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 1, 2000
-------------------------------------------------
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
--------------------------------------------------------------------------------
(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 October 29, 2000:
81,287,552
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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
October 1, 2000
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Earnings (Unaudited)
For the Three Months and Nine Months Ended October 1, 2000
and October 3, 1999 3
Consolidated Balance Sheet
October 1, 2000 (Unaudited) and December 31, 1999 4
Consolidated Statement of Stockholders' Equity (Unaudited)
For the Nine Months Ended October 1, 2000 and October 3, 1999 5
Consolidated Statement of Cash Flows (Unaudited)
For the Nine Months Ended October 1, 2000 and October 3, 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 Nine Months Ended
October 1, 2000 October 3, 1999 October 1, 2000 October 3, 1999
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $1,133.2 $1,110.6 $3,297.2 $3,173.3
Cost of goods sold 707.3 694.0 2,081.6 1,993.4
Selling, general, and
administrative expenses 277.7 278.9 833.3 836.7
Gain on sale of business - - 20.1 -
---------------------------------------------------------------------------------------------------------------
Operating Income 148.2 137.7 402.4 343.2
Interest expense (net of
interest income) 26.5 26.2 75.7 70.9
Other income (expense) 1.6 (.8) 2.6 -
---------------------------------------------------------------------------------------------------------------
Earnings Before Income Taxes 123.3 110.7 329.3 272.3
Income taxes 37.0 35.4 99.8 87.1
---------------------------------------------------------------------------------------------------------------
Net Earnings $ 86.3 $ 75.3 $ 229.5 $ 185.2
===============================================================================================================
Net Earnings Per Common
Share -- Basic $ 1.04 $ .87 $ 2.71 $ 2.13
===============================================================================================================
Shares Used in Computing Basic
Earnings Per Share (in Millions) 83.2 87.0 84.6 87.1
===============================================================================================================
Net Earnings Per Common
Share -- Assuming Dilution $ 1.03 $ .85 $ 2.69 $ 2.09
===============================================================================================================
Shares Used in Computing Diluted
Earnings Per Share (in Millions) 83.8 88.3 85.3 88.4
===============================================================================================================
Dividends Per Common Share $ .12 $ .12 $ .36 $ .36
===============================================================================================================
<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>
------------------------------------------------------------------------------------------
October 1, 2000
(Unaudited) December 31, 1999
------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 138.2 $ 147.3
Trade receivables 859.9 823.2
Inventories 906.6 751.0
Other current assets 243.2 189.9
------------------------------------------------------------------------------------------
Total Current Assets 2,147.9 1,911.4
------------------------------------------------------------------------------------------
Property, Plant, and Equipment 749.0 739.6
Goodwill 711.1 743.4
Other Assets 624.2 618.3
------------------------------------------------------------------------------------------
$4,232.2 $4,012.7
==========================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings $ 428.3 $ 183.2
Current maturities of long-term debt 249.0 213.2
Trade accounts payable 436.6 367.3
Other accrued liabilities 757.9 809.0
------------------------------------------------------------------------------------------
Total Current Liabilities 1,871.8 1,572.7
------------------------------------------------------------------------------------------
Long-Term Debt 806.0 847.1
Deferred Income Taxes 241.5 243.8
Postretirement Benefits 240.4 246.3
Other Long-Term Liabilities 303.5 301.7
Stockholders' Equity
Common stock, par value $.50 per share 41.2 43.6
Capital in excess of par value 660.5 843.3
Retained earnings 221.1 21.9
Accumulated other comprehensive income (loss) (153.8) (107.7)
------------------------------------------------------------------------------------------
Total Stockholders' Equity 769.0 801.1
------------------------------------------------------------------------------------------
$4,232.2 $4,012.7
==========================================================================================
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
</FN>
</TABLE>
<PAGE>
-5-
<TABLE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)
The Black & Decker Corporation and Subsidiaries
(Dollars in Millions Except Per Share Amounts)
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Accumulated
Outstanding Capital in Retained Other Com- Total
Common Par Excess of Earnings prehensive Stockholders'
Shares Value Par Value (Deficit) Income (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) $574.0
Comprehensive income:
Net earnings -- -- -- 185.2 -- 185.2
Foreign currency translation
adjustments, less effect of
hedging activities (net of tax) -- -- -- -- (11.5) (11.5)
---------------------------------------------------------------------------------------------------------------------
Comprehensive income -- -- -- 185.2 (11.5) 173.7
---------------------------------------------------------------------------------------------------------------------
Cash dividends ($.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
=====================================================================================================================
Balance at December 31, 1999 87,190,240 $43.6 $843.3 $ 21.9 $(107.7) $801.1
Comprehensive income:
Net earnings -- -- -- 229.5 -- 229.5
Foreign currency translation
adjustments, less effect of
hedging activities (net of tax) -- -- -- -- (46.1) (46.1)
---------------------------------------------------------------------------------------------------------------------
Comprehensive income -- -- -- 229.5 (46.1) 183.4
---------------------------------------------------------------------------------------------------------------------
Cash dividends ($.36 per share) -- -- -- (30.3) -- (30.3)
Purchase and retirement of
common stock (net of 144,416
shares issued under forward
purchase contracts) (5,056,584) (2.5) (189.4) -- -- (191.9)
Common stock issued under
employee benefit plans 220,673 .1 6.6 -- -- 6.7
---------------------------------------------------------------------------------------------------------------------
Balance at October 1, 2000 82,354,329 $41.2 $660.5 $ 221.1 $(153.8) $769.0
=====================================================================================================================
<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>
------------------------------------------------------------------------------------------------
Nine Months Ended
October 1, 2000 October 3, 1999
------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $229.5 $185.2
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 123.3 117.7
Other (10.7) (6.3)
Changes in selected working capital items:
Trade receivables (61.2) (80.9)
Inventories (182.7) (246.8)
Trade accounts payable 80.2 87.3
Restructuring spending (9.2) (17.2)
Changes in other assets and liabilities (54.8) (26.1)
------------------------------------------------------------------------------------------------
Cash Flow From Operating Activities 94.3 12.9
------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from sale of business 25.0 -
Purchase of business (7.8) (3.2)
Proceeds from disposal of assets 3.3 23.4
Capital expenditures (149.7) (111.4)
Cash inflow from hedging activities 135.7 510.3
Cash outflow from hedging activities (135.5) (478.2)
------------------------------------------------------------------------------------------------
Cash Flow From Investing Activities (129.0) (59.1)
------------------------------------------------------------------------------------------------
Cash Flow Before Financing Activities (34.7) (46.2)
FINANCING ACTIVITIES
Net increase in short-term borrowings 250.5 244.0
Payments on long-term debt (4.7) (64.6)
Purchase of common stock (191.9) (53.3)
Issuance of common stock 9.2 9.9
Cash dividends (30.3) (31.3)
------------------------------------------------------------------------------------------------
Cash Flow From Financing Activities 32.8 104.7
Effect of exchange rate changes on cash (7.2) (3.9)
------------------------------------------------------------------------------------------------
(Decrease) Increase In Cash And Cash Equivalents (9.1) 54.6
Cash and cash equivalents at beginning of period 147.3 87.9
------------------------------------------------------------------------------------------------
Cash And Cash Equivalents At End Of Period $138.2 $142.5
================================================================================================
<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 1,
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 nine months ended October 3, 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 nine months ended October 1,
2000, and October 3, 1999, the Corporation has presented comprehensive income in
the accompanying Consolidated Statement of Stockholders' Equity. Comprehensive
income for the three months ended October 1, 2000, and October 3, 1999, was
$84.8 million and $78.3 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>
----------------------------------------------------------------------------------------
October 1, 2000 December 31, 1999
----------------------------------------------------------------------------------------
<S> <C> <C>
FIFO cost:
Raw materials and work-in-process $227.0 $171.3
Finished products 683.3 584.5
----------------------------------------------------------------------------------------
910.3 755.8
Excess of FIFO cost over LIFO inventory value (3.7) (4.8)
----------------------------------------------------------------------------------------
$906.6 $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>
----------------------------------------------------------------------------------------
October 1, 2000 December 31, 1999
----------------------------------------------------------------------------------------
<S> <C> <C>
Goodwill $1,288.1 $1,301.3
Less accumulated amortization 577.0 557.9
----------------------------------------------------------------------------------------
$ 711.1 $ 743.4
========================================================================================
</TABLE>
NOTE 5: LONG-TERM DEBT
Indebtedness of subsidiaries of the Corporation in the aggregate principal
amounts of $563.8 million and $435.4 million were included in the Consolidated
Balance Sheet at October 1, 2000, and December 31, 1999, respectively, under the
captions short-term borrowings, current maturities of long-term debt, and
long-term debt.
<PAGE>
-9-
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 1, 2000 October 3, 1999 October 1, 2000 October 3, 1999
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest expense $37.2 $33.1 $108.3 $93.0
Interest (income) (10.7) (6.9) (32.6) (22.1)
-------------------------------------------------------------------------------------------------
$26.5 $26.2 $75.7 $70.9
=================================================================================================
</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 October 1, 2000 Accessories Improvement Systems Total Adjustments & Eliminations Consolidated
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated customers $ 816.8 $217.6 $126.8 $1,161.2 $(28.0) $ - $1,133.2
Segment profit (loss) (for
Consolidated, operating income) 103.6 31.2 20.7 155.5 (2.0) (5.3) 148.2
Depreciation and amortization 22.3 7.7 4.1 34.1 (.8) 6.6 39.9
Capital expenditures 32.0 7.7 5.7 45.4 (.8) .1 44.7
Three Months Ended October 3, 1999
------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 769.3 $220.1 $119.4 $1,108.8 $ 1.8 $ - $1,110.6
Segment profit (loss) (for
Consolidated, operating income) 95.3 33.1 19.5 147.9 - (10.2) 137.7
Depreciation and amortization 18.3 8.0 3.9 30.2 - 6.9 37.1
Capital expenditures 27.3 8.7 7.4 43.4 .1 - 43.5
Nine Months Ended October 1, 2000
------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $2,325.6 $638.1 $394.5 $3,358.2 $(61.0) $ - $3,297.2
Segment profit (loss) (for Consoli-
dated, operating income before
gain on sale of business) 262.5 78.4 67.1 408.0 (4.4) (21.3) 382.3
Depreciation and amortization 65.7 26.8 12.4 104.9 (1.5) 19.9 123.3
Capital expenditures 108.6 22.8 19.1 150.5 (1.4) .6 149.7
Nine Months Ended October 3, 1999
------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $2,137.1 $638.0 $372.7 $3,147.8 $ 25.5 $ - $3,173.3
Segment profit (loss) (for
Consolidated, operating income) 218.5 86.1 62.2 366.8 1.9 (25.5) 343.2
Depreciation and amortization 59.5 25.1 11.6 96.2 .6 20.9 117.7
Capital expenditures 69.5 25.1 16.0 110.6 .6 .2 111.4
</TABLE>
<PAGE>
-10-
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>
-11-
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 Nine Months Ended
October 1, 2000 October 3, 1999 October 1, 2000 October 3, 1999
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Segment profit for total reportable business segments $155.5 $147.9 $408.0 $366.8
Items excluded from segment profit:
Adjustment of budgeted foreign exchange rates to
actual rates (2.0) - (4.4) 1.9
Depreciation of Corporate property and amortization
of goodwill (6.6) (6.9) (19.9) (20.9)
Adjustment to businesses' postretirement benefit
expenses booked in consolidation 9.0 5.2 27.2 21.8
Adjustment to eliminate net interest and non-operating
expenses from results of certain operations in Brazil,
Mexico, Venezuela, and Turkey .1 .1 .3 1.2
Other adjustments booked in consolidation directly
related to reportable business segments (2.0) (6.4) (14.7) (10.0)
Amounts allocated to businesses in arriving at segment
profit in excess of (less than) Corporate center operating
expenses, eliminations, and other amounts
identified above (5.8) (2.2) (14.2) (17.6)
--------------------------------------------------------------------------------------------------------------------------------
Operating income before gain on sale of business 148.2 137.7 382.3 343.2
Gain on sale of business - - 20.1 -
--------------------------------------------------------------------------------------------------------------------------------
Operating income 148.2 137.7 402.4 343.2
Interest expense, net of interest income 26.5 26.2 75.7 70.9
Other income (expense) 1.6 (.8) 2.6 -
--------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes $123.3 $110.7 $329.3 $272.3
================================================================================================================================
</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 Nine Months Ended
(Amounts in Millions Except Per Share Data) October 1, 2000 October 3, 1999 October 1, 2000 October 3, 1999
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Net earnings $86.3 $75.3 $229.5 $ 185.2
=========================================================================================================================
Denominator:
Average number of common shares outstanding
for basic earnings per share 83.2 87.0 84.6 87.1
Employee stock options and stock issuable
under employee benefit plans .6 1.3 .7 1.3
-------------------------------------------------------------------------------------------------------------------------
Average number of common shares outstanding
for diluted earnings per share 83.8 88.3 85.3 88.4
=========================================================================================================================
Basic earnings per share $1.04 $ .87 $ 2.71 $ 2.13
=========================================================================================================================
Diluted earnings per share $1.03 $ .85 $ 2.69 $ 2.09
=========================================================================================================================
</TABLE>
As of October 1, 2000, approximately 6.9 million options to purchase shares
of common stock, with a weighted-average exercise price of $46.45, 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 October 1, 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 nine months ended October 1, 2000, quarterly settlements
occurred on standard forward purchase contracts with respect to 1,316,870 shares
of the Corporation's common stock, resulting in a net receipt of 13,981 shares
of common stock. In addition, during the nine months ended October 1, 2000,
settlements occurred on capped forward contracts with respect to 1,850,000
shares of the Corporation's common stock, resulting in a net issuance of 158,397
shares of its common stock. At each settlement date, the Corporation elected net
share settlement.
<PAGE>
-13-
At October 1, 2000, standard forward purchase contracts with respect to
494,021 shares of the Corporation's common stock, with a weighted-average
forward price of $42.05 per share, were outstanding under the Agreements. These
contracts mature in February 2002. Additionally, capped forward contracts with
respect to 650,000 shares of the Corporation's common stock, with a
weighted-average strike price of $38.39 per share and a weighted-average cap
price of $44.50 per share, were outstanding under the Agreements. These
contracts settle in the fourth quarter of 2000.
During the nine months ended October 1, 2000, the Corporation repurchased
5,201,000 shares of its common stock at an aggregate cost of $191.9 million.
During the comparable period in 1999, the Corporation repurchased 1,015,900
shares of its common stock at an aggregate cost of $53.3 million.
<PAGE>
-14-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Corporation reported net earnings of $86.3 million or $1.03 per share on a
diluted basis for the three months ended October 1, 2000, compared to net
earnings of $75.3 million or $.85 per share on a diluted basis for the three
months ended October 3, 1999. Earnings per diluted share for the third quarter
of 2000 increased by 21% over the corresponding period in 1999, reflecting
improved operating performance, lower average outstanding shares of the
Corporation's common stock due to a stock repurchase program, and a lower
effective tax rate.
For the nine months ended October 1, 2000, the Corporation reported net
earnings of $229.5 million or $2.69 per share on a diluted basis. As more fully
described in Note 2 of Notes to Consolidated Financial Statements, earnings for
the nine-month period ended October 1, 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 nine-month period ended October 1, 2000, would have
been $216.4 million or $2.54 per share on a diluted basis, compared to net
earnings of $185.2 million or $2.09 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 nine-month period ended October 1, 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 October 1, 2000
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Severance benefits and cost of
voluntary retirement program $18.7 $(7.4) $ -- $11.3
Other charges 3.7 (1.8) (.6) 1.3
------------------------------------------------------------------------------------------------------------------
Total $22.4 $(9.2) $ (.6) $12.6
==================================================================================================================
</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.
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 1, 2000, and October 3,
1999:
<TABLE>
<CAPTION>
ANALYSIS OF CHANGES IN SALES
------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
(Dollars in Millions) October 1, 2000 October 3, 1999 October 1, 2000 October 3, 1999
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total sales $1,133.2 $1,110.6 $3,297.2 $3,173.3
Unit volume - existing (a) 7 % 10 % 8 % 10 %
- disposed (b) --% (7)% --% (10)%
Price (2)% (1)% (1)% (1)%
Currency (3)% (2)% (3)% (2)%
------------------------------------------------------------------------------------------------------------------------
Change in total sales 2 % --% 4 % (3)%
========================================================================================================================
<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 nine months ended October 1,
2000, increased by 2% and 4%, respectively, over the corresponding 1999 levels,
as unit volume growth more than offset negative pricing and currency effects.
Total unit volume increased 7% and 8% during the three- and nine-month periods
ended October 1, 2000, respectively, over the corresponding periods in 1999.
Pricing actions had a negative 2% and a negative 1% effect on sales for the
three and nine months ended October 1, 2000, respectively, 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 from the prior year's levels for both the
three- and nine-month periods ended October 1, 2000.
<PAGE>
-16-
EARNINGS
Operating income for the three months ended October 1, 2000, was $148.2 million,
or 13.1% of sales, compared to operating income of $137.7 million, or 12.4% of
sales, for the corresponding period in 1999. Operating income for the nine
months ended October 1, 2000, of $402.4 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 nine months of 2000 was $382.3
million, or 11.6% of sales, compared to operating income of $343.2 million, or
10.8% of sales, for the first nine months of 1999.
Gross margin as a percentage of sales was 37.6% and 37.5% for the
three-month periods ended October 1, 2000, and October 3, 1999, respectively,
and was 36.9% and 37.2% for the nine-month periods ended October 1, 2000, and
October 3, 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 nine months ended October 1, 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. 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 25.1% for the quarter ended October 3, 1999, to 24.5% for the
quarter ended October 1, 2000. For the nine months ended October 1, 2000,
selling, general, and administrative expenses as a percentage of sales was
25.3%, reflecting an improvement from the prior year level of 26.4%. 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 nine-month periods ended October 1, 2000, over a
higher sales base.
Net interest expense (interest expense less interest income) for the three
months ended October 1, 2000, was $26.5 million compared to net interest expense
of $26.2 million for the three months ended October 3, 1999. Net interest
expense was $75.7 million for the nine months ended October 1, 2000, compared to
net interest expense of $70.9 million for the corresponding period of 1999. The
higher level of net interest expense in the three and nine months ended October
1, 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 $37.0 million on pre-tax
earnings of $123.3 million, which equates to a reported tax rate of 30%, for the
third quarter of 2000. The Corporation recognized income tax expense of $35.4
million on pre-tax earnings of $110.7 million, which equates to a reported tax
rate of 32%, for the third quarter of 1999. For the nine months ended October 1,
2000, the Corporation recognized income tax expense of $99.8 million on pre-tax
earnings of $329.3 million, which equates to an effective tax rate of 30.3%.
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 nine months ended October 1, 2000. This compares to income tax
expense of $87.1 million on pre-tax earnings of $272.3 million, which equates to
an effective tax rate of 32%, for the nine months ended October 3, 1999. The
<PAGE>
-17-
decrease in the 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 $86.3 million, or $1.03 per share
on a diluted basis, for the three months ended October 1, 2000, compared to net
earnings 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 $229.5
million, or $2.69 per share on a diluted basis, for the nine months ended
October 1, 2000. Excluding the after-tax gain on sale of business of $13.1
million recognized in the first quarter of 2000, net earnings were $216.4
million, or $2.54 per diluted share, for the nine months ended October 1, 2000,
compared to net earnings of $185.2 million, or $2.09 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 nine months ended October 1, 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 Nine Months Ended
October 1, 2000 October 3, 1999 October 1, 2000 October 3, 1999
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers $816.8 $769.3 $2,325.6 $2,137.1
Segment profit 103.6 95.3 262.5 218.5
----------------------------------------------------------------------------------------------------------------
</TABLE>
Sales to unaffiliated customers in the Power Tools and Accessories segment
during the third quarter of 2000 increased 6% over the 1999 level. Sales of
power tools and accessories in North America increased at a high single-digit
rate over the comparable quarter in 1999. Sales in North America during the
third quarter of 2000 benefited from high single-digit rates of growth in sales
of professional power tools, as well as double-digit rates of sales growth in
consumer power tools and outdoor products. Sales of accessories in North America
for the quarter ended October 1, 2000, grew at a low single-digit rate over the
corresponding period in 1999 despite significant price reductions taken in
response to customer and competitive pressures.
Sales in Europe in the third quarter of 2000 approximated the prior year
level despite adverse effects caused by fuel strikes in parts of Europe. Sales
of professional power tools in Europe increased at a high single-digit rate
during the third quarter of 2000 due to expansion of the DeWALT(R) professional
power tool line across Europe. That growth, however, was offset by mid
single-digit rate declines in sales of consumer power tools, outdoor products,
home products, and accessories in the third quarter of 2000 from the 1999 level.
Sales of consumer power tools were adversely impacted by competition from low-
priced imports.
<PAGE>
-18-
Sales in other geographic areas increased at a double-digit rate in the
third quarter of 2000 over the 1999 levels, driven by strong sales growth in
Mexico, Central America, South America, and Asia.
Sales to unaffiliated customers in the Power Tools and Accessories segment
during the first nine months of 2000 increased 9% over the 1999 level. Sales of
power tools and accessories in North America increased at a double-digit rate
for the nine months ended October 1, 2000, over the comparable period of 1999.
Sales in North America benefited from double-digit rates of growth in sales of
DeWALT professional power tools, outdoor products, and home products. Sales of
consumer power tools increased at a high single-digit rate over the 1999 level.
In addition, sales of accessories in North America during the nine months ended
October 1, 2000, increased at a mid single-digit rate over the 1999 level.
Sales in Europe during the first nine months of 2000 increased at a low
single-digit rate over the 1999 level. That increase stemmed from a double-digit
growth rate in sales of professional power tools and a mid single-digit growth
rate in sales of outdoor products, but was partially offset by sales declines in
consumer power tools as competition by low-priced imports had an adverse effect
on the business.
Sales in other geographic areas increased at a double-digit rate in the
first nine months of 2000 over the 1999 levels. This sales growth was driven by
strong results in Mexico, Central America, South America, and Asia.
Segment profit as a percentage of sales for the Power Tools and Accessories
segment was 12.7% and 11.3% for the three- and nine-month periods ended October
1, 2000, respectively, compared to 12.4% and 10.2%, for the three- and
nine-month periods ended October 3, 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 nine-month periods ended October
1, 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 Nine Months Ended
October 1, 2000 October 3, 1999 October 1, 2000 October 3, 1999
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers $217.6 $220.1 $638.1 $638.0
Segment profit 31.2 33.1 78.4 86.1
----------------------------------------------------------------------------------------------------------------
</TABLE>
Sales to unaffiliated customers in the Hardware and Home Improvement
segment decreased by 1% for the three months ended October 1, 2000, from the
1999 level. Sales of plumbing products in North America increased at a high
single-digit rate in the third quarter of 2000 over the corresponding period in
1999. That increase was more than offset by a mid single-digit rate decrease in
sales of security hardware in North America and a low single-digit rate decrease
in sales of security hardware in Europe in the third quarter of 2000 from the
corresponding period in
<PAGE>
-19-
1999. The decrease in sales of security hardware in North America is due, in
part, to lost listings of Titan(R) product as a result of a line review at a
major customer during the first quarter of 2000 and to competition by low cost
imports in retail channels.
Sales to unaffiliated customers in the Hardware and Home Improvement
segment for the nine months ended October 1, 2000, approximated the 1999 level.
Sales of plumbing products in North America increased at a double-digit rate
over the corresponding period in 1999. That growth was offset by decreased sales
of security hardware in North America, which were negatively impacted during the
first nine months of 2000 by the lost listings of TITAN product previously
described. The effect of the lost TITAN listings 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 nine
months of 2000 approximated the prior year's level.
Segment profit as a percentage of sales for the Hardware and Home
Improvement segment was 14.3% and 12.3% for the three and nine months ended
October 1, 2000, respectively, compared to 15.0% and 13.5% for the three and
nine months ended October 3, 1999, respectively. Segment profit as a percentage
of sales in both the three and nine months ended October 1, 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. In
addition, profitability was negatively impacted by transitional costs related to
the closing of a plant in Anaheim, California, and the cost of moving a
pack-to-order operation to a Fort Mill, North Carolina facility. 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 and improved manufacturing absorption due to higher
sales levels, 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 Nine Months Ended
October 1, 2000 October 3, 1999 October 1, 2000 October 3, 1999
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers $126.8 $119.4 $394.5 $372.7
Segment profit 20.7 19.5 67.1 62.2
----------------------------------------------------------------------------------------------------------------
</TABLE>
Sales to unaffiliated customers in the Fastening and Assembly Systems
segment increased by 6% for both the three- and nine-month periods ended October
1, 2000, over the corresponding 1999 levels, due, in part, to strong sales to
industrial customers in North America and to strong growth in Asia. That growth
was partially offset by lower sales in the North American automotive sector.
Sales for both the three- and nine-month periods ended October 1, 2000,
benefited 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 16.3% for both the three months ended October 1, 2000, and
October 3, 1999. Segment profit as a percentage of sales was 17.0% for the nine
months ended October 1, 2000, compared to 16.7% for the comparable period last
year. The increased profitability during the nine months ended
<PAGE>
-20-
October 1, 2000, stemmed from Six Sigma and other productivity initiatives, as
well as higher margin new products
FINANCIAL CONDITION
Operating activities provided cash of $94.3 million for the nine months ended
October 1, 2000, compared to $12.9 million of cash provided for the
corresponding period in 1999. The increase in cash generation during the nine
months ended October 1, 2000, was primarily driven by decreased investment in
inventories in 2000. During the nine months ended October 3, 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
nine months ended October 1, 2000, also benefited from the timing of certain
interest and tax payments.
As part of its capital management, 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. At October 1, 2000, days sales
outstanding improved by approximately three days from the corresponding period
in 1999; however, average inventory turns decreased slightly from the
corresponding period in 1999.
Investing activities for the nine months ended October 1, 2000, used cash
of $129.0 million compared to $59.1 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 nine months of 2000 compared to the
corresponding period in 1999. In addition, the Corporation had a net cash inflow
from hedging activities of $.2 million for the first nine months of 2000,
compared to a net cash inflow from hedging activities of $32.1 million for the
first nine months of 1999. The main contributor to the net cash inflow from
hedging activities during 1999 was the maturation 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. Benefiting
cash flow from investing activities 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 nine months ended October 1, 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 provided cash of $32.8 million for the nine-month
period ended October 1, 2000, compared to cash provided of $104.7 million during
the first nine months of 1999. The decrease in cash from financing activities
principally resulted from higher cash expenditures for stock repurchases during
the first nine months of 2000. During the nine months ended October 1, 2000, the
Corporation repurchased 5,201,000 shares of its common stock at an aggregate
cost of $191.9 million. During the same period in 1999, the Corporation
repurchased 1,015,900 shares of its common stock at an aggregate cost of $53.3
million. The increased cash usage for share
<PAGE>
-21-
repurchases was partially offset by lower cash expenditures for payments on
long-term debt during the nine months ended October 1, 2000, compared to the
corresponding period in 1999.
At October 1, 2000, the Corporation had remaining authorization from its
Board of Directors to repurchase an additional 2,249,595 shares of its common
stock. On October 19, 2000, the Corporation's Board of Directors increased this
authorization by three million shares.
During the period from October 2, 2000, to October 29, 2000, the
Corporation repurchased an additional 1,103,000 shares of its common stock at an
aggregate cost of $35.2 million. Future share repurchases are anticipated.
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 nine months ended October 1, 2000, the Corporation had
negative free cash flow of $52.1 million compared to negative free cash flow of
$75.1 million for the corresponding period in 1999.
The variable rate debt to total debt ratio, after taking interest rate
hedges into account, was 60% at October 1, 2000, compared to 52% at December 31,
1999. Average debt maturity was 4.7 years at October 1, 2000, compared to 6.2
years at December 31, 1999.
Included in current maturities of long-term debt at October 1, 2000, are
the Corporation's 6.625% notes in the amount of $208.7 million, which mature in
November 2000. The Corporation intends to replace these notes with additional
long-term financing.
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 balance 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
<PAGE>
-22-
levels; economic uncertainty in Asia and Latin America; sluggish economic
conditions in Europe; and economic slowing in North America.
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 October 1, 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 capped forward purchase contracts resulted in the net issuance of
158,397 shares of common stock during the nine months ended October 1, 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
10(a) Form of Severance Benefits Agreement by and between the
Corporation and approximately 11 of its key employees.
10(b) Severance Benefits Agreement, dated August 2, 2000, by and between
the Corporation and Nolan D. Archibald.
10(c) Severance Benefits Agreement, dated August 2, 2000, by and between
the Corporation and Charles E. Fenton.
10(d) Severance Benefits Agreement, dated August 2, 2000, by and between
the Corporation and Paul A. Gustafson.
10(e) Severance Benefits Agreement, dated August 2, 2000, by and between
the Corporation and Paul F. McBride.
10(f) Amendment No. 3 to The Black & Decker Supplemental Retirement
Savings Plan dated as of July 20, 2000.
12 Computation of Ratios.
27 Financial Data Schedule.
On July 24, 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 July 24, 2000, the Corporation had reported its earnings
for the three months ended July 2, 2000.
The Corporation did not file any other reports on Form 8-K during the
three-month period ended October 1, 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: November 3, 2000
