UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended October 3, 1999
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from to
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Commission File Number: 1-1553
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THE BLACK & DECKER CORPORATION
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(Exact name of registrant as specified in its charter)
Maryland 52-0248090
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
701 East Joppa Road Towson, Maryland 21286
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(Address of principal executive offices) (Zip Code)
(410) 716-3900
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address, and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. X YES NO
The number of shares of Common Stock outstanding as of October 31, 1999:
86,860,032
The exhibit index as required by item 601(a) of Regulation S-K is included in
this report.
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2
THE BLACK & DECKER CORPORATION
INDEX - FORM 10-Q
October 3, 1999
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Earnings (Unaudited) For the Three
Months and Nine Months Ended October 3, 1999 and
September 27, 1998 3
Consolidated Balance Sheet
October 3, 1999 (Unaudited) and December 31, 1998 4
Consolidated Statement of Stockholders' Equity (Unaudited)
For the Nine Months Ended October 3, 1999 and
September 27, 1998 5
Consolidated Statement of Cash Flows (Unaudited)
For the Nine Months Ended October 3, 1999 and
September 27, 1998 6
Notes to Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 30
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 31
Item 2. Changes in Securities and Use of Proceeds 32
Item 6. Exhibits and Reports on Form 8-K 32
SIGNATURES 33
<PAGE>
3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
CONSOLIDATED STATEMENT OF EARNINGS (Unaudited)
The Black & Decker Corporation and Subsidiaries
(Dollars in Millions Except Per Share Amounts)
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
October 3, 1999 September 27, 1998 October 3, 1999 September 27, 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 1,110.6 $ 1,107.7 $ 3,173.3 $ 3,285.7
Cost of goods sold 694.0 709.0 1,993.4 2,139.2
Selling, general, and
administrative expenses 278.9 270.1 836.7 835.5
Write-off of goodwill - - - 900.0
Restructuring and exit costs - 14.2 - 154.2
Gain on sale of businesses - 26.9 - 63.4
- -------------------------------------------------------------------------------------------------------------------
Operating Income (Loss) 137.7 141.3 343.2 (679.8)
Interest expense (net of
interest income) 26.2 29.1 70.9 87.3
Other expense .8 3.8 - 6.2
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Earnings (Loss) Before Income
Taxes 110.7 108.4 272.3 (773.3)
Income taxes 35.4 41.8 87.1 73.1
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Net Earnings (Loss) $ 75.3 $ 66.6 $ 185.2 $ (846.4)
===================================================================================================================
Net Earnings (Loss) Per Common
Share--Basic $ .87 $ .73 $ 2.13 $ (9.06)
===================================================================================================================
Shares Used in Computing Basic
Earnings Per Share (in Millions) 87.0 90.9 87.1 93.4
===================================================================================================================
Net Earnings (Loss) Per Common
Share--Assuming Dilution $ .85 $ .72 $ 2.09 $ (9.06)
===================================================================================================================
Shares Used in Computing Diluted
Earnings Per Share (in Millions) 88.3 92.6 88.4 93.4
===================================================================================================================
Dividends Per Common Share $ .12 $ .12 $ .36 $ .36
===================================================================================================================
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
</FN>
</TABLE>
<PAGE>
4
CONSOLIDATED BALANCE SHEET
The Black & Decker Corporation and Subsidiaries
(Dollars in Millions Except Per Share Amount)
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October 3, 1999
(Unaudited) December 31, 1998
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Assets
Cash and cash equivalents $ 142.5 $ 87.9
Trade receivables 851.7 792.4
Inventories 864.3 636.9
Other current assets 200.5 234.6
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Total Current Assets 2,059.0 1,751.8
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Property, Plant, and Equipment 718.2 727.6
Goodwill 746.0 768.7
Other Assets 630.3 604.4
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$ 4,153.5 $ 3,852.5
================================================================================
Liabilities and Stockholders' Equity
Short-term borrowings $ 428.0 $ 152.5
Current maturities of long-term debt 58.8 59.2
Trade accounts payable 431.0 348.8
Other accrued liabilities 731.7 814.2
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Total Current Liabilities 1,649.5 1,374.7
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Long-Term Debt 1,058.4 1,148.9
Deferred Income Taxes 276.8 279.9
Postretirement Benefits 262.0 263.5
Other Long-Term Liabilities 230.5 211.5
Stockholders' Equity
Common stock, par value $.50 per share 43.4 43.7
Capital in excess of par value 831.6 871.4
Retained earnings (deficit) (82.7) (236.6)
Accumulated other comprehensive income (loss) (116.0) (104.5)
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Total Stockholders' Equity 676.3 574.0
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$ 4,153.5 $ 3,852.5
================================================================================
See Notes to Consolidated Financial Statements (Unaudited)
<PAGE>
5
<TABLE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)
The Black & Decker Corporation and Subsidiaries
(Dollars in Millions Except Per Share Amounts)
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Accumulated
Outstanding Capital in Retained Other Com- Total
Common Par Excess of Earnings prehensive Stockholders'
Shares Value Par Value (Deficit) Income (Loss) Equity
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 94,842,544 $ 47.4 $ 1,278.2 $ 562.0 $ (96.2) $ 1,791.4
Comprehensive income:
Net loss -- -- -- (846.4) -- (846.4)
Foreign currency translation
adjustments, less effect of
hedging activities (net of tax) -- -- -- -- (33.0) (33.0)
Write-off of accumulated
foreign currency transla-
tion adjustments due to
sale of businesses -- -- -- -- 35.6 35.6
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Comprehensive income (loss) -- -- -- (846.4) 2.6 (843.8)
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Cash dividends ($.36 per share) -- -- -- (33.3) -- (33.3)
Purchase and retirement of
common stock (8,059,900) (4.0) (416.1) -- -- (420.1)
Common stock issued under
employee benefit plans 1,083,305 .5 23.0 -- -- 23.5
- ---------------------------------------------------------------------------------------------------------------------
Balance at September 27, 1998 87,865,949 $ 43.9 $ 885.1 $ (317.7) $ (93.6) $ 517.7
=====================================================================================================================
Balance at December 31, 1998 87,498,424 $ 43.7 $ 871.4 $ (236.6) $ (104.5) $ 574.0
Comprehensive income:
Net earnings -- -- -- 185.2 -- 185.2
Foreign currency translation
adjustments, less effect of
hedging activities (net of tax) -- -- -- -- (11.5) (11.5)
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Comprehensive income (loss) -- -- -- 185.2 (11.5) 173.7
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Cash dividends ($.36 per share) -- -- -- (31.3) -- (31.3)
Purchase and retirement of
common stock (1,015,900) (.5) (52.8) -- -- (53.3)
Common stock issued under
employee benefit plans 365,408 .2 13.0 -- -- 13.2
- ---------------------------------------------------------------------------------------------------------------------
Balance at October 3, 1999 86,847,932 $ 43.4 $ 831.6 $ (82.7) $ (116.0) $ 676.3
=====================================================================================================================
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
</FN>
</TABLE>
<PAGE>
6
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
The Black & Decker Corporation and Subsidiaries
(Dollars in Millions)
<CAPTION>
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Nine Months Ended
October 3, 1999 September 27, 1998
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<S> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) $ 185.2 $ (846.4)
Adjustments to reconcile net earnings (loss) to cash flow
from operating activities:
Gain on sale of businesses - (63.4)
Non-cash charges and credits:
Depreciation and amortization 117.7 114.5
Goodwill write-off - 900.0
Restructuring charges and exit costs - 154.2
Other (6.3) 2.6
Changes in selected working capital items (excluding, for 1998,
effects of household products and glass container-forming and
inspection equipment businesses sold):
Trade receivables (80.9) (50.1)
Inventories (246.8) (83.4)
Trade accounts payable 87.3 31.6
Restructuring spending (17.2) (27.9)
Changes in other assets and liabilities (26.1) (70.2)
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Cash Flow From Operating Activities 12.9 61.5
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INVESTING ACTIVITIES
Proceeds from sale of businesses, net of selling expenses - 481.8
Purchase of business (3.2) -
Proceeds from disposal of assets 23.4 19.1
Capital expenditures (111.4) (92.4)
Cash inflow from hedging activities 510.3 239.2
Cash outflow from hedging activities (478.2) (231.6)
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Cash Flow From Investing Activities (59.1) 416.1
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Cash Flow Before Financing Activities (46.2) 477.6
FINANCING ACTIVITIES
Net decrease in short-term borrowings (105.7) (112.7)
Proceeds from long-term debt (including revolving credit facility) 931.7 585.6
Payments on long-term debt (including revolving credit facility) (646.6) (569.8)
Debt issue costs paid - (2.7)
Redemption of preferred stock of subsidiary - (41.7)
Purchase of common stock (53.3) (420.1)
Issuance of common stock 9.9 18.0
Cash dividends (31.3) (33.3)
- ----------------------------------------------------------------------------------------------------
Cash Flow From Financing Activities 104.7 (576.7)
Effect of exchange rate changes on cash (3.9) (4.4)
- ----------------------------------------------------------------------------------------------------
Increase (Decrease) In Cash And Cash Equivalents 54.6 (103.5)
Cash and cash equivalents at beginning of period 87.9 246.8
- ----------------------------------------------------------------------------------------------------
Cash And Cash Equivalents At End Of Period $ 142.5 $ 143.3
====================================================================================================
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
</FN>
</TABLE>
<PAGE>
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The Black & Decker Corporation and Subsidiaries
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and do not include all the
information and notes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, the unaudited
consolidated financial statements include all adjustments, consisting only of
normal recurring accruals, considered necessary for a fair presentation of the
financial position and the results of operations.
Operating results for the three- and nine-month periods ended October 3,
1999, are not necessarily indicative of the results that may be expected for a
full fiscal year. For further information, refer to the consolidated financial
statements and notes included in the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1998.
Certain amounts presented for the nine months ended September 27, 1998,
have been reclassified to conform with the 1999 presentation.
Statement of Financial Accounting Standards (SFAS) No. 130, Reporting
Comprehensive Income, requires that, as part of a full set of financial
statements, entities must present comprehensive income, which is the sum of net
income and other comprehensive income. Other comprehensive income represents
total non-stockholder changes in equity. For the nine months ended October 3,
1999, and September 27, 1998, the Corporation has presented comprehensive income
in the accompanying Consolidated Statement of Stockholders' Equity.
Comprehensive income for the three months ended October 3, 1999, and September
27, 1998, was $78.3 million and $89.8 million, respectively.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, which is required
to be adopted for years beginning after June 15, 2000. Early adoption of SFAS
No. 133 is permitted as of the beginning of any fiscal quarter after its
issuance. SFAS No. 133 will require the Corporation to recognize all derivatives
on the balance sheet at fair value. Derivatives that do not qualify as hedges
under the new standard must be adjusted to fair value through income. If a
derivative qualifies as a hedge, depending on the nature of the hedge, changes
in the fair value of derivatives will either be offset against the change in
fair value of the hedged assets, liabilities, or firm commitments through
earnings or recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's change in
value will be immediately recognized in earnings. The Corporation has not yet
determined what effect SFAS No. 133 will have on its earnings and financial
position.
NOTE 2: STRATEGIC REPOSITIONING
As more fully described in Note 2 of Notes to Consolidated Financial Statements
included in the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1998, on January 26, 1998, the Corporation's Board of Directors
approved a comprehensive strategic repositioning plan designed to intensify
focus on core operations and improve operating
<PAGE>
8
performance. The plan includes the following components: (i) the divestiture of
the household products business in North America, Latin America, and Australia,
the recreational products business, and the glass container-forming and
inspection equipment business; (ii) the repurchase of up to 10% of the
Corporation's then outstanding common stock over a two-year period; and (iii) a
restructuring of the Corporation's remaining businesses.
The Corporation sold its household products business (other than certain
assets associated with the Corporation's cleaning and lighting products) in
North America, Central America, the Caribbean, South America (excluding Brazil),
and Australia, principally in the second quarter of 1998. The Corporation
completed the sale of Emhart Glass, its glass container-forming and inspection
equipment business, during the third quarter of 1998, and completed the
recapitalization of True Temper Sports, its recreational products business,
during the fourth quarter of 1998.
As of December 31, 1998, the Corporation had repurchased 9,025,400 shares
of its outstanding common stock under the strategic repositioning plan, of which
8,059,900 shares were repurchased during the nine months ended September 27,
1998, at an aggregate cost of $420.1 million (which is net of $1.4 million in
premiums received in connection with the Corporation's sale of put options on
800,000 shares of its common stock). During the first quarter of 1999, the
Corporation repurchased an additional 610,900 shares of common stock at an
aggregate cost of $32.1 million, completing the stock repurchase element of the
strategic repositioning plan. Subsequent to the announcement of the strategic
repositioning, the Corporation's Board of Directors authorized the repurchase of
an incremental 2,000,000 shares of the Corporation's outstanding common stock
with the intention of reducing the dilutive effect of stock issuances under
various stock-based employee benefit plans.
Charges under the restructuring program, announced in January 1998 and
undertaken to reduce fixed costs, are expected to be taken over a period of two
years. During the three and nine months ended September 27, 1998, the
Corporation recognized restructuring and exit costs of $14.2 million ($7.7
million after tax) and $154.2 million ($107.7 million after tax), respectively.
As a consequence of the strategic repositioning plan, the Corporation
elected to change its method of measuring goodwill impairment from an
undiscounted cash flow approach to a discounted cash flow approach effective
January 1, 1998. In connection with the Corporation's change in accounting
policy with respect to measurement of goodwill impairment, $900.0 million of
goodwill was written off through a charge to operations during the first quarter
of 1998. That goodwill write-off represented a per-share net loss of $9.64 both
on a basic and diluted basis for the nine-month period ended September 27, 1998.
The write-off of goodwill related to the Hardware and Home Improvement (formerly
"Building Products") segment and the Fastening and Assembly Systems segment and
included a $40.0 million write-down of goodwill associated with one of the
divested businesses, and represented the amount necessary to reduce the carrying
values of goodwill for those businesses to the Corporation's best estimate, as
of January 1, 1998, of those businesses' future discounted cash flows. This
change represented a change in accounting principle that is indistinguishable
from a change in estimate.
<PAGE>
9
NOTE 3: INVENTORIES
The components of inventory at the end of each period, in millions of dollars,
consisted of the following:
October 3, 1999 December 31, 1998
- --------------------------------------------------------------------------------
FIFO cost:
Raw materials and work-in-process $ 184.2 $ 173.5
Finished products 693.3 482.3
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877.5 655.8
Excess of FIFO cost over LIFO
inventory value (13.2) (18.9)
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$ 864.3 $ 636.9
================================================================================
Inventories are stated at the lower of cost or market. The cost of United
States inventories is based primarily on the last-in, first-out (LIFO) method;
all other inventories are based on the first-in, first-out (FIFO) method.
NOTE 4: GOODWILL
Goodwill at the end of each period, in millions of dollars, was as follows:
October 3, 1999 December 31, 1998
- --------------------------------------------------------------------------------
Goodwill $ 1,297.4 $ 1,300.9
Less accumulated amortization 551.4 532.2
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$ 746.0 $ 768.7
================================================================================
NOTE 5: LONG-TERM DEBT
Indebtedness of subsidiaries of the Corporation in the aggregate principal
amounts of $747.1 million and $412.4 million were included in the Consolidated
Balance Sheet at October 3, 1999, and December 31, 1998, respectively, under the
captions short-term borrowings, current maturities of long-term debt, and
long-term debt.
NOTE 6: INTEREST EXPENSE (NET OF INTEREST INCOME)
Interest expense (net of interest income) for each period, in millions of
dollars, consisted of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
October 3, 1999 September 27, 1998 October 3, 1999 September 27, 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest expense $33.1 $34.7 $93.0 $107.0
Interest (income) (6.9) (5.6) (22.1) (19.7)
- --------------------------------------------------------------------------------------------------
$26.2 $29.1 $70.9 $ 87.3
==================================================================================================
</TABLE>
<PAGE>
10
NOTE 7: BUSINESS SEGMENTS
The following table provides selected financial data for the Corporation's
business segments (in millions of dollars):
<TABLE>
<CAPTION>
Reportable Business Segments
---------------------------------------------- Corporate,
Power Hardware Fastening Adjust-
Tools & Home & Currency ments,
Three Months Ended & Improve- Assembly All Translation & Elimi- Consoli-
October 3, 1999 Accessories ment Systems Total Others Adjustments nations dated
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated customers $ 785.3 $ 226.3 $ 119.7 $1,131.3 $ -- $ (20.7) $ -- $ 1,110.6
Segment profit (loss) (for
Consolidated, operating income) 97.0 33.9 19.9 150.8 -- (2.3) (10.8) 137.7
Depreciation and amortization 18.8 8.1 3.9 30.8 -- (.6) 6.9 37.1
Capital expenditures 28.0 8.9 7.7 44.6 -- (1.1) -- 43.5
Three Months Ended
September 27, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 729.8 $ 216.2 $ 108.3 $1,054.3 $ 67.6 $ (14.2) $ -- $ 1,107.7
Segment profit (loss) (for
Consolidated, operating
income before restructuring
and exit costs, and gain on
sale of businesses) 73.6 32.0 17.7 123.3 4.3 (1.1) 2.1 128.6
Depreciation and amortization 20.8 7.1 3.4 31.3 -- (.4) 7.0 37.9
Capital expenditures 15.5 9.6 4.7 29.8 3.2 (.5) .1 32.6
Nine Months Ended
October 3, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 2,189.6 $ 656.2 $ 374.1 $3,219.9 $ -- $ (46.6) $ -- $ 3,173.3
Segment profit (loss) (for
Consolidated, operating income) 223.3 88.7 63.5 375.5 -- (5.0) (27.3) 343.2
Depreciation and amortization 61.1 25.5 11.6 98.2 -- (1.4) 20.9 117.7
Capital expenditures 71.4 25.7 16.3 113.4 -- (2.2) .2 111.4
Nine Months Ended
September 27, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 2,024.1 $ 620.5 $ 344.2 $2,988.8 $ 333.6 $ (36.7) $ -- $ 3,285.7
Segment profit (loss) (for
Consolidated, operating
income before restructuring
and exit costs, write-off of
goodwill, and gain on sale
of businesses) 172.0 88.6 57.8 318.4 16.5 (4.5) (19.4) 311.0
Depreciation and amortization 65.3 19.7 10.2 95.2 -- (1.1) 20.4 114.5
Capital expenditures 46.0 23.2 10.8 80.0 13.1 (1.1) .4 92.4
</TABLE>
The Corporation operates in three reportable business segments: Power Tools
and Accessories, Hardware and Home Improvement (formerly "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 the United States and Canada and for sales of the
retained household products business. The Hardware and Home Improvement segment
has worldwide
<PAGE>
11
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 the United States and Canada. The Fastening
and Assembly Systems segment has worldwide responsibility for the manufacture
and sale of fastening and assembly systems.
The Corporation also operated several businesses that do not constitute
reportable business segments. These businesses included the manufacture and sale
of glass container-forming and inspection equipment, as well as recreational and
household products. In 1998, the Corporation completed the sale or
recapitalization of its glass container-forming and inspection equipment
business, Emhart Glass; its recreational products business, True Temper Sports;
and its household products business (excluding certain assets associated with
the Corporation's cleaning and lighting products) in North America, Latin
America (excluding Brazil), and Australia. Because True Temper Sports, Emhart
Glass, and the household products business in North America, Latin America
(excluding Brazil), and Australia are not treated as discontinued operations
under generally accepted accounting principles, they remain a part of the
Corporation's reported results from continuing operations, and the results of
operations and financial positions of these businesses have been included in the
consolidated financial statements through the dates of consummation of the
respective transactions. Amounts relating to these businesses are included in
the preceding table under the caption "All Others." The results of the household
products businesses included under the caption "All Others" are based upon
certain assumptions and allocations. The household products businesses sold
during 1998 were jointly operated with the cleaning and lighting products
businesses retained by the Corporation. Further, the Corporation's divested
household products businesses in Australia and Latin America (excluding Brazil)
were operated jointly with the Corporation's power tools and accessories
businesses. Accordingly, the results of the household products businesses
included in the preceding segment table under the caption "All Others" were
determined using certain assumptions and allocations that the Corporation
believes are reasonable under the circumstances.
The Corporation assesses the performance of its reportable business
segments based upon a number of factors, including segment profit. In general,
segments follow the same accounting policies as those described in Note 1 of
Notes to Consolidated Financial Statements included in the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1998, except with respect to
foreign currency translation and except as further indicated below. The
financial statements of a segment's operating units located outside the United
States, except those units operating in highly inflationary economies, are
generally 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
<PAGE>
12
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 the
gain on sale of businesses. For certain operations located in Brazil, Mexico,
Venezuela, and Turkey, segment profit is reduced by net interest expense and
non-operating expenses. In determining segment profit, expenses relating to
pension and other postretirement benefits are based solely upon estimated
service costs. Corporate expenses are allocated to each reportable segment based
upon budgeted amounts. No corporate expenses have been allocated to divested
businesses. While sales and transfers between segments are accounted for at cost
plus a reasonable profit, the effects of intersegment sales are excluded from
the computation of segment profit. Intercompany profit in inventory is excluded
from segment assets and is recognized as a reduction of cost of sales by the
selling segment when the related inventory is sold to an unaffiliated customer.
Because the Corporation compensates the management of its various businesses on,
among other factors, segment profit, the Corporation may elect to record certain
segment-related expense items of an unusual or nonrecurring nature in
consolidation rather than reflect such items in segment profit. In addition,
certain segment-related items of income or expense may be recorded in
consolidation in one period and transferred to the Corporation's various
segments in a later period.
Amounts in the preceding table under the caption "Corporate, Adjustments, &
Eliminations" on the lines entitled "Depreciation and amortization" represent
depreciation of Corporate property and consolidated goodwill amortization.
<PAGE>
13
The reconciliation of segment profit to the Corporation's earnings (loss)
before income taxes for each period, in millions of dollars, is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
- --------------------------------------------------------------------------------------------------------------------------
October 3, 1999 September 27, 1998 October 3, 1999 September 27, 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Segment profit for total reportable business
segments $ 150.8 $ 123.3 $ 375.5 $ 318.4
Segment profit for all other businesses - 4.3 - 16.5
Items excluded from segment profit:
Adjustment of budgeted foreign exchange
rates to actual rates (2.3) (1.1) (5.0) (4.5)
Depreciation of Corporate property and
amortization of goodwill (6.9) (7.0) (20.9) (20.4)
Adjustment to businesses' postretirement
benefit expenses booked in consolidation 5.2 8.2 21.8 24.7
Adjustment to eliminate net interest and non-
operating expenses from results of certain
operations in Brazil, Mexico, Venezuela,
and Turkey .1 1.6 1.2 4.2
Other adjustments booked in consolidation
directly related to reportable business
segments (6.4) .3 (10.0) (18.7)
Amounts allocated to businesses in arriving at
segment profit in excess of (less than) Corpo-
rate center operating expenses, eliminations,
and other amounts identified above (2.8) (1.0) (19.4) (9.2)
- --------------------------------------------------------------------------------------------------------------------------
Operating income before restructuring and exit
costs, write-off of goodwill, and gain on sale
of businesses 137.7 128.6 343.2 311.0
Restructuring and exit costs - 14.2 - 154.2
Write-off of goodwill - - - 900.0
Gain on sale of businesses - 26.9 - 63.4
- --------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 137.7 141.3 343.2 (679.8)
Interest expense, net of interest income 26.2 29.1 70.9 87.3
Other expense .8 3.8 - 6.2
- --------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before taxes $110.7 $ 108.4 $272.3 $(773.3)
==========================================================================================================================
</TABLE>
<PAGE>
14
NOTE 8: EARNINGS PER SHARE
The computations of basic and diluted earnings per share for each period are as
follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(Amounts in Millions Except Per Share Data) October 3, 1999 September 27, 1998 October 3, 1999 September 27, 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Net earnings (loss) $ 75.3 $ 66.6 $185.2 $ (846.4)
=========================================================================================================================
Denominator:
Average number of common shares out-
standing for basic earnings per share 87.0 90.9 87.1 93.4
Employee stock options and stock issuable
under employee benefit plans 1.3 1.7 1.3 - (a)
- -------------------------------------------------------------------------------------------------------------------------
Average number of common shares out-
standing for diluted earnings per share 88.3 92.6 88.4 93.4
=========================================================================================================================
Basic earnings (loss) per share $ .87 $ .73 $ 2.13 $ (9.06)
=========================================================================================================================
Diluted earnings (loss) per share $ .85 $ .72 $ 2.09 $ (9.06)
=========================================================================================================================
<FN>
(a) Due to the net loss incurred by the Corporation for the nine-month period
ended September 27, 1998, the assumed exercise of stock options and stock
issuable under employee benefit plans is anti-dilutive. Accordingly, the
effect of 1.7 million shares, representing the dilutive effect of those
stock options and shares issuable, was excluded from the calculation of
diluted earnings per share for the nine months ended September 27, 1998. As
a result, the financial statements reflect diluted earnings per share equal
to basic earnings per share for the nine months ended September 27, 1998.
</FN>
</TABLE>
NOTE 9: STOCKHOLDERS' EQUITY
The Corporation has entered into two agreements (the "Agreements") under which
the Corporation may enter into forward purchase contracts on its common stock.
The Agreements provide the Corporation with two purchase alternatives: a
standard forward purchase contract and a forward purchase contract subject to a
cap (a "capped forward contract"). The settlement methods generally available,
at the Corporation's option, are net settlement, either in cash or in shares, or
physical settlement. To the extent that the market price of the Corporation's
common stock on the settlement date is higher (lower) than the forward
purchase/strike price, the net differential is received (paid) by the
Corporation under the net settlement alternatives, except in the case of a
capped forward contract under which the net differential received is limited by
a cap price. In the case of physical settlement under a capped forward contract,
the Corporation must, in addition to purchasing the shares covered by the
contract at the strike price, pay to the counterparty the excess of the market
price at the date of settlement, if any, over the cap price.
During the quarter ended October 3, 1999, the Corporation entered into a
series of capped forward contracts under the Agreements with respect to 500,000
shares of its common stock with a weighted average strike price of $51.28 per
share and a weighted average cap price of $58.98 per share; these contracts
settle in the fourth quarter of 1999. Had settlement of these contracts occurred
on October 3, 1999, the Corporation would have been required to select one of
the following settlement options, determined based upon the closing price of the
Corporation's
<PAGE>
15
common stock on October 1, 1999: (i) the payment of $2.9 million under net cash
settlement; (ii) the issuance of 63,558 shares of its common stock under net
share settlement; or (iii) the purchase of 500,000 shares of its common stock at
a cost of $25.6 million under physical settlement.
<PAGE>
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Corporation reported net earnings of $75.3 million or $.85 per share on a
diluted basis for the three months ended October 3, 1999, compared to net
earnings of $66.6 million or $.72 per share on a diluted basis for the three
months ended September 27, 1998. Included in net earnings for the quarter ended
September 27, 1998, were an after-tax restructuring charge of $7.7 million
($14.2 million before tax) or $.08 per share on a diluted basis and an after-tax
gain on sale of businesses of $9.2 million ($26.9 million before tax) or $.10
per share on a diluted basis. Excluding the restructuring charge and the gain on
sale of businesses, net earnings were $65.1 million or $.70 per share on a
diluted basis for the quarter ended September 27, 1998.
The Corporation reported net earnings of $185.2 million or $2.09 per share
on a diluted basis for the nine months ended October 3, 1999, compared to a net
loss of $846.4 million or $9.06 per share on a diluted basis for the nine months
ended September 27, 1998. Excluding the effects of the restructuring charge of
$154.2 million ($107.7 million after tax), the goodwill write-off of $900.0
million, and the gain on sale of businesses of $63.4 million ($13.4 million
after tax), net earnings for the nine months ended September 27, 1998, would
have been $147.9 million or $1.55 per share on a diluted basis.
STRATEGIC REPOSITIONING
As more fully described in Note 2 of Notes to Consolidated Financial Statements
and in Management's Discussion and Analysis of Financial Condition and Results
of Operations under the caption "Strategic Repositioning" included in the
Corporation's Annual Report on Form 10-K for the year ended December 31, 1998,
on January 26, 1998, the Board of Directors approved a comprehensive strategic
repositioning of the Corporation, consisting of three separate elements.
The first element of the strategic repositioning plan is to focus the
Corporation on its core operations--that is, those strategic businesses that the
Corporation believes are capable of delivering superior operating and financial
performance. The Corporation substantially completed this aspect of the
strategic repositioning plan through the sale or recapitalization of the
following non-strategic businesses: True Temper Sports, its recreational
products business, in the fourth quarter of 1998; Emhart Glass, its glass
container-forming and inspection equipment business, in the third quarter of
1998; and the household products business (other than certain assets associated
with the Corporation's cleaning and lighting business) in North America, Latin
America (excluding Brazil), and Australia, the majority of which was sold in the
second quarter of 1998.
The net proceeds from the sale of these businesses were used to fund the
second element of the strategic repositioning plan--the planned repurchase of
approximately 10% of the Corporation's then outstanding common shares over a
two-year period. As of December 31, 1998, the Corporation had repurchased
9,025,400 shares of its outstanding common stock under the strategic
repositioning plan, of which 8,059,900 shares were repurchased during the nine
months ended September 27, 1998, at an aggregate cost of $420.1
<PAGE>
17
million (which is net of $1.4 million in premiums received in connection with
the Corporation's sale of put options on 800,000 shares of its common stock).
During the first quarter of 1999, the Corporation repurchased an additional
610,900 shares of common stock at an aggregate cost of $32.1 million, completing
the stock repurchase element of the strategic repositioning plan.
The third element of the strategic repositioning plan involves a major
restructuring program, which is being undertaken to reduce fixed costs. Charges
under this restructuring program are expected to be taken over a two-year period
as individual components that meet the accounting criteria for recognition are
approved by the requisite level of management. Restructuring charges of $164.7
million ($117.3 million after tax) have been taken under the strategic
repositioning since January 1998. While an additional restructuring charge is
likely in the fourth quarter of 1999, total pre-tax charges under the
restructuring element of the strategic repositioning are expected to be under
$200 million.
As part of the restructuring program, the Corporation is making significant
changes to its European power tools and accessories businesses by consolidating
distribution and transportation and centralizing finance, marketing, and support
services. These changes in Europe are being accompanied by investment in
state-of-the-art information systems similar to the investments being made in
the North American business. In addition, the worldwide power tools and
accessories business is rationalizing its manufacturing plant network, resulting
in the closure of a number of manufacturing plants. The restructuring program
also includes actions to improve the cost position of other businesses.
This restructuring program resulted in a pre-tax charge of $154.2 million
($107.7 million after tax) during the nine months ended September 27, 1998, of
which $14.2 million ($7.7 million after tax) was recognized during the quarter
ended September 27, 1998. During the first quarter of 1999, the Corporation
recognized $8.9 million of additional pre-tax restructuring and exit costs
associated with restructuring of North American accessories packaging operations
and Latin American power tools operations, and the settlement of claims
regarding a divested business. That $8.9 million charge was offset, however, by
a gain realized on the sale of a facility, exited as part of the restructuring
actions taken in 1998, that had a fair value exceeding its net book value at the
time of the 1998 charge.
A summary of the Corporation's restructuring activity during the nine
months ended October 3, 1999, is as follows:
<TABLE>
<CAPTION>
Reserve Established Utilization of Reserve Reserve
Reserve at in 1999, Net of ---------------------- at Octo-
(Dollars in Millions) December 31, 1998 Gain Recognized Cash Non-Cash ber 3, 1999
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Severance benefits and cost of
voluntary retirement program $39.9 $4.4 $ (13.7) $ - $30.6
Asset write-offs - .5 - (.5) -
Other charges 10.9 (4.9) (3.5) 3.0 5.5
- --------------------------------------------------------------------------------------------------------------------
Total $50.8 $ - $ (17.2) $2.5 $36.1
====================================================================================================================
</TABLE>
<PAGE>
18
In the preceding table, the negative $2.5 million non-cash reserve usage in
1999 represents $6.4 million of non-cash reserve usage offset by the $8.9
million gain on the sale of the facility described above.
In addition to the restructuring charge, the Corporation anticipates that
related expenses of approximately $60 million will be charged to operations over
a two-year period as the restructuring program progresses, $44.4 million of
which were recognized during the year ended December 31, 1998. These related
expenses, which are incremental to the plans being implemented, do not qualify
as restructuring or exit costs under generally accepted accounting principles.
During the three-month periods ended October 3, 1999, and September 27, 1998,
the Corporation recognized $4.3 million and $6.3 million, respectively, of
expenses related to the restructuring program. During the nine-month periods
ended October 3, 1999, and September 27, 1998, the Corporation recognized $10.1
million and $34.7 million, respectively, of restructuring-related expenses.
Benefits from the restructuring actions taken in 1998 and 1999 are expected
to approximate $100 million on an annual, pre-tax basis once the restructuring
plan is fully implemented. Those benefits will be mitigated, however, by other
factors impacting the Corporation's results.
While the Corporation expects to finalize the charges under the
restructuring element of the strategic repositioning announced in January 1998
over a two-year period, the Corporation is committed to continuous productivity
improvement and continues to evaluate opportunities to reduce fixed costs and
eliminate excess capacity. As a result, additional restructuring charges may be
incurred in future periods as the Corporation identifies such opportunities that
are approved by the requisite level of management.
As a consequence of the strategic repositioning plan, the Corporation
elected to change its method of measuring goodwill impairment from an
undiscounted cash flow approach to a discounted cash flow approach, effective
January 1, 1998. The Corporation believes that measurement of the value of
goodwill through the discounted cash flow approach is preferable in that the
discounted cash flow measurement facilitates the timely identification of
impairment of the carrying value of investments in businesses and provides a
more current and, with respect to the sold businesses, realistic valuation than
the undiscounted approach. The adoption of this discounted cash flow approach,
however, may result in greater earnings volatility because decreases in
projected discounted cash flows of certain businesses will result in timely
recognition of future impairment. This change in method of measuring goodwill
impairment represents a change in accounting principle that is indistinguishable
from a change in estimate.
In connection with this change in accounting with respect to the
measurement of goodwill impairment, the Corporation recognized a non-cash charge
of $900.0 million in the first quarter of 1998 ($9.64 per share both on a basic
and diluted basis for the nine months ended September 27, 1998). The $900.0
million write-down, which related to goodwill associated with the Corporation's
Fastening and Assembly Systems segment and Hardware and Home Improvement segment
and included a $40.0 million write-down of goodwill associated with one of the
divested businesses, represented the amount necessary to reduce the carrying
values of goodwill for those businesses to the Corporation's best estimate, as
of January 1, 1998, of those businesses' future discounted cash flows using the
methodology described in Note 2 of Notes to
<PAGE>
19
Consolidated Financial Statements included in the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1998.
RESULTS OF OPERATIONS
SALES
The following chart sets forth an analysis of the consolidated changes in sales
for the three- and nine-month periods ended October 3, 1999, and September 27,
1998:
<TABLE>
<CAPTION>
ANALYSIS OF CHANGES IN SALES
- ---------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
(Dollars in Millions) October 3, 1999 September 27, 1998 October 3, 1999 September 27, 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total sales $1,110.6 $1,107.7 $3,173.3 $3,285.7
Unit volume - existing 10 % 1 % 10 % 2 %
- disposed (7)% (9)% (10)% (3)%
Price (1)% (1)% (1)% (1)%
Currency (2)% (1)% (2)% (2)%
- ---------------------------------------------------------------------------------------------------------------------
Change in total sales - % (10)% (3)% (4)%
=====================================================================================================================
<FN>
Note: In the above table and in the following discussion, existing unit volume
relates to businesses where period-to-period comparability exists.
Disposed unit volume relates to businesses where period-to-period
comparability does not exist due to the sale or recapitalization of a
particular business. For the three months ended October 3, 1999, disposed
unit volume relates to sales of the glass container-forming and
inspection equipment business, Emhart Glass, which was sold at the end of
the third quarter of 1998; and the recreational products business, True
Temper Sports, which was recapitalized during the fourth quarter of 1998.
For the nine months ended October 3, 1999, disposed unit volume relates
to sales of the household products business (excluding assets associated
with the cleaning and lighting product lines retained by the Corporation)
in North America, Australia, Central America, the Caribbean, and South
America (excluding Brazil) which was sold during the first six months of
1998; the glass container-forming and inspection equipment business,
Emhart Glass; and the recreational products business, True Temper Sports.
For the three and nine months ended September 27, 1998, disposed unit
volume relates to sales of the aforementioned household products
business, which was sold during the first six months of 1998. Because the
Corporation sold Emhart Glass at the end of the third quarter of 1998 and
completed the recapitalization of True Temper Sports in the fourth
quarter of 1998, period-to-period comparability with respect to those
businesses exists during the three- and nine-month periods ended
September 27, 1998, and the results of those businesses are included in
existing unit volume for those periods.
</FN>
</TABLE>
Total consolidated sales for the three months ended October 3, 1999,
approximated the corresponding 1998 level. Total unit volume increased 3% during
this period, as unit volume growth in the Corporation's existing businesses more
than offset unit volume declines associated with the divested recreational
products and glass container-forming and inspection equipment businesses. The
unit volume increase was partially offset by foreign currency and price
pressures. The negative effects of a stronger United States dollar compared to
other foreign currencies caused a decrease in the Corporation's consolidated
sales of 2% from the prior year's level for the three months ended October 3,
1999. Pricing actions, taken in response to competitive pressures and as a
result of volume-related price reductions associated with higher unit volumes
<PAGE>
20
in the North American power tools and accessories business, had a 1% negative
effect on sales for the three months ended October 3, 1999, as compared to the
corresponding period in 1998.
Total consolidated sales for the nine months ended October 3, 1999,
decreased 3% from the 1998 levels. Unit volume growth in the Corporation's
existing businesses was offset by unit volume declines associated with the
divested household products, recreational products, and glass container-forming
and inspection equipment businesses. The negative effects of a stronger United
States dollar compared to other foreign currencies and the pricing actions
discussed in the preceding paragraph caused a decrease in the Corporation's
consolidated sales of 2% and 1%, respectively, for the nine months ended October
3, 1999, as compared to the corresponding period in 1998. A contributing factor
to the growth in existing unit volume for the nine months ended October 3, 1999,
was the inclusion of four additional business days as compared to the nine
months ended September 27, 1998, due to the timing of the Corporation's fiscal
calendar.
EARNINGS
Operating income for the three months ended October 3, 1999, was $137.7 million,
or 12.4% of sales, compared to operating income of $128.6 million (excluding the
restructuring charge of $14.2 million and gain on sale of businesses of $26.9
million), or 11.6% of sales, for the corresponding period in 1998. Operating
income for the nine months ended October 3, 1999, was $343.2 million, or 10.8%
of sales, compared to an operating loss of $679.8 million for the corresponding
period in 1998. Excluding the effects of the $154.2 million restructuring
charge, the $900.0 million write-off of goodwill, and the $63.4 million gain on
sale of businesses, operating income for the first nine months of 1998 was
$311.0 million, or 9.5% of sales.
Operating results for the three months ended October 3, 1999, and September
27, 1998, included $4.3 million and $6.3 million, respectively, of expenses
directly related to the restructuring program undertaken that do not qualify as
restructuring or exit costs under generally accepted accounting principles.
Excluding the effects of these restructuring-related expenses, operating income
for the three months ended October 3, 1999, would have increased by 5% from
$134.9 million (excluding the restructuring charge and gain on sale of
businesses) for the third quarter of 1998 to $142.0 million for the third
quarter of 1999. On this same basis, operating income as a percentage of sales
increased from 12.2% for the third quarter of 1998 to 12.8% for the third
quarter of 1999. Operating results for the nine months ended October 3, 1999,
and September 27, 1998, included $10.1 million and $34.7 million, respectively,
of restructuring-related expenses. Excluding the effects of these
restructuring-related expenses, operating income would have increased by 2% from
$345.7 million (excluding the restructuring charge, the goodwill write-off, and
the gain on sale of businesses) for the nine months ended September 27, 1998, to
$353.3 million for the nine months ended October 3, 1999. On this same basis,
operating income as a percentage of sales increased from 10.5% for the nine
months ended September 27, 1998, to 11.1% for the nine months ended October 3,
1999.
Gross margin as a percentage of sales was 37.5% and 36.0% for the
three-month periods ended October 3, 1999, and September 27, 1998, respectively.
Gross margin as a percentage of sales was 37.2% and 34.9% for the nine-month
periods ended October 3, 1999, and September 27, 1998, respectively. The
increase in gross margin during the three- and nine-month periods ended October
3, 1999, compared to the corresponding periods in 1998, primarily
<PAGE>
21
resulted from cost benefits from restructuring actions taken, increased
productivity, the absence of lower margin products in the divested businesses,
and, for the nine months ended October 3, 1999, significantly lower
restructuring-related expenses. These positive factors were partially offset by
negative pricing actions.
Selling, general, and administrative expenses as a percentage of total
sales were 25.1% and 24.4% for the three-month periods ended October 3, 1999,
and September 27, 1998, respectively. Selling, general, and administrative
expenses as a percentage of total sales were 26.4% and 25.4% for the nine-month
periods ended October 3, 1999, and September 27, 1998, respectively. The
increase in selling, general, and administrative expenses as a percentage of
total sales during the three- and nine-month periods ended October 3, 1999,
resulted, in part, from increased promotional activities, particularly in the
power tools and accessories business in North America which increased the number
of end-user specialists.
Net interest expense (interest expense less interest income) for the three-
and nine-month periods ended October 3, 1999, was $26.2 million and $70.9
million, respectively, as compared to $29.1 million and $87.3 million for the
three- and nine-month periods ended September 27, 1998, respectively. The lower
level of net interest expense in the three and nine months ended October 3,
1999, as compared to the corresponding periods in 1998 was primarily the result
of lower average borrowing levels. For the three months ended October 3, 1999,
the lower average borrowing levels were partially offset by higher interest
rates.
The Corporation maintains a portfolio of interest rate hedge instruments
for the purpose of managing interest rate exposure. During the nine months ended
October 3, 1999, the Corporation entered into new fixed to variable rate
interest rate swaps with an aggregate notional principal amount of $25.0
million. In addition, interest rate swaps with an aggregate notional principal
amount of $250.0 million, which swapped from fixed United States dollars to
fixed foreign currencies, matured during the nine months ended October 3, 1999.
The variable rate debt to total debt ratio, after taking interest rate hedges
into account, was 59% at October 3, 1999, compared to 47% at December 31, 1998.
Other expense for the three- and nine-month periods ended October 3, 1999,
was not significant. Other expense for the three- and nine-month periods ended
September 27, 1998, principally consisted of currency losses.
The Corporation recognized income tax expense of $35.4 million on pre-tax
earnings of $110.7 million for the third quarter of 1999, which equates to a
reported tax rate of 32%. The Corporation recognized income tax expense of $41.8
million on pre-tax earnings of $108.4 million for the third quarter of 1998.
Excluding an income tax benefit of $6.5 million related to a $14.2 million
pre-tax restructuring charge and income tax expense of $17.7 million related to
the $26.9 million pre-tax gain on sale of businesses recognized during that
quarter, income tax expense would have been $30.6 million on adjusted pre-tax
earnings of $95.7 million for the third quarter of 1998, which equates to a tax
rate of 32%.
The Corporation recognized income tax expense of $87.1 million on pre-tax
earnings of $272.3 million during the nine months ended October 3, 1999, which
equates to a reported tax rate of 32%. The Corporation recognized income tax
expense of $73.1 million for the nine months ended September 27, 1998, on a
pre-tax loss of $773.3 million. Excluding an income tax benefit of $46.5 million
related to the pre-tax restructuring charge of $154.2 million, the
non-
<PAGE>
22
deductible write-off of goodwill in the amount of $900.0 million, and the $50.0
million of tax expense recognized on the $63.4 million gain on sale of
businesses, income tax expense would have been $69.6 million on adjusted pre-tax
earnings of $217.5 million for the nine months ended September 27, 1998, which
equates to a tax rate of 32%.
The Corporation reported net income of $75.3 million, or $.85 per share on
a diluted basis, for the three months ended October 3, 1999. The Corporation
reported net earnings of $66.6 million, or $.72 per share on a diluted basis,
for the three months ended September 27, 1998. Excluding the after-tax
restructuring charge of $7.7 million and the after-tax gain on sale of
businesses of $9.2 million both recognized in the third quarter of 1998, net
earnings were $65.1 million, or $.70 per diluted share for the three months
ended September 27, 1998.
The Corporation reported net income of $185.2 million, or $2.09 per share
on a diluted basis, for the nine months ended October 3, 1999. The Corporation
reported a net loss of $846.4 million, or $9.06 per share both on a basic and
diluted basis, for the nine months ended September 27, 1998, principally as a
result of the restructuring charge, goodwill write-off, and gain on sale of
businesses during that period. Because the Corporation reported a net loss for
the nine months ended September 27, 1998, the calculation of reported earnings
per share on a diluted basis excludes the impact of stock options, since their
inclusion would be anti-dilutive--that is, decrease the per-share loss. For
comparative purposes, however, the Corporation believes that the dilutive effect
of stock options should be considered when evaluating the Corporation's
performance excluding the restructuring charge, goodwill write-off, and gain on
sale of businesses. If the dilutive effect of stock options were considered, net
earnings, excluding the aforementioned non-recurring items, would have been
$147.9 million or $1.55 per share on this diluted basis for the nine months
ended September 27, 1998.
BUSINESS SEGMENTS
As more fully described in Note 7 of Notes to Consolidated Financial Statements,
the Corporation operates in three reportable business segments: Power Tools and
Accessories, Hardware and Home Improvement (formerly "Building Products"), and
Fastening and Assembly Systems.
Expenses (income) directly related to reportable business segments booked
in consolidation and, thus, excluded from segment profit for the Corporation's
reportable business segments were $6.4 million and $10.0 million for the three
and nine months ended October 3, 1999, respectively, and $(.3) million and $18.7
million for the three and nine months ended September 27, 1998, respectively.
For the three and nine months ended October 3, 1999, these expenses principally
relate to reserves established in consolidation associated with certain legal
matters. As discussed in Management's Discussion and Analysis of Financial
Condition and Results of Operations under the heading "Business Segments"
included in the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1998, the segment-related expenses excluded from segment profit for
the nine months ended September 27, 1998, primarily related to unbudgeted
restructuring-related expenses, including an $11.5 million write-down of
cleaning and lighting inventory to net realizable value associated with the
product line rationalization undertaken in the second quarter of 1998 to
integrate the retained cleaning and
<PAGE>
23
lighting business into the Power Tools and Accessories operations. These
segment-related expenses excluded from segment profit are generally
non-recurring in nature.
Power Tools and Accessories
- ---------------------------
Segment sales and profit for the Power Tools and Accessories segment, determined
on the basis described in Note 7 of Notes to Consolidated Financial Statements,
were as follows (in millions of dollars):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
October 3, 1999 September 27, 1998 October 3, 1999 September 27, 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers $785.3 $729.8 $2,189.6 $2,024.1
Segment profit 97.0 73.6 223.3 172.0
</TABLE>
Sales to unaffiliated customers in the Power Tools and Accessories segment
during the third quarter of 1999 increased 7.6% over the 1998 level despite
negative pricing actions taken in response to competitive pressures and as a
result of volume-related price reductions. Sales of power tool products in North
America benefited from double-digit rates of growth in sales of consumer and
DEWALT(R) professional power tools due, in part, to new product introductions.
Sales of accessories in North America grew at a mid single-digit rate in the
third quarter of 1999 over the 1998 level.
Sales in Europe during the third quarter of 1999 approximated the 1998
level as solid growth in some countries was offset by weakness in Germany. Sales
in other geographic areas during the third quarter of 1999 increased marginally
over the 1998 levels.
Sales to unaffiliated customers in the Power Tools and Accessories segment
during the nine months ended October 3, 1999, increased 8.2% over the 1998 level
despite the negative impact of pricing actions as discussed previously. Sales of
power tool products in North America benefited from double-digit rates of growth
in sales of consumer and DEWALT professional power tools. In addition, sales of
accessories in North America during 1999 increased at a high single-digit rate
over the 1998 level.
Sales in Europe during the nine months ended October 3, 1999, approximated
the 1998 level, as solid growth in some countries was offset by weakness in
Germany and Eastern Europe.
Sales in other geographic areas declined at a mid single-digit rate during
the nine months ended October 3, 1999, from the 1998 levels.
Segment profit as a percentage of sales for the Power Tools and Accessories
segment was 12.4% and 10.2% for the three- and nine-month periods ended October
3, 1999, respectively, compared to 10.1% and 8.5%, for the three- and nine-month
periods ended September 27, 1998, respectively. This improvement was driven by
higher gross margins across all major geographic areas, which were the result of
restructuring benefits and productivity driven, in part, by higher
manufacturing volumes that more than offset negative price pressures.
<PAGE>
24
Hardware and Home Improvement
- -----------------------------
Segment sales and profit for the Hardware and Home Improvement segment,
determined on the basis described in Note 7 of Notes to Consolidated Financial
Statements, were as follows (in millions of dollars):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
October 3, 1999 September 27, 1998 October 3, 1999 September 27, 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers $226.3 $216.2 $656.2 $620.5
Segment profit 33.9 32.0 88.7 88.6
</TABLE>
Sales to unaffiliated customers in the Hardware and Home Improvement
segment for the quarter ended October 3, 1999, increased 4.7% over the 1998
level. This increase was due principally to sales of security hardware and
plumbing products in North America, which both increased at a mid single-digit
rate during the three months ended October 3, 1999, over the 1998 levels. Sales
of security hardware in Europe during the third quarter of 1999 approximated the
prior year's level.
Sales to unaffiliated customers in the Hardware and Home Improvement
segment increased by 5.8% for the nine months ended October 3, 1999, over the
1998 level, due principally to a double-digit rate of growth in sales of
security hardware in North America. That growth was partially offset by
marginally lower sales of plumbing products in North America. Sales of security
hardware in Europe during 1999 approximated the prior year's level.
Segment profit as a percentage of sales for the Hardware and Home
Improvement segment was 15.0% and 13.5% for the three and nine months ended
October 3, 1999, respectively, compared to 14.8% and 14.3% for the three and
nine months ended September 27, 1998, respectively. Segment profit as a
percentage of sales for the three months ended October 3, 1999, rose from the
1998 level as sharply higher profitability with respect to plumbing products
more than offset decreased profitability with respect to security hardware.
Segment profit as a percentage of sales for the nine months ended October 3,
1999, declined from the 1998 level as decreased profitability with respect to
security hardware products more than offset profitability gains in plumbing
products. For both the three- and nine-month periods ended October 3, 1999,
profitability gains in plumbing products stemmed from productivity initiatives
and headcount reductions while the decreased profitability with respect to
security hardware products principally resulted from excess fixed costs, a shift
in sales mix to lower margin products, manufacturing inefficiencies, and higher
administrative expenses, including increased promotion.
<PAGE>
25
Fastening and Assembly Systems
- ------------------------------
Segment sales and profit for the Fastening and Assembly Systems segment,
determined on the basis described in Note 7 of Notes to Consolidated Financial
Statements, were as follows (in millions of dollars):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
October 3, 1999 September 27, 1998 October 3, 1999 September 27, 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers $119.7 $108.3 $374.1 $344.2
Segment profit 19.9 17.7 63.5 57.8
</TABLE>
Sales to unaffiliated customers in the Fastening and Assembly Systems
segment increased 10.5% and 8.7% for the three- and nine-month periods ending
October 3, 1999, respectively, over the 1998 levels, as strong sales to
automotive customers in North America and Europe offset weakness in the European
industrial sector.
Segment profit as a percentage of sales for the Fastening and Assembly
Systems segment was 16.6% for the three months ended October 3, 1999, compared
to 16.3% for the corresponding period in 1998, and was 17.0% for the nine months
ended October 3, 1999, compared to 16.8% for the nine months ended September 27,
1998.
INTEREST RATE SENSITIVITY
Due to the change during the nine months ended October 3, 1999, described
previously, in the Corporation's interest rate hedge portfolio, the following
table provides information as of October 3, 1999, about the portfolio. This
table should be read in conjunction with the information contained in
Management's Discussion and Analysis of Financial Condition and Results of
Operations under the heading "Interest Rate Sensitivity" included in the
Corporation's Annual Report on Form 10-K for the year ended December 31, 1998.
<TABLE>
Notional Principal Amounts and Interest Rate Detail by Contractual Maturity
Dates
<CAPTION>
Year Ending Dec. 31, Fair Value
3 Mos. Ending ----------------------------------------- (Assets)/
(U.S. Dollars in Millions) Dec. 31, 1999 2000 2001 2002 2003 Thereafter Total Liabilities
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed to variable rate
interest rate swaps (a) $ -- $ 50.0 $ -- $ -- $ 125.0 $ 275.0 $ 450.0 $ 20.2
Average pay rate (b)
Average receive rate 5.54% 6.02% 6.01% 5.96%
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) All U.S. dollar denominated.
(b) The average pay rate is based upon 6-month forward LIBOR, except for
$150.0 million in notional amount which matures after 2003 and is based
upon 3-month forward LIBOR.
</FN>
</TABLE>
IMPACT OF YEAR 2000
The year 2000 ("Y2K") issue arises out of the fact that many computer programs
were written using two digits to identify the applicable year rather than four
digits. As a result, computer programs with date-sensitive software or equipment
with embedded date-sensitive technology may recognize a two-digit code for any
year in the next century as related to this century. For
<PAGE>
26
example, "00," entered in a date-field for the year "2000," may be interpreted
as the year "1900." This error may result in system or equipment failures or
miscalculations and disruptions of operations, including, among other things, an
inability to process transactions or engage in other normal business activities.
The Corporation has taken actions to minimize the impact of Y2K issues on
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.
The Corporation has completed all remediation and testing and approximately
95% of implementation for each of the businesses' significant Y2K exposures.
Surveys of key customers, suppliers, and partners for Y2K compliance have been
completed. Follow-up surveys and visits have been done for key suppliers, and
selective customer review meetings have been held. The Corporation has been
certified for electronic data interface (EDI) transactions by the National
Retailers Federation. Evaluation of the Corporation's products has been
completed without identification of any significant Y2K impact. To date, the
Corporation has not discovered any significant Y2K issues related to embedded
systems.
In order to improve operating performance over the last several years, the
Corporation has undertaken or commenced a number of significant systems
initiatives, including a major reengineering of supply-chain and distribution
systems throughout the world. In the North American Power Tools business, for
example, the Corporation has implemented advanced supply-chain management
systems and SAP information systems. Although the Corporation's systems
initiatives were unrelated to concerns over the Y2K issue, an ancillary benefit
of many of these systems improvements is that the new systems are Y2K compliant.
The 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 Y2K costs set
forth in the following paragraph. The external costs associated with these
systems improvements, which are significant, generally have been capitalized as
part of other assets.
During the last several years, the Corporation has spent approximately $13
million to address issues related to the Y2K problem. During the remainder of
1999, the Corporation expects to spend an additional $700,000 to address Y2K
issues. These costs include internal information systems resources redirected to
the Corporation's Y2K program. The internal information systems department costs
are being expensed as incurred and are being funded by cash flow from
<PAGE>
27
operations. The Y2K costs are not expected to have a material adverse effect on
the Corporation.
In the event that the Corporation does encounter significant Y2K problems,
the reasonably likely worst-case scenario would be that significant subsidiaries
of the Corporation would be unable to take customer orders, manufacture or ship
products, invoice customers, or collect payments. In addition, although the
Corporation has undertaken surveys and other follow-up activities of key
customers, suppliers, and partners to determine the extent to which the
Corporation's interface systems are vulnerable to those third parties' failure
to remediate their own Y2K issues, there is no guarantee that the systems of
other companies on which the Corporation's systems rely will be timely
converted. If 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
where appropriate. 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's businesses have specific plans for Y2K testing through the
millennium weekend to include, in some cases, testing with customers, suppliers,
and partners. The Corporation has also developed methods for "early warning" of
problems related to Y2K with rapid escalation and resolution through teams of
in-house and outside experts.
FINANCIAL CONDITION
Operating activities provided cash of $12.9 million for the nine months ended
October 3, 1999, compared to $61.5 million of cash provided for the
corresponding period in 1998. The decrease in cash generation was principally
the result of an increase in working capital during 1999, as compared to the
corresponding period in 1998, which more than offset the increase in cash
provided from higher operating income. The working capital increase primarily
relates to increased inventories to support higher sales and to improve service
levels, net of the related increase in accounts payable, and to higher trade
receivables due to sales growth in the Corporation's existing businesses.
In addition to analyzing absolute cash flows, the Corporation reviews
certain working capital metrics. For example, the Corporation evaluates its
accounts receivable and inventory levels through the computation of days sales
outstanding and days inventory on hand, respectively. The number of days sales
outstanding as of October 3, 1999, is flat, compared to the corresponding period
in 1998, after adjusting for the businesses sold as part of the Strategic
Repositioning previously described. On the same basis, the number of days
inventory on hand at October 3, 1999, has increased over the corresponding
period in 1998 due entirely to an increase experienced in the Power Tools and
Accessories segment. As indicated in the previous paragraph, the increase in
inventory is intended to improve service levels with respect to fulfilling
customers' orders. The Corporation anticipates that, in line with normal
seasonal trends, absolute investment in inventory will decline in the balance of
the year from the October 3, 1999, level. However, the Corporation expects to
exit 1999 with higher inventory
<PAGE>
28
levels than at the end of 1998 consistent with its objectives of achieving
higher service levels in the future.
Investing activities for the nine months ended October 3, 1999, used cash
of $59.1 million compared to $416.1 million of cash provided in the
corresponding period in 1998. The decrease in cash from investing activities was
principally related to the receipt of $481.8 million of proceeds, net of selling
expenses paid, from the sales during 1998 of the glass container-forming and
inspection equipment business and of the household products business in North
America, Central America, the Caribbean, and South America (excluding Brazil).
Excluding the $481.8 million of sales proceeds, investing activities for the
nine months ended September 27, 1998, used cash of $65.7 million compared to
$59.1 million of cash used in the corresponding period in 1999. This lower cash
usage in 1999 primarily resulted from increases in net cash inflow from hedging
activities as a result of the maturities of certain interest rate swaps that
swapped from fixed United States dollars to fixed foreign currencies, which were
partially offset by increased capital expenditures during 1999. As more fully
described in Note 1 of Notes to Consolidated Financial Statements included in
the Corporation's Annual Report on Form 10-K for the year ended December 31,
1998, the cash effects of the exchange of notional principal amounts on interest
rate swaps that swapped from fixed United States dollars to fixed foreign
currencies are included in the Consolidated Statement of Cash Flows as cash flow
from investing activities because such amounts were designated as hedges of net
investments in subsidiaries located outside of the United States.
Financing activities generated cash of $104.7 million for the nine months
ended October 3, 1999, compared to cash used of $576.7 million in the
corresponding period of 1998. This change is primarily the result of an increase
in borrowings at October 3, 1999, compared to the 1998 year-end level, to
support working capital requirements, compared to a decrease in borrowings at
September 27, 1998, compared to the 1997 year-end level due, in part, to debt
reductions which occurred with the net proceeds from the sales during 1998 of
the glass container-forming and inspection equipment business and of the
household products business in North America, Central America, the Caribbean,
and South America (excluding Brazil). In addition, cash usage for financing
activities was higher in the first nine months of 1998 compared to the 1999
levels due to increased levels of stock repurchased by the Corporation in 1998
over that repurchased in 1999 and the redemption of preferred stock of a
subsidiary in 1998.
In addition to measuring its cash flow generation and usage based upon the
operating, investing, and financing classifications included in the Consolidated
Statement of Cash Flows, the Corporation also measures its free cash flow. The
Corporation has modified its definition of free cash flow to be cash flow from
operating activities of continuing operations, less capital expenditures of
continuing operations, plus proceeds from the disposal of assets (excluding
proceeds from business sales). The revised definition is intended to represent
cash generation available to all capital providers. The Corporation's prior
definition was oriented towards creditors. Free cash flow can now be derived
directly from the relevant captions on the Consolidated Statement of Cash Flows.
Based on the revised definition, during the nine months ended October 3,
1999, the Corporation experienced negative free cash flow of $75.1 million
compared to negative free cash flow of $11.8 million for the corresponding
period in 1998. The increased level of negative free
<PAGE>
29
cash flow for the nine months ended October 3, 1999, compared to the
corresponding period in 1998, was primarily a result of lower cash flow from
operating activities and higher capital expenditures. The Corporation estimates
that the higher level of capital expenditures compared to the corresponding
period last year will persist through the balance of the year.
Average debt maturity was 5.2 years at October 3, 1999, compared to 6.7
years at December 31, 1998, principally as a result of higher levels of
short-term borrowings. At October 3, 1999, borrowings in the amount of $384.3
million under the Corporation's unsecured revolving credit facility were
included in short-term borrowings.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes statements that constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and that are
intended to come within the safe harbor protection provided by those sections.
By their nature, all forward-looking statements involve risks and uncertainties.
Actual results may differ materially from those contemplated by the
forward-looking statements for a number of reasons, including but not limited
to: market acceptance of the new products introduced in 1998 and 1999 and
scheduled for introduction in the balance of 1999; the level of sales generated
from these new products relative to expectations, based on the existing
investments in productive capacity and commitments of the Corporation to fund
advertising and product promotions in connection with the introduction of these
new products; the ability of the Corporation and its suppliers to meet scheduled
timetables of new product introductions; unforeseen competitive pressure or
other difficulties in maintaining mutually beneficial relationships with key
distributors or penetrating new channels of distribution; adverse changes in
currency exchange rates or raw material commodity prices, both in absolute terms
and relative to competitors' risk profiles; delays in or unanticipated
inefficiencies resulting from manufacturing and administrative reorganization
actions in progress or contemplated by the strategic repositioning described in
the Corporation's Annual Report on Form 10-K for the year ended December 31,
1998, and updated herein; the degree of working capital investment required to
meet customer service levels; gradual improvement in the economic environment in
Asia and Latin America; and economic growth in North America which more than
offsets economic softness in Europe.
In addition to the foregoing, the Corporation's ability to realize the
anticipated benefits of the restructuring actions undertaken in 1998 and 1999 is
dependent upon current market conditions, as well as the timing and
effectiveness of the relocation or consolidation of production and
administrative processes. The ability to realize the benefits inherent in the
balance of the restructuring actions is dependent on the selection and
implementation of economically viable projects in addition to the restructuring
actions taken to date. The ability to achieve certain sales and profitability
targets and cash flow projections also is dependent upon the Corporation's
ability to identify appropriate selected acquisitions that are complementary to
the Corporation's existing businesses at acquisition prices that are consistent
with these objectives.
The incremental costs of the year 2000 program and the time by which the
Corporation believes it will complete all year 2000 remediation are based upon
management's best estimates, which were derived using numerous assumptions of
future events including the continued
<PAGE>
30
availability of certain resources and other factors. However, there can be no
guarantee that these estimates will be achieved, and actual results could differ
materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to, the availability and cost
of personnel trained in this area, the ability to locate and correct all
relevant computer codes, and similar uncertainties.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required under this Item is included in Item 2 of Part I of this
report under the caption "Interest Rate Sensitivity" and in the sixth paragraph
under the caption "Earnings" and is incorporated by reference herein. In
addition, reference is made to Item 7A of the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1998.
<PAGE>
31
THE BLACK & DECKER CORPORATION
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Corporation is involved in various lawsuits in the ordinary course of
business. The lawsuits primarily involve claims for damages arising out of the
use of the Corporation's products and allegations of patent and trademark
infringement. The Corporation is also involved in litigation and administrative
proceedings involving employment matters and commercial disputes. Some of these
lawsuits include claims for punitive as well as compensatory damages. The
Corporation, using current product sales data and historical trends, actuarially
calculates the estimate of its current exposure for product liability claims for
amounts in excess of established deductibles and accrues for the estimated
liability as described above up to the limits of the deductibles. All other
claims and lawsuits are handled on a case-by-case basis.
The Corporation is also involved in lawsuits and administrative proceedings
with respect to claims involving the discharge of hazardous substances into the
environment. Certain of these claims assert damages and liability for remedial
investigations and cleanup costs with respect to sites at which the Corporation
has been identified as a potentially responsible party under federal and state
environmental laws and regulations (off-site). Other matters involve sites that
the Corporation currently owns or has previously sold (on-site). For off-site
claims, the Corporation makes an assessment of the cost involved based on
environmental studies, prior experience at similar sites, and the experience of
other named parties. The Corporation also considers the ability of other parties
to share costs, the percentage of the Corporation's exposure relative to all
other parties, and the effects of inflation on these estimated costs. For
on-site matters associated with properties currently owned, an assessment is
made as to whether an investigation and remediation would be required under
applicable federal and state law. For on-site matters associated with properties
previously sold, the Corporation considers the terms of sale as well as
applicable federal and state laws to determine if the Corporation has any
remaining liability. If the Corporation is determined to have potential
liability for properties currently owned or previously sold, an estimate is made
of the total cost of investigation and remediation and other potential costs
associated with the site.
The Corporation's estimate of the costs associated with legal, product
liability, and environmental exposures is accrued if, in management's judgment,
the likelihood of a loss is probable. These accrued liabilities are not
discounted. Insurance recoveries for environmental and certain general liability
claims are not recognized until realized.
Reference is made to the discussion in Item 3 of Part I of the
Corporation's Annual Report on Form 10-K for the year ended December 31, 1998,
in respect of the arbitration claims filed against the Corporation by Litton
Industries, Inc. ("Litton") claiming indemnification under the agreement
relating to the sale of the Corporation's former PRC subsidiary to Litton. As
previously reported, the Corporation has acknowledged its responsibility for
certain claims and has denied responsibility for others. The Corporation and
Litton have settled these claims, and
<PAGE>
32
the arbitration proceeding has been dismissed in its entirety.
As of October 3, 1999, the Corporation had no known probable but
inestimable exposures for awards and assessments in connection with
environmental matters and other litigation and administrative proceedings that
could have a material effect on the Corporation. Management is of the opinion
that the amounts accrued for awards or assessments in connection with the
environmental matters and other litigation and administrative proceedings to
which the Corporation is a party are adequate and, accordingly, ultimate
resolution of these matters will not have a material adverse effect on the
Corporation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the quarter ended October 3, 1999, the Corporation entered into a series
of forward stock purchase contracts with respect to an aggregate of 500,000
shares of the Corporation's common stock at a weighted average strike price of
$51.28 per share and a weighted average cap price of $58.98 per share. The
contracts were entered into with an investment banking firm in reliance upon the
exemption from registration in Section 4(2) of the Securities Act of 1933. These
contracts settle in the fourth quarter of 1999. Reference is made to Note 9 of
Notes to Consolidated Financial Statements included in Item 1 of Part I of this
report for additional information on these contracts.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit No. Description
12 Computation of Ratios.
27 Financial Data Schedule.
On July 21, 1999, the Corporation filed a Current Report on Form 8-K with the
Commission. That Current Report on Form 8-K, filed pursuant to Item 5 of that
Form, stated that, on July 21, 1999, the Corporation had reported its earnings
for the three months ended July 4, 1999.
The Corporation did not file any other reports on Form 8-K during the
three-month period ended October 3, 1999.
All other items were not applicable.
<PAGE>
33
THE BLACK & DECKER CORPORATION
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE BLACK & DECKER CORPORATION
By /s/ THOMAS M. SCHOEWE
---------------------------------
Thomas M. Schoewe
Senior Vice President and
Chief Financial Officer
Principal Accounting Officer
By /s/ STEPHEN F. REEVES
---------------------------------
Stephen F. Reeves
Vice President and Controller
Date: November 17, 1999
EXHIBIT 12
THE BLACK & DECKER CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Millions of Dollars Except Ratios)
Three Months Ended Nine Months Ended
October 3, 1999 October 3, 1999
------------------ -----------------
EARNINGS:
Earnings before income taxes $ 110.7 $ 272.3
Interest expense 33.1 93.0
Portion of rent expense
representative of an interest factor 6.7 20.1
-------- --------
Adjusted earnings before taxes and
fixed charges $ 150.5 $ 385.4
======== ========
FIXED CHARGES:
Interest expense $ 33.1 $ 93.0
Portion of rent expense
representative of an interest factor 6.7 20.1
-------- --------
Total fixed charges $ 39.8 $ 113.1
======== ========
RATIO OF EARNINGS TO FIXED CHARGES
3.78 3.41
======== ========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains financial information extracted from the Corporation's
unaudited interim financial statements as of and for the nine months ended
October 3, 1999, and the accompanying footnotes and is qualified in its entirety
by the reference to such financial statements.
</LEGEND>
<CIK> 0000012355
<NAME> THE BLACK & DECKER CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> OCT-03-1999
<CASH> 142,500
<SECURITIES> 0
<RECEIVABLES> 851,700<F1>
<ALLOWANCES> 0
<INVENTORY> 864,300
<CURRENT-ASSETS> 2,059,000
<PP&E> 718,200<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,153,500
<CURRENT-LIABILITIES> 1,649,500
<BONDS> 1,058,400
0
0
<COMMON> 43,400
<OTHER-SE> 632,900
<TOTAL-LIABILITY-AND-EQUITY> 4,153,500
<SALES> 3,173,300
<TOTAL-REVENUES> 3,173,300
<CGS> 1,993,400
<TOTAL-COSTS> 2,830,100
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 93,000
<INCOME-PRETAX> 272,300
<INCOME-TAX> 87,100
<INCOME-CONTINUING> 185,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 185,200
<EPS-BASIC> 2.13
<EPS-DILUTED> 2.09
<FN>
<F1>Represents net trade receivables.
<F2>Represents net property, plant, and equipment.
</FN>
</TABLE>
