UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER
December 31, 1998 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 of Incorporation) (I.R.S. Employer Identification Number)
Towson, Maryland 21286
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 410-716-3900
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, par value $.50 per share New York Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of January 29, 1999, was $4,640,584,494.
The number of shares of Common Stock outstanding as of January 29, 1999, was
87,558,198.
The exhibit index as required by Item 601(a) of Regulation S-K is included in
Item 14 of Part IV of this report.
Documents Incorporated by Reference: Portions of the registrant's definitive
Proxy Statement for the 1999 Annual Meeting of Stockholders are incorporated by
reference in Part III of this Report.
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PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
The Black & Decker Corporation (collectively with its subsidiaries, the
Corporation), incorporated in Maryland in 1910, is a global marketer and
manufacturer of quality products used in and around the home and for
commercial applications. With products and services marketed in over 100
countries, the Corporation enjoys worldwide recognition of strong brand
names and a superior reputation for quality, design, innovation, and
value.
The Corporation is one of the world's leading producers of power
tools, power tool accessories, and residential security hardware, and the
Corporation's product lines hold leading market share positions in these
industries. The Corporation is a major global supplier of engineered
fastening and assembly systems. The Corporation is one of the leading
producers of faucets in North America. These assertions are based on
total volume of sales of products compared to the total market for those
products and are supported by market research studies sponsored by the
Corporation as well as independent industry statistics available through
various trade organizations and periodicals, internally generated market
data, and other sources.
As more fully described below under the caption "Recent
Developments", in Management's Discussion and Analysis of Financial
Condition and Results of Operations included in Item 7 of Part II of this
report under the caption "Strategic Repositioning", and in Note 2 of
Notes to Consolidated Financial Statements included in Item 8 of Part II
of this report, during 1998, the Corporation divested its household
products business, excluding the cleaning and lighting products
component, in North America, Central America, the Caribbean, South
America (excluding Brazil), and Australia, as well as its recreational
products business, and glass container-forming and inspection equipment
business for aggregate cash proceeds, net of selling expenses paid during
1998, of $653.6 million.
During 1995, the Corporation sold PRC Realty Systems, Inc. (RSI),
and PRC Environmental Management, Inc. (EMI), for aggregate proceeds of
approximately $100 million. In February 1996, the Corporation sold PRC
Inc. to Litton Industries, Inc., for approximately $425 million.
Together, PRC Inc., RSI and EMI composed the Corporation's former
information technology and services (PRC) segment. For additional
information about the discontinued PRC segment, see the discussion below
under the caption "Discontinued Operations" and Note 13 of Notes to
Consolidated Financial Statements included in Item 8 of Part II of this
report.
In April 1996, the Corporation replaced its former unsecured
revolving credit facility, which was scheduled to expire in 1997, with a
new unsecured revolving credit facility (the Credit Facility), which will
expire in 2001. Under the Credit Facility, which consists of two
individual facilities, the Corporation may borrow up to $1.0 billion. For
additional information about the Credit Facility, see Note 9 of Notes to
Consolidated Financial Statements included in Item 8 of Part II of this
report.
Under terms established upon the original sale of its Series B
Cumulative Convertible Preferred Stock (Series B), the Corporation had
the option, after September 1996, to require the conversion of the Series
B stock into shares of Common Stock under certain circumstances. On
October 14, 1996, the Corporation exercised its conversion option,
issuing 6,350,000 shares of Common Stock in exchange for all previously
outstanding
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shares of Series B stock. For additional information, see Note 16 of
Notes to Consolidated Financial Statements included in Item 8 of Part II
of this report.
During 1996, the Corporation commenced a restructuring of certain of
its operations and recorded a restructuring charge of $91.3 million
($74.8 million after tax). The major component of that restructuring
charge related to the Corporation's elimination of approximately 1,500
positions. As a result, an accrual of $74.6 million for severance,
principally associated with the European businesses in the Power Tools
and Accessories segment, was included in the 1996 restructuring charge.
For additional information about the 1996 restructuring charge, see Note
12 of Notes to Consolidated Financial Statements included in Item 8 of
Part II of this report and Management's Discussion and Analysis of
Financial Condition and Results of Operations included in Item 7 of Part
II of this report. As more fully described below under the caption
"Recent Developments" and in Note 2 of Notes to Consolidated Financial
Statements included in Item 8 of Part II of this report, in January 1998,
the Corporation commenced an additional restructuring program.
In June 1998, a wholly owned subsidiary of the Corporation issued
senior unsecured notes that were guaranteed by the Corporation in the
amount of $300.0 million. Of that amount, $150.0 million bear interest at
a fixed rate of 6.55% and are due in 2007, and $150.0 million bear
interest at a fixed rate of 7.05% and are due in 2028. Proceeds from the
issuance of the senior unsecured notes were used to repay indebtedness
outstanding under the Corporation's Credit Facility.
(b) RECENT DEVELOPMENTS
As more fully described in Management's Discussion and Analysis of
Financial Condition and Results of Operations included in Item 7 of Part
II of this report under the caption "Strategic Repositioning" and in Note
2 of Notes to Consolidated Financial Statements included in Item 8 of
Part II of this report, in January 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 is to focus the
Corporation on its core operations. The Corporation substantially
completed this aspect of the strategic repositioning plan in 1998 through
the divestiture of its non-strategic businesses: True Temper Sports, its
recreational products business; Emhart Glass, its glass container-forming
and inspection equipment business; 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 Corporation is continuing to evaluate various
alternatives for its household products business in Brazil.
In connection with the divestitures of these businesses, the
Corporation received aggregate cash proceeds, net of selling expenses and
taxes paid, of approximately $625 million and recognized a pre-tax gain
on sale of businesses of $114.5 million ($16.5 million after tax). That
pre-tax gain is net of an impairment loss of approximately $15 million
recognized in connection with the anticipated exit from the household
products business in Brazil.
The proceeds received during 1998 were used to fund the second
element of the strategic repositioning plan--the repurchase of up to 10%
of the Corporation's outstanding common stock over a two-year period.
During the year ended December 31, 1998, the Corporation repurchased
9,025,400 shares of common stock at an aggregate cost of $464.3 million.
The aggregate cost of $464.3 million is net of $1.4 million in
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premiums received in connection with the Corporation's sale of put
options on 800,000 shares of its common stock. Prior to receipt of
proceeds from the sales of divested businesses, the Corporation utilized
its existing borrowing facilities to fund a portion of the stock
repurchase program.
The third element of the strategic repositioning plan involves a
major restructuring program intended to reduce the Corporation's fixed
costs and simplify the supply chain and new product introduction
processes. This restructuring program resulted in a pre-tax charge of
$164.7 million during the year ended December 31, 1998 ($117.3 million
after tax). Additional actions are possible as the program progresses in
1999. Restructuring and exit costs recognized by the Corporation during
1998 were principally associated with severance benefits and voluntary
retirement program costs, as well as the write-down to net realizable
value of certain land, buildings, and equipment.
As a consequence of the strategic repositioning plan, the Corporation
elected to change the basis upon which it evaluates goodwill for
impairment effective January 1, 1998. The change, from the undiscounted
cash flow basis to the discounted cash flow basis, resulted in the
write-off of $900 million of goodwill through a non-cash charge to
operations in the first quarter of 1998.
For additional information about the strategic repositioning plan and
the change in accounting with respect to the measurement of goodwill
impairment, see Note 2 of Notes to Consolidated Financial Statements
included in Item 8 of Part II, and Management's Discussion and Analysis
of Financial Condition and Results of Operations included in Item 7 of
Part II of this report.
(c) DISCONTINUED OPERATIONS
On February 16, 1996, the Corporation announced that it had completed the
previously announced sale of PRC Inc., the remaining business in the
discontinued PRC segment, for $425.0 million. Earnings from discontinued
operations of $70.4 million for the year ended December 31, 1996,
consisted primarily of the gain on the sale of PRC Inc., net of
applicable income taxes of $55.6 million and related selling expenses.
Revenues and operating income of PRC Inc. for the period from January 1,
1996, through February 15, 1996, were not significant.
The Corporation acquired the former PRC segment through its
acquisition of Emhart Corporation in April 1989. Operating results, net
assets, and cash flows of the discontinued PRC segment have been reported
separately from the continuing operations of the Corporation in the
Consolidated Financial Statements included in Item 8 of Part II of this
report.
Net earnings of the discontinued PRC segment were $70.4 million ($.73
per share on a diluted basis) in 1996. The results of the discontinued
PRC segment do not reflect any expense for interest allocated by or
management fees charged by the Corporation.
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(d) FINANCIAL INFORMATION ABOUT BUSINESS SEGMENTS
As more fully described above under the caption "Recent Developments", in
Management's Discussion and Analysis of Financial Condition and Results
of Operations included in Item 7 of Part II of this report under the
caption "Strategic Repositioning", and in Note 2 of Notes to Consolidated
Financial Statements included in Item 8 of Part II of this report, during
1998, the Corporation divested the household products business, excluding
the cleaning and lighting products component, in North America, Central
America, the Caribbean, South America (excluding Brazil), and Australia;
the recreational products business, True Temper Sports; and the glass
container-forming and inspection equipment business, Emhart Glass. The
following discussion pertains to the reportable business segments of the
Corporation at December 31, 1998, which excludes the divested businesses
mentioned above and also excludes any matters with respect to the
discontinued PRC segment.
The Corporation operates in three reportable business segments: Power
Tools and Accessories, including consumer and professional power tools
and accessories, product service, cleaning and lighting products, and
outdoor products (composed of electric lawn and garden tools); Building
Products, including security hardware and plumbing products; and
Fastening and Assembly Systems. For additional information about these
segments, see Note 19 of Notes to Consolidated Financial Statements
included in Item 8 of Part II, and Management's Discussion and Analysis
of Financial Condition and Results of Operations included in Item 7 of
Part II of this report.
(e) NARRATIVE DESCRIPTION OF THE BUSINESS
As more fully described above under the caption "Recent Developments", in
Management's Discussion and Analysis of Financial Condition and Results
of Operations included in Item 7 of Part II of this report under the
caption "Strategic Repositioning", and in Note 2 of Notes to Consolidated
Financial Statements included in Item 8 of Part II of this report, during
1998, the Corporation divested the household products business, excluding
the cleaning and lighting products component, in North America, Central
America, the Caribbean, South America (excluding Brazil), and Australia;
the recreational products business, True Temper Sports; and the glass
container-forming and inspection equipment business, Emhart Glass.
The following is a brief description of each of the Corporation's
reportable business segments.
POWER TOOLS AND ACCESSORIES
The Power Tools and Accessories segment has worldwide responsibility for
the manufacture and sale of consumer (home use) and professional power
tools and accessories, outdoor products (composed of electric lawn and
garden tools), cleaning and lighting products, and 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, which is principally
in Europe and Brazil. Power tools include both corded and cordless
electric portable power tools, such as drills, screwdrivers, saws,
sanders, and grinders; car care products; WORKMATE(R) workcenters and
related products; and bench and stationary tools. Accessories include
accessories and attachments for power tools. Outdoor products include a
variety of both corded and cordless electric lawn and garden products,
such as hedge and yard (string) trimmers, lawn mowers, edgers,
blower/vacuums, and related
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lawn and garden accessories. Cleaning and lighting products include
cordless upright and hand-held vacuums, flexible flashlights, and wet
scrubbers.
Power tools, electric lawn and garden tools, cleaning and lighting
products, and related accessories are marketed around the world under the
BLACK & DECKER name as well as other trademarks and trade names,
including, without limitation, DEWALT; BLACK & DECKER INDUSTRY &
CONSTRUCTION; ELU; VERSAPAK; WOOD HAWK; WIZARD; SANDSTORM; WORKMATE;
WORKBOX; FIRESTORM; QUANTUM PRO; PROLINE; MACHO; TIMBERWOLF; CYCLONE;
SAWCAT; TRIMCAT; MOUSE; SCRUGUN; SCRU-DRILL; HOLGUN; CUT SAW; SPITFIRE;
WILDCAT; SHORTY; SAWFORCE; POWERDRIVER; QUATTRO; ALLIGATOR; POWERFILE;
TWISTLOK; VERSA-CLUTCH; AIR STATION; GROOM `N' EDGE; VAC `N' MULCH;
MASTERVAC; LEAFBUSTER; AUTOSTOP; STRIMMER; STRIPEMASTER; BLACK & DECKER
HOVERMASTER; BLACK & DECKER POWER COMBI; REFLEX; HEDGE HOG; HEDGE HOG XB;
GRASS HOG; LOG HOG; DUSTBUSTER; SCUMBUSTER; FLOORBUSTER; SPILLBUSTER;
SNAKELIGHT; SPOTLITER; SAFELITER; SERIES 20; SERIES 40; SERIES 60; B&D;
PIRANHA; ROCK CARBIDE; BULLET; PILOT-POINT; SCORPION ANTI-SLIP; MAGNETIC
DRILL AND DRIVE SYSTEM; RAPID LOAD; and MASTER SERIES.
The Corporation's product service program supports its power tools,
electric lawn and garden products, and cleaning and lighting products.
Replacement parts and product repair services are available through a
network of company-operated service centers, which are identified and
listed in product information material generally included in product
packaging. At December 31, 1998, there were approximately 140 such
service centers, of which roughly two-thirds were located in the United
States. The remainder were located around the world, primarily in Canada
and Europe. These company-operated service centers are supplemented by
several hundred authorized service centers operated by independent local
owners. The Corporation also operates a reconditioning center in which
power tools and cleaning and lighting products are reconditioned and then
re-sold through numerous company-operated factory outlets and service
centers.
Most of the Corporation's consumer power tools, electric lawn and
garden products, and cleaning and lighting products sold in the United
States carry a two-year warranty, pursuant to which the consumer can
return defective products during the two years following the purchase in
exchange for a replacement product or repair at no cost to the consumer.
Most of the Corporation's professional power tools sold in the United
States carry a one-year warranty, with similar provisions. Products sold
outside the United States generally have similar warranty arrangements.
Such arrangements vary, however, depending upon local market conditions
and laws and regulations.
The Corporation's product offerings in the Power Tools and
Accessories segment are sold primarily to retailers, wholesalers,
distributors, and jobbers, although some reconditioned power tools and
cleaning and lighting products are sold through company-operated service
centers and factory outlets directly to end users.
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The principal materials used in the manufacturing of products in the
Power Tools and Accessories segment are plastics, aluminum, copper,
steel, certain electronic components, and batteries. These materials are
used in various forms. For example, aluminum or steel may be used in
wire, sheet, bar, and strip stock form.
The materials used in the various manufacturing processes are
purchased on the open market, and the majority are available through
multiple sources and are in adequate supply. The Corporation has
experienced no significant work stoppages to date as a result of
shortages of materials. The Corporation has certain long-term commitments
for the purchase of various component parts and raw materials and
believes that it is unlikely that any of these agreements would be
terminated prematurely. Alternate sources of supply at competitive prices
are available for most, if not all, materials for which long-term
commitments exist. The Corporation believes that the termination of any
of these commitments would not have a material adverse effect on
operations. From time to time, the Corporation enters into commodity
hedges on certain raw materials used in the manufacturing process to
reduce the risk of market price fluctuations. As of December 31, 1998,
the amount of product under commodity hedges was not material to the
Corporation.
As a global marketer and manufacturer, the Corporation purchases
materials and supplies from suppliers in many different countries around
the world. Certain of the finished products and component parts are
purchased from suppliers that have manufacturing operations in mainland
China. In addition, the Corporation carries on manufacturing operations
in that country. China has been granted Most Favored Nation (MFN) status
through July 3, 1999, and currently there are no significant trade
restrictions or tariffs imposed on such products. The Corporation has
investigated alternate sources of supply and production arrangements in
case the MFN status is not extended. Alternative sources of supply are
available, or can be developed, for many of these products, and
alternative production arrangements can be made available at certain of
the Corporation's other manufacturing facilities. The Corporation
believes that, although there could be some disruption in the supply of
certain of these finished products and component parts if China's MFN
status is not extended or if significant trade restrictions or tariffs
are imposed, the impact would not have a material adverse effect on the
operating results of the Power Tool and Accessories segment over the long
term. However, the Corporation believes that, in the event that China's
MFN status is not extended or significant trade restrictions or tariffs
are imposed, the impact would likely have a significant negative effect
on the operating results of the Power Tool and Accessories segment, and
therefore the Corporation, over the short term.
Principal manufacturing and assembly facilities of the power tools,
electric lawn and garden products, cleaning and lighting products, and
accessories businesses in the United States are located in Fayetteville,
North Carolina, and Easton and Hampstead, Maryland. Principal
distribution facilities in the United States, other than those located at
the manufacturing facilities listed above, are located in Fort Mill,
South Carolina, and Rancho Cucamonga, California.
Principal manufacturing and assembly facilities outside the United
States of the power tools, electric lawn and garden products, cleaning
and lighting products, and accessories businesses are located in
Buchlberg, Germany; Perugia, Italy; Spennymoor and Rotherham, England;
Mexicali, Mexico; Uberaba, Brazil; and Suzhou, China. The principal
distribution facility outside the United States, other than those located
at the manufacturing facilities listed above, is located in Idstein,
Germany.
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In connection with the strategic repositioning plan announced in
January 1998, the Corporation closed its manufacturing facilities in
Brockville, Canada; Kuantan, Malaysia; Jurong Town, Singapore; and
Molteno, Italy, during 1998. Power tool production at the plants that
were closed was transferred to other manufacturing sites within the Power
Tools and Accessories segment.
For additional information with respect to these and other
properties owned or leased by the Corporation, see Item 2, "Properties."
The Corporation holds various patents and licenses on many of its
products and processes in the Power Tools and Accessories segment.
Although these patents and licenses are important, the Corporation is not
materially dependent on such patents or licenses with respect to its
operations.
The Corporation holds various trademarks that are employed in its
businesses and operates under various trade names, some of which are
stated above. The Corporation believes that these trademarks and trade
names are important to the marketing and distribution of its products.
A significant portion of the Corporation's sales in the Power Tools
and Accessories segment is derived from the do-it-yourself and home
modernization markets, which generally are not seasonal in nature.
However, sales of certain consumer power tools tend to be higher during
the period immediately preceding the Christmas gift-giving season, while
the sales of most electric lawn and garden tools are at their peak during
the winter and early spring period. Most of the Corporation's other
product lines within this segment generally are not seasonal in nature
but may be influenced by other general economic trends.
The Corporation is one of the world's leaders in the manufacturing
and marketing of portable power tools, electric lawn and garden tools,
and accessories. Worldwide, the markets in which the Corporation sells
these products are highly competitive on the basis of price, quality, and
after-sale service. A number of competing domestic and foreign companies
are strong, well-established manufacturers that compete on a global
basis. Some of these companies manufacture products that are competitive
with a number of the Corporation's product lines. Other competitors
restrict their operations to fewer categories, and some offer only a
narrow range of competitive products. Competition from certain of these
manufacturers has been intense in recent years and is expected to
continue.
BUILDING PRODUCTS
The Building Products segment has worldwide responsibility for the
manufacture and sale of security hardware products, for the manufacture
of plumbing products, and for the sale of plumbing products to customers
in North America. Security hardware products consist of residential and
commercial door hardware, including locksets, high-security and
electronic locks and locking devices; door closers, hinges and exit
devices; and master keying systems. Plumbing products consist of a
variety of conventional and decorative faucets, shower heads, and bath
accessories.
Security hardware products are marketed under a variety of
trademarks and trade names, including, without limitation, KWIKSET;
KWIKSET PLUS; TITAN; TITAN COMMERCIAL SERIES; AccessOne; LOCKMINDER;
NIGHTSIGHT; SOCIETY BRASS COLLECTION; BLACK & DECKER; BLACK & DECKER
PLUS; GEO; LANE; ASTRA; DOM; DIAMANT; PENTAGON; NEMEF; and CORBIN CO.
Plumbing products are marketed under the trademarks and trade names PRICE
PFISTER;
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BLACK & DECKER; THE PFABULOUS PFAUCET WITH THE PFUNNY NAME; THE PFABULOUS
PFAUCET. PFOREVER; THE PFOREVER PFAUCET; PFREQUENT PFAUCET; PFOREVER
PFINISH; PFOREVER SEAL; PFOREVER WARRANTY; PFILTER PFAUCET; GENESIS;
CARMEL; TRIBECA; PARISA; GEORGETOWN; SAVANNAH; EUROSTYLE; BODYGUARD;
MATCH MAKERS; and QUICK TRIM.
Most of the Corporation's security hardware products sold in the
United States carry a warranty, pursuant to which the consumer can return
defective product during the warranty term in exchange for a replacement
product at no cost to the consumer. Warranty terms vary by product and
range from a 10-year to a lifetime warranty with respect to mechanical
operations and from a 5-year to a lifetime warranty with respect to
finish. Products sold outside the United States for residential use
generally have similar warranty arrangements. Such arrangements vary,
however, depending upon local market conditions and laws and regulations.
Most of the Corporation's plumbing products sold in the United States
carry a lifetime warranty with respect to function and a limited lifetime
warranty with respect to finish, pursuant to which the consumer can
return defective product in exchange for a replacement product or repair
at no cost to the consumer.
The Corporation's product offerings in the Building Products segment
are sold primarily to retailers, wholesalers, distributors, and jobbers.
Certain security hardware products are sold to commercial, institutional,
and industrial customers.
The principal materials used in the manufacturing of products in the
Building Products segment are plastics, aluminum, steel, brass, zamak,
and ceramics.
The materials used in the various manufacturing processes are
purchased on the open market, and the majority are available through
multiple sources and are in adequate supply. The Corporation has
experienced no significant work stoppages to date as a result of
shortages of materials. The Corporation has certain long-term commitments
for the purchase of various component parts and raw materials and
believes that it is unlikely that any of these agreements would be
terminated prematurely. Alternate sources of supply at competitive prices
are available for most, if not all, materials for which long-term
commitments exist. The Corporation believes that the termination of any
of these commitments would not have a material adverse effect on
operations. From time to time, the Corporation enters into commodity
hedges on certain raw materials used in the manufacturing process to
reduce the risk of market price fluctuations. As of December 31, 1998,
the amount of product under commodity hedges was not material to the
Corporation.
As a global marketer and manufacturer, the Corporation purchases
materials and supplies from suppliers in many different countries around
the world. Certain of the finished products and component parts are
purchased from suppliers that have manufacturing operations in mainland
China. As previously noted, China has been granted Most Favored Nation
(MFN) status through July 3, 1999, and currently there are no significant
trade restrictions or tariffs imposed on such products. The Corporation
has investigated alternate sources of supply and production arrangements
in case the MFN status is not extended. Alternative sources of supply are
available, or can be developed, for many of these products, and
alternative production arrangements can be made available at certain of
the Corporation's other manufacturing facilities. The Corporation
believes that, although there could be some disruption in the supply of
certain of these finished products and component parts if China's MFN
status is not extended or if
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significant trade restrictions or tariffs are imposed, the impact would
not have a material adverse effect on the operating results of the
Building Products segment.
Principal manufacturing and assembly facilities of the Building
Products segment in the United States are located in Anaheim and Pacoima,
California; Denison, Texas; Waynesboro, Georgia; and Bristow, Oklahoma.
Principal manufacturing and assembly facilities outside the United
States of the Building Products segment are located in Bruhl, Germany;
Mexicali, Mexico; and Apeldoorn, Netherlands.
For additional information with respect to these and other
properties owned or leased by the Corporation, see Item 2, "Properties."
The Corporation holds various patents and licenses on many of its
products and processes in the Building Products segment. Although these
patents and licenses are important, the Corporation is not materially
dependent on such patents or licenses with respect to its operations.
The Corporation holds various trademarks that are employed in its
businesses and operates under various trade names, some of which are
stated above. The Corporation believes that these trademarks and trade
names are important to the marketing and distribution of its products.
A significant portion of the Corporation's sales in the Building
Products segment is derived from the do-it-yourself and home
modernization markets, which generally are not seasonal in nature, but
may be influenced by trends in the residential and commercial
construction markets and other general economic trends.
The Corporation is one of the world's leading producers of
residential security hardware and is one of the leading producers of
faucets in North America. Worldwide, the markets in which the Corporation
sells these products are highly competitive on the basis of price,
quality, and after-sale service. A number of competing domestic and
foreign companies are strong, well-established manufacturers that compete
on a global basis. Some of these companies manufacture products that are
competitive with a number of the Corporation's product lines. Other
competitors restrict their operations to fewer categories, and some offer
only a narrow range of competitive products. Competition from certain of
these manufacturers has been intense in recent years and is expected to
continue.
FASTENING AND ASSEMBLY SYSTEMS
The Corporation's Fastening and Assembly Systems segment has worldwide
responsibility for the manufacture and sale of an extensive line of metal
and plastic fasteners and engineered fastening systems for commercial
applications, including blind riveting, stud welding, and assembly
systems, specialty screws, prevailing torque nuts and assemblies, and
insert systems. The fastening and assembly systems products are marketed
under the trademarks and trade names EMHART FASTENING TEKNOLOGIES; DODGE;
GRIPCO; GRIPCO ASSEMBLIES; HELICOIL; NPR; PARKER-KALON; POP; POPLOK;
POWERLINK 30; T-RIVET; ULTRA-GRIP; TUCKER; WARREN; DRIL-KWIK; PARABOLT;
JACK NUT; KALEI; PLASTIFAST; PLASTI-KWICK; POP-MATIC; POPNUT; POP-SERT;
SWAGEFORM; WELDFAST; SWS; SPLITFAST; NUT-FAST; and WELL-NUT.
The principal markets for these products include the automotive,
transportation, construction, electronics, aerospace, machine tool, and
appliance industries. Substantial sales are made to automotive
manufacturers worldwide.
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Products are marketed directly to customers and also through
distributors and representatives. These products face competition from
many manufacturers in several countries. Product quality, performance,
reliability, price, delivery, and technical and application engineering
services are the primary competitive factors. Except for sales to
automotive manufacturers, which historically schedule plant shutdowns
during July and August of each year, there is little seasonal variation.
The Corporation owns a number of United States and foreign patents,
trademarks, and license rights relating to the fastening and assembly
systems business. While the Corporation considers those patents,
trademarks, and license rights to be valuable, the Corporation is not
materially dependent upon such patents or license rights with respect to
its operations.
Principal manufacturing facilities for the Fastening and Assembly
Systems segment in the United States are located in Danbury and Shelton,
Connecticut; Montpelier, Indiana; Campbellsville and Hopkinsville,
Kentucky; and Mt. Clemens, Michigan. Principal facilities outside the
United States are located in Birmingham, England; Giessen, Germany; and
Toyohashi, Japan. For additional information with respect to these and
other properties owned or leased by the Corporation, see Item 2,
"Properties."
The raw materials used in the fastening and assembly systems
business consist primarily of ferrous and nonferrous metals in the form
of wire, bar stock, and strip and sheet metals; plastics; and rubber.
These materials are readily available from a number of suppliers.
BACKLOG
The following is a summary of total backlog by business segment as of the
referenced dates.
(Millions of Dollars) December 31,
1998 1997
---- ----
Power Tools and Accessories $ 56 $ 27
Building Products 29 29
Fastening and Assembly Systems 66 53
Divested businesses - 108
----- -----
Total Backlog $ 151 $ 217
===== =====
None of the backlog at December 31, 1998, or at December 31, 1997,
included unfunded amounts.
OTHER INFORMATION
The Corporation's product development program for the Power Tools and
Accessories segment is coordinated from the Corporation's headquarters in
Towson, Maryland, in the United States, and outside the United States
from Slough, England and are carried on at facilities in Rotherham and
Spennymoor, England; Brockville, Canada; Perugia, Italy; and Idstein,
Germany.
Product development activities for the Building Products segment are
carried on at facilities in Anaheim and Pacoima, California, and
Apeldoorn, Netherlands.
Product development activities for the Fastening and Assembly Systems
segment are currently carried on at various product or business group
headquarters or at principal manufacturing locations as previously noted.
<PAGE>
-12-
Costs associated with development of new products and changes to
existing products are charged to operations as incurred. See Note 1 of
Notes to Consolidated Financial Statements included in Item 8 of Part II
of this report for amounts of expenditures for product development
activities.
As of December 31, 1998, the Corporation employed approximately
21,800 persons in its operations worldwide. Approximately 1,000 employees
in the United States are covered by collective bargaining agreements.
During 1998, several collective bargaining agreements in the United
States were negotiated without material disruption to operations. One
agreement is scheduled for negotiation during 1999. Also, the Corporation
has government-mandated collective bargaining arrangements or union
contracts with employees in other countries. With respect to the
Corporation's ongoing operations, operations have not been affected
significantly by work stoppages, except as discussed below, and, in the
opinion of management, employee relations are good. Several work
stoppages were experienced in 1998 at the Corporation's manufacturing
facility in Molteno, Italy, related to the closure of that facility.
The Corporation's operations worldwide are subject to certain
foreign, federal, state, and local environmental laws and regulations.
Many foreign, federal, state, and local governments also have enacted
laws and regulations that govern the labeling and packaging of products
and limit the sale of products containing certain materials deemed to be
environmentally sensitive. These laws and regulations not only limit the
acceptable methods for disposal of products and components that contain
certain substances, but also require that products be designed in a
manner to permit easy recycling or proper disposal of environmentally
sensitive components such as nickel cadmium batteries. The Corporation
seeks to comply fully with these laws and regulations. Although
compliance involves continuing costs, it has not materially increased
capital expenditures and has not had a material adverse effect on the
Corporation.
Pursuant to authority granted under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (CERCLA), the United
States Environmental Protection Agency (EPA) has issued a National
Priority List (NPL) of sites at which action is to be taken by the EPA or
state authorities to mitigate the risk of release of hazardous substances
into the environment. The Corporation is engaged in continuing activities
with regard to various sites on the NPL and other sites covered under
CERCLA. As of December 31, 1998, the Corporation had been identified as a
potentially responsible party (PRP) in connection with approximately 22
sites being investigated by federal or state agencies under CERCLA. The
Corporation also is engaged in site investigations and remedial
activities to address environmental contamination from past operations at
current and former manufacturing facilities in the United States and
abroad.
To minimize the Corporation's potential liability, when
appropriate, management has undertaken, among other things, active
participation in steering committees established at the sites and has
agreed to remediation through consent orders with the appropriate
government agencies. Due to uncertainty over the Corporation's
involvement in some of the sites, uncertainty over the remedial measures
to be adopted at various sites and facilities, and the fact that
imposition of joint and several liability with the right of contribution
is possible under CERCLA and other laws and regulations, the liability of
the Corporation with respect to any site at which remedial measures have
not been completed cannot be established with certainty. On the basis of
periodic reviews conducted with respect to these sites, however,
appropriate liability accruals have been established by the Corporation.
As of December 31, 1998, the Corporation's aggregate probable exposure
<PAGE>
-13-
with respect to environmental liabilities, for which accruals have been
established in the Consolidated Financial Statements, was $32.2 million.
With respect to environmental liabilities, unless otherwise noted below,
the Corporation does not believe that its liability with respect to any
individual site will exceed $10.0 million.
In 1985, as a consequence of investigations stemming from an
underground storage tank leak from a nearby gas station, the Corporation
discovered certain groundwater contamination at its facility located in
Hampstead, Maryland. Upon discovery of the groundwater contamination, the
Corporation, in cooperation with the Department of Environment of the
State of Maryland (MDE), embarked on a program to remediate groundwater
contamination and to prevent the migration of contaminants, including
installation of an air stripping system designed to remove contaminants
from groundwater. The Corporation, in cooperation with MDE, conducted
extensive investigations as to potential sources of the groundwater
contamination. Following submission of the results of its investigations
to MDE, the Corporation proposed to expand its groundwater remediation
system and also proposed to excavate and remediate soils in the vicinity
of the plant that appear to be a source area for certain contamination.
The Corporation has received all permits necessary to operate its
expanded groundwater treatment facility at the Hampstead facility, and
the system is fully operational.
In 1988, J.C. Rhodes, a former subsidiary of Emhart Industries, Inc.,
was notified by both the EPA and the State of Massachusetts that it was
considered a PRP with regard to the Sullivan's Ledge site in New Bedford,
Massachusetts. Emhart and 11 other companies formed a PRP group to
respond to the EPA's and Massachusetts' demands, and, in September 1990,
executed a Consent Order to perform the remedial action recommended by
the EPA in its Record of Decision. The remedial action is now underway.
A second area of the Sullivan's Ledge site, known as Middle Marsh,
was investigated by the EPA and a Record of Decision was issued in
September 1991. In September 1992, Emhart, 11 other companies, and the
City of New Bedford, Massachusetts, executed a Consent Order to perform
the remediation required in the Middle Marsh section of the site. At this
time, Emhart's estimated remaining liability for remediation cost at the
Sullivan's Ledge site is estimated at $1.5 million.
The Corporation has been investigating certain environmental matters
at its NEMEF security hardware facility in the Netherlands. The NEMEF
facility has been a manufacturing operation since 1921. During building
construction in 1990, soil and groundwater contamination was discovered
on the property. Investigations to understand the full extent of the
contamination were undertaken at that time, and those investigations are
continuing. The Corporation is continuing to work with consultants and
local authorities to develop a comprehensive remediation plan in
conjunction with neighboring property owners.
In the opinion of management, the costs of compliance with respect
to the matters set forth above and other remedial costs have been
adequately accrued, and the ultimate resolution of these matters will not
have a material adverse effect on the Corporation. The ongoing costs of
compliance with existing environmental laws and regulations have not had,
nor are they expected to have, a material adverse effect upon the
Corporation's capital expenditures or financial position.
<PAGE>
-14-
(f) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC
OPERATIONS
Reference is made to Note 19 of Notes to Consolidated Financial
Statements, entitled "Business Segments and Geographic Information",
included in Item 8 of Part II of this report.
(g) EXECUTIVE OFFICERS AND OTHER SENIOR OFFICERS OF THE
CORPORATION
The current Executive Officers and Other Senior Officers of the
Corporation, their ages, current offices or positions, and their business
experience during the past five years are set forth below.
Nolan D. Archibald - 55
Chairman, President, and Chief Executive Officer;
January 1990 - present.
Joseph Galli - 40
Executive Vice President of the Corporation and President - Power Tools
and Accessories Group,
December 1996 - present;
Group Vice President and President - Power Tools and Accessories,
March 1996 - December 1996;
Group Vice President and President - Power Tools,
October 1995 - March 1996;
Vice President and President - North American Power Tools,
October 1993 - October 1995.
Paul A. Gustafson - 56
Executive Vice President of the Corporation and President - Fastening and
Assembly Systems Group,
December 1996 - present;
Group Vice President and President - Emhart Fastening Teknologies,
July 1996 - December 1996;
President - Emhart Fastening Teknologies,
April 1990 - July 1996.
Dennis G. Heiner - 55
Executive Vice President of the Corporation and President - Security
Hardware, Building Products Group,
January 1992 - present.
Charles E. Fenton - 50
Senior Vice President and General Counsel,
December 1996 - present;
Vice President and General Counsel,
May 1989 - December 1996.
<PAGE>
-15-
Barbara B. Lucas - 53
Senior Vice President - Public Affairs and Corporate Secretary,
December 1996 - present;
Vice President - Public Affairs and Corporate Secretary,
July 1985 - December 1996.
Thomas M. Schoewe - 46
Senior Vice President and Chief Financial Officer,
December 1996 - present;
Vice President and Chief Financial Officer,
October 1993 - December 1996.
Leonard A. Strom - 53
Senior Vice President - Human Resources,
December 1996 - present;
Vice President - Human Resources,
May 1986 - December 1996.
Ronald B. Cooper* - 44
Vice President of the Corporation and President - Plumbing Products,
Building Products Group,
December 1996 - present;
President - Price Pfister,
August 1996 - December 1996;
President - Accessories,
March 1996 - August 1996;
President and Chief Executive Officer - Interrealty Company,
March 1995 - September 1995;
President, Commercial Systems Group - PRC,
August 1992 - March 1995.
Stephen F. Reeves - 39
Vice President and Controller,
September 1996 - present;
Corporate Controller,
May 1994 - September 1996;
Senior Manager - Ernst & Young LLP,
October 1988 - April 1994.
- ----------------------------
* Mr. Cooper will be leaving the Corporation by the end of March 1999.
<PAGE>
-16-
James J. Roberts - 40
Vice President of the Corporation and Vice President/General
Manager - U.S. Accessories, Power Tools and Accessories Group,
December 1996 - present;
Vice President and General Manager - U.S. Accessories,
August 1996 - December 1996;
Vice President and General Manager - Professional Power Tools, Europe,
April 1994 - August 1996;
Vice President Sales and Marketing - U.S. Consumer Power Tools,
April 1993 - April 1994.
Mark M. Rothleitner - 40
Vice President and Treasurer,
March 1997 - present;
Treasurer - Dresser Industries, Inc.,
December 1996 - March 1997;
Assistant Treasurer, International,
June 1994 - December 1996;
Director, International Treasury,
January 1991 - June 1994.
Edward J. Scanlon - 44
Vice President of the Corporation and Vice President/General Manager -
The Home Depot Division, Power Tools and Accessories Group,
December 1997 - present;
Senior Vice President Sales - North American Power Tools and Accessories,
August 1995 - December 1997;
Vice President Sales - Home Depot Division, North American Power Tools,
February 1994 - August 1995;
Vice President Sales - Industrial/Construction, U. S. Power Tools,
January 1992 - February 1994.
John W. Schiech - 40
Vice President of the Corporation and Vice President/General Manager -
North American Professional Power Tools, Power Tools and Accessories
Group,
December 1997 - present;
Vice President and General Manager - Professional Power Tools,
October 1995 - December 1997;
Vice President Engineering - North American Power Tools,
July 1994 - October 1995;
Product Development Manager - European Power Tools,
July 1991 - July 1994.
<PAGE>
-17-
Frederik B. van den Bergh - 53
Vice President of the Corporation and President - Europe, Power Tools and
Accessories Group,
July 1997 - present;
Executive Vice President, Coleman Company Inc., and President, Coleman
International,
May 1996 - July 1997;
Member, Board of Management, Braun A.G. Business Management and Group
Sales,
April 1992 - May 1996.
(h) FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes statements that constitute
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934 and that are intended to come within the safe harbor protection
provided by those sections. By their nature, all forward-looking
statements involve risk and uncertainties. Actual results may differ
materially from those contemplated by the forward-looking statements for
a number of reasons, including but not limited to: market acceptance of
the new products introduced in 1998 and scheduled for introduction in
1999; the level of sales generated from these new products relative to
expectations, based on the existing investments in productive capacity
and commitments of the Corporation to fund advertising and product
promotions in connection with the introduction of these new products; the
ability of the Corporation and its suppliers to meet scheduled timetables
for new product introductions; unforeseen competitive pressure or other
difficulties in maintaining mutually beneficial relationships with key
distributors or in 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 plan announced by the Corporation in January
1998; and the continuation of modest economic growth in the United States
and Europe and gradual improvement in the economic environment in Latin
America and Asia.
In addition to the foregoing, the Corporation's ability to realize
the anticipated benefits during 1999 and in the future of the
restructuring actions undertaken in 1998 is dependent upon current market
conditions, as well as the timing and effectiveness of the relocation or
consolidation of production and administrative processes. The ability to
realize the benefits inherent in the balance of the restructuring actions
is dependent on the selection and implementation of economically viable
projects in addition to the restructuring actions taken to date. The
ability to achieve certain sales and profitability targets and cash flow
projections also is dependent upon the Corporation's ability to identify
appropriate selected acquisitions that are complementary to the
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
<PAGE>
-18-
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 2. PROPERTIES
The Corporation operates 37 manufacturing facilities around the world, including
18 located outside the United States in 9 foreign countries. The major
properties associated with each business segment are listed in "Narrative
Description of the Business" in Item 1(e) of Part I of this report.
The Corporation owns most of its facilities with the exception of the
following major leased facilities:
In the United States: Mt. Clemens, Michigan and Towson, Maryland.
Outside the United States: Rotherham, England and Mexicali, Mexico.
Additional property both owned and leased by the Corporation in Towson,
Maryland, is used for administrative offices. Subsidiaries of the Corporation
lease certain locations primarily for smaller manufacturing and/or assembly
operations, service operations, sales and administrative offices, and for
warehousing and distribution centers. The Corporation also owns a manufacturing
plant which is located on leased land in Suzhou, China.
In connection with the strategic repositioning program undertaken by the
Corporation in 1998 and described in Item 1 of this report and in Note 2 of
Notes to Consolidated Financial Statements included in Item 8 of Part II of this
report, the Corporation closed its manufacturing facilities in Brockville,
Canada; Kuantan, Malaysia; Jurong Town, Singapore; and Molteno, Italy during
1998.
The Corporation's average utilization rate for its manufacturing facilities
for 1998 was in the range of 77% to 87%. The Corporation continues to evaluate
its worldwide manufacturing cost structure to identify opportunities to improve
capacity utilization and will take appropriate action as deemed necessary.
Management believes that its owned and leased facilities are suitable and
adequate to meet the Corporation's anticipated needs.
ITEM 3. LEGAL PROCEEDINGS
The Corporation is involved in various lawsuits in the ordinary course of
business. These lawsuits primarily involve claims for damages arising out of the
use of the Corporation's products and allegations of patent and trademark
infringement. The Corporation also is 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 exposure for product liability. The Corporation
is insured for product liability claims for amounts in excess of established
deductibles and accrues for the estimated liability as described above up to the
limits of the deductibles. All other claims and lawsuits are handled on a
case-by-case basis.
As previously noted under Item 1(e) of Part I of this report, the
Corporation also is party to litigation and administrative proceedings with
respect to claims involving the discharge of hazardous substances into the
environment. Certain of these matters assert damages and liability for remedial
investigations and clean-up costs with respect to sites at which the Corporation
has
<PAGE>
-19-
been identified as a PRP under federal and state environmental laws and
regulations. Other matters involve sites that the Corporation owns and operates
or previously sold.
In connection with the Corporation's sale of its former PRC subsidiary to
Litton Industries, Inc. ("Litton") in 1996, the Corporation agreed to indemnify
Litton for various liabilities. Litton has made a number of indemnification
claims under the agreement relating to the sale of PRC, and the Corporation,
Litton and PRC are continuing to discuss those claims. The Corporation has
acknowledged its responsibility for certain claims and has denied responsibility
for others. In February 1999, Litton and PRC filed an arbitration claim in
accordance with the terms of the agreement relating to the sale of PRC with
respect to certain of these indemnification claims. In the opinion of
management, the resolution of the indemnification claims that have been made by
Litton to date will not have a material adverse effect on the Corporation.
In 1996, Emerson Electric Company ("Emerson") filed suit against the
Corporation in the United States District Court for the Southern District of New
York (Emerson Electric Co. v. Black & Decker Inc. et al., No. 96 Civ 4334)
alleging that the Corporation made false representations in connection with the
sale of the Mallory Controls business to Emerson in 1991. Emerson's suit
includes claims for negligent misrepresentation and fraud as well as breach of
contract, and asserts liability for contribution relating to the settlement by
Emerson of a suit arising out of the Mallory Controls business. Emerson seeks
damages in the amount of $15 million on the negligent misrepresentation, fraud
and breach of contract claims, and damages of not less than $8 million on the
contribution claim.
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 and denied the Corporation's motion to
dismiss Emerson's breach of contract and contribution claims. The Corporation
intends to defend vigorously against the allegations made in this matter. In the
opinion of management, the ultimate resolution of this matter will not have a
material adverse effect on the Corporation.
In 1996, Liberty Mutual Insurance Company ("Liberty Mutual") filed suit in
the Superior Court in Massachusetts against the Corporation and certain of its
subsidiaries seeking a declaratory judgment that various insurance policies
issued by Liberty Mutual to the Corporation did not cover liability and expenses
relating to certain on-site and off-site environmental contamination. The
Corporation and subsidiary defendants removed the case to the United States
District Court for the Eastern District of Massachusetts (Liberty Mutual
Insurance Company v. The Black & Decker Corporation et al., No. 96-10804-DPW),
and filed a counterclaim asserting, among other things, bad faith, unlawful
business practices and breach of contract on the part of Liberty Mutual. The
Corporation and Liberty Mutual have completed most of the discovery in this case
and both parties have filed summary judgment motions that are pending before the
Court.
In 1996, the Corporation filed a separate suit in the Circuit Court for
Baltimore County, Maryland against Liberty Mutual and certain other primary and
excess insurance carriers (Black & Decker (U.S.) Inc. et al. v. Liberty Mutual
Insurance Company et al. (03-C-96-003801)) asserting that various insurance
policies issued by Liberty Mutual and the other carriers cover indemnity and
expenses associated with groundwater and soil contamination claims alleged to
have occurred at the Corporation's Hampstead, Maryland facility. In December
1996, Liberty Mutual filed a counterclaim with the Circuit Court incorporating
the allegations made in the suit pending in the United States District Court for
the Eastern District of Massachusetts and seeking, in effect, to transfer the
Massachusetts litigation to Baltimore County. Liberty Mutual's counterclaim
against the Corporation was dismissed. The Corporation, Liberty Mutual and the
other defendants have settled the Baltimore County
<PAGE>
-20-
litigation and the various claims and counterclaims have been dismissed.
The Corporation and a customer of the Corporation's former glass
container-forming and inspection equipment business are parties to two
arbitration proceedings pending in the Court of Arbitration of the International
Chamber of Commerce in London. In these proceedings, the customer alleges that
the Corporation breached two contracts for the construction and equipping of two
separate glass manufacturing plants owned by the customer and currently asserts
that it is entitled to damages in excess of $150 million. Although the
Corporation has sold its glass container-forming and inspection equipment
business, the Corporation has retained responsibility for the defense of these
proceedings and any damages awarded to the customer in excess of $1 million
(exclusive of legal fees and other costs). The Corporation intends to defend
vigorously against the allegations made in these proceedings. In the opinion of
management, the ultimate resolution of these proceedings will not have a
material adverse affect on the Corporation.
In the opinion of management, amounts accrued for awards or assessments in
connection with the matters specified above and in Item 1(e) of Part I of this
report with respect to 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.
As of December 31, 1998, the Corporation had no known probable but
inestimable exposures for awards and assessments in connection with the matters
specified above and in Item 1(e) of Part I of this report with respect to
environmental matters and other litigation and administrative proceedings that
could have a material adverse effect on the Corporation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
<PAGE>
-21-
PART II
ITEM 5. MARKET FOR THE COMPANY STOCK AND RELATED SECURITY
HOLDER MATTERS
(a) MARKET INFORMATION
The Corporation's Common Stock is listed on the New York Stock Exchange
and the Pacific Stock Exchange.
The following table sets forth, for the periods indicated, the high
and low sale prices of the Common Stock as reported in the consolidated
reporting system for the New York Stock Exchange Composite Transactions:
-----------------------------------------------------------------------
Quarter 1998 1997
------- ---- ----
January to March $53-5/16 to $37-15/16 $34-7/8 to $30
April to June $60-13/16 to $48-3/4 $37-1/2 to $29-5/8
July to September $65-1/2 to $41-5/8 $43-7/16 to $36-3/8
October to December $58-1/2 to $38-15/16 $41-13/16 to $35-3/4
-----------------------------------------------------------------------
(b) HOLDERS OF THE CORPORATION'S CAPITAL STOCK
As of January 29, 1999, there were 18,284 holders of record of the
Corporation's Common Stock.
(c) DIVIDENDS
The Corporation has paid consecutive quarterly dividends on its Common
Stock since 1937. Future dividends necessarily will depend upon the
Corporation's earnings, financial condition, and other factors. The
Credit Facility does not restrict the Corporation's ability to pay
regular dividends in the ordinary course of business on the Common Stock.
Quarterly dividends per common share for the most recent two years
are as follows:
----------------------------------------------------------
Quarter 1998 1997
------- ---- ----
January to March $.12 $.12
April to June .12 .12
July to September .12 .12
October to December .12 .12
----- ----
$.48 $.48
----------------------------------------------------------
Common Stock: 150,000,000 authorized, $.50 par value, 87,498,424
shares and 94,842,544 shares outstanding as of December
31, 1998 and 1997, respectively.
Preferred Stock: 5,000,000 authorized, without par value, no shares
outstanding as of December 31, 1998 and 1997.
<PAGE>
-22-
(d) ANNUAL MEETING OF STOCKHOLDERS
The 1999 Annual Meeting of Stockholders of the Corporation is scheduled
to be held on April 27, 1999, at 9:00 a.m. at Black & Decker, 28712 Glebe
Road, Easton, Maryland 21601.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
FIVE-YEAR SUMMARY
(Millions of Dollars Except Per Share Data)
<CAPTION>
1998(a) 1997 1996(b) 1995(c) 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $4,559.9 $4,940.5 $4,914.4 $4,766.1 $4,365.2
Earnings (loss) from continuing operations (754.8) 227.2 159.2 216.5 89.9
Earnings from discontinued operations (d) -- -- 70.4 38.4 37.5
Extraordinary items -- -- -- (30.9) --
Net earnings (loss) (754.8) 227.2 229.6 224.0 127.4
Net earnings (loss) per common share -- basic:
Continuing operations (8.22) 2.40 1.69 2.39 .93
Discontinued operations -- -- .79 .45 .45
Extraordinary items -- -- -- (.36) --
Net earnings (loss) per common share -- basic (8.22) 2.40 2.48 2.48 1.38
Net earnings (loss) per common share assuming dilution:
Continuing operations (8.22) 2.35 1.66 2.29 .92
Discontinued operations -- -- .73 .41 .44
Extraordinary items -- -- -- (.33) --
Net earnings (loss) per common share -- assuming dilution (8.22) 2.35 2.39 2.37 1.36
Total assets 3,852.5 5,360.7 5,153.5 5,545.3 5,264.3
Long-term debt 1,148.9 1,623.7 1,415.8 1,704.5 1,723.2
Cash dividends per common share .48 .48 .48 .40 .40
- -------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Earnings from continuing operations for 1998 includes a write-off of
goodwill of $900.0 million, a restructuring charge of $164.7 million before
taxes ($117.3 million after taxes), and a gain on the sale of businesses of
$114.5 million before taxes ($16.5 million after taxes).
(b) Earnings from continuing operations for 1996 includes a restructuring charge
of $91.3 million before taxes ($74.8 million after taxes) and a $10.6
million reduction in income tax expense as a result of the reversal of a
portion of the Corporation's deferred tax asset valuation allowance.
(c) Earnings from continuing operations for 1995 include a $65.0 million
reduction in income tax expense as a result of the reversal of a portion of
the Corporation's deferred tax asset valuation allowance. In 1995, the
Corporation recognized a $30.9 million extraordinary loss from
early extinguishment of debt, net of income tax benefit of $2.6 million.
(d) Earnings from discontinued operations represent the earnings, net of
applicable income taxes, of the Corporation's discontinued PRC segment. The
earnings of the discontinued PRC segment do not reflect any charge for
interest allocated to that segment by the Corporation. For additional
information about the discontinued PRC segment, see the discussion under the
caption "Discontinued Operations" included in Item 1(c) of Part I of this
report and Note 13 of Notes to Consolidated Financial Statements included in
Item 8 of Part II of this report.
</FN>
</TABLE>
<PAGE>
- 23 -
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Corporation reported a net loss of $754.8 million or $8.22 per share on a
diluted basis for the year ended December 31, 1998, compared to net earnings of
$227.2 million or $2.35 per share on a diluted basis for the year ended December
31, 1997.
As more fully described under the caption "Strategic Repositioning" and in
Note 2 of Notes to Consolidated Financial Statements, the Corporation made
substantial progress during 1998 in implementing the three elements of the
comprehensive strategic repositioning plan, which was approved by the Board of
Directors in January 1998. First, the Corporation completed the divestiture of
the recreational products business, the glass container-forming and inspection
equipment business, and the household products business (exclusive of the
cleaning and lighting business retained by the Corporation) in North America,
Latin America (excluding Brazil), and Australia during 1998. As a result of
these divestitures, the Corporation received cash proceeds, net of selling
expenses and taxes paid, of approximately $625 million and recognized a pre-tax
gain on sale of businesses of $114.5 million ($16.5 million net of tax). These
proceeds were applied against the second element of the strategic repositioning
plan - the repurchase of up to 10% of the Corporation's common shares. Finally,
the Corporation commenced a restructuring of its operations, recognizing a
pre-tax restructuring charge of $164.7 million ($117.3 million after tax) in
1998.
Also, in January 1998, the Board of Directors elected to authorize a change
in the basis upon which the Corporation evaluates goodwill for impairment. As a
result, $900.0 million of goodwill was written off through a charge to
operations during 1998.
Excluding the effects of the gain on sale of businesses, restructuring
charge, and goodwill write-off, net earnings for the year ended December 31,
1998, would have been $246.0 million, or $2.63 per diluted share, compared to
net earnings of $227.2 million, or $2.35 per diluted share, for the year ended
December 31, 1997.
STRATEGIC REPOSITIONING
As more fully described in Note 2 of Notes to Consolidated Financial Statements,
on January 26, 1998, the Board of Directors approved a comprehensive strategic
repositioning of the Corporation, consisting of three separate elements.
The first element of the strategic repositioning plan is to focus the
Corporation on its core operation - 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 in 1998 through the divestiture of non-strategic
businesses: True Temper Sports, its recreational products business; Emhart
Glass, its glass container-forming and inspection equipment business; 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 Corporation is continuing to evaluate
various alternatives for its household products business in Brazil.
In June 1998, the Corporation closed on the sale of its household products
business in North America, Central America, the Caribbean and South America
(excluding Brazil) for $315.0 million. During 1998, the Corporation also
completed the sale of its household products business in Australia, the proceeds
from which were immaterial. In connection with
<PAGE>
-24-
the sale of the household products businesses, the Corporation retained its
cleaning and lighting product lines, which include, among other things, the
Dustbuster(R) cordless vacuum.
In September 1998, the Corporation announced that it had closed on the sale
of Emhart Glass. In connection with the sale, the Corporation received cash of
$178.7 million. The Corporation retained certain liabilities and the purchase
price is subject to adjustment based upon changes in net assets.
Also in September 1998, the Corporation completed the recapitalization of
True Temper Sports. The Corporation retained approximately 6% of preferred and
common stock of the recapitalized company, now known as True Temper Corporation,
valued at approximately $4 million. In addition, the Corporation received $177.7
million in cash and a senior increasing rate discount note, bearing interest at
a variable rate, in an initial accreted amount of $25.0 million in connection
with the recapitalization. Because True Temper Corporation is a highly leveraged
entity and there is no active market for the note, the Corporation has fully
reserved the $25.0 million note as of December 31, 1998.
The pre-tax gain on the sale of businesses of $114.5 million ($16.5 million
net of tax) recognized by the Corporation during 1998, represents the gain on
the sale or recapitalization of Emhart Glass, True Temper Sports, and the
household products business (excluding certain assets associated with the
cleaning and lighting product lines) in North America, Central America, the
Caribbean, and South America (excluding Brazil). That gain is net of an
impairment loss of approximately $15 million recognized in connection with the
anticipated exit from the household products business in Brazil.
Because True Temper Sports, Emhart Glass, and the household products
business in North America, Latin America (excluding Brazil), and Australia were
not treated as discontinued operations under generally accepted accounting
principles, they remained a part of the Corporation's reported results from
continuing operations until their sale. Under the accounting prescribed by
Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, the
Corporation was required to reflect the long-lived assets of these businesses at
the lower of their carrying amounts or their expected fair value less costs to
sell, and to cease depreciation of the businesses' fixed assets and amortization
of goodwill related to these businesses during the period held for sale. Had
depreciation not ceased on the fixed assets of these businesses while they were
held for sale, aggregate depreciation in 1998 through the dates of their sale or
recapitalization would have approximated $10 million.
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 10.5 million of the Corporation's outstanding common shares over a
two-year period. During the year ended December 31, 1998, the Corporation
repurchased 9,025,400 common shares at an aggregate cost of $464.3 million,
which is net of $1.4 million in premiums received in connection with the
Corporation's sale of put options on shares of its common stock. During the
period from January 1, 1999 through February 11, 1999, the Corporation purchased
an additional 225,000 common shares at an aggregate cost of $12.5 million.
The third element of the strategic repositioning plan involves a major
restructuring program. That restructuring program is being undertaken to reduce
fixed costs and to simplify the supply-chain and new product introduction
processes. As part of the restructuring program, the Corporation expects to make
significant changes to its European power tools and accessories businesses by
consolidating distribution and transportation and centralizing finance,
marketing, and support services. These changes in Europe will be accompanied by
<PAGE>
-25-
investment in state-of-the-art information systems similar to the investments
being made in the North American business. In addition, the worldwide power
tools and accessories business will rationalize its manufacturing plant network,
resulting in the closure of a number of manufacturing plants. The restructuring
program also will include actions to improve the cost position of other
businesses.
This restructuring program resulted in a pre-tax charge of $164.7 million
during the year ended December 31, 1998 ($117.3 million after tax). Additional
actions are possible as the program progresses in 1999. Restructuring and exit
costs recognized by the Corporation during 1998 were principally associated with
severance benefits and voluntary retirement program costs, as well as the
write-down to net realizable value of certain land, buildings, and equipment in
accordance with SFAS No. 121.
A summary of the Corporation's restructuring activity during 1998 is as
follows:
<TABLE>
<CAPTION>
Reserve As Utilization of Reserve During 1998 Reserve at
Established December 31,
(Dollars in Millions) in 1998 Cash Non-Cash 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Severance benefits and cost of
voluntary retirement program $121.3 $(52.8) $(28.6) $ 39.9
Write-down to net realizable value of
certain land, buildings, and equipment 29.5 -- (29.5) --
Other charges 13.9 (2.8) (.2) 10.9
- -------------------------------------------------------------------------------------------------------------------
Total $164.7 $(55.6) $(58.3) $ 50.8
===================================================================================================================
</TABLE>
In connection with the restructuring program undertaken in 1998, the
Corporation recorded severance obligations when the liability became probable
under its established severance policies or as provided statutorily or, when no
policy or statutory provision existed or applied, based on when the benefits
were communicated to affected employees. The timing of the charge was dictated
based on the later of: (i) approval by management having the ultimate authority
to approve the actions; (ii) contingencies affecting the feasibility of, or
returns from the project, were resolved; or (iii) if applicable, notification of
affected employees. The severance component of the restructuring reserve
established in 1998 is net of adjustments that occurred during the year due to:
(i) actual attrition factors that differed from those initially estimated; (ii)
more cost effective methods of severing employment that became probable,
typically based on negotiations with trade unions or local government
institutions; and (iii) amendments to the initial plan that were approved by the
appropriate level of management, based primarily on changes in market conditions
that dictated a modification to the intended course of action. None of the
adjustments to the severance obligations recorded as part of the 1998
restructuring charge was individually material.
Asset write-downs taken as part of the 1998 restructuring charge
principally related to the book value of manufacturing equipment and furniture
and fixtures net of estimated salvage, which was negligible. The carrying values
of land and building to be abandoned or sold were written down to their fair
value, generally based on third party offers, when that fair value was less than
net book value. Gains were realized when two facilities, exited as part of the
restructuring, that had a fair value exceeding their net book value at the time
of the charge, were sold. Those gains were reported as a reduction of the 1998
restructuring charge when realized.
In the preceding table, the $28.6 million non-cash utilization of the
reserve established for severance benefits and costs of voluntary retirement
program represents the present value of payments to be made as a result of a
voluntary retirement program for employees in the
<PAGE>
-26-
United States. Those payments will be made from the assets of the Corporation's
pension plan trust rather than from working capital of the Corporation.
In addition to the restructuring charge, it is anticipated that related
expenses of approximately $60 million will be charged to operations over a
two-year period as the restructuring program progresses. These related expenses,
which are incremental to the plans being implemented, do not qualify as
restructuring or exit costs under generally accepted accounting principles.
During the year ended December 31, 1998, the Corporation recognized $44.4
million of expenses related to the restructuring program. Included in those
restructuring-related expenses were $11.5 million of inventory write-downs
associated with products in the retained cleaning and lighting business that
will be discontinued. Cash spending on the restructuring program during 1999 is
expected to range between $40 million to $45 million.
Benefits from the restructuring charge taken in 1998, estimated at more
than $100 million on an annual, pre-tax basis once fully implemented, are not
expected to become evident until some time in 1999, as the 1998 benefits were
more than offset by related expenses associated with the program. As indicated
in Note 2 of Notes to Consolidated Financial Statements, the severance and
voluntary retirement accrual included in the $164.7 million restructuring charge
taken in 1998 related to the elimination of approximately 5,100 positions. As
the Corporation shifts certain production and other activities and replaces
certain employees who retired under the United States voluntary retirement
program, it is anticipated that an additional 2,200 positions will be created.
As a result, the Corporation's estimate of annual, pre-tax savings in excess of
$100 million, expected once the restructuring actions taken in 1998 are fully
implemented, reflects the savings from a net reduction of approximately 2,900
positions. The Corporation's estimate of savings was based upon a comparison to
the pre-restructuring cost base, and actual savings will be mitigated by such
factors as continued economic deterioration in foreign markets and decisions to
increase costs in such areas as promotion and research and development above
levels that were otherwise assumed.
As a consequence of the strategic repositioning plan, the Corporation
elected to change its method of measuring goodwill impairment from an
undiscounted cash flow approach to a discounted cash flow approach, effective
January 1, 1998. The Corporation believes that measurement of the value of
goodwill through the discounted cash flow approach, as more fully described in
Note 2 of Notes to Consolidated Financial Statements, is preferable in that the
discounted cash flow measurement facilitates the timely identification of
impairment of the carrying value of investments in businesses and provides a
more current and, with respect to the businesses to be sold, realistic valuation
than the undiscounted approach. The adoption of this discounted cash flow
approach, however, may result in greater earnings volatility because decreases
in projected discounted cash flows of certain businesses will result in timely
recognition of future impairment.
In connection with this change in accounting with respect to the
measurement of goodwill impairment, a non-cash charge of $900.0 million was
recognized in January 1998 ($9.80 per share both on a basic and diluted basis
for the year ended December 31, 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,
represents the amount necessary to reduce the carrying values of goodwill for
those businesses to the Corporation's best estimate, as of January 1, 1998, of
those businesses' future discounted cash flows using the methodology described
in Note 2 of Notes to Consolidated Financial Statements. As a result of the
goodwill write-off and the cessation of goodwill amortization
<PAGE>
-27-
related to the businesses sold, goodwill amortization declined from $63.3
million for the year ended December 31, 1997 to $25.2 million for the year ended
December 31, 1998.
CONTINUING OPERATIONS
SALES
The following chart provides an analysis of the consolidated changes in sales
for the years ended December 31, 1998, 1997, and 1996.
<TABLE>
<CAPTION>
For the Year Ended December 31,
- -------------------------------------------------------------------------------------------------------------------
(Dollars in millions) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total sales $4,559.9 $4,940.5 $4,914.4
===================================================================================================================
Unit volume -- existing (a) 2% 5% 5%
Unit volume -- disposed (b) (8)% -- --
Price (1)% (1)% (1)%
Currency (1)% (3)% (1)%
- -------------------------------------------------------------------------------------------------------------------
Change in total sales (8)% 1% 3%
===================================================================================================================
<FN>
(a) Represents change in unit volume for businesses where year-to-year
comparability exists.
(b) Represents change in unit volume for businesses included in prior years
results but were sold or recapitalized in 1998.
</FN>
</TABLE>
Total consolidated sales for the year ended December 31, 1998, were $4.56
billion, which represented an 8% decrease from 1997 sales of $4.94 billion. The
negative effects of a stronger United States dollar compared to most major
foreign currencies caused a 1% decrease in the Corporation's consolidated sales
during 1998 from the prior year's level. Pricing actions had a 1% negative
effect on sales for 1998 as compared to 1997. Total unit volume declined by 6%
during 1998 from the 1997 levels, as increased unit volume in the Corporation's
existing businesses was more than offset by unit volume declines as a result of
the divestitures during 1998 of the household products business in North
America, Latin America (excluding Brazil), and Australia, of the glass
container-forming and inspection equipment business, and of the recreational
products business.
Total consolidated sales for the year ended December 31, 1997, were $4.94
billion, which represented a 1% increase over 1996 sales of $4.91 billion.
During 1997, unit volume grew 5% over the sales level in 1996. The 1997 growth
in unit volume occurred in each of the Corporation's reportable business
segments: Power Tools and Accessories, Building Products, and Fastening and
Assembly Systems.
EARNINGS
The Corporation experienced a consolidated operating loss of $466.2 million on
sales of $4,559.9 million in 1998. Consolidated operating income as a percentage
of sales was 9.9% and 7.3% for 1997 and 1996, respectively. Excluding the $900.0
million write-off of goodwill and the $114.5 million gain on sale of businesses
in 1998, as well as the $164.7 million and $91.3 million restructuring charges
recognized in 1998 and 1996, respectively, operating income as a percentage of
sales was 10.6% for 1998 compared to 9.9% and 9.1% for 1997 and 1996,
respectively.
<PAGE>
-28-
Operating results for the year ended December 31, 1998, included $44.4
million of expenses directly related to the strategic repositioning plan that do
not qualify as restructuring or exit costs under generally accepted accounting
principles ("restructuring-related expenses"). Included in these amounts is an
$11.5 million write-down to net realizable value of cleaning and lighting
inventories that are being discontinued in connection with the assumption of
those product lines in North America by the Corporation's Power Tools and
Accessories segment. Excluding the effects of these restructuring-related
expenses, the restructuring charges, the goodwill write-off, and the gain on
sale of businesses, operating income as a percentage of sales was 11.6% for 1998
compared to 9.9% and 9.1% for 1997 and 1996, respectively. In addition to the
realization of benefits from restructuring actions taken in 1998, a major
contributor to this increase in operating income as a percentage of sales from
1997 to 1998 was the $38.1 million reduction in goodwill amortization in 1998 as
compared to 1997. This reduced goodwill amortization was a result of the
goodwill write-off and cessation of amortization of goodwill associated with the
divested businesses. The lower level of goodwill amortization experienced in
1998 will continue in future periods.
Consolidated gross margin as a percentage of sales for 1998 was 35.3%
compared to 35.9% for 1997 and 35.8% for 1996. The decline in gross margin
during 1998 from 1997 primarily resulted from adverse foreign exchange effects
on product costs, principally in the European operations; competitive pressures
that continued to constrain pricing; manufacturing inefficiencies in the
security hardware portion of the Building Products segment; and
restructuring-related expenses; partially offset by higher production volumes
and the decline in sales of lower margin products in the household products,
recreational products, and glass container-forming and inspection equipment
businesses as a result of the divestiture of those businesses in 1998.
Consolidated gross margin in 1997, as compared to that of 1996, was adversely
affected by selective price reductions, particularly in the domestic power tools
and accessories, cleaning and lighting, and household products lines; pricing
constraints due to competitive pressures; currency-related cost pressures that
resulted from stronger currencies in countries in which certain products were
manufactured relative to currencies of countries in which those products were
sold; and the decline in sales of the higher margin SNAKELIGHT(R) flexible
flashlight. These negative impacts on gross margin were offset by higher
production volumes and better-than-average margins on new products introduced
during 1997.
Consolidated selling, general, and administrative expenses as a percentage
of sales were 24.7% for 1998 compared to 25.9% for 1997 and 26.6% for 1996. The
improvements in 1998 compared to 1997 were the result of lower goodwill
amortization in 1998 compared to 1997 as a result of the goodwill write-off and
cessation of amortization of goodwill related to the businesses to be sold, as
well as benefits realized from restructuring actions taken in 1998, partially
offset by restructuring-related expenses in 1998. The improvements in 1997
compared to 1996 were the result of cost reduction initiatives, the leverage
effects of higher sales volumes on fixed and semi-fixed costs, and benefits from
the 1996 restructuring program.
Consolidated net interest expense (interest expense less interest income)
was $114.4 million in 1998 compared to $124.6 million in 1997 and $135.4 million
in 1996. The lower net interest expense for 1998 compared to 1997 was primarily
the result of a lower level of net debt (total debt less cash and cash
equivalents) due to improved cash flows from operating activities and debt
reductions which occurred with net proceeds from business sales in excess of
amounts used to repurchase common stock and as a result of more favorable
interest rates and debt mix in 1998. The lower net interest expense for 1997
compared to
<PAGE>
-29-
1996 was primarily the result of reduced debt levels coupled with a lower
average interest rate inherent in the debt portfolio. Those lower debt levels
resulted from debt repayments early in 1996 with the sales proceeds of the
discontinued PRC segment and from improved operating cash flow during 1996.
Consolidated other expense for 1998 principally consisted of currency
losses. Other expense for 1997 and 1996 primarily included the discount on the
sale of receivables as well as currency losses.
Consolidated income tax expense of $166.5 million was recognized on the
Corporation's pre-tax loss of $588.3 million for 1998. Excluding the income tax
benefits of $47.4 million and $16.5 million related to the pre-tax restructuring
charges in 1998 and 1996, respectively, the non-deductible write-off of goodwill
in the amount of $900.0 million recognized in 1998, the tax expense of $98.0
million recognized on the gain on sale of businesses in 1998, and the $10.6
million income tax benefit that resulted from the reduction of its deferred tax
asset valuation allowance in 1996, the Corporation's reported tax rate on
continuing operations was 32% in 1998 compared to 35% in 1997 and 24% in 1996.
The decrease in the effective tax rate in 1998 resulted from the lower amount of
goodwill amortization, which is not tax deductible, due to the write-off of
goodwill discussed above. The effective tax rate increased in 1997 because, by
the end of 1996, the Corporation had fully recognized the benefit of domestic
deferred tax assets, exclusive of foreign tax credits, for financial reporting
purposes. The benefit of the previously unrecognized deferred tax assets had
lowered the domestic portion of tax expense for 1996 as well as for a number of
prior years. An analysis of taxes on earnings is included in Note 14 of Notes to
Consolidated Financial Statements.
The Corporation reported a net loss of $754.8 million, or $8.22 per share
both on a basic and diluted basis, for the year ended December 31, 1998,
principally as a result of the goodwill write-off and restructuring and exit
costs, less the gain on sale of businesses, recognized in 1998. Because the
Corporation reported a net loss for the year ended December 31, 1998, the
calculation of reported earnings per share on a diluted basis excludes the
impact of stock options since their inclusion would be anti-dilutive - that is,
decrease the per-share loss. For comparative purposes, however, the dilutive
effect of these options has been included for the evaluation of the
Corporation's performance that follows. Excluding the effects of the goodwill
write-off of $900.0 million, after-tax restructuring and exit costs of $117.3
million, and the after-tax gain on sale of businesses of $16.5 million, net
earnings for 1998 would have been $246.0 million or $2.63 per share on this
diluted basis as compared to net earnings of $227.2 million, or $2.35 per
diluted share, for 1997. Excluding the after-tax restructuring charge of $74.8
million, the after-tax gain on the sale of PRC, and the $10.6 million income tax
benefit that resulted from the reduction of the Corporation's deferred tax asset
valuation allowance, net earnings for 1996 would have been $223.4 million, or
$2.32 per diluted share.
BUSINESS SEGMENTS
As more fully described in Note 19 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 directly related to reportable business segments booked in
consolidation and, thus, excluded from segment profit for the Corporation's
reportable business segments were $20.4 million, $17.6 million, and $1.0 million
for the years ended December 31, 1998, 1997, and 1996, respectively. The $20.4
million of segment-related expenses excluded from
<PAGE>
-30-
segment profit in 1998 primarily related to unbudgeted restructuring-related
expenses, including the aforementioned $11.5 million write-down of cleaning and
lighting inventory to net realizable value associated with the product line
rationalization undertaken to integrate the retained cleaning and lighting
business into the Power Tools and Accessories operations. The $17.6 million of
segment-related expenses excluded from segment profit in 1997 related to certain
unbudgeted costs recognized by the Corporation on behalf of the Power Tools and
Accessories segment, primarily related to deteriorating business conditions in
Asia, and on behalf of the Building Products segment, primarily related to the
cost of programs initiated by the prior management of that segment. These
segment-related expenses excluded from segment profit are generally
non-recurring in nature and were included in the Corporation's discussion of the
results of the underlying businesses prior to its adoption in 1998 of the new
segment reporting standard.
As indicated above and in Note 19 of Notes to Consolidated Financial
Statements, the Corporation's determination of segment profit excludes
restructuring and exit costs. Of the $164.7 million pre-tax charge taken in 1998
for restructuring and exit costs, $97.8 million relates to businesses in the
Power Tools and Accessories segment, $15.4 million relates to the businesses in
the Building Products segment, $3.3 million relates to businesses in the
Fastening and Assembly Systems segment, and $17.1 million relates to divested
businesses. The balance of $31.1 million principally relates to the $28.6
million charge for the voluntary retirement for employees in the United States,
including those of all three reportable business segments and of the Corporate
center.
Power Tools and Accessories
Segment sales and profit for the Power Tools and Accessories segment, determined
on the basis described in Note 19 of Notes to Consolidated Financial Statements,
were as follows (in millions of dollars):
<TABLE>
<CAPTION>
For the Year Ended December 31, 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales to unaffiliated customers $2,946.4 $2,936.4 $2,820.1
Segment profit 293.4 290.7 243.4
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Sales to unaffiliated customers in the Power Tools and Accessories segment
approximated the 1997 level despite competitive pressures that resulted in 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 outdoor products lines in the United States coupled with a double-digit
growth rate by the power tools business in Canada. This growth in North America,
however, was offset by a sharp decline in sales of cleaning and lighting
products, most significantly with respect to the SCUMBUSTER(R) cordless
submersible scrubber. In addition, sales of accessories in North America during
1998 declined slightly from the 1997 level as that business undertook SKU
reduction efforts and exited its fastening line in 1998.
Sales in Europe increased at a low-single digit rate in 1998 over the 1997
level as increased sales of consumer and professional power tools and
accessories offset declines in sales of household products and cleaning and
lighting products. Sales of outdoor products in Europe in 1998 approximated the
1997 level.
Sales in other geographic areas declined at a double-digit rate in 1998
from the 1997 levels, due principally to continued economic turmoil in Asia
during 1998 and worsening economic conditions in Latin America during the latter
part of 1998.
<PAGE>
-31-
Segment profit as a percentage of sales for the Power Tools and Accessories
segment was 10.0% in 1998 compared to 9.9% in 1997.
Sales to unaffiliated customers in the Power Tools and Accessories segment
for 1997 were 4% higher than in 1996. Sales in North America increased at a
mid-single digit rate in 1997 over the 1996 level principally as a result of
strong sales growth in power tools and accessories partially offset by sharply
lower sales of cleaning and lighting products. The 1997 sales growth in domestic
power tools and accessories was driven primarily by the introduction of new
products, including the DeWALT stationary machinery tool line and EXTREME
CORDLESS(R) 18-volt reciprocating saw, the WOOD HAWK(R) consumer circular saw,
and the WIZARD(TM) rotary tool line. The incremental sales benefit realized from
the sell-in of new products was partially offset by price reductions on core
professional and consumer products and by weaker sales of other consumer power
tools and accessories and outdoor products. Cleaning and lighting products
experienced a significant sales decline in 1997 from 1996 levels principally as
a result of sharply lower sales of the SNAKELIGHT flexible flashlight. This
sales decrease during 1997 was partially offset by sales increases of the
SCUMBUSTER cordless submersible scrubber.
Sales to unaffiliated customers in the Power Tools and Accessories segment
in Europe increased by 6% in 1997 over the 1996 level as higher sales of
consumer and professional power tools, accessories, and outdoor lawn and garden
tools in Europe in 1997 more than offset declines in product service, household
products, and cleaning and lighting products during that period.
Sales in the Power Tools and Accessories segment in other geographic
regions in 1997 declined from the 1996 level. Sales declines in Asia and Brazil
were partially offset by increased sales in a number of countries during 1997.
Segment profit as a percentage of sales for the Power Tools and Accessories
segment was 9.9% in 1997 compared to 8.6% in 1996.
Building Products
Segment sales and profit for the Building Products segment, determined on the
basis described in Note 19 of Notes to Consolidated Financial Statements, were
as follows (in millions of dollars):
<TABLE>
<CAPTION>
For the Year Ended December 31, 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales to unaffiliated customers $851.1 $804.8 $776.0
Segment profit 125.2 121.3 125.1
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Sales to unaffiliated customers in the Building Products segment increased
by 6% over the 1997 level, due principally to increased sales of security
hardware and plumbing products in North America, driven by sales of TITAN(R)
locksets and new plumbing product introductions, and of security hardware in
Europe. These increases were partially offset by lower sales of security
hardware products in Latin America and Asia.
Segment profit as a percentage of sales for the Building Products segment
was 14.7% in 1998 compared to 15.1% in 1997. Segment profit as a percentage of
sales in 1998 declined from the 1997 level as decreased profitability with
respect to security hardware products, principally associated with manufacturing
inefficiencies, more than offset profitability gains in plumbing products
experienced in 1998. Those gains, however, were in comparison to an extremely
weak 1997.
<PAGE>
-32-
Sales in the Building Products segment increased by 4% in 1997 over the
1996 level due, in part, to sales of new security hardware products, including
locksets and handlesets with Lifetime Finish, while sales of plumbing products
during 1997 were slightly above the 1996 level.
Segment profit as a percentage of sales for the Building Products segment
was 15.1% in 1997 compared to 16.1% in 1996 as a slight increase in
profitability of security hardware products in 1997 was more than offset by
decreased profitability in plumbing products that resulted, in part, from
manufacturing issues associated with the transition of production to a lower
cost facility in Mexicali, Mexico, during the first half of 1997.
Fastening and Assembly Systems
Segment sales and profit for the Fastening and Assembly Systems segment,
determined on the basis described in Note 19 of Notes to Consolidated Financial
Statements, were as follows (in millions of dollars):
<TABLE>
<CAPTION>
For the Year Ended December 31, 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales to unaffiliated customers $463.0 $451.3 $421.0
Segment profit 76.6 69.7 63.5
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Despite lower automotive sales during 1998 due to softness in Asia as well
as the effects of the now-settled General Motors strike in the United States,
sales to unaffiliated customers in the Fastening and Assembly Systems segment
increased by 3% in 1998 over the 1997 level, due in part to the strength of
European automotive sales.
Segment profit as a percentage of sales for the Fastening and Assembly
Systems segment increased from 15.4% in 1997 to 16.5% in 1998 as a result of
cost reduction initiatives.
Sales to unaffiliated customers in the Fastening and Assembly Systems
segment for 1997 were 7% higher than the 1996 level as a result of strong sales
to the automotive industry in the United States, partially offset by softness in
the domestic industrial market and in Europe.
Segment profit as a percentage of sales for the Fastening and Assembly
Systems segment was 15.4% and 15.1% for 1997 and 1996, respectively.
HEDGING ACTIVITIES
The Corporation has a number of manufacturing sites throughout the world and
sells its products in more than 100 countries. As a result, it is exposed to
movements in the exchange rates of various currencies against the United States
dollar and against the currencies of countries in which it manufactures. The
major foreign currencies in which foreign currency risks exist are the pound
sterling, deutsche mark, Dutch guilder, Canadian dollar, Swedish krona, Japanese
yen, French franc, Italian lira, Australian dollar, Mexican peso, and Brazilian
real. In addition, with the introduction of the European Union's new common
currency, the euro, on January 1, 1999, the Corporation's currency risks also
include transactions denominated in the euro. Through its foreign currency
activities, the Corporation seeks to minimize the risk that cash flows resulting
from the sales of products manufactured in a currency different from that of the
selling subsidiary will be affected by changes in exchange rates.
<PAGE>
-33-
At the time of the euro's introduction on January 1, 1999, the eleven
participating member countries of the European Monetary Union established fixed
conversion rates between their legacy currencies and the euro. During a
three-year phase-in period during which special conversion rules apply, the
legacy currencies will continue to be used as legal tender. On January 1, 2002,
the legacy currencies will be canceled and replaced by the euro as legal tender.
The Corporation has initiated actions to ensure that computer systems in its
European operation will be in a position to accommodate the adoption of the euro
by no later than January 1, 2002. The Corporation believes that the introduction
of the euro may result in increased competitive pressures in continental Europe
due to the heightened transparency of intra-European pricing structures.
From time to time, currency devaluations may occur in countries in which
the Corporation sells or manufactures its product. While the Corporation will
take actions to mitigate the impacts of any future currency devaluations, there
is no assurance that such devaluations will not adversely affect the
Corporation.
Prior to January 1, 1999, Mexico was a highly inflationary economy and,
accordingly, the results of the Corporation's Mexican subsidiary were measured
using the United States dollar as its functional currency. Effective January 1,
1999, Mexico no longer qualifies as a highly inflationary economy and,
accordingly, the results of the Mexican subsidiary will be measured using the
Mexican peso as its functional currency, with gains and losses from United
States dollar-denominated transactions included in net earnings. Prior to
January 1, 1998, Brazil was a highly inflationary economy and, accordingly, the
results of the Corporation's Brazilian subsidiary were measured using the United
States dollar as its functional currency. Effective January 1, 1998, Brazil no
longer qualified as a highly inflationary economy and, accordingly, the results
of the Brazilian subsidiary in 1998 were measured using the Brazilian real as
its functional currency, with gains and losses from United States
dollar-denominated transactions included in net earnings. In January 1999, a
devaluation of the Brazilian real took place and, in response, a lesser
devaluation in the value of the Mexican peso occurred. Because the Corporation's
exposures in Brazil and Mexico either offset or were partially hedged, the
Corporation expects that the impact of the January 1999 devaluations on its
reported results will not be material. While the Corporation will take actions
to mitigate its exposures, there can be no assurance that any future devaluation
of the Brazilian real or Mexican peso will not adversely affect the Corporation.
Assets and liabilities of subsidiaries located outside of the United States
are translated at rates of exchange at the balance sheet date as more fully
explained in Note 1 of Notes to Consolidated Financial Statements. The resulting
translation adjustments are included in the accumulated other comprehensive
income component of stockholders' equity. During 1998, translation adjustments,
recorded in the accumulated other comprehensive income component of
stockholders' equity, decreased stockholders' equity by $37.7 million compared
to a decrease of $63.1 million in 1997.
In order to minimize the volatility of reported equity, the Corporation
hedges, on a limited basis, the exposure to foreign currency fluctuations on its
net investments in subsidiaries located outside of the United States through the
use of currency swaps, forward contracts, and options. These hedging activities
generate cash inflows and outflows that offset the translation adjustment.
During 1998 and 1997, these activities netted to a cash inflow of $3.4 million
and $26.9 million, respectively. The corresponding gains and losses on these
hedging activities were recorded in the accumulated other comprehensive income
component of
<PAGE>
-34-
stockholders' equity. Also included in the accumulated other comprehensive
income component were the costs of maintaining the hedge portfolio of foreign
exchange contracts. These hedge costs were not significant in 1998 and 1997.
As more fully explained in Note 10 of Notes to Consolidated Financial
Statements, the Corporation seeks to issue debt opportunistically, whether at
fixed or variable rates, at the lowest possible costs. Based upon its assessment
of the future interest rate environment and its desired variable rate debt to
total debt ratio, the Corporation may later convert such debt from fixed to
variable or from variable to fixed interest rates, or from United States dollar-
based rates to rates based upon another currency, through the use of interest
rate swap agreements.
In order to meet its goal of fixing or limiting interest costs, the
Corporation maintains a portfolio of interest rate hedge instruments. The
variable rate debt to total debt ratio, after taking interest rate hedges into
account, was 47% at December 31, 1998, compared to 63% at December 31, 1997, and
35% at December 31, 1996. At December 31, 1998, average debt maturity was 6.7
years compared to 3.9 years at December 31, 1997, and 4.5 years at December 31,
1996.
<PAGE>
-35-
Interest Rate Sensitivity
The following table provides information as of December 31, 1998, about the
Corporation's derivative financial instruments and other financial instruments
that are sensitive to changes in interest rates, including interest swaps and
debt obligations. For debt obligations, the table presents principal cash flows
and related average interest rates by contractual maturity dates. For interest
rate swaps, the table presents notional principal amounts and weighted-average
interest rates by contractual maturity dates. Notional amounts are used to
calculate the contractual payments to be exchanged under the interest rate
swaps. Weighted-average variable rates are generally based on the London
Interbank Offered Rate (LIBOR) as of the reset dates. The cash flows of these
instruments are denominated in a variety of currencies. Unless otherwise
indicated, the information is presented in U.S. dollar equivalents, which is the
Corporation's reporting currency, as of December 31, 1998.
<TABLE>
Principal Payments and Interest Rate Detail by Contractual Maturity Dates
<CAPTION>
Fair Value
(Assets)/
(U.S. Dollars in Millions) 1999 2000 2001 2002 2003 Thereafter Total Liabilities
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities
Short-term borrowings
Variable rate (U.S. dollars) $117.6 $ -- $ -- $ -- $ -- $ -- $ 117.6 $ 117.6
Average interest rate 5.73% 5.73%
Variable rate(other currencies)$ 34.9 $ -- $ -- $ -- $ -- $ -- $ 34.9 $ 34.9
Average interest rate 11.66% 11.66%
Long-term debt
Fixed rate (U.S. dollars) $ 30.0 $214.5 $ 45.0 $ 47.4 $335.7 $454.4 $1,127.0 $1,178.3
Average interest rate 8.52% 6.63% 8.94% 8.88% 7.50% 6.87% 7.22%
Fixed rate (other currencies) $ 9.2 $ 4.8 $ 5.0 $ 1.5$ .7 $ -- $ 21.2 $ 21.2
Average interest rate 7.33% 5.74% 5.78% 1.04% 1.08% 5.97%
Variable rate (U.S. dollars) $ 20.0 $ -- $ 36.9 (a) $ -- $ 3.0 $ -- $ 59.9 $ 59.9
Average interest rate L+.65%(b) L+.24%(b) Various Various
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Includes $29.4 million of borrowings under the unsecured revolving credit
facility, which expires in 2001. The Corporation does not represent that
such borrowings will be outstanding until 2001.
(b) Variable rate specified is based upon LIBOR plus the specified margin over
LIBOR.
</FN>
</TABLE>
<PAGE>
-36-
<TABLE>
Notional Principal Amounts and Interest Rate Detail by Contractual Maturity Dates
<CAPTION>
Fair Value
(Assets)/
(U.S. Dollars in Millions) 1999 2000 2001 2002 2003 Thereafter Total Liabilities
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Rate Derivatives
Interest Rate Swaps
Fixed to variable rates
(all U.S. dollar denominated) $ -- $ 50.0 $ -- $ -- $125.0 $250.0 $425.0 $(14.2)
Average pay rate (c)
Average receive rate 5.54% 6.02% 6.02% 5.96%
Fixed U.S. rates to
fixed foreign rates (d)
To Japanese yen $100.0 $ -- $ -- $ -- $ -- $ -- $100.0 $ (4.8)
Average pay rate
(in Japanese yen) (e) 1.99% 1.99%
Average receive rate 6.66% 6.66%
To deutsche marks $100.0 $ -- $ -- $ -- $ -- $ -- $100.0 $ (8.1)
Average pay rate
(in deutsche marks) (f) 4.73% 4.73%
Average receive rate 6.64% 6.64%
To Dutch guilders $ 50.0 $ -- $ -- $ -- $ -- $ -- $ 50.0 $ (4.7)
Average pay rate
(in Dutch guilders) (g) 4.58% 4.58%
Average receive rate 6.77% 6.77%
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
(c) The average pay rate is based upon 6-month forward LIBOR, except for $125.0
million in notional principal amount which matures after 2003 and is based
upon 3-month forward LIBOR.
(d) The indicated fair values of interest rate swaps that swap from fixed U.S.
rates to fixed foreign rates include the fair values of the exchange of the
notional principal amounts at the end of the swap terms as well as the
exchange of interest streams over the life of the swaps. The fair values of
the currency exchange are also included in the disclosures of foreign
currency exchange rate sensitivity.
(e) The average pay rate (in Japanese yen) is based upon a notional principal
amount of 10.9 billion yen.
(f) The average pay rate (in deutsche marks) is based upon a notional principal
amount of 153.3 million deutsche marks.
(g) The average pay rate (in Dutch guilders) is based upon a notional principal
amount of 85.9 million Dutch guilders.
</FN>
</TABLE>
Foreign Currency Exchange Rate Sensitivity
As discussed above, the Corporation is exposed to market risks arising from
changes in foreign exchange rates. As of December 31, 1998, the Corporation has
hedged a substantial portion of its 1999 estimated foreign currency transactions
using forward exchange contracts and purchased options. As a result, the
Corporation estimates that, based upon a recent estimate of foreign exchange
exposures, the result of a uniform 10% strengthening in the value of the United
States dollar would have the effect of reducing gross profit for 1999 by
approximately $20 million. In addition to their direct effects, changes in
exchange rates also affect sales volumes and foreign currency sales prices as
competitors' products become more or less attractive. The sensitivity analysis
of the effects of changes in foreign currency exchange rates described above
does not reflect a potential change in sales levels or local currency prices nor
does it reflect higher exchange rates, compared to those experienced during
1998, inherent in the foreign exchange hedging portfolio at December 31, 1998.
<PAGE>
-37-
RESTRUCTURING UNDERTAKEN IN 1996
Based upon a number of factors, the Corporation decided to intensify its cost
reduction efforts and recorded a restructuring charge in the amount of $91.3
million ($74.8 million after tax) in 1996.
The major component of the 1996 restructuring charge related to the
elimination of approximately 1,500 positions, of which approximately 1,300 were
in the Power Tools and Accessories segment. As a result, severance benefits
totaling $74.6 million, principally associated with the Power Tools and
Accessories segment in Europe, were accrued in the restructuring charge. The
balance of the 1996 restructuring charge primarily represented non-cash charges
associated with the decision to rationalize certain manufacturing operations,
principally in the Building Products segment in the United States. Such
rationalization included the outsourcing of products then manufactured by the
Corporation and the closure of several small manufacturing facilities. The
principal non-cash charge consisted of a $6.6 million write-down to fair value
of land and buildings affected by the rationalization. The remaining
restructuring charge primarily related to the write-down to fair value of
equipment made obsolete or redundant due to the decision to close certain
facilities or outsource certain production.
The restructuring reserve of $37.7 million remaining as of December 31,
1996, was substantially spent in cash during 1997.
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 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.
In general, for each of the businesses' significant Y2K exposures, the
awareness and assessment phases have been completed with respect to software and
hardware and have been substantially completed with respect to manufacturing
equipment and facilities. Remediation
<PAGE>
-38-
is substantially complete with respect to software and hardware and
approximately 50% complete with respect to manufacturing and facilities, with
significant testing and implementation completed or planned for the first half
of 1999. Surveys of customers, suppliers, and partners for Y2K compliance
generally have been completed or are underway. 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. Key suppliers have been or are being identified for
further surveys, reviews, testing, and evaluation. 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. The Corporation is continuing to work with outside
experts to provide independent validation and verification of its
non-information technology, embedded systems, particularly in the Corporation's
manufacturing and distribution facilities. To date, the Corporation has not
discovered any significant Y2K issues related to embedded systems that
management expects, after taking into account the Corporation's Y2K evaluation
and remediation program, will have a material adverse effect on the continuity
of the Corporation's business.
Each of the Corporation's businesses have established key milestones for
completion of the remediation, testing, and implementation phases of the Y2K
program. In general, these milestones call for completion of the testing and
implementation phases for all critical systems by no later than the end of the
second quarter of 1999 so that any slippage in the milestones for these critical
systems can be corrected in the third quarter of 1999. For non-critical systems,
these milestones generally call for completion of the remediation phase by no
later than 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 is in the final stages of installing advanced
supply-chain management systems and SAP information systems. The final testing
and implementation of these systems is scheduled for April 1999. 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 $10 million to address issues related to the Y2K problem.
During 1999, the Corporation expects to spend an additional $5 million to
address Y2K issues, of which approximately $2 million is attributable to new
systems initiatives in Europe that have been accelerated 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.
<PAGE>
-39-
Management believes that the Corporation has an effective program in place
to resolve the Y2K issue in a timely manner. As noted above, the Corporation has
not yet completed all necessary phases of its Y2K program. In the event that the
Corporation does not 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 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 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
is in the process of developing such plans for other critical applications in
the event that remediation milestones are not achieved. Such contingency plans
involve consideration of a number of possible actions, including, to the extent
necessary, manual workarounds, 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. The Corporation
intends to develop additional contingency plans with its customers, suppliers,
and partners during 1999 based on risks and possible business impact.
DISCONTINUED OPERATIONS
Discontinued operations consist of the results of PRC Inc., PRC Realty Systems,
Inc. (RSI), and PRC Environmental Management, Inc. (EMI). Together, PRC Inc.,
RSI, and EMI composed the Corporation's former Information Technology and
Services (PRC) segment.
On February 16, 1996, the Corporation completed the sale of PRC Inc., the
remaining business in the discontinued PRC segment. Proceeds of $425.0 million
from the sale of PRC Inc., less cash selling expenses of $11.4 million paid
during 1996, were used to reduce indebtedness. Earnings from discontinued
operations of $70.4 million ($.73 per share on a diluted basis) in 1996
primarily consist of the gain on the sale of PRC Inc., net of applicable income
taxes of $55.6 million. The gain is net of provisions for adjustment to the
sales price and retained liabilities. Revenues and operating income of PRC Inc.
for the period from January 1, 1996, through the date of sale were not
significant.
FINANCIAL CONDITION
Operating activities generated cash of $366.3 million for the year ended
December 31, 1998, compared to $353.2 million of cash generated before the sale
of receivables for the year ended December 31, 1997. This increased cash
generation was principally the result of improved working capital management in
1998 as compared to 1997.
In December 1997, the Corporation determined that its sale of receivables
program was no longer necessary to support its liquidity requirements and, as a
result, voluntarily terminated the program. The total amount of receivables sold
under the sale of receivables program at December 31, 1996, was $212.0 million.
<PAGE>
-40-
Investing activities for 1998 generated cash of $531.4 million due
principally to the receipt of $653.6 million of proceeds, net of selling
expenses paid, from the sale of the household products business in North
America, Central America, the Caribbean and South America (excluding Brazil),
proceeds from the sale of the glass container-forming and inspection equipment
business, and proceeds from the recapitalization of the recreational products
business. Excluding those proceeds, investing activities for 1998 used cash of
$122.2 million compared to $162.8 million of cash used in 1997. Capital
expenditures were $146.0 million during 1998 compared to $203.1 million during
1997. During 1998, approximately 54% of the capital expenditures were in the
Power Tools and Accessories segment, primarily in support of new product
initiatives and productivity enhancements. The Corporation expects capital
spending in 1999 to increase significantly over the 1998 level.
Financing activities for 1998 used cash of $1,054.3 million compared to
$129.6 million of cash generated in 1997. The increase in cash used in financing
activities during 1998 over 1997 was principally the result of cash expended for
the stock repurchase program and for the redemption of preferred stock of a
subsidiary, coupled with lower borrowing levels in 1998 due, in part, to
increased cash from operating activities and the receipt of proceeds from the
divested businesses.
During 1998, a wholly owned subsidiary of the Corporation issued $300.0
million of fixed rate, senior unsecured notes that were guaranteed by the
Corporation, of which $150.0 million is due in 2007 and the balance is due in
2028. Proceeds of that debt issuance were used to repay borrowings outstanding
under the Corporation's revolving credit facility.
In addition to measuring its cash flow generation and usage based upon the
operating, investing, and financing classifications included in the Consolidated
Statement of Cash Flows, the Corporation also measures its free cash flow. Free
cash flow, a measure commonly employed by bond rating agencies and banks, is
defined by the Corporation as cash available for debt reduction (including
short-term borrowings), prior to the effects of cash received from divested
businesses (net of selling expenses and related taxes paid), issuances of
equity, and sales of receivables and to the effects of cash paid for stock
repurchases and for the redemption of stock of subsidiaries. Free cash flow, a
more inclusive measure of the Corporation's cash flow generation than cash flow
from operating activities included in the Consolidated Statement of Cash Flows,
considers items such as cash used for capital expenditures and dividends, as
well as net cash inflows or outflows from hedging activities. During the year
ended December 31, 1998, the Corporation generated free cash flow of $188.2
million compared to $150.2 million of free cash flow generated in 1997. This
$38.0 million increase in free cash flow during 1998 over the 1997 level was
primarily the result of improved cash flows from investing activities,
principally due to lower capital expenditures in 1998, and from operating
activities.
The ongoing costs of compliance with existing environmental laws and
regulations have not had, and are not expected to have, a material adverse
effect on the Corporation's capital expenditures or financial position.
The Corporation will continue to have cash requirements to support seasonal
working capital needs and capital expenditures, to pay interest, to service
debt, and to complete the strategic repositioning plan begun in 1998. In order
to meet these cash requirements, the Corporation intends to use internally
generated funds and to borrow under its unsecured revolving credit facility or
under short-term borrowing facilities. The Corporation believes that cash
generated from these sources will be adequate to meet its cash requirements over
the next 12 months.
<PAGE>
-41-
ITEM 7A. QUANTITATIVE AND QUALITATIVE DICLOSURES ABOUT MARKET RISK
Information required under this Item is contained in Item 7 of this report under
the caption "Hedging Activity" and in Item 8 of this report in Notes 1 and 10 of
Notes to Consolidated Financial Statements, and is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Corporation and its
subsidiaries are included herein as indicated below:
Consolidated Financial Statements
- ---------------------------------
Consolidated Statement of Earnings
- years ended December 31, 1998, 1997, and 1996.
Consolidated Balance Sheet
- December 31, 1998 and 1997.
Consolidated Statement of Stockholders' Equity
- years ended December 31, 1998, 1997, and 1996.
Consolidated Statement of Cash Flows
- years ended December 31, 1998, 1997, and 1996.
Notes to Consolidated Financial Statements.
Report of Independent Auditors.
<PAGE>
- 42 -
<TABLE>
CONSOLIDATED STATEMENT OF EARNINGS
The Black & Decker Corporation and Subsidiaries
(Dollars in Millions Except Per Share Data)
<CAPTION>
Year Ended December 31,
- -------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $4,559.9 $4,940.5 $4,914.4
Cost of goods sold 2,951.0 3,169.2 3,156.6
Selling, general, and administrative expenses 1,124.9 1,282.0 1,309.6
Write-off of goodwill 900.0 -- --
Restructuring and exit costs 164.7 -- 91.3
Gain on sale of businesses 114.5 -- --
- -------------------------------------------------------------------------------------------------------------------
Operating Income (Loss) (466.2) 489.3 356.9
Interest expense (net of interest income of
$30.9 for 1998, $8.1 for 1997, and $4.7 for 1996) 114.4 124.6 135.4
Other expense 7.7 15.2 18.8
- -------------------------------------------------------------------------------------------------------------------
Earnings (Loss) From Continuing Operations
Before Income Taxes (588.3) 349.5 202.7
Income taxes 166.5 122.3 43.5
- -------------------------------------------------------------------------------------------------------------------
Earnings (Loss) From Continuing Operations (754.8) 227.2 159.2
Earnings from discontinued operations
(net of income taxes of $55.6) -- -- 70.4
- -------------------------------------------------------------------------------------------------------------------
Net Earnings (Loss) $ (754.8) $ 227.2 $ 229.6
===================================================================================================================
- -------------------------------------------------------------------------------------------------------------------
Net Earnings (Loss) Per Common Share -- Basic:
Earnings (loss) from continuing operations $ (8.22) $ 2.40 $ 1.69
Earnings from discontinued operations -- -- .79
- -------------------------------------------------------------------------------------------------------------------
Net Earnings (Loss) Per Common Share -- Basic $ (8.22) $ 2.40 $ 2.48
===================================================================================================================
Net Earnings (Loss) Per Common Share --
Assuming Dilution:
Earnings (loss) from continuing operations $ (8.22) $ 2.35 $ 1.66
Earnings from discontinued operations -- -- .73
- -------------------------------------------------------------------------------------------------------------------
Net Earnings (Loss) Per Common Share --
Assuming Dilution $ (8.22) $ 2.35 $ 2.39
===================================================================================================================
<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>
<PAGE>
-43-
<TABLE>
CONSOLIDATED BALANCE SHEET
The Black & Decker Corporation and Subsidiaries
(Millions of Dollars)
<CAPTION>
December 31,
- -------------------------------------------------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 87.9 $ 246.8
Trade receivables, less allowances of
$44.3 for 1998 and $47.8 for 1997 792.4 931.4
Inventories 636.9 774.7
Other current assets 234.6 125.9
- -------------------------------------------------------------------------------------------------------------------
Total Current Assets 1,751.8 2,078.8
- -------------------------------------------------------------------------------------------------------------------
Property, Plant, and Equipment 727.6 915.1
Goodwill 768.7 1,877.3
Other Assets 604.4 489.5
- -------------------------------------------------------------------------------------------------------------------
$3,852.5 $5,360.7
===================================================================================================================
Liabilities and Stockholders' Equity
Short-term borrowings $ 152.5 $ 178.3
Current maturities of long-term debt 59.2 60.5
Trade accounts payable 348.8 372.0
Other accrued liabilities 814.2 761.8
- -------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 1,374.7 1,372.6
- -------------------------------------------------------------------------------------------------------------------
Long-Term Debt 1,148.9 1,623.7
Deferred Income Taxes 279.9 57.7
Postretirement Benefits 263.5 304.2
Other Long-Term Liabilities 211.5 211.1
Stockholders' Equity
Common stock (outstanding: December 31, 1998 -- 87,498,424 shares;
December 31, 1997 -- 94,842,544 shares) 43.7 47.4
Capital in excess of par value 871.4 1,278.2
Retained earnings (deficit) (236.6) 562.0
Accumulated other comprehensive income (104.5) (96.2)
- -------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 574.0 1,791.4
- -------------------------------------------------------------------------------------------------------------------
$3,852.5 $5,360.7
===================================================================================================================
<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>
<PAGE>
-44-
<TABLE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
The Black & Decker Corporation and Subsidiaries
(Dollars in Millions Except Per Share Data)
<CAPTION>
Accumulated
Outstanding Capital in Retained Other Total
Preferred Common Par Excess of Earnings Comprehensive Stockholders'
Shares Shares Value Par Value (Deficit) Income Equity
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 150.0 86,447,588 $43.2 $1,084.5 $ 202.6 $ (57.1) $1,423.2
Comprehensive income:
Net earnings -- -- -- -- 229.6 -- 229.6
Foreign currency translation
adjustments, less effect of
hedging activities (net of tax) -- -- -- -- -- .5 .5
- ---------------------------------------------------------------------------------------------------------------------------
Comprehensive income -- -- -- -- 229.6 .5 230.1
- ---------------------------------------------------------------------------------------------------------------------------
Cash dividends:
Common ($.48 per share) -- -- -- -- (42.9) -- (42.9)
Preferred -- -- -- -- (9.1) -- (9.1)
Conversion of preferred shares
into common shares (150.0) 6,350,000 3.2 146.8 -- -- --
Common stock issued under
employee benefit plans -- 1,451,219 .7 30.4 -- -- 31.1
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 -- 94,248,807 47.1 1,261.7 380.2 (56.6) 1,632.4
Comprehensive income:
Net earnings -- -- -- -- 227.2 -- 227.2
Foreign currency translation
adjustments, less effect of
hedging activities (net of tax) -- -- -- -- -- (39.6) (39.6)
- ---------------------------------------------------------------------------------------------------------------------------
Comprehensive income -- -- -- -- 227.2 (39.6) 187.6
- ---------------------------------------------------------------------------------------------------------------------------
Cash dividends on common stock
($.48 per share) -- -- -- -- (45.4) -- (45.4)
Common stock issued under
employee benefit plans -- 593,737 .3 16.5 -- -- 16.8
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 -- 94,842,544 47.4 1,278.2 562.0 (96.2) 1,791.4
Comprehensive income (loss):
Net loss -- -- -- -- (754.8) -- (754.8)
Minimum pension liability
adjustment (net of tax) -- -- -- -- -- (6.1) (6.1)
Foreign currency translation
adjustments, less effect of
hedging activities (net of tax) -- -- -- -- -- (37.8) (37.8)
Write-off of accumulated foreign
currency translation adjustments
due to sale of businesses -- -- -- -- -- 35.6 35.6
- ---------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) -- -- -- -- (754.8) (8.3) (763.1)
- ---------------------------------------------------------------------------------------------------------------------------
Cash dividends on common stock
($.48 per share) -- -- -- -- (43.8) -- (43.8)
Purchase and retirement of
common stock -- (9,025,400) (4.5) (459.8) -- -- (464.3)
Common stock issued under
employee benefit plans -- 1,681,280 .8 53.0 -- -- 53.8
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 $ -- 87,498,424 $43.7 $ 871.4 $(236.6) $(104.5) $ 574.0
===========================================================================================================================
<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>
<PAGE>
-45-
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
The Black & Decker Corporation and Subsidiaries
(Millions of Dollars)
<CAPTION>
Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net earnings (loss) $ (754.8) $ 227.2 $ 229.6
Adjustments to reconcile net earnings (loss) to cash flow
from operating activities of continuing operations
Gain on sale of businesses (114.5) -- --
Non-cash charges and credits:
Goodwill write-off 900.0 -- --
Restructuring charges and exit costs 164.7 -- 91.3
Depreciation and amortization 155.2 214.2 214.6
Deferred income taxes 67.5 71.7 2.9
Other (1.7) 1.5 1.2
Earnings of discontinued operations -- -- (70.4)
Changes in selected working capital items
(excluding, for 1998, effects of divested businesses):
Trade receivables (24.3) (85.1) (10.0)
Inventories 26.9 (63.7) 107.5
Trade accounts payable 16.9 2.3 (21.4)
Restructuring spending (55.6) (27.4) (39.2)
Other assets and liabilities (14.0) 12.5 (42.7)
Net decrease in receivables sold -- (212.0) (18.0)
- ---------------------------------------------------------------------------------------------------------------------------
Cash flow from operating activities of continuing operations 366.3 141.2 445.4
Cash flow from operating activities of discontinued operations -- -- (12.4)
- ---------------------------------------------------------------------------------------------------------------------------
Cash Flow From Operating Activities 366.3 141.2 433.0
- ---------------------------------------------------------------------------------------------------------------------------
Investing Activities
Proceeds from sale of businesses, net of selling expenses 653.6 -- --
Proceeds from sale of discontinued operations -- -- 413.6
Proceeds from disposal of assets 20.4 13.4 31.5
Capital expenditures (146.0) (203.1) (196.3)
Cash inflow from hedging activities 343.5 384.8 392.9
Cash outflow from hedging activities (340.1) (357.9) (398.3)
- ---------------------------------------------------------------------------------------------------------------------------
Cash Flow From Investing Activities 531.4 (162.8) 243.4
- ---------------------------------------------------------------------------------------------------------------------------
Cash Flow Before Financing Activities 897.7 (21.6) 676.4
Financing Activities
Net decrease in short-term borrowings (23.2) (18.4) (360.9)
Proceeds from long-term debt (including revolving credit facility) 586.6 667.2 461.1
Payments on long-term debt (including revolving credit facility) (1,096.3) (483.9) (735.2)
Debt issue costs paid (2.9) -- --
Redemption of preferred stock of subsidiary (41.7) -- --
Purchase of common stock (464.3) -- --
Issuance of common stock 31.3 10.1 22.3
Cash dividends (43.8) (45.4) (54.6)
- ---------------------------------------------------------------------------------------------------------------------------
Cash Flow From Financing Activities (1,054.3) 129.6 (667.3)
Effect of exchange rate changes on cash (2.3) (3.0) 1.1
- ---------------------------------------------------------------------------------------------------------------------------
(Decrease) Increase in Cash and Cash Equivalents (158.9) 105.0 10.2
Cash and cash equivalents at beginning of year 246.8 141.8 131.6
- ---------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 87.9 $ 246.8 $ 141.8
===========================================================================================================================
<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>
<PAGE>
-46-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Black & Decker Corporation and Subsidiaries
NOTE 1: SUMMARY OF ACCOUNTING POLICIES
Principles of Consolidation: The Consolidated Financial Statements include the
accounts of the Corporation and its subsidiaries. Intercompany transactions have
been eliminated.
Reclassifications: Certain prior years' amounts in the Consolidated Financial
Statements have been reclassified to conform to the presentation used in 1998.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results inevitably will differ from those estimates,
and such differences may be material to the financial statements.
Foreign Currency Translation: The financial statements of subsidiaries located
outside of the United States, except those subsidiaries operating in highly
inflationary economies, generally are measured using the local currency as the
functional currency. Assets, including goodwill, and liabilities of these
subsidiaries are translated at the rates of exchange at the balance sheet date.
The resultant translation adjustments are included in accumulated other
comprehensive income, a separate component of stockholders' equity. Income and
expense items are translated at average monthly rates of exchange. Gains and
losses from foreign currency transactions of these subsidiaries are included in
net earnings. For subsidiaries operating in highly inflationary economies, gains
and losses from balance sheet translation adjustments are included in net
earnings.
Cash and Cash Equivalents: Cash and cash equivalents include cash on hand,
demand deposits, and short-term investments with original maturities of three
months or less.
Inventories: Inventories are stated at the lower of cost or market. The cost of
United States inventories is based primarily on the last-in, first-out (LIFO)
method; all other inventories are based on the first-in, first-out (FIFO)
method.
Property and Depreciation: Property, plant, and equipment is stated at cost.
Depreciation is computed generally on the straight-line method for financial
reporting purposes.
Goodwill and Other Intangibles: Goodwill and other intangibles are amortized on
the straight-line method. Goodwill is amortized principally over a 40-year
period.
As more fully described in Note 2, effective January 1, 1998, the
Corporation changed its method for measuring and recognizing an impairment of
goodwill from an undiscounted cash flow approach to a discounted cash flow
approach.
Product Development Costs: Costs associated with the development of new products
and changes to existing products are charged to operations as incurred. Product
development costs were $90.5 million in 1998, $99.1 million in 1997, and $101.3
million in 1996.
Advertising and Promotion: All costs associated with advertising and promoting
products are expensed in the year incurred. Advertising and promotion expense,
including expense of consumer rebates, was $211.2 million in 1998, $248.0
million in 1997, and $258.5 million in 1996.
<PAGE>
-47-
Postretirement Benefits: Pension plans, which cover substantially all of the
Corporation's employees, consist primarily of non-contributory defined benefit
plans. The defined benefit plans are funded in conformity with the funding
requirements of applicable government regulations. Generally, benefits are based
on age, years of service, and the level of compensation during the final years
of employment. Prior service costs for defined benefit plans generally are
amortized over the estimated remaining service periods of employees.
Certain employees are covered by defined contribution plans. The
Corporation's contributions to these plans are based on a percentage of employee
compensation or employee contributions. These plans are funded on a current
basis.
In addition to pension benefits, certain postretirement medical, dental,
and life insurance benefits are provided, principally to most United States
employees. Retirees in other countries generally are covered by
government-sponsored programs.
The Corporation uses the corridor approach in the valuation of defined
benefit plans and other postretirement benefits. The corridor approach defers
all actuarial gains and losses resulting from variances between actual results
and economic estimates or actuarial assumptions. For defined benefit pension
plans, these unrecognized gains and losses are amortized when the net gains and
losses exceed 10% of the greater of the market-related value of plan assets or
the projected benefit obligation at the beginning of the year. For other
postretirement benefits, amortization occurs when the net gains and losses
exceed 10% of the accumulated postretirement benefit obligation at the beginning
of the year. The amount in excess of the corridor is amortized over the average
remaining service period to retirement date of active plan participants or, for
retired participants, the average remaining life expectancy.
Effective December 31, 1998, the Corporation adopted Statement of Financial
Accounting Standards (SFAS) No. 132, Employers' Disclosures about Pensions and
Other Postretirement Benefits. The provisions of SFAS No. 132 revise employers'
disclosures about pension and other postretirement benefit plans, but have no
impact on the Corporation's measurement or recognition of its pension and other
postretirement benefit plans.
Derivative Financial Instruments: Derivative financial instruments are used
principally in the management of interest rate and foreign currency exposures.
Amounts to be paid or received under interest rate swap agreements are
accrued as interest rates change and are recognized over the life of the swap
agreements as an adjustment to interest expense. The related amounts due to or
from the counterparties are included in other accrued liabilities. Since they
are accounted for as hedges, the fair value of the swap agreements is not
recognized in the Consolidated Financial Statements.
The costs of interest rate cap agreements are included in interest expense
ratably over the lives of the agreements. Payments to be received as a result of
the cap agreements are accrued as a reduction of interest expense. The
unamortized costs of the cap agreements are included in other assets.
Gains or losses resulting from the early termination of interest rate swaps
or caps are deferred and amortized as an adjustment to the yield of the related
debt instrument over the remaining period originally covered by the terminated
swaps or caps. Were that related debt instrument later to be retired prior to
its scheduled maturity, the unamortized gain or loss resulting from the early
termination of the interest rate swap or cap would be included in the gain or
loss on the extinguishment of debt.
<PAGE>
-48-
Gains and losses on hedges of net investments in subsidiaries located
outside of the United States are reflected in the Consolidated Balance Sheet in
the accumulated other comprehensive income component of stockholders' equity,
with the related amounts due to or from the counterparties included in other
liabilities or other assets. Gains and losses resulting from the early
termination of hedges of net investments are reflected in the accumulated other
comprehensive income component of stockholders' equity at the time of
termination.
Gains and losses on foreign currency transaction hedges are recognized in
income and offset the foreign exchange gains and losses on the underlying
transactions. Deferred gains on options that hedge forecasted transactions,
generally related to inventory purchases, are recognized in cost of sales when
the related inventory is sold or when a hedged purchase is no longer expected to
occur.
The carrying amounts of foreign currency-related derivatives with respect
to net investment and commitment hedges are included in the Consolidated Balance
Sheet in other current assets and other accrued liabilities. The carrying
amounts of foreign currency-related derivatives associated with transaction
hedges are included in the same balance sheet line item as the hedged
transaction.
Cash effects of the Corporation's derivative financial instruments are
included in the Consolidated Statement of Cash Flows in the periods in which
they occur. Except as noted below, the cash effects of the Corporation's
interest rate swaps and caps, foreign currency transaction hedges, hedges of
foreign currency firm commitments, and hedges of forecasted transactions are
included in the Consolidated Statement of Cash Flows as cash flow from operating
activities. The cash effects of hedges of net investments in subsidiaries
located outside of the United States are included in the Consolidated Statement
of Cash Flows as cash flow from investing activities. The cash effects of the
exchange of notional principal amounts on interest rate swaps that swap from
fixed United States dollars to fixed or variable foreign currencies are included
in the Consolidated Statement of Cash Flows as cash flow from investing
activities because such amounts have been designated as hedges of net
investments in subsidiaries located outside of the United States.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, which is required
to be adopted for years beginning after June 15, 1999. Early adoption of SFAS
No. 133 is permitted as of the beginning of any fiscal quarter after its
issuance. SFAS No. 133 will require the Corporation to recognize all derivatives
on the balance sheet at fair value. Derivatives that do not qualify as hedges
under the new standard must be adjusted to fair value through income. If a
derivative qualifies as a hedge, depending on the nature of the hedge, changes
in the fair value of derivatives will either be offset against the change in
fair value of the hedged assets, liabilities, or firm commitments through
earnings or recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's change in
value will be immediately recognized in earnings.
The Corporation has not yet determined when it will adopt SFAS No. 133,
although early adoption is considered possible due to the new standard's more
favorable treatment of certain foreign currency hedges than that afforded under
prior accounting standards. The Corporation has not yet determined what effect
SFAS No. 133 will have on its earnings and financial position.
<PAGE>
-49-
Stock-Based Compensation: As described in Note 18, the Corporation has elected
to follow the accounting provisions of Accounting Principles Board Opinion
(APBO) No. 25, Accounting for Stock Issued to Employees, for stock-based
compensation and to furnish the pro forma disclosures required under SFAS No.
123, Accounting for Stock-Based Compensation.
Business Segments: Effective December 31, 1998, the Corporation adopted SFAS No.
131, Disclosures about Segments of an Enterprise and Related Information.
Segment information for 1997 and 1996 has been restated in conformity with the
requirements of SFAS No. 131.
NOTE 2: STRATEGIC REPOSITIONING
Overview: A comprehensive strategic repositioning plan, designed to intensify
focus on core operations and improve operating performance, was approved by the
Corporation's Board of Directors on January 26, 1998. The 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 outstanding common stock over a
two-year period; and (iii) a restructuring of the Corporation's remaining
businesses. Also on January 26, 1998, the Board of Directors elected to
authorize a change in the basis upon which the Corporation evaluates goodwill
for impairment.
Divestitures: During 1998, the Corporation sold its household products business
in North America, Central America, the Caribbean, South America (excluding
Brazil), and Australia, recapitalized its recreational products business, and
sold its glass container-forming and inspection equipment business. The
Corporation has elected to retain the cleaning and lighting products component
of the household products business. With respect to the household products
business in Brazil, the Corporation continues to evaluate various alternatives.
In mid-1998, the Corporation closed on the sale to Windmere-Durable
Holdings, Inc. of its household products business (other than certain assets
associated with the Corporation's cleaning and lighting products, such as the
DustBuster, SnakeLight, ScumBuster, and Floorbuster products) in the United
States, Canada, Mexico, Central America, the Caribbean, and South America
(excluding Brazil) for $315.0 million. As part of the transaction, the
Corporation retained certain liabilities and agreed to license the Black &
Decker name to Windmere in existing household product categories for a period of
six and one-half years on a royalty-free basis, with extension options upon
request of Windmere and at the discretion of the Corporation on a
royalty-bearing basis. At the request of Windmere, additional product categories
may be licensed at the Corporation's option on a royalty-bearing basis. During
1998, the Corporation also completed the sale of its household products business
in Australia, the proceeds from which were immaterial.
On September 22, 1998, the Corporation announced that it had closed on the
sale of its glass container-forming and inspection equipment business, Emhart
Glass, to Bucher Holding A.G. In connection with the sale, the Corporation
received cash of $178.7 million.
On September 30, 1998, the Corporation announced that it had completed the
recapitalization of its recreational products business, True Temper Sports, with
an affiliate of Cornerstone Equity Investors, LLC. In connection with the
transaction, the Corporation received $177.7 million in cash and retained
approximately 6% of preferred and common
<PAGE>
-50-
stock of the recapitalized company, now known as True Temper Corporation, valued
at approximately $4 million. In addition, the Corporation received a senior
increasing rate discount note payable by True Temper Corporation, in an initial
accreted amount of $25.0 million. Because True Temper Corporation is a highly
leveraged entity and there is no active market for the note, the Corporation has
fully reserved the $25.0 million note as of December 31, 1998.
The aforementioned sales of the household products business and glass
container-forming and inspection equipment business and recapitalization of the
recreational products business resulted in cash proceeds, after selling
expenses, of $653.6 million. Net proceeds from the sales or recapitalization of
these businesses were utilized in the repurchase of a portion of the
Corporation's outstanding common stock and to fund the restructuring program
described below.
Repurchase of Common Stock: On January 26, 1998, the Board of Directors
authorized the repurchase of up to 10%, or 9,484,254 shares, of the
Corporation's outstanding common stock over a two-year period. During 1998, the
Corporation announced that the Board had authorized the repurchase of an
additional 1,000,000 shares of the Corporation's common stock. Net proceeds from
the sale of divested businesses were used to fund the stock repurchase program.
Pending the receipt of proceeds from the sale of divested businesses, the
Corporation utilized its existing borrowing facilities to fund a portion of the
stock repurchase program. As more fully described in Note 16, the Corporation
repurchased 9,025,400 shares of common stock during 1998.
Restructuring Charge: The restructuring program announced in January 1998 will
be completed over a period of two years and is being undertaken to reduce fixed
costs and simplify the supply chain and new product introduction processes. The
Corporation commenced the restructuring program in 1998 and recorded a
restructuring charge of $164.7 million. Additional restructuring charges are
possible as the program progresses in 1999.
The principal component of the restructuring charge relates to the
elimination of approximately 5,100 positions. As a result, an accrual of $121.3
million, principally associated with the Power Tools and Accessories segment in
Europe and North America, was included in the restructuring charge. Included in
that accrual were costs of approximately $30 million related to the acceptance
of a voluntary retirement plan by certain employees in the United States. Also
included in that accrual was $8.1 million related to severance actions taken in
the divested businesses and with respect to the closure of a facility in
Kuantan, Malaysia. The Kuantan facility manufactured household products
predominantly for sale in the United States and was not included in the assets
sold with the household products business.
To reduce fixed costs and simplify the supply chain and new product
introduction processes, the Corporation is taking actions to rationalize certain
manufacturing, sales, and administrative operations. These actions will result
in the closure of a number of facilities. Therefore, the restructuring charge
also included a $29.5 million write-down to fair value - less, if applicable,
costs to sell - of certain land, buildings, and equipment. Included in that
$29.5 million write-down was $9.0 million related to the closure of the Kuantan
facility described above. The balance of the write-down to fair value primarily
relates to long-lived assets of the Power Tools and Accessories segment in
Europe and North America and is net of a gain of $8.7 million on the sale of two
facilities exited as part of the restructuring plan.
<PAGE>
-51-
The remaining restructuring charge of $13.9 million, principally associated
with the Power Tools and Accessories segment in Europe, relates to the accrual
of future expenditures, principally consisting of lease and other contractual
obligations, for which no future benefit will be realized.
Change in Accounting for Goodwill: On a periodic basis through December 31,
1997, the Corporation estimated the future undiscounted cash flows of the
businesses to which goodwill related in order to determine that the carrying
value of the goodwill had not been impaired.
As a consequence of the strategic repositioning plan, the Corporation
elected to change its method of measuring goodwill impairment from an
undiscounted cash flow approach to a discounted cash flow approach effective
January 1, 1998. On a periodic basis, the Corporation estimates the future
discounted cash flows of the businesses to which goodwill relates. When such
estimate of the future discounted cash flows, net of the carrying amount of
tangible net assets, is less than the carrying amount of goodwill, the
difference will be charged to operations. For purposes of determining the future
discounted cash flows of the businesses to which goodwill relates, the
Corporation, based upon historical results, current projections, and internal
earnings targets, determines the projected future operating cash flows, net of
income tax payments, of the individual businesses. These projected future cash
flows are then discounted at a rate corresponding to the Corporation's estimated
cost of capital, which also is the hurdle rate used by the Corporation in making
investment decisions. Future discounted cash flows for the recreational products
business, the glass container-forming and inspection equipment business, and the
household products business in North America, Latin America, and Australia
included an estimate of the proceeds from the sale of such businesses, net of
associated selling expenses and taxes. The Corporation believes that measurement
of the value of goodwill through a discounted cash flow approach is preferable
in that such a measurement facilitates the timely identification of impairment
of the carrying value of investments in businesses and provides a more current
and, with respect to the businesses to be sold, more realistic valuation than
the undiscounted approach.
In connection with the Corporation's change in accounting policy with
respect to measurement of goodwill impairment, $900.0 million of goodwill was
written off through a charge to operations during the first quarter of 1998.
That goodwill write-off represented a per-share net loss of $9.80 both on a
basic and diluted basis for 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 write-down the
carrying values of goodwill for those businesses to the Corporation's best
estimate, as of January 1, 1998, of those businesses' future discounted cash
flows using the methodology described in the preceding paragraph. This change
represents a change in accounting principle which is indistinguishable from a
change in estimate.
<PAGE>
-52-
NOTE 3: TRADE RECEIVABLES
Concentration of Credit: The Corporation sells products and services to
customers in diversified industries and geographic regions and, therefore, has
no significant concentrations of credit risk. The Corporation continuously
evaluates the creditworthiness of its customers and generally does not require
collateral.
Sale of Receivables Program: Prior to December 1997, the Corporation maintained
a sale of receivables program under which receivables were sold on a revolving
basis. In December 1997, the Corporation voluntarily terminated its sale of
receivables program as the program was no longer deemed necessary to support its
liquidity requirements. At December 31, 1996, the Corporation had sold $212.0
million of receivables under this program. The discount on the sale of
receivables is included in other expense.
NOTE 4: INVENTORIES
The classification of inventories at the end of each year, in millions of
dollars, was as follows:
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FIFO cost
Raw materials and work-in-process $173.5 $199.4
Finished products 482.3 599.4
- -------------------------------------------------------------------------------------------------------------------
655.8 798.8
Excess of FIFO cost over LIFO inventory value (18.9) (24.1)
- -------------------------------------------------------------------------------------------------------------------
$636.9 $774.7
===================================================================================================================
</TABLE>
The cost of United States inventories stated under the LIFO method was
approximately 43% and 41% of the value of total inventories at December 31, 1998
and 1997, respectively.
NOTE 5: PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment at the end of each year, in millions of dollars,
consisted of the following:
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Property, plant, and equipment at cost:
Land and improvements $ 60.2 $ 63.4
Buildings 304.3 360.8
Machinery and equipment 1,209.2 1,493.7
- -------------------------------------------------------------------------------------------------------------------
1,573.7 1,917.9
Less accumulated depreciation 846.1 1,002.8
- -------------------------------------------------------------------------------------------------------------------
$ 727.6 $ 915.1
===================================================================================================================
</TABLE>
<PAGE>
-53-
NOTE 6: GOODWILL
In connection with the Corporation's change in accounting policy with respect to
measurement of goodwill impairment discussed in Notes 1 and 2, goodwill in the
amount of $900.0 million was written off through a charge to operations in 1998,
and has been reflected in the Consolidated Statement of Earnings as "Write-off
of goodwill". That write-off, which relates to goodwill associated with the
Building Products segment, the Fastening and Assembly Systems segment, and
includes a $40.0 million write-down of goodwill associated with one of the
divested businesses, represents the amount necessary to write-down the carrying
values of goodwill for those businesses to the Corporation's best estimate, as
of January 1, 1998, of those businesses' future discounted cash flows using the
methodology described in Note 2.
In addition, goodwill related to the Corporation's household products,
glass container-forming and inspection equipment, and recreational products
businesses was written off in connection with the divestitures of those
businesses during 1998.
Goodwill amortization was $25.2 million in 1998, $63.3 million in 1997, and
$66.3 million in 1996. Goodwill at the end of each year, in millions of dollars,
was as follows:
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Goodwill $1,300.9 $2,499.9
Less accumulated amortization 532.2 622.6
- -------------------------------------------------------------------------------------------------------------------
$ 768.7 $1,877.3
===================================================================================================================
</TABLE>
NOTE 7: OTHER ACCRUED LIABILITIES
Other accrued liabilities at the end of each year, in millions of dollars,
included the following:
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Salaries and wages $ 63.6 $ 74.2
Employee benefits 93.1 53.7
Trade discounts and allowances 114.0 112.2
Income taxes, including deferred taxes 107.9 53.7
Redeemable preferred stock of subsidiary -- 42.3
Accruals related to 1998 restructuring program 50.8 --
All other 384.8 425.7
- -------------------------------------------------------------------------------------------------------------------
$814.2 $761.8
===================================================================================================================
</TABLE>
All other at December 31, 1998 and 1997, consisted primarily of accruals
for advertising, warranty costs, interest, insurance, and taxes other than
income taxes.
NOTE 8: SHORT-TERM BORROWINGS
Short-term borrowings in the amounts of $152.5 million and $113.5 million at
December 31, 1998 and 1997, respectively, consisted primarily of borrowings
under the terms of uncommitted lines of credit or other short-term borrowing
arrangements. Short-term borrowings at December 31, 1997 also included $64.8
million of borrowings under the Corporation's unsecured revolving credit
facility, as more fully described in Note 9. The
<PAGE>
-54-
weighted-average interest rate on short-term borrowings outstanding at December
31, 1998, was 7.1%.
Under the terms of uncommitted lines of credit at December 31, 1998,
certain subsidiaries outside of the United States may borrow up to an additional
$373.9 million on such terms as may be mutually agreed. These arrangements do
not have termination dates and are reviewed periodically. No material
compensating balances are required or maintained.
NOTE 9: LONG-TERM DEBT
The composition of long-term debt at the end of each year, in millions of
dollars, was as follows:
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revolving credit facility expiring 2001 $ 29.4 $ 569.1
Medium Term Notes due through 2002 150.0 200.0
6.625% notes due 2000 214.4 250.0
7.50% notes due 2003 335.7 429.4
7.0% notes due 2006 154.6 207.6
6.55% notes due 2007 150.0 --
7.05% notes due 2028 150.0 --
Other loans due through 2003 24.0 28.1
Less current maturities of long-term debt (59.2) (60.5)
- -------------------------------------------------------------------------------------------------------------------
$1,148.9 $1,623.7
===================================================================================================================
</TABLE>
The Corporation may borrow up to $1.0 billion under its unsecured revolving
credit facility (the Credit Facility), which consists of two individual
facilities. The amount available for borrowing under the Credit Facility at
December 31, 1998, was $970.6 million.
Borrowing options under the Credit Facility are at the London Interbank
Offered Rate (LIBOR) plus a specified percentage, or at other variable rates set
forth therein. The Credit Facility provides that the interest rate margin over
LIBOR, initially set at .15% and .25%, respectively, for each of the two
individual facilities, will increase or decrease based upon changes in the
ratings of the Corporation's long-term senior unsecured debt. The Corporation
also is able to borrow under the Credit Facility by means of competitive bid
rate loans made through an auction process at then-current market rates. In
addition to interest payable on the principal amount of indebtedness outstanding
from time to time under the Credit Facility, the Corporation is required to pay
an annual facility fee to each bank, initially equal to .125% of the amount of
each bank's commitment, whether used or unused. The facility fee changes based
on the ratings of the Corporation's long-term senior unsecured debt.
The Credit Facility includes various customary covenants, including
covenants limiting the ability of the Corporation and its subsidiaries to pledge
assets or incur liens on assets, and covenants requiring the Corporation to
maintain a specified leverage ratio and to achieve certain cash flow to fixed
expense coverage ratios. As of December 31, 1998, the Corporation was in
compliance with all terms and conditions of the Credit Facility. The Corporation
expects to continue to meet the covenants imposed by the Credit Facility over
the next 12 months. Meeting the cash flow coverage ratio is dependent upon the
level of future earnings and interest rates, each of which can have a
significant impact on the ratio.
<PAGE>
-55-
During 1998, a wholly owned subsidiary of the Corporation issued senior
unsecured notes that were guaranteed by the Corporation in the amount of $300.0
million. Of that amount, $150.0 million bear interest at a fixed rate of 6.55%
and are due in 2007, and $150.0 million bear interest at a fixed rate of 7.05%
and are due in 2028. Proceeds from the issuance of the senior unsecured notes
were used to repay indebtedness outstanding under the Corporation's Credit
Facility.
As of December 31, 1998, $150.0 million aggregate principal amount of
unsecured Medium Term Notes were outstanding. Of that amount, $122.5 million
bear interest at fixed rates ranging from 8.36% to 8.95%, while the remainder
bear interest at variable rates. At December 31, 1998, those variable rates
ranged from 5.71% to 5.77%.
Indebtedness of subsidiaries in the aggregate principal amounts of $412.4
million and $776.0 million were included in the Consolidated Balance Sheet at
December 31, 1998 and 1997, respectively, in short-term borrowings, current
maturities of long-term debt, and long-term debt.
Principal payments on long-term debt obligations due over the next five
years are as follows: $59.2 million in 1999, $219.3 million in 2000, $86.9
million in 2001, $48.9 million in 2002, and $339.4 million in 2003. Interest
payments on all indebtedness were $160.8 million in 1998, $159.3 million in
1997, and $170.7 million in 1996.
NOTE 10: DERIVATIVE FINANCIAL INSTRUMENTS
The Corporation is exposed to market risks arising from changes in interest
rates. With products and services marketed in over 100 countries and with
manufacturing sites in ten countries, the Corporation also is exposed to risks
arising from changes in foreign exchange rates.
Credit Exposure: The Corporation is exposed to credit-related losses in the
event of non-performance by counterparties to certain derivative financial
instruments. The Corporation monitors the creditworthiness of the counterparties
and presently does not expect default by any of the counterparties. The
Corporation does not obtain collateral in connection with its derivative
financial instruments.
The credit exposure that results from interest rate and foreign exchange
contracts is the fair value of contracts with a positive fair value as of the
reporting date. Some derivatives are not subject to credit exposures. The fair
value of all financial instruments is summarized in Note 11.
Interest Rate Risk Management: The Corporation manages its interest rate risk,
primarily through the use of interest rate swap and cap agreements, in order to
achieve a cost-effective mix of fixed and variable rate indebtedness. It seeks
to issue debt opportunistically, whether at fixed or variable rates, at the
lowest possible costs and then, based upon its assessment of the future interest
rate environment, may convert such debt from fixed to variable or from variable
to fixed interest rates through the use of interest rate derivatives. Similarly,
the Corporation may, at times, seek to limit the effects of rising interest
rates on its variable rate debt through the use of interest rate caps. It does
not utilize derivative financial instruments that contain leverage features.
Because the Corporation's interest rate derivative financial instruments do not
contain leverage features and because they are effective in changing the tenor
of existing indebtedness (e.g., from fixed to variable rate debt or from
variable to fixed rate debt), they are afforded hedge accounting treatment.
<PAGE>
-56-
The amounts exchanged by the counterparties to interest rate swap and cap
agreements normally are based upon the notional amounts and other terms,
generally related to interest rates, of the derivatives. While notional amounts
of interest rate swaps and caps form part of the basis for the amounts exchanged
by the counterparties, the notional amounts are not themselves exchanged and,
therefore, do not represent a measure of the Corporation's exposure as an end
user of derivative financial instruments. The notional amounts of interest rate
derivatives at the end of each year, in millions of dollars, were as follows:
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest rate swaps:
Fixed to variable rates $425.0 $700.0
Variable to fixed rates -- 250.0
Rate basis swaps -- 50.0
U.S. rates to foreign rates 250.0 265.0
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The Corporation's portfolio of interest rate swap instruments as of
December 31, 1998, included $425.0 million notional amounts of fixed to variable
rate swaps with a weighted-average fixed rate receipt of 5.96%. The basis of the
variable rates paid is LIBOR.
The remainder of the interest rate swap portfolio as of December 31, 1998,
consisted of $250.0 million notional amounts of interest rate swaps that swap
from fixed rate United States dollars into fixed rate foreign currencies. Of
that amount, $100.0 million had been swapped from United States dollars (with a
weighted-average fixed rate of 6.66%) into Japanese yen (with a weighted-average
fixed rate of 1.99%). A total of $100.0 million notional amounts of interest
rate swaps had been swapped from United States dollars (with a weighted-average
fixed rate of 6.64%) into deutsche marks (with a weighted-average fixed rate of
4.73%). Interest rate swaps totaling $50.0 million notional amount had been
swapped from United States dollars (with a weighted-average fixed rate of 6.77%)
into Dutch guilders (with a weighted-average fixed rate of 4.58%).
The Corporation's credit exposure on its interest rate derivatives was
$14.2 million as of December 31, 1998, and was not significant as of December
31, 1997. Gross deferred gains and losses on the early termination of interest
rate swaps as of December 31, 1998 and 1997, were not significant.
Foreign Currency Management: The Corporation enters into various foreign
currency contracts in managing its foreign exchange risks. The contractual
amounts of foreign currency derivative financial instruments (principally,
forward exchange contracts and purchased options) generally are exchanged by the
counterparties. The Corporation's foreign currency derivative financial
instruments are designated to, and generally are denominated in the currencies
of, the underlying exposures. Because the derivative financial instruments are
effective in managing foreign exchange risks and are appropriately designated to
the underlying exposures, they are afforded hedge accounting treatment.
To minimize the volatility of reported equity, the Corporation hedges, on a
limited basis, a portion of its net investment in subsidiaries located outside
of the United States through the use of foreign currency forward contracts,
foreign currency swaps, and purchased foreign currency options.
<PAGE>
-57-
Through its foreign currency hedging activities, the Corporation seeks to
minimize the risk that cash flows resulting from the sales of products
manufactured in a currency different from that of the selling subsidiary will be
affected by changes in exchange rates. The Corporation responds to foreign
exchange movements through various means, such as pricing actions, changes in
cost structure, and changes in hedging strategies.
The Corporation hedges its foreign currency transaction exposures, as well
as certain forecasted transactions, based on management's judgment, generally
through options and forward exchange contracts. Some of the contracts involve
the exchange of two foreign currencies according to the local needs of the
subsidiaries. Some natural hedges also are used to mitigate transaction and
forecasted exposures.
The following table summarizes the contractual amounts of forward exchange
contracts as of December 31, 1998 and 1997, in millions of dollars, including
details by major currency as of December 31, 1998. Foreign currency amounts were
translated at current rates as of the reporting date. The "Buy" amounts
represent the United States dollar equivalent of commitments to purchase
currencies, and the "Sell" amounts represent the United States dollar equivalent
of commitments to sell currencies.
<TABLE>
<CAPTION>
As of December 31, 1998 Buy Sell
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
United States dollar $1,002.3 $ (607.1)
Pound sterling 365.1 (66.2)
Deutsche mark 116.2 (307.8)
Dutch guilder 72.9 (104.8)
Japanese yen 17.1 (135.8)
French franc 5.2 (144.0)
Canadian dollar 69.6 (95.2)
Italian lira 44.9 (89.0)
Other 38.9 (161.7)
- -------------------------------------------------------------------------------------------------------------------
Total $1,732.2 $(1,711.6)
===================================================================================================================
As of December 31, 1997
- -------------------------------------------------------------------------------------------------------------------
Total $1,730.9 $(1,690.0)
===================================================================================================================
</TABLE>
The contractual amounts of purchased options to buy currencies,
predominantly the pound sterling and United States dollar, were $343.8 million
and $401.2 million, at December 31, 1998 and 1997, respectively. The contractual
amounts of purchased options to sell various currencies were $338.5 million and
$383.3 million at December 31, 1998 and 1997, respectively.
Credit exposure on foreign currency derivatives as of December 31, 1998 and
1997, was $40.8 million and $82.6 million, respectively.
Deferred realized gains from option contracts on hedges of forecasted
transactions were not significant at December 31, 1998 and 1997. Substantially
all of the amounts deferred at December 31, 1998, are expected to be recognized
in earnings during 1999, when the gains or losses on the underlying transactions
also will be recognized.
<PAGE>
-58-
NOTE 11: FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument represents the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced sale or liquidation. Significant differences can arise
between the fair value and carrying amount of financial instruments that are
recognized at historical cost amounts.
The following methods and assumptions were used by the Corporation in
estimating fair value disclosures for financial instruments:
o Cash and cash equivalents, trade receivables, certain other current assets,
short-term borrowings, and current maturities of long-term debt: The amounts
reported in the Consolidated Balance Sheet approximate fair value.
o Long-term debt: Publicly traded debt is valued based on quoted market values.
The amount reported in the Consolidated Balance Sheet for other long-term debt
approximates fair value, since such debt was primarily variable rate debt.
o Interest rate hedges: The fair value of interest rate hedges reflects the
estimated amounts that the Corporation would receive or pay to terminate the
contracts at the reporting date.
o Foreign currency contracts: The fair value of forward exchange contracts and
options is estimated using prices established by financial institutions for
comparable instruments.
The following table sets forth, in millions of dollars, the carrying
amounts and fair values of the Corporation's financial instruments, except for
those noted above for which carrying amounts approximate fair values:
<TABLE>
<CAPTION>
Assets (Liabilities) Carrying Fair
As of December 31, 1998 Amount Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Non-derivatives:
Long-term debt $(1,148.9) $(1,200.2)
- -------------------------------------------------------------------------------------------------------------------
Derivatives relating to:
Debt
Assets .5 14.2
Foreign currency
Assets 60.1 40.8
Liabilities (35.2) (34.9)
===================================================================================================================
Assets (Liabilities) Carrying Fair
As of December 31, 1997 Amount Value
- -------------------------------------------------------------------------------------------------------------------
Non-derivatives:
Long-term debt $(1,623.7) $(1,660.4)
- -------------------------------------------------------------------------------------------------------------------
Derivatives relating to:
Debt
Liabilities -- (5.6)
Foreign currency
Assets 68.4 82.6
Liabilities (13.2) (17.5)
===================================================================================================================
</TABLE>
<PAGE>
-59-
NOTE 12: RESTRUCTURING UNDERTAKEN IN 1996
In 1996, the Corporation commenced a restructuring of certain operations and
recorded a restructuring charge of $91.3 million. Actions taken with respect to
that restructuring have been completed.
The major component of the restructuring charge related to the elimination
of approximately 1,500 positions. As a result, an accrual of $74.6 million for
severance, principally associated with the European businesses in the Power
Tools and Accessories segment, was included in the restructuring charge.
In connection with the restructuring plan, the Corporation also took
actions to rationalize certain manufacturing and service operations. Such
rationalization, principally associated with the Building Products segment in
the United States, included the outsourcing of products then manufactured by the
Corporation and the closure of several small manufacturing facilities. As a
result, the restructuring charge also included a $6.6 million write-down to fair
value of land and buildings. The remaining restructuring charge primarily
related to the write-down to fair value of equipment made obsolete or redundant
due to the decision to close certain facilities or outsource certain production.
As more fully described in Note 2, in January 1998, the Corporation
commenced an additional restructuring program.
NOTE 13: DISCONTINUED OPERATIONS
Earnings from the discontinued Information Technology and Services (PRC) segment
amounted to $70.4 million in 1996, net of applicable income taxes of $55.6
million. The results of the discontinued PRC segment do not reflect any expense
for interest allocated by or management fees charged by the Corporation.
On February 16, 1996, the Corporation completed the sale of PRC Inc., the
remaining business in the discontinued PRC segment, for $425.0 million. Earnings
from discontinued operations in 1996 consisted primarily of the gain on the sale
of PRC Inc., net of selling expenses and applicable income taxes. Revenues and
operating income of PRC Inc. for the period from January 1, 1996, through the
date of sale were not significant.
NOTE 14: INCOME TAXES
Earnings (loss) from continuing operations before income taxes, for each year,
in millions of dollars, were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $(734.3) $180.3 $121.0
Other countries 146.0 169.2 81.7
- -------------------------------------------------------------------------------------------------------------------
$(588.3) $349.5 $202.7
===================================================================================================================
</TABLE>
<PAGE>
-60-
Significant components of income taxes (benefits) for each year, in
millions of dollars, were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
United States $ 55.0 $ 32.4 $ 4.0
Other countries 44.0 16.3 34.5
Withholding on remittances from other countries -- 1.9 2.1
- -------------------------------------------------------------------------------------------------------------------
99.0 50.6 40.6
- -------------------------------------------------------------------------------------------------------------------
Deferred:
United States 92.9 92.5 (10.6)
Other countries (25.4) (20.8) 13.5
- -------------------------------------------------------------------------------------------------------------------
67.5 71.7 2.9
- -------------------------------------------------------------------------------------------------------------------
$166.5 $122.3 $ 43.5
===================================================================================================================
</TABLE>
During 1996, the Corporation utilized United States tax loss carryforwards
and capital loss carryforwards obtained in a prior business combination. The
effect of utilizing these carryforwards was to recognize deferred income tax
expense and to reduce goodwill by $19.0 million in 1996.
Income tax expense recorded directly as an adjustment to equity as a result
of hedging activities in 1997 was $14.9 million, and was not significant in 1998
and 1996. Income tax expense recorded directly as an adjustment to equity as a
result of employee stock options in 1998 was $17.0 million and was not
significant in 1997 and 1996.
Income tax payments were $95.4 million in 1998, $60.2 million in 1997, and
$40.8 million in 1996.
Deferred tax (liabilities) assets at the end of each year, in millions of
dollars, were composed of the following:
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Fixed assets $ (35.0) $ (46.5)
Postretirement benefits (227.7) (35.5)
Other (38.7) (15.8)
- -------------------------------------------------------------------------------------------------------------------
Gross deferred tax liabilities (301.4) (97.8)
- -------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Tax loss carryforwards 46.1 69.0
Tax credit and capital loss carryforwards 98.0 --
Other 127.9 78.8
- -------------------------------------------------------------------------------------------------------------------
Gross deferred tax assets 272.0 147.8
- -------------------------------------------------------------------------------------------------------------------
Deferred tax asset valuation allowance (41.3) (56.5)
- -------------------------------------------------------------------------------------------------------------------
Net deferred tax (liabilities) assets $ (70.7) $ (6.5)
===================================================================================================================
</TABLE>
Deferred income taxes are included in the Consolidated Balance Sheet in
other current assets, other assets, other accrued liabilities, and deferred
income taxes.
<PAGE>
-61-
During the year ended December 31, 1996, the deferred tax asset valuation
allowance decreased by $76.2 million. Included in the decrease was $10.6 million
that resulted from the reversal of a portion of the deferred tax asset valuation
allowance based on the projections of estimable taxable earnings in the United
States. The remaining decrease was due to the utilization of domestic tax loss
carryforwards, offset by increased tax losses generated by foreign operations.
Tax basis carryforwards at December 31, 1998, consisted of net operating
losses expiring from 1999 to 2004.
At December 31, 1998, unremitted earnings of subsidiaries outside of the
United States were approximately $1.2 billion, on which no United States taxes
had been provided, except that deferred withholding taxes have been provided on
approximately $300 million of such unremitted earnings. The Corporation's
intention is to reinvest these earnings permanently or to repatriate the
earnings only when tax effective to do so. It is not practicable to estimate the
amount of additional taxes that might be payable upon repatriation of foreign
earnings; however, the Corporation believes that United States foreign tax
credits would largely eliminate any United States taxes and offset any foreign
withholding taxes not previously provided.
A reconciliation of income taxes at the federal statutory rate to the
Corporation's income taxes for each year, in millions of dollars, is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes (benefit) at federal statutory rate $(205.9) $122.3 $ 70.9
Lower effective taxes on earnings in other countries (19.8) (14.5) (10.3)
Effect of net operating loss carryforwards -- 2.8 (52.3)
Effect of reduction in deferred tax asset valuation allowance
due to projection of estimable earnings in the United States -- -- (10.6)
Withholding on remittances from other countries (1.5) (1.3) 21.1
Amortization and write-off of goodwill 386.6 22.0 23.6
Other -- net 7.1 (9.0) 1.1
- -------------------------------------------------------------------------------------------------------------------
Income taxes $ 166.5 $122.3 $ 43.5
===================================================================================================================
</TABLE>
NOTE 15: POSTRETIREMENT BENEFITS
The following table sets forth the funded status of the defined benefit pension
and postretirement plans, and amounts recognized in the Consolidated Balance
Sheet, in millions of dollars. Assets of the defined benefit pension plans
consist principally of investments in equity securities, debt securities, and
cash equivalents. Defined postretirement benefits consist of several unfunded
health care plans that provide certain postretirement medical, dental, and life
insurance benefits for most United States employees. The postretirement medical
benefits are contributory and include certain cost-sharing features, such as
deductibles and co-payments.
<PAGE>
-62-
<TABLE>
<CAPTION>
Pension Benefits Pension Benefits Other
Plans in Plans outside Postretirement Benefits
the United States the United States All Plans
- -------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Change in Benefit Obligation
Benefit obligation at beginning of year $709.9 $631.0 $324.9 $296.0 $ 150.5 $ 142.4
Service cost 16.0 13.9 8.4 8.3 1.5 1.2
Interest cost 51.5 48.6 22.5 21.7 10.4 10.8
Plan participants' contributions -- -- 2.4 5.1 3.8 4.5
Actuarial (gains)/losses 96.8 64.7 82.9 25.2 (1.4) 13.4
Foreign currency exchange rate changes -- -- (4.7) (8.0) (.3) (.4)
Benefits paid (49.1) (48.5) (21.9) (22.3) (16.3) (18.8)
Plan amendments 4.8 .2 3.3 3.2 (12.5) (2.6)
Divestitures -- -- (9.2) -- (5.7) --
Curtailments (gain)/loss (13.5) -- -- (1.3) -- --
Settlements -- -- (.4) (3.0) -- --
Special termination benefits 29.1 -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year 845.5 709.9 408.2 324.9 130.0 150.5
- -------------------------------------------------------------------------------------------------------------------
Change in Plan Assets
Fair value of plan assets at
beginning of year 942.4 796.2 400.4 358.0 -- --
Actual return on plan assets 12.9 198.0 19.0 58.4 -- --
Expenses (6.1) (6.0) (.8) (1.8) -- --
Benefits paid (49.1) (48.5) (21.9) (22.3) (16.3) (18.8)
Employer contributions 2.6 2.7 3.5 4.7 16.3 18.8
Contributions by plan participants -- -- 2.4 5.1 -- --
Divestitures -- -- (9.3) -- -- --
Settlements -- -- (.4) (3.0) -- --
Effects of currency exchange rates -- -- (9.6) 1.3 -- --
- -------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year 902.7 942.4 383.3 400.4 -- --
- -------------------------------------------------------------------------------------------------------------------
Funded status 57.2 232.5 (24.9) 75.5 (130.0) (150.5)
Unrecognized net actuarial (gain)/loss 149.2 9.8 69.9 (26.6) (24.7) (24.1)
Unrecognized prior service cost 7.8 4.7 21.4 20.5 (42.7) (45.4)
Unrecognized net asset at date of adoption,
net of amortization (.8) (2.0) (6.4) (9.1) -- --
- -------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost $213.4 $245.0 $ 60.0 $ 60.3 $(197.4) $(220.0)
===================================================================================================================
Amounts recognized in the
Consolidated Balance Sheet
Prepaid benefit cost $241.0 $271.4 $131.2 $126.3 $ -- $ --
Accrued benefit cost (42.8) (26.4) (71.9) (66.0) (197.4) (220.0)
Intangible asset 6.1 -- -- -- -- --
Accumulated other comprehensive income 9.1 -- .7 -- -- --
- -------------------------------------------------------------------------------------------------------------------
Net amount recognized $213.4 $245.0 $ 60.0 $ 60.3 $(197.4) $(220.0)
===================================================================================================================
</TABLE>
<PAGE>
-63-
The total accumulated benefit obligation for unfunded defined benefit
pension plans as of December 31, 1998 and 1997, was $42.0 million and $30.3
million, respectively, for plans in the United States and $63.0 million and
$52.5 million, respectively, for plans outside the United States. The total
projected benefit obligation for unfunded defined benefit pension plans as of
December 31, 1998 and 1997, was $49.6 million and $34.0 million, respectively,
for plans in the United States and $70.8 million and $58.9 million,
respectively, for plans outside the United States.
The net periodic benefit cost related to the defined benefit pension plans
included the following components:
<TABLE>
<CAPTION>
Pension Benefits Pension Benefits
Plans in the United States Plans outside the United States
- -------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 16.7 $ 14.8 $ 16.5 $ 8.4 $ 8.3 $ 8.4
Interest cost 51.5 48.6 48.8 22.5 21.7 21.0
Expected return on plan assets (79.0) (73.0) (74.8) (33.2) (32.1) (41.6)
Amortization of the unrecognized
transition obligation or asset (1.1) (1.1) (1.1) 2.7 -- (1.9)
Amortization of prior service cost .8 .8 .8 (2.4) -- 1.9
Curtailment (gain)/loss .9 -- -- (.3) 1.3 --
Amortization of net actuarial loss 3.8 1.3 7.3 (.3) .1 13.1
Settlement loss 11.4 -- -- 1.4 -- --
- -------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ 5.0 $ (8.6) $ (2.5) $ (1.2) $ (.7) $ .9
===================================================================================================================
Weighted average assumptions
as of December 31:
Discount rate 6.50% 7.50% 8.00% 6.00% 7.40% 6.25%
Expected return on plan assets 9.75% 9.75% 10.50% 9.50% 9.90% 9.70%
Rate of compensation increase 5.00% 5.00% 5.00% 3.90% 3.90% 4.00%
===================================================================================================================
</TABLE>
The net periodic benefit cost related to the defined benefit postretirement
plans included the following components:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 1.5 $ 1.2 $ 1.2
Interest cost 10.4 10.8 11.6
Amortization of prior service cost (7.9) (8.5) (8.3)
Amortization of net actuarial gain (.7) (1.7) (.5)
- -------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ 3.3 $ 1.8 $ 4.0
===================================================================================================================
Weighted average discount rate as of December 31 6.50% 7.50% 8.00%
===================================================================================================================
</TABLE>
<PAGE>
-64-
The health care cost trend rate used to determine the postretirement
benefit obligation was 7.20% for 1999. This rate decreases gradually to an
ultimate rate of 4.41% in 2005, and remains at that level thereafter. The trend
rate is a significant factor in determining the amounts reported. A
one-percentage-point change in these assumed health care cost trend rates would
have the following effects, in millions of dollars:
<TABLE>
<CAPTION>
One-Percentage Point Increase Decrease
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Effect on total of service and interest cost components $ .7 $ (.8)
Effect on postretirement benefit obligation 7.2 (8.1)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Expense for defined contribution plans amounted to $10.7 million, $12.0
million, and $11.3 million in 1998, 1997, and 1996, respectively.
NOTE 16: STOCKHOLDERS' EQUITY
The Corporation has one class of $.50 par value common stock with 150,000,000
authorized shares. The Corporation has authorized 5,000,000 shares of preferred
stock without par value.
During 1998, the Corporation repurchased 9,025,400 shares of common stock
at an aggregate cost of $464.3 million. The aggregate cost of $464.3 million is
net of $1.4 million in premiums received in connection with the Corporation's
sale of put options on 800,000 shares of its common stock. As of December 31,
1998, put options on 200,000 shares of the Corporation's common stock were
outstanding, with an average strike price of $55.91.
On October 14, 1996, the Corporation exercised its conversion option,
issuing 6,350,000 shares of common stock in exchange for the previously
outstanding 150,000 shares of Series B Cumulative Convertible Preferred Stock
(Series B). Under terms established upon the original sale of the Series B
stock, the Corporation had the option, after September 1996, to require the
conversion of the shares of Series B stock into shares of common stock under
certain circumstances. In accordance with the terms of the Series B stock, each
such share was convertible into 42 1/3 shares of common stock and was entitled
to 42 1/3 votes on matters submitted generally to the stockholders of the
Corporation. The conversion rate and the number of votes per share were subject
to adjustment under certain circumstances pursuant to anti-dilution provisions.
Prior to the conversion in 1996, holders of Series B stock were entitled to
dividends, payable quarterly, at an annual rate of $77.50 per share.
In connection with the original sale of the Series B stock, the Corporation
and the purchaser of Series B stock entered into a standstill agreement that
included, among other things, provisions limiting the purchaser's ownership and
voting of shares of the Corporation's capital stock, provisions limiting actions
by the purchaser with respect to the Corporation, and provisions generally
restricting the purchaser's equity interest to 15%.
<PAGE>
-65-
NOTE 17: EARNINGS PER SHARE
The computations of basic and diluted earnings per share from continuing
operations for each year were as follows:
<TABLE>
<CAPTION>
(Amounts in Millions Except Per Share Data) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Earnings (loss) from continuing operations $(754.8) $227.2 $159.2
Preferred stock dividend -- -- (9.1)
- -------------------------------------------------------------------------------------------------------------------
Numerator for basic earnings per share --
earnings (loss) from continuing operations
available to common stockholders (754.8) 227.2 150.1
Effect of dilutive securities -- preferred stock dividend -- -- 9.1
- -------------------------------------------------------------------------------------------------------------------
Numerator for diluted earnings per share --
earnings (loss) from continuing operations available to
common stockholders after assumed conversions $(754.8) $227.2 $159.2
===================================================================================================================
Denominator:
Denominator for basic earnings per share from
continuing operations -- weighted-average shares 91.8 94.6 88.9
- -------------------------------------------------------------------------------------------------------------------
Effect of dilutive securities:
Employee stock options and stock issuable
under employee benefit plans -- 1.9 2.2
Convertible preferred stock -- -- 5.0
- -------------------------------------------------------------------------------------------------------------------
Dilutive potential common shares -- 1.9 7.2
- -------------------------------------------------------------------------------------------------------------------
Denominator for diluted earnings per share from
continuing operations -- adjusted weighted-average
shares and assumed conversions 91.8 96.5 96.1
===================================================================================================================
Basic earnings (loss) per share from continuing operations $ (8.22) $ 2.40 $ 1.69
===================================================================================================================
Diluted earnings (loss) per share from continuing operations $ (8.22) $ 2.35 $ 1.66
===================================================================================================================
</TABLE>
The following options to purchase shares of common stock were outstanding
during each year, but were not included in the computation of diluted earnings
per share because the effect would be anti-dilutive. For 1998, the loss
experienced by the Corporation caused all options to be anti-dilutive. For 1997
and 1996, the options indicated below were anti-dilutive because the related
exercise price was greater than the average market price of the common shares
for the year.
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Number of options (in millions) 5.3 0.7 0.3
Weighted-average exercise price $33.47 $38.64 $37.56
===================================================================================================================
</TABLE>
For additional information regarding the preferred stock and employee stock
options, see Notes 16 and 18, respectively.
NOTE 18: STOCK-BASED COMPENSATION
The Corporation has elected to follow APBO No. 25, Accounting for Stock Issued
to Employees, and related interpretations in accounting for its stock-based
compensation and to
<PAGE>
-66-
provide the disclosures required under SFAS No. 123, Accounting for Stock Based
Compensation.
APBO No. 25 requires no recognition of compensation expense for most of the
stock-based compensation arrangements provided by the Corporation, namely,
broad-based employee stock purchase plans and option grants where the exercise
price is equal to the market value at the date of grant. However, APBO No. 25
requires recognition of compensation expense for variable award plans over the
vesting periods of such plans, based upon the then-current market values of the
underlying stock. In contrast, SFAS No. 123 requires recognition of compensation
expense for grants of stock, stock options, and other equity instruments, over
the vesting periods of such grants, based on the estimated grant-date fair
values of those grants.
Under various stock option plans, options to purchase common stock may be
granted until 2006. Options generally are granted at fair market value at the
date of grant, are exercisable in installments beginning one year from the date
of grant, and expire 10 years after the date of grant. The plans permit the
issuance of either incentive stock options or non-qualified stock options,
which, for certain of the plans, may be accompanied by stock or cash
appreciation rights or limited stock appreciation rights. Additionally, certain
plans allow for the granting of stock appreciation rights on a stand-alone
basis.
As of December 31, 1998, 5,291,995 non-qualified stock options were
outstanding under domestic plans. There were 44,615 stock options outstanding
under the United Kingdom plan.
Under all plans, there were 2,699,676 shares of common stock reserved for
future grants as of December 31, 1998. Transactions are summarized as follows:
<TABLE>
<CAPTION>
Weighted-
Average
Stock Options Exercise Price
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1995 5,788,688 $20.66
Granted 1,410,050 33.92
Exercised 1,115,328 18.01
Forfeited 430,931 26.26
- -------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1996 5,652,479 24.12
Granted 1,191,650 37.79
Exercised 429,402 19.74
Forfeited 241,333 29.74
- -------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1997 6,173,394 26.86
Granted 1,101,000 53.46
Exercised 1,646,389 22.18
Forfeited 291,395 32.70
- -------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1998 5,336,610 $33.47
===================================================================================================================
Shares exercisable at December 31, 1996 3,424,497 $19.05
===================================================================================================================
Shares exercisable at December 31, 1997 3,607,991 $20.87
===================================================================================================================
Shares exercisable at December 31, 1998 2,663,535 $23.64
===================================================================================================================
</TABLE>
<PAGE>
-67-
Exercise prices for options outstanding as of December 31, 1998, ranged
from $9.88 to $53.72. The following table provides certain information with
respect to stock options outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Weighted-
Weighted- Average
Range of Stock Options Average Remaining
Exercise Prices Outstanding Exercise Price Contractual Life
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Under $15.00 775,082 $12.58 2.1
$15.00-$22.49 708,352 19.97 3.4
$22.50-$33.74 1,055,061 29.10 7.4
$33.75-$50.62 1,770,115 38.87 8.2
Over $50.63 1,028,000 53.72 9.9
- -------------------------------------------------------------------------------------------------------------------
5,336,610 $33.47 6.9
===================================================================================================================
</TABLE>
The following table provides certain information with respect to stock
options exercisable at December 31, 1998:
<TABLE>
<CAPTION>
Weighted-
Range of Stock Options Average
Exercise Prices Exercisable Exercise Price
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Under $15.00 775,082 $12.58
$15.00-$22.49 708,352 19.97
$22.50-$33.74 583,379 28.01
$33.75-$50.62 596,722 38.09
Over $50.63 -- --
- -------------------------------------------------------------------------------------------------------------------
2,663,535 $23.64
===================================================================================================================
</TABLE>
In electing to continue to follow APBO No. 25 for expense recognition
purposes, the Corporation is obliged to provide the expanded disclosures
required under SFAS No. 123 for stock-based compensation granted in 1996 and
thereafter, including, if materially different from reported results, disclosure
of pro forma net income and earnings per share had compensation expense relating
to 1998, 1997, and 1996 grants been measured under the fair value recognition
provisions of SFAS No. 123.
The weighted-average fair values at date of grant for options granted
during 1998, 1997, and 1996 were $17.67, $11.86, and $10.30, respectively, and
were estimated using the Black-Scholes option valuation model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected life in years 5.7 5.7 5.9
Interest rate 4.54% 5.91% 6.25%
Volatility 29.0% 24.8% 22.2%
Dividend yield .90% 1.28% 1.43%
===================================================================================================================
</TABLE>
The Corporation's pro forma information for the years ended December 31,
1998, 1997, and 1996, prepared in accordance with the provisions of SFAS No.
123, is provided below. For purposes of pro forma disclosures, stock-based
compensation is amortized to expense on a straight-line basis over the vesting
period. The following pro forma information is not representative of the pro
forma effect of the fair value provisions of SFAS No. 123 on the
<PAGE>
-68-
Corporation's net earnings in future years because pro forma compensation
expense related to grants made prior to 1996 may not be taken into
consideration:
<TABLE>
<CAPTION>
(Dollars in Millions
Except Per Share Amounts) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pro forma net earnings (loss) $(755.8) $224.3 $227.5
Pro forma net earnings (loss)
per common share -- basic $ (8.23) $ 2.37 $ 2.46
Pro forma net earnings (loss)
per common share -- assuming dilution $ (8.23) $ 2.32 $ 2.37
===================================================================================================================
</TABLE>
NOTE 19: BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION
The Corporation has elected to organize its businesses based principally upon
products and services. In certain instances where a business does not have a
local presence in a particular country or geographic region, however, the
Corporation has assigned responsibility for sales of that business's products to
one of its other businesses with a presence in that country or region.
The Corporation operates in three reportable business segments: Power Tools
and Accessories, Building Products, and Fastening and Assembly Systems. The
Power Tools and Accessories segment has worldwide responsibility for the
manufacture and sale of consumer and professional power tools and accessories,
cleaning and lighting products, and electric lawn and garden tools, as well as
for product service. In addition, the Power Tools and Accessories segment has
responsibility for the sale of plumbing products to customers outside North
America and for sales of the retained household products business. The Building
Products segment has worldwide responsibility for the manufacture and sale of
security hardware and for the manufacture of plumbing products as well as
responsibility for the sale of plumbing products to customers in North America.
The Fastening and Assembly Systems segment has worldwide responsibility for the
manufacture and sale of fastening and assembly systems.
The Corporation also operated several businesses that do not constitute
reportable business segments. These businesses included the manufacture and sale
of glass container-forming and inspection equipment, as well as recreational and
household products. As more fully described in Note 2, 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, 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 following 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
<PAGE>
-69-
and lighting products businesses retained by the Corporation. Further, the
Corporation's divested household products businesses in Australia and Latin
America (excluding Brazil) were operated jointly with the Corporation's power
tools and accessories businesses. Accordingly, the results of the household
products businesses included in the segment table under the caption "All Others"
were determined using certain assumptions and allocations that the Corporation
believes are reasonable under the circumstances.
The amounts set forth in the following tables exclude amounts related to
the discontinued PRC segment.
<TABLE>
Business Segments
(Millions of Dollars)
<CAPTION>
Reportable Business Segments
--------------------------------------------
Fasten-
ing & Currency Corporate,
Power Tools Building Assembly All Translation Adjustments,
Year Ended December 31, 1998 & Accessories Products Systems Total Others Adjustments & Eliminations Consolidated
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated customers $2,946.4 $851.1 $463.0 $4,260.5 $333.6 $ (34.2) $ -- $4,559.9
Segment profit (loss)
(for Consolidated, operating income
before restructuring and exit costs,
write-off of goodwill, and gain on
sales of businesses) 293.4 125.2 76.6 495.2 16.5 (4.4) (23.3) 484.0
Depreciation and amortization 88.2 27.1 13.4 128.7 -- (1.1) 27.6 155.2
Income from equity method investees 8.8 -- -- 8.8 -- -- (2.9) 5.9
Capital expenditures 79.1 36.5 16.2 131.8 13.3 (1.1) 2.0 146.0
Segment assets
(for Consolidated, total assets) 1,631.3 507.8 246.7 2,385.8 -- (4.6) 1,471.3 3,852.5
Investment in equity method investees 22.5 -- .6 23.1 -- .1 2.3 25.5
Year Ended December 31, 1997
- -----------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $2,936.4 $804.8 $451.3 $4,192.5 $718.1 $ 29.9 $ -- $4,940.5
Segment profit (loss)
(for Consolidated, operating income 290.7 121.3 69.7 481.7 61.7 (2.3) (51.8) 489.3
Depreciation and amortization 87.5 24.7 11.9 124.1 24.4 (.3) 66.0 214.2
Income from equity method investees 6.1 -- -- 6.1 -- .3 (1.7) 4.7
Capital expenditures 113.2 47.3 15.4 175.9 25.3 (.2) 2.1 203.1
Segment assets
(for Consolidated, total assets) 1,635.4 476.5 248.2 2,360.1 438.6 8.0 2,554.0 5,360.7
Investment in equity method investees 23.1 -- .6 23.7 -- .9 1.0 25.6
Year Ended December 31, 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $2,820.1 $776.0 $421.0 $4,017.1 $712.5 $ 184.8 $ -- $4,914.4
Segment profit (loss)
(for Consolidated, operating income
before restructuring and exit costs) 243.4 125.1 63.5 432.0 52.7 9.4 (45.9) 448.2
Depreciation and amortization 87.9 21.2 10.9 120.0 23.9 1.3 69.4 214.6
Income from equity method investees 6.1 -- -- 6.1 -- .5 (3.9) 2.7
Capital expenditures 103.1 42.5 13.5 159.1 33.9 2.0 1.3 196.3
Segment assets
(for Consolidated, total assets) 1,511.3 417.3 232.6 2,161.2 436.1 119.8 2,436.4 5,153.5
Investment in equity method investees 18.6 -- .2 18.8 -- 1.6 .9 21.3
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
-70-
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,
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.
Segment profit excludes interest income and expense, non-operating income
and expense, goodwill amortization, adjustments to eliminate intercompany profit
in inventory, and income tax expense. In addition, segment profit excludes
restructuring and exit costs and, for 1998, the write-off of goodwill and gain
on sale of businesses. For certain operations located in Brazil, Mexico,
Venezuela, and Turkey, segment profit is reduced by net interest expense and
non-operating expenses. In determining segment profit, expenses relating to
pension and other postretirement benefits are based solely upon estimated
service costs. Corporate expenses are allocated to each 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.
Segment assets exclude pension and tax assets, goodwill, intercompany
profit in inventory, and intercompany receivables. Segment assets at December
31, 1996, include receivables sold under the Corporation's sale of receivables
program.
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. The
reconciliation of segment profit to the Corporation's earnings from continuing
operations before income taxes for each year, in millions of dollars, is as
follows:
<PAGE>
-71-
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Segment profit for total reportable business segments $ 495.2 $481.7 $432.0
Segment profit for all other businesses 16.5 61.7 52.7
Items excluded from segment profit:
Adjustment of budgeted foreign exchange rates
to actual rates (4.4) (2.3) 9.4
Depreciation of Corporate property and
amortization of goodwill (27.6) (66.0) (69.4)
Adjustment to businesses' postretirement benefit
expenses booked in consolidation 24.4 23.8 19.3
Adjustment to eliminate net interest and non-operating
expenses from results of certain operations in Brazil,
Mexico, Venezuela, and Turkey 5.7 3.6 3.2
Other adjustments booked in consolidation directly
related to reportable business segments (20.4) (17.6) (1.0)
Amounts allocated to businesses in arriving at segment profit
in excess of (less than) Corporate center operating expenses,
eliminations, and other amounts identified above (5.4) 4.4 2.0
- -------------------------------------------------------------------------------------------------------------------
Operating income before restructuring and exit costs,
write-off of goodwill, and gain on sale of businesses 484.0 489.3 448.2
Restructuring and exit costs 164.7 -- 91.3
Write-off of goodwill 900.0 -- --
Gain on sale of businesses 114.5 -- --
- -------------------------------------------------------------------------------------------------------------------
Operating income (loss) (466.2) 489.3 356.9
Interest expense, net of interest income 114.4 124.6 135.4
Other expense 7.7 15.2 18.8
- -------------------------------------------------------------------------------------------------------------------
Earnings (loss) before taxes $(588.3) $349.5 $202.7
===================================================================================================================
</TABLE>
The reconciliation of segment assets to the Corporation's total assets at
the end of each year, in millions of dollars, is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Segment assets for total reportable business segments $2,385.8 $2,360.1 $2,161.2
Segment assets for all other businesses -- 438.6 436.1
Items excluded from segment assets:
Adjustment of budgeted foreign exchange rates
to actual rates (4.6) 8.0 119.8
Goodwill 768.7 1,877.3 2,012.2
Pension assets 348.8 391.6 373.3
Elimination of trade receivables included
in segment assets sold under the Corporation's
sale of receivables program -- -- (212.0)
Other Corporate assets 353.8 285.1 262.9
- -------------------------------------------------------------------------------------------------------------------
$3,852.5 $5,360.7 $5,153.5
===================================================================================================================
</TABLE>
Other Corporate assets principally consist of cash and cash equivalents,
tax assets, property, and other assets.
<PAGE>
-72-
Sales to The Home Depot, a customer of the Corporation's Power Tools and
Accessories and Building Products segments, accounted for $622.3 million and
$541.6 million of the Corporation's consolidated sales for the years ended
December 31, 1998 and 1997, respectively. Sales to that customer for the year
ended December 31, 1996, did not exceed 10% of the Corporation's consolidated
sales for that year.
The composition of the Corporation's sales by product group for each year,
in millions of dollars, is set forth below:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Consumer and professional power tools
and product service $2,123.9 $2,070.4 $1,948.6
Consumer and professional accessories 339.8 342.1 336.8
Electric lawn and garden products 283.6 262.1 261.1
Cleaning and lighting products 99.0 183.3 259.3
Security hardware 596.3 573.5 567.1
Plumbing products 257.0 242.3 238.7
Fastening and assembly systems 461.0 460.2 451.6
Household products 197.1 485.4 528.7
Glass container-forming and inspection equipment 130.3 238.6 250.9
Recreational products 71.9 82.6 71.6
- -------------------------------------------------------------------------------------------------------------------
$4,559.9 $4,940.5 $4,914.4
===================================================================================================================
</TABLE>
The Corporation markets its products and services in over 100 countries and
has manufacturing sites in ten countries. Other than in the United States, the
Corporation does not conduct business in any country in which its sales in that
country exceed 10% of consolidated sales. Sales are attributed to countries
based on the location of customers. The composition of the Corporation's sales
to unaffiliated customers between those in the United States and those in other
locations for each year, in millions of dollars, is set forth below:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $2,703.7 $2,855.7 $2,726.1
Canada 137.4 179.4 169.4
- -------------------------------------------------------------------------------------------------------------------
North America 2,841.1 3,035.1 2,895.5
Europe 1,364.5 1,378.0 1,466.8
Other 354.3 527.4 552.1
- -------------------------------------------------------------------------------------------------------------------
$4,559.9 $4,940.5 $4,914.4
===================================================================================================================
</TABLE>
The composition of the Corporation's property, plant, and equipment between
those in the United States and those in other countries as of the end of each
year, in millions of dollars, is set forth below:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $469.0 $532.9 $497.6
Other countries 258.6 382.2 408.2
- -------------------------------------------------------------------------------------------------------------------
$727.6 $915.1 $905.8
===================================================================================================================
</TABLE>
<PAGE>
-73-
NOTE 20: OTHER EXPENSE
Other expense for 1998, 1997, and 1996 primarily included currency losses and,
for 1997 and 1996, the costs associated with the sale of receivables program.
NOTE 21: LEASES
The Corporation leases certain service centers, offices, warehouses,
manufacturing facilities, and equipment. Generally, the leases carry renewal
provisions and require the Corporation to pay maintenance costs. Rental payments
may be adjusted for increases in taxes and insurance above specified amounts.
Rental expense for 1998, 1997, and 1996 amounted to $81.4 million, $76.3
million, and $71.2 million, respectively. Capital leases were immaterial in
amount. Future minimum payments under non-cancelable operating leases with
initial or remaining terms of more than one year as of December 31, 1998, in
millions of dollars, were as follows:
- --------------------------------------------------------------------------------
1999 $ 45.1
2000 38.1
2001 28.9
2002 23.9
2003 19.8
Thereafter 33.8
- --------------------------------------------------------------------------------
Total $189.6
================================================================================
NOTE 22: LITIGATION AND CONTINGENT LIABILITIES
The Corporation is involved in various lawsuits in the ordinary course of
business. These lawsuits primarily involve claims for damages arising out of the
use of the Corporation's products and allegations of patent and trademark
infringement. The Corporation also is involved in litigation and administrative
proceedings relating to employment matters and commercial disputes. Some of
these lawsuits include claims for punitive as well as compensatory damages.
Using current product sales data and historical trends, the Corporation
actuarially calculates the estimate of its current exposure for product
liability. The Corporation is insured for product liability claims for amounts
in excess of established deductibles and accrues for the estimated liability up
to the limits of the deductibles. The Corporation accrues for all other claims
and lawsuits on a case-by-case basis.
The Corporation also is involved in lawsuits and administrative proceedings
with respect to claims involving the discharge of hazardous substances into the
environment. Certain of these claims assert damages and liability for remedial
investigations and cleanup costs with respect to sites at which the Corporation
has been identified as a potentially responsible party under federal and state
environmental laws and regulations (off-site). Other matters involve sites that
the Corporation currently owns and operates or has previously sold (on-site).
For off-site claims, the Corporation makes an assessment of the costs 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
<PAGE>
-74-
owned, the Corporation makes an assessment as to whether an investigation and
remediation would be required under applicable federal and state laws. 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 it 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 costs of investigation and remediation and other
potential costs associated with the site.
The Corporation's estimate of the costs associated with legal, product
liability, and environmental exposures is accrued if, in management's judgment,
the likelihood of a loss is probable. These accrued liabilities are not
discounted.
Insurance recoveries for environmental and certain general liability claims
are not recognized until realized. In the opinion of the Corporation, amounts
accrued for awards or assessments in connection with these matters are adequate
and, accordingly, ultimate resolution of these matters will not have a material
effect on the Corporation.
As of December 31, 1998, the Corporation had no known probable but
inestimable exposures that could have a material effect on the Corporation.
NOTE 23: QUARTERLY RESULTS (UNAUDITED)
(Millions of Dollars Except Per Share Data)
<TABLE>
<CAPTION>
First Second Third Fourth
Year Ended December 31, 1998 Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $1,008.3 $1,169.7 $1,107.7 $1,274.2
Gross margin 350.0 397.8 398.7 462.4
Net earnings (loss) (971.4) 58.4 66.6 91.6
===================================================================================================================
Net earnings (loss) per
common share -- basic $ (10.21) $ .62 $ .73 $ 1.05
===================================================================================================================
Net earnings (loss) per
common share -- assuming dilution $ (10.21) $ .61 $ .72 $ 1.03
===================================================================================================================
Year Ended December 31, 1997
- -------------------------------------------------------------------------------------------------------------------
Sales $1,015.0 $1,182.2 $1,224.9 $1,518.4
Gross margin 364.5 420.4 436.0 550.4
Net earnings 26.3 45.5 58.4 97.0
===================================================================================================================
Net earnings per common share -- basic $ .28 $ .48 $ .62 $ 1.02
===================================================================================================================
Net earnings per common share --
assuming dilution $ .27 $ .47 $ .60 $ 1.00
===================================================================================================================
</TABLE>
Results for the first quarter of 1998 included a write-off of goodwill of
$900.0 million and a restructuring charge of $140.0 million ($100.0 million net
of tax).
Results for the second quarter of 1998 included a gain on sale of
businesses of $36.5 million ($4.2 million net of tax).
Results for the third quarter of 1998 included a gain on sale of businesses
of $26.9 million ($9.2 million net of tax) and a restructuring charge of $14.2
million ($7.7 million net of tax).
<PAGE>
-75-
Results for the fourth quarter of 1998 included a gain on sale of
businesses of $51.1 million ($3.1 million net of tax) and a restructuring charge
of $10.5 million ($9.6 million net of tax).
Earnings per common share are computed independently for each of the
quarters presented. Therefore, the sum of the quarters may not necessarily be
equal to the full year earnings per share amounts.
<PAGE>
-76-
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors
of The Black & Decker Corporation:
We have audited the accompanying consolidated balance sheet of The Black &
Decker Corporation and Subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1998. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Corporation's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
The Black & Decker Corporation and Subsidiaries at December 31, 1998 and 1997,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 2 to the financial statements, effective January 1,
1998, the Corporation changed its method of accounting for measuring goodwill
impairment.
/s/ ERNST & YOUNG LLP
Baltimore, Maryland
January 26, 1999
<PAGE>
-77-
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Information required under this Item with respect to Directors is contained in
the Corporation's Proxy Statement for the Annual Meeting of Stockholders to be
held April 27, 1999, under the captions "Election of Directors" and "Section
16(a) Beneficial Ownership Reporting Compliance" and is incorporated herein by
reference.
Information required under this Item with respect to Executive Officers of
the Corporation is included in Item 1 of Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
Information required under this Item is contained in the Corporation's Proxy
Statement for the Annual Meeting of Stockholders to be held April 27, 1999,
under the captions "Board of Directors" and "Executive Compensation" and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Information required under this Item is contained in the Corporation's Proxy
Statement for the Annual Meeting of Stockholders to be held April 27, 1999,
under the captions "Voting Securities" and "Security Ownership of Management"
and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this Item is contained in the Corporation's Proxy
Statement for the Annual Meeting of Stockholders to be held April 27, 1999,
under the caption "Executive Compensation" and is incorporated herein by
reference.
<PAGE>
-78-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) List of Financial Statements, Financial Statement Schedules, and Exhibits
(1) List of Financial Statements
The following consolidated financial statements of the Corporation and
its subsidiaries are included in Item 8 of Part II:
Consolidated Statement of Earnings - years ended December 31,
1998, 1997, and 1996.
Consolidated Balance Sheet - December 31, 1998 and 1997.
Consolidated Statement of Stockholders' Equity - years ended
December 31, 1998, 1997, and 1996.
Consolidated Statement of Cash Flows - years ended December 31,
1998, 1997, and 1996.
Notes to Consolidated Financial Statements.
Report of Independent Auditors.
(2) List of Financial Statement Schedules
The following financial statement schedules of the Corporation and its
subsidiaries are included herein.
Schedule II - Valuation and Qualifying Accounts and Reserves.
All other schedules for which provision is made in the applicable
accounting regulations of the Commission are not required under the
related instructions or are inapplicable and, therefore, have been
omitted.
<PAGE>
-79-
(3) List of Exhibits
The following exhibits are either included in this report or
incorporated herein by reference as indicated below:
Exhibit No. Exhibit
2(a)(i) Transaction Agreement dated as of May 10, 1998, by and
between The Black & Decker Corporation and
Windmere-Durable Holdings, Inc., included in the
Corporation's Quarterly Report on Form 10-Q for the
quarter ended June 28, 1998, is incorporated herein
by reference.*
2(a)(ii) Amendment No. 1 dated as June 26, 1998, to the
Transaction Agreement dated as of May 10, 1998, by and
between The Black & Decker Corporation and Windmere-
Durable Holdings, Inc., included in the Corporation's
Quarterly Report on Form 10-Q for the quarter ended
June 28, 1998, is incorporated herein by reference.*
2(a)(iii) Letter Agreement dated as of July 29, 1998, between The
Black & Decker Corporation and Windmere-Durable
Holdings, Inc., included in the Corporation's Current
Report on Form 8-K filed on October 15, 1998, is
incorporated herein by reference.*
2(a)(iv) Amendment No. 3 dated as of September 23, 1998, to the
Transaction Agreement dated as of May 10, 1998, by and
between The Black & Decker Corporation and
Windmere-Durable Holdings, Inc., included in the
Corporation's Current Report on Form 8-K filed on
October 15, 1998, is incorporated herein by reference.*
2(a)(v) Amendment No. 4 dated as of October 15, 1998, to the
Transaction Agreement dated as of May 10, 1998, by and
between The Black & Decker Corporation and
Windmere-Durable Holdings, Inc., included in the
Corporation's Quarterly Report on Form 10-Q for the
quarter ended September 27, 1998, is incorporated herein
by reference.*
2(b)(i) Reorganization, Recapitalization and Stock Purchase
Agreement dated as of June 29, 1998, by and between The
Black & Decker Corporation, True Temper Sports, Inc. and
TTSI LLC, included in the Corporation's Quarterly Report
on Form 10-Q for the quarter ended June 28, 1998, is
incorporated herein by reference.*
<PAGE>
-80-
2(b)(ii) Amendment No. 1 to Reorganization, Recapitalization and
Stock Purchase Agreement dated as of August 1, 1998, by
and between The Black & Decker Corporation, True Temper
Sports, Inc. and TTSI LLC, included in the Corporation's
Quarterly Report on Form 10-Q for the quarter ended June
28, 1998, is incorporated herein by reference.*
2(b)(iii) Amendment No. 2 dated as of September 30, 1998, to the
Reorganization, Recapitalization and Stock Purchase
Agreement dated as of June 29, 1998, by and between The
Black & Decker Corporation, True Temper Corporation and
True Temper Sports, LLC, included in the Corporation's
Current Report on Form 8-K filed on October 15, 1998, is
incorporated herein by reference.*
2(c)(i) Transaction Agreement dated as of July 12, 1998, by and
between The Black & Decker Corporation and Bucher
Holding A.G., included in the Corporation's Quarterly
Report on Form 10-Q for the quarter ended June 28, 1998,
is incorporated herein by reference.*
2(c)(ii) Amendment No. 1 dated as of September 21, 1998, to the
Transaction Agreement dated as of July 12, 1998, by and
between The Black & Decker Corporation and Bucher
Holding A.G., included in the Corporation's Current
Report on Form 8-K filed on October 15, 1998, is
incorporated herein by reference.*
2(c)(iii) Amendment No. 2 dated as of November 20, 1998, to the
Transaction Agreement dated as of July 12, 1998, by and
between The Black & Decker Corporation and Bucher
Holding A.G.
3(a) Articles of Restatement of the Charter of the
Corporation included in the Corporation's Quarterly
Report on Form 10-Q for the quarter ended June 29, 1997,
are incorporated herein by reference.
3(b) By-Laws of the Corporation, as amended.
4(a) Indenture dated as of March 24, 1993, by and between the
Corporation and Security Trust Company, National
Association, included in the Corporation's Current
Report on Form 8-K filed with the Commission on March
26, 1993, is incorporated herein by reference.
4(b) Form of 7-1/2% Notes due April 1, 2003, included in the
Corporation's Current Report on Form 8-K filed with the
Commission on March 26, 1993, is incorporated herein by
reference.
<PAGE>
-81-
4(c) Form of 6-5/8% Notes due November 15, 2000, included in
the Corporation's Current Report on Form 8-K filed with
the Commission on November 22, 1993, is incorporated
herein by reference.
4(d) Form of 7% Notes due February 1, 2006, included in the
Corporation's Current Report on Form 8-K filed with the
Commission on January 20, 1994, is incorporated
herein by reference.
4(e) Indenture dated as of September 9, 1994, by and between
the Corporation and Marine Midland Bank, as Trustee,
included in the Corporation's Current Report on Form 8-K
filed with the Commission on September 9, 1994, is
incorporated herein by reference.
4(f) Credit Agreement dated as of April 23, 1996, among the
Corporation, Black & Decker Holdings Inc. and Black &
Decker, as Initial Borrowers, and the initial Lenders
named therein, as Initial Lenders, and Citibank
International plc, as Facility Agent, and Citibank
International plc and Midland Bank plc, as Co-Arrangers,
included in the Corporation's Quarterly Report on Form
10-Q for the quarter ended March 31, 1996, is
incorporated herein by reference.
4(g) Credit Agreement dated as of April 23, 1996, among the
Corporation, Black & Decker Holdings Inc., Black &
Decker, Black & Decker International Holdings B.V.,
Black & Decker G.m.b.H., Black & Decker (France) S.A.S.,
Black & Decker (Nederland) B.V. and Emhart Glass S.A.,
as Initial Borrowers, and the initial Lenders named
therein, as Initial Lenders, and Credit Suisse, as
Administrative Agent, and Citibank, N.A., as
Documentation Agent, and NationsBank, N.A., as
Syndication Agent, included in the Corporation's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996, is incorporated herein by reference.
4(h) Indenture dated as of June 26, 1998, by and between
Black & Decker Holdings Inc., as Issuer, the
Corporation, as Guarantor, and The First National Bank
of Chicago, as Trustee, included in the Corporation's
Quarterly Report on Form 10-Q for the quarter ended June
28, 1998, is incorporated herein by reference.
The Corporation agrees to furnish a copy of any other documents with
respect to long-term debt instruments of the Corporation and its
subsidiaries upon request.
<PAGE>
-82-
10(a) The Black & Decker Corporation Deferred Compensation Plan
for Non-Employee Directors, as amended, included in the
Corporation's Quarterly Report on Form 10-Q for the quarter
ended October 2, 1994, is incorporated herein by reference.
10(b) The Black & Decker 1986 Stock Option Plan, as amended,
included in the Corporation's Quarterly Report on Form 10-Q
for the quarter ended March 30, 1997, is incorporated herein
by reference.
10(c) The Black & Decker 1986 U.K. Approved Option Scheme, as
amended, included in the Corporation's Registration
Statement on Form S-8 (Reg. No. 33-47651), filed with the
Commission on May 5, 1992, is incorporated herein by
reference.
10(d) The Black & Decker 1989 Stock Option Plan, as amended,
included in the Corporation's Quarterly Report on Form 10-Q
for the quarter ended March 30, 1997, is incorporated herein
by reference.
10(e) The Black & Decker 1992 Stock Option Plan, as amended,
included in the Corporation's Quarterly Report on Form 10-Q
for the quarter ended March 30, 1997, is incorporated herein
by reference.
10(f) The Black & Decker 1995 Stock Option Plan for Non-Employee
Directors, as amended.
10(g) The Black & Decker Non-Employee Directors Stock Plan,
included as Exhibit A to the Proxy Statement of the
Corporation dated March 3, 1998, for the 1998 Annual Meeting
of Stockholders of the Corporation, is incorporated herein
by reference.
10(h) The Black & Decker 1996 Stock Option Plan, as amended,
included in the Corporation's Registration Statement on Form
S-8 (Reg. No. 333-51155), is incorporated herein by
reference.
10(i) The Black & Decker Performance Equity Plan, as amended,
included in the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1996, is incorporated herein by
reference.
<PAGE>
-83-
10(j) The Black & Decker Executive Annual Incentive Plan, included
in the definitive Proxy Statement for the 1996 Annual
Meeting of Stockholders of the Corporation dated March 1,
1996, is incorporated herein by reference.
10(k) The Black & Decker Management Annual Incentive Plan,
included in the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1995, is incorporated herein by
reference.
10(l) Amended and Restated Employment Agreement, dated as of
November 1, 1995, by and between the Corporation and Nolan
D. Archibald, included in the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1995, is
incorporated herein by reference.
10(m) Letter Agreement, dated February 1, 1975, by and between the
Corporation and Alonzo G. Decker, Jr., included in the
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1990, is incorporated herein by reference.
10(n)(1) The Black & Decker Supplemental Pension Plan, as amended,
included in the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1991, is incorporated herein by
reference.
10(n)(2) Amendment to The Black & Decker Supplemental Pension Plan
dated as of May 21, 1997, included in the Corporation's
Annual Report on Form 10-K for the year ended December 31,
1997, is incorporated herein by reference.
10(o)(1) The Black & Decker Executive Deferred Compensation Plan,
included in the Corporation's Quarterly Report on Form 10-Q
for the quarter ended October 3, 1993, is incorporated
herein by reference.
10(o)(2) Amendment to The Black & Decker Executive Deferred
Compensation Plan dated as of July 17, 1996, included in the
Corporation's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996, is incorporated herein by reference.
10(p)(1) The Black & Decker Supplemental Retirement Savings Plan,
included in the Corporation's Registration Statement on Form
S-8 (Reg. No. 33-65013), filed with the Commission on
December 14, 1995, is incorporated herein by reference.
<PAGE>
-84-
10(p)(2) Amendment to The Black & Decker Supplemental Retirement
Savings Plan dated as of April 22, 1997, included in the
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1997, is incorporated herein by reference.
10(p)(3) Amendment No. 2 to The Black & Decker Supplemental
Retirement Savings Plan dated as of July 16, 1998.
10(q) The Black & Decker Supplemental Executive Retirement Plan,
as amended.
10(r) The Black & Decker Executive Life Insurance Program, as
amended, included in the Corporation's Quarterly Report on
Form 10-Q for the quarter ended April 4, 1993, is
incorporated herein by reference.
10(s) The Black & Decker Executive Salary Continuance Plan,
included in the Corporation's Quarterly Report on Form 10-Q
for the quarter ended April 12, 1995, is incorporated herein
by reference.
10(t) Description of the Corporation's policy and procedure for
relocation of existing employees (individual transfers),
included in the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1991, is incorporated herein by
reference.
10(u) Description of the Corporation's policy and procedures for
relocation of new employees, included in the Corporation's
Annual Report on Form 10-K for the year ended December 31,
1991, is incorporated herein by reference.
10(v) Description of certain incidental benefits provided to
executive officers of the Corporation, included in the
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1997, is incorporated herein by reference.
10(w) Form of Amendment and Restatement of Severance Benefits
Agreement by and between the Corporation and approximately
15 of its key employees, included in the Corporation's
Annual Report on Form 10-K for the year ended December 31,
1996, is incorporated herein by reference.
10(x) Amendment and Restatement of Severance Benefits Agreement,
dated January 1, 1997, by and between the Corporation and
Nolan D. Archibald, included in the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1996, is
incorporated herein by reference.
<PAGE>
-85-
10(y) Amendment and Restatement of Severance Benefits Agreement,
dated January 1, 1997, by and between the Corporation and
Joseph Galli, included in the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1996, is
incorporated herein by reference.
10(z) Amendment and Restatement of Severance Benefits Agreement,
dated January 1, 1997, by and between the Corporation and
Charles E. Fenton, included in the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1996, is
incorporated herein by reference.
10(aa) Severance Benefits Agreement, dated February 12, 1998, by
and between the Corporation and Frederik B. van den Bergh.
10(bb) Amendment and Restatement of Severance Benefits Agreement,
dated January 1, 1997, by and between the Corporation and
Thomas M. Schoewe, included in the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1996, is
incorporated herein by reference.
10(cc)(1) Letter Agreement dated May 9, 1997, between the Corporation
and Frederik B. van den Bergh.
10(cc)(2) Amendment to Letter Agreement between the Corporation and
Frederik B. van den Bergh, dated April 21, 1998.
10(dd) Distribution Agreement dated September 9, 1994, by and
between the Corporation, Lehman Brothers Inc., Citicorp
Securities, Inc., Goldman, Sachs & Co., Morgan Stanley & Co.
Incorporated, NationsBanc Capital Markets, Inc. and Salomon
Brothers Inc., included in the Corporation's Current Report
on Form 8-K filed with the Commission on September 9, 1994,
is incorporated herein by reference.
10(ee)(1) The Black & Decker 1996 Employee Stock Purchase Plan,
included in the definitive Proxy Statement for the 1996
Annual Meeting of Stockholders of the Corporation dated
March 1, 1996, is incorporated herein by reference.
10(ee)(2) Amendment to The Black & Decker 1996 Employee Stock Purchase
Plan, as adopted on February 12, 1997, included in the
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1996, is incorporated herein by reference.
<PAGE>
-86-
11 Computation of Earnings Per Share.
12 Computation of Ratios.
21 List of Subsidiaries.
23 Consent of Independent Auditors.
24 Powers of Attorney.
27 Financial Data Schedule.
99(a) Securities Purchase Agreement dated as of September 30,
1998, among True Temper Corporation and Emhart Inc.,
included in the Corporation's Current Report on Form 8-K
filed on October 15, 1998, is incorporated herein by
reference.
99(b) Warrant Agreement among True Temper Corporation and Emhart
Inc. dated as of September 30, 1998, included in the
Corporation's Current Report on Form 8-K filed on October
15, 1998, is incorporated herein by reference.
99(c) Debt Registration Rights Agreement among True Temper
Corporation and Emhart Inc. dated as of September 30, 1998,
included in the Corporation's Current Report on Form 8-K
filed on October 15, 1998, is incorporated herein by
reference.
99(d) Equity Registration Rights Agreement among True Temper
Corporation and Emhart Inc. dated as of September 30, 1998,
included in the Corporation's Current Report on Form 8-K
filed on October 15, 1998, is incorporated herein by
reference.
99(e) Stock Purchase Agreement dated as of December 13, 1995, by
and among the Corporation, PRC Investments Inc., PRC Inc.
and Litton Industries, Inc., included in the Corporation's
Annual Report on Form 10-K for the year ended December 31,
1995, is incorporated herein by reference.
----------
* Certain schedules and attachments have been omitted. The
Corporation agrees to provide a copy of these schedules and
attachments to the Securities and Exchange Commission upon
request.
All other items are "not applicable" or "none".
<PAGE>
-87-
(b) Reports on Form 8-K
The Corporation filed the following reports on Form 8-K during the three
months ended December 31, 1998:
On October 14, 1998, the Corporation filed a Current Report on Form 8-K
with the Securities and Exchange Commission. This Current Report on Form
8-K, filed pursuant to Item 5 of that Form, stated that the Corporation had
reported its earnings for the three and nine months ended September 27,
1998.
On October 15, 1998, the Corporation filed a Current Report on Form 8-K
with the Securities and Exchange Commission. This Current Report on Form
8-K, filed pursuant to Item 2 of that Form, stated that the Corporation had
completed the recapitalization of its recreational products business, True
Temper Sports, with an affiliate of Cornerstone Equity Investors, LLC. Also
included in that Current Report on Form 8-K, filed pursuant to Item 7 of
that Form, was the Corporation's pro forma financial information required
to be filed due to the divestitures of the household products business in
North America and Latin America (excluding Brazil) and the glass
container-making and inspection equipment business, Emhart Glass, and the
recapitalization of the recreational products business, True Temper Sports.
All other items are "not applicable" or "none".
(c) Exhibits
The exhibits required by Item 601 of Regulation S-K are filed herewith.
(d) Financial Statement Schedules and Other Financial Statements
(1) The Financial Statement Schedule required by Regulation S-X is filed
herewith.
(2) The Unaudited Pro Forma Statement of Earnings for the year ended
December 31, 1998, contemplated by Article 11 of Regulation S-X,
reflecting the Corporation's sale during 1998 of the household
products business (excluding certain assets associated with the
Corporation's cleaning and lighting products) in North America,
Australia, Central America, the Caribbean, and South America
(excluding Brazil) and the glass container-forming and inspection
equipment business, Emhart Glass, and the recapitalization of the
recreational products business, True Temper Sports, is filed herewith.
<PAGE>
-88-
<TABLE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
The Black & Decker Corporation and Subsidiaries
(Millions of Dollars)
<CAPTION>
Balance Additions Other
At Charged Changes Balance
Beginning to Costs Add At End
Description of Period and Expenses Deductions (Deduct) of Period
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1998
- ----------------------------
Reserve for doubtful accounts
and cash discounts $ 47.8 $ 66.8 $ 65.8(A) $ (4.5)(B) $ 44.3
====================================================================================================================================
Year Ended December 31, 1997
- ----------------------------
Reserve for doubtful accounts
and cash discounts $ 44.0 $ 70.0 $ 63.8(A) $ (2.4)(B) $ 47.8
====================================================================================================================================
Year Ended December 31, 1996
- ----------------------------
Reserve for doubtful accounts
and cash discounts $ 43.1 $ 58.1 $ 56.7(A) $ (.5)(B) $ 44.0
====================================================================================================================================
<FN>
(A) Accounts written off during the year and cash discounts taken by customers.
(B) Primarily includes currency translation adjustments and, for 1998, the
write-off of $4.3 million of reserves associated with divested businesses.
</FN>
</TABLE>
<PAGE>
-89-
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The Black & Decker Corporation and Subsidiaries
The following unaudited pro forma consolidated statement of earnings for the
year ended December 31, 1998, has been prepared by the Corporation to give
effect to the sale of the household products business (excluding certain assets
associated with the Corporation's cleaning and lighting products) in North
America, Australia, Central America, the Caribbean, and South America (excluding
Brazil) and the glass container-forming and inspection equipment business,
Emhart Glass, and the recapitalization of the recreational products business,
True Temper Sports (collectively, the "Divested Businesses"). For additional
information with respect to the Divested Businesses, see Note 2 of Notes to
Consolidated Financial Statements, included in Item 8 of Part II of this report,
and Management's Discussion and Analysis of Financial Condition and Results of
Operations, included in Item 7 of Part II of this report, under the caption
"Strategic Repositioning."
The unaudited pro forma consolidated statement of earnings for the year
ended December 31, 1998, was prepared using the Corporation's consolidated
statement of earnings for the year ended December 31, 1998, and assumes that the
sales of the Divested Businesses took place on January 1, 1998.
The unaudited pro forma consolidated statement of earnings has been
prepared for comparative purposes only and does not purport to be indicative of
the results of operations which would actually have resulted had the sales of
the Divested Businesses been made on the dates or for the periods indicated or
which may result in the future.
The actual consolidated financial statements of the Corporation will
reflect the sales of the Divested Businesses only from the respective actual
sales dates forward.
<PAGE>
-90-
<TABLE>
PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
The Black & Decker Corporation and Subsidiaries
Year Ended December 31, 1998
(Dollars in Millions Except Per Share Amounts)
<CAPTION>
Less:
Divested Pro Forma Pro Forma
As Reported Businesses Adjustments As Adjusted
---------------- ---------------- ----------- ----------------
<S> <C> <C> <C>
Sales $ 4,559.9 $ 331.2 $ 4,228.7
Cost of goods sold 2,951.0 235.4 2,715.6
Selling, general, and administrative
expenses 1,124.9 75.7 1,049.2
Write-off of goodwill 900.0 40.0 860.0
Restructuring and exit costs 164.7 17.1 147.6
Gain (loss) on sale of businesses 114.5 127.2 (12.7)
---------------- ---------------- ----------------
Operating Income (Loss) (466.2) 90.2 (556.4)
Interest expense (net of interest income) 114.4 .1 $ (24.5)(a) 89.8
Other expense 7.7 1.0 6.7
---------------- ---------------- ------------ ----------------
Earnings (Loss) Before Income Taxes (588.3) 89.1 24.5 (652.9)
Income taxes 166.5 102.6 8.6 (b) 72.5
---------------- ---------------- ------------ ----------------
Net Earnings (Loss) $ (754.8) $ (13.5) $ 15.9 $ (725.4)
================ ================ ============ ================
Net Earnings (Loss) Per Common
Share -- Basic $ (8.22) $ (7.90)
================ ================
Shares Used in Computing Basic
Earnings Per Share (in Millions) 91.8 91.8
================ ================
Net Earnings (Loss) Per Common
Share -- Assuming Dilution $ (8.22) $ (7.90)
================ ================
Shares Used in Computing Diluted
Earnings Per Share (in Millions) 91.8 91.8
================ ================
</TABLE>
<PAGE>
-91-
Notes to Unaudited Pro Forma Consolidated Statement of Earnings
Less: Divested Businesses
- --------------------------
These adjustments are made to eliminate the results of Divested Businesses--True
Temper Sports, Emhart Glass, and the household products business (excluding
certain assets associated with the Corporation's cleaning and lighting products)
in North America, Australia, Central America, the Caribbean, and South America
(excluding Brazil). The results of the Divested Businesses eliminated do not
reflect charges for certain Corporate overhead expenses historically allocated
by the Corporation to these businesses. While the Corporation is taking action
to realign its Corporate overhead structure in light of the sale of the Divested
Businesses, such actions are prospective in nature and projected savings
resulting from these actions are not reflected in the pro forma consolidated
results.
The results of the household products business (excluding certain assets
associated with the Corporation's cleaning and lighting products) in North
America, Australia, Central America, the Caribbean, and South America (excluding
Brazil) included in the results of the Divested Businesses eliminated from the
Corporation's historical results to arrive at the pro forma consolidated results
are based upon certain assumptions and allocations. The household products
businesses sold were jointly operated with the cleaning and lighting products
businesses retained by the Corporation. Further, the Corporation's divested
household products businesses in Australia, Central America, the Caribbean, and
Latin America (excluding Brazil) were operated jointly with the Corporation's
power tools and accessories businesses. Accordingly, the results of the
household products businesses, included in the results of the Divested
Businesses, were determined using certain assumptions and allocations that the
Corporation believes are reasonable under the circumstances.
Pro Forma Adjustments
- ---------------------
For purposes of the pro forma statement of earnings, it was assumed that the net
cash proceeds (cash proceeds after selling expenses and taxes paid) from the
Divestitures of approximately $625 million were used to reduce indebtedness.
For pro forma purposes, no interest income was assumed recognized on the $25.0
million note received by the Corporation in connection with the recapitalization
of True Temper Sports. Such note, however, is interest bearing, with interest
being added to the accreted amount of the note and not paid in cash. As more
fully discussed in Note 2 of Notes to Consolidated Financial Statements included
in Item 8 of this report, the Corporation has fully reserved the note as of
December 31, 1998.
(a) To reflect a pro forma reduction in net interest expense of $24.5 million
based upon the Corporation's weighted average borrowing rate for the year
ended December 31, 1998, of 6.45%. The pro forma adjustment is net of
estimated actual interest earned on proceeds received during the year ended
December 31, 1998. The effect of a 1/8th percentage point change in the
Corporation's weighted average borrowing rate would impact pro forma net
interest expense by $.4 million for the year ended December 31, 1998.
(b) To reflect income taxes on entry (a) at the federal statutory rate.
<PAGE>
-92-
Pursuant to the requirements of Section 13 or 15(d) 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
Date: March 16, 1999 By /s/NOLAN D. ARCHIBALD
-------------- ---------------------
Nolan D. Archibald
Chairman, President, and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on March 16, 1999, by the following persons on behalf of
the registrant and in the capacities indicated.
Signature Title Date
--------- ----- ----
Principal Executive Officer
/s/NOLAN D. ARCHIBALD March 16, 1999
- --------------------- --------------
Nolan D. Archibald Chairman, President, and
Chief Executive Officer
Principal Financial Officer
/s/THOMAS M. SCHOEWE March 16, 1999
- -------------------- --------------
Thomas M. Schoewe Senior Vice President and
Chief Financial Officer
Principal Accounting Officer
/s/STEPHEN F. REEVES March 16, 1999
- -------------------- --------------
Stephen F. Reeves Vice President and
Controller
This report has been signed by the following directors, constituting a majority
of the Board of Directors, by Nolan D. Archibald, Attorney-in-Fact.
Nolan D. Archibald Alonzo G. Decker, Jr.
Norman R. Augustine Anthony Luiso
Barbara L. Bowles Mark H. Willes
Malcolm Candlish
By /s/NOLAN D. ARCHIBALD Date: March 16, 1999
--------------------- --------------
Nolan D. Archibald
Attorney-in-Fact
AMENDMENT NO. 2 TO TRANSACTION AGREEMENT
This Amendment No. 2 to Transaction Agreement ("Amendment No. 2") is made
as of the 20th day of November, 1998, 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 desire to amend certain of the provisions
of the First Amendment, thereby further amending the Agreement, in accordance
with the terms of this Amendment No. 2;
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.
Section 2. AMENDMENTS. The Agreement and the First Amendment are hereby
amended as follows:
2.01. The following sentence hereby replaces the second sentence of
Section 2.04.(a) of the Agreement:
In the event Buyer disputes the correctness of the Proposed Final Net
Tangible Asset Amount, Buyer shall notify Black & Decker of its objections by
February 5, 1999 and shall set forth, in writing and reasonable detail, the
reasons for Buyer's objections.
2.02. The following provision hereby replaces Section 2.01.(d) of
the First Amendment:
<PAGE>
(d) INDIVIDUAL EMPLOYEE SEVERANCE AGREEMENTS. Prior to the
Closing one of the Employees listed on Schedule B.20 as having an individual
employee severance agreement has been terminated and a portion of the severance
benefits described in such agreement were paid prior to the Closing. Another of
the Employees listed on Schedule B.20 as having an individual employee severance
agreement is being terminated after the Closing. Buyer will be responsible for
paying (i) the remaining portion of the severance benefits described in his
severance agreement to the Employee who was terminated prior to the Closing Date
and (ii) the severance benefits described in his severance agreement to the
Employee who is being terminated after the Closing Date. Such obligations shall
be Assumed Liabilities and included in the statement of the Proposed Final Net
Tangible Asset Amount and in the Final Net Tangible Asset Amount.
2.03. The following provision hereby replaces Section 2.10.(b)(i)
of the First Amendment:
(i) ELMIRA FACILITY. Black & Decker agrees that Buyer's
contacting the relevant Governmental Authorities to confirm that (A) the
municipal incinerator ash used as fill at the facility contains levels of heavy
metals that are below regulatory reporting thresholds and to (B) the underground
storage tanks comply with Applicable Law will not affect Buyer's rights to
indemnification for such conditions.
Section 3. ANCHOR BANKRUPTCY MATTER. As contemplated by Section 2.03 of the
First Amendment, Emhart Glass Machinery (U.S.), Inc. has not finally settled the
unsecured creditor claims and preference claims. Therefore, any assets,
liabilities and reserves relating to such claims will not be included in the
statement of the Proposed Final Net Tangible Asset Amount and in the Final Net
Tangible Asset Amount and shall be treated as Excluded Assets and Excluded
Liabilities, respectively.
<PAGE>
IN WITNESS WHEREOF, the parties hereto caused this Amendment No. 2 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: Senior Vice President
and General Counsel
BUCHER HOLDING AG
By:/s/RUDOLF HAUSER
-------------------------------
Name: Rudolf Hauser
Title:
Adopted 10/17/96
Amended 07/16/98
----------------
Amended 02/11/99
----------------
BYLAWS
------
OF
--
THE BLACK & DECKER CORPORATION
------------------------------
ARTICLE I
---------
Stockholders
------------
SECTION 1. Annual Meeting.
--------------
The annual meeting of stockholders shall be held on the last Tuesday in
April of each year or on such day within 15 days thereof and at such time and at
such place as the Board of Directors may by resolution provide for the purpose
of electing directors and for the transaction of only such other business as is
properly brought before the meeting in accordance with these Bylaws.
To be properly brought before the meeting, business must be either (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board, (b) otherwise properly brought before the meeting by
or at the direction of the Board, or (c) otherwise properly brought before the
meeting by a stockholder. In addition to any other applicable requirements, for
business to be properly brought before an annual meeting by a stockholder, the
stockholder must have given written notice thereof that is received by the
Secretary of the Corporation at the principal executive offices of the
Corporation not less than 90 days nor more than 110 days prior to the meeting;
provided, however, that in the event that less than 100 days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder must be so received not later than the close of
business on the 10th day following the day on which the notice of the date of
the annual meeting was mailed or the public disclosure was made, whichever first
occurred. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and record address of the stockholder proposing such business, (iii) the class
and number of shares of the Corporation which are beneficially owned by the
stockholder, and (iv) any material interest of the stockholder in such business.
Notwithstanding anything in the Bylaws to the contrary, no business shall
be conducted at the annual meeting except in accordance with the procedures set
forth in this section, provided, however, that nothing in this section shall be
deemed to preclude discussion by any stockholder of any business properly
brought before the annual meeting.
The Chairman of the annual meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the provisions of this Article, and if the Chairman
should so determine, he or she shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
<PAGE>
SECTION 2. Special Meetings.
----------------
Special meetings of the stockholders may be called at any time for any
purpose or purposes by the Chief Executive Officer, by a majority of the Board
of Directors, or by a majority of the Executive Committee. Special meetings of
the stockholders shall be called forthwith by the Chairman of the Board, by the
President, or by the Secretary of the Corporation upon the written request of
stockholders entitled to cast a majority of all votes entitled to be cast at the
special meeting. A written request that a special meeting be called shall state
the purpose or purposes of the meeting and the matters proposed to be acted on
at the meeting. However called, notice of the meeting shall be given to each
stockholder and shall state the purpose or purposes of the meeting. No business
other than that stated in the notice shall be transacted at any special meeting.
SECTION 3. Place of Meetings.
-----------------
All meetings of stockholders shall be held at the principal offices of the
Corporation at Towson, Baltimore County, Maryland, or at such other location in
the United States of America as the Board of Directors may provide in the notice
of the meeting.
SECTION 4. Notice of Meetings.
------------------
Written or printed notice of each meeting of the stockholders shall be
delivered to each stockholder by leaving the notice with the stockholder at the
stockholder's residence or usual place of business, or by mailing it, postage
prepaid and addressed to the stockholder at the stockholder's address as it
appears upon the records of the Corporation. The notice shall be delivered or
mailed not more than 90 nor less than 20 days before the meeting, and shall
state the place, day, and hour at which the meeting is to be held. No notice of
any meeting of the stockholders need be given to any stockholder who attends the
meeting in person or by proxy, or to any stockholder who, in writing executed
and filed with the records of the meeting either before or after the holding
thereof, waives notice.
SECTION 5. Quorum.
------
At any meeting of stockholders the presence in person or by proxy of the
holders of record of a majority of the shares of stock entitled to vote at the
meeting shall constitute a quorum. In the absence of a quorum, the stockholders
entitled to vote who shall be present in person or by proxy at any meeting (or
adjournment thereof) may, by a majority vote and without further notice, adjourn
the meeting from time to time, but not for a period of over thirty days at any
one time, until a quorum shall attend. At any adjourned meeting at which a
quorum shall be present, any business may be transacted that could have been
transacted if the meeting had been held as originally scheduled.
SECTION 6. Conduct of Meetings.
-------------------
Meetings of stockholders shall be presided over by the Chairman of the
Board of Directors of the Corporation or, in the Chairman's absence, by the Vice
Chairman of the Board, or if both of such officers are absent, by the President
of the Corporation. The Secretary of the Corporation shall act as secretary of
meetings of the stockholders and in the Secretary's absence, the records of the
proceedings shall be kept and authenticated by such other person as may be
appointed for that purpose at the meeting by the presiding officer. To
participate in a meeting, stockholders must be present in person or by proxy;
stockholders may not participate by means of a conference telephone or other
communications equipment. The rules contained in the current edition of Robert's
Rules of Order Newly Revised shall govern in all cases to which they are
<PAGE>
applicable and in which they are not inconsistent with these Bylaws and any
special rules of order that the meeting may adopt.
SECTION 7. Approval of Minutes.
-------------------
The minutes of all meetings of stockholders shall be corrected and approved
by a committee of directors designated by the Board and if none is designated,
by the Organization Committee. At a subsequent meeting of stockholders, a
synopsis of the minutes shall be read for information at the request of the
presiding officer or any stockholder.
SECTION 8. Proxies.
-------
Stockholders may vote either in person or by proxy, but no proxy that is
dated more than 11 months before the meeting at which it is offered shall be
accepted unless the proxy shall on its face name a longer period for which it is
to remain in force. Each proxy shall be in writing and signed by the
stockholder, or by the stockholder's duly authorized agent, and shall be dated.
The proxy need not be sealed, witnessed or acknowledged. Proxies shall be filed
with the Secretary of the Corporation at or before the meeting.
SECTION 9. Voting.
------
Except as otherwise provided in the charter of the Corporation, at all
meetings of stockholders, each holder of shares of Common Stock shall be
entitled to one vote for each share of stock of the Corporation registered in
the stockholder's name upon the books of the Corporation on the date fixed by
the Board of Directors as the record date for the determination of stockholders
entitled to vote at the meeting. Except as otherwise provided in the charter of
the Corporation, all elections and matters submitted to a vote at meetings of
stockholders shall be decided by a majority of all votes cast in person or by
proxy, unless more than a majority of the votes cast is required by statute, by
charter, or by these Bylaws. If the presiding officer shall so determine, a vote
by ballot may be taken upon any election or matter, and the vote shall be so
taken upon the request of the holders of ten percent of the stock present and
entitled to vote on the election or matter. If the presiding officer shall so
determine, the votes on all matters to be voted upon by ballot may be postponed
to be voted on at the same time or on a single ballot.
SECTION 10. Inspectors of Elections.
-----------------------
One or more inspectors may be appointed by the presiding officer at any
meeting. If so appointed, the inspector or inspectors shall open and close the
polls, receive and take charge of the proxies and ballots, decide all questions
as to the qualifications of voters and the validity of proxies, determine and
report the results of elections and votes on matters before the meeting, and do
such other acts as may be proper to conduct the election and the vote with
fairness to all stockholders.
SECTION 11. List of Stockholders.
--------------------
Prior to each meeting of the stockholders, the Secretary of the Corporation
shall prepare, as of the record date fixed by the Board of Directors with
respect to the meeting, a full and accurate list of all stockholders entitled to
vote at the meeting, indicating the number of shares and class of stock held by
each. The Secretary shall be responsible for the production of that list at the
meeting.
<PAGE>
ARTICLE II
----------
Board of Directors
------------------
SECTION 1. Powers.
------
The property, business, and affairs of the Corporation shall be managed by
the Board of Directors of the Corporation. The Board of Directors may exercise
all the powers of the Corporation, except those conferred upon or reserved to
the stockholders by statute, by charter or by these Bylaws. The Board of
Directors shall keep minutes of each of its meetings and a full account of all
of its transactions.
SECTION 2. Number of Directors.
-------------------
The number of directors of the Corporation shall be 14 or such lesser
number not less than eight as may from time to time be determined by the vote of
three-fourths of the entire Board of Directors. However, the tenure of Office of
a director shall not be affected by any change in number.
SECTION 3. Nomination of Directors.
-----------------------
Only persons who are nominated in accordance with the following procedures
shall be eligible for election as Directors at a meeting of stockholders.
Nominations of persons for election as Directors may be made at a meeting of
stockholders by or at the direction of the Board of Directors by any nominating
committee or person appointed by the Board or by any stockholder of the
Corporation entitled to vote for the election of Directors at the meeting who
complies with the notice procedures set forth in this section. Nominations,
other than those made by or at the direction of the Board, shall be made
pursuant to written notice delivered to or mailed and received by the Secretary
of the Corporation at the principal executive offices of the Corporation not
less than 90 days nor more than 110 days prior to the meeting; provided,
however, that in the event that less than 100 days' notice or prior public
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder must be so received not later than the close of business on
the 10th day following the day on which notice of the date of the meeting was
mailed or public disclosure was made, whichever first occurred. The notice to
the Secretary shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or re-election as a Director, (i) the name,
age, business address and residence address of the person, (ii) the principal
occupation or employment of the person, (iii) the class and number of shares of
capital stock of the Corporation which are beneficially owned by the person and
(iv) any other information relating to the person that is required to be
disclosed in solicitations for proxies for election of Directors pursuant to
Rule 14a under the Securities Exchange Act of 1934; and (b) as to the
stockholder giving the notice (i) the name and record address of stockholder and
(ii) the class and number of shares of capital stock of the Corporation which
are beneficially owned by the stockholder. The Corporation may require any
proposed nominee to furnish such other information as may reasonably be required
by the Corporation to determine the eligibility of the proposed nominee to serve
as Director of the Corporation.
The presiding officer of the meeting shall, if the facts warrant, determine
and declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if the presiding officer shall so determine and shall
so declare to the meeting, the defective nomination shall be disregarded.
<PAGE>
SECTION 4. Election.
--------
Except as hereinafter provided, the members of the Board of Directors shall
be elected each year at the annual meeting of stockholders by the vote of the
holders of record of a majority of the shares of stock present in person or by
proxy and entitled to vote at the meeting. Each director shall hold office until
the next annual meeting of stockholders held after his or her election and until
his or her successor shall have been duly elected and qualified, or until death,
or until he or she shall have resigned, or shall have been removed as
hereinafter provided. Each person elected as director of the Corporation shall
qualify as such by written acceptance or by attendance at and participation as a
director in a duly called meeting of the Board of Directors.
SECTION 5. Removal.
-------
At a duly called meeting of the stockholders at which a quorum is present,
the stockholders may, by vote of the holders of a majority of the votes entitled
to be cast at the meeting, remove with or without cause any director or
directors from office, and may elect a successor or successors to fill any
resulting vacancy for the remainder of the term of the director so removed.
SECTION 6. Vacancies.
---------
If any director shall die or resign, or if the stockholders shall remove
any director without electing a successor to fill the remaining term, that
vacancy may be filled by the vote of a majority of the remaining members of the
Board of Directors, although a majority may be less than a quorum. Vacancies in
the Board created by an increase in the number of directors may be filled by the
vote of a majority of the entire Board as constituted prior to the increase. A
director elected by the Board of Directors to fill any vacancy, however created,
shall hold office until the next annual meeting of stockholders and until his or
her successor shall have been duly elected and qualified.
SECTION 7. Meetings.
--------
Immediately after each annual meeting of stockholders at which a Board of
Directors shall have been elected, the Board of Directors shall meet, without
notice, for the election of an Executive Committee of the Board of Directors,
for the election of officers of the Corporation, and for the transaction of
other business. Other regular meetings of the Board of Directors shall be held
in the months of February, July, October and December on the day and at the time
designated by the Chief Executive Officer. Special meetings of the Board of
Directors may be called at any time by the Chief Executive Officer or by any two
directors. Regular and special meetings of the Board of Directors may be held at
such place, in or out of the State of Maryland, as the Board may from time to
time determine.
SECTION 8. Notice of Meetings.
------------------
Except for the meeting immediately following the annual meeting of
stockholders, notice of the place, day and hour of a regular meeting of the
Board of Directors shall be given in writing to each director not less than
three days prior to the meeting and delivered to the director or to the
director's residence or usual place of business, or by mailing it, postage
prepaid and addressed to the director at his or her address as it appears upon
the records of the Corporation. Notice of special meetings may be given in the
same way, or may be given personally, by telephone, or by telegraph or facsimile
message sent to the director's home or business address as it appears upon the
records of the Corporation, not less than one day prior to the meeting. Unless
required by these Bylaws or by resolution of the Board of Directors, no notice
of any meeting of the Board of Directors need state the business to be
<PAGE>
transacted at the meeting. No notice of any meeting of the Board of Directors
need be given to any director who attends, or to any director who, in writing
executed and filed with the records of the meeting either before or after the
holding thereof, waives notice.
SECTION 9. Quorum.
------
A majority of the Board of Directors shall constitute a quorum for the
transaction of business at meetings of the Board of Directors. Except as
otherwise provided by statute, by charter, or by these Bylaws, the vote of a
majority of the directors present at a duly constituted meeting shall be
sufficient to pass any measure, and such decision shall be the decision of the
Board of Directors. In the absence of a quorum, the directors present, by
majority vote and without further notice, may adjourn the meeting from time to
time until a quorum shall be present. The Board of Directors may also take
action or make decisions by any other method which may be permitted by statute,
by charter, or by these Bylaws.
SECTION 10. Presumption of Assent.
---------------------
A director of the Corporation who is present at a meeting of the Board of
Directors at which action on any corporate matter is taken shall be presumed to
have assented to the action taken unless the director announces his or her
dissent at the meeting, and (a) the dissent is entered in the minutes of the
meeting, (b) before the meeting adjourns the director files with the person
acting as the secretary of the meeting a written dissent to the action, or (c)
the director forwards a written dissent within 24 hours after the meeting is
adjourned by registered or certified mail to the Secretary of the Corporation.
The right to dissent does not apply to a director who voted in favor of the
action or who failed to announce his or her dissent at the meeting.A director
may abstain from voting on any matter before the meeting by so stating at the
time the vote is taken and by causing the abstention to be recorded or stated in
writing in the same manner as provided above for a dissent.
SECTION 11. Compensation.
------------
Each director shall be entitled to receive such remuneration as may be
fixed from time to time by the Board of Directors. However, no director who
receives a salary as an officer or employee of the Corporation or of any
subsidiary thereof shall receive any remuneration as a director or as a member
of any committee of the Board of Directors. Each director may also receive
reimbursement for the reasonable expenses incurred in attending the meetings of
the Board of Directors, the meetings of any committee thereof, or otherwise in
connection with attending to the affairs of the Corporation.
ARTICLE III
-----------
Committees
----------
SECTION 1. Executive Committee.
-------------------
At its first meeting after the annual meeting of the stockholders, the
Board of Directors shall elect an Executive Committee consisting of at least
five members of the Board, of whom the Chairman of the Board, if any, shall be
one. The Board shall designate a Chairman of the Committee who shall serve as
Chairman of the Committee at the pleasure of the Board. During the intervals
between the meetings of the Board of Directors, the Executive Committee shall
possess and may exercise all powers in the management and direction of the
business and affairs of the Corporation except as limited by the Maryland
<PAGE>
General Corporation Law or by resolution of the Board of Directors. All action
taken by the Executive Committee shall be reported to the Board of Directors at
its meeting next succeeding such action, and shall be subject to revision and
alteration by the Board, provided that no rights of third parties may be
adversely affected by any revision or alteration. Delegation of authority to the
Executive Committee shall not relieve the Board of Directors or any director of
any responsibility imposed by law or statute or by charter.
SECTION 2. Other Committees.
----------------
From time to time the Board of Directors by resolution adopted by the
affirmative vote of a majority of the members of the entire Board may provide
for and appoint other committees to have the powers and perform the duties
assigned to them by the Board of Directors. These committees may include, but
are not limited to, an Organization Committee, a Finance Committee, and an Audit
Committee.
SECTION 3. Meetings of Committees.
----------------------
Each Committee of the Board of Directors shall fix its own rules of
procedure, and shall meet as provided by those rules or by resolution of the
Board, or at the call of the chairman or any two members of the committee. A
majority of each committee shall constitute a quorum thereof, and in every case
the affirmative vote of a majority of the entire committee shall be necessary to
take any action. Each committee may also take action by any other method that
may be permitted by statute, by charter, or by these Bylaws. In the event a
member of a committee fails to attend any meeting of the committee, the other
members of the committee present at the meeting, whether or not they constitute
a quorum, may appoint a member of the Board of Directors to act in the place of
the absent member. Regular minutes of the proceedings of each committee and a
full account of all its transactions shall be kept in a book provided for the
purpose, except that the Organization Committee shall not be required to keep
minutes. Vacancies in any committee of the Board of Directors shall be filled by
the Board of Directors.
ARTICLE IV
----------
Officers
--------
SECTION 1. Election and Tenure.
-------------------
The Board of Directors may elect a Chairman and a Vice Chairman from among
the directors. The Board of Directors shall elect a President, a Treasurer and a
Secretary, and one or more Vice Presidents, one or more Assistant Treasurers,
one or more Assistant Secretaries, and such other officers with such powers and
duties as the Board may designate, none of whom need be a director. Each officer
shall hold office until the first meeting of the Board of Directors after the
annual meeting of stockholders next succeeding his or her election and until a
successor shall have been duly chosen and qualified or until he or she shall
have resigned or been removed. All elections to office shall be by a majority
vote of the entire Board of Directors.
SECTION 2. Chairman of the Board.
---------------------
The Chairman of the Board shall preside at all meetings of stockholders and
of the Board of Directors at which he or she shall be present. The Chairman
shall have such other powers and perform such other duties as from time to time
may be assigned by the Board of Directors.
<PAGE>
SECTION 3. Vice Chairman of the Board.
--------------------------
The Vice Chairman of the Board, in the absence of the Chairman of the
Board, shall preside at all meetings of stockholders and the Board of Directors.
(In the absence of the Chairman and the Vice Chairman, the Board of Directors
shall elect a chairman of the meeting.) The Vice Chairman shall have such other
powers and perform such other duties as from time to time may be assigned by the
Board of Directors or by the Chairman of the Board.
SECTION 4. President.
---------
The President shall be the Chief Executive Officer of the Corporation and,
subject to the control of the Board of Directors and the Executive Committee,
shall have general charge and supervision of the Corporation's business,
affairs, and properties. The President shall have authority to sign and execute,
in the name of the Corporation, all authorized deeds, mortgages, bonds,
contracts or other instruments. The President may sign, with the Secretary or
the Treasurer, stock certificates of the Corporation. In the absence of the
Chairman and the Vice Chairman of the Board, the President shall preside at
meetings of stockholders. In general, the President shall perform all the duties
ordinarily incident to the office of a president of a corporation, and such
other duties as, from time to time, may be assigned by the Board of Directors or
by the Executive Committee.
SECTION 5. Vice Presidents.
---------------
Each Vice President, which term shall include any Executive Vice President
or Group Vice President, shall have the power to sign and execute, unless
otherwise provided by resolution of the Board of Directors, all contracts or
other obligations in the name of the Corporation in the ordinary course of
business, and with the Secretary, or with the Treasurer, or with an Assistant
Secretary, or with an Assistant Treasurer, may sign stock certificates of the
Corporation. At the request of the President or in the President's absence or
during the President's inability to act, the Vice President or Vice Presidents
shall perform the duties and exercise the functions of the President, and when
so acting shall have the powers of the President. If there is more than one Vice
President, the Board of Directors may determine which one or more of the Vice
Presidents shall perform any of such duties or exercise any of such functions,
or if the determination is not made by the Board, the President may make the
determination. The Vice President or Vice Presidents shall have such other
powers and perform such other duties as may be assigned by the Board of
Directors or by the President. For purposes of this Article IV, Section 5, the
term Vice President does not include a Vice President appointed pursuant to
Article IV, Section 9.
SECTION 6. Secretary.
---------
The Secretary shall keep the minutes of the meetings of the stockholders,
of the Board of Directors, and of the Executive Committee, including all the
votes taken at the meetings, and record them in books provided for that purpose.
The Secretary shall see that all notices are duly given in accordance with the
provisions of these Bylaws or as required by statute. The Secretary shall be the
custodian of the records and of the corporate seal of the Corporation. The
Secretary may affix the corporate seal to any document executed on behalf of the
Corporation, and may attest the same. The Secretary may sign, with the President
or a Vice President, stock certificates of the Corporation. In general, the
Secretary shall perform all duties ordinarily incident to the office of a
secretary of a corporation, and such other duties as, from time to time, may be
assigned by the Board of Directors or by the President.
<PAGE>
SECTION 7. Treasurer.
---------
The Treasurer shall have charge of and be responsible for all funds,
securities, receipts and disbursements of the Corporation, and shall deposit or
cause to be deposited, in the name of the Corporation, all moneys or other
valuable effects in such banks, trust companies, or depositories as may be
designated by the Board of Directors. The Treasurer shall maintain full and
accurate accounts of all assets, liabilities and transactions of the
Corporation, and shall render to the President and the Board of Directors,
whenever they may require it, an account of all transactions as Treasurer and of
the financial condition of the Corporation. In general, the Treasurer shall
perform all the duties ordinarily incident to the office of a treasurer of a
corporation, and such other duties as, from time to time, may be assigned to him
or her by the Board of Directors or by the President. The Treasurer shall give
the Corporation a bond, if required by the Board of Directors, in a sum, and
with one or more sureties, satisfactory to the Board of Directors, for the
faithful performance of the duties of the office and for the restoration to the
Corporation in case of death, resignation, retirement or removal from office of
all corporate books, papers, vouchers, moneys, and other properties of whatever
kind in his or her possession or under his or her control.
SECTION 8. Subordinate Officers.
--------------------
The subordinate officers shall consist of such assistant officers and
agents as may be deemed desirable and as may be elected by a majority of the
members of the Board of Directors. Each such subordinate officer shall hold
office for such period, have such authority and perform such duties as the Board
of Directors may prescribe.
SECTION 9. Appointed Vice Presidents.
-------------------------
The Chief Executive Officer may from time to time appoint one or more Vice
Presidents with such administrative powers and duties as may be designated or
approved by the Chief Executive Officer. An appointed Vice President shall not
be a corporate officer and may be removed by the Chief Executive Officer.
SECTION 10. Officers Holding Two or More Offices.
------------------------------------
Any two or more of the above named offices, except those of Chairman and
Vice Chairman of the Board and those of President and Vice President, may be
held by the same person, but no officer shall execute, acknowledge or verify any
instrument in more than one capacity, if the instrument is required by statute,
by charter, by these Bylaws, or by resolution of the Board of Directors to be
executed, acknowledged, or verified by two or more officers.
SECTION 11. Compensation.
------------
The Board of Directors shall have power to fix the compensation of all
officers of the Corporation. It may authorize any officer upon whom the power of
appointing subordinate officers may have been conferred to fix the compensation
of the subordinate officers.
SECTION 12. Removal.
-------
Any officer of the Corporation may be removed, with or without cause, by a
vote of a majority of the entire Board of Directors, and any officer of the
Corporation appointed by another officer may also be removed, with or without
cause, by the appointing officer, by the Executive Committee, or by the Board of
Directors.
SECTION 13. Vacancies.
---------
A vacancy in any office because of death, resignation, removal, or any
other cause shall be filled for the unexpired portion of the term by election of
the Board of Directors at any regular or special meeting.
ARTICLE V
---------
Stock
-----
SECTION 1. Certificates.
------------
Each stockholder shall be entitled to a certificate or certificates which
shall represent and certify the number and kind of shares of the Corporation's
stock owned by the stockholder for which full payment has been made, or for
which payment is being made by installments in conjunction with a
stockholder-approved option plan. Each stock certificate shall be signed by the
Chairman, the President or a Vice President and countersigned by the Secretary
or Treasurer or Assistant Treasurer of the Corporation. A stock certificate
shall be deemed to be so signed and sealed whether the required signatures are
manual or facsimile signatures and whether the seal is a facsimile seal or any
other form of seal. In case any officer of the Corporation who has signed a
stock certificate ceases to be an officer of the Corporation, whether because of
death, resignation or otherwise, before the stock certificate is issued, the
certificate may nevertheless be issued and delivered by the Corporation as if
the officer had not ceased to be such officer on the date of issue.
SECTION 2. Transfer of Shares.
------------------
Shares of stock shall be transferable only on the books of the Corporation
by the holder thereof, in person or by duly authorized agent, upon the surrender
of the stock certificate representing the shares to be transferred, properly
endorsed. The Board of Directors shall have power and authority to make other
rules and regulations concerning the issue, transfer and registration of stock
certificates as it may deem expedient.
SECTION 3. Transfer Agents and Registrars.
------------------------------
The Corporation may have one or more transfer agents and one or more
registrars of its stock, whose respective duties the Board of Directors may,
from time to time, define. No stock certificate shall be valid until
countersigned by a transfer agent, if the Corporation has a transfer agent in
respect of that class or series of capital stock, or until registered by a
registrar, if the Corporation has a registrar in respect of that class or series
of capital stock. The duties of transfer agent and registrar may be combined.
SECTION 4. New Certificates.
----------------
In case any stock certificate is alleged to have been lost, stolen,
mutilated, or destroyed, the Board of Directors may authorize the issue of a new
certificate in place thereof upon such terms and conditions as it may deem
advisable. The Board of Directors may, in its discretion, further require the
owner of the stock certificate or the owner's duly authorized agent to give bond
with sufficient surety to the Corporation to indemnify it against any loss or
claim which may arise by reason of the issue of a stock certificate in the place
of one reportedly lost, stolen, or destroyed.
<PAGE>
SECTION 5. Record Dates.
------------
The Board of Directors may fix, in advance, a date as the record date for
the purpose of determining those stockholders who shall be entitled to notice
of, or to vote at, any meeting of stockholders, or for the purpose of
determining those stockholders who shall be entitled to receive payment of any
dividend or the allotment of any rights, or for the purpose of making any other
proper determination with respect to stockholders. The date shall be not more
than 90 days, and in the case of a meeting of stockholders, not less than 10
days, prior to the date on which the particular action, requiring such
determination of stockholders, is to be taken. In lieu of fixing a record date,
the Board of Directors may provide that the stock transfer books shall be closed
for a stated period, not to exceed in any case 20 days. When the stock transfer
books are closed for the purpose of determining stockholders entitled to notice
of or to vote at a meeting of stockholders, the closing of the transfer books
shall be at least 10 days before the date of the meeting.
SECTION 6. Annual Report.
-------------
The President of the Corporation shall annually prepare a full and correct
statement of the affairs of the Corporation, including a balance sheet and a
financial statement of operations for the preceding fiscal year. These
statements shall be sent to the extent possible to each beneficial owner of the
stock of the Corporation prior to or with the proxy statement and notice to
stockholders of the annual meeting of stockholders. It will be submitted at the
annual meeting, and within 20 days thereafter be placed on file at the
Corporation's principal offices in Maryland.
ARTICLE VI
----------
Dividends and Finance
---------------------
SECTION 1. Dividends.
---------
Subject to any statutory or charter conditions and limitations, the Board
of Directors may in its discretion declare what, if any, dividends shall be paid
from the surplus or from the net profits of the Corporation, the date when the
dividends shall be payable, and the date for the determination of holders of
record to whom the dividends shall be paid.
SECTION 2. Depositories.
------------
The Board of Directors from time to time shall designate one or more banks
or trust companies as depositories of the Corporation and shall designate those
officers and agents who shall have authority to deposit corporate funds in such
depositories. It shall also designate those officers and agents who shall have
authority to withdraw from time to time any or all of the funds of the
Corporation so deposited upon checks, drafts, or orders for the payment of
money, notes and other evidences of indebtedness, drawn against the account and
issued in the name of the Corporation. The signatures of the officers or agents
may be made manually or by facsimile. No check or order for the payment of money
shall be invalidated because a person whose signature appears thereon has ceased
to be an officer or agent of the Corporation prior to the time of payment of the
check or order by any depository.
<PAGE>
SECTION 3. Corporate Obligations.
---------------------
No loans shall be contracted on behalf of the Corporation and no evidences
of indebtedness or guaranties of the obligations of others shall be issued in
the name of the Corporation unless authorized by a resolution of the Board of
Directors. Such authority may be either general or specific. When duly
authorized, all loans, promissory notes, acceptances, other evidences of
indebtedness and guaranties shall be signed by the President, a Vice President,
the Treasurer, or an Assistant Treasurer.
SECTION 4. Fiscal Year.
-----------
The fiscal year of the Corporation shall begin on the first day of January
and end on the last day of December of each year.
ARTICLE VII
-----------
Books and Records
-----------------
SECTION 1. Books and Records.
-----------------
The Corporation shall maintain a stock ledger which shall contain the name
and address of each stockholder and the number of shares of stock of the
Corporation which the stockholder holds. The ledger shall be kept at the
principal offices of the Corporation in Towson, Baltimore County, Maryland, or
at the offices of the Corporation's stock transfer agent. All other books,
accounts, and records of the Corporation, including the original or a certified
copy of these Bylaws, the minutes of all stockholders meetings, a copy of the
annual statement, and any voting trust agreements on file with the Corporation,
shall be kept and maintained by the Secretary at the principal offices of the
Corporation in Towson.
SECTION 2. Inspection Rights.
-----------------
Except as otherwise provided by statute or by charter, the Board of
Directors shall determine whether and to what extent the books, accounts, and
records of the Corporation, or any of them, shall be open to the inspection of
stockholders. No stockholder shall have any right to inspect any book, account,
document or record of the Corporation except as conferred by statute, by
charter, or by resolution of the stockholders or the Board of Directors.
ARTICLE VIII
------------
Seal
----
SECTION 1. Seal.
----
The seal of the Corporation shall consist of a circular impression bearing
the name of the Corporation and the word "Maryland" around the rim and in the
center the word "Incorporated" and the year "1910."
<PAGE>
ARTICLE IX
----------
Indemnification
---------------
SECTION 1. Indemnification.
---------------
The Corporation to the full extent permitted by, and in the manner
permissible under, the laws of the State of Maryland and other applicable laws
and regulations may indemnify any person who is or was an officer, employee, or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee, or agent of another corporation or entity and
shall indemnify any director of the Corporation or any director who is or was
serving at the request of the Corporation as a director of another corporation
or entity, who by reason of his or her position was, is, or is threatened to be
made a party to an action or proceeding, whether civil, criminal,
administrative, or investigative, against any and all expenses (including, but
not limited to, attorneys' fees, judgments, fines, penalties, and amounts paid
in settlement) actually and reasonably incurred by the director, officer,
employee, or agent in connection with the proceeding. Repeal or modification of
this Section or the relevant law shall not affect adversely any rights or
obligations then existing with respect to any state of facts then or theretofore
existing or any action, suit or proceeding theretofore or thereafter brought or
threatened based in whole or in part upon any such state of facts.
ARTICLE X
---------
Amendments
----------
SECTION 1. Amendment of Bylaws.
-------------------
These Bylaws may be amended at any meeting of the stockholders by a
majority of all the votes cast, provided the text of the amendment is submitted
with the notice of the meeting. The Board of Directors may also amend these
Bylaws by a vote of a majority of the directors present at a meeting, provided
that the Board of Directors shall not consider or act on any amendment to these
Bylaws that, directly or indirectly, modifies the meaning or effect of any
amendment to these Bylaws adopted by the stockholders within the preceding
12-month period, or any amendment to these Bylaws that, directly or indirectly,
contains substantially similar provisions to those of an amendment rejected by
the stockholders within the preceding 12-month period.
As Amended
----------
2/12/98
-------
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 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 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.
<PAGE>
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 Directorsand 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.
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.
<PAGE>
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 12 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 Sections 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.
<PAGE>
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
its 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
<PAGE>
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.
<PAGE>
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 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; 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 or
exercise of Options as Limited Stock Appreciation Rights shall not be
amended more than once every six months, unless the amendment would be
<PAGE>
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.
SECOND AMENDMENT
TO THE BLACK & DECKER
SUPPLEMENTAL RETIREMENT SAVINGS PLAN
------------------------------------
Pursuant to the powers of amendment reserved under Section 9.1 of The Black
& Decker Supplemental Retirement Savings Plan (the "Plan"), The Black & Decker
Corporation (the "Company"), hereby amends the Plan as follows, effective as of
January 1, 1998.
FIRST CHANGE
------------
Section 3.2 of the Plan is amended by the addition of the following new
paragraph as the penultimate paragraph of that Section:
In addition, in accordance with rules and subject to limitations
established by the Committee, an Eligible Employee may elect to defer the
receipt of all or any portion of other incentive compensation designated by
the Committee that is payable to the Eligible Employee by an Employer. Such
election shall be made on such form or forms as determined by the Plan
Manager and shall be made prior to the time such incentive compensation has
been earned by the Eligible Employee and the Eligible Employee shall become
a Participant upon making such election. Incentive compensation deferrals
shall be deductible from the incentive compensation otherwise payable to
the deferring Participant, and shall be credited to the Account of the
deferring Participant.
SECOND CHANGE
-------------
The final paragraph of Section 3.2 of the Plan is amended by inserting the
phrase "and other incentive compensation deferrals" at the end of subsection (a)
thereof.
THIRD CHANGE
------------
Article 3 of the Plan is amended by the addition of the following as a new
Section 3.3 thereunder:
3.3. DEFERRALS UNDER OTHER PLANS OR ARRANGEMENTS. In accordance with
rules and subject to limitations established by the Committee, amounts
credited for the benefit of an Eligible Employee under other deferred
compensation plans or arrangements of an Employer as designated by the
Committee may be
<PAGE>
transferred to this Plan. Prior to any such transfer, the Eligible Employee
must complete such form or forms as determined by the Plan Manager. Upon
being transferred to this Plan, such amounts shall be credited to the
Account of such Eligible Employee as a Participant under this Plan, and
shall be administered in accordance with the provisions of this Plan.
The Plan, as amended by the foregoing change, is hereby ratified and
confirmed in all respects.
IN WITNESS WHEREOF, the Company has caused this Amendment to be executed by
its duly authorized officers on this 16th day of July, 1998.
WITNESS/ATTEST: THE BLACK & DECKER CORPORATION
/s/LOWELL R. BOWEN By: /s/LEN STROM
- ------------------ ----------------
THE BLACK & DECKER
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Black & Decker Supplemental Executive Retirement Plan provides certain
supplemental retirement benefits for selected executive employees of The Black &
Decker Corporation and its subsidiaries and affiliates. This Plan is intended to
provide supplemental retirement benefits primarily for a select group of
management and highly paid executive employees.
SECTION 1 - Definitions
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Each of the following terms in this Plan has the meaning indicated, unless
a different meaning is plainly implied by the context:
"Actuarial Equivalent" means a benefit having the same actuarial value,
based on the actuarial assumptions used in calculating benefits under The Black
& Decker Pension Plan, and such other reasonable actuarial assumptions and
methods that may be adopted by the Committee from time to time, in its sole
discretion, for use in determining benefits under this Plan.
"Benefit Commencement Date" means (A) in the case of a Participant who is
not a Protected Participant, the date at which the Participant's Credited
Service ends, but only if that date occurs on or after the Participant attains
age 55 and five years of Credited Service and (B) in the case of a Protected
Participant, the date at which his or her Credited Service ends or, if later,
his or her 55th birthday. Notwithstanding the foregoing, if a Participant's
Termination Date occurs due to Disability prior to the Participant's Normal
Retirement Date, the Participant's Benefit Commencement Date shall mean the
Participant's Normal Retirement Date, unless the Participant elects, with the
Committee's approval, to receive benefits under this Plan at a date preceding
the Participant's Normal Retirement Date (but not earlier than the Participant's
Early Retirement Date), in which case the date benefit payments under this Plan
begin will constitute the Participant's Benefit Commencement Date.
"Black & Decker" means the Corporation, Black & Decker (U.S.) Inc., a
Maryland corporation, Black & Decker Inc., a Delaware corporation, and all of
their subsidiaries and affiliates, both collectively and individually.
"Board" means the Corporation's Board of Directors.
"Change in Control of the Corporation" means 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 (not including any period prior to
January 1, 1984), 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 definition) 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
<PAGE>
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 or
entity, 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.
"Committee" means the Organization Committee of the Board.
"Committee Secretary" means the Secretary of the Committee.
"Corporation" means The Black & Decker Corporation, a Maryland corporation.
"Credited Service" means all Benefit Service Credit credited to the
Participant under The Black & Decker Pension Plan (or, if the Participant was
not eligible to participate in The Black & Decker Pension Plan for any period of
employment by Black & Decker, the Benefit Service Credit that would have been
credited under The Black & Decker Pension Plan for that employment by Black &
Decker, if the Participant had been eligible to participate in that plan) plus
the Participant's Salary Continuance Period. Except as credited under The Black
& Decker Pension Plan or unless otherwise determined by the Committee in its
sole discretion, Credited Service under this Plan shall not include any period
of employment with any company during any period when that company was not a
subsidiary or affiliate of the Corporation. Credited Service also includes all
periods of Disability beginning while the Employee is employed by Black & Decker
and continuing as long as the Disability continues up until the Participant's
Normal Retirement Date. Notwithstanding anything to the contrary, no loss of
Credited Service will occur by reason of an interruption in an Employee's period
of Credited Service, regardless of the length of that interruption, and no
Participant shall receive duplicate Credited Service for the same period of
time, whether as a result of the terms of this Plan, The Black & Decker Pension
Plan, any other plan provided or maintained by Black & Decker, or any individual
agreement between the Participant and Black & Decker.
"Disability" means an illness or injury which would cause the Employee to
be disabled under the terms of The Black & Decker Disability Plan or that
totally prevents the Employee from satisfactorily performing the Employee's
usual duties with Black & Decker, as determined by the Committee based on
professional medical advice. The Committee may require the Employee to submit
from time to time to medical examinations by physicians selected or approved by
the Committee to establish the Disability or its continuation, provided that
those examinations may not be required more frequently than once each year. The
Employee's refusal to submit to any examination reasonably requested by the
Committee in accordance with this definition is grounds for the Committee to
find that the Employee's Disability no longer exists.
"Early Retirement Date" means the first day of the calendar month
coincident with or next following the date upon which the Participant has both
attained age 55 and 5 years of Credited Service; provided, however, that, in the
case of a Protected Participant, the Early Retirement Date shall be the first
day of the calendar month coincident with or next following the Protected
Participant's 55th birthday.
"Effective Date" means February 11, 1999, the effective date of this
amended and restated Plan. The Prior Plan was originally effective as of January
1, 1984.
<PAGE>
"Employee" means any person rendering personal services to Black & Decker
as an employee.
"Final Average Pay" means the average monthly amount of the Participant's
Pay for the three years (whether or not consecutive) in which the Participant's
Pay was the highest out of each of the five-year periods that end on the
following dates, whichever five-year period produces the highest average:
(a) the Participant's Termination Date;
(b) if the Participant's Termination Date is not December 31st of any
given year, the December 31st immediately preceding the Participant's
Termination Date;
(c) the last day of the Participant's Salary Continuance Period, if
applicable;
(d) if the last day of the Participant's Salary Continuance Period is not
December 31st of any given year, the December 31st immediately
preceding the last day of the Participant's Salary Continuance Period,
if applicable;
(e) in the case of a Protected Participant only, the date of the
applicable Change in Control of the Corporation; and
(f) in the case of a Protected Participant only, if the date of the
applicable Change in Control of the Corporation is not December 31st
of any given year, the December 31st immediately preceding the date of
the applicable Change in Control of the Corporation.
"Normal Retirement Date" means the first day of the calendar month
coincident with or next following the date upon which the Participant attains
age 60 and 5 years of Credited Service; provided, however, that, in the case of
a Protected Participant, the Normal Retirement Date shall be the first day of
the calendar month coincident with or next following the Participant's 60th
birthday, regardless of his or her Credited Service.
"Other Retirement Benefits" means the amount (actuarially adjusted, as
described below) of all retirement, disability income and death benefits, or the
like, that the Participant or the Participant's surviving spouse is entitled to
receive in the applicable month under all plans or arrangements provided,
maintained or funded, in part or in whole, by any of the Participant's employers
or former employers (whether or not affiliated with Black & Decker), including
all Social Security Benefits, but excluding; (a) any portion of those
retirement, disability income or death benefits (other than Social Security
Benefits) that is attributable to the Participant's contributions, including
contributions made by the Participant's employer pursuant to a salary reduction
agreement with the Participant (such as under The Black & Decker Executive
Deferred Compensation Plan or The Black & Decker Supplemental Retirement Savings
Plan); (b) any death benefits under a life insurance contract with a life
insurance company; (c) any defined contribution pension, profit sharing or stock
bonus plan, unless that plan is intended to provide the primary source of
retirement income (in addition to Social Security Benefits) funded by Black &
Decker or any other employer for the employees at any location covered by that
plan; (d) any payments to the Participant (including any "parachute payments"
within the meaning of Section 280G of the Internal Revenue Code of 1986) made by
reason of a Change in Control of the Corporation pursuant to an individual
agreement in writing between the Participant and Black & Decker; (e) any amounts
paid under an individual written agreement between the Participant and Black &
Decker which agreement expressly refers to this Plan and provides that those
amounts shall not reduce the benefits under this Plan or otherwise are in
addition to the benefits payable under this Plan; and (f) any amount that
constitutes Pay, as defined in this Plan. Without limiting the generality of the
foregoing, the term "Other Retirement Benefits" includes such benefits payable
to a Participant or the Participant's spouse under any plan or arrangement
provided or maintained at any time by any employer or former employer of the
Participant (whether or not affiliated with Black & Decker) which is
employer-funded and intended to restore retirement or deferred compensation
<PAGE>
benefits that, but for the limitations imposed by the Internal Revenue Code of
1986, as amended, on compensation, contributions and/or benefits taken into
account under a plan, would have been accrued by the Participant under any
tax-advantaged or tax-qualified retirement or deferred compensation plan or on
compensation covered under a tax-advantaged or tax-qualified retirement or
deferred compensation plan (such as The Black & Decker Supplemental Pension
Plan). Notwithstanding anything to the contrary, the amount of the Participant's
or spouse's Other Retirement Benefits in any month shall be increased or
decreased so that the amount of those Other Retirement Benefits offset against
the monthly benefit payable under this Plan is the Actuarial Equivalent of the
Other Retirement Benefits that the Participant or spouse could or would
otherwise have received that month but for the Participant's or spouse's
election: (a) to accelerate payment of those Other Retirement Benefits to a date
that precedes the date benefit payments commenced to the Participant or spouse
under this Plan, (b) to defer the commencement of payment of those Other
Retirement Benefits beyond the earliest date those payments could or would
otherwise have been made, if that date is later than the date benefit payments
under this Plan commenced to the Participant or spouse or (c) to receive those
Other Retirement Benefits in any form of payment other than the available form
of payment that would have provided the largest monthly benefit to the
Participant or spouse, unless, and only to the extent that, the elected form of
payment provides benefits to the Participant's spouse after the Participant's
death. Whether an actuarial adjustment to the Participant's or spouse's Other
Retirement Benefits is appropriate and the amount of that adjustment is to be
determined by the Committee, in its sole discretion, based on the actuarial
assumptions in effect when that adjustment is first determined.
"Participant" means any Employee who qualifies for participation in this
Plan, as more particularly described in Section 2.
"Pay" means (A) the actual compensation paid during the relevant period by
Black & Decker to the Participant for services as an Employee, including basic
salary, bonuses, and annual incentive awards, (B) any amounts contributed to any
employee benefit plan pursuant to a salary or other compensation reduction
agreement with the Participant, and including, for the year of deferral, amounts
deferred by the Participant under any nonqualified deferred compensation plan
(such as The Black & Decker Executive Deferred Compensation Plan and The Black &
Decker Supplemental Retirement Savings Plan), (C) salary continuation payments
during sick leave and other authorized leaves of absence (other than long-term
disability benefits) and (D) the Participant's Salary Continuance Payments. For
the purpose of determining the amount of the Participant's Salary Continuance
Payments that constitutes Pay for any given period, the Participant's total
Salary Continuance Payments shall be credited as Pay ratably over the
Participant's Salary Continuance Period. The term "Pay" does not include any
long-term incentive awards or other amounts paid pursuant to any long-range
performance compensation plan, amounts paid pursuant to The Black & Decker
Performance Equity Plan or any non-cash remuneration, imputed income (including
income imputed under any group life insurance program), perquisites and other
cash or non-cash fringe benefits, such as (but not limited to) reimbursements or
allowances for expenses (such as automobile, moving or relocation, country club,
tax preparation, overseas housing, educational and similar expense allowances);
contributions to or benefits under any employee pension or welfare benefit plan
or payments received by a Participant under any non-qualified deferred
compensation plan (such as The Black & Decker Executive Deferred Compensation
Plan or The Black & Decker Supplemental Retirement Savings Plan); stock bonuses,
income attributable to discount stock purchases, stock options or stock
appreciation rights; income attributable to the vesting of restricted property
benefits under any plan or arrangement; and allowances for or the provision of
counseling or other personal services (such as financial and tax counseling).
For any period during which the Participant is entitled to Credited Service by
reason of a Disability, the Participant's Pay is deemed to continue during that
Disability period at a monthly rate equal to 1/12th of (i) the Participant's
basic salary (before any salary reduction for contributions to any employee
benefit plan pursuant to a salary reduction agreement with the Participant) at
<PAGE>
the Participant's annual salary rate in effect at the date that the Disability
began, plus (ii) all items (other than basic salary and such salary reduction
contributions) included in the Participant's actual Pay during the 12-month
period ending on the date that the Disability began.
"Plan" means this document, entitled "The Black & Decker Supplemental
Executive Retirement Plan", as it may be amended from time to time. This
document completely amends and restates The Black & Decker Supplemental
Executive Retirement Plan originally effective on January 1, 1984, and last
amended and restated effective as of October 15, 1998 (which is referred to in
this Plan as the "Prior Plan"). To the extent any Participant's Termination Date
occurred prior to the Effective Date, the Participant's and his or her spouse's
benefits under this Plan, and the payment thereof, shall be determined under the
terms of the Prior Plan, as in effect on the Participant's Termination Date.
"Protected Participant" means a Participant who is an Employee when a
Change in Control of the Corporation occurs.
"Salary Continuance Payments" means (A) in the case of a Participant who is
a participant in the Salary Continuance Plan, the maximum "Salary Continuance"
payments (as defined in the Salary Continuance Plan), if any, that the
Participant may be eligible to receive under the Salary Continuance Plan; (B)
all payments, if any, that are in lieu of future compensation items that would
otherwise constitute "Pay" under the terms of this Plan and that the Participant
may be entitled to receive, under the terms of any individual agreement in
writing between the Participant and Black & Decker, as a result of the
termination of his or her employment with Black & Decker (whether by action of
Black & Decker or the Participant); and (C) in the case of a Protected
Participant, all payments, if any, that are in lieu of future compensation items
that would otherwise constitute "Pay" under the terms of this Plan and that the
Protected Participant may be entitled, under the terms of any individual
agreement between the Participant and Black & Decker, to receive as a result of
the Participant's termination of the Participant's employment with Black &
Decker (whether by action of Black & Decker or the Participant) coincident with
or following a Change in Control of the Corporation. In all cases, a
Participant's entitlement to Salary Continuance Payments and the amount thereof
shall be determined at his or her Termination Date, before any offset for
severance pay, vacation pay, salary continuance, notice pay, a termination
indemnity or the like or compensation received from a subsequent employer,
without regard to whether those payments are made in one lump sum payment or
periodically and without regard to the amount of severance or salary continuance
that is actually paid to the Participant thereafter.
"Salary Continuance Plan" means The Black & Decker Executive Salary
Continuance Plan, effective May 1, 1995, as amended from time to time, or any
salary continuance plan that is a successor to, or replacement for, that plan.
"Salary Continuance Period" means the maximum period with respect to which
the Participant's Salary Continuance Payments are to be measured under the terms
of the Salary Continuance Plan or applicable individual agreement, determined at
the Participant's Termination Date, without regard to the actual period over
which those payments may be made and without regard to whether those payments
are made in one lump sum payment or periodically. Notwithstanding anything to
the contrary, a Participant's Salary Continuance Period will be taken into
account under this Plan only if the Participant is entitled to Salary
Continuance Payments at his or her Termination Date.
"Social Security Benefit" means the retirement, disability income or death
benefits under any plan or arrangement which is sponsored, mandated or
administered by any government and which provides or would provide retirement or
disability income to the Participant and to which any of the Participant's
employers or former employers (whether or not affiliated with Black & Decker)
has made contributions on the Participant's behalf.
<PAGE>
"Termination Date" means the last date on which the Participant is actively
employed by, and renders services to, Black & Decker as an Employee prior to his
or her termination of employment with Black & Decker (whether by action of Black
& Decker or the Participant).
SECTION 2 - Eligibility
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Any management or highly paid executive employee may be selected for
participation in this Plan by the Organization Committee or any other committee
of the Board designated by the Board for such purpose and will automatically
become a Participant on the date designated by that committee. Any Employee who
was still employed by Black & Decker and was a Participant in the Prior Plan
immediately prior to the Effective Date shall continue as a Participant under
this Plan without further action by the Board or any such committee.
SECTION 3 - Retirement Benefit
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(a) Benefit Percentage. Any Participant whose Credited Service with Black &
Decker terminates at or after the Participant's Early Retirement Date or, in the
case of a Protected Participant, whose Credited Service with Black & Decker
terminates at any time, whether before or after his or her Early Retirement
Date, is entitled to receive under this Plan a monthly benefit beginning on the
first day of the calendar month after the Participant's Benefit Commencement
Date and continuing for the Participant's life. The amount of each monthly
benefit payment under this Section 3 (before the reductions in Sections 3(b) and
3(c)) is to be equal to:
(A) 50% of his or her Final Average Pay, in the case of a Participant
(other than a Protected Participant) who has less than fifteen
(15) years of Credited Service or whose Benefit Commencement Date
occurs on or before October 14, 1998;
(B) 60% of his or her Final Average Pay, in the case of a Participant
(other than a Protected Participant) who has at least fifteen
years of Credited Service and whose Benefit Commencement Date
occurs after October 14, 1998; and
(C) 60% of his or her Final Average Pay, in the case of a Protected
Participant.
(b) Reduction for Early Commencement. Notwithstanding anything to the
contrary, in any case where the Participant's Benefit Commencement Date occurs
before his or her Normal Retirement Date, the monthly benefit amount determined
under Section 3(a) shall be reduced by one-twelfth (1/12th) of 2 percentage
points of Final Average Pay for each full calendar month by which the
Participant's Benefit Commencement Date precedes the Participant's Normal
Retirement Date.
(c) Reduction for Less Than 10 Years' Service. Notwithstanding anything to
the contrary in this Plan, if a Participant (other than a Protected Participant)
has less than 10 years of Credited Service at the Participant's Benefit
Commencement Date, the monthly benefit determined under Section 3(a), as reduced
by any reduction required under Section 3(b) and before any offsets under
Section 4, is to be multiplied by a fraction, the numerator of which equals the
Participant's years of Credited Service (including fractional years) and the
denominator of which equals 10 years. This Section 3(c) shall not apply in the
case of a Protected Participant.
(d) Benefit Examples. Examples of the monthly benefits payable, as
determined under this Section 3, are set forth in Schedule I attached to this
Plan and incorporated into this Plan by this reference.
<PAGE>
SECTION 4 - Benefit Offsets
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Notwithstanding anything to the contrary, the amount of the Participant's
benefit each month, as determined under Section 3, and as reduced by any
reduction required under Sections 3(b) and 3(c), or, the amount of the
Participant's surviving spouse's benefit under Section 5, is to be further
reduced by the Other Retirement Benefits payable to the Participant or spouse
during that month. In the event that the Other Retirement Benefits for any month
exceed the monthly benefit payment for that month under this Plan, determined
under Section 3 or Section 5, such excess shall be carried over and added to the
Other Retirement Benefits for subsequent months, so that it is offset against
subsequent monthly benefit payments under this Plan until such excess is
exhausted. The offsets to the Participant's or spouse's benefits under this
Section 4 are not to be increased to reflect any increase in Other Retirement
Benefits attributable to increases in the cost-of-living after the Other
Retirement Benefits commence and no benefit is payable to the Participant or
spouse in any month when those Other Retirement Benefits (including carry-overs
from prior months) exceed the monthly benefit amount determined under Section 3,
as reduced under Sections 3(b) and 3(c), or in the spouse's case, the benefit
determined under Section 5. The Committee will decide, in its sole discretion,
the manner in which these offsets are to be applied.
SECTION 5 - Death Benefits
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No benefits under this Plan are payable after the Participant's death
except as otherwise provided in this Section 5.
(a) Eligibility for Death Benefit. In the case of a Participant (other than
a Protected Participant) who dies before attaining age 55 and 5 years of
Credited Service, no benefits under this Plan are payable after the
Participant's death. In the case of a Participant (other than a Protected
Participant) who dies after attaining age 55 and 5 years of Credited Service,
the Participant's surviving spouse, if any, is entitled to receive the spouse's
death benefit described in Section 5(b). In the case of any Protected
Participant who dies at any time, the Protected Participant's surviving spouse,
if any, is entitled to receive the spouse's death benefit described in Section
5(b).
(b) Spouse's Death Benefit. Subject to the offsets in Section 4, the
spouse's death benefit under this Section 5(b) shall be a monthly benefit for
the spouse's life with monthly payments beginning on the first day of the
calendar month coincident with or immediately following the date of the
Participant's death (or, in the case of a Protected Participant only, the date
that would have been the Protected Participant's 55th birthday, if later than
his or her date of death). The amount of the spouse's monthly benefit shall be
equal to one-half (50%) of the monthly benefit (determined under Section 3, but
before the offsets under Section 4) that the Participant was receiving or would
have been entitled to receive as of the date of the Participant's death.
SECTION 6 - Vesting
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(a) General. Except in the case of a Protected Participant, upon
termination of a Participant's Credited Service at any time for any reason
before the Participant attains age 55 and 5 years of Credited Service, the
Participant's (and the surviving spouse's) right to benefits under this Plan
shall be completely forfeited. In the case of a Protected Participant or his or
her surviving spouse, all of the Protected Participant's right to benefits under
this Plan (except the surviving spouse's right to receive death benefits under
Section 5) shall be completely forfeited if the Protected Participant dies
before his or her Benefit Commencement Date. Except in the case of a Protected
Participant and his or her surviving spouse, if this Plan is terminated by the
Corporation on or after the Participant attains age 55 and 5 years of Credited
<PAGE>
Service but before the Participant's Benefit Commencement Date, the Participant
shall be entitled to receive a monthly benefit under this Plan commencing at the
Participant's Benefit Commencement Date and continuing for the Participant's
life in the amount the Participant would have received under this Plan based on
the Participant's Credited Service and Final Average Pay determined at this
Plan's termination date, and the Participant's surviving spouse shall be
entitled to receive the corresponding death benefit pursuant to Section 5. If
this Plan is terminated or amended after a Change in Control of the Corporation,
each Protected Participant who has not consented in writing to that termination
or amendment shall be entitled to receive a monthly benefit, commencing at his
or her Benefit Commencement Date, that is not less than the monthly benefit the
Protected Participant would have received, as a Protected Participant, if this
Plan termination or amendment had not occurred and the Protected Participant's
surviving spouse shall be entitled to receive the corresponding death benefit
pursuant to Section 5.
(b) Forfeiture for Cause. Notwithstanding anything to the contrary, in the
case of a Participant other than a Protected Participant, all of the
Participant's (and surviving spouse's) rights and benefits under this Plan shall
be forfeited:
(i) if the Participant's employment with Black & Decker is
terminated by reason of fraud, misappropriation or intentional material
damage to the property or business of Black & Decker; commission of a
felony; or the continuance of willful and repeated failure by the
Participant to perform his or her duties after written notice to the
Participant specifying such failure; or
(ii) if, for a period of 24 months after his or her Termination Date,
the Participant, without the Corporation's written consent, enters into
competition with Black & Decker or the Participant discloses confidential
information.
Notwithstanding anything to the contrary, the provisions of this Section 6(b)
shall not apply to the rights and benefits under this Plan of a Protected
Participant or the surviving spouse of a Protected Participant.
(c) Competition. For purposes of this Section 6, the Participant shall be
deemed to be in competition with Black & Decker if the Participant, directly or
indirectly, solicits as a customer any company which is or was a customer of
Black & Decker during the Participant's employment, or which is or was a
potential customer of Black & Decker with which Black & Decker has made or will
make business contacts during the Participant's employment; provided, however,
that solicitation of a company as a customer of any business which is not in
direct or indirect competition with any of the types of business conducted by
Black & Decker within any of the same territories as Black & Decker shall not be
prohibited hereby. In addition, a Participant will be deemed to be in
competition with Black & Decker if the Participant directly or indirectly
becomes an owner, officer, director, operator, sole proprietor, partner, joint
venturer, contractor or consultant, or participates in or is connected with the
ownership, operation, management or control of any company in direct or indirect
competition with any of the types of businesses conducted by Black & Decker
within any of the same territories as Black & Decker; provided, however, that
the ownership for investment of less than 5% of the outstanding stock of any of
the classes of stock issued by a publicly-held company shall not be deemed
competition with Black & Decker for purposes of this Section 6. The Participant
shall be deemed to have disclosed "confidential information" if the Participant
fails to preserve as confidential and uses, communicates, or discloses to any
person, to the actual or potential detriment of Black & Decker, orally, in
writing or by publication, any information, regardless of when, where or how
acquired relating to or concerning the affairs of Black & Decker; provided,
however, that the foregoing obligations shall not apply to information which is
or becomes public through no fault of the Participant.
<PAGE>
(d) Committee's Discretion. The Committee shall have the absolute right to
determine in its sole discretion (i) whether or not a Participant's employment
was terminated as a result of a wrongful act, and (ii) whether or not a
Participant has entered into competition with Black & Decker or has disclosed
confidential information so as to cause a forfeiture of the Participant's
benefits hereunder.
SECTION 7 - Additional Provisions Concerning Benefits
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(a) Obligation to Inform. The payments under this Plan are conditioned on
the agreement of the Participant and the Participant's spouse (i) to inform the
Committee of all retirement, disability, Social Security, death benefit and
other benefit payments received or receivable by them that may reduce the
Corporation's obligations to pay benefits under this Plan and (ii) to provide
all information about those payments that the Committee may reasonably request
from time to time in order to administer this Plan.
(b) Currency and Exchange Rates. The benefit payments under this Plan will
be calculated in U.S. dollars using the appropriate currency exchange rate
selected by the Committee in its sole discretion at the Participant's Benefit
Commencement Date. The benefits under this Plan will be paid to the Participant
and the Participant's spouse in any currency designated by the Participant at
the Participant's Benefit Commencement Date (or, if the Participant dies before
benefits commence, the currency designated by the spouse), based on the
appropriate currency exchange rate (selected by the Committee in its sole
discretion) in effect at the Participant's Benefit Commencement Date. Once
benefit payments under this Plan have begun, the currency selected by the
Participant (or the Participant's spouse) and the applicable exchange rate may
not be changed except to the extent that the Committee, in its sole discretion,
may approve a change in order to prevent extreme financial hardship to the
Participant or the Participant's spouse.
SECTION 8 - Corporation's Obligations are Unfunded and Unsecured
----------------------------------------------------
Except as otherwise required by applicable law, the Corporation's
obligations under this Plan are not required to be funded or secured in any
manner; no assets need be placed in trust or in escrow or otherwise physically
or legally segregated for the benefit of any Participant; and the eventual
payment of the benefits described in this Plan to a Participant or the
Participant's spouse is not required to be secured to the Participant or them by
the issuance of any negotiable instrument or other evidence of the Corporation's
indebtedness. Neither a Participant nor the Participant's spouse is entitled to
any property interest, legal or equitable, in any specific asset of the
Corporation, and, to the extent that any person acquires any right to receive
payments under the provisions of this Plan, that right is intended to be no
greater than or to have any preference or priority over, the rights of any other
unsecured general creditor of the Corporation. However, the Corporation reserves
the right, in its sole discretion, to accumulate assets to offset its eventual
liabilities under this Plan and physically or legally to segregate assets for
the benefit of any Participant or Participant's spouse (whether by escrow, by
trust, by the purchase of an annuity contract or by any other method of funding
selected by the Corporation) without liability for any adverse tax consequences
resulting to that Participant or that Participant's spouse from the
Corporation's action, except as otherwise provided in this Section with respect
to a Protected Participant and his or her spouse. Any such segregation of assets
may be made with respect to the Corporation's obligations under this Plan for
benefits attributable to an individual Participant, a selected group of
Participants or all Participants, as the Corporation may determine from time to
time, in its absolute discretion. Notwithstanding anything to the contrary, in
the case of a Protected Participant (or his or her spouse), if the Corporation
or any of its affiliates or subsidiaries takes any action (without the written
consent of the Protected Participant or, if the Protected Participant is
deceased, his or her spouse) that causes the Protected Participant or the
Protected Participant's spouse to incur income or other taxes with respect to
<PAGE>
any benefit under this Plan before the date that benefit is payable to the
Protected Participant (or his or her spouse), the Corporation shall, within 60
days after a demand therefor is made by the Protected Participant or his or her
spouse, reimburse the Protected Participant (or his or her spouse) for the full
amount of those income or other taxes as well as for the full amount of the
income or other taxes the Protected Participant (or his or her spouse) will
incur with respect to such reimbursement or any subsequent reimbursement
hereunder. Benefits under this Plan shall be payable by the Corporation from the
Corporation's general assets and no other company shall have any responsibility
or liability under this Plan. The Corporation's liabilities under this Plan
shall, however, be discharged to the extent of any payment received by the
Participant (or the Participant's surviving spouse) from any other company made
for that purpose and on the Corporation's behalf or for its benefit.
SECTION 9 - Alienation or Encumbrance
-------------------------
No payments, benefits or rights under this Plan shall be subject in any
manner to anticipation, sale, transfer, assignment, mortgage, pledge,
encumbrance, charge or alienation by a Participant, the Participant's spouse or
any other person who could or might possibly receive benefit payments that were
due to the Participant or the Participant's spouse, but were not paid. If the
Corporation determines that any person entitled to payments under this Plan has
become insolvent, bankrupt, or has attempted to anticipate, sell, transfer,
assign, mortgage, pledge, encumber, charge or otherwise in any manner alienate
any amount payable to that person under this Plan or that there is any danger of
any levy, attachment, or other court process or encumbrance on the part of any
creditor of that person, against any benefit or other amounts payable to that
person, the Corporation may, in its sole discretion and to the extent permitted
by law, at any time, withhold any or all such payments or benefits and apply the
same for the benefit of that person, in such manner and in such proportion as
the Corporation may deem proper.
SECTION 10 - Other Benefits
--------------
The provisions of this Plan relate only to the specific benefits described
in this Plan and are not intended to affect any other benefits to which a
Participant may be entitled as a retiree or former employee of Black & Decker.
Nothing contained in this Plan shall in any manner modify, impair or affect the
existing rights or interests of a Participant under any other benefit plan
provided by Black & Decker, and the rights and interests of a Participant to any
benefits or as a participant or beneficiary in or under any or all such plans
shall continue in full force and effect unimpaired, subject nonetheless to the
eligibility requirements and other terms of each such plan. This Section shall
not be interpreted as modifying in any way the effect that the Participant's
termination of employment and retirement has upon the Participant's rights under
such other plans. The benefits provided under this Plan are not to be applied as
an offset against any other retirement or deferred compensation benefits or
payments that are otherwise to be provided by Black & Decker to the Participant
or the Participant's beneficiaries; and those benefits or payments are to be
calculated first, ignoring this Plan's existence. In no event shall any benefits
payable under this Plan be treated as salary or other compensation to a
Participant for the purpose of computing benefits to which the Participant may
be entitled under any other benefit plan of Black & Decker.
SECTION 11 - No Guarantee of Employment
--------------------------
This Plan shall not be construed as conferring any legal rights upon any
Participant for continuation of employment, nor shall it interfere with the
rights of Black & Decker to discharge a Participant and to treat the Participant
without regard to the effect which such treatment might have upon the
Participant under this Plan.
<PAGE>
SECTION 12 - Cooperation of Parties
----------------------
Each Participant (and surviving spouse) shall perform any and all
reasonable acts and execute any and all reasonable documents and papers that are
necessary or desirable for carrying out this Plan or any of its provisions.
SECTION 13 - Benefit Claims
--------------
(a) Claims Procedure. Any claim by a Participant, a Participant's spouse or
beneficiary that benefits under this Plan have not been paid in accordance with
the terms and conditions of this Plan shall be made in writing and delivered to
the Committee at the Corporation's principal office in the State of Maryland.
The Committee shall notify the claimant if any additional information is needed
to process the claim. All claims shall be approved or denied by the Committee
within 90 days of receipt of the claim by the Committee. If the claim is denied,
the Committee shall furnish the claimant with a written notice containing:
(1) an explanation of the reason for the denial;
(2) a specific reference to the applicable provisions of this Plan; and
(3) a description of any additional material or information necessary
for the claimant to pursue the claim.
Within 90 days of receipt of the notice described above, the claimant
shall, if further review is desired, file a written request for consideration
with the Committee. A request for reconsideration must include an explanation of
the grounds for the request and the facts supporting the claim. So long as the
claimant's request for review is pending, including such 90-day period, the
claimant or the claimant's duly authorized representative may review pertinent
documents and may submit issues and comments in writing to the Committee.
A final decision shall be made by the Committee within 60 days of the
filing of the request for reconsideration; provided, however, that the
Committee, in its discretion, may extend this period up to an additional 60
days.
The decision by the Committee shall be conveyed to the claimant in writing
and shall include specific reasons for the decision, with specific references to
the applicable provisions of this Plan on which the decision is based.
(b) Arbitration. Any dispute or controversy arising in connection with a
benefit claim under this Plan, after the claims procedure in Section 13(a) has
been exhausted, shall be settled exclusively and finally by arbitration to be
conducted in Towson, Maryland before a neutral arbitrator in accordance only
with the commercial arbitration rules then in effect of the American Arbitration
Association. The scope of review of the arbitration conducted hereunder shall be
limited to whether Black & Decker, the Board or the Committee was arbitrary and
capricious in the exercise of its or their discretion pursuant to the terms of
this Plan. The arbitrator appointed hereunder shall have no authority or power
to grant any remedy or relief not otherwise contained in this Plan and may grant
relief contained in this Plan only if the arbitrator determines that the
interpretation or administration of this Plan was in fact arbitrary and
capricious. The arbitrator appointed hereunder shall have no authority to add
to, detract from, or modify any term or condition of this Plan. The arbitrator
shall have no authority to grant any relief or remedy other than as called for
by the terms of this Plan even if such relief or remedy is otherwise available
at law or in equity but for the terms and conditions of this Plan. Judgment may
be entered on the arbitrator's award in a court of competent jurisdiction in the
venue of the arbitration.
<PAGE>
(c) Attorneys' Fees. The Corporation shall pay to a Protected Participant
or a Protected Participant's surviving spouse all legal fees and expenses
incurred by the Protected Participant or the Protected Participant's surviving
spouse in making a claim for benefits or otherwise in seeking to obtain or
enforce any right or benefit provided by this Plan.
SECTION 14 - Incapacity
----------
If a Participant or the Participant's spouse has become legally
incompetent, then the legal guardian, or other legal representative of such
Participant's or spouse's estate shall be entitled to act for and represent such
incompetent Participant or spouse in all matters and to the same extent as the
Participant or spouse could have done but for such incompetency, including but
not limited to the receipt of Plan benefits.
SECTION 15 - Administration
--------------
(a) Committee's Responsibilities.This Plan shall be administered by the
Committee, which shall be responsible for all matters affecting the
administration of this Plan and shall have the following duties and
responsibilities in connection with the administration of this Plan:
(i) To prepare and enforce such rules, regulations and procedures as
shall be proper for the efficient administration of this Plan, such rules,
regulations and procedures to apply uniformly to all Participants;
(ii) To determine all questions arising in the administration,
interpretation and application of this Plan, including questions of the
status and rights of Participants and any other persons hereunder;
(iii) To decide any dispute arising hereunder;
(iv) To correct defects, supply omissions, and reconcile
inconsistencies to the extent necessary to effectuate this Plan;
(v) To compute the amount of benefits which shall be payable to any
Participant or spouse in accordance with the provisions of this Plan and to
determine the person or persons to whom such benefits shall be paid;
(vi) To select the currency conversion or exchange rates to be
applied in determining a Participant's or spouse's benefits under this
Plan, where foreign currencies are involved;
(vii) To authorize all payments that shall be made pursuant to the
provisions of this Plan;
(viii) To make recommendations to the Corporation's Board of Directors
with respect to proposed amendments to this Plan;
(ix) To file all reports with government agencies, employees, and
other parties as may be required by law, whether such reports are initially
the obligation of the Corporation or this Plan; and
(x) To have all such other powers as may be necessary to discharge
its duties hereunder.
(b) Plan Interpretation. The Committee shall have the authority to
interpret this Plan in its sole and absolute discretion. The Committee's
interpretation of this Plan and actions in respect of this Plan shall be binding
and conclusive on all persons for all purposes, subject only to review by an
arbitrator in accordance with the provisions and standards set forth in Section
13(b).
<PAGE>
(c) Committee's Liability and Indemnification. Neither the Committee nor
any person acting on its behalf shall be liable to any person for any action
taken or omitted in connection with the interpretation and administration of
this Plan unless attributable to gross negligence or willful misconduct. In
addition to such other rights of indemnification they may have as directors,
officers or employees of the Corporation, each member of the Committee shall be
indemnified by the Corporation against the reasonable expenses, including
attorneys' fees, actually and necessarily incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal
therein, to which such member may be a party by reason of any action taken or
omitted under or in connection with this Plan, and against all amounts paid in
settlement thereof, provided such settlement is approved by independent legal
counsel selected by the Corporation, or paid by such member in satisfaction of a
judgment in any such action, suit or proceeding, except in relation to matters
as to which it shall be adjudged in such action, suit or proceeding that such
member is liable for gross negligence or willful misconduct in such member's
duties; provided that within 60 days after the institution of such action, suit
or proceeding the member shall in writing offer the Corporation the opportunity,
at its own expense, to handle and defend the same.
(d) Self-Dealing. If a Participant is also a member of the Committee, the
Participant may not vote or act upon matters relating specifically to such
member's participation in this Plan.
SECTION 16 - Amendments and Termination
--------------------------
The Board of Directors of the Corporation reserves the right at any time
and from time to time to the extent permissible under law, to amend or terminate
this Plan, prospectively or retroactively, in whole or in part; provided,
however, that no such amendment or termination shall, without the Participant's
written agreement, reduce or impair (a) the benefits or rights of any
Participant (or spouse) whose Benefit Commencement Date occurred before the date
the amendment is adopted or this Plan is terminated, (b) the vested benefits and
rights of any Participant who is then employed by Black & Decker or (c) the
right of any Protected Participant and/or his or her surviving spouse to receive
benefits under this Plan determined as if that Plan termination or amendment had
not occurred. Any amendment or termination shall be adopted by resolution of the
Corporation's Board of Directors.
SECTION 17 - Severability
------------
If any provision of this Plan shall be held void or unenforceable, the
remaining provisions of this Plan shall remain in full force and effect;
provided, however, that in interpreting this Plan, such void or unenforceable
provision shall be replaced with an effective and legally permissible provision,
the effect of which shall be identical to, or as close as reasonably possible
to, the effect of the original provision.
SECTION 18 - Construction
------------
Any use of the singular shall include the plural, and vice versa, as may be
appropriate. Titles, captions or paragraph headings contained in this Plan are
for purposes of convenience and reference only, and shall not operate to define
or modify the text to which they relate.
<PAGE>
SECTION 19 - Choice of Law
-------------
This Plan, and the respective rights and duties of the Corporation and all
persons thereunder, shall in all respect be governed by and construed under the
laws of the State of Maryland, except to the extent, if any, that those laws may
have been pre-empted by federal law. This Plan is intended to be a "pension
plan" within the meaning of Section 3(2)(A) of the Employee Retirement Income
Security Act of 1974, as amended (ERISA), which is exempt from Parts 2, 3 and 4
of ERISA by virtue of Sections 201(2), 301(a)(3) and 401(a)(1) thereof,
respectively, and is not designed to meet the requirements of Section 401(a) of
the Internal Revenue Code of 1986, as amended.
SECTION 20 - Parties to be Bound
-------------------
The provisions of this Plan shall be binding upon, and shall inure to the
benefit of the Corporation, its successors and assigns, and each Participant and
the Participant's spouse.
Originally adopted January 30, 1984
Amendment and Restatement adopted February 18, 1993
Amendment and Restatement adopted July 20, 1995
Amendment and Restatement adopted February 14, 1996
Amendment and Restatement adopted October 15, 1998
Amendment and Restatement adopted February 11, 1999
<PAGE>
<TABLE>
THE BLACK & DECKER SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
SCHEDULE I - EXAMPLES OF BENEFIT AMOUNTS*
STATED AS A PERCENTAGE OF FINAL AVERAGE PAY
PARTICIPANTS (OTHER THAN PROTECTED PARTICIPANTS)
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
AGE AT BENEFIT COMMENCEMENT DATE**
-------------------------------------------------------------------------------
YEARS OF CREDITED
SERVICE AGE 55 AGE 56 AGE 57 AGE 58 AGE 59 AGE 60 OR
MORE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Less than 5 0% 0% 0% 0% 0% 0%
5 20% 21% 22% 23% 24% 25%
6 24% 25.2% 26.4% 27.6% 28.8% 30%
7 28% 29.4% 30.8% 32.2% 33.6% 35%
8 32% 33.6% 35.2% 36.8% 38.4% 40%
9 36% 37.8% 39.6% 41.4% 43.2% 45%
10 40% 42% 44% 46% 48% 50%
11 40% 42% 44% 46% 48% 50%
12 40% 42% 44% 46% 48% 50%
13 40% 42% 44% 46% 48% 50%
14 40% 42% 44% 46% 48% 50%
15 or more 50% 52% 54% 56% 58% 60%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
PROTECTED PARTICIPANTS
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
AGE AT BENEFIT COMMENCEMENT DATE**
-------------------------------------------------------------------------------
YEARS OF CREDITED
SERVICE AGE 55 AGE 56 AGE 57 AGE 58 AGE 59 AGE 60 OR
MORE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Less than 5 50% 52% 54% 56% 58% 60%
5 50% 52% 54% 56% 58% 60%
6 50% 52% 54% 56% 58% 60%
7 50% 52% 54% 56% 58% 60%
8 50% 52% 54% 56% 58% 60%
9 50% 52% 54% 56% 58% 60%
10 50% 52% 54% 56% 58% 60%
11 50% 52% 54% 56% 58% 60%
12 50% 52% 54% 56% 58% 60%
13 50% 52% 54% 56% 58% 60%
14 50% 52% 54% 56% 58% 60%
15 or more 50% 52% 54% 56% 58% 60%
- -------------------------------------------------------------------------------------------------------------------
<FN>
*Before application of benefit offsets under Section 4, but after application of
the early retirement reduction (for all Participants) and the reduction for less
than 10 years of Credited Service (for Participants other than Protected
Participants), in Sections 3(b) and 3(c), respectively.
**The examples assume that the Participant's Normal Retirement Date is age 60.
</FN>
</TABLE>
THE BLACK & DECKER CORPORATION
701 East Joppa Road
Towson, Maryland 21286
February 12, 1998
Mr. Frederik B. van den Bergh
'Le Cret' Chemin De La Sabliere
74140 Chens Le Pont
FRANCE
Dear Mr. van den Bergh:
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.
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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 1998 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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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 12th
day of February 1998
/s/FREDERIK B. VAN DEN BERGH
- --------------------------------
Frederik B. van den Bergh
The Black & Decker Corporation Leonard A. Strom
701 East Joppa Road, TW 235 Senior Vice President - Human Resources
Towson, Maryland 21286
410 716 3525
May 9, 1997
Mr. Frederik van den Bergh
Dear Frits:
The Black & Decker Corporation
Further to our discussions about your accepting the position of President of
Black & Decker Europe, I am writing to formally offer you that position and
confirm the compensation package and terms of employment principles we propose
for you.
By way of preface, I should emphasize that, while this document is intended to
be legally binding, the precise details remain to be worked out and
implementation will be decided on in the light (principally) of advice from
Ernst & Young as to the most tax efficient but legal way of structuring your
employment. Each of us anticipates and acknowledges therefore that this letter
agreement will be implemented by other final documents in due course, and that
you may have several employers within the Black & Decker Group. This document
will however remain binding, save to the extent it is superseded by final
documents signed by both parties.
1. Base Salary
-----------
Your base salary will be US$400,000 a year. It will be reviewed every 14
months in accordance with our practice for executives of your seniority.
2. Annual Incentive Plan
---------------------
Initially, your bonus will be guaranteed at $200,000 and this will be
payable to you around March 1998.
You will thereafter be a participant in our Annual Incentive Plan from
time to time in effect. Your bonus for on target corporate and divisional
performance under the current arrangements will be 50% of your base
salary, and the maximum bonus you could receive will be 75% of your base
salary. You will forfeit all entitlement to bonus (including guaranteed
bonus) if you have ceased to be in service for any reason before a payment
date. We reserve the right to alter or discontinue the Plan (without
prejudice to any accrued rights you may have) or your target and maximum
bonus.
continued.....
<PAGE>
Mr. F. van den Bergh
May 9, 1997
page 2
3. Performance Equity Plan
-----------------------
We will recommend to the next regular meeting of the Organization
Committee of the Board of Directors that they award you Performance Shares
under the Performance Equity Plan (while it continues in being) equivalent
to 50% of your base salary every fiscal year while your service continues.
In addition to participation in the current 1997-1999 Performance Period,
we will further recommend that you be awarded retrospective participation
in the 1995-1997, and 1996-1998 Performance Periods, or the economic
equivalent thereof.
We reserve the right to alter or discontinue the Plan (without prejudice
to any accrued rights you may have).
4. Stock Option Plan
-----------------
We will recommend to the next regular meeting of the Organization
Committee of the Board of Directors that they give you a one-time grant of
an option to acquire 75,000 shares of common stock $0.50 par value on the
first available opportunity. The grant will be made under The Black &
Decker 1996 Stock Option Plan.
The award of any further stock options will be in the absolute discretion
of the Organization Committee of the Board of Directors.
5. Company Car
-----------
You will be provided with the exclusive use of a fully expensed Jaguar XJ6
4.0 litre or equivalent car, in accordance with our UK car policy from
time to time.
6. Relocation
----------
You will be required to make our European headquarters in Slough,
Berkshire your base. It is, therefore, a condition of this offer that you
relocate your home to be within a reasonable commuting distance of Slough
prior to September 1, 1998. Relocation assistance will be provided to you
in accordance with our relocation policy.
We will reimburse you for temporary housing, meals, travel and other
living expenses reasonably incurred by you in the U.K. prior to
relocation.
continued.....
<PAGE>
Mr. F. van den Bergh
May 9, 1997
page 3
7. Pension Arrangements
--------------------
The Black & Decker Group will ensure the provision of pension benefits for
you and your dependents in accordance with the terms of this clause. Black
& Decker Group will attempt to provide these benefits in a manner which is
tax efficient for both you and the Black & Decker Group. However, the
Group reserves the right to provide such benefits through any combination
of tax approved or unapproved plans, funded or unfunded arrangements, with
our without insurance, based in the UK or outside. You will not be
required to make payments to either the Black & Decker Group or any scheme
or arrangement in order to receive the benefits set out in this clause.
At your normal retirement date, which will be the date on which you attain
the age of 60, you will be entitled to an annual pension for life equal to
2.2% of your Final Average Pay for each year of Pensionable Service with
additional complete months of such service counting proportionately.
"Final Average Pay" means the annual average of the highest five
consecutive years Pensionable Pay you receive before your retirement,
death or leaving service whichever is earliest. If you leave service
within five years of this appointment, the annual average will apply to
such lesser number of years of service. Your Pensionable Pay will be your
base salary and Annual Incentive Plan Bonus, but no other remuneration
will be taken into account.
"Pensionable Service" means service with the Black & Decker Group since
the commencement of this appointment, together with one half of your
service with the Black & Decker Group prior to this appointment.
Pensionable Service will include any period of Salary Continuance after
termination of service.
You may with your employer's consent retire at any time after attaining
the age of 55 with a pension as calculated above, but reduced by an amount
equal to one-third of 1% for each complete calendar month by which
retirement precedes attainment of age 60. You will not be entitled to any
retirement benefit if you leave service before attaining age 55, or if you
are terminated for Cause, as defined in the Black & Decker Executive
Salary Continuance Plan.
If you should become totally and permanently disabled while in service, a
lump sum equal to four times your annual basic salary at date of
disability will be paid to you, offset by the estimated capital value of
any payments for which you are eligible under any disability plan
sponsored or maintained by Black & Decker Group or under any governmental
program (including Social Security in the United States) assuming you
survive to age 65.
continued.....
<PAGE>
Mr. F. van den Bergh
May 9, 1997
page 4
If you should die while in service, a lump sum equal to twice your annual
basic salary at date of death will be paid to your wife or other nominated
dependent, although if the payment is not to your wife, for tax reasons
payment to another person may be at the discretion of the Group. In
addition, if you are married at date of death, a pension for life will be
paid to your wife equal to 50% of your Final Average Pay as at date of
death.
If you are not married at date of death, but leave children, or if your
wife dies while in receipt of a pension, a children's pension of
two-fifths of the pension that would have been payable to your wife will
be paid to each of your children with a maximum of 2 children, until they
reach age 21.
If you die in retirement and are married at date of death, a pension equal
to 50% of the pension you were receiving will be paid to your wife. If you
are not married at date of death but leave children or your wife dies
while in receipt of a pension, a pension equal to two-fifths of the
pension that would have been paid to your wife will be paid to each such
child with a maximum of 2 children until they reach age 21.
Your pension may be forfeited if you owe money to the Black & Decker Group
as a result of any criminal, negligent or fraudulent act or omission. The
amount forfeited will not exceed the debt owed to the Group.
8. Termination of Employment
-------------------------
If you should wish to resign your employment, or if we should wish to
terminate your employment (other than for Cause as defined in the
Executive Salary Continuance Plan), one-year's prior written notice shall
be given. In addition, you will be entitled to participate in our
Executive Salary Continuance Plan, subject to your executing a
Participation Agreement. The Continuance Period in your case will be:
(a) for a Severance Date after the date of your accepting this offer,
but before the second anniversary of that date: 3 years
(b) for a Severance Date on or after the second but before the fourth
anniversaries of the date of your accepting this offer: 2 years
(c) for a Severance Date on or after the fourth anniversary of the date
of your accepting this offer: 1 year.
Notice periods will be offset against the Continuance Period.
continued.....
<PAGE>
Mr. F. van den Bergh
May 9, 1997
page 5
If termination of employment is for reason of disability, salary
continuance payments shall be offset by any payments for which you are
eligible under any disability plan sponsored or maintained by Black &
Decker Group or under any governmental program (including Social Security
in the United States).
9. Non-Competition
---------------
If you resign your employment, or are dismissed from your employment for
Cause you agree that, for 12 months after the Severance Date, you will not
enter into Competition. For these purposes, Cause, Severance Date and
competition shall have the same meaning as in the Executive Salary
Continuance Plan.
10. Employee Benefits
-----------------
You will be eligible to receive such employee benefits (for example,
medical, dental, basic life insurance, executive life insurance, tax
preparation expense reimbursement, executive physical examination and
country club memberships) as are provided to similarly situated employees
from time to time.
In particular, your "country club" membership will be for you and your
wife at the Lambourne Golf Club in England.
11. Corporate Officer
-----------------
We will recommend to the next regular meeting of the Board of Directors
that you be elected as a corporate officer of The Black & Decker
Corporation. As such an officer, you will not be eligible to receive any
extra compensation or fees for holding such office. You may be removed
from such office without prior notice and without cause by the board or a
duly authorized committee.
12. Governing Law and Dispute Resolution
------------------------------------
Any employment and all related matters arising from this offer shall be
governed in all respects by the law of the State of Maryland, USA (the
"Applicable Law").
Any dispute or controversy arising out of or relating thereto (or pay or
benefits which may be provided to you), as well as any dispute or
controversy arising out of or relating to the termination of your
employment shall be settled exclusively by final and binding arbitration,
conducted in Towson, Maryland before a neutral arbitrator with expertise
in employment law in accordance with the Commercial Arbitration Rules of
the American
continued.....
<PAGE>
Mr. F. van den Bergh
May 9, 1997
page 6
Arbitration Association. In reaching a decision, the arbitrator shall
interpret, apply and be bound by this offer, any implementing documents
and all relevant plan rules by Applicable Law. The arbitrator shall apply
the same standard of review in disputes relating to relevant plan benefits
as a court of competent jurisdiction would apply. The arbitrator shall
have no authority to add to, detract from, or modify any plan or any law
in any respect. The arbitrator may grant any remedy or relief that may be
necessary to make the injured party whole, provided that in no event may
the arbitrator grant any remedy or relief that a court of competent
jurisdiction could not grant, nor any relief greater than that sought by
the injured party. Judgment may be entered on the arbitrator's award in
any court of competent jurisdiction.
When you have read and fully understand this letter, and the relevant plan
documents which are provided with it as named at the bottom of this letter,
please sign, date and return the enclosed copy of this letter by way of
acceptance.
Sincerely,
THE BLACK & DECKER CORPORATION
by:/s/LEONARD A. STROM
- ------------------------------
Name: Leonard A. Strom
Title: Senior Vice President - Human Resources
Enclosed:
The Black & Decker Annual Incentive Plan, issued March 11, 1997
The Black & Decker Performance Equity Plan, as amended by the Board on February
14, 1996 and approved by the stockholders at the 1996 Annual Meeting on April
23, 1996 The Black & Decker 1996 Stock Option Plan, issued May 13, 1996 The
Black & Decker Executive Salary Continuance Plan, issued April 25, 1995 (you
have)
(others)
I have read and I understand the above letter and all the above mentioned plan
documents, and I have obtained any legal or other advice I felt necessary. I
have not relied upon any statement or representation, oral or written, not set
forth in this letter or in any of the above mentioned plans. I understand that
by accepting this offer, I am agreeing to submit to final and binding
arbitration in Towson, Maryland, all disputes concerning my employment and
related matters including without limitation arising out of or related to any
termination of my employment.
I agree to and accept the above by signing this letter on May 12, 1997.
/s/FREDRIK B. VAN DEN BERGH
- ------------------------------
EXHIBIT 10(cc)(2)
The Black & Decker Corporation Leonard A. Strom
701 East Joppa Road, TW 235 Senior Vice President - Human Resources
Towson, Maryland 21286
410 716 3525
March 30, 1998
Mr. Frederik B van den Bergh
Le Cret Chemin de la Sabliere
74140 Chens le Pont
FRANCE
Dear Frits:
This is an amendment to our offer letter dated May 9, 1997. Section 6 of the
letter states that it is a condition of our offer that you relocate your home to
be within a reasonable commuting distance of Slough prior to September 1, 1998.
We have agreed at your request to extend the relocation date by one year, to
September 1, 1999. All other terms and conditions of our letter agreement remain
in full force and effect.
If you concur with this change, please sign, date, and return the enclosed copy
of this letter to indicate your acceptance.
Sincerely,
THE BLACK & DECKER CORPORATION
/s/LEONARD A. STROM
- --------------------
Leonard A. Strom
Senior Vice President
Human Resources
ACCEPTED AND AGREED:
/s/FREDERIK B. VAN DEN BERGH 21/April/1998
- ----------------------------- -------------
Frederik B. van den Bergh Date
EXHIBIT 11
<TABLE>
THE BLACK & DECKER CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Amounts in Millions Except Per Share Data)
<CAPTION>
For The Year Ended
------------------------------------------------------------------------------------
December 31, 1998 December 31, 1997 December 31, 1996
----------------- ----------------- -----------------
Amount Per Share Amount Per Share Amount Per Share
------ --------- ------ --------- ------ ---------
BASIC:
<S> <C> <C> <C> <C> <C> <C>
Weighted average shares outstanding 91.8 94.6 88.9
Net earnings (loss) $(754.8) $227.2 $229.6
Less preferred stock dividend -- -- 9.1
------- ------ ------
Net earnings (loss) attributable to common
stock $(754.8) $(8.22) $227.2 $2.40 $220.5 $2.48
======== ======= ====== ===== ====== =====
DILUTED:
Weighted average shares outstanding 91.8 94.6 88.9
Dilutive stock options and stock issuable
under employee benefit plans 1.7 (Note 1) 1.9 2.2
------- ------ ------
Adjusted shares outstanding 93.5 96.5 91.1
Average shares assumed to be converted
through convertible preferred stock -- -- 5.0 (Note 2)
------- ------ ------
Diluted average shares outstanding 93.5 96.5 96.1
======= ====== ======
Net earnings (loss) $(754.8) $(8.07) $227.2 $2.35 $229.6 $2.39
======== ======= ====== ===== ====== =====
<FN>
Notes: 1. Due to the net loss incurred by the Corporation for the year ended
December 31, 1998, the assumed exercise of stock options and stock
issuable under employee benefit plans is anti-dilutive, and therefore,
is not used in the calculation of diluted earnings per share included
in the consolidated financial statements. As a result, the
consolidated financial statements reflect diluted earnings per share
equal to basic earnings per share for the year ended December 31, 1998
- both a loss of $8.22 per share.
2. Represents the dilutive effect of convertible preferred stock prior to
its conversion into common stock on October 14, 1996.
</FN>
</TABLE>
EXHIBIT 12
<TABLE>
THE BLACK & DECKER CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Millions of Dollars Except Ratios)
<CAPTION>
Three Months Ended Twelve Months Ended
December 31, 1998 December 31, 1998
------------------ -------------------
EARNINGS:
<S> <C> <C>
Earnings (loss) from continuing operations
before income taxes $ 185.0 $(588.3)
Interest expense 38.3 145.3
Portion of rent expense representative
of an interest factor 6.7 26.9
------- --------
Adjusted earnings (loss) from continuing
operations before taxes and
fixed charges $ 230.0 $(416.1)
======= ========
FIXED CHARGES:
Interest expense $ 38.3 $ 145.3
Portion of rent expense representative
of an interest factor 6.7 26.9
------- --------
Total fixed charges $ 45.0 $ 172.2
======= ========
RATIO OF EARNINGS TO FIXED
CHARGES 5.11
=======
RATIO OF EARNINGS TO FIXED
CHARGES (DEFICIENCY) (Note 2) --
========
<FN>
Notes: 1. Included in earnings (loss) from continuing operations before income
taxes for the three months ended December 31, 1998, are restructuring
and exit costs of $10.5 and gain on sale of businesses of $51.1.
Included in earnings (loss) from continuing operations before income
taxes for the twelve months ended December 31, 1998, are restructuring
and exit costs of $164.7, write-off of goodwill of $900.0, and gain on
sale of businesses of $114.5.
2. For the twelve months ended December 31, 1998, earnings (loss) from
continuing operations before income taxes are insufficient to cover
fixed charges by the amount of $588.3.
</FN>
</TABLE>
EXHIBIT 21
THE BLACK & DECKER CORPORATION AND SUBSIDIARIES
LIST OF SUBSIDIARIES
Listed below are the subsidiaries of The Black & Decker Corporation, all of
which are either directly or indirectly 100% owned as of December 31, 1998,
except as otherwise noted. Names of certain inactive, liquidated, or minor
subsidiaries have been omitted.
Black & Decker Inc. UNITED STATES
Black & Decker (U.S.) Inc. UNITED STATES
Black & Decker Funding Corporation UNITED STATES
Black & Decker Group Inc. UNITED STATES
Black & Decker HealthCare Management Inc. UNITED STATES
Black & Decker Holdings Inc. UNITED STATES
Black & Decker Investment Company UNITED STATES
Black & Decker (Ireland) Inc. UNITED STATES
Black & Decker India Inc. UNITED STATES
Black & Decker Investments (Australia) Limited UNITED STATES
Black & Decker Limited (LLC) UNITED STATES
Black & Decker (Puerto Rico) LLC UNITED STATES
Black & Decker - Tampa, Inc. UNITED STATES
B&D Distribution Inc. UNITED STATES
Corbin Co. UNITED STATES
Emhart Corporation UNITED STATES
Emhart Credit Corporation UNITED STATES
Emhart Far East Corporation UNITED STATES
Emhart Inc. UNITED STATES
Emhart Industries, Inc. UNITED STATES
Kwikset Corporation UNITED STATES
Price Pfister, Inc. UNITED STATES
Shenandoah Insurance, Inc. UNITED STATES
Black & Decker Argentina S.A. ARGENTINA
Black & Decker Distribution Pty. Ltd. AUSTRALIA
Black & Decker Finance (Australia) Ltd. AUSTRALIA
Black & Decker Holdings (Australia) Pty. Ltd. AUSTRALIA
Dewalt Industrial Powertool Company Pty. Ltd. AUSTRALIA
Black & Decker Werkzeuge Vertriebs-Gesellschaft m.b.H AUSTRIA
<PAGE>
-2-
DOM Sicherheitstechnik G.m.b.H. AUSTRIA
Black & Decker (Belgium) N.V. BELGIUM
Black & Decker Do Brasil Ltda. BRAZIL
Black & Decker Canada Inc. CANADA
Black & Decker Holdings (Canada) Inc. CANADA
Black & Decker Cono Sur, S.A. CHILE
Maquinas y Herramientas Black & Decker de Chile S.A. CHILE
Black & Decker (Suzhou) Power Tools Co., LTD. CHINA
Black & Decker de Colombia S.A. COLOMBIA
B&D de Costa Rica, S.A. COSTA RICA
Tucker S.R.O. CZECH REPUBLIC
Emhart Harttung A/S DENMARK
Black & Decker de El Salvador, S.A. de C.V. EL SALVADOR
Black & Decker Oy FINLAND
Black & Decker Finance S.C.A. FRANCE
Black & Decker (France) S.A.S. FRANCE
DOM S.A.R.L. FRANCE
Emhart S.A.R.L. FRANCE
BAND Aussenhandel G.m.b.H. GERMANY
B.B.W. Bayrische Bohrerwerke G.m.b.H. GERMANY
Black & Decker G.m.b.H. GERMANY
DOM Sicherheitstechnik G.m.b.H. GERMANY
DOM Sicherheitstechnik G.m.b.H. & Co. KG GERMANY
Emhart Deutschland G.m.b.H. GERMANY
Tucker G.m.b.H. GERMANY
Black & Decker (Hellas) S.A. GREECE
Black & Decker Hong Kong Limited HONG KONG
Emhart Asia Limited HONG KONG
Baltimore Financial Services Company IRELAND
Baltimore Insurance Limited IRELAND
Belco Investments Company IRELAND
Black & Decker (Ireland) IRELAND
Gamrie Limited IRELAND
Black & Decker Italia S.P.A. ITALY
Tatry Officina Meccanica S.r.l. ITALY
Fasteners & Tools, Ltd. JAPAN
Nippon Pop Rivets & Fasteners Ltd. JAPAN
Black & Decker (Overseas) A.G. LIECHTENSTEIN
Black & Decker Luxembourg S.A. LUXEMBOURG
Black & Decker Asia Pacific (Malaysia) Sdn. Bhd. MALAYSIA
Black & Decker (Malaysia) Sdn. Bhd. MALAYSIA
DeWalt Industrial Tools, S.A. de C.V. MEXICO
Black & Decker, S.A. de C.V. MEXICO
Price-Pfister de Mexico, S. de R.L. de C.V. MEXICO
BD Power Tools Mexicana, S. de R.L. de C.V. MEXICO
<PAGE>
-3-
Technolock, S. de R.L. de C.V. MEXICO
Nemef B.V. NETHERLANDS
Black & Decker (Nederland) B.V. NETHERLANDS
Black & Decker International Holdings B.V. NETHERLANDS
Black & Decker (New Zealand) Limited NEW ZEALAND
Black & Decker (Norge) A/S NORWAY
Sjong Fasteners A/S NORWAY
Black & Decker de Panama, S.A. PANAMA
Black & Decker International Corporation PANAMA
Black & Decker Del Peru S.A. PERU
Black & Decker Asia Pacific Pte. Ltd. SINGAPORE
Black & Decker (South Africa) (Pty) Ltd. SOUTH AFRICA
Emhart Fastening Teknologies Korea, Inc. SOUTH KOREA
Black & Decker Iberica S.Com por A. SPAIN
Black & Decker Aktiebolag SWEDEN
Emhart Teknik Akteibolag SWEDEN
DOM AG Sicherheitstechnik SWITZERLAND
Black & Decker (Switzerland) S.A. SWITZERLAND
Black & Decker (Thailand) Limited THAILAND
Black &Decker Ithalat Limited Sirketi TURKEY
Aven Tools Limited UNITED KINGDOM
Bandhart UNITED KINGDOM
Bandhart Overseas UNITED KINGDOM
Black & Decker Finance UNITED KINGDOM
Black & Decker International UNITED KINGDOM
Black & Decker UNITED KINGDOM
Black & Decker Europe UNITED KINGDOM
Emhart (Colchester) Limited UNITED KINGDOM
Emhart International Limited UNITED KINGDOM
Tucker Fasteners Limited UNITED KINGDOM
United Marketing (Leicester) UNITED KINGDOM
Black & Decker Rio de la Plata S.A. URUGUAY
Black & Decker de Venezuela, C.A. VENEZUELA
Black & Decker Holdings de Venezuela, C.A. VENEZUELA
Emhart Foreign Sales Corporation VIRGIN ISLANDS (US)
Exhibit 23
CONSENT of Independent Auditors
We consent to the incorporation by reference in the following Registration
Statements of The Black & Decker Corporation of our report dated January 26,
1999, with respect to the consolidated financial statements and schedule of The
Black & Decker Corporation included in the Annual Report (Form 10-K) for the
year ended December 31, 1998.
Registration Statement Number Description
- ----------------------------- -----------
33-6610 Form S-8
33-6612 Form S-8
33-26917 Form S-8
33-26918 Form S-8
33-33251 Form S-8
33-39608 Form S-3
33-47651 Form S-8
33-47652 Form S-8
33-53807 Form S-3
33-58795 Form S-8
33-65013 Form S-8
333-03593 Form S-8
333-03595 Form S-8
333-51155 Form S-8
333-51157 Form S-8
/s/ERNST & YOUNG
Baltimore, Maryland
March 9, 1999
EXHIBIT 24
POWER OF ATTORNEY
We, the undersigned Directors and Officers of The Black & Decker
Corporation (the "Corporation"), hereby constitute and appoint Nolan D.
Archibald, Thomas M. Schoewe and Charles E. Fenton, and each of them, with power
of substitution, our true and lawful attorneys-in-fact with full power to sign
for us, in our names and in the capacities indicated below, the Corporation's
Annual Report on Form 10-K for the year ended December 31, 1998, and any and all
amendments thereto.
/s/NOLAN D. ARCHIBALD Director, Chairman, February 11, 1999
- ----------------------------
Nolan D. Archibald President and Chief
Executive Officer
(Principal Executive
Officer)
/s/NORMAN R. AUGUSTINE Director February 11, 1999
- ----------------------------
Norman R. Augustine
/s/BARBARA L. BOWLES Director February 11, 1999
- ----------------------------
Barbara L. Bowles
/s/MALCOLM CANDLISH Director February 11, 1999
- ----------------------------
Malcolm Candlish
/s/ALONZO G. DECKER, JR. Director February 11, 1999
- ----------------------------
Alonzo G. Decker, Jr.
/s/ANTHONY LUISO Director February 11, 1999
- ----------------------------
Anthony Luiso
/s/MARK H. WILLES Director February 11, 1999
- ----------------------------
Mark H. Willes
/s/THOMAS M. SCHOEWE Senior Vice President February 11, 1999
- ----------------------------
Thomas M. Schoewe and Chief Financial
Officer (Principal
Financial Officer)
<PAGE>
/s/STEPHEN F. REEVES Vice President and February 11, 1999
- ----------------------------
Stephen F. Reeves Corporate Controller
(Principal Accounting
Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000012355
<NAME> THE BLACK & DECKER CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 87,900
<SECURITIES> 0
<RECEIVABLES> 792,400 <F1>
<ALLOWANCES> 44,300
<INVENTORY> 636,900
<CURRENT-ASSETS> 1,751,800
<PP&E> 727,600 <F2>
<DEPRECIATION> 846,100
<TOTAL-ASSETS> 3,852,500
<CURRENT-LIABILITIES> 1,374,700
<BONDS> 1,148,900
0
0
<COMMON> 43,700
<OTHER-SE> 530,300
<TOTAL-LIABILITY-AND-EQUITY> 3,852,500
<SALES> 4,559,900
<TOTAL-REVENUES> 4,559,900
<CGS> 2,951,000
<TOTAL-COSTS> 5,026,100 <F3>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 145,300
<INCOME-PRETAX> (588,300)<F3>
<INCOME-TAX> 166,500 <F4>
<INCOME-CONTINUING> (754,800)<F5>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (754,800)<F5>
<EPS-PRIMARY> (8.22)<F6>
<EPS-DILUTED> (8.22)
<FN>
<F1>Represents net trade receivables.
<F2>Represents net property, plant, and equipment.
<F3>Includes a pre-tax restructuring charge in the amount of $164,700, a
write-off of goodwill in the amount of $900,000 and a pre-tax gain on the
sale of businesses of $114,500.
<F4>Includes a $47,400 tax benefit associated with the restructuring charge and
$98,000 of tax expense resulting from the gain on the sale of businesses.
<F5>Includes a restructuring charge and a gain on the sale of businesses, net of
tax effects, in the amounts of $117,300 and $16,500, respectively, and a
write-off of goodwill in the amount of $900,000.
<F6>Represents basic earnings per share.
</FN>
</TABLE>
