exercisable for three years
from the date of this letter.
4. In addition to your obligations to maintain confidentiality and not
to compete set out in the Plan, you agree that (a) for a period of three years
from the date of this letter you will not solicit or hire or permit your
employer or any entity controlled by your employer to solicit or hire any person
who was an employee of the Corporation or a subsidiary of the Corporation at or
within 90 days prior to the date you left the Corporation's employ, or
encourage, advise, or assist (including acting as personal reference) any such
person to leave the employ of the Corporation or a subsidiary of the Corporation
or to seek other employment, and (b) for a period of two years, accept
employment with an entity that (i) is a customer (as defined in Exhibit A) of
the Corporation or a subsidiary of the Corporation or (ii) a competitor listed
on the schedule attached as Exhibit B, its successors or assigns, or an
affiliate of a competitor if thereby you would have any significant role in the
management of the competitor. Clause (a) notwithstanding, you may, without
violating that clause, hire your current secretary, Janine Ducker, and you will
have reasonable access to her by telephone and by correspondence in connection
with your affairs so long as she remains in our employ.
5. You also agree that you will never disparage, orally or in writing,
privately or publicly, the Corporation, its subsidiaries, or its or their
officers, directors, employees or products.
6. You agree that if you violate any provision of this agreement, the
Corporation, in addition to seeking monetary relief for violation of this
agreement, shall be entitled to enjoin you from violating any provision of this
agreement. You also agree that your rights under this letter may be terminated
at any time if you have violated any of these provisions.
If you agree, please sign, date, and return one copy of this letter by
5:00 p.m. on Friday, April 23, 1999, and it will become binding on you and the
Corporation. If by that time I have not received a copy signed by you, this
proposal is withdrawn.
Sincerely,
/s/ Nolan D. Archibald
Agreed, April 23, 1999
/s/ Joseph Galli
Joseph Galli
<PAGE>
Stock Option Schedule
Stock options exercisable as of December 31, 1999:
Granted Number Price P/S
11/16/89 2,100 $21.6250
07/19/90 15,000 16.0000
12/09/93 50,000 20.5625
10/20/94 50,000 22.5625
07/20/95 100,000 31.0000
04/23/96 180,000 39.8750*
12/12/96 22,500 30.5000
12/11/97 25,000 38.0000
12/10/98 18,750 53.7187
- ----------------
*See letter agreement dated April 23, 1996 regarding this grant.
<PAGE>
EXHIBIT A: Customers List
1. Warehouse Home Centers, such as Home Depot, Lowes, Hechingers,
Builders Square, Home Base.
2. Regional Home Centers.
3. Hardware Wholesalers, such as Ace, Tru-Serve.
4. Contractor Supply Companies, such as W. W. Grainger, Acme
Electric.
5. Industrial Supply Companies, such as W. W. Grainger, Camreon &
Barkley.
6. Mass Merchandisers, such as Wal-Mart, K-Mart, Sears.
<PAGE>
EXHIBIT B: Competitors
American Saw & Manufacturing Co.
American Tool Co.
Atlas Copco; AEG; Milwaukee; Kango; Wagner
Bosch/Skil; Qualcast
Electrolux
Emerson Electric
Hilti
Hitachi
Kennemetal
Makita
Metabo; Elecktra Beckum; EMC; Lurem
Oldham
Panasonic
Pentair; Porter Cable
Ryobi
Sandvik
Stanley Works
Starrett
Toro
Vermont American
Exhibit 10(c)
[BLACK & DECKER LETTERHEAD]
April 19, 1999
via Facsimile: 518/782-7074
Mr. Paul F. McBride
5 East Ridge Road
Laudonville, New York 12211
Dear Paul:
This letter will confirm our offer and your acceptance of the position
of Executive Vice President and President - Power Tools and Accessories Group
reporting to me.
The following terms will apply:
1. The appointment is effective April 21, 1999.
2. Your salary will be $500,000 annually and will be reviewed
every fourteen months.
3. You will participate in Black & Decker's Annual Incentive Plan
with a target award of 75% of base salary and a maximum award
of 150% of salary without proration.
4. You will participate in The Black & Decker Performance Equity
Plan for the performance periods ending 1999 without proration
and thereafter with a target of 60% of your base salary.
5. We will recommend to the Board of Directors that you be
granted stock options to purchase 500,000 shares of Black &
Decker Common Stock with limited stock appreciation rights.
6. If terminated by the Company, you will receive a two-year
salary continuance in accordance with the Company's Executive
Salary Continuance Plan.
7. If terminated by the Company, your Black & Decker stock
options will continue to vest until the earlier of (a) the
date that the value of your options is equal to the value as
of April 21, 1999 of your unvested GE options and restricted
stock that you forfeit or (b) three years from your severance
date.
8. Finally, you will be eligible for the benefits listed on the
schedule attached to this letter.
By accepting this offer, you will agree that if your employment is
terminated, voluntarily or involuntarily, you will not (a) for a period of one
year accept employment with or engage in a business that competes with any Black
& Decker business that you have worked in or (b) disclose at any time to any
person the business plans, trade secrets, or confidential information pertaining
to The Black & Decker Corporation or any of its subsidiaries.
Paul, I am very excited about the prospect of you joining our Company.
Please give me a call if you have any questions about this letter or
would like copies of any of the plans referred to in this letter. Please date
and sign one of the enclosed copies and return it to me.
Sincerely,
/s/ Nolan D. Archibald
Nolan D. Archibald
ACCEPTED AND AGREED:
/s/ Paul F. McBride April 19, 1999
Paul F. McBride Date
<PAGE>
BLACK & DECKER SCHEDULE OF BENEFITS
1. Supplemental Executive Retirement Plan (SERP) - See Attached.
2. Automobile Allowance - $1,350/paid monthly.
3. Basic life insurance - 125% of annual salary plus accidental
death and dismemberment and travel accident insurance per
Company policy.
4. Executive life insurance - five times annual salary.
5. Medical insurance (your choice of health care partnership or
standard medical plan).
6. Dental insurance (your choice of a dental HMO or a standard
indemnity plan).
7. Long-term disability plan (your choice of basic, preferred, or
premium).
8. Tax preparation expenses per Company policy.
9. Country Club membership per Company policy.
10. Moving costs from primary residence per Company policy.
(Grossed-up for taxes).
Exhibit 10(d)
April 27, 1999
Mr. Paul F. McBride
5 East Ridge Road
Loudonville, New York 12211
Dear Mr. McBride:
The Black & Decker Corporation (the "Corporation") considers it
essential to the best interests of its stockholders to foster the continuous
employment of key management personnel. In this connection, the Board of
Directors of the Corporation (the "Board") recognizes that, as is the case with
many publicly held corporations, the possibility of a change in control of the
Corporation may exist and that such possibility, and the uncertainty and
questions which it may raise among management, may result in the departure or
distraction of management personnel to the detriment of the Corporation and its
stockholders.
The Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of the
Corporation's management, including yourself, to their assigned duties without
distraction in the face of potentially disturbing circumstances arising from the
possibility of a change in control of the Corporation, although no such change
is now contemplated.
In order to induce you to remain in the employ of the Corporation, the
Corporation agrees that you shall receive the severance benefits set forth in
this letter agreement (the "Agreement") in the event your employment with the
Corporation is terminated subsequent to a "change in control of the Corporation"
(as defined in Section 2 hereof) under the circumstances described below.
1. Term of Agreement. This Agreement shall commence on the date hereof
and shall continue in effect through December 31, 2000; provided, however, that
if a change in control of the Corporation shall have occurred prior to December
31, 2000, this Agreement shall continue in effect for a period of 36 months
beyond the month in which such change in control occurred, at which time this
Agreement shall terminate. Notwithstanding the foregoing, and provided no change
in control of the Corporation shall have occurred, this Agreement shall
automatically terminate upon the earlier to occur of (i) your termination of
employment with the Corporation, or (ii) the Corporation's furnishing you with
notice of termination, irrespective of the effective date of such termination.
2. Change in Control. No benefits shall be payable hereunder unless
there shall have been a change in control of the Corporation, as set forth
below. For purposes of this Agreement, a "change in control of the Corporation"
shall mean a change in control of a nature that would be required to be reported
in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not
the Corporation is in fact required to comply therewith, provided that, without
limitation, such a change in control shall be deemed to have occurred if (A) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act),
other than a trustee or other fiduciary holding securities under an employee
benefit plan of the Corporation or any of its subsidiaries or a corporation
owned, directly or indirectly, by the stockholders of the Corporation in
substantially the same proportions as their ownership of stock of the
Corporation, is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the
Corporation representing 20% or more of the combined voting power of the
Corporation's then outstanding securities; (B) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board and any new director (other than a director designated by a person who
has entered into an agreement with the Corporation to effect a transaction
described in clauses (A) or (D) of this Section) whose election by the Board or
nomination for election by the Corporation's stockholders was approved by a vote
of at least two-thirds of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute a
majority thereof; (C) the Corporation enters into an agreement, the consummation
of which would result in the occurrence of a change in control of the
Corporation; or (D) the stockholders of the Corporation approve a merger, share
exchange or consolidation of the Corporation with any other corporation, other
than a merger, share exchange or consolidation which would result in the voting
securities of the Corporation outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least 60% of the combined voting power of
the voting securities of the Corporation or such surviving entity outstanding
immediately after such merger, share exchange or consolidation, or the
stockholders of the Corporation approve a plan of complete liquidation of the
Corporation or an agreement for the sale or disposition by the Corporation of
all or substantially all the Corporation's assets.
3. Termination Following Change in Control of the Corporation. If any
of the events described in Section 2 hereof constituting a change in control of
the Corporation shall have occurred, you shall be entitled to the benefits
provided in Subsection 4(iii) hereof upon the subsequent termination of your
employment during the term of this Agreement unless such termination is (A)
because of your death or Disability, (B) by the Corporation for Cause, or (C) by
you other than for Good Reason.
(i) Disability. If, as a result of your incapacity due to
physical or mental illness, you shall have been absent from the full-time
performance of your duties with the Corporation for six consecutive months, and
within 30 days after written notice of termination is given you shall not have
returned to the full-time performance of your duties, your employment may be
terminated for "Disability."
(ii) Cause. Termination by the Corporation of your employment
for "Cause" shall mean termination upon (A) the willful and continued failure by
you to substantially perform your duties with the Corporation, other than any
such failure resulting from your incapacity due to physical or mental illness or
any such actual or anticipated failure after the issuance by you of a Notice of
Termination (as defined in Subsection 3(iv) hereof) for Good Reason (as defined
in Subsection 3(iii) hereof), after a written demand for substantial performance
is delivered to you by the Board, which demand specifically identifies the
manner in which the Board believes that you have not substantially performed
your duties, or (B) the willful engaging by you in conduct which is demonstrably
and materially injurious to the Corporation, monetarily or otherwise. For
purposes of this Subsection, no act or failure to act on your part shall be
deemed "willful" unless done, or omitted to be done, by you not in good faith
and without reasonable belief that your action or omission was in the best
interest of the Corporation. Notwithstanding the foregoing, you shall not be
deemed to have been terminated for Cause unless and until there shall have been
delivered to you a copy of a resolution duly adopted by the affirmative vote of
not less than three-quarters of the entire membership of the Board at a meeting
of the Board called and held for such purpose (after reasonable notice to you
and an opportunity for you, together with your counsel, to be heard before the
Board), finding that in the good faith opinion of the Board you were guilty of
conduct set forth above in clauses (A) or (B) of the first sentence of this
Subsection and specifying the particulars thereof in detail.
(iii) Good Reason. You shall be entitled to terminate your
employment for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean, without your express written consent, the occurrence after a change in
control of the Corporation of any of the following circumstances unless, in the
case of paragraphs (A), (E), (F), (G) or (H), such circumstances are fully
corrected prior to the Date of Termination specified in the Notice of
Termination, as such terms are defined in Subsections 3(v) and 3(iv) hereof,
respectively, given in respect thereof:
(A) the assignment to you of any duties inconsistent
with your current status as an executive of the Corporation or a
substantial adverse alteration in the nature or status of your
responsibilities from those in effect immediately prior to the change
in control of the Corporation;
(B) a reduction by the Corporation in your annual
base salary as in effect on the date hereof or as the same may be
increased from time to time, except for across-the-board salary
reductions similarly affecting all senior executives of the Corporation
and all senior executives of any person in control of the Corporation;
(C) your relocation to a location not within 25 miles
of your present office or job location, except for required travel on
the Corporation's business to an extent substantially consistent with
your present business travel obligations;
(D) the failure by the Corporation, without your
consent, to pay to you any portion of your current compensation, or to
pay to you any portion of an installment of deferred compensation under
any deferred compensation program of the Corporation, within seven days
of the date such compensation is due;
(E) the failure by the Corporation to continue in
effect any bonus to which you were entitled, or any compensation plan
in which you participated immediately prior to the change in control of
the Corporation which is material to your total compensation, including
but not limited to the Corporation's (i) Executive Annual Incentive
Plan or other annual incentive compensation plan ("AIP"); (ii)
Performance Equity Plan or other long-term incentive compensation plan
("PEP"); (iii) stock option plans; (iv) retirement and savings plans;
and (v) Supplemental Executive Retirement Plan ("SERP"); or any
substitute plan or plans adopted prior to the change in control of the
Corporation, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to such plan
and such equitable arrangement provides substantially equivalent
benefits not materially less favorable to you (both in terms of the
amount of benefits provided and the level of your participation
relative to other participants), or the failure by the Corporation to
continue your participation therein (or in such substitute or
alternative plan) on a basis not materially less favorable (both in
terms of the amount of benefits provided and the level of your
participation relative to other participants) as existed at the time of
the change in control of the Corporation;
(F) the failure by the Corporation to continue to
provide you with benefits substantially similar to those enjoyed by you
under any of the Corporation's life insurance, medical, dental, health
and accident, or disability plans in which you were participating at
the time of the change in control of the Corporation, the failure to
continue to provide you with a Corporation automobile or allowance in
lieu thereof, if you were provided with such an automobile or allowance
in lieu thereof at the time of the change in control of the
Corporation, the taking of any action by the Corporation which would
directly or indirectly materially reduce any of such benefits or
deprive you of any material fringe benefit enjoyed by you at the time
of the change in control of the Corporation, or the failure by the
Corporation to provide you with the number of paid vacation days to
which you are entitled on the basis of years of service with the
Corporation in accordance with the Corporation's normal vacation policy
in effect at the time of the change in control of the Corporation;
(G) the failure of the Corporation to obtain a
satisfactory agreement from any successor to assume and agree to
perform this Agreement, as contemplated in Section 5 hereof; or
(H) any purported termination of your employment
which is not effected pursuant to a Notice of Termination satisfying
the requirements of Subsection 3(iv) hereof (and, if applicable, the
requirements of Subsection 3(ii) hereof); for purposes of this
Agreement, no such purported termination shall be effective.
Your rights to terminate your employment pursuant to this Subsection shall not
be affected by your incapacity due to physical or mental illness. Your continued
employment shall not constitute consent to, or a waiver of rights with respect
to, any circumstance constituting Good Reason hereunder.
(iv) Notice of Termination. Any purported termination of your
employment by the Corporation or by you shall be communicated by written Notice
of Termination to the other party hereto in accordance with Section 6 hereof.
For purposes of this Agreement, a "Notice of Termination" shall mean a notice
which shall indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of your employment under the
provision so indicated.
(v) Date of Termination, Etc. "Date of Termination" shall mean
(A) if your employment is terminated for Disability, 30 days after Notice of
Termination is given (provided that you shall not have returned to the full-time
performance of your duties during such 30-day period), and (B) if your
employment is terminated pursuant to Subsections 3(ii) or 3(iii) hereof or for
any other reason (other than Disability), the date specified in the Notice of
Termination (which, in the case of a termination pursuant to Subsection 3(ii)
hereof shall not be less than 30 days, and in the case of a termination pursuant
to Subsection 3(iii) hereof shall not be less than 15 nor more than 60 days,
respectively, from the date such Notice of Termination is given); provided that
if within 15 days after any Notice of Termination is given, or, if later, prior
to the Date of Termination (as determined without regard to this proviso), the
party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (which is not
appealable or with respect to which the time for appeal therefrom has expired
and no appeal has been perfected); provided further that the Date of Termination
shall be extended by a notice of dispute only if such notice is given in good
faith and the party giving such notice pursues the resolution of such dispute
with reasonable diligence. Notwithstanding the pendency of any such dispute, the
Corporation will continue to pay you your full compensation in effect when the
notice giving rise to the dispute was given (including, but not limited to, base
salary) and continue you as a participant in all compensation, benefit and
insurance plans in which you were participating when the notice giving rise to
the dispute was given, until the dispute is finally resolved in accordance with
this Subsection. Amounts paid under this Subsection are in addition to all other
amounts due under this Agreement and shall not be offset against or reduce any
other amounts due under this Agreement.
4. Compensation Upon Termination or During Disability. Following a
change in control of the Corporation, as defined by Section 2 hereof, upon
termination of your employment or during a period of Disability you shall be
entitled to the following benefits:
(i) During any period that you fail to perform your full-time
duties with the Corporation as a result of incapacity due to physical or mental
illness, you shall continue to receive your base salary at the rate in effect at
the commencement of any such period, together with all amounts payable to you
under any compensation plan of the Corporation during such period, until this
Agreement is terminated pursuant to Subsection 3(i) hereof. Thereafter, or in
the event your employment shall be terminated by you other than for Good Reason
or by reason of your death, your benefits shall be determined under the
Corporation's retirement, insurance and other compensation programs then in
effect in accordance with the terms of such programs.
(ii) If your employment shall be terminated by the Corporation
for Cause, Disability or death, or by you other than for Good Reason, the
Corporation shall pay you your full base salary through the Date of Termination
at the rate in effect at the time Notice of Termination is given, plus all other
amounts to which you are entitled under any retirement, insurance and other
compensation programs of the Corporation at the time such payments are due, and
the Corporation shall have no further obligations to you under this Agreement.
(iii) If your employment by the Corporation shall be
terminated (a) by the Corporation other than for Cause, Disability or death or
(b) by you for Good Reason, then you shall be entitled to the benefits provided
below:
(A) The Corporation shall pay you your full base
salary through the Date of Termination at the rate in effect at the
time Notice of Termination is given, plus all other amounts to which
you are entitled under any compensation plan of the Corporation, at the
time such payments are due, except as otherwise provided below.
(B) In lieu of any further salary payments to you for
periods subsequent to the Date of Termination, the Corporation shall
pay as severance pay to you a lump sum severance payment (together with
the payments provided in paragraphs (C) and (D) of this Subsection
4(iii), the "Severance Payments") equal to three times the sum of your
(a) annual base salary in effect immediately prior to the occurrence of
the circumstance giving rise to the Notice of Termination given in
respect thereof, and (b) AIP Maximum Payment for the year in which the
Date of Termination occurs. AIP Maximum Payment shall mean the higher
of (1) the award you would be entitled to receive for 1999 based on the
maximum payout factor for the AIP or (2) any greater award you would be
entitled to receive for any subsequent year (including the year in
which your employment is terminated) based on the maximum payout factor
for the AIP for such subsequent year. The provisions of this Section
4(iii)(B) shall not in any way affect your rights under the
Corporation's stock option plans or the PEP.
(C) In lieu of shares of common stock of the
Corporation (the "Shares") issuable upon exercise of outstanding
options, if any, granted to you under the Corporation's stock option
plans ("Options"), which Options (and any related limited stock
appreciation rights) shall be cancelled upon the making of the payment
referred to below, you shall receive an amount in cash equal to the
product of (i) the excess of the higher of the closing price of the
Shares as reported on the NYSE on or nearest to the Date of Termination
(or, if not listed on the NYSE, on a nationally recognized exchange or
quotation system on which trading volume in the Shares is highest), and
the highest per share price for the Shares actually paid in connection
with any change in control of the Corporation, over the per share
exercise price of each Option held by you (whether or not then fully
exercisable) plus the amount, if any, of any applicable cash
appreciation rights, times (ii) the number of the Shares covered by
each such Option.
(D) The Corporation shall pay to you any deferred
compensation allocated or credited to you or your account as of the
Date of Termination.
(E) The Corporation shall also pay to you all legal
fees and expenses incurred by you as a result of such termination
(including all such fees and expenses, if any, incurred in contesting
or disputing any such termination or in seeking to obtain or enforce
any right or benefit provided by this Agreement or in connection with
any tax audit or proceeding to the extent attributable to the
application of Section 4999 of the Code to any payment or benefit
provided hereunder).
(F) If the payments provided under paragraphs (B),
(C) and (D) above (the "Contract Payments") or any other portion of the
Total Payments (as defined below) will be subject to the tax imposed by
Section 4999 of the Code (the "Excise Tax"), the Corporation shall pay
to you at the time specified in paragraph (G) below, an additional
amount (the "Gross-Up Payment") such that the net amount retained by
you, after deduction of any Excise Tax on the Contract Payments and
such other Total Payments and any federal and state and local income
tax and Excise Tax upon the payment provided for by this paragraph,
shall be equal to the Contract Payments and such other Total Payments.
For purposes of determining whether any of the payments will be subject
to the Excise Tax and the amount of such Excise Tax, (i) any other
payments or benefits received or to be received by you in connection
with a change in control of the Corporation or your termination of
employment (whether payable pursuant to the terms of this Agreement or
any other plan, arrangement or agreement with the Corporation, its
successors, any person whose actions result in a change in control of
the Corporation or any corporation affiliated (or which, as a result of
the completion of a transaction causing a change in control of the
Corporation, will become affiliated) with the Corporation within the
meaning of Section 1504 of the Code) (together with the Contract
Payments, the "Total Payments") shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the Code, and all
"excess parachute payments" within the meaning of Section 280G(b)(1)
shall be treated as subject to the Excise Tax, unless in the opinion of
tax counsel selected by the Corporation's independent auditors and
acceptable to you the Total Payments (in whole or in part) do not
constitute parachute payments, or such excess parachute payments (in
whole or in part) represent reasonable compensation for services
actually rendered within the meaning of Section 280G(b)(4)(B) of the
Code either to the extent such reasonable compensation is in excess of
the base amount within the meaning of Section 280G(b)(3) of the Code,
or are otherwise not subject to the Excise Tax, (ii) the amount of the
Total Payments that shall be treated as subject to the Excise Tax shall
be equal to the lesser of (A) the total amount of the Total Payments or
(B) the amount of excess parachute payments within the meaning of
Section 280G(b)(1) (after applying clause (i), above), and (iii) the
value of any non-cash benefits or any deferred payment or benefit shall
be as determined by the Corporation's independent auditors in
accordance with the principles of Sections 280G(d)(3) and (4) of the
Code. For purposes of determining the amount of the Gross-Up Payment,
you shall be deemed to pay federal income taxes at the highest marginal
rate of federal income taxation in the calendar year in which the
Gross-Up Payment is to be made and state and local income taxes at the
highest marginal rate of taxation in the state and locality of your
residence on the Date of Termination, net of the maximum reduction in
federal income taxes which could be obtained from deduction of such
state and local taxes. In the event that the Excise Tax is subsequently
determined to be less than the amount taken into account hereunder at
the time of termination of your employment, you shall repay to the
Corporation at the time that the amount of such reduction in Excise Tax
is finally determined the portion of the Gross-Up Payment attributable
to such reduction (plus the portion of the Gross-Up Payment
attributable to the Excise Tax and federal and state and local income
tax imposed on the Gross-Up Payment being repaid by you if such
repayment results in a reduction in Excise Tax and/or a federal and
state and local income tax deduction) plus interest on the amount of
such repayment at the rate provided in Section 1274(d) of the Code. In
the event that the Excise Tax is determined to exceed the amount taken
into account hereunder at the time of the termination of your
employment (including by reason of any payment the existence or amount
of which cannot be determined at the time of the Gross-Up Payment), the
Corporation shall make an additional Gross-Up Payment in respect of
such excess (plus any interest payable with respect to such excess) at
the time that the amount of such excess is finally determined.
(G) The payments provided for in paragraphs (B), (C),
(D) and (F) above, shall be made not later than the fifth day following
the Date of Termination, provided, however, that if the amounts of such
payments cannot be finally determined on or before such day, the
Corporation shall pay to you on such day an estimate, as determined in
good faith by the Corporation, of the minimum amount of such payments
and shall pay the remainder of such payments (together with interest at
a rate equal to 120% of the rate provided in Section 1274(d) of the
Code) as soon as the amount thereof can be determined but in no event
later than the thirtieth day after the Date of Termination. In the
event that the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall constitute
a loan by the Corporation to you payable on the fifth day after demand
by the Corporation (together with interest at a rate equal to 120% of
the rate provided in Section 1274(d) of the Code). The payments
provided for in paragraph (E) above shall be made from time to time, in
each instance not later than the fifth day following a written request
for payment by you.
(iv) If your employment shall be terminated (A) by the
Corporation other than for Cause, Disability or death or (B) by you for Good
Reason, then for a 36-month period after such termination, the Corporation shall
arrange to provide you with life, disability, accident, medical, dental and
health insurance benefits substantially similar to those that you are receiving
immediately prior to the Notice of Termination. Benefits otherwise receivable by
you pursuant to this Subsection 4(iv) shall be reduced to the extent comparable
benefits are actually received by you from another employer during the 36-month
period following your termination, and any such benefits actually received by
you shall be reported to the Corporation.
(v) You shall not be required to mitigate the amount of any
payment provided for in this Section 4 by seeking other employment or otherwise,
nor shall the amount of any payment or benefit provided for in this Section 4 be
reduced by any compensation earned by you as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by you to the Corporation, or otherwise except as specifically provided in
this Section 4.
(vi) In addition to all other amounts payable to you under
this Section 4, you shall be entitled to receive all benefits payable to you
under The Black & Decker Executive Salary Continuance Plan, the SERP, or any
plan or agreement sponsored by the Corporation or any of its subsidiaries
relating to retirement benefits.
5. Successors; Binding Agreement.
(i) The Corporation will require any successor (whether direct
or indirect, by purchase, merger, share exchange, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Corporation to
assume expressly and agree to perform this Agreement in the same manner and to
the same extent that the Corporation would be required to perform it if no such
succession had taken place. Failure of the Corporation to obtain such assumption
and agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle you to compensation from the
Corporation in the same amount and on the same terms as you would be entitled to
hereunder if you terminate your employment for Good Reason following a change in
control of the Corporation, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination. As used in this Agreement, "Corporation" shall
mean the Corporation as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
(ii) This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, heirs, distributees, and legatees. If you should die while any
amount would still be payable to you hereunder if you had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to your legatee or other designee or, if there is no
such designee, to your estate.
(iii) In the event that you are employed by a subsidiary of
the Corporation, wherever in this Agreement reference is made to the
"Corporation," unless the context otherwise requires, such reference shall also
include such subsidiary. The Corporation shall cause such subsidiary to carry
out the terms of this Agreement insofar as they relate to the employment
relationship between you and such subsidiary, and the Corporation shall
indemnify you and save you harmless from and against all liability and damage
you may suffer as a consequence of such subsidiary's failure to perform and
carry out such terms. Wherever reference is made to any benefit program of the
Corporation, such reference shall include, where appropriate, the corresponding
benefit program of such subsidiary if you were a participant in such benefit
program on the date a change in control of the Corporation has occurred.
6. Notice. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notices to the Corporation shall be directed to the attention of the
Board with a copy to the Secretary of the Corporation, or to such other address
as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
receipt.
7. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by you and such officer as may be specifically designated
by the Board. No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Maryland. All references to sections of the Exchange
Act or the Code shall be deemed also to refer to any successor provisions to
such sections. Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or local law. The
obligations of the Corporation under Section 4 hereof shall survive the
expiration of the term of this Agreement.
8. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
9. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
10. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
the State of Maryland, in accordance with the Commercial Arbitration Rules of
the American Arbitration Association then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction; provided, however, that
you shall be entitled to seek specific performance of your right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Corporation the enclosed copy of this letter which
will then constitute our agreement on this subject.
Sincerely,
THE BLACK & DECKER CORPORATION
By/s/ Nolan D. Archibald
Nolan D. Archibald
Chairman, President and
Chief Executive Officer
Agreed to as of the 27th
day of April 1999
/s/ Paul F. McBride
Paul F. McBride
Exhibit 12
THE BLACK & DECKER CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Millions of Dollars Except Ratios)
Three Months Ended Six Months Ended
July 4, 1999 July 4, 1999
------------------ ----------------
EARNINGS:
Earnings before income taxes $ 103.9 $ 161.6
Interest expense 29.7 59.9
Portion of rent expense representative
of an interest factor 6.7 13.4
-------- --------
Adjusted earnings before taxes and
fixed charges $ 140.3 $ 234.9
======== ========
FIXED CHARGES:
Interest expense $ 29.7 $ 59.9
Portion of rent expense representative
of an interest factor 6.7 13.4
-------- --------
Total fixed charges $ 36.4 $ 73.3
======== ========
RATIO OF EARNINGS TO FIXED CHARGES 3.85 3.20
======== ========
<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 six months ended July
4, 1999, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> Jul-04-1999
<CASH> 134,700
<SECURITIES> 0
<RECEIVABLES> 797,100<F1>
<ALLOWANCES> 0
<INVENTORY> 806,500
<CURRENT-ASSETS> 1,939,100
<PP&E> 701,400<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,012,100
<CURRENT-LIABILITIES> 1,567,100
<BONDS> 1,058,700
0
0
<COMMON> 43,500
<OTHER-SE> 573,000
<TOTAL-LIABILITY-AND-EQUITY> 4,012,100
<SALES> 2,062,700
<TOTAL-REVENUES> 2,062,700
<CGS> 1,299,400
<TOTAL-COSTS> 1,857,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 59,900
<INCOME-PRETAX> 161,600
<INCOME-TAX> 51,700
<INCOME-CONTINUING> 109,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 109,900
<EPS-BASIC> 1.26<F3>
<EPS-DILUTED> 1.24
<FN>
<F1>Represents net trade receivables.
<F2>Represents net property, plant, and equipment.
<F3>Represents basic earnings per share.
</FN>
</TABLE>
