UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended July 2, 2000
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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 of (I.R.S. Employer Identification No.)
incorporation or organization)
701 East Joppa Road Towson, Maryland 21286
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(Address of principal executive offices) (Zip Code)
(410) 716-3900
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(Registrant's telephone number, including area code)
Not Applicable
--------------------------------------------------------------------------------
(Former name, former address, and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. X YES NO
----- ------
The number of shares of Common Stock outstanding as of July 28, 2000:
83,292,285
----------
The exhibit index as required by item 601(a) of Regulation S-K is included in
this report.
<PAGE>
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THE BLACK & DECKER CORPORATION
INDEX - FORM 10-Q
July 2, 2000
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Earnings (Unaudited)
For the Three Months and Six Months Ended July 2, 2000
and July 4, 1999 3
Consolidated Balance Sheet
July 2, 2000 (Unaudited) and December 31, 1999 4
Consolidated Statement of Stockholders' Equity (Unaudited)
For the Six Months Ended July 2, 2000 and July 4, 1999 5
Consolidated Statement of Cash Flows (Unaudited)
For the Six Months Ended July 2, 2000 and July 4, 1999 6
Notes to Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 22
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities and Use of Proceeds 24
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 25
<PAGE>
- 3 -
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
CONSOLIDATED STATEMENT OF EARNINGS (Unaudited)
The Black & Decker Corporation and Subsidiaries
(Dollars in Millions Except Per Share Amounts)
<CAPTION>
-------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
July 2, 2000 July 4, 1999 July 2, 2000 July 4, 1999
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $1,126.4 $1,084.2 $2,164.0 $2,062.7
Cost of goods sold 699.7 671.2 1,374.3 1,299.4
Selling, general, and
administrative expenses 284.1 285.9 555.6 557.8
Gain on sale of business - - 20.1 -
-------------------------------------------------------------------------------------------------------
Operating Income 142.6 127.1 254.2 205.5
Interest expense (net of
interest income) 25.4 22.5 49.2 44.7
Other income (expense) 1.4 (.7) 1.0 .8
-------------------------------------------------------------------------------------------------------
Earnings Before Income Taxes 118.6 103.9 206.0 161.6
Income taxes 35.6 33.2 62.8 51.7
-------------------------------------------------------------------------------------------------------
Net Earnings $ 83.0 $ 70.7 $ 143.2 $ 109.9
=======================================================================================================
Net Earnings Per Common
Share-- Basic $ .98 $ .81 $ 1.68 $ 1.26
=======================================================================================================
Shares Used in Computing Basic
Earnings Per Share (in Millions) 84.7 87.0 85.4 87.1
=======================================================================================================
Net Earnings Per Common
Share-- Assuming Dilution $ .97 $ .80 $ 1.66 $ 1.24
=======================================================================================================
Shares Used in Computing Diluted
Earnings Per Share (in Millions) 85.3 88.4 86.1 88.5
=======================================================================================================
Dividends Per Common Share $ .12 $ .12 $ .24 $ .24
=======================================================================================================
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
</FN>
</TABLE>
<PAGE>
- 4 -
<TABLE>
CONSOLIDATED BALANCE SHEET
The Black & Decker Corporation and Subsidiaries
(Dollars in Millions Except Per Share Amount)
<CAPTION>
-------------------------------------------------------------------------------------
July 2, 2000
(Unaudited) December 31, 1999
-------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 127.8 $ 147.3
Trade receivables 788.8 823.2
Inventories 818.1 751.0
Other current assets 188.0 189.9
-------------------------------------------------------------------------------------
Total Current Assets 1,922.7 1,911.4
-------------------------------------------------------------------------------------
Property, Plant, and Equipment 740.0 739.6
Goodwill 721.2 743.4
Other Assets 612.5 618.3
-------------------------------------------------------------------------------------
$3,996.4 $4,012.7
=====================================================================================
Liabilities and Stockholders' Equity
Short-term borrowings $ 337.8 $ 183.2
Current maturities of long-term debt 249.0 213.2
Trade accounts payable 382.5 367.3
Other accrued liabilities 704.1 809.0
-------------------------------------------------------------------------------------
Total Current Liabilities 1,673.4 1,572.7
-------------------------------------------------------------------------------------
Long-Term Debt 806.9 847.1
Deferred Income Taxes 241.7 243.8
Postretirement Benefits 243.0 246.3
Other Long-Term Liabilities 299.7 301.7
Stockholders' Equity
Common stock, par value $.50 per share 41.7 43.6
Capital in excess of par value 697.5 843.3
Retained earnings 144.8 21.9
Accumulated other comprehensive income (loss) (152.3) (107.7)
-------------------------------------------------------------------------------------
Total Stockholders' Equity 731.7 801.1
-------------------------------------------------------------------------------------
$3,996.4 $4,012.7
=====================================================================================
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
</FN>
</TABLE>
<PAGE>
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<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, 1998 87,498,424 $43.7 $871.4 $(236.6) $(104.5) $574.0
Comprehensive income:
Net earnings -- -- -- 109.9 -- 109.9
Foreign currency translation
adjustments, less effect of
hedging activities (net of tax) -- -- -- -- (14.5) (14.5)
---------------------------------------------------------------------------------------------------------------------
Comprehensive income -- -- -- 109.9 (14.5) 95.4
---------------------------------------------------------------------------------------------------------------------
Cash dividends ($.24 per share) -- -- -- (20.9) -- (20.9)
Purchase and retirement of
common stock (790,900) (.4) (41.3) -- -- (41.7)
Common stock issued under
employee benefit plans 270,858 .2 9.5 -- -- 9.7
---------------------------------------------------------------------------------------------------------------------
Balance at July 4, 1999 86,978,382 $43.5 $839.6 $(147.6) $(119.0) $616.5
=====================================================================================================================
Balance at December 31, 1999 87,190,240 $43.6 $843.3 $ 21.9 $(107.7) $801.1
Comprehensive income:
Net earnings -- -- -- 143.2 -- 143.2
Foreign currency translation
adjustments, less effect of
hedging activities (net of tax) -- -- -- -- (44.6) (44.6)
---------------------------------------------------------------------------------------------------------------------
Comprehensive income -- -- -- 143.2 (44.6) 98.6
---------------------------------------------------------------------------------------------------------------------
Cash dividends ($.24 per share) -- -- -- (20.3) -- (20.3)
Purchase and retirement of
common stock (net of 186,250
shares issued under forward
purchase contracts) (3,904,750) (2.0) (150.0) -- -- (152.0)
Common stock issued under
employee benefit plans 138,004 .1 4.2 -- -- 4.3
---------------------------------------------------------------------------------------------------------------------
Balance at July 2, 2000 83,423,494 $41.7 $697.5 $ 144.8 $(152.3) $731.7
=====================================================================================================================
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
</FN>
</TABLE>
<PAGE>
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<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
The Black & Decker Corporation and Subsidiaries
(Dollars in Millions)
<CAPTION>
--------------------------------------------------------------------------------------------
Six Months Ended
July 2, 2000 July 4, 1999
--------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net earnings $143.2 $109.9
Adjustments to reconcile net earnings to cash
flow from operating activities:
Gain on sale of business (20.1) -
Non-cash charges and credits:
Depreciation and amortization 83.4 80.6
Other (2.0) (2.2)
Changes in selected working capital items:
Trade receivables 14.8 (26.1)
Inventories (87.9) (188.7)
Trade accounts payable 25.3 56.4
Restructuring spending (7.6) (14.7)
Changes in other assets and liabilities (67.4) (63.9)
--------------------------------------------------------------------------------------------
Cash Flow From Operating Activities 81.7 (48.7)
--------------------------------------------------------------------------------------------
Investing Activities
Proceeds from sale of business 25.0 -
Purchase of business (7.8) -
Proceeds from disposal of assets 3.3 19.0
Capital expenditures (105.0) (67.9)
Cash inflow from hedging activities 113.1 406.6
Cash outflow from hedging activities (113.5) (378.4)
--------------------------------------------------------------------------------------------
Cash Flow From Investing Activities (84.9) (20.7)
--------------------------------------------------------------------------------------------
Cash Flow Before Financing Activities (3.2) (69.4)
Financing Activities
Net increase in short-term borrowings 158.3 239.2
Payments on long-term debt (3.9) (63.9)
Purchase of common stock (152.0) (41.7)
Issuance of common stock 6.9 6.5
Cash dividends (20.3) (20.9)
--------------------------------------------------------------------------------------------
Cash Flow From Financing Activities (11.0) 119.2
Effect of exchange rate changes on cash (5.3) (3.0)
--------------------------------------------------------------------------------------------
(Decrease) Increase In Cash And Cash Equivalents (19.5) 46.8
Cash and cash equivalents at beginning of period 147.3 87.9
--------------------------------------------------------------------------------------------
Cash And Cash Equivalents At End Of Period $127.8 $134.7
============================================================================================
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
</FN>
</TABLE>
<PAGE>
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The Black & Decker Corporation and Subsidiaries
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and do not include all the
information and notes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, the unaudited
consolidated financial statements include all adjustments, consisting only of
normal recurring accruals, considered necessary for a fair presentation of the
financial position and the results of operations.
Operating results for the three- and six-month periods ended July 2, 2000,
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, 1999.
Certain amounts presented for the six months ended July 4, 1999, have been
reclassified to conform with the 2000 presentation.
Statement of Financial Accounting Standards (SFAS) No. 130, Reporting
Comprehensive Income, requires that, as part of a full set of financial
statements, entities must present comprehensive income, which is the sum of net
income and other comprehensive income. Other comprehensive income represents
total non-stockholder changes in equity. For the six months ended July 2, 2000,
and July 4, 1999, the Corporation has presented comprehensive income in the
accompanying Consolidated Statement of Stockholders' Equity. Comprehensive
income for the three months ended July 2, 2000, and July 4, 1999, was $38.6
million and $77.1 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.
<PAGE>
- 8 -
NOTE 2: GAIN ON SALE OF BUSINESS
In connection with the recapitalization of its recreational products business,
True Temper Sports, in 1998, the Corporation retained approximately 6% of
preferred and common stock of the recapitalized company, now known as True
Temper Corporation (True Temper), valued at approximately $4 million. In
addition, the Corporation received a senior, increasing-rate discount note
payable by True Temper, in an initial accreted amount of $25.0 million. Due to
True Temper's highly leveraged position and the lack of an active market for its
note, the Corporation established a full reserve for the note. For further
information about the recapitalization of True Temper, see Note 2 of Notes to
Consolidated Financial Statements included in Item 8 of the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1999.
During the first quarter of 2000, the Corporation sold its remaining
interest in True Temper, together with the note payable by True Temper, for
$25.0 million and recognized a pre-tax gain of $20.1 million.
NOTE 3: INVENTORIES
The components of inventory at the end of each period, in millions of dollars,
consisted of the following:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
July 2, 2000 December 31, 1999
------------------------------------------------------------------------------------------
<S> <C> <C>
FIFO cost:
Raw materials and work-in-process $194.2 $171.3
Finished products 626.9 584.5
------------------------------------------------------------------------------------------
821.1 755.8
Excess of FIFO cost over LIFO inventory value (3.0) (4.8)
------------------------------------------------------------------------------------------
$818.1 $751.0
==========================================================================================
</TABLE>
Inventories are stated at the lower of cost or market. The cost of United
States inventories is based primarily on the last-in, first-out (LIFO) method;
all other inventories are based on the first-in, first-out (FIFO) method.
NOTE 4: GOODWILL
Goodwill at the end of each period, in millions of dollars, was as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
July 2, 2000 December 31, 1999
------------------------------------------------------------------------------------------
<S> <C> <C>
Goodwill $1,291.6 $1,301.3
Less accumulated amortization 570.4 557.9
------------------------------------------------------------------------------------------
$ 721.2 $ 743.4
==========================================================================================
</TABLE>
NOTE 5: LONG-TERM DEBT
Indebtedness of subsidiaries of the Corporation in the aggregate principal
amounts of $595.4 million and $435.4 million were included in the Consolidated
Balance Sheet at July 2, 2000, and December 31, 1999, respectively, under the
captions short-term borrowings, current maturities of long-term debt, and
long-term debt.
<PAGE>
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NOTE 6: INTEREST EXPENSE (NET OF INTEREST INCOME)
Interest expense (net of interest income) for each period, in millions of
dollars, consisted of the following:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
July 2, 2000 July 4, 1999 July 2, 2000 July 4, 1999
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest expense $36.0 $29.7 $71.1 $59.9
Interest (income) (10.6) (7.2) (21.9) (15.2)
-------------------------------------------------------------------------------------------------
$25.4 $22.5 $49.2 $44.7
=================================================================================================
</TABLE>
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
--------------------------------------------------
Power Hardware Fastening Currency Corporate,
Tools & & Home & Assembly Translation Adjustments,
Three Months Ended July 2, 2000 Accessories Improvement Systems Total Adjustment & Eliminations Consolidated
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated customers $ 802.8 $215.7 $131.4 $1,149.9 $(23.5) $ - $1,126.4
Segment profit (loss) (for
Consolidated, operating income) 103.5 27.6 23.0 154.1 (1.2) (10.3) 142.6
Depreciation and amortization 21.7 9.1 4.3 35.1 (.6) 6.6 41.1
Capital expenditures 24.4 7.8 6.4 38.6 (.5) .3 38.4
Three Months Ended July 4, 1999
------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 742.2 $209.1 $127.3 $1,078.6 $ 5.6 $ - $1,084.2
Segment profit (loss) (for
Consolidated, operating income) 84.8 28.0 21.8 134.6 .3 (7.8) 127.1
Depreciation and amortization 20.5 8.4 3.8 32.7 .2 6.8 39.7
Capital expenditures 22.9 9.4 5.5 37.8 - .1 37.9
Six Months Ended July 2, 2000
------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $1,508.8 $420.5 $267.7 $2,197.0 $(33.0) $ - $2,164.0
Segment profit (loss) (for Consoli-
dated, operating income before
gain on sale of business) 158.9 47.2 46.4 252.5 (2.4) (16.0) 234.1
Depreciation and amortization 43.4 19.1 8.3 70.8 (.7) 13.3 83.4
Capital expenditures 76.6 15.1 13.4 105.1 (.6) .5 105.0
Six Months Ended July 4, 1999
------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $1,367.8 $417.9 $253.3 $2,039.0 $ 23.7 $ - $2,062.7
Segment profit (loss) (for
Consolidated, operating income) 123.2 53.0 42.7 218.9 1.9 (15.3) 205.5
Depreciation and amortization 41.2 17.1 7.7 66.0 .6 14.0 80.6
Capital expenditures 42.2 16.4 8.6 67.2 .5 .2 67.9
</TABLE>
<PAGE>
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The Corporation operates in three reportable business segments: Power Tools
and Accessories, Hardware and Home Improvement, 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, electric 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 security hardware to
customers in Mexico, Central America, the Caribbean, and South America; for the
sale of plumbing products to customers outside the United States and Canada; and
for sales of the retained portion of the household products business. The
Hardware and Home Improvement segment has worldwide responsibility for the
manufacture and sale of security hardware (except for the sale of security
hardware in Mexico, Central America, the Caribbean, and South America). It also
has responsibility for the manufacture of plumbing products and 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 assesses the performance of its reportable business
segments based upon a number of factors, including segment profit. In general,
segments follow the same accounting policies as those described in Note 1 of the
Corporation's Annual Report on Form 10-K for the year ended December 31, 1999,
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 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 updated to reflect the translation of segment
assets and elements of segment profit at the current year's budgeted rates of
exchange. The amounts included in the preceding segment table under the captions
"Reportable Business Segments" and "Corporate, Adjustments, & Eliminations" are
reflected at the Corporation's budgeted rates of exchange for 2000. The amounts
included in the preceding segment table under the caption "Currency Translation
Adjustments" represent the difference between consolidated amounts determined
using the budgeted rates of exchange for 2000 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 the
gain on sale of business. For certain operations located in Brazil, Mexico,
Venezuela, and Turkey, segment profit is reduced by net interest expense and
non-operating expenses. In determining segment profit, expenses relating to
pension and other postretirement benefits are based solely upon estimated
service costs. Corporate expenses are allocated to each segment based upon
budgeted amounts. 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
<PAGE>
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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.
The reconciliation of segment profit to the Corporation's earnings before
income taxes for each period, in millions of dollars, is as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
July 2, July 4, July 2, July 4,
2000 1999 2000 1999
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Segment profit for total reportable
business segments $154.1 $134.6 $252.5 $218.9
Items excluded from segment profit:
Adjustment of budgeted foreign
exchange rates to actual rates (1.2) .3 (2.4) 1.9
Depreciation of Corporate property
and amortization of goodwill (6.6) (6.8) (13.3) (14.0)
Adjustment to businesses'
postretirement benefit expenses
booked in consolidation 8.7 8.4 18.2 16.6
Adjustment to eliminate net interest and
non-operating expenses from results
of certain operations in Brazil,
Mexico, Venezuela, and Turkey .1 .6 .2 1.1
Other adjustments booked in consolidation
directly related to reportable
business segments (5.7) .1 (12.7) (3.6)
Amounts allocated to businesses in arriving
at segment profit in excess of
(less than) Corporate center operating
expenses, eliminations, and other
amounts identified above (6.8) (10.1) (8.4) (15.4)
------------------------------------------------------------------------------------------------
Operating income before gain on sale
of business 142.6 127.1 234.1 205.5
Gain on sale of business - - 20.1 -
------------------------------------------------------------------------------------------------
Operating Income 142.6 127.1 254.2 205.5
Interest expense, net of interest income 25.4 22.5 49.2 44.7
Other income (expense) 1.4 (.7) 1.0 .8
-------------------------------------------------------------------------------------------------
Earnings before income taxes $118.6 $103.9 $206.0 $161.6
=================================================================================================
</TABLE>
<PAGE>
- 12 -
NOTE 8: EARNINGS PER SHARE
The computations of basic and diluted earnings per share for each period are as
follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
(Amounts in Millions Except Per Share Data) July 2, 2000 July 4, 1999 July 2, 2000 July 4, 1999
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Net earnings $83.0 $70.7 $143.2 $109.9
===================================================================================================================
Denominator:
Average number of common shares outstanding
for basic earnings per share 84.7 87.0 85.4 87.1
Employee stock options and stock issuable
under employee benefit plans .6 1.4 .7 1.4
-------------------------------------------------------------------------------------------------------------------
Average number of common shares outstanding
for diluted earnings per share 85.3 88.4 86.1 88.5
===================================================================================================================
Basic earnings per share $ .98 $ .81 $ 1.68 $ 1.26
===================================================================================================================
Diluted earnings per share $ .97 $ .80 $ 1.66 $ 1.24
===================================================================================================================
</TABLE>
As of July 2, 2000, approximately 7.3 million options to purchase shares of
common stock, with a weighted-average exercise price of $40.80, were
outstanding, but were not included in the computation of diluted earnings per
share because the effect would be anti-dilutive. These options were
anti-dilutive because the related exercise price was greater than the average
market price of the common shares for the three months ended July 2, 2000.
NOTE 9: STOCKHOLDERS' EQUITY
As more fully discussed in Note 14 of Notes to Consolidated Financial Statements
included in Item 8 of the Corporation's Annual Report on Form 10-K for the year
ended December 31, 1999, 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").
During the six months ended July 2, 2000, quarterly settlements occurred on
standard forward purchase contracts with respect to 819,303 shares of the
Corporation's common stock, resulting in a net issuance of 892 shares of common
stock. In addition, settlements occurred during the first half of 2000 on capped
forward contracts with respect to 1,300,000 shares of the Corporation's common
stock, resulting in a net issuance of 185,358 shares of its common stock. At
each settlement date, the Corporation elected net share settlement.
<PAGE>
- 13 -
At July 2, 2000, standard forward purchase contracts with respect to
497,567 shares of the Corporation's common stock, with a weighted-average
forward price of $40.99 per share, were outstanding under the Agreements. These
contracts mature in November 2001. Additionally, capped forward contracts with
respect to 650,000 shares of the Corporation's common stock, with a
weighted-average strike price of $36.72 per share and a weighted-average cap
price of $43.16 per share, were outstanding under the Agreements. These
contracts settle in the third quarter of 2000.
During the six months ended July 2, 2000, the Corporation repurchased
4,091,000 shares of its common stock at an aggregate cost of $152.0 million.
During the comparable period in 1999, the Corporation repurchased 790,900 shares
of its common stock at an aggregate cost of $41.7 million.
<PAGE>
- 14 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Corporation reported net earnings of $83.0 million or $.97 per share on a
diluted basis for the three months ended July 2, 2000, compared to net earnings
of $70.7 million or $.80 per share on a diluted basis for the three months ended
July 4, 1999. Earnings per diluted share for the second quarter of 2000
increased by 21% over the corresponding period in 1999, reflecting improved
operating performance, a lower tax rate, and lower average outstanding shares of
the Corporation's common stock due to a stock repurchase program.
For the six months ended July 2, 2000, the Corporation reported net earnings
of $143.2 million or $1.66 per share on a diluted basis. As more fully described
in Note 2 of Notes to Consolidated Financial Statements, earnings for the
six-month period ended July 2, 2000, included a pre-tax gain of $20.1 million
($13.1 million net of tax, or $.15 per share on a diluted basis) related to the
1998 recapitalization of True Temper Sports. Excluding this nonrecurring gain,
net earnings for the six-month period ended July 2, 2000, would have been $130.1
million or $1.51 per share on a diluted basis, compared to net earnings of
$109.9 million or $1.24 per share on a diluted basis for the corresponding
period of 1999.
In the discussion and analysis of financial condition and results of
operations that follows, the Corporation generally attempts to list contributing
factors in order of significance to the point being addressed.
STRATEGIC REPOSITIONING
As more fully described in the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1999, 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," by the
end of 1999, the Corporation neared completion of the comprehensive strategic
repositioning plan approved by the Board of Directors on January 26, 1998. The
plan included the following components: (i) the divestiture of non-strategic
businesses; (ii) the repurchase of approximately 10% of the Corporation's
outstanding common stock over a two-year period; and (iii) a restructuring of
remaining operations.
As part of its divestitures of non-strategic businesses under the strategic
repositioning plan, the Corporation recapitalized its recreational products
business, True Temper Sports, in September 1998. At the time of the
recapitalization, the Corporation retained approximately 6% of preferred and
common stock of the recapitalized company, now known as True Temper Corporation
(True Temper), valued at approximately $4 million. In addition to cash proceeds
received as part of the True Temper recapitalization, the Corporation received a
senior, increasing-rate discount note in an initial accreted amount of $25.0
million. Because True Temper was a highly leveraged entity and there was no
active market for the note, the Corporation fully reserved the $25.0 million
note at the time of the divestiture and continued to reserve the note through
December 31, 1999. During the first quarter of 2000, the Corporation sold the
note, together with its remaining interest in True Temper, for $25.0 million and
recognized a pre-tax gain of $20.1 million ($13.1 million after tax).
<PAGE>
- 15 -
A summary of activity during the six-month period ended July 2, 2000, in
the restructuring element of the Corporation's strategic repositioning plan is
as follows (in millions of dollars):
<TABLE>
<CAPTION>
Utilization of Reserve
Reserve at ------------------------ Reserve at
December 31, 1999 Cash Non-Cash July 2, 2000
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Severance benefits and cost of
voluntary retirement program $18.7 $(6.2) $ -- $12.5
Other charges 3.7 (1.4) (.6) 1.7
----------------------------------------------------------------------------------------------------------
Total $22.4 $(7.6) $ (.6) $14.2
==========================================================================================================
</TABLE>
The Corporation remains committed to continuous productivity improvement
and continues to evaluate opportunities to reduce fixed costs and eliminate
excess capacity. The Corporation currently anticipates recognizing an additional
restructuring charge, expected to approximate $25 million, later in 2000.
RESULTS OF OPERATIONS
SALES
The following chart sets forth an analysis of the consolidated changes in sales
for the three- and six-month periods ended July 2, 2000, and July 4, 1999:
<TABLE>
<CAPTION>
ANALYSIS OF CHANGES IN SALES
----------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
(Dollars in Millions) July 2, 2000 July 4, 1999 July 2, 2000 July 4, 1999
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total sales $1,126.4 $1,084.2 $2,164.0 $2,062.7
Unit volume - existing (a) 8 % 8 % 9 % 10 %
- disposed (b) --% (12)% --% (13)%
Price (1)% (1)% (1)% (1)%
Currency (3)% (2)% (3)% (1)%
----------------------------------------------------------------------------------------------------------
Change in total sales 4 % (7)% 5 % (5)%
==========================================================================================================
<FN>
(a) Represents change in unit volume for businesses where period-to-period
comparability exists.
(b) Represents change in unit volume for businesses that were included in prior
year results but were sold or recapitalized in 1998.
</FN>
</TABLE>
Total consolidated sales for the three and six months ended July 2, 2000,
increased by 4% and 5%, respectively, over the corresponding 1999 levels, as
unit volume growth more than offset negative pricing and currency effects. Total
unit volume increased 8% and 9% during the three- and six-month periods ended
July 2, 2000, respectively, over the corresponding periods in 1999. Pricing
actions had a 1% negative effect on sales for both the three and six months
ended July 2, 2000, as compared to the corresponding periods in 1999. The
negative effects of a stronger United States dollar compared to other foreign
currencies caused a 3% decrease in the Corporation's consolidated sales over the
prior year's levels for both the three- and six-month periods ended July 2,
2000.
<PAGE>
- 16 -
EARNINGS
Operating income for the three months ended July 2, 2000, was $142.6 million, or
12.7% of sales, compared to operating income of $127.1 million, or 11.7% of
sales, for the corresponding period in 1999. Operating income for the six months
ended July 2, 2000, of $254.2 million included a gain on sale of business of
$20.1 million recognized in the first quarter. Excluding the gain on sale of
business, operating income for the first six months of 2000 was $234.1 million,
or 10.8% of sales, compared to operating income of $205.5 million, or 10.0% of
sales, for the first six months of 1999.
Gross margin as a percentage of sales was 37.9% and 38.1% for the
three-month periods ended July 2, 2000, and July 4, 1999, respectively, and was
36.5% and 37.0% for the six-month periods ended July 2, 2000, and July 4, 1999,
respectively. While the results of the Corporation's Six Sigma and other
productivity initiatives and restructuring actions positively impacted gross
margin during the three and six months ended July 2, 2000, certain negative
factors offset that favorability. Those negative factors included: (i) pricing
actions taken, in response to both customer and competitive pressures; and (ii)
currency-related cost pressures that resulted from stronger currencies in
countries in which certain products are manufactured relative to currencies of
countries in which those products are sold, particularly in the three months
ended July 2, 2000. Those currency-related cost pressures have been partially
mitigated by the hedge program more fully described in Item 7 of the
Corporation's Annual Report on Form 10-K for the year ended December 31, 1999,
under the caption "Hedging Activities".
Selling, general, and administrative expenses as a percentage of sales
improved from 26.4% for the quarter ended July 4, 1999, to 25.2% for the quarter
ended July 2, 2000. For the six months ended July 2, 2000, selling, general, and
administrative expenses as a percentage of sales was 25.7%, reflecting an
improvement from the prior year level of 27.0%. The improvement for 2000 was the
result of cost containment efforts, as the Corporation leveraged slightly lower
selling, general, and administrative expenses during the three- and six-month
periods ended July 2, 2000, over a higher sales base.
Net interest expense (interest expense less interest income) for the three
months ended July 2, 2000, was $25.4 million compared to net interest expense of
$22.5 million for the three months ended July 4, 1999. Net interest expense was
$49.2 million for the six months ended July 2, 2000, compared to net interest
expense of $44.7 million for the corresponding period of 1999. The higher level
of net interest expense in the three and six months ended July 2, 2000, as
compared to the corresponding periods in 1999, was primarily the result of
higher interest rates partially offset by lower average borrowing levels during
2000.
The Corporation recognized income tax expense of $35.6 million on pre-tax
earnings of $118.6 million, which equates to a reported tax rate of 30%, for the
second quarter of 2000. The Corporation recognized income tax expense of $33.2
million on pre-tax earnings of $103.9 million, which equates to a reported tax
rate of 32%, for the second quarter of 1999. For the six months ended July 2,
2000, the Corporation recognized income tax expense of $62.8 million on pre-tax
earnings of $206.0 million, which equates to an effective tax rate of 30.5%.
Excluding the income tax expense of $7.0 million recognized on the $20.1 million
gain on sale of business, the Corporation's effective tax rate would have been
30% for the six months ended July 2, 2000. Thiscompares to income tax expense of
$51.7 million on pre-tax earnings of $161.6 million, which equates to an
effective tax rate of 32%, for the six months ended July 4, 1999. The decrease
in the
<PAGE>
- 17 -
effective tax rate from 32% in 1999 to 30% (excluding the gain on sale of
business) in 2000 is a result of anticipated higher earnings in lower tax rate
jurisdictions outside the United States during 2000 as compared to 1999.
The Corporation reported net earnings of $83.0 million, or $.97 per share
on a diluted basis, for the three months ended July 2, 2000, compared to net
earnings of $70.7 million, or $.80 per share on a diluted basis, for the three
months ended July 4, 1999. The Corporation reported net earnings of $143.2
million, or $1.66 per share on a diluted basis, for the six months ended July 2,
2000. Excluding the after-tax gain on sale of business of $13.1 million
recognized in the first quarter of 2000, net earnings were $130.1 million, or
$1.51 per diluted share, for the six months ended July 2, 2000, compared to net
earnings of $109.9 million, or $1.24 per share on a diluted basis, for the
comparable period of 1999. In addition to the impact of the operational
improvements and lower effective tax rate previously described, earnings per
share for the three and six months ended July 2, 2000, also benefited from lower
shares outstanding as a result of a stock repurchase program.
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, and Fastening and Assembly Systems.
Power Tools and Accessories
Segment sales and profit for the Power Tools and Accessories segment, determined
on the basis described in Note 7 of Notes to Consolidated Financial Statements,
were as follows (in millions of dollars):
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
July 2, 2000 July 4, 1999 July 2, 2000 July 4, 1999
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers $802.8 $742.2 $1,508.8 $1,367.8
Segment profit 103.5 84.8 158.9 123.2
------------------------------------------------------------------------------------------------------
</TABLE>
Sales to unaffiliated customers in the Power Tools and Accessories segment
during the second quarter of 2000 increased 8% over the 1999 level. During the
second quarter of 2000, sales of power tools and accessories in North America
increased at a low double-digit rate over the comparable quarter in 1999. Sales
in North America during the second quarter of 2000 benefited from double-digit
rates of growth in sales of professional power tools, outdoor products, and
cleaning and lighting products. Sales of accessories and consumer power tools in
North America in the quarter ended July 2, 2000, grew at mid single-digit rates
over the corresponding period in 1999 as lower sales to one major retailer, due
to its decision to reduce the business's products offered in its stores, were
more than offset by gains at other key customers.
Sales in Europe increased by 1% in the second quarter of 2000 over the
corresponding period in 1999. Sales of professional power tools in Europe
increased at a low double-digit rate during the second quarter of 2000 due to
expansion of the DEWALT(R) professional power tool line across Europe, while
sales of home and outdoor products increased slightly during the quarter. That
growth was partially offset by a mid single-digit decline in sales of consumer
power tools as competition by low priced imports had an adverse effect on the
business. In addition, sales in
<PAGE>
- 18 -
Europe were impacted by a slight decline in sales of accessories in the second
quarter of 2000 from the 1999 level.
Sales in other geographic areas increased at a double-digit rate in the
second quarter of 2000 over the 1999 levels, driven by strong sales growth of
both professional and consumer tools in Mexico, Central America, and South
America.
Sales to unaffiliated customers in the Power Tools and Accessories segment
during the first half of 2000 increased 10% over the 1999 level. Sales of power
tool products in North America benefited from double-digit rates of growth in
sales of DEWALT professional power tools, outdoor products, and home products.
In addition, sales of accessories and consumer power tools in North America
during the six months ended July 2, 2000, increased at mid single-digit rates
over the 1999 level.
Sales in Europe during the first half of 2000 increased at a mid
single-digit rate over the 1999 level as double-digit growth in professional
power tools and outdoor products was partially offset by sales declines in
consumer power tools.
Sales in other geographic areas increased at a double-digit rate in the
first half of 2000 from the 1999 levels. This sales growth was driven by strong
results in Mexico, Central America, and South America.
Segment profit as a percentage of sales for the Power Tools and Accessories
segment was 12.9% and 10.5% for the three- and six-month periods ended July 2,
2000, respectively, compared to 11.4% and 9.0%, for the three- and six-month
periods ended July 4, 1999, respectively. The leveraging of selling, general and
administrative costs over a higher sales base drove this improvement, more than
offsetting lower gross margin. Gross margin as a percentage of sales declined in
the three- and six-month periods ended July 2, 2000, compared to the
corresponding periods in 1999, as a result of pricing actions, currency
pressures in Europe, and inventory management initiatives.
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 Six Months Ended
July 2, 2000 July 4, 1999 July 2, 2000 July 4, 1999
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers $215.7 $209.1 $420.5 $417.9
Segment profit 27.6 28.0 47.2 53.0
------------------------------------------------------------------------------------------------------
</TABLE>
Sales to unaffiliated customers in the Hardware and Home Improvement
segment increased by 3% for the three months ended July 2, 2000, over the 1999
level. Sales of plumbing products in North America increased at a double-digit
rate in the second quarter of 2000 over the corresponding period in 1999. That
increase was partially offset by a 1% decrease in sales of security hardware in
North America and Europe in the second quarter of 2000 from the corresponding
period in 1999. During the first quarter of 2000, a line review at a major
customer in North America resulted in lost listings of TITAN(R) product. During
the quarter ended
<PAGE>
- 19 -
July 2, 2000, the effect of the lost TITAN listings was substantially offset by
gains in North America in other retail channels.
Sales to unaffiliated customers in the Hardware and Home Improvement
segment increased by 1% for the six months ended July 2, 2000, over the 1999
level, due principally to a double-digit rate of growth in sales of plumbing
products in North America. That growth was partially offset by decreased sales
of security hardware in North America. Security hardware sales in North America
were negatively impacted during the first half of 2000 by the lost listings of
TITAN product previously described. The effect of the lost TITAN listings was
partially mitigated in the second quarter of 2000 and is expected to be
partially mitigated during the balance of 2000 by new listings gained by the
business in other product lines. Sales of security hardware in Europe for the
first half of 2000 approximated the prior year's level.
Segment profit as a percentage of sales for the Hardware and Home
Improvement segment was 12.8% and 11.2% for the three and six months ended July
2, 2000, respectively, compared to 13.4% and 12.7% for the three and six months
ended July 4, 1999, respectively. Segment profit as a percentage of sales in
both the three and six months ended July 2, 2000, declined from the 1999 levels
due to decreased profitability with respect to security hardware products
resulting from the impact of lower sales volumes in North America. The decrease
in profitability in security hardware products was partially offset by
profitability gains in plumbing products, which stemmed from Six Sigma and other
productivity initiatives, as well as higher margin new products.
Fastening and Assembly Systems
Segment sales and profit for the Fastening and Assembly Systems segment,
determined on the basis described in Note 7 of Notes to Consolidated Financial
Statements, were as follows (in millions of dollars):
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
July 2, 2000 July 4, 1999 July 2, 2000 July 4, 1999
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers $131.4 $127.3 $267.7 $253.3
Segment profit 23.0 21.8 46.4 42.7
------------------------------------------------------------------------------------------------------
</TABLE>
Sales to unaffiliated customers in the Fastening and Assembly Systems
segment increased by 3% for the three-month period ended July 2, 2000, over the
1999 level, due, in part, to strong sales to industrial customers in North
America and to strong growth in Asia. For the three months ended July 2, 2000,
that growth was partially offset by lower sales in the North American automotive
sector and in Europe. Sales increased by 6% for the six months ended July 2,
2000, over the 1999 level. This increase was driven by strong sales in the North
American industrial sector and strong sales growth in Asia. Sales for both the
three- and six-month periods ended July 2, 2000, benefited slightly from sales
of a fastening business in South America, acquired late in 1999.
Segment profit as a percentage of sales for the Fastening and Assembly
Systems segment was 17.5% for the three months ended July 2, 2000, compared to
17.1% for the corresponding periodin 1999. Segment profit as a percentage of
sales was 17.3% for the six months ended July 2, 2000, compared to 16.9% for the
comparable period last year. The increase in profitability in
<PAGE>
- 20 -
2000 stems from Six Sigma and other productivity initiatives, as well as higher
margin new products.
Financial Condition
Operating activities provided cash of $81.7 million for the six months ended
July 2, 2000, compared to $48.7 million of cash used for the corresponding
period in 1999. The increase in cash generation during the six months ended July
2, 2000, was primarily driven by decreased investment in inventories in 2000.
During the six months ended July 4, 1999, the Corporation had increased
inventory levels significantly over the 1998 year-end level to improve service
levels. Cash flow from operating activities for the six months ended July 2,
2000, also benefited from the timing of certain interest and tax payments.
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 inventory turnover ratio,
respectively. For the six months ended July 2, 2000, both of these metrics
improved slightly over the corresponding period of 1999.
Investing activities for the six months ended July 2, 2000, used cash of
$84.9 million compared to $20.7 million of cash used for the corresponding
period in 1999. The increase in cash usage during 2000 was partially driven from
higher capital expenditures during the first half of 2000 compared to the
corresponding period in 1999. In addition, the Corporation had a net cash
outflow from hedging activities for the first half of 2000, compared to a net
cash inflow from hedging activities for the first half of 1999. The main
contributor to the net cash inflow from hedging activities during 1999 was the
maturities of certain interest rate swaps that swapped from fixed United States
dollars to fixed foreign currencies. Cash flow from investing activities was
also impacted by lower cash proceeds from disposal of assets during 2000 than in
the comparable period in 1999. Partially offsetting the higher cash usage in
2000 was the Corporation's receipt of $25.0 million related to the True Temper
recapitalization more fully described in Note 2 of Notes to Consolidated
Financial Statements.
Investing activities for the six months ended July 2, 2000, included a $7.8
million payment related to the purchase of Momentum Laser. Momentum Laser,
purchased by the Power Tools and Accessories segment in June 2000, develops and
sells laser levels for use on commercial and residential job sites. The results
of Momentum Laser, included in the consolidated financial statements from the
date of acquisition, were not material. Under the terms of the purchase
agreement, additional purchase consideration of up to $7.0 million and $15.0
million, respectively, may be payable based on the income of Momentum Laser in
the first and second years following the acquisition.
Financing activities used cash of $11.0 million for the six-month period
ended July 2, 2000, compared to cash provided of $119.2 million during the first
six months of 1999. The decrease in cash from financing activities principally
resulted from higher cash expenditures for stock repurchases during the first
half of 2000. During the six months ended July 2, 2000, the Corporation
repurchased 4,091,000 shares of its common stock at an aggregate cost of $152.0
million. During the same period in 1999, the Corporation repurchased 790,900
shares of its common stock at an aggregate cost of $41.7 million. Cash from
financing activities was also impacted by lower borrowing activity during the
six months ended July 2, 2000, compared to the corresponding period in 1999.
<PAGE>
- 21 -
Future share repurchases are anticipated, in part to reduce the dilutive
effect of stock issuances under various stock-based employee benefit plans. At
July 2, 2000, the Corporation had remaining authorization from its Board of
Directors to repurchase an additional 3,359,595 shares of its common stock.
In addition to measuring its cash flow generation and usage based upon the
operating, investing, and financing classifications included in the Consolidated
Statement of Cash Flows, the Corporation also measures its free cash flow. Free
cash flow, a measure employed by the financial community, is defined by the
Corporation as cash flow from operating activities, less capital expenditures,
plus proceeds from the disposal of assets (excluding proceeds from business
sales). During the six months ended July 2, 2000, the Corporation had negative
free cash flow of $20.0 million compared to negative free cash flow of $97.6
million for the corresponding period in 1999.
The variable rate debt to total debt ratio, after taking interest rate
hedges into account, was 57% at July 2, 2000, compared to 52% at December 31,
1999. Average debt maturity was 5.2 years at July 2, 2000, compared to 6.2 years
at December 31, 1999.
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 1999 and 2000 and
scheduled for introduction in the remainder of 2000; 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 plan described in the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1999; the degree of working capital investment
required to meet customer service levels; economic uncertainty in Asia and Latin
America; sluggish economic conditions in Europe; and economic slowing in North
America.
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 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.
<PAGE>
- 22 -
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required under this Item is contained in Item 7 of the Corporation's
Annual Report on Form 10-K for the year ended December 31, 1999, under the
caption "Hedging Activities", and in Item 8 of that report in Notes 1 and 10 of
Notes to Consolidated Financial Statements, and is incorporated by reference
herein.
<PAGE>
- 23 -
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 also is involved in lawsuits and administrative proceedings
with respect to claims involving the discharge of hazardous substances into the
environment. Certain of these claims assert damages and liability for remedial
investigations and cleanup costs with respect to sites at which the Corporation
has been identified as a potentially responsible party under federal and state
environmental laws and regulations (off-site). Other matters involve sites that
the Corporation currently owns 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 laws. For on-site matters associated with
properties previously sold, the Corporation considers the terms of sale as well
as applicable federal and state laws to determine if the Corporation has any
remaining liability. If the Corporation is determined to have potential
liability for properties currently owned or previously sold, an estimate is made
of the total cost of investigation and remediation and other potential costs
associated with the site.
The Corporation's estimate of the costs associated with legal, product
liability, and environmental exposures is accrued if, in management's judgment,
the likelihood of a loss is probable. These accrued liabilities are not
discounted. Insurance recoveries for environmental and certain general liability
claims are not recognized until realized.
As of July 2, 2000, 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.
<PAGE>
- 24 -
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Settlements of standard forward contracts and capped forward purchase contracts
resulted in the net issuance of 892 shares and 185,358 shares of common stock,
respectively, during the six months ended July 2, 2000. The shares were issued
to an investment banking firm in reliance upon the exemption from registration
in Section 4(2) of the Securities Act of 1933. 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
3 Bylaws of the Corporation, as amended.
12 Computation of Ratios.
27 Financial Data Schedule.
On April 10, 2000, 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 the Corporation had established budgeted rates of exchange for
2000 and, accordingly, had updated segment data for prior periods to reflect the
translation of segment assets and elements of segment profit at the budgeted
rates of exchange for 2000.
On April 20, 2000, the Corporation filed a Current Report on Form 8-K with the
Commission. That Current Report on Form 8-K, filed pursuant to Item 5 of that
Form, stated that, on April 20, 2000, the Corporation had reported its earnings
for the three months ended April 2, 2000.
The Corporation did not file any other reports on Form 8-K during the
three-month period ended July 2, 2000.
All other items were not applicable.
<PAGE>
- 25 -
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/ MICHAEL D. MANGAN
---------------------
Michael D. Mangan
Senior Vice President and
Chief Financial Officer
Principal Accounting Officer
By /s/ CHRISTINA M. MCMULLEN
-------------------------
Christina M. McMullen
Vice President and
Controller
Date: August 16, 2000
