UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER
December 31, 1999 1-1553
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THE BLACK & DECKER CORPORATION
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(Exact name of registrant as specified in its charter)
Maryland 52-0248090
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(State of Incorporation) (I.R.S. Employer
Identification Number)
Towson, Maryland 21286
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: 410-716-3900
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, par value New York Stock Exchange
$.50 per share Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of January 28, 2000, was $3,280,608,594.
The number of shares of Common Stock outstanding as of January 28, 2000, was
87,192,255.
The exhibit index as required by Item 601(a) of Regulation S-K is included in
Item 14 of Part IV of this report.
Documents Incorporated by Reference: Portions of the registrant's definitive
Proxy Statement for the 2000 Annual Meeting of Stockholders are incorporated by
reference in Part III of this Report.
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1
PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
The Black & Decker Corporation (collectively with its subsidiaries, the
Corporation), incorporated in Maryland in 1910, is a global marketer and
manufacturer of quality products used in and around the home and for commercial
applications. With products and services marketed in over 100 countries, the
Corporation enjoys worldwide recognition of strong brand names and a superior
reputation for quality, design, innovation, and value.
The Corporation is one of the world's leading producers of power tools, power
tool accessories, and residential security hardware, and the Corporation's
product lines hold leading market share positions in these industries. The
Corporation is a major global supplier of engineered fastening and assembly
systems. The Corporation is one of the leading producers of faucets in North
America. These assertions are based on total volume of sales of products
compared to the total market for those products and are supported by market
research studies sponsored by the Corporation as well as independent industry
statistics available through various trade organizations and periodicals,
internally generated market data, and other sources.
As more fully described in Management's Discussion and Analysis of Financial
Condition and Results of Operations included in Item 7 of Part II of this report
under the caption "Strategic Repositioning" and in Note 2 of Notes to
Consolidated Financial Statements included in Item 8 of Part II of this report,
in January 1998, the Board of Directors approved a comprehensive strategic
repositioning of the Corporation, consisting of three separate elements.
The Corporation completed the first element of the strategic repositioning
plan in 1998 through the divestiture of its non-strategic businesses: True
Temper Sports, its recreational products business; Emhart Glass, its glass
container-forming and inspection equipment business; and the household products
businesses (other than certain assets associated with the Corporation's cleaning
and lighting business) in North America, Central America, the Caribbean, South
America (excluding Brazil), and Australia. In connection with the divestitures
of these businesses during 1998, the Corporation received aggregate cash
proceeds, net of selling expenses and taxes paid, of approximately $625 million
and recognized a pre-tax gain on sale of businesses of $114.5 million ($16.5
million after tax). The net proceeds from these divestitures were utilized in
the repurchase of a portion of the Corporation's outstanding common stock and to
fund the restructuring program described below.
The second element of the strategic repositioning plan - the repurchase of
approximately 10% of its outstanding common stock over a two-year period - was
completed during 1999 when the Corporation repurchased 610,900 shares of common
stock at an aggregate cost of $32.1 million, supplementing the 9,025,400 shares
of common stock repurchased during 1998 at an aggregate cost of $464.3 million.
Net proceeds from the sale of divested businesses were used to fund the stock
repurchase program.
As of December 31, 1999, the Corporation neared completion of the third
element of the strategic repositioning plan - a restructuring program undertaken
to reduce fixed costs. The Corporation commenced the restructuring program and
recorded a restructuring charge of $164.7 million during 1998. During 1999, the
Corporation recognized $13.1 million of additional restructuring and exit costs,
offset by a gain realized in 1999 on the sale of a facility, exited as part of
the restructuring actions taken in 1998, that had a fair value exceeding its net
book value at the time of the 1998 charge and by the reversal of $4.2 million of
accruals, which were no longer required.
As a consequence of the strategic repositioning plan, the Corporation elected
to change the basis upon which it evaluates goodwill for impairment effective
January 1, 1998. The change, from the undiscounted cash flow basis to the
discounted cash flow basis, resulted in the write-off of $900 million of
goodwill through a non-cash charge to operations in the first quarter of 1998.
For additional information about the strategic repositioning plan and the
change in accounting with respect to the measurement of goodwill impairment, see
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in Item 7 of Part II of this report under the caption
"Strategic Repositioning" and Note 2 of Notes to Consolidated Financial
Statements included in Item 8 of Part II of this report.
(b) FINANCIAL INFORMATION ABOUT BUSINESS SEGMENTS
The Corporation operates in three reportable business segments: Power Tools and
Accessories, including consumer and professional power tools and accessories,
electric lawn and garden tools, electric cleaning and lighting products, and
product service; Hardware and Home Improvement, including security hardware and
plumbing products; and Fastening and Assembly Systems. For additional
information about these segments, see Note 17 of Notes to Consolidated Financial
Statements included in Item 8 of Part II, and Management's Discussion and
Analysis of Financial Condition and Results of Operations included in Item 7 of
Part II of this report.
(c) NARRATIVE DESCRIPTION OF THE BUSINESS
The following is a brief description of each of the Corporation's reportable
business segments.
Power Tools and Accessories
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The Power Tools and Accessories segment has worldwide responsibility for the
manufacture and sale of consumer (home use) and professional power tools and
accessories, outdoor products (composed of electric lawn and garden tools), and
electric cleaning and lighting products, as well as for product service. In
addition, the Power Tools and Accessories segment has responsibility for the
sale of plumbing products to customers outside of the United States and Canada
and for sales of the retained portion of the household products business, which
is principally in Europe and Brazil. Power tools
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include both corded and cordless electric power tools, such as drills,
screwdrivers, saws, sanders, and grinders; Workmate(R) project centers and
related products; and bench and stationary machinery. Accessories include
accessories and attachments for power tools. Outdoor products include a variety
of both corded and cordless electric lawn and garden tools, such as hedge and
yard (string) trimmers, lawn mowers, edgers, blower/vacuums, power sprayers, and
related lawn and garden accessories. Electric cleaning and lighting products
include cordless upright and hand-held vacuums, flexible flashlights, and wet
scrubbers.
Power tools, electric lawn and garden tools, electric cleaning and lighting
products, and related accessories are marketed around the world under the BLACK
& DECKER name as well as other trademarks and trade names, including, without
limitation, DEWALT; ELU; VERSAPAK; WOOD HAWK; WIZARD; PIVOT DRIVER; SANDSTORM;
WORKMATE; FIRESTORM; MOUSE; QUANTUM PRO; SCRUGUN; HOLGUN; WILDCAT; POWERDRIVER;
QUATTRO; ALLIGATOR; POWERFILE; TWISTLOK; VERSA-CLUTCH; GROOM `N' EDGE; VAC `N'
MULCH; MASTERVAC; LEAFBUSTER; STRIMMER; POWER COMBI; REFLEX; HEDGE HOG; HEDGE
HOG XB; GRASS HOG; LEAF HOG; EDGE HOG; LOG HOG; 4 X 4; DUSTBUSTER; SCUMBUSTER;
FLOORBUSTER; SNAKELIGHT; SPOTLITER; SAFELITER; SERIES 20; SERIES 40; SERIES 60;
B&D; PIRANHA; ROCK CARBIDE; BULLET; PILOT POINT; SCORPION ANTI-SLIP; MAGNETIC
DRILL AND DRIVE SYSTEM; RAPID LOAD; TOUGH PACK; and MASTER SERIES.
The composition of the Corporation's sales by product groups for 1999, 1998,
and 1997 is included in Note 17 of Notes to Consolidated Financial Statements
included in Item 8 of Part II of this report. Within each product group shown,
there existed no individual product that accounted for greater than 10% of the
Corporation's consolidated sales for 1999, 1998, or 1997.
The Corporation's product service program supports its power tools, electric
lawn and garden tools, and electric cleaning and lighting products. Replacement
parts and product repair services are available through a network of
company-operated service centers, which are identified and listed in product
information material generally included in product packaging. At December 31,
1999, there were approximately 135 such service centers, of which roughly
two-thirds were located in the United States. The remainder were located around
the world, primarily in Canada, Europe, and Asia. These company-operated service
centers are supplemented by several hundred authorized service centers operated
by independent local owners. The Corporation also operates a reconditioning
center in which power tools, electric lawn and garden tools, and electric
cleaning and lighting products are reconditioned and then re-sold through
numerous company-operated factory outlets and service centers.
Most of the Corporation's consumer power tools, electric lawn and garden
tools, and electric cleaning and lighting products sold in the United States
carry a two-year warranty, pursuant to which the consumer can return defective
products during the two years following the purchase in exchange for a
replacement product or repair at no cost to the consumer. Most of the
Corporation's professional power tools sold in the United States carry a
one-year warranty with similar provisions. Products sold outside of the United
States generally have similar warranty arrangements. Such arrangements vary,
however, depending upon local market conditions and laws and regulations.
The Corporation's product offerings in the Power Tools and Accessories
segment are sold primarily to retailers, wholesalers, distributors, and jobbers,
although some reconditioned power tools, electric lawn and garden tools, and
electric cleaning and lighting products are sold through company-operated
service centers and factory outlets directly to end users. Sales to The Home
Depot, one of the segment's customers, accounted for greater than 10% of the
Corporation's consolidated sales for 1999, 1998, and 1997. For additional
information regarding sales to The Home Depot, see Note 17 of Notes to
Consolidated Financial Statements included in Item 8 of Part II of this report.
The principal materials used in the manufacturing of products in the Power
Tools and Accessories segment are plastics, aluminum, copper, steel, certain
electronic components, and batteries. These materials are used in various forms.
For example, aluminum or steel may be used in the form of wire, sheet, bar, and
strip stock.
The materials used in the various manufacturing processes are purchased on
the open market, and the majority are available through multiple sources and are
in adequate supply. The Corporation has experienced no significant work
stoppages to date as a result of shortages of materials. The Corporation has
certain long-term commitments for the purchase of various component parts and
raw materials and believes that it is unlikely that any of these agreements
would be terminated prematurely. Alternate sources of supply at competitive
prices are available for most, if not all, materials for which long-term
commitments exist. The Corporation believes that the termination of any of these
commitments would not have a material adverse effect on operations. From time to
time, the Corporation enters into commodity hedges on certain raw materials used
in the manufacturing process to reduce the risk of market price fluctuations. As
of December 31, 1999, the amount of product under commodity hedges was not
material to the Corporation.
As a global marketer and manufacturer, the Corporation purchases materials
and supplies from suppliers in many different countries around the world.
Certain of the finished products and component parts are purchased from
suppliers that have manufacturing operations in mainland China. In addition, the
Corporation carries on manufacturing operations in that country. China has been
granted Normal Trade Relations (NTR) status through early July 2000, and
currently there are no significant trade restrictions or tariffs imposed on such
products. The Corporation has investigated alternate sources of supply and
production arrangements in case the NTR status is not extended. Alternative
sources of supply are available, or can be developed, for many of these
products, and alternative production arrangements can be made available at
certain of the Corporation's other manufacturing facilities. The Corporation
believes that, although there could be some disruption in the supply of certain
of these finished products and component parts if China's NTR status is not
extended or if significant trade restrictions or tariffs are imposed, the impact
would not have a material adverse effect on the operating results of the Power
Tool and Accessories segment over the
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long term. However, the Corporation believes that, in the event that China's NTR
status is not extended or significant trade restrictions or tariffs are imposed,
the impact would likely have a significant negative effect on the operating
results of the Power Tool and Accessories segment, and therefore the
Corporation, over the short term. For purposes of evaluating the impact on the
operating results of the Power Tools and Accessories segment in the event that
China's NTR status is not extended or that significant trade restrictions or
tariffs are imposed, the Corporation defines the long term as an estimated
period of time in excess of 18 to 24 months from inception of such action and
the short term as an estimated period of time from inception of such action
extending for the next 18 to 24 months.
Principal manufacturing and assembly facilities of the power tools, electric
lawn and garden tools, electric cleaning and lighting products, and accessories
businesses in the United States are located in Fayetteville, North Carolina, and
Easton and Hampstead, Maryland. Principal distribution facilities in the United
States, other than those located at the manufacturing facilities listed above,
are located in Fort Mill, South Carolina, and Rancho Cucamonga, California.
Principal manufacturing and assembly facilities of the power tools, electric
lawn and garden tools, electric cleaning and lighting products, and accessories
businesses outside of the United States are located in Buchlberg, Germany;
Perugia, Italy; Spennymoor and Rotherham, England; Mexicali, Mexico; Uberaba,
Brazil; and Suzhou, China. The principal distribution facilities outside of the
United States, other than those located at the manufacturing facilities listed
above, were located in Northampton, England, and Idstein, Germany. The Idstein
facility was sold in late 1999 and is being replaced in 2000 by a managed
central-European distribution center in Tongeren, Belgium.
For additional information with respect to these and other properties owned
or leased by the Corporation, see Item 2, "Properties."
The Corporation holds various patents and licenses on many of its products
and processes in the Power Tools and Accessories segment. Although these patents
and licenses are important, the Corporation is not materially dependent on such
patents or licenses with respect to its operations.
The Corporation holds various trademarks that are employed in its businesses
and operates under various trade names, some of which are stated above. The
Corporation believes that these trademarks and trade names are important to the
marketing and distribution of its products.
A significant portion of the Corporation's sales in the Power Tools and
Accessories segment is derived from the do-it-yourself and home modernization
markets, which generally are not seasonal in nature. However, sales of certain
consumer and professional power tools tend to be higher during the period
immediately preceding the Christmas gift-giving season, while the sales of most
electric lawn and garden tools are at their peak during the winter and early
spring period. Most of the Corporation's other product lines within this segment
generally are not seasonal in nature, but may be influenced by other general
economic trends.
The Corporation is one of the world's leaders in the manufacturing and
marketing of portable power tools, electric lawn and garden tools, and
accessories. Worldwide, the markets in which the Corporation sells these
products are highly competitive on the basis of price, quality, and after-sale
service. A number of competing domestic and foreign companies are strong,
well-established manufacturers that compete on a global basis. Some of these
companies manufacture products that are competitive with a number of the
Corporation's product lines. Other competitors restrict their operations to
fewer categories, and some offer only a narrow range of competitive products.
Competition from certain of these manufacturers has been intense in recent years
and is expected to continue.
Hardware and Home Improvement
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The Hardware and Home Improvement segment has worldwide responsibility for the
manufacture and sale of security hardware products, for the manufacture of
plumbing products, and for the sale of plumbing products to customers in the
United States and Canada. Security hardware products consist of residential and
commercial door locksets, including high-security and electronic locks and
locking devices; door closers, hinges and exit devices; and master keying
systems. Plumbing products consist of a variety of conventional and decorative
lavatory, kitchen, and tub and shower faucets, bath accessories, and replacement
parts.
Security hardware products are marketed under a variety of trademarks and
trade names, including, without limitation, KWIKSET; KWIKSET PLUS; TITAN; TITAN
COMMERCIAL SERIES; ACCESSONE; LOCKMINDER; NIGHTSIGHT; THE SOCIETY BRASS
COLLECTION; BLACK & DECKER; BLACK & DECKER PLUS; GEO; DOM; DIAMANT; PENTAGON;
NEMEF; and CORBIN CO. Plumbing products are marketed under the trademarks and
trade names PRICE PFISTER; BLACK & DECKER; THE PFABULOUS PFAUCET WITH THE PFUNNY
NAME; THE PFABULOUS PFAUCET. PFOREVER; PFOREVER WARRANTY; PFILTER PFAUCET; THE
SOCIETY BRASS COLLECTION; TWISTPFIT; JOB PACK; GENESIS; CARMEL; TRIBECA; PARISA;
GEORGETOWN; SAVANNAH; EUROSTYLE; and MATCHMAKERS.
The composition of the Corporation's sales by product groups for 1999, 1998,
and 1997 is included in Note 17 of Notes to Consolidated Financial Statements
included in Item 8 of Part II of this report. Within each product group shown,
there existed no individual product that accounted for greater than 10% of the
Corporation's consolidated sales for 1999, 1998, or 1997.
Most of the Corporation's security hardware products sold in the United
States carry a warranty, pursuant to which the consumer can return defective
product during the warranty term in exchange for a replacement product at no
cost to the consumer. Warranty terms vary by product and range from a 10-year to
a lifetime warranty with respect to mechanical operations and from a 5-year to a
lifetime warranty with respect to finish. Products sold outside of the United
States for residential use generally have similar warranty arrangements. Such
arrangements vary, however, depending upon local market conditions and laws and
regulations. Most of the Corporation's plumbing products sold in the United
States carry a lifetime warranty with respect to function and a limited lifetime
warranty with respect to finish, pursuant to which the consumer can return
defective product in exchange for a replacement product or repair at no cost to
the consumer.
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The Corporation's product offerings in the Hardware and Home Improvement
segment are sold primarily to retailers, wholesalers, distributors, and jobbers.
Certain security hardware products are sold to commercial, institutional, and
industrial customers. Sales to The Home Depot, one of the segment's customers,
accounted for greater than 10% of the Corporation's consolidated sales for 1999,
1998, and 1997. For additional information regarding sales to The Home Depot,
see Note 17 of Notes to Consolidated Financial Statements included in Item 8 of
Part II of this report.
The principal materials used in the manufacturing of products in the Hardware
and Home Improvement segment are plastics, aluminum, steel, brass, zamak, and
ceramics.
The materials used in the various manufacturing processes are purchased on
the open market, and the majority are available through multiple sources and are
in adequate supply. The Corporation has experienced no significant work
stoppages to date as a result of shortages of materials. The Corporation has
certain long-term commitments for the purchase of various component parts and
raw materials and believes that it is unlikely that any of these agreements
would be terminated prematurely. Alternate sources of supply at competitive
prices are available for most, if not all, materials for which long-term
commitments exist. The Corporation believes that the termination of any of these
commitments would not have a material adverse effect on operations. From time to
time, the Corporation enters into commodity hedges on certain raw materials used
in the manufacturing process to reduce the risk of market price fluctuations. As
of December 31, 1999, the amount of product under commodity hedges was not
material to the Corporation.
As a global marketer and manufacturer, the Corporation purchases materials
and supplies from suppliers in many different countries around the world.
Certain of the finished products and component parts are purchased from
suppliers that have manufacturing operations in mainland China. As previously
noted, China has been granted Normal Trade Relations (NTR) status through early
July 2000, and currently there are no significant trade restrictions or tariffs
imposed on such products. The Corporation has investigated alternate sources of
supply and production arrangements in case the NTR status is not extended.
Alternative sources of supply are available, or can be developed, for many of
these products, and alternative production arrangements can be made available at
certain of the Corporation's other manufacturing facilities. The Corporation
believes that, although there could be some disruption in the supply of certain
of these finished products and component parts if China's NTR status is not
extended or if significant trade restrictions or tariffs are imposed, the impact
would not have a material adverse effect on the operating results of the
Hardware and Home Improvement segment.
Principal manufacturing and assembly facilities of the Hardware and Home
Improvement segment in the United States are located in Anaheim and Pacoima,
California; Denison, Texas; Waynesboro, Georgia; and Bristow, Oklahoma.
Principal manufacturing and assembly facilities of the Hardware and Home
Improvement segment outside of the United States are located in Bruhl, Germany;
Mexicali, Mexico; and Apeldoorn, Netherlands.
For additional information with respect to these and other properties owned
or leased by the Corporation, see Item 2, "Properties."
The Corporation holds various patents and licenses on many of its products
and processes in the Hardware and Home Improvement segment. Although these
patents and licenses are important, the Corporation is not materially dependent
on such patents or licenses with respect to its operations.
The Corporation holds various trademarks that are employed in its businesses
and operates under various trade names, some of which are stated above. The
Corporation believes that these trademarks and trade names are important to the
marketing and distribution of its products.
A significant portion of the Corporation's sales in the Hardware and Home
Improvement segment is derived from the do-it-yourself and home modernization
markets, which generally are not seasonal in nature, but may be influenced by
trends in the residential and commercial construction markets and other general
economic trends.
The Corporation is one of the world's leading producers of residential
security hardware and is one of the leading producers of faucets in North
America. Worldwide, the markets in which the Corporation sells these products
are highly competitive on the basis of price, quality, and after-sale service. A
number of competing domestic and foreign companies are strong, well-established
manufacturers that compete on a global basis. Some of these companies
manufacture products that are competitive with a number of the Corporation's
product lines. Other competitors restrict their operations to fewer categories,
and some offer only a narrow range of competitive products. Competition from
certain of these manufacturers has been intense in recent years and is expected
to continue.
Fastening and Assembly Systems
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The Corporation's Fastening and Assembly Systems segment has worldwide
responsibility for the manufacture and sale of an extensive line of metal and
plastic fasteners and engineered fastening systems for commercial applications,
including blind riveting, stud welding and assembly systems, specialty screws,
prevailing torque nuts and assemblies, insert systems, metal and plastic
fasteners, and self-piercing riveting systems. The fastening and assembly
systems products are marketed under a variety of trademarks and trade names,
including, without limitation, EMHART FASTENING TEKNOLOGIES; EMHART; DODGE;
GRIPCO; GRIPCO ASSEMBLIES; HELICOIL; NPR; PARKER-KALON; POP; POP-LOK; POWERLINK
30; T-RIVET; ULTRA-GRIP; TUCKER; WARREN; DRIL-KWIK; PARABOLT; JACK NUT; KALEI;
PLASTIFAST; PLASTI-KWICK; POPMATIC; POPNUT; POP-SERT; SWAGEFORM; WELDFAST; SWS;
SPLITFAST; NUT-FAST; and WELL-NUT.
The composition of the Corporation's sales by product groups for 1999, 1998,
and 1997 is included in Note 17 of Notes to Consolidated Financial Statements
included in Item 8 of Part II of this report. Within each product group shown,
there existed no individual product that accounted for greater than 10% of the
Corporation's consolidated sales for 1999, 1998, or 1997.
The principal markets for these products include the automotive,
transportation, construction, electronics, aerospace, machine tool, and
appliance industries. Substantial sales are made to automotive manufacturers
worldwide.
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Products are marketed directly to customers and also through distributors and
representatives. These products face competition from many manufacturers in
several countries. Product quality, performance, reliability, price, delivery,
and technical and application engineering services are the primary competitive
factors. Except for sales to automotive manufacturers, which historically
schedule plant shutdowns during July and August of each year, there is little
seasonal variation.
The Corporation owns a number of United States and foreign patents,
trademarks, and license rights relating to the fastening and assembly systems
business. While the Corporation considers those patents, trademarks, and license
rights to be valuable, it is not materially dependent upon such patents or
license rights with respect to its operations.
Principal manufacturing facilities of the Fastening and Assembly Systems
segment in the United States are located in Danbury, Connecticut; Montpelier,
Indiana; Campbellsville and Hopkinsville, Kentucky; and Mt. Clemens, Michigan.
Principal facilities outside of the United States are located in Birmingham,
England; Giessen, Germany; and Toyohashi, Japan. For additional information with
respect to these and other properties owned or leased by the Corporation, see
Item 2, "Properties."
The raw materials used in the fastening and assembly systems business consist
primarily of ferrous and nonferrous metals in the form of wire, bar stock, and
strip and sheet metals; plastics; and rubber. These materials are readily
available from a number of suppliers.
Backlog
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The following is a summary of total backlog by business segment, in millions of
dollars, as of the referenced dates.
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December 31,
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1999 1998
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Power Tools and Accessories $ 45 $ 56
Hardware and Home Improvement 27 29
Fastening and Assembly Systems 67 66
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$ 139 $ 151
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Other Information
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The Corporation's product development program for the Power Tools and
Accessories segment is coordinated from the Corporation's headquarters in
Towson, Maryland, in the United States and from Slough, England, outside of the
United States. Additionally, product development activities are performed at
facilities in Rotherham and Spennymoor, England; Brockville, Canada; Perugia,
Italy; and Idstein, Germany.
Product development activities for the Hardware and Home Improvement segment
are performed at facilities in Anaheim and Pacoima, California; and Apeldoorn,
Netherlands.
Product development activities for the Fastening and Assembly Systems segment
are currently performed at various product or business group headquarters or at
principal manufacturing locations as previously noted.
Costs associated with development of new products and changes to existing
products are charged to operations as incurred. See Note 1 of Notes to
Consolidated Financial Statements included in Item 8 of Part II of this report
for amounts of expenditures for product development activities.
As of December 31, 1999, the Corporation employed approximately 22,100
persons in its operations worldwide. Approximately 1,000 employees in the United
States are covered by collective bargaining agreements. During 1999, two
collective bargaining agreements in the United States were negotiated without
material disruption to operations. One agreement is scheduled for negotiation
during 2000. Also, the Corporation has government-mandated collective bargaining
arrangements or union contracts with employees in other countries. The
Corporation's operations have not been affected significantly by work stoppages
and, in the opinion of management, employee relations are good.
The Corporation's operations worldwide are subject to certain foreign,
federal, state, and local environmental laws and regulations. Many foreign,
federal, state and local governments also have enacted laws and regulations that
govern the labeling and packaging of products and limit the sale of products
containing certain materials deemed to be environmentally sensitive. These laws
and regulations not only limit the acceptable methods for disposal of products
and components that contain certain substances, but also require that products
be designed in a manner to permit easy recycling or proper disposal of
environmentally sensitive components such as nickel cadmium batteries. The
Corporation seeks to comply fully with these laws and regulations. Although
compliance involves continuing costs, it has not materially increased capital
expenditures and has not had a material adverse effect on the Corporation.
Pursuant to authority granted under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (CERCLA), the United States Environmental
Protection Agency (EPA) has issued a National Priority List (NPL) of sites at
which action is to be taken by the EPA or state authorities to mitigate the risk
of release of hazardous substances into the environment. The Corporation is
engaged in continuing activities with regard to various sites on the NPL and
other sites covered under CERCLA. As of December 31, 1999, the Corporation had
been identified as a potentially responsible party (PRP) in connection with
approximately 24 sites being investigated by federal or state agencies under
CERCLA. The Corporation also is engaged in site investigations and remedial
activities to address environmental contamination from past operations at
current and former manufacturing facilities in the United States and abroad.
To minimize the Corporation's potential liability, when appropriate,
management has undertaken, among other things, active participation in steering
committees established at the sites and has agreed to remediation through
consent orders with the appropriate government agencies. Due to uncertainty over
the Corporation's involvement in some of the sites, uncertainty over the
remedial measures to be adopted at various sites and facilities, and the fact
that imposition of joint and several liability with the right of contribution is
possible under CERCLA and other laws and regulations, the liability of the
Corporation with respect to any site at which remedial measures have not been
completed cannot be established with certainty. On the basis of periodic reviews
conducted with respect to these sites, however, the Corporation has established
appropriate liability accruals. As of December 31, 1999, the Corporation's
aggregate probable exposure with respect of environmental liabilities, for which
accruals have
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6
been established in the Consolidated Financial Statements, was $26.9 million.
With respect to environmental liabilities, the Corporation does not believe that
its liability with respect to any individual site will exceed $10.0 million.
In the opinion of management, the costs of compliance with respect to
environmental matters have been adequately accrued, and the ultimate resolution
of these matters will not have a material adverse effect on the Corporation. The
ongoing costs of compliance with existing environmental laws and regulations
have not had, nor are they expected to have, a material adverse effect upon the
Corporation's capital expenditures or financial position.
(d) FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
Reference is made to Note 17 of Notes to Consolidated Financial Statements,
entitled "Business Segments and Geographic Information", included in Item 8 of
Part II of this report.
(e) EXECUTIVE OFFICERS AND OTHER SENIOR OFFICERS OF THE CORPORATION
The current Executive Officers and Other Senior Officers of the Corporation,
their ages, current offices or positions, and their business experience during
the past five years are set forth below.
Nolan D. Archibald - 56
Chairman, President, and Chief Executive Officer;
January 1990 - present.
Paul A. Gustafson - 57
Executive Vice President of the Corporation and President - Fastening and
Assembly Systems Group,
December 1996 - present;
Group Vice President and President - Emhart Fastening Teknologies,
July 1996 - December 1996;
President - Emhart Fastening Teknologies,
April 1990 - July 1996.
Paul F. McBride - 43
Executive Vice President of the Corporation and President - Power Tools and
Accessories Group,
April 1999 - present;
Vice President - General Electric Company, GE Silicones,
January 1998 - April 1999;
President - GE Plastics Asia Pacific,
August 1997 - January 1998;
General Manager - GE Cycolac Resin,
October 1995 - July 1997;
General Manager - GE Plastics Automotive,
October 1993 - September 1995.
Charles E. Fenton - 51
Senior Vice President and General Counsel,
December 1996 - present;
Vice President and General Counsel,
May 1989 - December 1996.
Barbara B. Lucas - 54
Senior Vice President - Public Affairs and Corporate Secretary,
December 1996 - present;
Vice President - Public Affairs and Corporate Secretary,
July 1985 - December 1996.
Michael D. Mangan - 43
Senior Vice President and Chief Financial Officer,
January 2000 - present;
Vice President - Investor Relations,
November 1999 - January 2000;
Executive Vice President and Chief Financial Officer - The Ryland Group,
Inc.,
November 1994 - September 1999.
Thomas M. Schoewe - 47
Senior Vice President and Chief Financial Officer,
December 1996 - January 2000;
Vice President and Chief Financial Officer,
October 1993 - December 1996.
Mr. Schoewe left the Corporation in January 2000.
Leonard A. Strom - 54
Senior Vice President - Human Resources,
December 1996 - present;
Vice President - Human Resources,
May 1986 - December 1996.
Christopher T. Metz - 34
Vice President of the Corporation and President - Kwikset, Hardware and Home
Improvement Group,
July 1999 - present;
President - Kwikset, Hardware and
Home Improvement Group,
June 1999 - July 1999;
Vice President and General Manager - Professional Tools and Accessories,
Europe,
August 1996 - May 1999;
Director - Professional Power Tools, North American Power Tools,
July 1995 - July 1996;
Group Product Manager - North American Power Tools,
February 1994 - June 1995.
<PAGE>
7
Stephen F. Reeves - 40
Vice President - Finance and Strategic Planning,
January 2000 - present;
Vice President and Controller,
September 1996 - January 2000;
Corporate Controller,
May 1994 - September 1996.
James J. Roberts - 41
Vice President of the Corporation and President - Accessories, Power Tools
and Accessories Group,
May 1999 - present;
Vice President of the Corporation and Vice President/General Manager - U.S.
Accessories, Power Tools and Accessories Group,
December 1996 - May 1999;
Vice President and General Manager - U.S. Accessories,
August 1996 - December 1996;
Vice President and General Manager - Professional Power Tools, Europe,
April 1994 - August 1996.
Mark M. Rothleitner - 41
Vice President - Investor Relations and Treasurer,
January 2000 - present;
Vice President and Treasurer,
March 1997 - January 2000;
Treasurer - Dresser Industries, Inc.,
December 1996 - March 1997;
Assistant Treasurer, International,
June 1994 - December 1996.
Edward J. Scanlon - 45
Vice President of the Corporation and President - Commercial Operations,
Power Tools and Accessories Group,
May 1999 - present;
Vice President of the Corporation and Vice President/General Manager - The
Home Depot Division, Power Tools and Accessories Group,
December 1997 - May 1999;
Senior Vice President Sales - North American Power Tools and Accessories,
August 1995 - December 1997;
Vice President Sales - The Home Depot Division, North American Power Tools,
February 1994 - August 1995.
John W. Schiech - 41
Vice President of the Corporation and President - North American Professional
Power Tools, Power Tools and Accessories Group,
May 1999 - present;
Vice President of the Corporation and Vice President/General Manager - North
American Professional Power Tools, Power Tools and Accessories Group,
December 1997 - May 1999;
Vice President and General Manager - Professional Power Tools,
October 1995 - December 1997;
Vice President Engineering - North American Power Tools,
July 1994 - October 1995.
Frederik B. van den Bergh - 54
Vice President of the Corporation and President - European Power Tools, Power
Tools and Accessories Group,
July 1997 - present;
Executive Vice President, Coleman Company Inc., and President, Coleman
International,
May 1996 - July 1997;
Member, Board of Management, Braun A.G. Business Management and Group Sales,
April 1992 - May 1996.
(f) FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes statements that constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and that are
intended to come within the safe harbor protection provided by those sections.
By their nature, all forward-looking statements involve risk and uncertainties.
Actual results may differ materially from those contemplated by the
forward-looking statements for a number of reasons, including but not limited
to: market acceptance of the new products introduced in 1999 and scheduled for
introduction in 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 for
new product introductions; unforeseen competitive pressure or other difficulties
in maintaining
<PAGE>
8
mutually beneficial relationships with key distributors or in penetrating new
channels of distribution; adverse changes in currency exchange rates or raw
material commodity prices, both in absolute terms and relative to competitors'
risk profiles; delays in or unanticipated inefficiencies resulting from
manufacturing and administrative reorganization actions in progress or
contemplated by the strategic repositioning plan announced by the Corporation in
January 1998 and described herein; the degree of working capital investment
required to meet customer service levels; gradual improvement in the economic
environment in Asia and Latin America; and the continuation of economic growth
in North America which more than offsets economic softness in Europe.
In addition to the foregoing, the Corporation's ability to realize the
anticipated benefits of the restructuring actions undertaken in 1998 and 1999 is
dependent upon current market conditions, as well as the timing and
effectiveness of the relocation or consolidation of production and
administrative processes. The ability to realize the benefits inherent in the
balance of the restructuring actions is dependent on the selection and
implementation of economically viable projects in addition to the restructuring
actions taken to date.
ITEM 2. PROPERTIES
The Corporation operates 37 manufacturing facilities around the world, including
18 located outside of the United States in 9 foreign countries. The major
properties associated with each business segment are listed in "Narrative
Description of the Business" in Item 1(c) of Part I of this report.
The Corporation owns most of its facilities with the exception of the
following major leased facilities:
In the United States: Mt. Clemens, Michigan, and Hampstead and Towson,
Maryland.
Outside of the United States: Rotherham, England; Tongeren, Belgium; Idstein,
Germany; and Mexicali, Mexico.
Additional property both owned and leased by the Corporation in Towson,
Maryland, is used for administrative offices. Subsidiaries of the Corporation
lease certain locations primarily for smaller manufacturing and/or assembly
operations, service operations, sales and administrative offices, and for
warehousing and distribution centers. The Corporation also owns a manufacturing
plant which is located on leased land in Suzhou, China.
The Corporation's average utilization rate for its manufacturing facilities
for 1999 was in the range of 79% to 89%. The Corporation continues to evaluate
its worldwide manufacturing cost structure to identify opportunities to improve
capacity utilization and will take appropriate action as deemed necessary.
Management believes that its owned and leased facilities are suitable and
adequate to meet the Corporation's anticipated needs.
ITEM 3. LEGAL PROCEEDINGS
The Corporation is involved in various lawsuits in the ordinary course of
business. These lawsuits primarily involve claims for damages arising out of the
use of the Corporation's products and allegations of patent and trademark
infringement. The Corporation also is involved in litigation and administrative
proceedings involving employment matters and commercial disputes. Some of these
lawsuits include claims for punitive as well as compensatory damages. The
Corporation, using current product sales data and historical trends, actuarially
calculates the estimate of its exposure for product liability. The Corporation
is insured for product liability claims for amounts in excess of established
deductibles and accrues for the estimated liability as described above up to the
limits of the deductibles. All other claims and lawsuits are handled on a
case-by-case basis.
As previously noted under Item 1(e) of Part I of this report, the Corporation
also is party to litigation and administrative proceedings with respect to
claims involving the discharge of hazardous substances into the environment.
Certain of these matters assert damages and liability for remedial
investigations and clean-up costs with respect to sites at which the Corporation
has been identified as a PRP under federal and state environmental laws and
regulations. Other matters involve sites that the Corporation owns and operates
or previously sold.
The Corporation and a customer of the Corporation's former glass
container-forming and inspection equipment business are parties to two
arbitration proceedings pending in the Court of Arbitration of the International
Chamber of Commerce in London. In these proceedings, the customer alleges that
the Corporation breached two contracts for the construction and equipping of two
separate glass manufacturing plants owned by the customer and currently asserts
that it is entitled to damages of approximately $40 million. Although the
Corporation has sold its glass container-forming and inspection equipment
business, the Corporation has retained responsibility for the defense of these
proceedings and any damages awarded the customer in excess of $1 million
(exclusive of legal fees and other costs). The Corporation intends to defend
vigorously against the allegations made in these proceedings.
In the opinion of management, amounts accrued for awards or assessments in
connection with the matter specified above and with respect to environmental and
other litigation and administrative proceedings to which the Corporation is a
party are adequate and, accordingly, the ultimate resolution of these matters
will not have a material adverse effect on the Corporation. As of December 31,
1999, the Corporation had no known probable but inestimable exposures for awards
and assessments in connection with the matter specified above and with respect
to environmental and other litigation and administrative proceedings that could
have a material adverse effect on the Corporation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
<PAGE>
9
PART II
ITEM 5. MARKET FOR THE COMPANY'S STOCK AND RELATED STOCKHOLDER MATTERS
(a) MARKET INFORMATION
The Corporation's Common Stock is listed on the New York Stock Exchange and the
Pacific Stock Exchange.
The following table sets forth, for the periods indicated, the high and low
sale prices of the Common Stock as reported in the consolidated reporting system
for the New York Stock Exchange Composite Transactions:
- --------------------------------------------------------------------------------
Quarter 1999 1998
- --------------------------------------------------------------------------------
January to
March $60-1/16 to $47-5/8 $53-5/16 to $37-15/16
April to June $64-1/8 to $52-23/32 $60-13/16 to $48-3/4
July to
September $64-5/8 to $45-5/16 $65-1/2 to $41-5/8
October to
December $52-1/4 to $41 $58-1/2 to $38-15/16
- --------------------------------------------------------------------------------
(b) HOLDERS OF THE CORPORATION'S CAPITAL STOCK
As of January 28, 2000, there were 17,470 holders of record of the Corporation's
Common Stock.
(c) DIVIDENDS
The Corporation has paid consecutive quarterly dividends on its Common Stock
since 1937. Future dividends necessarily will depend upon the Corporation's
earnings, financial condition, and other factors. The Credit Facility does not
restrict the Corporation's ability to pay regular dividends in the ordinary
course of business on the Common Stock.
Quarterly dividends per common share for the most recent two years are as
follows:
- --------------------------------------------------------------------------------
Quarter 1999 1998
- --------------------------------------------------------------------------------
January to March $.12 $.12
April to June .12 .12
July to September .12 .12
October to December .12 .12
- --------------------------------------------------------------------------------
$.48 $.48
================================================================================
Common Stock:
- -------------
150,000,000 shares authorized, $.50 par value, 87,190,240 shares and 87,498,424
shares outstanding as of December 31, 1999 and 1998, respectively.
Preferred Stock:
- ----------------
5,000,000 shares authorized, without par value, no shares outstanding as of
December 31, 1999 and 1998.
(d) ANNUAL MEETING OF STOCKHOLDERS
The 2000 Annual Meeting of Stockholders of the Corporation is scheduled to be
held on April 25, 2000, at 9:00 a.m. at Black & Decker, 4041 Pleasant Road, Fort
Mill, South Carolina 29715.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FIVE-YEAR SUMMARY
- ----------------------------------------------------------------------------------------------------------------------------
(Millions of Dollars Except Per Share Data) 1999 1998(a) 1997 1996(b) 1995(c)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $4,520.5 $4,559.9 $4,940.5 $4,914.4 $4,766.1
Earnings (loss) from continuing operations 300.3 (754.8) 227.2 159.2 216.5
Earnings from discontinued operations (d) -- -- -- 70.4 38.4
Extraordinary items -- -- -- -- (30.9)
Net earnings (loss) 300.3 (754.8) 227.2 229.6 224.0
Net earnings (loss) per common share - basic:
Continuing operations 3.45 (8.22) 2.40 1.69 2.39
Discontinued operations -- -- -- .79 .45
Extraordinary items -- -- -- -- (.36)
Net earnings (loss) per common share - basic 3.45 (8.22) 2.40 2.48 2.48
Net earnings (loss) per common share - assuming dilution:
Continuing operations 3.40 (8.22) 2.35 1.66 2.29
Discontinued operations -- -- -- .73 .41
Extraordinary items -- -- -- -- (.33)
Net earnings (loss) per common share - assuming dilution 3.40 (8.22) 2.35 2.39 2.37
Total assets 4,012.7 3,852.5 5,360.7 5,153.5 5,545.3
Long-term debt 847.1 1,148.9 1,623.7 1,415.8 1,704.5
Cash dividends per common share .48 .48 .48 .48 .40
- ----------------------------------------------------------------------------------------------------------------------------
<FN>
(a)Earnings from continuing operations for 1998 include a write-off of goodwill
of $900.0 million, a restructuring charge of $164.7 million before taxes
($117.3 million after taxes), and a gain on the sale of businesses of $114.5
million before taxes ($16.5 million after taxes).
(b)Earnings from continuing operations for 1996 include a restructuring charge
of $91.3 million before taxes ($74.8 million after taxes) and a $10.6 million
reduction in income tax expense as a result of the reversal of a portion of
the Corporation's deferred tax asset valuation allowance.
(c)Earnings from continuing operations for 1995 include a $65.0 million
reduction in income tax expense as a result of the reversal of a portion of
the Corporation's deferred tax asset valuation allowance. In 1995, the
Corporation recognized a $30.9 million extraordinary loss from early
extinguishment of debt, net of income tax benefit of $2.6 million.
(d)Earnings from discontinued operations represent the earnings, net of
applicable income taxes, of the Corporation's discontinued PRC segment. The
earnings of the discontinued PRC segment do not reflect any charge for
interest allocated to that segment by the Corporation.
</FN>
</TABLE>
<PAGE>
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Corporation reported net earnings of $300.3 million, or $3.40 per share on a
diluted basis, for the year ended December 31, 1999, compared to a net loss of
$754.8 million, or $8.22 per share on a diluted basis, for the year ended
December 31, 1998. The net loss of $754.8 million for 1998 was principally due
to the recognition of pre-tax restructuring and exit costs of $164.7 million
($117.3 million net of tax) and the write-off of goodwill in the amount of
$900.0 million, partially offset by a pre-tax gain on the sale of businesses of
$114.5 million ($16.5 million net of tax). Excluding the effects of the gain on
sale of businesses, restructuring charge, and goodwill write-off, net earnings
for the year ended December 31, 1998, would have been $246.0 million, or $2.63
per diluted share, compared to net earnings of $300.3 million, or $3.40 per
diluted share, for the year ended December 31, 1999. The rise in net earnings in
1999 over the 1998 level, excluding those items described in the preceding
sentence, resulted from lower restructuring-related expenses and operating and
productivity improvements.
As more fully described under the caption "Strategic Repositioning" and in
Note 2 of Notes to Consolidated Financial Statements, by the end of 1999, the
Corporation neared completion of the comprehensive strategic repositioning plan,
which was approved by the Board of Directors in January 1998.
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 Note 2 of Notes to Consolidated Financial Statements,
as of December 31, 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. Also, on January 26, 1998, the Board of
Directors elected to authorize a change in the basis upon which the Corporation
evaluates goodwill for impairment.
The first element of the strategic repositioning plan - designed to focus the
Corporation on its strategic businesses - was completed in 1998 through the
divestiture of non-strategic businesses: True Temper Sports, its recreational
products business; Emhart Glass, its glass container-forming and inspection
equipment business; and the household products businesses (other than certain
assets associated with the Corporation's cleaning and lighting business) in
North America, Central America, the Caribbean, South America (excluding Brazil),
and Australia. The Corporation received proceeds of approximately $625 million,
net of selling expenses and taxes paid, in 1998 for these businesses.
In June 1998, the Corporation closed on the sale of its household products
businesses in North America, Central America, the Caribbean, and South America
(excluding Brazil). The household products business in Australia was sold
earlier in 1998.
In September 1998, the Corporation announced that it had closed on the sale
of Emhart Glass. Also in September 1998, the Corporation completed the
recapitalization of True Temper Sports. The Corporation retained approximately
6% of preferred and common stock of the recapitalized company, now known as True
Temper Corporation, valued at approximately $4 million. In addition to cash
proceeds included in the aggregate $625 million noted above, the Corporation
received a senior, increasing-rate discount note, bearing interest at a variable
rate, in an initial accreted amount of $25.0 million in connection with the
recapitalization. Because True Temper Corporation is a highly leveraged entity
and there 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.
The pre-tax gain on the sale of businesses of $114.5 million ($16.5 million
net of tax) recognized by the Corporation during 1998 represented the gain on
the divested Emhart Glass, True Temper Sports, and the household products
businesses (excluding certain assets associated with the cleaning and lighting
product lines) in North America, Central America, the Caribbean, and South
America (excluding Brazil). That gain was net of an impairment loss of
approximately $15 million recognized in June 1998 in connection with the
then-anticipated exit from the household products business in Brazil. Due to a
lack of response from qualified buyers, the Corporation has ceased actively
marketing its household products business in Brazil.
Because True Temper Sports, Emhart Glass, and the household products
businesses in North America, Central America, the Caribbean, South America
(excluding Brazil), and Australia were not treated as discontinued operations
under generally accepted accounting principles, they remained a part of the
Corporation's reported results from continuing operations until their sale.
Under the accounting prescribed by Statement of Financial Accounting Standards
(SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of, the Corporation reflected the long-lived
assets of these businesses at the lower of their carrying amounts or their
expected fair value less costs to sell, and ceased depreciation of the
businesses' fixed assets and amortization of goodwill related to these
businesses during the period held for sale. Had depreciation not ceased on the
fixed assets of these businesses while they were held for sale, aggregate
depreciation in 1998 through the dates of their sale or recapitalization would
have approximated $10 million.
<PAGE>
11
Proceeds from these divestitures, net of selling expenses and taxes paid, of
approximately $625 million were utilized in the repurchase of a portion of the
Corporation's common stock and to fund the restructuring program described
below.
The second element of the strategic repositioning plan - the planned
repurchase of approximately 10% of its common stock over a two-year period - was
also completed in 1999. During 1999, the Corporation repurchased 610,900 shares
of its common stock at an aggregate cost of $32.1 million, bringing the total
repurchased under this element of the strategic repositioning plan in both 1999
and 1998 to 9,636,300 shares at an aggregate cost of $496.4 million.
By the close of 1999, the Corporation neared completion of the third element
of the strategic repositioning plan - a restructuring program undertaken to
reduce fixed costs. As part of the restructuring program, the Corporation
undertook significant change in its European power tools and accessories
businesses by consolidating distribution and transportation and centralizing
finance, marketing, and support services. These changes in Europe were
accompanied by investment in state-of-the-art information systems similar to the
investments made in the North American business. In addition, the worldwide
power tools and accessories business rationalized its manufacturing plant
network, resulting in the closure of a number of manufacturing plants. The
restructuring program also included actions to improve the cost position of
other businesses.
This restructuring program resulted in a pre-tax charge of $164.7 million
during the year ended December 31, 1998 ($117.3 million after tax).
Restructuring and exit costs recognized by the Corporation during 1998 were
principally associated with severance benefits and voluntary retirement program
costs, as well as the write-down to net realizable value of certain land,
buildings, and equipment in accordance with SFAS No. 121.
In connection with the restructuring component of the strategic repositioning
plan, the Corporation recorded severance obligations when the liability became
probable under its established severance policies or as provided statutorily or,
when no policy or statutory provision existed or applied, based on when the
benefits were communicated to affected employees. The timing of the charge was
dictated based on the later of: (i) approval by management having the ultimate
authority to approve the actions; (ii) resolution of contingencies affecting the
feasibility of, or returns from, the project; or (iii) if applicable,
notification of affected employees.
The severance component of the restructuring reserve established in 1998, as
adjusted in 1999, is net of adjustments that occurred due to: (i) actual
attrition factors that differed from those initially estimated; (ii) more
cost-effective methods of severing employment that became probable, typically
based on negotiations with trade unions or local government institutions; and
(iii) amendments to the initial plan that were approved by the appropriate level
of management, based primarily on changes in market conditions that dictated a
modification to the intended course of action. None of the adjustments to the
severance obligations recorded as part of the strategic repositioning plan was
individually material.
A summary of restructuring activity during 1998 is as follows (in millions of
dollars):
- --------------------------------------------------------------------------------
Utilization of Reserve
Reserve As During 1998 Reserve at
Established ---------------------- December 31,
in 1998 Cash Non-Cash 1998
- --------------------------------------------------------------------------------
Severance benefits
and cost of
voluntary
retirement
program $121.3 $(52.8) $(28.6) $39.9
Write-down to
net realizable
value of certain
land, buildings,
and equipment 29.5 -- (29.5) --
Other charges 13.9 (2.8) (.2) 10.9
- --------------------------------------------------------------------------------
Total $164.7 $(55.6) $(58.3) $50.8
================================================================================
Asset write-downs taken as part of the 1998 restructuring charge principally
related to the book value of manufacturing equipment and furniture and fixtures
net of estimated salvage, which was negligible. The carrying values of land and
building to be abandoned or sold were written down to their fair value,
generally based on third party offers, when that fair value was less than net
book value. Gains were realized when two facilities, exited as part of the
restructuring, that had a fair value exceeding their net book value at the time
of the charge, were sold. Those gains, when realized, were reported as a
reduction of the 1998 restructuring charge.
In the preceding table, the $28.6 million non-cash utilization of the reserve
established for severance benefits and cost of voluntary retirement program
represents the present value of payments to be made as a result of a voluntary
retirement program for employees in the United States. Those payments will be
made from the assets of the Corporation's pension plan trust rather than from
working capital of the Corporation.
During 1999, the Corporation recognized $13.1 million of additional pre-tax
restructuring and exit costs associated with restructuring of North American
accessories and packaging operations and Latin American power tool operations,
exiting certain small foreign entities, and the settlement of claims regarding a
divested business. That $13.1 million charge was offset, however, by an $8.9
million gain realized in 1999 on the sale of a facility, exited as part of the
restructuring actions taken in 1998, that had a fair value exceeding its net
book value at the time of the charge and by the reversal of $4.2 million of
severance accruals established as part of the 1998 charge, which will no longer
be required.
<PAGE>
12
A summary of restructuring activity during 1999 is set forth below (in millions
of dollars):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Reserves
Established
Reserve at in 1999, Utilization of Reserve Reserve at
December 31, Net of Gain Reversal of ---------------------- December 31,
1998 Recognized Reserves Cash Non-Cash 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Severance benefits and cost of
voluntary retirement program $39.9 $ 4.4 $(4.2) $(21.4) $ - $18.7
Write-down to net realizable value of
certain land, buildings, and equipment - (4.2) - - 4.2 -
Other charges 10.9 4.0 - (5.3) (5.9) 3.7
- ------------------------------------------------------------------------------------------------------------------------------------
Total $50.8 $ 4.2 $(4.2) $(26.7) $(1.7) $22.4
====================================================================================================================================
</TABLE>
In the preceding table, the negative $1.7 million of non-cash reserve usage
in 1999 represents $7.2 million of non-cash reserve usage, including an
additional $4.7 million write-down of property to its net realizable value,
offset by the $8.9 million gain on the sale of the facility described
previously.
In addition to the restructuring and exit costs recognized as part of the
strategic repositioning plan, the Corporation also recognized related expenses,
incremental to the cost of the restructuring plans being implemented, that do
not qualify as restructuring or exit costs under generally accepted accounting
principles ("restructuring-related expenses"). Operating results for the years
ended December 31, 1999 and 1998, included $15.0 million and $44.4 million,
respectively, of restructuring-related expenses. Included in the $44.4 million
of restructuring-related expenses recognized in 1998 were $11.5 million of
inventory write-downs associated with products in the retained cleaning and
lighting business that were being discontinued.
Incremental benefits realized during 1999 from the restructuring element of
the strategic repositioning plan were approximately $40 million. Those benefits,
in addition to the estimated $30 million of restructuring benefits realized in
1998, resulted in annual restructuring savings for 1999 of $70 million. The
Corporation estimates that an additional $30 million in restructuring benefits
will be realized - in roughly equal amounts - in 2000 and 2001 as it realizes
the benefits of restructuring actions in the European power tools business and
in the Hardware and Home Improvement segment. As a result, total expected
benefits from the restructuring element of the strategic repositioning plan are
estimated at approximately $100 million on an annual, pre-tax basis by the end
of 2001.
As indicated in Note 2 of Notes to Consolidated Financial Statements, the
severance and voluntary retirement accrual included in the $164.7 million
restructuring charge taken in 1998, as adjusted in 1999, related to the
elimination of approximately 5,000 positions. As the Corporation shifts certain
production and other activities and replaces certain employees who retired under
the United States voluntary retirement program, it is anticipated that an
additional 2,200 positions will be created. As a result, the Corporation's
estimate of annual, pre-tax savings of approximately $100 million, expected once
the restructuring actions taken in 1998 and 1999 are fully implemented, reflects
the savings from a net reduction of approximately 2,800 positions. The
Corporation's estimate of savings was based upon a comparison to the
pre-restructuring cost base. Actual savings will likely be mitigated by such
factors as continued economic deterioration in foreign markets and decisions to
increase costs in such areas as promotion and research and development above
levels that were otherwise assumed.
As a consequence of the strategic repositioning plan, the Corporation elected
to change its method of measuring goodwill impairment from an undiscounted cash
flow approach to a discounted cash flow approach, effective January 1, 1998. The
Corporation believes that measurement of the value of goodwill through the
discounted cash flow approach, as more fully described in Note 2 of Notes to
Consolidated Financial Statements, is preferable in that the discounted cash
flow measurement facilitates the timely identification of impairment of the
carrying value of investments in businesses and provides a more current - and
with respect to the businesses sold, provided a more realistic - valuation than
the undiscounted approach. The adoption of this discounted cash flow approach,
however, may result in greater earnings volatility because decreases in
projected discounted cash flows of certain businesses will result in timely
recognition of future impairment.
In connection with this change in accounting with respect to the measurement
of goodwill impairment, a non-cash charge of $900.0 million was recognized in
January 1998 ($9.80 per share both on a basic and a diluted basis for the year
ended December 31, 1998). The $900.0 million write-down, which related to
goodwill associated with the Fastening and Assembly Systems segment and the
Hardware and Home Improvement segment and included a $40.0 million write-down of
goodwill associated with one of the divested businesses, represented the amount
necessary to reduce the carrying values of goodwill for those businesses to the
Corporation's best estimate, as of January 1, 1998, of those businesses' future
discounted cash flows using the methodology described in Note 2 of Notes to
Consolidated Financial Statements. As a result of the goodwill write-off and the
cessation of goodwill amortization related to the businesses sold, goodwill
amortization declined to $25.7 million and $25.2 million for the years ended
December 31, 1999 and 1998, respectively, from $63.3 million for the year ended
December 31, 1997.
<PAGE>
13
SALES
The following chart provides an analysis of the consolidated changes in sales
for the years ended December 31, 1999, 1998, and 1997.
- --------------------------------------------------------------------------------
For the Year Ended December 31,
-------------------------------
(Dollars in millions) 1999 1998 1997
- --------------------------------------------------------------------------------
Total sales $4,520.5 $4,559.9 $4,940.5
================================================================================
Unit volume - existing (a) 10% 2% 5%
Unit volume - disposed (b) (8)% (8)% --
Price (1)% (1)% (1)%
Currency (2)% (1)% (3)%
- --------------------------------------------------------------------------------
Change in total sales (1)% (8)% 1%
================================================================================
(a) Represents change in unit volume for businesses where year-to-year
comparability exists.
(b) Represents change in unit volume for businesses that were included in prior
years results but were sold or recapitalized in 1998.
Total consolidated sales for the year ended December 31, 1999, were $4.52
billion, which represented a 1% decrease from 1998 sales of $4.56 billion. Unit
volume growth in existing businesses was offset by unit volume declines
associated with the divested household products, recreational products, and
glass container-forming and inspection equipment businesses. The negative
effects of a stronger United States dollar compared to other foreign currencies
caused a 2% decrease in the Corporation's consolidated sales during 1999
compared to the prior year. Pricing actions, taken in response to competitive
pressures and as a result of volume-related price reductions associated with
higher unit volumes in the North American power tools and accessories business,
had a 1% negative effect on sales for the year ended December 31, 1999, compared
to the 1998 level.
Total consolidated sales for the year ended December 31, 1998, were $4.56
billion, which represented an 8% decrease from 1997 sales of $4.94 billion. The
negative effects of a stronger United States dollar compared to most major
foreign currencies caused a 1% decrease in the Corporation's consolidated sales
during 1998 from the prior year's level. Pricing actions had a 1% negative
effect on sales for 1998 as compared to 1997. Total unit volume declined by 6%
during 1998 from the 1997 level, as increased unit volume in the Corporation's
existing businesses was more than offset by unit volume declines as a result of
the divestitures during 1998 of the household products businesses in North
America, Central America, the Caribbean, South America (excluding Brazil), and
Australia, of the glass container-forming and inspection equipment business, and
of the recreational products business.
EARNINGS
The Corporation reported consolidated operating income of $536.3 million on
sales of $4,520.5 million in 1999 compared to a consolidated operating loss of
$466.2 million on sales of $4,559.9 million in 1998 and to consolidated
operating income of $489.3 million on sales of $4,940.5 million in 1997.
Consolidated operating income as a percentage of sales was 11.9% for 1999
compared to 10.6% for 1998, excluding the $900.0 million write-off of goodwill,
the $114.5 million gain on sale of businesses, and the $164.7 million
restructuring charge, all recognized in 1998, and 9.9% for 1997.
As more fully described under the caption "Strategic Repositioning",
operating results for the years ended December 31, 1999 and 1998, included $15.0
million and $44.4 million, respectively, of restructuring-related expenses.
Excluding the effects of these restructuring-related expenses in 1999 and 1998
and, for 1998, excluding the restructuring and exit costs, the goodwill
write-off, and the gain on sale of businesses, operating income as a percentage
of sales was 12.2% for 1999 compared to 11.6% and 9.9% for 1998 and 1997,
respectively. In addition to the realization of benefits from restructuring
actions taken in 1998, a major contributor to this increase in operating income
as a percentage of sales from 1997 to 1998 was the $38.1 million reduction in
goodwill amortization in 1998 as compared to 1997. This reduced goodwill
amortization was a result of the goodwill write-off and cessation of
amortization of goodwill associated with the divested businesses.
Consolidated gross margin as a percentage of sales for 1999 was 37.3%
compared to 35.3% for 1998 and 35.9% for 1997. The increase in gross margin
during 1999 over 1998 primarily resulted from significantly lower
restructuring-related expenses, cost benefits from restructuring actions taken,
and Six Sigma and other productivity improvements, partially offset by excess
capacity and product mix issues in the Kwikset business of the Hardware and Home
Improvement segment and negative pricing actions. The decline in gross margin
during 1998 from 1997 primarily resulted from adverse foreign exchange effects
on product costs, principally in the European operations; competitive pressures
that continued to constrain pricing; manufacturing inefficiencies in the
security hardware portion of the Hardware and Home Improvement segment; and
restructuring-related expenses; partially offset by higher production volumes
and the decline in sales of lower margin products in the household products,
recreational products, and glass container-forming and inspection equipment
businesses as a result of the divestiture of those businesses in 1998.
Consolidated selling, general, and administrative expenses as a percentage of
sales were 25.4% for 1999 compared to 24.7% for 1998 and 25.9% for 1997. The
increase in selling, general, and administrative expenses as a percentage of
sales in 1999 over 1998 resulted, in part, from increased promotional
activities, particularly in the power tools and accessories businesses in North
America, which increased the number of end-user specialists. The improvements in
1998 compared to 1997 were the result of lower goodwill amortization in 1998
compared to 1997 as a result of the goodwill write-off and cessation of
amortization of goodwill related to the businesses to be sold, as well as
benefits realized from restructuring actions taken in 1998, partially offset by
restructuring-related expenses in 1998.
Consolidated net interest expense (interest expense less interest income) was
$95.8 million in 1999 compared to $114.4 million in 1998 and $124.6 million in
1997. The lower net interest expense for 1999 compared to 1998 was primarily the
result of lower average borrowing levels. The lower net
<PAGE>
14
interest expense for 1998 compared to 1997 was primarily the result of lower
debt levels in 1998, due to improved cash flows from operating activities and
debt reductions that occurred with net proceeds from business sales in excess of
amounts used to repurchase common stock, and as a result of more favorable
interest rates and debt mix in 1998.
Consolidated other (income) expense for 1999 was not significant.
Consolidated other expense for 1998 and 1997 principally consisted of currency
losses and, for 1997, the discount on the sale of receivables.
Consolidated income tax expense of $141.0 million was recognized on the
Corporation's pre-tax income of $441.3 million for 1999. Consolidated income tax
expense of $166.5 million was recognized on the Corporation's pre-tax loss of
$588.3 million for 1998. Consolidated income tax expense of $122.3 million was
recognized on the Corporation's pre-tax income of $349.5 million in 1997.
Excluding the income tax benefits of $47.4 million related to the pre-tax
restructuring charge of $164.7 million recognized in 1998, the non-deductible
write-off of goodwill in the amount of $900.0 million recognized in 1998, and
the income tax expense of $98.0 million recognized on the $114.5 million pre-tax
gain on sale of businesses in 1998, the Corporation's reported tax rate was 32%
in 1999 and 1998 compared to 35% in 1997. The decrease in the effective tax rate
in 1999 and 1998 compared to that in 1997 resulted primarily from the lower
amount of goodwill amortization, which is not tax deductible, due to the
write-off of goodwill in 1998. An analysis of taxes on earnings is included in
Note 12 of Notes to Consolidated Financial Statements.
The Corporation reported net earnings of $300.3 million, or per share
earnings of $3.45 and $3.40 on a basic and a diluted basis, respectively, for
the year ended December 31, 1999. The Corporation reported a net loss of $754.8
million, or $8.22 per share both on a basic and a diluted basis, for the year
ended December 31, 1998, principally as a result of the goodwill write-off and
restructuring and exit costs, less the gain on sale of businesses, recognized in
1998. Because the Corporation reported a net loss for the year ended December
31, 1998, the calculation of reported earnings per share on a diluted basis
excludes the impact of stock options since their inclusion would be
anti-dilutive - that is, decrease the per-share loss. For comparative purposes,
however, the dilutive effect of these options has been included for the
evaluation of the Corporation's performance that follows. Excluding the effects
of the goodwill write-off of $900.0 million, after-tax restructuring and exit
costs of $117.3 million, and the after-tax gain on sale of businesses of $16.5
million, net earnings for 1998 would have been $246.0 million or $2.63 per share
on this diluted basis compared to net earnings of $300.3 million, or $3.40 per
diluted share, for 1999 and net earnings of $227.2 million, or $2.35 per diluted
share, for 1997.
BUSINESS SEGMENTS
As more fully described in Note 17 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.
Expenses directly related to reportable business segments booked in
consolidation and, thus, excluded from segment profit for the reportable
business segments were $12.4 million, $20.4 million, and $17.6 million for the
years ended December 31, 1999, 1998, and 1997, respectively. The $12.4 million
of segment-related expenses excluded from segment profit in 1999 primarily
related to reserves established in consolidation for certain legal matters
associated with the Power Tools and Accessories and Hardware and Home
Improvement segments. The $20.4 million of segment-related expenses excluded
from segment profit in 1998 primarily consisted of unbudgeted
restructuring-related expenses, including the aforementioned $11.5 million
write-down of cleaning and lighting inventory to net realizable value associated
with the product line rationalization undertaken to integrate the retained
cleaning and lighting business into the Power Tools and Accessories operations.
The $17.6 million of segment-related expenses excluded from segment profit in
1997 consisted of certain unbudgeted costs recognized by the Corporation on
behalf of the Power Tools and Accessories segment, primarily related to
deteriorating business conditions in Asia, and on behalf of the Hardware and
Home Improvement segment, primarily related to the cost of programs initiated by
the prior management of that segment.
As indicated above and in Note 17 of Notes to Consolidated Financial
Statements, the determination of segment profit excludes restructuring and exit
costs. Of the $164.7 million pre-tax charge taken in 1998 for restructuring and
exit costs, $97.8 million related to businesses in the Power Tools and
Accessories segment, $15.4 million related to the businesses in the Hardware and
Home Improvement segment, $3.3 million related to businesses in the Fastening
and Assembly Systems segment, and $17.1 million related to divested businesses.
The balance of $31.1 million related principally to the $28.6 million charge for
the voluntary retirement for employees in the United States, including those of
all three reportable business segments and of the Corporate center. As more
fully described under the caption "Strategic Repositioning", during 1999, the
Corporation recognized $13.1 million of additional pre-tax restructuring and
exit costs associated with restructuring of the Power Tools and Accessories
segment, exiting certain small foreign entities in the Power Tools and
Accessories and Hardware and Home Improvement segments, and the settlement of
claims regarding a divested business. That $13.1 million charge was offset,
however, by an $8.9 gain realized in 1999 on the sale of a Power Tools facility,
exited as part of the restructuring actions taken in 1998, that had a fair value
exceeding its net book value at the time of the 1998 charge and by the reversal
during 1999 of $4.2 million of restructuring reserves established in the prior
year.
Power Tools and Accessories
- ---------------------------
Segment sales and profit for the Power Tools and Accessories segment, determined
on the basis described in Note 17 of Notes to Consolidated Financial Statements,
were as follows (in millions of dollars):
- --------------------------------------------------------------------------------
For the Year Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------
Sales to unaffiliated customers $3,209.3 $2,946.4 $2,936.4
Segment profit 377.3 293.4 290.7
- --------------------------------------------------------------------------------
<PAGE>
15
Sales to unaffiliated customers in the Power Tools and Accessories segment
during 1999 increased 9% over the 1998 level despite negative pricing actions
taken in response to competitive pressures and as a result of volume-related
price reductions. Sales of power tool products in North America benefited from
double-digit rates of growth in sales of consumer and DEWALT(R) professional
power tools due, in part, to new product introductions. Sales of accessories in
North America grew at a high single-digit rate during 1999 over the 1998 level.
Sales in Europe during 1999 increased slightly over the 1998 level as solid
growth in some countries was offset by weakness in Germany. Sales in other
geographic areas during 1999 increased over the 1998 level, but that increase
was offset by the impact of a currency devaluation in Brazil.
Segment profit as a percentage of sales for the Power Tools and Accessories
segment was 11.8% in 1999 compared to 10.0% in 1998. Higher sales in 1999,
coupled with improved gross margins resulting from restructuring benefits as
well as Six Sigma and other productivity improvements, more than offset
increased selling, general, and administrative expenses in 1999 to support
investments in marketing, promotion, and technical staff.
Sales to unaffiliated customers in the Power Tools and Accessories segment
during 1998 approximated the 1997 level despite competitive pressures that
resulted in price reductions. Sales of power tool products in North America
benefited from double-digit rates of growth in sales of the DEWALT professional
power tools and outdoor products lines in the United States coupled with a
double-digit growth rate in the power tools business in Canada. This growth in
North America, however, was offset by a sharp decline in sales of cleaning and
lighting products. In addition, sales of accessories in North America during
1998 declined slightly from the 1997 level as that business undertook SKU
reduction efforts and exited its fastening line in 1998.
Sales in Europe increased at a low-single-digit rate in 1998 over the 1997
level as increased sales of consumer and professional power tools and
accessories offset declines in sales of household products and cleaning and
lighting products. Sales of outdoor products in Europe in 1998 approximated the
1997 level.
Sales in other geographic areas declined at a double-digit rate in 1998 from
the 1997 levels, due principally to continued economic turmoil in Asia during
1998 and worsening economic conditions in Latin America during the latter part
of 1998.
Segment profit as a percentage of sales for the Power Tools and Accessories
segment was 10.0% in 1998 compared to 9.9% in 1997.
Hardware and Home Improvement
- -----------------------------
Segment sales and profit for the Hardware and Home Improvement segment,
determined on the basis described in Note 17 of Notes to Consolidated Financial
Statements, were as follows (in millions of dollars):
- --------------------------------------------------------------------------------
For the Year Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------
Sales to unaffiliated customers $881.8 $851.1 $804.8
Segment profit 124.0 125.2 121.3
- --------------------------------------------------------------------------------
Sales to unaffiliated customers in the Hardware and Home Improvement segment
during 1999 increased 4% over the 1998 level as a 6% increase in sales by
Kwikset was mitigated by a 1% increase in sales by Price Pfister and a slight
decline in sales by the European security hardware businesses.
Segment profit as a percentage of sales for the Hardware and Home Improvement
segment declined from 14.7% in 1998 to 14.1% in 1999. This decrease in 1999 was
driven by margin declines at Kwikset, which continues to experience excess
capacity and product mix issues, and European security hardware but was
partially offset by significant margin improvements at Price Pfister, stemming
from Six Sigma and other productivity initiatives as well as higher margin new
products.
Sales to unaffiliated customers in the Hardware and Home Improvement segment
during 1998 increased 6% over the 1997 level, due principally to increased sales
of security hardware and plumbing products in North America, driven by sales of
TITAN(R) locksets and new plumbing product introductions, and of security
hardware in Europe. These increases were partially offset by lower sales of
security hardware products in Latin America and Asia.
Segment profit as a percentage of sales for the Hardware and Home Improvement
segment was 14.7% in 1998 compared to 15.1% in 1997. Segment profit as a
percentage of sales in 1998 declined from the 1997 level as decreased
profitability with respect to security hardware products, principally associated
with manufacturing inefficiencies, more than offset profitability gains in
plumbing products experienced in 1998. Those gains, however, were in comparison
to an extremely weak 1997.
Fastening and Assembly Systems
- ------------------------------
Segment sales and profit for the Fastening and Assembly Systems segment,
determined on the basis described in Note 17 of Notes to Consolidated Financial
Statements, were as follows (in millions of dollars):
- --------------------------------------------------------------------------------
For the Year Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------
Sales to unaffiliated customers $497.7 $463.0 $451.3
Segment profit 84.3 76.6 69.7
- --------------------------------------------------------------------------------
Sales to unaffiliated customers in the Fastening and Assembly Systems segment
during 1999 were 7% higher than the 1998 level as strong sales to automotive
customers in North America and Europe offset weakness in the European industrial
sector.
Segment profit as a percentage of sales for the Fastening and Assembly
Systems segment increased from 16.5% in 1998 to 16.9% in 1999.
Sales to unaffiliated customers in the Fastening and Assembly Systems segment
increased 3% in 1998 over the 1997 level, due in part to the strength of
European automotive sales, despite lower automotive sales during 1998 as a
result of softness in Asia and the effects of a strike at General Motors in the
United States.
Segment profit as a percentage of sales for the Fastening and Assembly
Systems segment increased from 15.4% in 1997 to 16.5% in 1998 as a result of
cost reduction initiatives.
<PAGE>
16
HEDGING ACTIVITIES
The Corporation has a number of manufacturing sites throughout the world and
sells its products in more than 100 countries. As a result, it is exposed to
movements in the exchange rates of various currencies against the United States
dollar and against the currencies of countries in which it manufactures. The
major foreign currencies in which foreign currency risks exist are the euro (and
its legacy currencies, including the deutsche mark, Dutch guilder, French franc,
and Italian lira), pound sterling, Canadian dollar, Swedish krona, Japanese yen,
Australian dollar, Mexican peso, and Brazilian real. Through its foreign
currency activities, the Corporation seeks to minimize the risk that cash flows
resulting from the sales of products manufactured in a currency different from
that of the selling subsidiary will be affected by changes in exchange rates.
At the time of the euro's introduction on January 1, 1999, the eleven
participating member countries of the European Monetary Union established fixed
conversion rates between their legacy currencies and the euro. During a
three-year phase-in period during which special conversion rules apply, the
legacy currencies will continue to be used as legal tender. On January 1, 2002,
the legacy currencies will be canceled and replaced by the euro as legal tender.
The Corporation has initiated actions to ensure that computer systems in its
European operation will be in a position to accommodate the adoption of the euro
by no later than January 1, 2002. The Corporation believes that the introduction
of the euro has resulted in increased competitive pressures in continental
Europe due to the heightened transparency of intra-European pricing structures.
From time to time, currency devaluations may occur in countries in which the
Corporation sells or manufactures its product. While the Corporation will take
actions to mitigate the impacts of any future currency devaluations, there is no
assurance that such devaluations will not adversely affect the Corporation.
In January 1999, a devaluation of the Brazilian real took place and, in
response, a lesser devaluation in the value of the Mexican peso occurred.
Because the Corporation's exposures in Brazil and Mexico either offset or were
partially hedged, the impact of the January 1999 devaluations on its reported
results was not material. While the Corporation will take actions to mitigate
its exposures, there can be no assurance that any future devaluation of the
Brazilian real or Mexican peso will not adversely affect the Corporation.
Assets and liabilities of subsidiaries located outside of the United States
are translated at rates of exchange at the balance sheet date as more fully
explained in Note 1 of Notes to Consolidated Financial Statements. The resulting
translation adjustments are included in the accumulated other comprehensive
income component of stockholders' equity. During 1999, translation adjustments,
recorded in the accumulated other comprehensive income component of
stockholders' equity, decreased stockholders' equity by $10.2 million compared
to a decrease of $37.7 million in 1998.
In order to minimize the volatility of reported equity, the Corporation
hedges, on a limited basis, the exposure to foreign currency fluctuations on its
net investments in subsidiaries located outside of the United States through the
use of currency swaps, forward contracts, and options. These hedging activities
generate cash inflows and outflows that offset the translation adjustment.
During 1999 and 1998, these activities netted to a cash inflow of $30.4 million
and $3.4 million, respectively. The corresponding gains and losses on these
hedging activities were recorded in the accumulated other comprehensive income
component of stockholders' equity. The increased cash inflow from hedging
activities in 1999 compared to 1998 resulted from the maturities of certain
interest rate swaps that swapped from fixed United States dollars to fixed
foreign currencies. Also included in the accumulated other comprehensive income
component were the costs of maintaining the hedge portfolio of foreign exchange
contracts. These hedge costs were not significant in 1999 and 1998.
As more fully explained in Note 10 of Notes to Consolidated Financial
Statements, the Corporation seeks to issue debt opportunistically, whether at
fixed or variable rates, at the lowest possible costs. Based upon its assessment
of the future interest rate environment and its desired variable rate debt to
total debt ratio, the Corporation may later convert such debt from fixed to
variable or from variable to fixed interest rates, or from United States
dollar-based rates to rates based upon another currency, through the use of
interest rate swap agreements.
In order to meet its goal of fixing or limiting interest costs, the
Corporation maintains a portfolio of interest rate hedge instruments. The
variable rate debt to total debt ratio, after taking interest rate hedges into
account, was 52% at December 31, 1999, compared to 47% at December 31, 1998, and
63% at December 31, 1997. At December 31, 1999, average debt maturity was 6.2
years compared to 6.7 years at December 31, 1998, and 3.9 years at December 31,
1997.
Interest Rate Sensitivity
- -------------------------
The following table provides information as of December 31, 1999, about the
Corporation's derivative financial instruments and other financial instruments
that are sensitive to changes in interest rates, including interest rate swaps
and debt obligations. For debt obligations, the table presents principal cash
flows and related average interest rates by contractual maturity dates. For
interest rate swaps, the table presents notional principal amounts and
weighted-average interest rates by contractual maturity dates. Notional amounts
are used to calculate the contractual payments to be exchanged under the
interest rate swaps. Weighted-average variable rates are generally based on the
London Interbank Offered Rate (LIBOR) as of the reset dates. The cash flows of
these instruments are denominated in a variety of currencies. Unless otherwise
indicated, the information is presented in U.S. dollar equivalents, which is the
Corporation's reporting currency, as of December 31, 1999.
<PAGE>
17
<TABLE>
<CAPTION>
Principal Payments and Interest Rate Detail by Contractual Maturity Dates
- ------------------------------------------------------------------------------------------------------------------------------------
Fair Value
(Assets)/
(U.S. Dollars in Millions) 2000 2001 2002 2003 2004 Thereafter Total Liabilities
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities
Short-term borrowings
Variable rate (U.S. dollars) $144.7 $ -- $ -- $ -- $ -- $ -- $ 144.7 $ 144.7
Average interest rate 6.47% 6.47%
Variable rate (other currencies) $ 38.5 $ -- $ -- $ -- $ -- $ -- $ 38.5 $ 38.5
Average interest rate 7.04% 7.04%
Long-term debt
Fixed rate (U.S. dollars) $208.7 $35.8 $32.3 $309.5 $ -- $454.6 $1,040.9 $1,004.3
Average interest rate 6.63% 8.95% 8.86% 7.50% 6.87% 7.14%
Fixed rate (other currencies) $ 4.5 $ 4.9 $ 1.8 $ .7 $ -- $ -- $ 11.9 $ 11.9
Average interest rate 5.50% 5.35% 1.03% 1.05% 4.43%
Variable rate (U.S. dollars) $ -- $ 7.5 $ -- $ -- $ -- $ -- $ 7.5 $ 7.5
Average interest rate L+.70%(a)
Interest Rate Derivatives
Fixed to Variable Rate Interest
Rate Swaps (U.S. dollars) $ 50.0 $ -- $ -- $125.0 $ -- $275.0 $ 450.0 $ 26.7
Average pay rate (b)
Average receive rate 5.54% 6.02% 6.01% 5.96%
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(a)Variable rate specified is based upon LIBOR plus the specified margin over
LIBOR.
(b)The average pay rate is based upon 6-month forward LIBOR, except for $150.0
million in notional principal amount which matures after 2004 and is based
upon 3-month forward LIBOR.
</FN>
</TABLE>
Foreign Currency Exchange Rate Sensitivity
- ------------------------------------------
As discussed above, the Corporation is exposed to market risks arising from
changes in foreign exchange rates. As of December 31, 1999, the Corporation has
hedged a substantial portion of its 2000 estimated foreign currency transactions
using forward exchange contracts and purchased options. The Corporation
estimated the effect on 2000 gross profits, based upon a recent estimate of
foreign exchange exposures, of a uniform 10% strengthening in the value of the
United States dollar and a uniform 10% weakening in the value of the United
States dollar. The larger loss computed was that under an assumed uniform 10%
strengthening of the United States dollar, which the Corporation estimated would
have the effect of reducing gross profits for 2000 by approximately $19 million.
In addition to their direct effects, changes in exchange rates also affect
sales volumes and foreign currency sales prices as competitors' products become
more or less attractive. The sensitivity analysis of the effects of changes in
foreign currency exchange rates described above does not reflect a potential
change in sales levels or local currency prices nor does it reflect higher
exchange rates, compared to those experienced during 1999, inherent in the
foreign exchange hedging portfolio at December 31, 1999.
IMPACT OF YEAR 2000
The year 2000 ("Y2K") issue arose out of the fact that many computer programs
were written using two digits to identify the applicable year rather than four
digits. It was feared that computer programs with date-sensitive software or
equipment with embedded date-sensitive technology might misinterpret a two-digit
code; for example, "00," entered in a date-field for the year "2000," might be
wrongly interpreted as the year "1900." This error could result in system or
equipment failures or miscalculations and disruptions of operations.
During the last several years, the Corporation has spent approximately $13.6
million to address issues related to the Y2K problem. These costs include
internal information systems resources redirected to the Corporation's Y2K
program. Other costs for implementing systems improvements within the
Corporation that were planned primarily for operational and supply-chain
improvements and were not accelerated as a result of Y2K concerns are not
included in the foregoing costs. The external costs associated with these
systems improvements, which are significant, generally have been capitalized as
part of other assets. The internal information systems department costs that are
included above as Y2K costs are expensed as incurred, were funded by cash flow
from operations, and did not have a material adverse effect on the Corporation.
As of December 31, 1999, the Corporation had completed all aspects of its Y2K
readiness program and, through February 10, 2000, the Corporation has not
experienced any significant problems related to the Y2K issue.
FINANCIAL CONDITION
Operating activities generated cash of $375.5 million for the year ended
December 31, 1999, compared to $366.3 million of cash generated for the year
ended December 31, 1998. This increase in cash generation was the result of
higher operating income and a decrease in restructuring spending. These benefits
to cash flow from operating activities were partially offset by cash usage from
increases in working capital, primarily inventory and accounts receivable,
compared to cash generation from reductions in working capital in 1998. The
increased inventory levels during 1999 reflect an investment by the Power Tools
and Accessories business, principally in North America, to better meet service
level requirements
<PAGE>
18
compared to the reduction in inventories that occurred during 1998 which
adversely affected service levels. Accounts receivable increased principally as
a result of higher sales in the fourth quarter of 1999 compared to the prior
year.
In addition to analyzing absolute cash flows, the Corporation reviews certain
working capital metrics. For example, the Corporation evaluates its accounts
receivable and inventory levels through the computation of days sales
outstanding and inventory turnover ratio, respectively. The number of days sales
outstanding as of December 31, 1999, approximated the 1998 level. Inventory
turns, however, decreased during 1999 due to the increase in inventory levels
discussed in the preceding paragraph. The Corporation's goal is to increase
inventory turns in 2000.
Investing activities for 1999 used cash of $108.6 million compared to cash
generated of $531.4 million in 1998. The cash generation in 1998, however, was
due principally to the receipt of $653.6 million of proceeds, net of selling
expenses paid, from the divested businesses. Excluding those proceeds, investing
activities for 1998 used cash of $122.2 million. Net cash inflows from hedging
activities in 1999 increased $27.0 million over 1998 primarily as a result of
the maturities of certain interest rate swaps that swapped from fixed United
States dollars to fixed foreign currencies. These increases were partially
offset by an increase in capital expenditures during 1999. The Corporation
expects capital spending in 2000 to increase over the 1999 level as the
Corporation addresses capacity constraints that necessitated the working capital
build in 1999 and funds an increasing amount of new production.
Financing activities used cash of $201.6 million in 1999 compared to cash
used of $1,054.3 million in 1998. This decrease is cash usage during 1999 was
primarily the result of a decrease in cash expended for stock repurchases and
debt reduction. During the first quarter of 1999, the Corporation completed the
share repurchase element of the strategic repositioning program described more
fully in Note 2 to the Consolidated Financial Statements. Additional share
repurchases were made during 1999, and future share repurchases are anticipated,
in order to reduce the dilutive effect of stock issuances under various
stock-based employee benefit plans. A net reduction in debt during 1999 of
$118.0 million was in comparison to a net reduction in debt during 1998 of
$532.9 million with sales proceeds from the divested businesses.
In addition to measuring its cash flow generation and usage based upon the
operating, investing, and financing classifications included in the Consolidated
Statement of Cash Flows, the Corporation also measures its free cash flow. Free
cash flow, a measure commonly employed by credit providers, is defined by the
Corporation as cash flow from operating activities, less capital expenditures of
continuing operations, plus proceeds from the disposal of assets (excluding
proceeds from business sales). It is the Corporation's intention when reporting
historical information to exclude changes in its accounts receivable sale
program, which was discontinued in 1997, from the calculation of free cash flow.
During the year ended December 31, 1999, the Corporation generated free cash
flow of $241.7 million compared to free cash flow of $240.7 million generated in
1998.
The ongoing costs of compliance with existing environmental laws and
regulations have not had, and are not expected to have, a material adverse
effect on the Corporation's capital expenditures or financial position.
While the Corporation neared completion of the restructuring element of its
strategic repositioning plan by the end of 1999, it 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, in the first half of 2000.
The Corporation will continue to have cash requirements to support seasonal
working capital needs and capital expenditures, to pay interest, and to service
debt. For amounts available at December 31, 1999, under the Corporation's
revolving credit facility and under short-term borrowing facilities, see Note 8
of Notes to Consolidated Financial Statements. In order to meet its cash
requirements, the Corporation intends to use internally generated funds and to
borrow under its unsecured revolving credit facility or under short-term
borrowing facilities. The Corporation believes that cash generated from these
sources will be adequate to meet its cash requirements over the next 12 months.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required under this Item is contained in Item 7 of this report under
the caption "Hedging Activities" and in Item 8 of this report in Notes 1 and 10
of Notes to Consolidated Financial Statements, and is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Corporation and its
subsidiaries are included herein as indicated below:
Consolidated Financial Statements
Consolidated Statement of Earnings - years ended December 31, 1999, 1998, and
1997.
Consolidated Balance Sheet - December 31, 1999 and 1998.
Consolidated Statement of Stockholders' Equity - years ended December 31, 1999,
1998, and 1997.
Consolidated Statement of Cash Flows - years ended December 31, 1999, 1998, and
1997.
Notes to Consolidated Financial Statements.
Report of Independent Auditors.
<PAGE>
19
CONSOLIDATED STATEMENT OF EARNINGS
The Black & Decker Corporation and Subsidiaries
(Dollars in Millions Except Per Share Data)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Year Ended December 31, 1999 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES $4,520.5 $4,559.9 $4,940.5
Cost of goods sold 2,834.4 2,951.0 3,169.2
Selling, general, and administrative expenses 1,149.8 1,124.9 1,282.0
Write-off of goodwill -- 900.0 --
Restructuring and exit costs -- 164.7 --
Gain on sale of businesses -- 114.5 --
- -------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) 536.3 (466.2) 489.3
Interest expense (net of interest income of
$30.5 for 1999, $30.9 for 1998, and $8.1 for 1997) 95.8 114.4 124.6
Other (income) expense (.8) 7.7 15.2
- -------------------------------------------------------------------------------------------------
EARNINGS (LOSS) BEFORE INCOME TAXES 441.3 (588.3) 349.5
Income taxes 141.0 166.5 122.3
- -------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS) $ 300.3 $ (754.8) $ 227.2
=================================================================================================
NET EARNINGS (LOSS) PER COMMON SHARE -- BASIC $ 3.45 $ (8.22) $ 2.40
=================================================================================================
NET EARNINGS (LOSS) PER COMMON SHARE --
ASSUMING DILUTION $ 3.40 $ (8.22) $ 2.35
=================================================================================================
<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>
<PAGE>
20
CONSOLIDATED BALANCE SHEET
The Black & Decker Corporation and Subsidiaries
(Millions of Dollars)
- --------------------------------------------------------------------------------
December 31, 1999 1998
- --------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 147.3 $ 87.9
Trade receivables, less allowances of
$53.3 for 1999 and $44.3 for 1998 823.2 792.4
Inventories 751.0 636.9
Other current assets 189.9 234.6
- --------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,911.4 1,751.8
- --------------------------------------------------------------------------------
PROPERTY, PLANT, AND EQUIPMENT 739.6 727.6
GOODWILL 743.4 768.7
OTHER ASSETS 618.3 604.4
- --------------------------------------------------------------------------------
$4,012.7 $3,852.5
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings $ 183.2 $ 152.5
Current maturities of long-term debt 213.2 59.2
Trade accounts payable 367.3 348.8
Other accrued liabilities 809.0 814.2
- --------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,572.7 1,374.7
- --------------------------------------------------------------------------------
LONG-TERM DEBT 847.1 1,148.9
DEFERRED INCOME TAXES 243.8 279.9
POSTRETIREMENT BENEFITS 246.3 263.5
OTHER LONG-TERM LIABILITIES 301.7 211.5
STOCKHOLDERS' EQUITY
Common stock (outstanding:
December 31, 1999 -- 87,190,240 shares;
December 31, 1998 -- 87,498,424 shares) 43.6 43.7
Capital in excess of par value 843.3 871.4
Retained earnings (deficit) 21.9 (236.6)
Accumulated other comprehensive income (107.7) (104.5)
- --------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 801.1 574.0
- --------------------------------------------------------------------------------
$4,012.7 $3,852.5
================================================================================
See Notes to Consolidated Financial Statements
<PAGE>
21
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
The Black & Decker Corporation and Subsidiaries
(Dollars in Millions Except Per Share Data)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Accumulated
Outstanding Capital in Retained Other Total
Common Par Excess of Earnings Comprehensive Stockholders'
Shares Value Par Value (Deficit) Income Equity
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 94,248,807 $47.1 $1,261.7 $380.2 $(56.6) $1,632.4
Comprehensive income:
Net earnings -- -- -- 227.2 -- 227.2
Foreign currency translation
adjustments, less effect of
hedging activities (net of tax) -- -- -- -- (39.6) (39.6)
- ---------------------------------------------------------------------------------------------------------------------------
Comprehensive income -- -- -- 227.2 (39.6) 187.6
- ---------------------------------------------------------------------------------------------------------------------------
Cash dividends on common stock
($.48 per share) -- -- -- (45.4) -- (45.4)
Common stock issued under
employee benefit plans 593,737 .3 16.5 -- -- 16.8
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 94,842,544 47.4 1,278.2 562.0 (96.2) 1,791.4
Comprehensive income (loss):
Net loss -- -- -- (754.8) -- (754.8)
Minimum pension liability
adjustment (net of tax) -- -- -- -- (6.1) (6.1)
Foreign currency translation
adjustments, less effect of
hedging activities (net of tax) -- -- -- -- (37.8) (37.8)
Write-off of accumulated foreign
currency translation adjustments
due to sale of businesses -- -- -- -- 35.6 35.6
- ---------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) -- -- -- (754.8) (8.3) (763.1)
- ---------------------------------------------------------------------------------------------------------------------------
Cash dividends on common stock
($.48 per share) -- -- -- (43.8) -- (43.8)
Purchase and retirement of
common stock (9,025,400) (4.5) (459.8) -- -- (464.3)
Common stock issued under
employee benefit plans 1,681,280 .8 53.0 -- -- 53.8
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 87,498,424 43.7 871.4 (236.6) (104.5) 574.0
Comprehensive income:
Net earnings -- -- -- 300.3 -- 300.3
Minimum pension liability
adjustment (net of tax) -- -- -- -- 1.6 1.6
Foreign currency translation
adjustments, less effect of
hedging activities (net of tax) -- -- -- -- (4.8) (4.8)
- ---------------------------------------------------------------------------------------------------------------------------
Comprehensive income -- -- -- 300.3 (3.2) 297.1
- ---------------------------------------------------------------------------------------------------------------------------
Cash dividends on common stock
($.48 per share) -- -- -- (41.8) -- (41.8)
Purchase and retirement of common stock
(net of 57,682 shares issued under
forward purchase contracts) (958,218) (.4) (52.9) -- -- (53.3)
Common stock issued under
employee benefit plans 650,034 .3 24.8 -- -- 25.1
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 87,190,240 $43.6 $843.3 $21.9 $(107.7) $801.1
===========================================================================================================================
<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>
<PAGE>
22
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
The Black & Decker Corporation and Subsidiaries
(Millions of Dollars)
- --------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) $ 300.3 $ (754.8) $ 227.2
Adjustments to reconcile net earnings (loss) to cash flow
from operating activities:
Gain on sale of businesses -- (114.5) --
Non-cash charges and credits:
Depreciation and amortization 160.0 155.2 214.2
Deferred income taxes (benefit) (5.8) 67.5 71.7
Goodwill write-off -- 900.0 --
Restructuring charges and exit costs -- 164.7 --
Other (8.3) (1.7) 1.5
Changes in selected working capital items
(excluding, for 1998, effects of divested businesses):
Trade receivables (57.0) (24.3) (85.1)
Inventories (136.1) 26.9 (63.7)
Trade accounts payable 21.9 16.9 2.3
Restructuring spending (26.7) (55.6) (27.4)
Other assets and liabilities 127.2 (14.0) 12.5
Net decrease in receivables sold -- -- (212.0)
- --------------------------------------------------------------------------------------------------------------------
CASH FLOW FROM OPERATING ACTIVITIES 375.5 366.3 141.2
- --------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from sale of businesses, net of selling expenses -- 653.6 --
Purchase of businesses (5.2) -- --
Proceeds from disposal of assets 37.3 20.4 13.4
Capital expenditures (171.1) (146.0) (203.1)
Cash inflow from hedging activities 565.9 343.5 384.8
Cash outflow from hedging activities (535.5) (340.1) (357.9)
- --------------------------------------------------------------------------------------------------------------------
CASH FLOW FROM INVESTING ACTIVITIES (108.6) 531.4 (162.8)
- --------------------------------------------------------------------------------------------------------------------
CASH FLOW BEFORE FINANCING ACTIVITIES 266.9 897.7 (21.6)
FINANCING ACTIVITIES
Net decrease in short-term borrowings (49.9) (23.2) (18.4)
Proceeds from long-term debt (including revolving credit facility) 1,091.9 586.6 667.2
Payments on long-term debt (including revolving credit facility) (1,160.0) (1,096.3) (483.9)
Debt issue costs paid -- (2.9) --
Redemption of preferred stock of subsidiary -- (41.7) --
Purchase of common stock (53.3) (464.3) --
Issuance of common stock 11.5 31.3 10.1
Cash dividends (41.8) (43.8) (45.4)
- --------------------------------------------------------------------------------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES (201.6) (1,054.3) 129.6
Effect of exchange rate changes on cash (5.9) (2.3) (3.0)
- --------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 59.4 (158.9) 105.0
Cash and cash equivalents at beginning of year 87.9 246.8 141.8
- --------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 147.3 $ 87.9 $ 246.8
====================================================================================================================
<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>
<PAGE>
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Black & Decker Corporation and Subsidiaries
NOTE 1: SUMMARY OF ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The Consolidated Financial Statements include the
accounts of the Corporation and its subsidiaries. Intercompany transactions have
been eliminated.
RECLASSIFICATIONS: Certain prior years' amounts in the Consolidated Financial
Statements have been reclassified to conform to the presentation used in 1999.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results inevitably will differ from those estimates,
and such differences may be material to the financial statements.
REVENUE RECOGNITION: Revenue from sales of product is recognized when title
passes, which generally occurs upon shipment.
FOREIGN CURRENCY TRANSLATION: The financial statements of subsidiaries located
outside of the United States, except those subsidiaries operating in highly
inflationary economies, generally are measured using the local currency as the
functional currency. Assets, including goodwill, and liabilities of these
subsidiaries are translated at the rates of exchange at the balance sheet date.
The resultant translation adjustments are included in accumulated other
comprehensive income, a separate component of stockholders' equity. Income and
expense items are translated at average monthly rates of exchange. Gains and
losses from foreign currency transactions of these subsidiaries are included in
net earnings. For subsidiaries operating in highly inflationary economies, gains
and losses from balance sheet translation adjustments are included in net
earnings.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents include cash on hand,
demand deposits, and short-term investments with maturities of three months or
less from the date of acquisition.
INVENTORIES: Inventories are stated at the lower of cost or market. The cost of
United States inventories is based primarily on the last-in, first-out (LIFO)
method; all other inventories are based on the first-in, first-out (FIFO)
method.
PROPERTY AND DEPRECIATION: Property, plant, and equipment is stated at cost.
Depreciation is computed generally on the straight-line method for financial
reporting purposes.
GOODWILL AND OTHER INTANGIBLES: Goodwill and other intangibles are amortized on
the straight-line method. Goodwill is amortized principally over a 40-year
period.
As more fully described in Note 2, effective January 1, 1998, the Corporation
changed its method for measuring and recognizing an impairment of goodwill from
an undiscounted cash flow approach to a discounted cash flow approach.
PRODUCT DEVELOPMENT COSTS: Costs associated with the development of new products
and changes to existing products are charged to operations as incurred. Product
development costs were $91.0 million in 1999, $90.5 million in 1998, and $99.1
million in 1997.
ADVERTISING AND PROMOTION: All costs associated with advertising and promoting
products are expensed as incurred. Advertising and promotion expense, including
expense of consumer rebates, was $223.7 million in 1999, $211.2 million in 1998,
and $248.0 million in 1997.
POSTRETIREMENT BENEFITS: Pension plans, which cover substantially all of the
Corporation's employees, consist primarily of non-contributory defined benefit
plans. The defined benefit plans are funded in conformity with the funding
requirements of applicable government regulations. Generally, benefits are based
on age, years of service, and the level of compensation during the final years
of employment. Prior service costs for defined benefit plans generally are
amortized over the estimated remaining service periods of employees.
Certain employees are covered by defined contribution plans. The
Corporation's contributions to these plans are based on a percentage of employee
compensation or employee contributions. These plans are funded on a current
basis.
In addition to pension benefits, certain postretirement medical, dental, and
life insurance benefits are provided, principally to most United States
employees. Retirees in other countries generally are covered by
government-sponsored programs.
The Corporation uses the corridor approach in the valuation of defined
benefit plans and other postretirement benefits. The corridor approach defers
all actuarial gains and losses resulting from variances between actual results
and economic estimates or actuarial assumptions. For defined benefit pension
plans, these unrecognized gains and losses are amortized when the net gains and
losses exceed 10% of the greater of the market-related value of plan assets or
the projected benefit obligation at the beginning of the year. For other
postretirement benefits, amortization occurs when the net gains and losses
exceed 10% of the accumulated postretirement benefit obligation at the beginning
of the year. The amount in excess of the corridor is amortized over the average
remaining service period to retirement date of active plan participants or, for
retired participants, the average remaining life expectancy.
DERIVATIVE FINANCIAL INSTRUMENTS: Derivative financial instruments are used
principally in the management of interest rate and foreign currency exposures.
Amounts to be paid or received under interest rate swap agreements are
accrued as interest rates change and are recognized over the life of the swap
agreements as an adjustment to interest expense. The related amounts due to or
from the counterparties are included in other accrued liabilities. Since they
are accounted for as hedges, the fair value of the swap agreements is not
recognized in the Consolidated Financial Statements.
The costs of interest rate cap agreements are included in interest expense
ratably over the lives of the agreements. Payments to be received as a result of
the cap agreements are accrued as a reduction of interest expense. The
unamortized costs of the cap agreements are included in other assets.
<PAGE>
24
Gains or losses resulting from the early termination of interest rate swaps
or caps are deferred and amortized as an adjustment to the yield of the related
debt instrument over the remaining period originally covered by the terminated
swaps or caps. Were that related debt instrument later to be retired prior to
its scheduled maturity, the unamortized gain or loss resulting from the early
termination of the interest rate swap or cap would be included in the gain or
loss on the extinguishment of debt.
Gains and losses on hedges of net investments in subsidiaries located outside
of the United States are reflected in the Consolidated Balance Sheet in
accumulated other comprehensive income, with the related amounts due to or from
the counterparties included in other liabilities or other assets. Gains and
losses resulting from the early termination of hedges of net investments are
reflected in accumulated other comprehensive income at the time of termination.
Gains and losses on foreign currency transaction hedges are recognized in
income and offset the foreign exchange gains and losses on the underlying
transactions. Deferred gains on options that hedge forecasted transactions,
generally related to inventory purchases, are recognized in cost of sales when
the related inventory is sold or when a hedged purchase is no longer expected to
occur.
The carrying amounts of foreign currency-related derivatives with respect to
net investment and commitment hedges are included in the Consolidated Balance
Sheet in other current assets and other accrued liabilities. The carrying
amounts of foreign currency-related derivatives associated with transaction
hedges are included in the same balance sheet line item as the hedged
transaction.
Cash effects of the Corporation's derivative financial instruments are
included in the Consolidated Statement of Cash Flows in the periods in which
they occur. Except as noted below, the cash effects of the Corporation's
interest rate swaps and caps, foreign currency transaction hedges, hedges of
foreign currency firm commitments, and hedges of forecasted transactions are
included in the Consolidated Statement of Cash Flows as cash flow from operating
activities. The cash effects of hedges of net investments in subsidiaries
located outside of the United States are included in the Consolidated Statement
of Cash Flows as cash flow from investing activities. The cash effects of the
exchange of notional principal amounts on interest rate swaps that swap from
fixed United States dollars to fixed or variable foreign currencies are included
in the Consolidated Statement of Cash Flows as cash flow from investing
activities because such amounts have been designated as hedges of net
investments in subsidiaries located outside of the United States.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, which is required
to be adopted for years beginning after June 15, 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 when it will adopt SFAS No. 133,
although early adoption is considered possible due to the new standard's more
favorable treatment of certain foreign currency hedges than that afforded under
prior accounting standards. The Corporation has not yet determined what effect
SFAS No. 133 will have on its earnings and financial position.
STOCK-BASED COMPENSATION: As described in Note 16, the Corporation has elected
to follow the accounting provisions of Accounting Principles Board Opinion
(APBO) No. 25, Accounting for Stock Issued to Employees, for stock-based
compensation and to furnish the pro forma disclosures required under SFAS No.
123, Accounting for Stock-Based Compensation.
NOTE 2: STRATEGIC REPOSITIONING
OVERVIEW: As of December 31, 1999, the Corporation neared completion of the
comprehensive strategic repositioning plan approved by the Corporation's Board
of Directors on January 26, 1998. The plan, designed to intensify focus on core
operations and improve operating performance, 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 the Corporation's remaining businesses.
Also on January 26, 1998, the Board of Directors elected to authorize a change
in the basis upon which the Corporation evaluates goodwill for impairment.
DIVESTITURES: The Corporation completed the divestiture element of its strategic
repositioning plan during 1998 through the sale of its household products
businesses in North America, Central America, the Caribbean, South America
(excluding Brazil), and Australia, recapitalization of its recreational products
business, and sale of its glass container-forming and inspection equipment
business. The Corporation elected to retain the cleaning and lighting products
component of the household products businesses.
In mid-1998, the Corporation completed the sale to Windmere-Durable Holdings,
Inc. of the household products businesses for $315.0 million. As part of the
transaction, the Corporation retained certain liabilities and agreed to license
the Black & Decker name to Windmere in existing household product categories for
a period of six and one-half years on a royalty-free basis, with extension
options upon request of Windmere and at the discretion of the Corporation on a
royalty-bearing basis. At the request of Windmere, additional product categories
may be licensed at the Corporation's option on a royalty-bearing basis.
<PAGE>
25
On September 22, 1998, the Corporation completed the sale of its glass
container-forming and inspection equipment business, Emhart Glass. In connection
with the sale, the Corporation received cash of $178.7 million.
On September 30, 1998, the Corporation completed the recapitalization of its
recreational products business, True Temper Sports. In connection with the
transaction, the Corporation received $177.7 million in cash and retained
approximately 6% of preferred and common stock of the recapitalized company, now
known as True Temper Corporation, valued at approximately $4 million. In
addition, the Corporation received a senior increasing rate discount note
payable by True Temper Corporation, in an initial accreted amount of $25.0
million. Because True Temper Corporation is a highly leveraged entity and there
was no active market for the note, the Corporation fully reserved the $25.0
million note through December 31, 1999.
Net proceeds of $653.6 million from these divestitures were utilized in the
repurchase of a portion of the Corporation's outstanding common stock and to
fund the restructuring program described below.
REPURCHASE OF COMMON STOCK: The second element of the strategic repositioning
plan - the planned repurchase of approximately 10% of its common stock over a
two-year period - was completed during 1999 when the Corporation repurchased
610,900 shares of common stock at an aggregate cost of $32.1 million,
supplementing the 9,025,400 shares of common stock repurchased during 1998 at an
aggregate cost of $464.3 million. Net proceeds from the sale of divested
businesses were used to fund the stock repurchase program.
RESTRUCTURING CHARGE: By the close of 1999, the Corporation neared completion of
the third element of the strategic repositioning plan - a restructuring program
undertaken to reduce fixed costs. The Corporation commenced the restructuring
program and recorded a restructuring charge of $164.7 million during 1998.
During 1999, the Corporation recognized $13.1 million of additional
restructuring and exit costs, but those additional costs were offset by a gain
realized in 1999 on the sale of a facility, exited as part of the restructuring
actions taken in 1998, that had a fair value exceeding its net book value at the
time of the 1998 charge and by the reversal during 1999 of certain severance
accruals, established as part of the 1998 restructuring charge, which were no
longer necessary.
The principal component of the restructuring charge, as adjusted in 1999,
related to the elimination of approximately 5,000 positions. As a result, an
accrual of $121.5 million, principally associated with the Power Tools and
Accessories segment in Europe and North America, was included in the
restructuring charge. Included in that accrual were costs of approximately $30
million related to the acceptance of a voluntary retirement plan by certain
employees in the United States. Also included in that accrual was $8.1 million
related to severance actions taken in the divested businesses and with respect
to the closure of a facility in Kuantan, Malaysia. The Kuantan facility
manufactured household products predominantly for sale in the United States and
was not included in the assets sold with the household products business.
To reduce fixed costs, the Corporation took actions to rationalize certain
manufacturing, sales, and administrative operations, resulting in the closure of
a number of facilities. As a result, the restructuring charge, as adjusted in
1999, also included a $25.3 million write-down to fair value - less, if
applicable, costs to sell - of certain land, buildings, and equipment. Included
in that $25.3 million write-down was $9.0 million related to the closure of the
Kuantan facility described above. The balance of the write-down to fair value
primarily related to long-lived assets of the Power Tools and Accessories
segment in Europe and North America and is net of gains of $8.9 million and $8.7
million realized in 1999 and 1998, respectively, on the sales of facilities
exited as part of the restructuring plan that had fair values in excess of net
book values at the time of the restructuring charge. As of December 31, 1999,
all facilities exited as part of the strategic repositioning plan had been sold
with the exception of the Kuantan facility. The carrying value of the Kuantan
facility at December 31, 1999, was not significant.
The remaining restructuring charge, as adjusted in 1999, of $17.9 million
primarily related to the accrual of future expenditures, principally consisting
of lease and other contractual obligations associated with the Power Tools and
Accessories segment in Europe, for which no future benefit will be realized and
to the settlement of claims in 1999 regarding a divested business.
CHANGE IN ACCOUNTING FOR GOODWILL: As a consequence of the strategic
repositioning plan, the Corporation elected to change its method of measuring
goodwill impairment from an undiscounted cash flow approach to a discounted cash
flow approach effective January 1, 1998. On a periodic basis, the Corporation
estimates the future discounted cash flows of the businesses to which goodwill
relates. When such estimate of the future discounted cash flows, net of the
carrying amount of tangible net assets, is less than the carrying amount of
goodwill, the difference will be charged to operations. For purposes of
determining the future discounted cash flows of the businesses to which goodwill
relates, the Corporation, based upon historical results, current projections,
and internal earnings targets, determines the projected future operating cash
flows, net of income tax payments, of the individual businesses. These projected
future cash flows are then discounted at a rate corresponding to the
Corporation's estimated cost of capital, which also is the hurdle rate used by
the Corporation in making investment decisions. Future discounted cash flows for
the recreational products business, the glass container-forming and inspection
equipment business, and the household products businesses in North America,
Latin America, and Australia included an estimate of the proceeds from the sale
of such businesses, net of associated selling expenses and taxes. The
Corporation believes that measurement of the value of goodwill through a
discounted cash flow approach is preferable in that such a measurement
facilitates the timely identification of impairment of the carrying value of
investments in businesses and provides a more current - and with respect to the
businesses sold, provided a more realistic - valuation than the undiscounted
approach.
<PAGE>
26
In connection with the Corporation's change in accounting policy with respect
to measurement of goodwill impairment, $900.0 million of goodwill was written
off through a charge to operations during 1998 and represented a per-share net
loss of $9.80 both on a basic and a diluted basis for 1998. That write-off of
goodwill, which related to the Hardware and Home Improvement segment and the
Fastening and Assembly Systems segment, and included a $40.0 million write-down
of goodwill associated with one of the divested businesses, represented the
amount necessary to write-down the carrying values of goodwill for those
businesses to the Corporation's best estimate, as of January 1, 1998, of those
businesses' future discounted cash flows using the methodology described in the
preceding paragraph. This change represented a change in accounting principle
that is indistinguishable from a change in estimate.
NOTE 3: TRADE RECEIVABLES
CONCENTRATION OF CREDIT: The Corporation sells products and services to
customers in diversified industries and geographic regions and, therefore, has
no significant concentrations of credit risk. The Corporation continuously
evaluates the creditworthiness of its customers and generally does not require
collateral.
SALE OF RECEIVABLES PROGRAM: Prior to December 1997, the Corporation maintained
a sale of receivables program under which receivables were sold on a revolving
basis. In December 1997, the Corporation voluntarily terminated its sale of
receivables program as the program was no longer deemed necessary to support its
liquidity requirements. The discount on the sale of receivables was included in
other expense.
NOTE 4: INVENTORIES
The classification of inventories at the end of each year, in millions of
dollars, was as follows:
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
FIFO cost
Raw materials and work-in-process $171.3 $173.5
Finished products 584.5 482.3
- --------------------------------------------------------------------------------
755.8 655.8
Excess of FIFO cost over
LIFO inventory value (4.8) (18.9)
- --------------------------------------------------------------------------------
$751.0 $636.9
================================================================================
The cost of United States inventories stated under the LIFO method was
approximately 48% and 43% of the value of total inventories at December 31, 1999
and 1998, respectively.
NOTE 5: PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment at the end of each year, in millions of dollars,
consisted of the following:
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Property, plant, and equipment at cost:
Land and improvements $ 54.1 $ 60.2
Buildings 264.0 304.3
Machinery and equipment 1,241.1 1,209.2
- --------------------------------------------------------------------------------
1,559.2 1,573.7
Less accumulated depreciation 819.6 846.1
- --------------------------------------------------------------------------------
$ 739.6 $ 727.6
================================================================================
NOTE 6: GOODWILL
Goodwill amortization was $25.7 million in 1999, $25.2 million in 1998, and
$63.3 million in 1997. Goodwill at the end of each year, in millions of dollars,
was as follows:
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Goodwill $1,301.3 $1,300.9
Less accumulated amortization 557.9 532.2
- --------------------------------------------------------------------------------
$ 743.4 $ 768.7
================================================================================
NOTE 7: OTHER ACCRUED LIABILITIES
Other accrued liabilities at the end of each year, in millions of dollars,
included the following:
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Salaries and wages $ 67.2 $ 63.6
Employee benefits 109.1 93.1
Trade discounts and allowances 145.9 114.0
Income taxes, including deferred taxes 66.7 107.9
Accruals related to restructuring actions
taken in connection with strategic
repositioning plan 22.4 50.8
All other 397.7 384.8
- --------------------------------------------------------------------------------
$ 809.0 $ 814.2
================================================================================
All other at December 31, 1999 and 1998, consisted primarily of accruals for
advertising, warranty costs, interest, insurance, and taxes other than income
taxes.
NOTE 8: SHORT-TERM BORROWINGS
Short-term borrowings in the amounts of $183.2 million and $152.5 million at
December 31, 1999 and 1998, respectively, consisted primarily of borrowings
under the terms of uncommitted lines of credit or other short-term borrowing
arrangements and, at December 31, 1999, borrowings under the Corporation's
unsecured revolving credit facility (the Credit Facility). The weighted-average
interest rate on short-term borrowings outstanding at December 31, 1999 and
1998, was 6.6% and 7.1%, respectively.
<PAGE>
27
Under the terms of uncommitted lines of credit at December 31, 1999, certain
subsidiaries outside of the United States may borrow up to an additional $388.2
million on such terms as may be mutually agreed. These arrangements do not have
termination dates and are reviewed periodically. No material compensating
balances are required or maintained.
The Corporation may borrow up to $1.0 billion under the Credit Facility,
which consists of two individual facilities. The amount available for borrowing
under the Credit Facility at December 31, 1999, was $865.9 million.
Under the Credit Facility, the Corporation has the option of borrowing at the
London Interbank Offered Rate (LIBOR) plus a specified percentage, or at other
variable rates set forth therein. The Credit Facility provides that the interest
rate margin over LIBOR, initially set at .15% and .25%, respectively, for each
of the two individual facilities, will increase or decrease based upon changes
in the ratings of the Corporation's long-term senior unsecured debt. The
Corporation also is able to borrow under the Credit Facility by means of
competitive bid rate loans made through an auction process at then-current
market rates. In addition to interest payable on the principal amount of
indebtedness outstanding from time to time under the Credit Facility, the
Corporation is required to pay an annual facility fee to each bank, initially
equal to .125% of the amount of each bank's commitment, whether used or unused.
The facility fee changes based on the ratings of the Corporation's long-term
senior unsecured debt.
The Credit Facility includes various customary covenants. Some of the
covenants limit the ability of the Corporation and its subsidiaries to pledge
assets or incur liens on assets. Other covenants require the Corporation to
maintain a specified leverage ratio and to achieve certain cash flow to fixed
expense coverage ratios. As of December 31, 1999, the Corporation was in
compliance with all terms and conditions of the Credit Facility.
NOTE 9: LONG-TERM DEBT
The composition of long-term debt at the end of each year, in millions of
dollars, was as follows:
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Medium Term Notes due through 2002 $ 75.6 $ 150.0
6.625% notes due 2000 208.7 214.4
7.50% notes due 2003 309.5 335.7
7.0% notes due 2006 154.6 154.6
6.55% notes due 2007 150.0 150.0
7.05% notes due 2028 150.0 150.0
Revolving credit facility expiring 2001 -- 29.4
Other loans due through 2003 11.9 24.0
Less current maturities of long-term debt (213.2) (59.2)
- --------------------------------------------------------------------------------
$ 847.1 $1,148.9
================================================================================
As of December 31, 1999, $75.6 million aggregate principal amount of
unsecured Medium Term Notes were outstanding. Of that amount, $68.1 million bear
interest at fixed rates ranging from 8.36% to 8.95%, while the remainder bear
interest at variable rates.
Indebtedness of subsidiaries in the aggregate principal amounts of $435.4
million and $412.4 million were included in the Consolidated Balance Sheet at
December 31, 1999 and 1998, respectively, in short-term borrowings, current
maturities of long-term debt, and long-term debt.
Principal payments on long-term debt obligations due over the next four years
are as follows: $213.2 million in 2000, $48.2 million in 2001, $34.1 million in
2002, and $310.2 million in 2003. No principal payments are due in 2004.
Interest payments on all indebtedness were $140.1 million in 1999, $160.8
million in 1998, and $159.3 million in 1997.
NOTE 10: DERIVATIVE FINANCIAL INSTRUMENTS
The Corporation is exposed to market risks arising from changes in interest
rates. With products and services marketed in over 100 countries and with
manufacturing sites in ten countries, the Corporation also is exposed to risks
arising from changes in foreign exchange rates.
CREDIT EXPOSURE: The Corporation is exposed to credit-related losses in the
event of non-performance by counterparties to certain derivative financial
instruments. The Corporation monitors the creditworthiness of the counterparties
and presently does not expect default by any of the counterparties. The
Corporation does not obtain collateral in connection with its derivative
financial instruments.
The credit exposure that results from interest rate and foreign exchange
contracts is the fair value of contracts with a positive fair value as of the
reporting date. Some derivatives are not subject to credit exposures. The fair
value of all financial instruments is summarized in Note 11.
INTEREST RATE RISK MANAGEMENT: The Corporation manages its interest rate risk,
primarily through the use of interest rate swap and cap agreements, in order to
achieve a cost-effective mix of fixed and variable rate indebtedness. It seeks
to issue debt opportunistically, whether at fixed or variable rates, at the
lowest possible costs and then, based upon its assessment of the future interest
rate environment, may convert such debt from fixed to variable or from variable
to fixed interest rates through the use of interest rate derivatives. Similarly,
the Corporation may, at times, seek to limit the effects of rising interest
rates on its variable rate debt through the use of interest rate caps. It does
not utilize derivative financial instruments that contain leverage features.
Because the Corporation's interest rate derivative financial instruments are
designated as hedges, are effective in changing the tenor of existing
indebtedness (e.g., from fixed to variable rate debt or from variable to fixed
rate debt), and do not contain leverage features, they are afforded hedge
accounting treatment.
The amounts exchanged by the counterparties to interest rate swap and cap
agreements normally are based upon the notional amounts and other terms,
generally related to interest rates, of the derivatives. While notional amounts
of interest rate swaps and caps form part of the basis for the amounts exchanged
by the counterparties, the notional amounts are not themselves exchanged and,
therefore, do not represent a measure of the Corporation's exposure as an end
user of
<PAGE>
28
derivative financial instruments. The notional amounts of interest rate
derivatives at the end of each year, in millions of dollars, were as follows:
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Interest rate swaps:
Fixed to variable rates $450.0 $425.0
U.S. rates to foreign rates -- 250.0
- --------------------------------------------------------------------------------
The Corporation's portfolio of interest rate swap instruments as of December
31, 1999, consisted of $450.0 million notional amounts of fixed to variable rate
swaps with a weighted-average fixed rate receipt of 5.96%. The basis of the
variable rates paid is LIBOR.
The Corporation's credit exposure on its interest rate derivatives was $14.2
million as of December 31, 1998. No credit exposure existed as of December 31,
1999. Gross deferred gains and losses on the early termination of interest rate
swaps as of December 31, 1999 and 1998, were not significant.
FOREIGN CURRENCY MANAGEMENT: The Corporation enters into various foreign
currency contracts in managing its foreign exchange risks. The contractual
amounts of foreign currency derivative financial instruments (principally,
forward exchange contracts and purchased options) generally are exchanged by the
counterparties. The Corporation's foreign currency derivative financial
instruments are designated to, and generally are denominated in the currencies
of, the underlying exposures. Because the derivative financial instruments are
effective in managing foreign exchange risks and are appropriately designated to
the underlying exposures, they are afforded hedge accounting treatment.
To minimize the volatility of reported equity, the Corporation hedges, on a
limited basis, a portion of its net investment in subsidiaries located outside
of the United States through the use of foreign currency forward contracts,
foreign currency swaps, and purchased foreign currency options.
Through its foreign currency hedging activities, the Corporation seeks to
minimize the risk that cash flows resulting from the sales of products
manufactured in a currency different from that of the selling subsidiary will be
affected by changes in exchange rates. The Corporation responds to foreign
exchange movements through various means, such as pricing actions, changes in
cost structure, and changes in hedging strategies.
The Corporation hedges its foreign currency transaction exposures, as well as
certain forecasted transactions, based on management's judgment, generally
through options and forward exchange contracts. Some of the contracts involve
the exchange of two foreign currencies according to the local needs of the
subsidiaries. Some natural hedges also are used to mitigate transaction and
forecasted exposures.
The following table summarizes the contractual amounts of forward exchange
contracts as of December 31, 1999 and 1998, in millions of dollars, including
details by major currency as of December 31, 1999. Foreign currency amounts were
translated at current rates as of the reporting date. The "Buy" amounts
represent the United States dollar equivalent of commitments to purchase
currencies, and the "Sell" amounts represent the United States dollar equivalent
of commitments to sell currencies.
- --------------------------------------------------------------------------------
As of December 31, 1999 Buy Sell
- --------------------------------------------------------------------------------
United States dollar $ 730.1 $ (504.6)
Pound sterling 372.9 (82.0)
Deutsche mark 92.1 (174.0)
Dutch guilder 16.9 (82.1)
French franc 22.4 (125.0)
Canadian dollar 76.3 (131.7)
Italian lira 24.9 (14.8)
Euro 2.8 (7.6)
Japanese yen 1.4 (51.0)
Other 23.3 (171.5)
- --------------------------------------------------------------------------------
Total $1,363.1 $(1,344.3)
================================================================================
As of December 31, 1998
- --------------------------------------------------------------------------------
Total $1,732.2 $(1,711.6)
================================================================================
The contractual amounts of purchased options to buy currencies, predominantly
the euro, pound sterling, and United States dollar, were $432.5 million and
$343.8 million, at December 31, 1999 and 1998, respectively. The contractual
amounts of purchased options to sell various currencies were $421.6 million and
$338.5 million at December 31, 1999 and 1998, respectively.
Credit exposure on foreign currency derivatives as of December 31, 1999 and
1998, was $51.3 million and $40.8 million, respectively.
Deferred realized gains from option contracts on hedges of forecasted
transactions were not significant at December 31, 1999 and 1998. Substantially
all of the amounts deferred at December 31, 1999, are expected to be recognized
in earnings during 2000, when the gains or losses on the underlying transactions
also will be recognized.
NOTE 11: FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument represents the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced sale or liquidation. Significant differences can arise
between the fair value and carrying amount of financial instruments that are
recognized at historical cost amounts.
The following methods and assumptions were used by the Corporation in
estimating fair value disclosures for financial instruments:
o Cash and cash equivalents, trade receivables, certain other current assets,
short-term borrowings, and current maturities of long-term debt: The amounts
reported in the Consolidated Balance Sheet approximate fair value.
o Long-term debt: Publicly traded debt is valued based on quoted market values.
The fair value of other long-term debt is estimated based on quoted market
prices for the same or similar issues or on the current rates offered to the
Corporation for debt of the same remaining maturities.
o Interest rate hedges: The fair value of interest rate hedges reflects the
estimated amounts that the Corporation would receive or pay to terminate the
contracts at the reporting date.
o Foreign currency contracts: The fair value of forward exchange contracts and
options is estimated using prices established by financial institutions for
comparable instruments.
<PAGE>
29
The following table sets forth, in millions of dollars, the carrying amounts
and fair values of the Corporation's financial instruments, except for those
noted above for which carrying amounts approximate fair values:
- --------------------------------------------------------------------------------
Assets (Liabilities) Carrying Fair
As of December 31, 1999 Amount Value
- --------------------------------------------------------------------------------
Non-derivatives:
Long-term debt $(847.1) $(810.5)
- --------------------------------------------------------------------------------
Derivatives relating to:
Debt
Liabilities .1 (26.7)
Foreign currency
Assets 43.4 51.3
Liabilities (19.0) (22.8)
- --------------------------------------------------------------------------------
Assets (Liabilities) Carrying Fair
As of December 31, 1998 Amount Value
- --------------------------------------------------------------------------------
Non-derivatives:
Long-term debt $(1,148.9) $(1,200.2)
- --------------------------------------------------------------------------------
Derivatives relating to:
Debt
Assets .5 14.2
Foreign currency
Assets 60.1 40.8
Liabilities (35.2) (34.9)
- --------------------------------------------------------------------------------
NOTE 12: INCOME TAXES
Earnings (loss) before income taxes for each year, in millions of dollars, were
as follows:
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
United States $174.4 $(734.3) $180.3
Other countries 266.9 146.0 169.2
- --------------------------------------------------------------------------------
$441.3 $(588.3) $349.5
================================================================================
Significant components of income taxes (benefits) for each year, in millions
of dollars, were as follows:
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Current:
United States $128.3 $ 55.0 $ 32.4
Other countries 18.5 44.0 16.3
Withholding on remittances
from other countries -- -- 1.9
- --------------------------------------------------------------------------------
146.8 99.0 50.6
- --------------------------------------------------------------------------------
Deferred:
United States (17.7) 92.9 92.5
Other countries 11.9 (25.4) (20.8)
- --------------------------------------------------------------------------------
(5.8) 67.5 71.7
- --------------------------------------------------------------------------------
$141.0 $166.5 $122.3
================================================================================
Income tax expense recorded directly as an adjustment to equity as a result
of hedging activities in 1997 was $14.9 million, and was not significant in 1999
and 1998. Income tax benefits recorded directly as an adjustment to equity as a
result of employee stock options were $4.9 million and $17.0 million in 1999 and
1998, respectively, and were not significant in 1997.
Income tax payments were $97.1 million in 1999, $95.4 million in 1998, and
$60.2 million in 1997.
Deferred tax (liabilities) assets at the end of each year, in millions of
dollars, were composed of the following:
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Fixed assets $ (19.9) $ (35.0)
Postretirement benefits (224.3) (227.7)
Other (37.0) (38.7)
- --------------------------------------------------------------------------------
Gross deferred tax liabilities (281.2) (301.4)
- --------------------------------------------------------------------------------
Deferred tax assets:
Tax loss carryforwards 53.0 46.1
Tax credit and capital loss
carryforwards 89.6 98.0
Other 116.2 127.9
- --------------------------------------------------------------------------------
Gross deferred tax assets 258.8 272.0
- --------------------------------------------------------------------------------
Deferred tax asset valuation allowance (37.0) (41.3)
- --------------------------------------------------------------------------------
Net deferred tax liabilities $ (59.4) $ (70.7)
================================================================================
Deferred income taxes are included in the Consolidated Balance Sheet in other
current assets, other assets, other accrued liabilities, and deferred income
taxes.
Tax basis carryforwards at December 31, 1999, consisted of net operating
losses expiring from 2001 to 2007.
At December 31, 1999, unremitted earnings of subsidiaries outside of the
United States were approximately $1.3 billion, on which no United States taxes
had been provided. The Corporation's intention is to reinvest these earnings
permanently or to repatriate the earnings only when tax effective to do so. It
is not practicable to estimate the amount of additional taxes that might be
payable upon repatriation of foreign earnings; however, the Corporation believes
that United States foreign tax credits would largely eliminate any United States
taxes and offset any foreign withholding taxes not previously provided.
A reconciliation of income taxes at the federal statutory rate to the
Corporation's income taxes for each year, in millions of dollars, is as follows:
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Income taxes (benefit) at
federal statutory rate $154.5 $(205.9) $122.3
Lower effective taxes on
earnings in other countries (42.6) (19.8) (14.5)
Amortization and write-off
of goodwill 9.0 386.6 22.0
Other -- net 20.1 5.6 (7.5)
- --------------------------------------------------------------------------------
Income taxes $141.0 $166.5 $122.3
================================================================================
<PAGE>
30
NOTE 13: POSTRETIREMENT BENEFITS
The following table sets forth the funded status of the defined benefit pension
and postretirement plans, and amounts recognized in the Consolidated Balance
Sheet, in millions of dollars. Assets of the defined benefit pension plans
consist principally of investments in equity securities, debt securities, and
cash equivalents. Defined postretirement benefits consist of several unfunded
health care plans that provide certain postretirement medical, dental, and life
insurance benefits for most United States employees. The postretirement medical
benefits are contributory and include certain cost-sharing features, such as
deductibles and co-payments.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Pension Benefits Pension Benefits Other Postretirement
Plans in the Plans outside of the Benefits
United States United States All Plans
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Millions) 1999 1998 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $845.5 $709.9 $408.2 $324.9 $ 130.0 $ 150.5
Service cost 14.8 16.0 11.6 8.4 .7 1.5
Interest cost 53.4 51.5 23.3 22.5 8.0 10.4
Plan participants' contributions -- -- 2.3 2.4 4.2 3.8
Actuarial (gains) losses (87.4) 96.8 6.6 82.9 12.4 (1.4)
Foreign currency exchange rate changes -- -- (17.6) (4.7) .1 (.3)
Benefits paid (66.9) (49.1) (22.0) (21.9) (22.6) (16.3)
Plan amendments -- 4.8 2.3 3.3 -- (12.5)
Divestitures -- -- -- (9.2) -- (5.7)
Curtailment (gain) loss -- (13.5) -- -- -- --
Settlements -- -- (.5) (.4) -- --
Special termination benefits .3 29.1 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year 759.7 845.5 414.2 408.2 132.8 130.0
- ------------------------------------------------------------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year 902.7 942.4 383.3 400.4 -- --
Actual return on plan assets 160.3 12.9 71.8 19.0 -- --
Expenses (6.7) (6.1) (1.1) (.8) -- --
Benefits paid (67.0) (49.1) (20.9) (21.9) (26.8) (20.1)
Employer contributions 3.0 2.6 2.7 3.5 22.6 16.3
Contributions by plan participants -- -- 2.3 2.4 4.2 3.8
Divestitures -- -- -- (9.3) -- --
Settlements -- -- (.5) (.4) -- --
Effects of currency exchange rates -- -- (11.2) (9.6) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year 992.3 902.7 426.4 383.3 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Funded status 232.6 57.2 12.2 (24.9) (132.8) (130.0)
Unrecognized net actuarial (gain) loss (19.1) 149.2 28.1 69.9 (11.4) (24.7)
Unrecognized prior service cost 7.5 7.8 20.8 21.4 (34.3) (42.7)
Unrecognized net obligation (asset) at date
of adoption, net of amortization .3 (.8) (4.4) (6.4) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost $221.3 $213.4 $ 56.7 $ 60.0 $(178.5) $(197.4)
====================================================================================================================================
AMOUNTS RECOGNIZED IN THE
CONSOLIDATED BALANCE SHEET
Prepaid benefit cost $251.9 $241.0 $123.8 $131.2 $ -- $ --
Accrued benefit cost (42.5) (42.8) (67.4) (71.9) (178.5) (197.4)
Intangible asset 5.3 6.1 -- -- -- --
Accumulated other comprehensive income 6.6 9.1 .3 .7 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net amount recognized $221.3 $213.4 $ 56.7 $ 60.0 $(178.5) $(197.4)
====================================================================================================================================
</TABLE>
<PAGE>
31
The total accumulated benefit obligation for unfunded defined benefit pension
plans as of December 31, 1999 and 1998, was $42.1 million and $42.0 million,
respectively, for plans in the United States and $61.6 million and $63.0
million, respectively, for plans outside of the United States. The total
projected benefit obligation for unfunded defined benefit pension plans as of
December 31, 1999 and 1998, was $50.7 million and $49.6 million, respectively,
for plans in the United States and $69.0 million and $70.8 million,
respectively, for plans outside of the United States.
The net periodic benefit cost related to the defined benefit pension plans
included the following components, in millions of dollars:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Pension Benefits Pension Benefits
Plans in the United States Plans outside of the United States
---------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $15.6 $ 16.7 $ 14.8 $ 11.7 $ 8.4 $ 8.3
Interest cost 53.5 51.5 48.6 23.3 22.5 21.7
Expected return on plan assets (83.6) (79.0) (73.0) (28.5) (33.2) (32.1)
Amortization of the unrecognized
transition obligation or asset (1.1) (1.1) (1.1) (1.9) 2.7 --
Amortization of prior service cost 1.0 .8 .8 2.2 (2.4) --
Curtailment (gain) loss .6 .9 -- .3 (.3) 1.3
Amortization of net actuarial loss 9.1 3.8 1.3 3.3 (.3) .1
Settlement loss -- 11.4 -- -- 1.4 --
- ---------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $(4.9) $ 5.0 $ (8.6) $ 10.4 $ (1.2) $ (.7)
===========================================================================================================================
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31:
Discount rate 7.50% 6.50% 7.50% 6.00% 6.00% 7.40%
Expected return on plan assets 9.75% 9.75% 9.75% 8.00% 9.50% 9.90%
Rate of compensation increase 5.00% 5.00% 5.00% 3.90% 3.90% 3.90%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The net periodic benefit cost related to the defined benefit postretirement
plans included the following components, in millions of dollars:
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Service cost $ .7 $ 1.5 $ 1.2
Interest cost 8.0 10.4 10.8
Amortization of
prior service cost (8.3) (7.9) (8.5)
Amortization of
net actuarial gain (.9) (.7) (1.7)
- --------------------------------------------------------------------------------
Net periodic benefit cost $ (.5) $ 3.3 $ 1.8
================================================================================
Weighted-average discount
rate as of December 31 7.25% 6.50% 7.50%
- --------------------------------------------------------------------------------
The health care cost trend rate used to determine the postretirement benefit
obligation was 8.0% for 2000. This rate decreases gradually to an ultimate rate
of 5.0% in 2006, and remains at that level thereafter. The trend rate is a
significant factor in determining the amounts reported. A one-percentage-point
change in these assumed health care cost trend rates would have the following
effects, in millions of dollars:
- --------------------------------------------------------------------------------
One-Percentage-Point Increase Decrease
- --------------------------------------------------------------------------------
Effect on total of service and
interest cost components $ .4 $ (.3)
Effect on postretirement
benefit obligation 5.9 (4.9)
- --------------------------------------------------------------------------------
Expense for defined contribution plans amounted to $8.6 million, $10.7
million, and $12.0 million in 1999, 1998, and 1997, respectively.
NOTE 14: STOCKHOLDERS' EQUITY
During 1999, the Corporation executed two agreements (the "Agreements") under
which the Corporation may enter into forward purchase contracts on its common
stock. The Agreements provide the Corporation with two purchase alternatives: a
standard forward purchase contract and a forward purchase contract subject to a
cap (a "capped forward contract").
The settlement methods generally available under the Agreements, at the
Corporation's option, are net settlement, either in cash or in shares, or
physical settlement. To the extent that the market price of the Corporation's
common stock on the settlement date is higher (lower) than the forward
purchase/strike price, the net differential is received (paid) by the
Corporation under the net settlement alternatives, except in the case of a
capped forward contract under which the net differential received is limited by
a cap price. In the case of physical settlement under a capped forward contract,
the Corporation must, in addition to purchasing the shares covered by the
contract at the strike price, pay to the counterparty the excess of the market
price at the date of settlement, if any, over the cap price.
The standard forward contract alternative provides for quarterly settlements
on a net share basis for differences between the average forward purchase price,
which includes carrying costs through the respective quarterly settlement date,
and the current market value of the Corporation's common stock. At each
quarterly settlement, the average forward purchase price is reset based upon the
then-current market price of the Corporation's common stock.
Capped forward contracts with respect to 500,000 shares of the Corporation's
common stock settled during 1999. At each settlement date, the Corporation
elected net share settlement, resulting in a net issuance of 57,682 shares of
its common stock during 1999.
At December 31, 1999, standard forward purchase contracts with respect to
261,020 shares of the Corporation's common stock with a weighted-average forward
purchase
<PAGE>
32
price of $45.80 per share, were outstanding under the Agreements. These
contracts mature in November 2001. At December 31, 1999, capped forward
contracts under the Agreements were outstanding with respect to 650,000 shares
of the Corporation's common stock with a weighted-average strike price of $46.06
per share and a weighted-average cap price of $52.97 per share; these contracts
settle in the first quarter of 2000.
As more fully described in Note 2, the Corporation completed the stock
repurchase element of its strategic repositioning plan during 1999 when the
Corporation repurchased 610,900 shares of its common stock at an aggregate cost
of $32.1 million, supplementing the 9,025,400 shares of common stock repurchased
during 1998 at an aggregate cost of $464.3 million. The aggregate cost of $464.3
million is net of $1.4 million of premiums received in connection with the
Corporation's sale of put options on 800,000 shares of its common stock. No put
options were outstanding as of December 31, 1999.
The Corporation repurchased an additional 347,318 shares of its common stock
(net of 57,682 shares issued under forward purchase contracts) during 1999 at an
aggregate cost of $21.2 million.
NOTE 15: EARNINGS PER SHARE
The computations of basic and diluted earnings per share for each year were as
follows:
- --------------------------------------------------------------------------------
(Amounts in Millions
Except Per Share Data) 1999 1998 1997
- --------------------------------------------------------------------------------
Numerator:
Earnings (loss) $300.3 $(754.8) $227.2
================================================================================
Denominator:
Denominator for basic
earnings per share --
weighted-average shares 87.0 91.8 94.6
Employee stock options and
stock issuable under
employee benefit plans 1.4 -- 1.9
- --------------------------------------------------------------------------------
Denominator for diluted
earnings per share --
adjusted weighted-
average shares and
assumed conversions 88.4 91.8 96.5
================================================================================
Basic earnings (loss)
per share $3.45 $ (8.22) $ 2.40
================================================================================
Diluted earnings (loss)
per share $3.40 $ (8.22) $ 2.35
================================================================================
The following options to purchase shares of common stock were outstanding
during each year, but were not included in the computation of diluted earnings
per share because the effect would be anti-dilutive. For 1999 and 1997, the
options indicated below were anti-dilutive because the related exercise price
was greater than the average market price of the common shares for the year. For
1998, the loss experienced by the Corporation caused all options to be
anti-dilutive.
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Number of options (in millions) 1.0 5.3 .7
Weighted-average exercise price $52.54 $33.47 $38.64
- --------------------------------------------------------------------------------
NOTE 16: STOCK-BASED COMPENSATION
The Corporation has elected to follow APBO No. 25, Accounting for Stock Issued
to Employees, and related interpretations in accounting for its stock-based
compensation and to provide the disclosures required under SFAS No. 123,
Accounting for Stock-Based Compensation.
APBO No. 25 requires no recognition of compensation expense for most of the
stock-based compensation arrangements provided by the Corporation, namely,
broad-based employee stock purchase plans and option grants where the exercise
price is equal to the market value at the date of grant. However, APBO No. 25
requires recognition of compensation expense for variable award plans over the
vesting periods of such plans, based upon the then-current market values of the
underlying stock. In contrast, SFAS No. 123 requires recognition of compensation
expense for grants of stock, stock options, and other equity instruments over
the vesting periods of such grants, based on the estimated grant-date fair
values of those grants.
Under various stock option plans, options to purchase common stock may be
granted until 2006. Options generally are granted at fair market value at the
date of grant, are exercisable in installments beginning one year from the date
of grant, and expire 10 years after the date of grant. The plans permit the
issuance of either incentive stock options or non-qualified stock options,
which, for certain of the plans, may be accompanied by stock or cash
appreciation rights or limited stock appreciation rights. Additionally, certain
plans allow for the granting of stock appreciation rights on a stand-alone
basis.
As of December 31, 1999, 6,587,415 non-qualified stock options were
outstanding under domestic plans. There were 17,375 stock options outstanding
under the United Kingdom plan.
Under all plans, there were 975,994 shares of common stock reserved for
future grants as of December 31, 1999. Transactions are summarized as follows:
- --------------------------------------------------------------------------------
Weighted-
Average
Stock Options Exercise Price
- --------------------------------------------------------------------------------
Outstanding at December 31, 1996 5,652,479 $24.12
Granted 1,191,650 37.79
Exercised 429,402 19.74
Forfeited 241,333 29.74
- --------------------------------------------------------------------------------
Outstanding at December 31, 1997 6,173,394 26.86
Granted 1,101,000 53.46
Exercised 1,646,389 22.18
Forfeited 291,395 32.70
- --------------------------------------------------------------------------------
Outstanding at December 31, 1998 5,336,610 33.47
Granted 2,267,350 50.77
Exercised 551,352 27.35
Forfeited 447,818 41.47
- --------------------------------------------------------------------------------
Outstanding at December 31, 1999 6,604,790 $39.38
================================================================================
Shares exercisable at
December 31, 1997 3,607,991 $20.87
================================================================================
Shares exercisable at
December 31, 1998 2,663,535 $23.64
================================================================================
Shares exercisable at
December 31, 1999 2,876,120 $27.55
================================================================================
<PAGE>
33
Exercise prices for options outstanding as of December 31, 1999, ranged from
$11.50 to $61.00. The following table provides certain information with respect
to stock options outstanding at December 31, 1999:
- --------------------------------------------------------------------------------
Weighted-
Weighted- Average
Range of Stock Options Average Remaining
Exercise Prices Outstanding Exercise Price Contractual Life
- --------------------------------------------------------------------------------
Under $17.25 822,140 $12.85 1.1
$17.25-$25.87 613,899 21.33 3.2
$25.88-$38.80 1,437,901 34.52 7.3
$38.81-$58.21 3,719,850 50.04 9.1
Over $58.21 11,000 61.00 9.5
- --------------------------------------------------------------------------------
6,604,790 $39.38 7.1
================================================================================
The following table provides certain information with respect to stock
options exercisable at December 31, 1999:
- --------------------------------------------------------------------------------
Weighted-
Range of Stock Options Average
Exercise Prices Exercisable Exercise Price
- --------------------------------------------------------------------------------
Under $17.25 822,140 $12.85
$17.25-$25.87 613,899 21.33
$25.88-$38.80 912,469 34.03
$38.81-$58.21 527,612 46.53
Over $58.21 -- --
- --------------------------------------------------------------------------------
2,876,120 $27.55
================================================================================
In electing to continue to follow APBO No. 25 for expense recognition
purposes, the Corporation is obliged to provide the expanded disclosures
required under SFAS No. 123 for stock-based compensation granted in 1995 and
thereafter, including, if materially different from reported results, disclosure
of pro forma net income and earnings per share had compensation expense relating
to grants made after December 31, 1994 been measured under the fair value
recognition provisions of SFAS No. 123.
The weighted-average fair values at date of grant for options granted during
1999, 1998, and 1997 were $18.13, $17.67, and $11.86, respectively, and were
estimated using the Black-Scholes option valuation model with the following
weighted-average assumptions:
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Expected life in years 5.8 5.7 5.7
Interest rate 5.75% 4.54% 5.91%
Volatility 29.4% 29.0% 24.8%
Dividend yield .95% .90% 1.28%
- --------------------------------------------------------------------------------
The Corporation's pro forma information for the years ended December 31,
1999, 1998, and 1997, prepared in accordance with the provisions of SFAS No.
123, is provided below. For purposes of pro forma disclosures, stock-based
compensation is amortized to expense on a straight-line basis over the vesting
period. The pro forma effects of applying SFAS No. 123 are not indicative of
future amounts because this statement does not apply to awards granted prior to
1995. Additional stock option awards are anticipated in future years.
- --------------------------------------------------------------------------------
(Dollars in Millions
Except Per Share Amounts) 1999 1998 1997
- --------------------------------------------------------------------------------
Pro forma net earnings (loss) $ 293.9 $(755.8) $ 224.3
Pro forma net earnings (loss)
per common share -- basic $ 3.38 $ (8.23) $ 2.37
Pro forma net earnings (loss)
per common share -- assuming dilution $ 3.33 $ (8.23) $ 2.32
- --------------------------------------------------------------------------------
NOTE 17: BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION
The Corporation has elected to organize its businesses based principally upon
products and services. In certain instances where a business does not have a
local presence in a particular country or geographic region, however, the
Corporation has assigned responsibility for sales of that business's products to
one of its other businesses with a presence in that country or region.
The Corporation operates in three reportable business segments: Power Tools
and Accessories, 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 plumbing products to
customers outside of 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. 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 also operated several businesses that do not constitute
reportable business segments. These businesses included the manufacture and sale
of glass container-forming and inspection equipment, as well as recreational and
household products. As more fully described in Note 2, during 1998, the
Corporation completed the sale or recapitalization of its glass
container-forming and inspection equipment business, Emhart Glass; its
recreational products business, True Temper Sports; and its household products
businesses (excluding certain assets associated with cleaning and lighting
products) in North America, Central America, the Caribbean, South America
(excluding Brazil), and Australia. Because True Temper Sports, Emhart Glass, and
the divested household products businesses are not treated
<PAGE>
34
as discontinued operations under generally accepted accounting principles, they
remain a part of the Corporation's reported results from continuing operations,
and the results of operations and financial positions of these businesses have
been included in the consolidated financial statements through the dates of
consummation of the respective transactions. Amounts relating to these
businesses are included in the following table under the caption "All Others".
The results of the household products businesses included under the caption "All
Others" are based upon certain assumptions and allocations. The household
products businesses sold during 1998 were jointly operated with the cleaning and
lighting products businesses retained by the Corporation. Further, the
Corporation's divested household products businesses in Central America, the
Caribbean, South America (excluding Brazil), and Australia were operated jointly
with the power tools and accessories businesses. Accordingly, the results of the
household products businesses included in the segment table under the caption
"All Others" were determined using certain assumptions and allocations that the
Corporation believes are reasonable under the circumstances.
<TABLE>
<CAPTION>
BUSINESS SEGMENTS
(Millions of Dollars)
- ------------------------------------------------------------------------------------------------------------------------------------
Reportable Business Segments
----------------------------------------------
Corporate,
Adjust-
Power Hardware Fastening Currency ments,
Tools & & Home & Assembly All Translation & Elimi- Consoli-
Year Ended December 31, 1999 Accessories Improvement Systems Total Others Adjustments nations dated
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated customers $3,209.3 $881.8 $497.7 $4,588.8 $ -- $(68.3) $ -- $4,520.5
Segment profit (loss)
(for Consolidated,
operating income) 377.3 124.0 84.3 585.6 -- (6.9) (42.4) 536.3
Depreciation and amortization 87.7 31.1 15.4 134.2 -- (1.8) 27.6 160.0
Income from equity method
investees 16.8 -- -- 16.8 -- -- (2.1) 14.7
Capital expenditures 109.1 38.3 26.9 174.3 -- (3.5) .3 171.1
Segment assets
(for Consolidated, total assets) 1,836.0 508.2 273.2 2,617.4 -- (59.4) 1,454.7 4,012.7
Investment in equity method
investees 26.3 -- .6 26.9 -- .6 2.3 29.8
Year Ended December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $2,946.4 $851.1 $463.0 $4,260.5 $333.6 $(34.2) $ -- $4,559.9
Segment profit (loss)
(for Consolidated, operating
income before restructuring and
exit costs, write-off of goodwill,
and gain on sales of businesses) 293.4 125.2 76.6 495.2 16.5 (4.4) (23.3) 484.0
Depreciation and amortization 88.2 27.1 13.4 128.7 -- (1.1) 27.6 155.2
Income from equity method
investees 8.8 -- -- 8.8 -- -- (2.9) 5.9
Capital expenditures 79.1 36.5 16.2 131.8 13.3 (1.1) 2.0 146.0
Segment assets
(for Consolidated, total assets) 1,631.3 507.8 246.7 2,385.8 -- (4.6) 1,471.3 3,852.5
Investment in equity method
investees 22.5 -- .6 23.1 -- .1 2.3 25.5
Year Ended December 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $2,936.4 $804.8 $451.3 $4,192.5 $718.1 $ 29.9 $ -- $4,940.5
Segment profit (loss)
(for Consolidated,
operating income) 290.7 121.3 69.7 481.7 61.7 (2.3) (51.8) 489.3
Depreciation and amortization 87.5 24.7 11.9 124.1 24.4 (.3) 66.0 214.2
Income from equity method
investees 6.1 -- -- 6.1 -- .3 (1.7) 4.7
Capital expenditures 113.2 47.3 15.4 175.9 25.3 (.2) 2.1 203.1
Segment assets
(for Consolidated, total assets) 1,635.4 476.5 248.2 2,360.1 438.6 8.0 2,554.0 5,360.7
Investment in equity method
investees 23.1 -- .6 23.7 -- .9 1.0 25.6
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
35
The Corporation assesses the performance of its reportable business segments
based upon a number of factors, including segment profit. In general, segments
follow the same accounting policies as those described in Note 1, except with
respect to foreign currency translation and except as further indicated below.
The financial statements of a segment's operating units located outside of the
United States, except those units operating in highly inflationary economies,
are generally measured using the local currency as the functional currency. For
these units located outside of the United States, segment assets and elements of
segment profit are translated using budgeted rates of exchange. Budgeted rates
of exchange are established annually and, once established, all prior period
segment data is restated to reflect the current year's budgeted rates of
exchange. The amounts included in the preceding table under the captions
"Reportable Business Segments", "All Others", and "Corporate, Adjustments, &
Eliminations" are reflected at the Corporation's budgeted exchange rates for
1999. The amounts included in the preceding table under the caption "Currency
Translation Adjustments" represent the difference between consolidated amounts
determined using those budgeted rates of exchange and those determined based
upon the rates of exchange applicable under accounting principles generally
accepted in the United States.
Segment profit excludes interest income and expense, non-operating income and
expense, goodwill amortization, adjustments to eliminate intercompany profit in
inventory, and income tax expense. In addition, segment profit excludes
restructuring and exit costs and, for 1998, the write-off of goodwill and gain
on sale of businesses. For certain operations located in Brazil, Mexico,
Venezuela, and Turkey, segment profit is reduced by net interest expense and
non-operating expenses. In determining segment profit, expenses relating to
pension and other postretirement benefits are based solely upon estimated
service costs. Corporate expenses are allocated to each reportable segment based
upon budgeted amounts. No Corporate expenses have been allocated to divested
businesses. While sales and transfers between segments are accounted for at cost
plus a reasonable profit, the effects of intersegment sales are excluded from
the computation of segment profit. Intercompany profit in inventory is excluded
from segment assets and is recognized as a reduction of cost of sales by the
selling segment when the related inventory is sold to an unaffiliated customer.
Because the Corporation compensates the management of its various businesses on,
among other factors, segment profit, the Corporation may elect to record certain
segment-related expense items of an unusual or non-recurring nature in
consolidation rather than reflect such items in segment profit. In addition,
certain segment-related items of income or expense may be recorded in
consolidation in one period and transferred to the various segments in a later
period.
Segment assets exclude pension and tax assets, goodwill, intercompany profit
in inventory, and intercompany receivables.
Amounts in the preceding table under the caption "Corporate, Adjustments &
Eliminations" on the lines entitled "Depreciation and amortization" represent
depreciation of Corporate property and consolidated goodwill amortization. The
reconciliation of segment profit to consolidated earnings (loss) before income
taxes for each year, in millions of dollars, is as follows:
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Segment profit for total reportable
business segments $585.6 $ 495.2 $481.7
Segment profit for all
other businesses -- 16.5 61.7
Items excluded from segment profit:
Adjustment of budgeted
foreign exchange rates
to actual rates (6.9) (4.4) (2.3)
Depreciation of Corporate
property and
amortization of goodwill (27.6) (27.6) (66.0)
Adjustment to businesses'
postretirement benefit
expenses booked
in consolidation 24.8 24.4 23.8
Adjustment to eliminate
net interest and
non-operating expenses
from results of certain
operations in Brazil, Mexico,
Venezuela, and Turkey 1.0 5.7 3.6
Other adjustments booked
in consolidation directly
related to reportable
business segments (12.4) (20.4) (17.6)
Amounts allocated to businesses in
arriving at segment profit in
excess of (less than) Corporate
center operating expenses, eliminations,
and other amounts identified above (28.2) (5.4) 4.4
- --------------------------------------------------------------------------------
Operating income before
restructuring and exit costs,
write-off of goodwill, and gain
on sale of businesses 536.3 484.0 489.3
Restructuring and exit costs -- 164.7 --
Write-off of goodwill -- 900.0 --
Gain on sale of businesses -- 114.5 --
- --------------------------------------------------------------------------------
Operating income (loss) 536.3 (466.2) 489.3
Interest expense,
net of interest income 95.8 114.4 124.6
Other (income) expense (.8) 7.7 15.2
- --------------------------------------------------------------------------------
Earnings (loss)
before income taxes $441.3 $(588.3) $349.5
================================================================================
<PAGE>
36
The reconciliation of segment assets to the consolidated total assets at the
end of each year, in millions of dollars, is as follows:
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Segment assets for total
reportable business segments $2,617.4 $2,385.8 $2,360.1
Segment assets for all
other businesses -- -- 438.6
Items excluded from
segment assets:
Adjustment of budgeted
foreign exchange rates
to actual rates (59.4) (4.6) 8.0
Goodwill 743.4 768.7 1,877.3
Pension assets 377.0 348.8 391.6
Other Corporate assets 334.3 353.8 285.1
- --------------------------------------------------------------------------------
$4,012.7 $3,852.5 $5,360.7
================================================================================
Other Corporate assets principally consist of cash and cash equivalents, tax
assets, property, and other assets.
Sales to The Home Depot, a customer of the Power Tools and Accessories and
Hardware and Home Improvement segments, accounted for $755.9 million, $622.3
million and $541.6 million of the Corporation's consolidated sales for the years
ended December 31, 1999, 1998 and 1997, respectively.
The composition of the Corporation's sales by product group for each year, in
millions of dollars, is set forth below:
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Consumer and professional
power tools and
product service $2,318.6 $2,123.9 $2,070.4
Consumer and professional
accessories 357.3 339.8 342.1
Electric lawn and
garden products 287.7 283.6 262.1
Electric cleaning and
lighting products 134.3 99.0 183.3
Security hardware 619.2 596.3 573.5
Plumbing products 260.6 257.0 242.3
Fastening and assembly
systems 498.4 461.0 460.2
Household products 44.4 197.1 485.4
Glass container-forming
and inspection equipment -- 130.3 238.6
Recreational products -- 71.9 82.6
- --------------------------------------------------------------------------------
$4,520.5 $4,559.9 $4,940.5
================================================================================
The Corporation markets its products and services in over 100 countries and
has manufacturing sites in ten countries. Other than in the United States, the
Corporation does not conduct business in any country in which its sales in that
country exceed 10% of consolidated sales. Sales are attributed to countries
based on the location of customers. The composition of the Corporation's sales
to unaffiliated customers between those in the United States and those in other
locations for each year, in millions of dollars, is set forth below:
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
United States $2,825.2 $2,703.7 $2,855.7
Canada 137.0 137.4 179.4
- --------------------------------------------------------------------------------
North America 2,962.2 2,841.1 3,035.1
Europe 1,255.5 1,364.5 1,378.0
Other 302.8 354.3 527.4
- --------------------------------------------------------------------------------
$4,520.5 $4,559.9 $4,940.5
================================================================================
The composition of the Corporation's property, plant, and equipment between
those in the United States and those in other countries as of the end of each
year, in millions of dollars, is set forth below:
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
United States $480.8 $469.0 $532.9
United Kingdom 121.2 118.3 105.1
Other countries 137.6 140.3 277.1
- --------------------------------------------------------------------------------
$739.6 $727.6 $915.1
================================================================================
NOTE 18: OTHER EXPENSE
Other expense for 1999 was not significant. Other expense for 1998 and 1997
primarily included currency losses and, for 1997, the costs associated with the
sale of receivables program.
NOTE 19: LEASES
The Corporation leases certain service centers, offices, warehouses,
manufacturing facilities, and equipment. Generally, the leases carry renewal
provisions and require the Corporation to pay maintenance costs. Rental payments
may be adjusted for increases in taxes and insurance above specified amounts.
Rental expense for 1999, 1998, and 1997 amounted to $84.0 million, $81.4
million, and $76.3 million, respectively. Capital leases were immaterial in
amount. Future minimum payments under non-cancelable operating leases with
initial or remaining terms of more than one year as of December 31, 1999, in
millions of dollars, were as follows:
- --------------------------------------------------------------------------------
2000 $ 48.9
2001 38.8
2002 33.7
2003 27.8
2004 24.0
Thereafter 27.1
- --------------------------------------------------------------------------------
$200.3
================================================================================
<PAGE>
37
NOTE 20: LITIGATION AND CONTINGENT LIABILITIES
The Corporation is involved in various lawsuits in the ordinary course of
business. These lawsuits primarily involve claims for damages arising out of the
use of the Corporation's products and allegations of patent and trademark
infringement. The Corporation also is involved in litigation and administrative
proceedings relating to employment matters and commercial disputes. Some of
these lawsuits include claims for punitive as well as compensatory damages.
Using current product sales data and historical trends, the Corporation
actuarially calculates the estimate of its current exposure for product
liability. The Corporation is insured for product liability claims for amounts
in excess of established deductibles and accrues for the estimated liability up
to the limits of the deductibles. The Corporation accrues for all other claims
and lawsuits on a case-by-case basis.
The Corporation also is involved in lawsuits and administrative proceedings
with respect to claims involving the discharge of hazardous substances into the
environment. Certain of these claims assert damages and liability for remedial
investigations and cleanup costs with respect to sites at which the Corporation
has been identified as a potentially responsible party under federal and state
environmental laws and regulations (off-site). Other matters involve sites that
the Corporation currently owns and operates or has previously sold (on-site).
For off-site claims, the Corporation makes an assessment of the costs involved
based on environmental studies, prior experience at similar sites, and the
experience of other named parties. The Corporation also considers the ability of
other parties to share costs, the percentage of the Corporation's exposure
relative to all other parties, and the effects of inflation on these estimated
costs. For on-site matters associated with properties currently owned, the
Corporation makes an assessment as to whether an investigation and remediation
would be required under applicable federal and state laws. For on-site matters
associated with properties previously sold, the Corporation considers the terms
of sale as well as applicable federal and state laws to determine if it has any
remaining liability. If the Corporation is determined to have potential
liability for properties currently owned or previously sold, an estimate is made
of the total costs of investigation and remediation and other potential costs
associated with the site.
The Corporation's estimate of the costs associated with legal, product
liability, and environmental exposures is accrued if, in management's judgment,
the likelihood of a loss is probable. These accrued liabilities are not
discounted.
Insurance recoveries for environmental and certain general liability claims
are not recognized until realized. In the opinion of the Corporation, amounts
accrued for awards or assessments in connection with these matters are adequate
and, accordingly, ultimate resolution of these matters will not have a material
effect on the Corporation.
As of December 31, 1999, the Corporation had no known probable but
inestimable exposures that could have a material effect on the Corporation.
NOTE 21: QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
(Millions of Dollars Except Per Share Data) First Second Third Fourth
Year Ended December 31, 1999 Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 978.5 $1,084.2 $1,110.6 $1,347.2
Gross margin 350.3 413.0 416.6 506.2
Net earnings 39.2 70.7 75.3 115.1
==========================================================================================================================
Net earnings per common share -- basic $ .45 $ .81 $ .87 $ 1.32
==========================================================================================================================
Net earnings per common share -- assuming dilution $ .44 $ .80 $ .85 $ 1.31
==========================================================================================================================
Year Ended December 31, 1998
- --------------------------------------------------------------------------------------------------------------------------
Sales $1,008.3 $1,169.7 $1,107.7 $1,274.2
Gross margin 350.0 397.8 398.7 462.4
Net earnings (loss) (971.4) 58.4 66.6 91.6
==========================================================================================================================
Net earnings (loss) per common share -- basic $ (10.21) $ .62 $ .73 $ 1.05
==========================================================================================================================
Net earnings (loss) per common share -- assuming dilution $ (10.21) $ .61 $ .72 $ 1.03
==========================================================================================================================
</TABLE>
Results for the first quarter of 1998 included a write-off of goodwill of
$900.0 million and a restructuring charge of $140.0 million ($100.0 million net
of tax). Results for the second quarter of 1998 included a gain on sale of
businesses of $36.5 million ($4.2 million net of tax). Results for the third
quarter of 1998 included a gain on sale of businesses of $26.9 million ($9.2
million net of tax) and a restructuring charge of $14.2 million ($7.7 million
net of tax). Results for the fourth quarter of 1998 included a gain on sale of
businesses of $51.1 million ($3.1 million net of tax) and a restructuring charge
of $10.5 million ($9.6 million net of tax).
Earnings per common share are computed independently for each of the quarters
presented. Therefore, the sum of the quarters may not necessarily be equal to
the full year earnings per share amounts.
<PAGE>
38
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors
of The Black & Decker Corporation:
We have audited the accompanying consolidated balance sheet of The Black &
Decker Corporation and Subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1999. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Corporation's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
The Black & Decker Corporation and Subsidiaries at December 31, 1999 and 1998,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
As discussed in Note 2 to the financial statements, effective January 1,
1998, the Corporation changed its method of accounting for measuring goodwill
impairment.
/s/ERNST & YOUNG LLP
Baltimore, Maryland
January 27, 2000
<PAGE>
39
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Information required under this Item with respect to Directors is contained in
the Corporation's Proxy Statement for the Annual Meeting of Stockholders to be
held April 25, 2000, under the captions "Election of Directors" and "Section
16(a) Beneficial Ownership Reporting Compliance" and is incorporated herein by
reference.
Information required under this Item with respect to Executive Officers of
the Corporation is included in Item 1 of Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
Information required under this Item is contained in the Corporation's Proxy
Statement for the Annual Meeting of Stockholders to be held April 25, 2000,
under the captions "Board of Directors" and "Executive Compensation" and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required under this Item is contained in the Corporation's Proxy
Statement for the Annual Meeting of Stockholders to be held April 25, 2000,
under the captions "Voting Securities" and "Security Ownership of Management"
and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this Item is contained in the Corporation's Proxy
Statement for the Annual Meeting of Stockholders to be held April 25, 2000,
under the caption "Executive Compensation" and is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of Financial Statements, Financial Statement Schedules, and Exhibits
(1) List of Financial Statements
The following consolidated financial statements of the Corporation and its
subsidiaries are included in Item 8 of Part II:
Consolidated Statement of Earnings - years ended December 31, 1999, 1998, and
1997.
Consolidated Balance Sheet - December 31, 1999 and 1998.
Consolidated Statement of Stockholders' Equity - years ended December 31,
1999, 1998, and 1997.
Consolidated Statement of Cash Flows - years ended December 31, 1999, 1998,
and 1997.
Notes to Consolidated Financial Statements.
Report of Independent Auditors.
(2) List of Financial Statement Schedules
The following financial statement schedules of the Corporation and its
subsidiaries are included herein.
Schedule II - Valuation and Qualifying Accounts and Reserves.
All other schedules for which provision is made in the applicable accounting
regulations of the Commission are not required under the related instructions or
are inapplicable and, therefore, have been omitted.
(3) List of Exhibits
The following exhibits are either included in this report or incorporated herein
by reference as indicated below:
Exhibit 2(a)(i)
Amendment No. 5 dated as of April 30, 1999, to the Transaction Agreement dated
as of May 10, 1998, by and between The Black & Decker Corporation and
Windmere-Durable Holdings, Inc., included in the Corporation's Quarterly Report
on Form 10-Q for the quarter ended July 4, 1999, is incorporated herein by
reference.
<PAGE>
40
Exhibit 2(a)(ii)
Amendment No. 6 dated as of June 30, 1999, to the Transaction Agreement dated as
of May 10, 1998, by and between The Black & Decker Corporation and
Windmere-Durable Holdings, Inc., included in the Corporation's Quarterly Report
on Form 10-Q for the quarter ended July 4, 1999, is incorporated herein by
reference.
Exhibit 2(b)(i)
Amendment No. 3 dated as of May 4, 1999, to the Transaction Agreement dated as
of July 12, 1998, by and between The Black & Decker Corporation and Bucher
Holding AG, included in the Corporation's Quarterly Report on Form 10-Q for the
quarter ended July 4, 1999, is incorporated herein by reference.
Exhibit 2(b)(ii)
Amendment No. 4 dated as of January 6, 2000, to the Transaction Agreement dated
as of July 12, 1998, by and between The Black & Decker Corporation and Bucher
Holding AG.
Exhibit 3(a)
Articles of Restatement of the Charter of the Corporation included in the
Corporation's Quarterly Report on Form 10-Q for the quarter ended June 29, 1997,
are incorporated herein by reference.
Exhibit 3(b)
Bylaws of the Corporation, as amended.
Exhibit 4(a)
Indenture dated as of March 24, 1993, by and between the Corporation and
Security Trust Company, National Association, included in the Corporation's
Current Report on Form 8-K filed with the Commission on March 26, 1993, is
incorporated herein by reference.
Exhibit 4(b)
Form of 7-1/2% Notes due April 1, 2003, included in the Corporation's Current
Report on Form 8-K filed with the Commission on March 26, 1993, is incorporated
herein by reference.
Exhibit 4(c)
Form of 6-5/8% Notes due November 15, 2000, included in the Corporation's
Current Report on Form 8-K filed with the Commission on November 22, 1993, is
incorporated herein by reference.
Exhibit 4(d)
Form of 7% Notes due February 1, 2006, included in the Corporation's Current
Report on Form 8-K filed with the Commission on January 20, 1994, is
incorporated herein by reference.
Exhibit 4(e)
Indenture dated as of September 9, 1994, by and between the Corporation and
Marine Midland Bank, as Trustee, included in the Corporation's Current Report on
Form 8-K filed with the Commission on September 9, 1994, is incorporated herein
by reference.
Exhibit 4(f)
Credit Agreement dated as of April 23, 1996, among the Corporation, Black &
Decker Holdings Inc. and Black & Decker, as Initial Borrowers, and the initial
Lenders named therein, as Initial Lenders, and Citibank International plc, as
Facility Agent, and Citibank International plc and Midland Bank plc, as
Co-Arrangers, included in the Corporation's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996, is incorporated herein by reference.
Exhibit 4(g)
Credit Agreement dated as of April 23, 1996, among the Corporation, Black &
Decker Holdings Inc., Black & Decker, Black & Decker International Holdings
B.V., Black & Decker G.m.b.H., Black & Decker (France) S.A.S., Black & Decker
(Nederland) B.V. and Emhart Glass S.A., as Initial Borrowers, and the initial
Lenders named therein, as Initial Lenders, and Credit Suisse, as Administrative
Agent, and Citibank, N.A., as Documentation Agent, and NationsBank, N.A., as
Syndication Agent, included in the Corporation's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1996, is incorporated herein by reference.
Exhibit 4(h)
Indenture dated as of June 26, 1998, by and between Black & Decker Holdings
Inc., as Issuer, the Corporation, as Guarantor, and The First National Bank of
Chicago, as Trustee, included in the Corporation's Quarterly Report on Form 10-Q
for the quarter ended June 28, 1998, is incorporated herein by reference.
The Corporation agrees to furnish a copy of any other documents with respect
to long-term debt instruments of the Corporation and its subsidiaries upon
request.
Exhibit 10(a)
The Black & Decker Corporation Deferred Compensation Plan for Non-Employee
Directors, as amended, included in the Corporation's Quarterly Report on Form
10-Q for the quarter ended October 2, 1994, is incorporated herein by reference.
Exhibit 10(b)
The Black & Decker 1986 Stock Option Plan, as amended, included in the
Corporation's Quarterly Report on Form 10-Q for the quarter ended March 30,
1997, is incorporated herein by reference.
Exhibit 10(c)
The Black & Decker 1986 U.K. Approved Option Scheme, as amended, included in the
Corporation's Registration Statement on Form S-8 (Reg. No. 33-47651), filed with
the Commission on May 5, 1992, is incorporated herein by reference.
Exhibit 10(d)
The Black & Decker 1989 Stock Option Plan, as amended, included in the
Corporation's Quarterly Report on Form 10-Q for the quarter ended March 30,
1997, is incorporated herein by reference.
<PAGE>
41
Exhibit 10(e)
The Black & Decker 1992 Stock Option Plan, as amended, included in the
Corporation's Quarterly Report on Form 10-Q for the quarter ended March 30,
1997, is incorporated herein by reference.
Exhibit 10(f)
The Black & Decker 1995 Stock Option Plan for Non-Employee Directors, as
amended, included in the Corporation's Annual Report on Form 10-K for the year
ended December 31, 1998, is incorporated herein by reference.
Exhibit 10(g)
The Black & Decker Non-Employee Directors Stock Plan, included as Exhibit A to
the Proxy Statement of the Corporation dated March 3, 1998, for the 1998 Annual
Meeting of Stockholders of the Corporation, is incorporated herein by reference.
Exhibit 10(h)
The Black & Decker 1996 Stock Option Plan, as amended, included in the
Corporation's Registration Statement on Form S-8 (Reg. No. 333-51155), is
incorporated herein by reference.
Exhibit 10(i)
The Black & Decker Performance Equity Plan, as amended, included in the
Corporation's Annual Report on Form 10-K for the year ended December 31, 1996,
is incorporated herein by reference.
Exhibit 10(j)
The Black & Decker Executive Annual Incentive Plan, included in the definitive
Proxy Statement for the 1996 Annual Meeting of Stockholders of the Corporation
dated March 1, 1996, is incorporated herein by reference.
Exhibit 10(k)
The Black & Decker Management Annual Incentive Plan, included in the
Corporation's Annual Report on Form 10-K for the year ended December 31, 1995,
is incorporated herein by reference.
Exhibit 10(l)
Amended and Restated Employment Agreement, dated as of November 1, 1995, by and
between the Corporation and Nolan D. Archibald, included in the Corporation's
Annual Report on Form 10-K for the year ended December 31, 1995, is incorporated
herein by reference.
Exhibit 10(m)
Letter Agreement, dated February 1, 1975, by and between the Corporation and
Alonzo G. Decker, Jr., included in the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1990, is incorporated herein by reference.
Exhibit 10(n)(1)
The Black & Decker Supplemental Pension Plan, as amended, included in the
Corporation's Annual Report on Form 10-K for the year ended December 31, 1991,
is incorporated herein by reference.
Exhibit 10(n)(2)
Amendment to The Black & Decker Supplemental Pension Plan dated as of May 21,
1997, included in the Corporation's Annual Report on Form 10-K for the year
ended December 31, 1997, is incorporated herein by reference.
Exhibit 10(o)(1)
The Black & Decker Executive Deferred Compensation Plan, included in the
Corporation's Quarterly Report on Form 10-Q for the quarter ended October 3,
1993, is incorporated herein by reference.
Exhibit 10(o)(2)
Amendment to The Black & Decker Executive Deferred Compensation Plan dated as of
July 17, 1996, included in the Corporation's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996, is incorporated herein by reference.
Exhibit 10(p)(1)
The Black & Decker Supplemental Retirement Savings Plan, included in the
Corporation's Registration Statement on Form S-8 (Reg. No. 33-65013), filed with
the Commission on December 14, 1995, is incorporated herein by reference.
Exhibit 10(p)(2)
Amendment to The Black & Decker Supplemental Retirement Savings Plan dated as of
April 22, 1997, included in the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1997, is incorporated herein by reference.
Exhibit 10(p)(3)
Amendment No. 2 to The Black & Decker Supplemental Retirement Savings Plan dated
as of July 16, 1998, included in the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1998, is incorporated herein by reference.
Exhibit 10(q)
The Black & Decker Supplemental Executive Retirement Plan, as amended, included
in the Corporation's Annual Report on Form 10-K for the year ended December 31,
1998, is incorporated herein by reference.
Exhibit 10(r)
The Black & Decker Executive Life Insurance Program, as amended, included in the
Corporation's Quarterly Report on Form 10-Q for the quarter ended April 4, 1993,
is incorporated herein by reference.
Exhibit 10(s)
The Black & Decker Executive Salary Continuance Plan, included in the
Corporation's Quarterly Report on Form 10-Q for the quarter ended April 12,
1995, is incorporated herein by reference.
Exhibit 10(t)
Description of the Corporation's policy and procedure for relocation of existing
employees (individual transfers), included in the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1991, is incorporated herein by
reference.
<PAGE>
42
Exhibit 10(u)
Description of the Corporation's policy and procedures for relocation of new
employees, included in the Corporation's Annual Report on Form 10-K for the year
ended December 31, 1991, is incorporated herein by reference.
Exhibit 10(v)
Description of certain incidental benefits provided to executive officers of the
Corporation, included in the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1997, is incorporated herein by reference.
Exhibit 10(w)
Form of Amendment and Restatement of Severance Benefits Agreement by and between
the Corporation and approximately 13 of its key employees, included in the
Corporation's Annual Report on Form 10-K for the year ended December 31, 1996,
is incorporated herein by reference.
Exhibit 10(x)
Amendment and Restatement of Severance Benefits Agreement, dated January 1,
1997, by and between the Corporation and Nolan D. Archibald, included in the
Corporation's Annual Report on Form 10-K for the year ended December 31, 1996,
is incorporated herein by reference.
Exhibit 10(y)
Severance Benefits Agreement, dated April 27, 1999, by and between the
Corporation and Paul F. McBride, included in the Corporation's Quarterly Report
on Form 10-Q for the quarter ended July 4, 1999, is incorporated herein by
reference.
Exhibit 10(z)
Amendment and Restatement of Severance Benefits Agreement, dated January 1,
1997, by and between the Corporation and Charles E. Fenton, included in the
Corporation's Annual Report on Form 10-K for the year ended December 31, 1996,
is incorporated herein by reference.
Exhibit 10(aa)
Letter Agreement dated April 19, 1999, by and between the Corporation and Paul
F. McBride, included in the Corporation's Quarterly Report on Form 10-Q for the
quarter ended July 4, 1999, is incorporated herein by reference.
Exhibit 10(bb)
Amendment and Restatement of Severance Benefits Agreement, dated January 1,
1997, by and between the Corporation and Thomas M. Schoewe, included in the
Corporation's Annual Report on Form 10-K for the year ended December 31, 1996,
is incorporated herein by reference.
Exhibit 10(cc)(1)
Amendment and Restatement of Severance Benefits Agreement, dated January 1,
1997, by and between the Corporation and Paul A. Gustafson.
Exhibit 10(cc)(2)
Special Deferral Agreement, dated February 7, 2000, by and between the
Corporation and Paul A. Gustafson.
Exhibit 10(dd)
Distribution Agreement dated September 9, 1994, by and between the Corporation,
Lehman Brothers Inc., Citicorp Securities, Inc., Goldman, Sachs & Co., Morgan
Stanley & Co. Incorporated, NationsBanc Capital Markets, Inc. and Salomon
Brothers Inc., included in the Corporation's Current Report on Form 8-K filed
with the Commission on September 9, 1994, is incorporated herein by reference.
Exhibit 10(ee)(1)
The Black & Decker 1996 Employee Stock Purchase Plan, included in the definitive
Proxy Statement for the 1996 Annual Meeting of Stockholders of the Corporation
dated March 1, 1996, is incorporated herein by reference.
Exhibit 10(ee)(2)
Amendment to The Black & Decker 1996 Employee Stock Purchase Plan, as adopted on
February 12, 1997, included in the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1996, is incorporated herein by reference.
Exhibit 12
Computation of Ratios.
Exhibit 21
List of Subsidiaries.
Exhibit 23
Consent of Independent Auditors.
Exhibit 24
Powers of Attorney.
Exhibit 27
Financial Data Schedule.
Exhibit 99(a)
Amendment No. 1 dated as of September 29, 1999, to the Securities Purchase
Agreement dated as of September 30, 1998, between True Temper Corporation and
Emhart, Inc., the Debt Registration Rights Agreement dated as of September 30,
1998, among True Temper Corporation and Emhart, Inc. and the Escrow Agreement
dated as of September 30, 1998, among True Temper Corporation, Emhart, Inc. and
Snoga, Inc.
Exhibit 99(b)
Amendment No. 2 dated as of October 19, 1999, to the Securities Purchase
Agreement dated as of September 30, 1998, between True Temper Corporation and
Emhart, Inc., the Debt Registration Rights Agreement dated as of September 30,
1998, among True Temper Corporation and Emhart, Inc. and the Escrow Agreement
dated as of September 30, 1998, among True Temper Corporation, Emhart, Inc. and
Snoga, Inc.
All other items are "not applicable" or "none".
<PAGE>
43
(b) Reports on Form 8-K
The Corporation filed the following reports on Form 8-K during the three months
ended December 31, 1999:
On October 19, 1999, the Corporation filed a Current Report on Form 8-K with
the Securities and Exchange Commission. This Current Report on Form 8-K, filed
pursuant to Item 5 of that Form, stated that the Corporation had reported its
earnings for the three and nine months ended October 3, 1999.
All other items are "not applicable" or "none".
(c) Exhibits
The exhibits required by Item 601 of Regulation S-K are filed herewith.
(d) Financial Statement Schedules and Other Financial Statements
The Financial Statement Schedule required by Regulation S-X is filed
herewith.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
The Black & Decker Corporation and Subsidiaries
(Millions of Dollars)
- ---------------------------------------------------------------------------------------------------------------------------
Balance Additions Other
at Charged to Changes Balance
Beginning Costs and Add at End
Description of Period Expenses Deductions (Deduct) of Period
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1999
Reserve for doubtful accounts and cash discounts $44.3 $66.3 $55.6 (a) $(1.7)(b) $53.3
- ---------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1998
Reserve for doubtful accounts and cash discounts $47.8 $66.8 $65.8 (a) $(4.5)(b) $44.3
- ---------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
Reserve for doubtful accounts and cash discounts $44.0 $70.0 $63.8 (a) $(2.4)(b) $47.8
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Accounts written off during the year and cash discounts taken by customers.
(b) Primarily includes currency translation adjustments and, for 1998, the
write-off of $4.3 million of reserves associated with divested businesses.
</FN>
</TABLE>
<PAGE>
44
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE BLACK & DECKER CORPORATION
Date: February 14, 2000 By /s/ NOLAN D. ARCHIBALD
----------------- ----------------------
Nolan D. Archibald
Chairman, President, and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on February 14, 2000, by the following persons on behalf
of the registrant and in the capacities indicated.
Signature Title Date
- --------------------------------------------------------------------------------
Principal Executive Officer
/s/ NOLAN D. ARCHIBALD February 14, 2000
- ---------------------- -----------------
Nolan D. Archibald Chairman, President, and
Chief Executive Officer
Principal Financial Officer
/s/ MICHAEL D. MANGAN February 14, 2000
- --------------------- -----------------
Michael D. Mangan Senior Vice President and
Chief Financial Officer
Principal Accounting Officer
/s/ STEPHEN F. REEVES February 14, 2000
- --------------------- -----------------
Stephen F. Reeves Vice President - Finance and
Strategic Planning
- --------------------------------------------------------------------------------
This report has been signed by the following directors, constituting a majority
of the Board of Directors, by Nolan D. Archibald, Attorney-in-Fact.
Nolan D. Archibald Alonzo G. Decker, Jr.
Norman R. Augustine Manuel A. Fernandez
Barbara L. Bowles Anthony Luiso
Malcolm Candlish Mark H. Willes
By /s/ NOLAN D. ARCHIBALD Date: February 14, 2000
---------------------- -----------------
Nolan D. Archibald
Attorney-in-Fact
AMENDMENT NO. 4
Dated as of January 6, 2000
to
TRANSACTION AGREEMENT
Dated as of July 12, 1998
By and Between
THE BLACK & DECKER CORPORATION
and
BUCHER HOLDING AG
<PAGE>
AMENDMENT NO. 4 TO TRANSACTION AGREEMENT
This Amendment No. 4 to Transaction Agreement ("Amendment No. 4") is
made as of the 6th day of January, 2000, by and between The Black & Decker
Corporation, a Maryland corporation ("Black & Decker"), and Bucher Holding AG, a
Swiss corporation ("Buyer").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Black & Decker, through certain of its direct and indirect
Subsidiaries, was engaged in the Glass Machinery Business;
WHEREAS, Black & Decker and Buyer entered into a Transaction Agreement
dated as of July 12, 1998 (the "Agreement") pursuant to which Black & Decker
agreed to sell and Buyer agreed to purchase the Glass Machinery Business upon
the terms and subject to the conditions set forth therein;
WHEREAS, Black & Decker and Buyer entered into an Amendment No. 1 to
Transaction Agreement dated as of September 21, 1998 amending the Agreement (the
"First Amendment");
WHEREAS, Black & Decker and Buyer entered into an Amendment No. 2 to
Transaction Agreement dated as of November 20, 1999 amending the Agreement (the
"Second Amendment");
WHEREAS, Black & Decker and Buyer entered into an Amendment No. 3 to
Transaction Agreement dated as of May 4, 1999 amending the Agreement (the "Third
Amendment");
WHEREAS, Black & Decker and Buyer desire to amend certain terms of the
Agreement in accordance with the terms of this Amendment No. 4;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements of the parties contained herein, the parties agree as follows:
Section 1. DEFINITIONS. Capitalized terms used but not defined herein
have the meanings given to them in the Agreement.
Section 2. AMENDMENTS. The Agreement, the First Amendment, the Second
Amendment and the Third Amendment are hereby amended by (i) deleting the third
sentence of subsection (d) of Section D.09, (ii) adding the words "and after" to
the first sentence of subsection (e) of Section D.09 after the words "prior to",
and (iii) adding the following new subsection (f) immediately at the end of
Section D.09:
(f) As of the Closing Date, the hourly employees of the Windsor
Facility of the Emhart Glass Machinery Business were represented by the
International Union of United Automobile, Aerospace and Agricultural Implement
Workers of America, Amalgamated Local Union 376 (the "UAW") and their pension
benefits were provided under the Hourly Employees Retirement Plan of Hartford
Division, Emhart Industries, Inc. ("Seller's U.S. Hourly Pension Plan"). Since
the Closing, the Buyer has decided to close the Windsor Facility and the
employment of the US Transferred Employees of the Windsor Facility who are
represented by the UAW (the "Transferred Union Employees") has been terminated.
In connection with the termination of the employment of the Transferred Union
Employees, the Buyer agreed to provide certain enhanced pension benefits to the
Transferred Union Employees as set forth in a TERMINATION (PLANT CLOSING)
AGREEMENT, dated June 30,1999, (the "Enhanced Pension Benefits"). Black & Decker
shall cause the Seller's U.S. Hourly Pension Plan to be amended to provide for
the continuing participation of the Transferred Union Employees in such plan and
for the recognition of benefit accruals with respect to such Transferred Union
Employees for service after the Closing Date and for the Enhanced Pension
Benefits and, pending completion of the asset transfers contemplated by this
Section D.09, any benefits that are payable to US Transferred Employees under
the Seller's U.S. Hourly Pension Plan as so amended shall be paid or continue to
be paid out of the Seller's U.S. Hourly Pension Plan and the amount of the
assets to be transferred pursuant to subsection (d) of Section D.09 shall be
adjusted, as provided in that subsection, to reflect all of such benefit
payments in full.
IN WITNESS WHEREOF, the parties hereto caused this Amendment No. 4 to
be duly executed by their respective authorized officers on the day and year
first above written.
THE BLACK & DECKER CORPORATION
By: /s/CHARLES E. FENTON
Name: Charles E. Fenton
Title: Senior Vice President
BUCHER HOLDING AG
By: /s/RUDOLPH HAUSER
Name: Rudolph Hauser
Title: Chief Executive Officer
Adopted 10/17/96
Amended 07/16/98
Amended 12/10/98
Amended 02/11/99
BYLAWS
OF
THE BLACK & DECKER CORPORATION
ARTICLE I
Stockholders
SECTION 1. Annual Meeting.
--------------
The annual meeting of stockholders shall be held on the last Tuesday in
April of each year or on such day within 15 days thereof and at such time and at
such place as the Board of Directors may by resolution provide for the purpose
of electing directors and for the transaction of only such other business as is
properly brought before the meeting in accordance with these Bylaws.
To be properly brought before the meeting, business must be either (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board, (b) otherwise properly brought before the meeting by
or at the direction of the Board, or (c) otherwise properly brought before the
meeting by a stockholder. In addition to any other applicable requirements, for
business to be properly brought before an annual meeting by a stockholder, the
stockholder must have given written notice thereof that is received by the
Secretary of the Corporation at the principal executive offices of the
Corporation not less than 90 days nor more than 110 days prior to the meeting;
provided, however, that in the event that less than 100 days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder must be so received not later than the close of
business on the 10th day following the day on which the notice of the date of
the annual meeting was mailed or the public disclosure was made, whichever first
occurred. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and record address of the stockholder proposing such business, (iii) the class
and number of shares of the Corporation which are beneficially owned by the
stockholder, and (iv) any material interest of the stockholder in such business.
Notwithstanding anything in the Bylaws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this section, provided, however, that nothing in this
section shall be deemed to preclude discussion by any stockholder of any
business properly brought before the annual meeting.
The Chairman of the annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Article, and if the
Chairman should so determine, he or she shall so declare to the meeting and any
such business not properly brought before the meeting shall not be transacted.
<PAGE>
SECTION 2. Special Meetings.
----------------
Special meetings of the stockholders may be called at any time for any
purpose or purposes by the Chief Executive Officer, by a majority of the Board
of Directors, or by a majority of the Executive Committee. Special meetings of
the stockholders shall be called forthwith by the Chairman of the Board, by the
President, or by the Secretary of the Corporation upon the written request of
stockholders entitled to cast a majority of all votes entitled to be cast at the
special meeting. A written request that a special meeting be called shall state
the purpose or purposes of the meeting and the matters proposed to be acted on
at the meeting. However called, notice of the meeting shall be given to each
stockholder and shall state the purpose or purposes of the meeting. No business
other than that stated in the notice shall be transacted at any special meeting.
SECTION 3. Place of Meetings.
-----------------
All meetings of stockholders shall be held at the principal offices of
the Corporation at Towson, Baltimore County, Maryland, or at such other location
in the United States of America as the Board of Directors may provide in the
notice of the meeting.
SECTION 4. Notice of Meetings.
------------------
Written or printed notice of each meeting of the stockholders shall be
delivered to each stockholder by leaving the notice with the stockholder at the
stockholder's residence or usual place of business, or by mailing it, postage
prepaid and addressed to the stockholder at the stockholder's address as it
appears upon the records of the Corporation. The notice shall be delivered or
mailed not more than 90 nor less than 20 days before the meeting, and shall
state the place, day, and hour at which the meeting is to be held. No notice of
any meeting of the stockholders need be given to any stockholder who attends the
meeting in person or by proxy, or to any stockholder who, in writing executed
and filed with the records of the meeting either before or after the holding
thereof, waives notice.
SECTION 5. Quorum.
------
At any meeting of stockholders the presence in person or by proxy of
the holders of record of a majority of the shares of stock entitled to vote at
the meeting shall constitute a quorum. In the absence of a quorum, the
stockholders entitled to vote who shall be present in person or by proxy at any
meeting (or adjournment thereof) may, by a majority vote and without further
notice, adjourn the meeting from time to time, but not for a period of over
thirty days at any one time, until a quorum shall attend. At any adjourned
meeting at which a quorum shall be present, any business may be transacted that
could have been transacted if the meeting had been held as originally scheduled.
SECTION 6. Conduct of Meetings.
-------------------
Meetings of stockholders shall be presided over by the Chairman of the
Board of Directors of the Corporation or, in the Chairman's absence, by the Vice
Chairman of the Board, or if both of such officers are absent, by the President
of the Corporation. The Secretary of the Corporation shall act as secretary of
meetings of the stockholders and in the Secretary's absence, the records of the
proceedings shall be kept and authenticated by such other person as may be
appointed for that purpose at the meeting by the presiding officer. To
participate in a meeting, stockholders must be present in person or by proxy;
stockholders may not participate by means of a conference telephone or other
communications equipment. The rules contained in the current edition of Robert's
Rules of Order Newly Revised shall govern in all cases to which they are
applicable and in which they are not inconsistent with these Bylaws and any
special rules of order that the meeting may adopt.
SECTION 7. Approval of Minutes.
-------------------
The minutes of all meetings of stockholders shall be corrected and
approved by a committee of directors designated by the Board and if none is
designated, by the Organization Committee. At a subsequent meeting of
stockholders, a synopsis of the minutes shall be read for information at the
request of the presiding officer or any stockholder.
<PAGE>
SECTION 8. Proxies.
-------
Stockholders may vote either in person or by proxy, and if by proxy, in
any manner authorized by the Maryland General Corporation Law. A proxy that is
dated more than 11 months before the meeting at which it is offered shall not be
accepted unless the proxy shall state a longer period for which it is to remain
in force. A written proxy shall be dated and signed by the stockholder, or the
stockholder's duly authorized agent but need not be sealed, witnessed or
acknowledged. Proxies shall be filed with the Secretary of the Corporation at or
before the meeting.
SECTION 9. Voting.
------
Except as otherwise provided in the charter of the Corporation, at all
meetings of stockholders, each holder of shares of Common Stock shall be
entitled to one vote for each share of stock of the Corporation registered in
the stockholder's name upon the books of the Corporation on the date fixed by
the Board of Directors as the record date for the determination of stockholders
entitled to vote at the meeting. Except as otherwise provided in the charter of
the Corporation, all elections and matters submitted to a vote at meetings of
stockholders shall be decided by a majority of all votes cast in person or by
proxy, unless more than a majority of the votes cast is required by statute, by
charter, or by these Bylaws. If the presiding officer shall so determine, a vote
by ballot may be taken upon any election or matter, and the vote shall be so
taken upon the request of the holders of ten percent of the stock present and
entitled to vote on the election or matter. If the presiding officer shall so
determine, the votes on all matters to be voted upon by ballot may be postponed
to be voted on at the same time or on a single ballot.
SECTION 10. Inspectors of Elections.
-----------------------
One or more inspectors may be appointed by the presiding officer at any
meeting. If so appointed, the inspector or inspectors shall open and close the
polls, receive and take charge of the proxies and ballots, decide all questions
as to the qualifications of voters and the validity of proxies, determine and
report the results of elections and votes on matters before the meeting, and do
such other acts as may be proper to conduct the election and the vote with
fairness to all stockholders.
SECTION 11. List of Stockholders.
--------------------
Prior to each meeting of the stockholders, the Secretary of the
Corporation shall prepare, as of the record date fixed by the Board of Directors
with respect to the meeting, a full and accurate list of all stockholders
entitled to vote at the meeting, indicating the number of shares and class of
stock held by each. The Secretary shall be responsible for the production of
that list at the meeting.
ARTICLE II
Board of Directors
SECTION 1. Powers.
------
The property, business, and affairs of the Corporation shall be managed
by the Board of Directors of the Corporation. The Board of Directors may
exercise all the powers of the Corporation, except those conferred upon or
reserved to the stockholders by statute, by charter or by these Bylaws. The
Board of Directors shall keep minutes of each of its meetings and a full account
of all of its transactions.
<PAGE>
SECTION 2. Number of Directors.
-------------------
The number of directors of the Corporation shall be 14 or such lesser
number not less than eight as may from time to time be determined by the vote of
three-fourths of the entire Board of Directors. However, the tenure of Office of
a director shall not be affected by any change in number.
SECTION 3. Nomination of Directors.
-----------------------
Only persons who are nominated in accordance with the following
procedures shall be eligible for election as Directors at a meeting of
stockholders. Nominations of persons for election as Directors may be made at a
meeting of stockholders by or at the direction of the Board of Directors by any
nominating committee or person appointed by the Board or by any stockholder of
the Corporation entitled to vote for the election of Directors at the meeting
who complies with the notice procedures set forth in this section. Nominations,
other than those made by or at the direction of the Board, shall be made
pursuant to written notice delivered to or mailed and received by the Secretary
of the Corporation at the principal executive offices of the Corporation not
less than 90 days nor more than 110 days prior to the meeting; provided,
however, that in the event that less than 100 days' notice or prior public
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder must be so received not later than the close of business on
the 10th day following the day on which notice of the date of the meeting was
mailed or public disclosure was made, whichever first occurred. The notice to
the Secretary shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or re-election as a Director, (i) the name,
age, business address and residence address of the person, (ii) the principal
occupation or employment of the person, (iii) the class and number of shares of
capital stock of the Corporation which are beneficially owned by the person and
(iv) any other information relating to the person that is required to be
disclosed in solicitations for proxies for election of Directors pursuant to
Rule 14a under the Securities Exchange Act of 1934; and (b) as to the
stockholder giving the notice (i) the name and record address of stockholder and
(ii) the class and number of shares of capital stock of the Corporation which
are beneficially owned by the stockholder. The Corporation may require any
proposed nominee to furnish such other information as may reasonably be required
by the Corporation to determine the eligibility of the proposed nominee to serve
as Director of the Corporation.
The presiding officer of the meeting shall, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure, and if the presiding officer shall so
determine and shall so declare to the meeting, the defective nomination shall be
disregarded.
SECTION 4. Election.
--------
Except as hereinafter provided, the members of the Board of Directors
shall be elected each year at the annual meeting of stockholders by the vote of
the holders of record of a majority of the shares of stock present in person or
by proxy and entitled to vote at the meeting. Each director shall hold office
until the next annual meeting of stockholders held after his or her election and
until his or her successor shall have been duly elected and qualified, or until
death, or until he or she shall have resigned, or shall have been removed as
hereinafter provided. Each person elected as director of the Corporation shall
qualify as such by written acceptance or by attendance at and participation as a
director in a duly called meeting of the Board of Directors.
SECTION 5. Removal.
-------
At a duly called meeting of the stockholders at which a quorum is
present, the stockholders may, by vote of the holders of a majority of the votes
entitled to be cast at the meeting, remove with or without cause any director or
directors from office, and may elect a successor or successors to fill any
resulting vacancy for the remainder of the term of the director so removed.
<PAGE>
SECTION 6. Vacancies.
---------
If any director shall die or resign, or if the stockholders shall
remove any director without electing a successor to fill the remaining term,
that vacancy may be filled by the vote of a majority of the remaining members of
the Board of Directors, although a majority may be less than a quorum. Vacancies
in the Board created by an increase in the number of directors may be filled by
the vote of a majority of the entire Board as constituted prior to the increase.
A director elected by the Board of Directors to fill any vacancy, however
created, shall hold office until the next annual meeting of stockholders and
until his or her successor shall have been duly elected and qualified.
SECTION 7. Meetings.
--------
Immediately after each annual meeting of stockholders at which a Board
of Directors shall have been elected, the Board of Directors shall meet, without
notice, for the election of an Executive Committee of the Board of Directors,
for the election of officers of the Corporation, and for the transaction of
other business. Other regular meetings of the Board of Directors shall be held
in the months of February, July, October and December on the day and at the time
designated by the Chief Executive Officer. Special meetings of the Board of
Directors may be called at any time by the Chief Executive Officer or by any two
directors. Regular and special meetings of the Board of Directors may be held at
such place, in or out of the State of Maryland, as the Board may from time to
time determine.
SECTION 8. Notice of Meetings.
------------------
Except for the meeting immediately following the annual meeting of
stockholders, notice of the place, day and hour of a regular meeting of the
Board of Directors shall be given in writing to each director not less than
three days prior to the meeting and delivered to the director or to the
director's residence or usual place of business, or by mailing it, postage
prepaid and addressed to the director at his or her address as it appears upon
the records of the Corporation. Notice of special meetings may be given in the
same way, or may be given personally, by telephone, or by telegraph or facsimile
message sent to the director's home or business address as it appears upon the
records of the Corporation, not less than one day prior to the meeting. Unless
required by these Bylaws or by resolution of the Board of Directors, no notice
of any meeting of the Board of Directors need state the business to be
transacted at the meeting. No notice of any meeting of the Board of Directors
need be given to any director who attends, or to any director who, in writing
executed and filed with the records of the meeting either before or after the
holding thereof, waives notice.
SECTION 9. Quorum.
------
A majority of the Board of Directors shall constitute a quorum for the
transaction of business at meetings of the Board of Directors. Except as
otherwise provided by statute, by charter, or by these Bylaws, the vote of a
majority of the directors present at a duly constituted meeting shall be
sufficient to pass any measure, and such decision shall be the decision of the
Board of Directors. In the absence of a quorum, the directors present, by
majority vote and without further notice, may adjourn the meeting from time to
time until a quorum shall be present. The Board of Directors may also take
action or make decisions by any other method which may be permitted by statute,
by charter, or by these Bylaws.
SECTION 10. Presumption of Assent.
---------------------
A director of the Corporation who is present at a meeting of the Board
of Directors at which action on any corporate matter is taken shall be presumed
to have assented to the action taken unless the director announces his or her
dissent at the meeting, and (a) the dissent is entered in the minutes of the
meeting, (b) before the meeting adjourns the director files with the person
acting as the secretary of the meeting a written dissent to the action, or (c)
the director forwards a written dissent within 24 hours after the meeting is
adjourned by registered or certified mail to the Secretary of the Corporation.
The right to dissent does not apply to a director who voted in favor of the
action or who failed to announce his or her dissent at the meeting. A director
may abstain from voting on any matter before the meeting by so stating at the
time the vote is taken and by causing the abstention to be recorded or stated in
writing in the same manner as provided above for a dissent.
<PAGE>
SECTION 11. Compensation.
------------
Each director shall be entitled to receive such remuneration as may be
fixed from time to time by the Board of Directors. However, no director who
receives a salary as an officer or employee of the Corporation or of any
subsidiary thereof shall receive any remuneration as a director or as a member
of any committee of the Board of Directors. Each director may also receive
reimbursement for the reasonable expenses incurred in attending the meetings of
the Board of Directors, the meetings of any committee thereof, or otherwise in
connection with attending to the affairs of the Corporation.
ARTICLE III
Committees
SECTION 1. Executive Committee.
-------------------
At its first meeting after the annual meeting of the stockholders, the
Board of Directors shall elect an Executive Committee consisting of at least
five members of the Board, of whom the Chairman of the Board, if any, shall be
one. The Board shall designate a Chairman of the Committee who shall serve as
Chairman of the Committee at the pleasure of the Board. During the intervals
between the meetings of the Board of Directors, the Executive Committee shall
possess and may exercise all powers in the management and direction of the
business and affairs of the Corporation except as limited by the Maryland
General Corporation Law or by resolution of the Board of Directors. All action
taken by the Executive Committee shall be reported to the Board of Directors at
its meeting next succeeding such action, and shall be subject to revision and
alteration by the Board, provided that no rights of third parties may be
adversely affected by any revision or alteration. Delegation of authority to the
Executive Committee shall not relieve the Board of Directors or any director of
any responsibility imposed by law or statute or by charter.
SECTION 2. Other Committees.
----------------
From time to time the Board of Directors by resolution adopted by the
affirmative vote of a majority of the members of the entire Board may provide
for and appoint other committees to have the powers and perform the duties
assigned to them by the Board of Directors. These committees may include, but
are not limited to, an Organization Committee, a Finance Committee, and an Audit
Committee.
SECTION 3. Meetings of Committees.
----------------------
Each Committee of the Board of Directors shall fix its own rules of
procedure, and shall meet as provided by those rules or by resolution of the
Board, or at the call of the chairman or any two members of the committee. A
majority of each committee shall constitute a quorum thereof, and in every case
the affirmative vote of a majority of the entire committee shall be necessary to
take any action. Each committee may also take action by any other method that
may be permitted by statute, by charter, or by these Bylaws. In the event a
member of a committee fails to attend any meeting of the committee, the other
members of the committee present at the meeting, whether or not they constitute
a quorum, may appoint a member of the Board of Directors to act in the place of
the absent member. Regular minutes of the proceedings of each committee and a
full account of all its transactions shall be kept in a book provided for the
purpose, except that the Organization Committee shall not be required to keep
minutes. Vacancies in any committee of the Board of Directors shall be filled by
the Board of Directors.
<PAGE>
ARTICLE IV
Officers
SECTION 1. Election and Tenure.
-------------------
The Board of Directors may elect a Chairman and a Vice Chairman from
among the directors. The Board of Directors shall elect a President, a Treasurer
and a Secretary, and one or more Vice Presidents, one or more Assistant
Treasurers, one or more Assistant Secretaries, and such other officers with such
powers and duties as the Board may designate, none of whom need be a director.
Each officer shall hold office until the first meeting of the Board of Directors
after the annual meeting of stockholders next succeeding his or her election and
until a successor shall have been duly chosen and qualified or until he or she
shall have resigned or been removed. All elections to office shall be by a
majority vote of the entire Board of Directors.
SECTION 2. Chairman of the Board.
---------------------
The Chairman of the Board shall preside at all meetings of stockholders
and of the Board of Directors at which he or she shall be present. The Chairman
shall have such other powers and perform such other duties as from time to time
may be assigned by the Board of Directors.
SECTION 3. Vice Chairman of the Board.
--------------------------
The Vice Chairman of the Board, in the absence of the Chairman of the
Board, shall preside at all meetings of stockholders and the Board of Directors.
(In the absence of the Chairman and the Vice Chairman, the Board of Directors
shall elect a chairman of the meeting.) The Vice Chairman shall have such other
powers and perform such other duties as from time to time may be assigned by the
Board of Directors or by the Chairman of the Board.
SECTION 4. President.
---------
The President shall be the Chief Executive Officer of the Corporation
and, subject to the control of the Board of Directors and the Executive
Committee, shall have general charge and supervision of the Corporation's
business, affairs, and properties. The President shall have authority to sign
and execute, in the name of the Corporation, all authorized deeds, mortgages,
bonds, contracts or other instruments. The President may sign, with the
Secretary or the Treasurer, stock certificates of the Corporation. In the
absence of the Chairman and the Vice Chairman of the Board, the President shall
preside at meetings of stockholders. In general, the President shall perform all
the duties ordinarily incident to the office of a president of a corporation,
and such other duties as, from time to time, may be assigned by the Board of
Directors or by the Executive Committee.
SECTION 5. Vice Presidents.
---------------
Each Vice President, which term shall include any Executive Vice
President or Group Vice President, shall have the power to sign and execute,
unless otherwise provided by resolution of the Board of Directors, all contracts
or other obligations in the name of the Corporation in the ordinary course of
business, and with the Secretary, or with the Treasurer, or with an Assistant
Secretary, or with an Assistant Treasurer, may sign stock certificates of the
Corporation. At the request of the President or in the President's absence or
during the President's inability to act, the Vice President or Vice Presidents
shall perform the duties and exercise the functions of the President, and when
so acting shall have the powers of the President. If there is more than one Vice
President, the Board of Directors may determine which one or more of the Vice
Presidents shall perform any of such duties or exercise any of such functions,
or if the determination is not made by the Board, the President may make the
determination. The Vice President or Vice Presidents shall have such other
powers and perform such other duties as may be assigned by the Board of
Directors or by the President. For purposes of this Article IV, Section 5, the
term Vice President does not include a Vice President appointed pursuant to
Article IV, Section 9.
<PAGE>
SECTION 6. Secretary.
---------
The Secretary shall keep the minutes of the meetings of the
stockholders, of the Board of Directors, and of the Executive Committee,
including all the votes taken at the meetings, and record them in books provided
for that purpose. The Secretary shall see that all notices are duly given in
accordance with the provisions of these Bylaws or as required by statute. The
Secretary shall be the custodian of the records and of the corporate seal of the
Corporation. The Secretary may affix the corporate seal to any document executed
on behalf of the Corporation, and may attest the same. The Secretary may sign,
with the President or a Vice President, stock certificates of the Corporation.
In general, the Secretary shall perform all duties ordinarily incident to the
office of a secretary of a corporation, and such other duties as, from time to
time, may be assigned by the Board of Directors or by the President.
SECTION 7. Treasurer.
---------
The Treasurer shall have charge of and be responsible for all
funds, securities, receipts and disbursements of the Corporation, and shall
deposit or cause to be deposited, in the name of the Corporation, all moneys or
other valuable effects in such banks, trust companies, or depositories as may be
designated by the Board of Directors. The Treasurer shall maintain full and
accurate accounts of all assets, liabilities and transactions of the
Corporation, and shall render to the President and the Board of Directors,
whenever they may require it, an account of all transactions as Treasurer and of
the financial condition of the Corporation. In general, the Treasurer shall
perform all the duties ordinarily incident to the office of a treasurer of a
corporation, and such other duties as, from time to time, may be assigned to him
or her by the Board of Directors or by the President. The Treasurer shall give
the Corporation a bond, if required by the Board of Directors, in a sum, and
with one or more sureties, satisfactory to the Board of Directors, for the
faithful performance of the duties of the office and for the restoration to the
Corporation in case of death, resignation, retirement or removal from office of
all corporate books, papers, vouchers, moneys, and other properties of whatever
kind in his or her possession or under his or her control.
SECTION 8. Subordinate Officers.
--------------------
The subordinate officers shall consist of such assistant officers and
agents as may be deemed desirable and as may be elected by a majority of the
members of the Board of Directors. Each such subordinate officer shall hold
office for such period, have such authority and perform such duties as the Board
of Directors may prescribe.
SECTION 9. Appointed Vice Presidents.
-------------------------
The Chief Executive Officer may from time to time appoint one or more
Vice Presidents with such administrative powers and duties as may be designated
or approved by the Chief Executive Officer. An appointed Vice President shall
not be a corporate officer and may be removed by the Chief Executive Officer.
SECTION 10. Officers Holding Two or More Offices.
------------------------------------
Any two or more of the above named offices, except those of Chairman
and Vice Chairman of the Board and those of President and Vice President, may be
held by the same person, but no officer shall execute, acknowledge or verify any
instrument in more than one capacity, if the instrument is required by statute,
by charter, by these Bylaws, or by resolution of the Board of Directors to be
executed, acknowledged, or verified by two or more officers.
SECTION 11. Compensation.
------------
The Board of Directors shall have power to fix the compensation of all
officers of the Corporation. It may authorize any officer upon whom the power of
appointing subordinate officers may have been conferred to fix the compensation
of the subordinate officers.
<PAGE>
SECTION 12. Removal.
-------
Any officer of the Corporation may be removed, with or without cause,
by a vote of a majority of the entire Board of Directors, and any officer of the
Corporation appointed by another officer may also be removed, with or without
cause, by the appointing officer, by the Executive Committee, or by the Board of
Directors.
SECTION 13. Vacancies.
---------
A vacancy in any office because of death, resignation, removal, or any
other cause shall be filled for the unexpired portion of the term by election of
the Board of Directors at any regular or special meeting.
ARTICLE V
Stock
SECTION 1. Certificates.
------------
Each stockholder shall be entitled to a certificate or certificates
which shall represent and certify the number and kind of shares of the
Corporation's stock owned by the stockholder for which full payment has been
made, or for which payment is being made by installments in conjunction with a
stockholder-approved option plan. Each stock certificate shall be signed by the
Chairman, the President or a Vice President and countersigned by the Secretary
or Treasurer or Assistant Treasurer of the Corporation. A stock certificate
shall be deemed to be so signed and sealed whether the required signatures are
manual or facsimile signatures and whether the seal is a facsimile seal or any
other form of seal. In case any officer of the Corporation who has signed a
stock certificate ceases to be an officer of the Corporation, whether because of
death, resignation or otherwise, before the stock certificate is issued, the
certificate may nevertheless be issued and delivered by the Corporation as if
the officer had not ceased to be such officer on the date of issue.
SECTION 2. Transfer of Shares.
------------------
Shares of stock shall be transferable only on the books of the
Corporation by the holder thereof, in person or by duly authorized agent, upon
the surrender of the stock certificate representing the shares to be
transferred, properly endorsed. The Board of Directors shall have power and
authority to make other rules and regulations concerning the issue, transfer and
registration of stock certificates as it may deem expedient.
SECTION 3. Transfer Agents and Registrars.
------------------------------
The Corporation may have one or more transfer agents and one or more
registrars of its stock, whose respective duties the Board of Directors may,
from time to time, define. No stock certificate shall be valid until
countersigned by a transfer agent, if the Corporation has a transfer agent in
respect of that class or series of capital stock, or until registered by a
registrar, if the Corporation has a registrar in respect of that class or series
of capital stock. The duties of transfer agent and registrar may be combined.
SECTION 4. New Certificates.
----------------
In case any stock certificate is alleged to have been lost, stolen,
mutilated, or destroyed, the Board of Directors may authorize the issue of a new
certificate in place thereof upon such terms and conditions as it may deem
advisable. The Board of Directors may, in its discretion, further require the
owner of the stock certificate or the owner's duly authorized agent to give bond
with sufficient surety to the Corporation to indemnify it against any loss or
claim which may arise by reason of the issue of a stock certificate in the place
of one reportedly lost, stolen, or destroyed.
<PAGE>
SECTION 5. Record Dates.
------------
The Board of Directors may fix, in advance, a date as the record date
for the purpose of determining those stockholders who shall be entitled to
notice of, or to vote at, any meeting of stockholders, or for the purpose of
determining those stockholders who shall be entitled to receive payment of any
dividend or the allotment of any rights, or for the purpose of making any other
proper determination with respect to stockholders. The date shall be not more
than 90 days, and in the case of a meeting of stockholders, not less than 10
days, prior to the date on which the particular action, requiring such
determination of stockholders, is to be taken. In lieu of fixing a record date,
the Board of Directors may provide that the stock transfer books shall be closed
for a stated period, not to exceed in any case 20 days. When the stock transfer
books are closed for the purpose of determining stockholders entitled to notice
of or to vote at a meeting of stockholders, the closing of the transfer books
shall be at least 10 days before the date of the meeting.
SECTION 6. Annual Report.
-------------
The President of the Corporation shall annually prepare a full and
correct statement of the affairs of the Corporation, including a balance sheet
and a financial statement of operations for the preceding fiscal year. These
statements shall be sent to the extent possible to each beneficial owner of the
stock of the Corporation prior to or with the proxy statement and notice to
stockholders of the annual meeting of stockholders. It will be submitted at the
annual meeting, and within 20 days thereafter be placed on file at the
Corporation's principal offices in Maryland.
ARTICLE VI
Dividends and Finance
SECTION 1. Dividends.
---------
Subject to any statutory or charter conditions and limitations, the
Board of Directors may in its discretion declare what, if any, dividends shall
be paid from the surplus or from the net profits of the Corporation, the date
when the dividends shall be payable, and the date for the determination of
holders of record to whom the dividends shall be paid.
SECTION 2. Depositories.
------------
The Board of Directors from time to time shall designate one or more
banks or trust companies as depositories of the Corporation and shall designate
those officers and agents who shall have authority to deposit corporate funds in
such depositories. It shall also designate those officers and agents who shall
have authority to withdraw from time to time any or all of the funds of the
Corporation so deposited upon checks, drafts, or orders for the payment of
money, notes and other evidences of indebtedness, drawn against the account and
issued in the name of the Corporation. The signatures of the officers or agents
may be made manually or by facsimile. No check or order for the payment of money
shall be invalidated because a person whose signature appears thereon has ceased
to be an officer or agent of the Corporation prior to the time of payment of the
check or order by any depository.
SECTION 3. Corporate Obligations.
---------------------
No loans shall be contracted on behalf of the Corporation and no
evidences of indebtedness or guaranties of the obligations of others shall be
issued in the name of the Corporation unless authorized by a resolution of the
Board of Directors. Such authority may be either general or specific. When duly
authorized, all loans, promissory notes, acceptances, other evidences of
indebtedness and guaranties shall be signed by the President, a Vice President,
the Treasurer, or an Assistant Treasurer.
<PAGE>
SECTION 4. Fiscal Year.
-----------
The fiscal year of the Corporation shall begin on the first day of
January and end on the last day of December of each year.
ARTICLE VII
Books and Records
SECTION 1. Books and Records.
-----------------
The Corporation shall maintain a stock ledger which shall contain the
name and address of each stockholder and the number of shares of stock of the
Corporation which the stockholder holds. The ledger shall be kept at the
principal offices of the Corporation in Towson, Baltimore County, Maryland, or
at the offices of the Corporation's stock transfer agent. All other books,
accounts, and records of the Corporation, including the original or a certified
copy of these Bylaws, the minutes of all stockholders meetings, a copy of the
annual statement, and any voting trust agreements on file with the Corporation,
shall be kept and maintained by the Secretary at the principal offices of the
Corporation in Towson.
SECTION 2. Inspection Rights.
-----------------
Except as otherwise provided by statute or by charter, the Board of
Directors shall determine whether and to what extent the books, accounts, and
records of the Corporation, or any of them, shall be open to the inspection of
stockholders. No stockholder shall have any right to inspect any book, account,
document or record of the Corporation except as conferred by statute, by
charter, or by resolution of the stockholders or the Board of Directors.
ARTICLE VIII
Seal
SECTION 1. Seal.
----
The seal of the Corporation shall consist of a circular impression
bearing the name of the Corporation and the word "Maryland" around the rim and
in the center the word "Incorporated" and the year "1910."
<PAGE>
ARTICLE IX
Indemnification
SECTION 1. Indemnification.
---------------
The Corporation to the full extent permitted by, and in the manner
permissible under, the laws of the State of Maryland and other applicable laws
and regulations may indemnify any person who is or was an officer, employee, or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee, or agent of another corporation or entity and
shall indemnify any director of the Corporation or any director who is or was
serving at the request of the Corporation as a director of another corporation
or entity, who by reason of his or her position was, is, or is threatened to be
made a party to an action or proceeding, whether civil, criminal,
administrative, or investigative, against any and all expenses (including, but
not limited to, attorneys' fees, judgments, fines, penalties, and amounts paid
in settlement) actually and reasonably incurred by the director, officer,
employee, or agent in connection with the proceeding. Repeal or modification of
this Section or the relevant law shall not affect adversely any rights or
obligations then existing with respect to any state of facts then or theretofore
existing or any action, suit or proceeding theretofore or thereafter brought or
threatened based in whole or in part upon any such state of facts.
ARTICLE X
Amendments
SECTION 1. Amendment of Bylaws.
-------------------
These Bylaws may be amended at any meeting of the stockholders by a
majority of all the votes cast, provided the text of the amendment is submitted
with the notice of the meeting. The Board of Directors may also amend these
Bylaws by a vote of a majority of the directors present at a meeting, provided
that the Board of Directors shall not consider or act on any amendment to these
Bylaws that, directly or indirectly, modifies the meaning or effect of any
amendment to these Bylaws adopted by the stockholders within the preceding
12-month period, or any amendment to these Bylaws that, directly or indirectly,
contains substantially similar provisions to those of an amendment rejected by
the stockholders within the preceding 12-month period.
Mr. Paul A. Gustafson
January 1, 1997
January 1, 1997
Mr. Paul A. Gustafson
20 Rogers Road
Hamden, Connecticut 06517
Dear Paul:
The Black & Decker Corporation (the "Corporation") considers it
essential to the best interests of its stockholders to foster the continuous
employment of key management personnel. In this connection, the Board of
Directors of the Corporation (the "Board") recognizes that, as is the case with
many publicly held corporations, the possibility of a change in control of the
Corporation may exist and that such possibility, and the uncertainty and
questions which it may raise among management, may result in the departure or
distraction of management personnel to the detriment of the Corporation and its
stockholders.
The Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of the
Corporation's management, including yourself, to their assigned duties without
distraction in the face of potentially disturbing circumstances arising from the
possibility of a change in control of the Corporation, although no such change
is now contemplated.
In order to induce you to remain in the employ of the Corporation, the
Corporation agrees that you shall receive the severance benefits set forth in
this letter agreement (the "Agreement") in the event your employment with the
Corporation is terminated subsequent to a "change in control of the Corporation"
(as defined in Section 2 hereof) under the circumstances described below.
1. TERM OF AGREEMENT. This Agreement shall commence on the date hereof
and shall continue in effect through December 31, 2000; provided, however, that
if a change in control of the Corporation
<PAGE>
shall have occurred prior to December 31, 2000, this Agreement shall continue in
effect for a period of 36 months beyond the month in which such change in
control occurred, at which time this Agreement shall terminate. Notwithstanding
the foregoing, and provided no change in control of the Corporation shall have
occurred, this Agreement shall automatically terminate upon the earlier to occur
of (i) your termination of employment with the Corporation, or (ii) the
Corporation's furnishing you with notice of termination, irrespective of the
effective date of such termination.
2. CHANGE IN CONTROL. No benefits shall be payable hereunder unless
there shall have been a change in control of the Corporation, as set forth
below. For purposes of this Agreement, a "change in control of the Corporation"
shall mean a change in control of a nature that would be required to be reported
in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not
the Corporation is in fact required to comply therewith, provided that, without
limitation, such a change in control shall be deemed to have occurred if (A) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act),
other than a trustee or other fiduciary holding securities under an employee
benefit plan of the Corporation or any of its subsidiaries or a corporation
owned, directly or indirectly, by the stockholders of the Corporation in
substantially the same proportions as their ownership of stock of the
Corporation, is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the
Corporation representing 20% or more of the combined voting power of the
Corporation's then outstanding securities; (B) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board and any new director (other than a director designated by a person who
has entered into an agreement with the Corporation to effect a transaction
described in clauses (A) or (D) of this Section) whose election by the Board or
nomination for election by the Corporation's stockholders was approved by a vote
of at least two-thirds of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute a
majority thereof; (C) the Corporation enters into an agreement, the consummation
of which would result in the occurrence of a change in control of the
Corporation; or (D) the stockholders of the Corporation approve a merger, share
exchange or consolidation of the Corporation with any other corporation, other
than a merger, share exchange or consolidation which would result in the voting
securities of the Corporation outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least 60% of the combined voting power of
the voting securities of the Corporation or such surviving entity outstanding
immediately after such merger, share exchange or consolidation, or the
stockholders of the Corporation approve a plan of complete liquidation of the
Corporation or an agreement for the sale or disposition by the Corporation of
all or substantially all the Corporation's assets.
<PAGE>
3. TERMINATION FOLLOWING CHANGE IN CONTROL OF THE CORPORATION. If any
of the events described in Section 2 hereof constituting a change in control of
the Corporation shall have occurred, you shall be entitled to the benefits
provided in Subsection 4(iii) hereof upon the subsequent termination of your
employment during the term of this Agreement unless such termination is (A)
because of your death or Disability, (B) by the Corporation for Cause, or (C) by
you other than for Good Reason.
(i) DISABILITY. If, as a result of your incapacity due to
physical or mental illness, you shall have been absent from the full-time
performance of your duties with the Corporation for six consecutive months, and
within 30 days after written notice of termination is given you shall not have
returned to the full-time performance of your duties, your employment may be
terminated for "Disability."
(ii) CAUSE. Termination by the Corporation of your employment for
"Cause" shall mean termination upon (A) the willful and continued failure by you
to substantially perform your duties with the Corporation, other than any such
failure resulting from your incapacity due to physical or mental illness or any
such actual or anticipated failure after the issuance by you of a Notice of
Termination (as defined in Subsection 3(iv) hereof) for Good Reason (as defined
in Subsection 3(iii) hereof), after a written demand for substantial performance
is delivered to you by the Board, which demand specifically identifies the
manner in which the Board believes that you have not substantially performed
your duties, or (B) the willful engaging by you in conduct which is demonstrably
and materially injurious to the Corporation, monetarily or otherwise. For
purposes of this Subsection, no act or failure to act on your part shall be
deemed "willful" unless done, or omitted to be done, by you not in good faith
and without reasonable belief that your action or omission was in the best
interest of the Corporation. Notwithstanding the foregoing, you shall not be
deemed to have been terminated for Cause unless and until there shall have been
delivered to you a copy of a resolution duly adopted by the affirmative vote of
not less than three-quarters of the entire membership of the Board at a meeting
of the Board called and held for such purpose (after reasonable notice to you
and an opportunity for you, together with your counsel, to be heard before the
Board), finding that in the good faith opinion of the Board you were guilty of
conduct set forth above in clauses (A) or (B) of the first sentence of this
Subsection and specifying the particulars thereof in detail.
(iii) GOOD REASON. You shall be entitled to terminate your
employment for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean, without your express written consent, the occurrence after a change in
<PAGE>
control of the Corporation of any of the following circumstances unless, in the
case of paragraphs (A), (E), (F), (G) or (H), such circumstances are fully
corrected prior to the Date of Termination specified in the Notice of
Termination, as such terms are defined in Subsections 3(v) and 3(iv) hereof,
respectively, given in respect thereof:
(A) the assignment to you of any duties inconsistent
with your current status as an executive of the Corporation or a
substantial adverse alteration in the nature or status of your
responsibilities from those in effect immediately prior to the change
in control of the Corporation;
(B) a reduction by the Corporation in your annual
base salary as in effect on the date hereof or as the same may be
increased from time to time, except for across-theboard salary
reductions similarly affecting all senior executives of the Corporation
and all senior executives of any person in control of the Corporation;
(C) your relocation to a location not within 25 miles
of your present office or job location, except for required travel on
the Corporation's business to an extent substantially consistent with
your present business travel obligations;
(D) the failure by the Corporation, without your
consent, to pay to you any portion of your current compensation, or to
pay to you any portion of an installment of deferred compensation under
any deferred compensation program of the Corporation, within seven days
of the date such compensation is due;
(E) the failure by the Corporation to continue in
effect any bonus to which you were entitled, or any compensation plan
in which you participated immediately prior to the change in control of
the Corporation which is material to your total compensation, including
but not limited to the Corporation's (i) Executive Annual Incentive
Plan or other annual incentive compensation plan ("AIP"); (ii)
Performance Equity Plan or other long-term incentive compensation plan
("PEP"); (iii) stock option plans; (iv) retirement and savings plans;
(v) Supplemental Executive Retirement Plan ("SERP"); (vi) Supplemental
Pension Plan; (vii) Supplemental Retirement Savings Plan; and (viii)
Executive Deferred Compensation Plan; or any substitute plan or plans
adopted prior to the change in control of the Corporation, unless an
equitable arrangement (embodied in an ongoing substitute or alternative
plan) has been made with respect to such plan and such equitable
arrangement provides substantially equivalent benefits not materially
less favorable to you (both in terms of the amount of benefits provided
and the
<PAGE>
level of your participation relative to other participants), or the
failure by the Corporation to continue your participation therein (or
in such substitute or alternative plan) on a basis not materially less
favorable (both in terms of the amount of benefits provided and the
level of your participation relative to other participants) as existed
at the time of the change in control of the Corporation;
(F) the failure by the Corporation to continue to
provide you with benefits substantially similar to those enjoyed by you
under any of the Corporation's life insurance, medical, dental, health
and accident, or disability plans in which you were participating at
the time of the change in control of the Corporation, the failure to
continue to provide you with a Corporation automobile or allowance in
lieu thereof, if you were provided with such an automobile or allowance
in lieu thereof at the time of the change in control of the
Corporation, the taking of any action by the Corporation which would
directly or indirectly materially reduce any of such benefits or
deprive you of any material fringe benefit enjoyed by you at the time
of the change in control of the Corporation, or the failure by the
Corporation to provide you with the number of paid vacation days to
which you are entitled on the basis of years of service with the
Corporation in accordance with the Corporation's normal vacation policy
in effect at the time of the change in control of the Corporation;
(G) the failure of the Corporation to obtain a
satisfactory agreement from any successor to assume and agree to
perform this Agreement, as contemplated in Section 5 hereof; or
(H) any purported termination of your employment
which is not effected pursuant to a Notice of Termination satisfying
the requirements of Subsection 3(iv) hereof (and, if applicable, the
requirements of Subsection 3(ii) hereof); for purposes of this
Agreement, no such purported termination shall be effective.
Your rights to terminate your employment pursuant to this Subsection shall not
be affected by your incapacity due to physical or mental illness. Your continued
employment shall not constitute consent to, or a waiver of rights with respect
to, any circumstance constituting Good Reason hereunder.
(iv) NOTICE OF TERMINATION. Any purported termination of your
employment by the Corporation or by you shall be communicated by written Notice
of Termination to the other party hereto in accordance with Section 6 hereof.
For purposes of this Agreement, a "Notice of Termination" shall mean a notice
<PAGE>
which shall indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of your employment under the
provision so indicated.
(v) DATE OF TERMINATION, ETC. "Date of Termination" shall mean
(A) if your employment is terminated for Disability, 30 days after Notice of
Termination is given (provided that you shall not have returned to the full-time
performance of your duties during such 30-day period), and (B) if your
employment is terminated pursuant to Subsections 3(ii) or 3(iii) hereof or for
any other reason (other than Disability), the date specified in the Notice of
Termination (which, in the case of a termination pursuant to Subsection 3(ii)
hereof shall not be less than 30 days, and in the case of a termination pursuant
to Subsection 3(iii) hereof shall not be less than 15 nor more than 60 days,
respectively, from the date such Notice of Termination is given); provided that
if within 15 days after any Notice of Termination is given, or, if later, prior
to the Date of Termination (as determined without regard to this proviso), the
party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (which is not
appealable or with respect to which the time for appeal therefrom has expired
and no appeal has been perfected); provided further that the Date of Termination
shall be extended by a notice of dispute only if such notice is given in good
faith and the party giving such notice pursues the resolution of such dispute
with reasonable diligence. Notwithstanding the pendency of any such dispute, the
Corporation will continue to pay you your full compensation in effect when the
notice giving rise to the dispute was given (including, but not limited to, base
salary) and continue you as a participant in all compensation, benefit and
insurance plans in which you were participating when the notice giving rise to
the dispute was given, until the dispute is finally resolved in accordance with
this Subsection. Amounts paid under this Subsection are in addition to all other
amounts due under this Agreement and shall not be offset against or reduce any
other amounts due under this Agreement.
4. COMPENSATION UPON TERMINATION OR DURING DISABILITY. Following a
change in control of the Corporation, as defined by Section 2 hereof, upon
termination of your employment or during a period of Disability you shall be
entitled to the following benefits:
(i) During any period that you fail to perform your full-time
duties with the Corporation as a result of incapacity due to physical or mental
illness, you shall continue
<PAGE>
to receive your base salary at the rate in effect at the commencement of any
such period, together with all amounts payable to you under any compensation
plan of the Corporation during such period, until this Agreement is terminated
pursuant to Subsection 3(i) hereof. Thereafter, or in the event your employment
shall be terminated by you other than for Good Reason or by reason of your
death, your benefits shall be determined under the Corporation's retirement,
insurance and other compensation programs then in effect in accordance with the
terms of such programs.
(ii) If your employment shall be terminated by the Corporation
for Cause, Disability or death, or by you other than for Good Reason, the
Corporation shall pay you your full base salary through the Date of Termination
at the rate in effect at the time Notice of Termination is given, plus all other
amounts to which you are entitled under any retirement, insurance and other
compensation programs of the Corporation at the time such payments are due, and
the Corporation shall have no further obligations to you under this Agreement.
(iii) If your employment by the Corporation shall be terminated
(a) by the Corporation other than for Cause, Disability or death or (b) by you
for Good Reason, then you shall be entitled to the benefits provided below:
(A) The Corporation shall pay you your full base
salary through the Date of Termination at the rate in effect at the
time Notice of Termination is given, plus all other amounts to which
you are entitled under any compensation plan of the Corporation, at the
time such payments are due, except as otherwise provided below.
(B) In lieu of any further salary payments to you for
periods subsequent to the Date of Termination, the Corporation shall
pay as severance pay to you a lump sum severance payment (together with
the payments provided in paragraphs (C) and (D) of this Subsection
4(iii), the "Severance Payments") equal to three times the sum of your
(a) annual base salary in effect immediately prior to the occurrence of
the circumstance giving rise to the Notice of Termination given in
respect thereof, and (b) AIP Maximum Payment for the year in which the
Date of Termination occurs. AIP Maximum Payment shall mean the higher
of (1) the award you would be entitled to receive for 1995 based on the
maximum payout factor for the AIP or (2) any greater award you would be
entitled to receive for any subsequent year (including the year in
which your employment is terminated) based on the maximum payout factor
for the AIP for such subsequent year. The provisions of this Section
4(iii)(B) shall not in any way affect your rights under the
Corporation's stock option plans or the PEP.
<PAGE>
(C) In lieu of shares of common stock of the
Corporation (the "Shares") issuable upon exercise of outstanding
options, if any, granted to you under the Corporation's stock option
plans ("Options"), which Options (and any related limited stock
appreciation rights) shall be cancelled upon the making of the payment
referred to below, you shall receive an amount in cash equal to the
product of (i) the excess of the higher of the closing price of the
Shares as reported on the NYSE on or nearest to the Date of Termination
(or, if not listed on the NYSE, on a nationally recognized exchange or
quotation system on which trading volume in the Shares is highest), and
the highest per share price for the Shares actually paid in connection
with any change in control of the Corporation, over the per share
exercise price of each Option held by you (whether or not then fully
exercisable) plus the amount, if any, of any applicable cash
appreciation rights, times (ii) the number of the Shares covered by
each such Option.
(D) The Corporation shall pay to you any deferred
compensation, including but not limited to deferred bonuses and amounts
deferred under the Executive Deferred Compensation Plan, allocated or
credited to you or your account as of the Date of Termination.
(E) The Corporation shall also pay to you all legal
fees and expenses incurred by you as a result of such termination
(including all such fees and expenses, if any, incurred in contesting
or disputing any such termination or in seeking to obtain or enforce
any right or benefit provided by this Agreement or in connection with
any tax audit or proceeding to the extent attributable to the
application of Section 4999 of the Code to any payment or benefit
provided hereunder).
(F) If the payments provided under paragraphs (B),
(C) and (D) above (the "Contract Payments") or any other portion of the
Total Payments (as defined below) will be subject to the tax imposed by
Section 4999 of the Code (the "Excise Tax"), the Corporation shall pay
to you at the time specified in paragraph (G) below, an additional
amount (the "Gross-Up Payment") such that the net amount retained by
you, after deduction of any Excise Tax on the Contract Payments and
such other Total Payments and any federal and state and local income
tax and Excise Tax upon the payment provided for by this paragraph,
shall be equal to the Contract Payments and such other Total Payments.
For purposes of determining whether any of the payments will be subject
to the Excise Tax and the amount of such Excise Tax, (i) any other
payments or benefits received or to be received by you in connection
with a change in control of the Corporation or your termination of
employment (whether
<PAGE>
payable pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Corporation, its successors, any
person whose actions result in a change in control of the Corporation
or any corporation affiliated (or which, as a result of the completion
of a transaction causing a change in control of the Corporation, will
become affiliated) with the Corporation within the meaning of Section
1504 of the Code) (together with the Contract Payments, the "Total
Payments") shall be treated as "parachute payments" within the meaning
of Section 280G(b)(2) of the Code, and all "excess parachute payments"
within the meaning of Section 280G(b)(1) shall be treated as subject to
the Excise Tax, unless in the opinion of tax counsel selected by the
Corporation's independent auditors and acceptable to you the Total
Payments (in whole or in part) do not constitute parachute payments, or
such excess parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered within the
meaning of Section 280G(b)(4)(B) of the Code either to the extent such
reasonable compensation is in excess of the base amount within the
meaning of Section 280G(b)(3) of the Code, or are otherwise not subject
to the Excise Tax, (ii) the amount of the Total Payments that shall be
treated as subject to the Excise Tax shall be equal to the lesser of
(A) the total amount of the Total Payments or (B) the amount of excess
parachute payments within the meaning of Section 280G(b)(1) (after
applying clause (i), above), and (iii) the value of any non-cash
benefits or any deferred payment or benefit shall be as determined by
the Corporation's independent auditors in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, you shall be deemed to
pay federal income taxes at the highest marginal rate of federal income
taxation in the calendar year in which the Gross-Up Payment is to be
made and state and local income taxes at the highest marginal rate of
taxation in the state and locality of your residence on the Date of
Termination, net of the maximum reduction in federal income taxes which
could be obtained from deduction of such state and local taxes. In the
event that the Excise Tax is subsequently determined to be less than
the amount taken into account hereunder at the time of termination of
your employment, you shall repay to the Corporation at the time that
the amount of such reduction in Excise Tax is finally determined the
portion of the Gross-Up Payment attributable to such reduction (plus
the portion of the Gross-Up Payment attributable to the Excise Tax and
federal and state and local income tax imposed on the Gross-Up Payment
being repaid by you if such repayment results in a reduction in Excise
Tax and/or a federal and state and local income tax deduction) plus
interest on the amount of such repayment at the rate provided in
Section 1274(d) of the Code. In the
<PAGE>
event that the Excise Tax is determined to exceed the amount taken into
account hereunder at the time of the termination of your employment
(including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), the
Corporation shall make an additional Gross-Up Payment in respect of
such excess (plus any interest payable with respect to such excess) at
the time that the amount of such excess is finally determined.
(G) The payments provided for in paragraphs (B), (C),
(D) and (F) above, shall be made not later than the fifth day following
the Date of Termination, provided, however, that if the amounts of such
payments cannot be finally determined on or before such day, the
Corporation shall pay to you on such day an estimate, as determined in
good faith by the Corporation, of the minimum amount of such payments
and shall pay the remainder of such payments (together with interest at
a rate equal to 120% of the rate provided in Section 1274(d) of the
Code) as soon as the amount thereof can be determined but in no event
later than the thirtieth day after the Date of Termination. In the
event that the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall constitute
a loan by the Corporation to you payable on the fifth day after demand
by the Corporation (together with interest at a rate equal to 120% of
the rate provided in Section 1274(d) of the Code). The payments
provided for in paragraph (E) above shall be made from time to time, in
each instance not later than the fifth day following a written request
for payment by you.
(iv) If your employment shall be terminated (A) by the
Corporation other than for Cause, Disability or death or (B) by you for Good
Reason, then for a 36-month period after such termination, the Corporation shall
arrange to provide you with life, disability, accident, medical, dental and
health insurance benefits substantially similar to those that you are receiving
immediately prior to the Notice of Termination. Benefits otherwise receivable by
you pursuant to this Subsection 4(iv) shall be reduced to the extent comparable
benefits are actually received by you from another employer during the 36-month
period following your termination, and any such benefits actually received by
you shall be reported to the Corporation.
(v) You shall not be required to mitigate the amount of any
payment provided for in this Section 4 by seeking other employment or otherwise,
nor shall the amount of any payment or benefit provided for in this Section 4 be
reduced by any compensation earned by you as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by you to the Corporation, or otherwise except as specifically provided in
this Section 4.
<PAGE>
(vi) In addition to all other amounts payable to you under this
Section 4, you shall be entitled to receive all benefits payable to you under
The Black & Decker Executive Salary Continuance Plan, the SERP, The Black &
Decker Supplemental Pension Plan, or any plan or agreement sponsored by the
Corporation or any of its subsidiaries relating to retirement benefits.
5. SUCCESSORS; BINDING AGREEMENT.
(i) The Corporation will require any successor (whether direct or
indirect, by purchase, merger, share exchange, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Corporation to
assume expressly and agree to perform this Agreement in the same manner and to
the same extent that the Corporation would be required to perform it if no such
succession had taken place. Failure of the Corporation to obtain such assumption
and agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle you to compensation from the
Corporation in the same amount and on the same terms as you would be entitled to
hereunder if you terminate your employment for Good Reason following a change in
control of the Corporation, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination. As used in this Agreement, "Corporation" shall
mean the Corporation as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
(ii) This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, heirs, distributees, and legatees. If you should die while any
amount would still be payable to you hereunder if you had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to your legatee or other designee or, if there is no
such designee, to your estate.
(iii) In the event that you are employed by a subsidiary of the
Corporation, wherever in this Agreement reference is made to the "Corporation,"
unless the context otherwise requires, such reference shall also include such
subsidiary. The Corporation shall cause such subsidiary to carry out the terms
of this Agreement insofar as they relate to the employment relationship between
you and such subsidiary, and the Corporation shall indemnify you and save you
harmless from and against all liability and damage you may suffer as a
consequence of such subsidiary's failure to perform and carry out such terms.
Wherever reference is made to any benefit program of the Corporation, such
reference shall include, where appropriate, the
<PAGE>
corresponding benefit program of such subsidiary if you were a participant in
such benefit program on the date a change in control of the Corporation has
occurred.
6. NOTICE. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notices to the Corporation shall be directed to the attention of the
Board with a copy to the Secretary of the Corporation, or to such other address
as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
receipt.
7. MISCELLANEOUS. This Agreement amends and restates the agreement
between the parties dated October 25, 1995. No provision of this Agreement may
be modified, waived or discharged unless such waiver, modification or discharge
is agreed to in writing and signed by you and such officer as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth in this
Agreement. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Maryland. All references
to sections of the Exchange Act or the Code shall be deemed also to refer to any
successor provisions to such sections. Any payments provided for hereunder shall
be paid net of any applicable withholding required under federal, state or local
law. The obligations of the Corporation under Section 4 hereof shall survive the
expiration of the term of this Agreement.
8. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
9. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
10. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively
<PAGE>
by arbitration in the State of Maryland, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that you
shall be entitled to seek specific performance of your right to be paid until
the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Corporation the enclosed copy of this letter which
will then constitute our agreement on this subject.
Sincerely,
THE BLACK & DECKER CORPORATION
By/s/NOLAN D. ARCHIBALD
Nolan D. Archibald
Chairman, President and
Chief Executive Officer
Agreed to as of the 1st
day of January 1997
/s/PAUL A. GUSTAFSON
- -----------------------
Paul A. Gustafson
SPECIAL DEFERRAL AGREEMENT
THIS AGREEMENT, made this 7th day of February, 2000, by and between
Paul A. Gustafson ("Executive") and The Black & Decker Corporation
("Corporation"), on its own behalf and on behalf of its subsidiaries and
affiliates.
RECITALS
The Executive is one of the Corporation's Executive Vice Presidents and
is a participant in The Black & Decker Annual Incentive Plan (the "AIP").
The Executive may be awarded a bonus under the AIP, at the discretion
of the Board of Directors of the Corporation when it meets later this month (the
"February 2000 Bonus").
The Executive desires to defer his receipt of a portion or all of the
February 2000 Bonus and the Corporation is willing to permit that bonus
deferral.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. The foregoing recitals are incorporated into this Agreement by this
reference.
2. The Executive hereby irrevocably elects to defer _25__% of the
February 2000 Bonus which he may be awarded, but in no event more than 100% of
the February 2000 Bonus reduced by the percentage of the February 2000 Bonus
that the Executive has directed to be contributed to The Black & Decker
Retirement Savings Plan pursuant to his election in effect under that plan at
the execution of this Agreement.
3. The Corporation shall cause the amount of the February 2000 Bonus
that the Executive has elected to defer under this Agreement to be deducted from
the February 2000 Bonus payment and credited to a bookkeeping account on the
Corporation's books in the name of the Executive, to which shall also be
credited (a) amounts equal to any deemed earnings or losses and (b) expenses
charged to the Account.
4. The amount deferred by the Executive pursuant to this Agreement
shall be administered, deemed to be invested, adjusted for expenses and deemed
gains and losses, paid and otherwise governed by the terms of The Black & Decker
Supplemental Retirement Savings Plan, as in effect on the date of this Agreement
and as amended from time to time thereafter (the "SRSP"), in the same manner and
in all respects as those terms of the SRSP would apply to the amount deferred
pursuant to this Agreement if that deferral constituted a "Participant
Compensation Deferral" of the Executive's AIP Bonus under the SRSP. The terms of
the SRSP are hereby incorporated into this Agreement by this reference.
5. The Executive's interest in the amount deferred pursuant to this
Agreement, as adjusted, shall be 100% vested and shall be paid in the form
checked below (check one):
__X__ A Lump Sum Distribution
_____ Substantially Equal Annual Installments Over _____
Years (not to exceed 10 years) and shall be paid (or
commence to be paid) at the date designated below:
__X__ At the Executive's termination of employment with The
Black & Decker Corporation and all of its
subsidiaries and affiliates
_____ At _____________, 20____. (Date may not be earlier
than January 1, 2002 and may not be accelerated, but
may be extended, pursuant to the terms of the SRSP
and subject to certain limitations.)
_____ At the earlier of the Executive's termination of
employment with The Black & Decker Corporation and
all of its subsidiaries and affiliates or
____________, 20____. (Date may not be earlier than
January 1, 2002 and may not be accelerated, but may
be extended, pursuant to the terms of the SRSP and
subject to certain limitations.)
6. In the event of the Executive's death, the undistributed balance of
the Executive's account established pursuant to this Agreement shall be paid to
the person or persons determined to be his "Beneficiary" under the terms of the
SRSP and shall be payable to that Beneficiary at the time(s) and in the form
determined under the SRSP.
7. No amount payable to the Executive or his Beneficiary under this
Agreement will, except as otherwise specifically provided by law, be subject in
any manner to anticipation, alienation, attachment, garnishment, sale, transfer,
assignment (either at law or in equity), levy, execution, pledge, encumbrance,
charge or any other legal or equitable process, and any attempt to do so will be
void; nor will any benefit be in any manner liable for or subject to the debts,
contract, liabilities, engagements or torts of the person entitled thereto.
Further, (i) the withholding of taxes from payments, (ii) the recovery of
overpayments of benefits previously made to the Executive or Beneficiary, or
(iii) the direct deposit of benefit payments to an account in a banking
institution (if not actually part of an arrangement constituting an assignment
or alienation) shall not be construed as an assignment or alienation.
In the event that the Executive's or Beneficiary's benefits hereunder
are garnished or attached by order of any court, the Corporation or trustee may
bring an action or a declaratory judgment in a court of competent jurisdiction
to determine the proper recipient of the benefits to be paid under this
Agreement. During the pendency of said action, any benefits that become payable
shall be held as credits to the Executive's or Beneficiary's account or, if the
Corporation prefers, paid into the court as they become payable, to be
distributed by the court to the recipient as the court deems proper at the close
of said action.
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement as
of the day and year first above written.
WITNESS: THE BLACK & DECKER CORPORATION
By:/s/PETER T. SARANDOS
------------------------------
WITNESS: EXECUTIVE
/s/P. A. GUSTAFSON
------------------------------
EXHIBIT 12
THE BLACK & DECKER CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Millions of Dollars Except Ratios)
Three Months Ended Twelve Months Ended
December 31, 1999 December 31, 1999
------------------ -------------------
EARNINGS:
Earnings before income taxes $ 169.0 $ 441.3
Interest expense 33.3 126.3
Portion of rent expense
representative of an
interest factor 6.9 27.7
-------- --------
Adjusted earnings before
taxes and fixed charges $ 209.2 $ 595.3
======== ========
FIXED CHARGES:
Interest expense $ 33.3 $ 126.3
Portion of rent expense
representative of an interest factor 6.9 27.7
-------- --------
Total fixed charges $ 40.2 $ 154.0
======== ========
RATIO OF EARNINGS TO FIXED CHARGES 5.20 3.87
======== ========
EXHIBIT 21
THE BLACK & DECKER CORPORATION AND SUBSIDIARIES
LIST OF SUBSIDIARIES
Listed below are the subsidiaries of The Black & Decker Corporation, all of
which are either directly or indirectly 100% owned as of December 31, 1999,
except as otherwise noted. Names of certain inactive, liquidated, or minor
subsidiaries have been omitted.
Black & Decker Abrasives Inc. UNITED STATES
Black & Decker Inc. UNITED STATES
Black & Decker (U.S.) Inc. UNITED STATES
Black & Decker Funding Corporation UNITED STATES
Black & Decker Group Inc. UNITED STATES
Black & Decker HealthCare Management Inc. UNITED STATES
Black & Decker Holdings Inc. UNITED STATES
Black & Decker Investment Company UNITED STATES
Black & Decker (Ireland) Inc. UNITED STATES
Black & Decker India Inc. UNITED STATES
Black & Decker Investments (Australia) Limited UNITED STATES
Black & Decker Limited (LLC) UNITED STATES
Black & Decker (Puerto Rico) LLC UNITED STATES
B&D Distribution, Inc. UNITED STATES
Corbin Co. UNITED STATES
Emhart Corporation UNITED STATES
Emhart Credit Corporation UNITED STATES
Emhart Far East Corporation UNITED STATES
Emhart Harttung Inc. UNITED STATES
Emhart Inc. UNITED STATES
Emhart Industries, Inc. UNITED STATES
Kwikset Corporation UNITED STATES
Price Pfister, Inc. UNITED STATES
Shenandoah Insurance, Inc. UNITED STATES
Black & Decker Argentina S.A. ARGENTINA
Black & Decker Distribution Pty. Ltd. AUSTRALIA
Black & Decker Finance (Australia) Ltd. AUSTRALIA
Black & Decker Holdings (Australia) Pty. Ltd. AUSTRALIA
Dewalt Industrial Powertool Company Pty. Ltd. AUSTRALIA
Kwikset (Australasia) Pty. Ltd. AUSTRALIA
Black & Decker Werkzeuge Vertriebs-Gesellschaft m.b.H AUSTRIA
DOM Sicherheitstechnik G.m.b.H. AUSTRIA
Black & Decker (Belgium) N.V. BELGIUM
Black & Decker Do Brasil Ltda. BRAZIL
Refal Industria e Comercio de Rebites e Rebitadeiras Ltda. BRAZIL
Black & Decker Canada Inc. CANADA
Black & Decker Holdings (Canada) Inc. CANADA
Black & Decker Cono Sur, S.A. CHILE
Maquinas y Herramientas Black & Decker de Chile S.A. CHILE
Black & Decker (Suzhou) Power Tools Co., Ltd. CHINA
Black & Decker de Colombia S.A. COLOMBIA
B&D de Costa Rica, S.A. COSTA RICA
Tucker S.R.O. CZECH REPUBLIC
Emhart Harttung A/S DENMARK
Black & Decker de El Salvador, S.A. de C.V. EL SALVADOR
Black & Decker Oy FINLAND
Black & Decker Finance S.C.A. FRANCE
Black & Decker (France) S.A.S. FRANCE
DOM S.A.R.L. FRANCE
Emhart Fastening & Assembly SNC FRANCE
Emhart S.A.R.L. FRANCE
BAND Aussenhandel G.m.b.H. GERMANY
B.B.W. Bayrische Bohrerwerke G.m.b.H. GERMANY
Black & Decker G.m.b.H. GERMANY
DOM Sicherheitstechnik G.m.b.H. GERMANY
DOM Sicherheitstechnik G.m.b.H. & Co. KG GERMANY
Emhart Deutschland G.m.b.H. GERMANY
Tucker G.m.b.H. GERMANY
Black & Decker (Hellas) S.A. GREECE
Black & Decker Hong Kong Limited HONG KONG
Emhart Asia Limited HONG KONG
Baltimore Financial Services Company IRELAND
Baltimore Insurance Limited IRELAND
Belco Investments Company IRELAND
Black & Decker (Ireland) IRELAND
Gamrie Limited IRELAND
Black & Decker Italia S.P.A. ITALY
Tatry Officina Meccanica S.r.l. ITALY
Fasteners & Tools, Ltd. JAPAN
Nippon Pop Rivets & Fasteners Ltd. JAPAN
Black & Decker (Overseas) A.G. LIECHTENSTEIN
Black & Decker Luxembourg S.A. LUXEMBOURG
Black & Decker Asia Pacific (Malaysia) Sdn. Bhd. MALAYSIA
Black & Decker (Malaysia) Sdn. Bhd. MALAYSIA
DeWalt Industrial Tools, S.A. de C.V. MEXICO
Black & Decker, S.A. de C.V. MEXICO
Price-Pfister de Mexico, S. de R.L. de C.V. MEXICO
BD Power Tools Mexicana, S. de R.L. de C.V. MEXICO
Technolock, S. de R.L. de C.V. MEXICO
Nemef B.V. NETHERLANDS
Black & Decker (Nederland) B.V. NETHERLANDS
Black & Decker International Holdings B.V. NETHERLANDS
Black & Decker Overseas Holdings B.V. NETHERLANDS
Black & Decker (New Zealand) Limited NEW ZEALAND
Black & Decker (Norge) A/S NORWAY
Sjong Fasteners A/S NORWAY
Black & Decker de Panama, S.A. PANAMA
Black & Decker International Corporation PANAMA
Emhart Panama S.A. PANAMA
Black & Decker Del Peru S.A. PERU
Black & Decker Asia Pacific Pte. Ltd. SINGAPORE
Black & Decker (South Africa) Pty. Ltd. SOUTH AFRICA
Emhart Fastening Teknologies Korea, Inc. SOUTH KOREA
Black & Decker Iberica S.Com por A. SPAIN
Black & Decker Aktiebolag SWEDEN
Emhart Teknik Akteibolag SWEDEN
DOM AG Sicherheitstechnik SWITZERLAND
Black & Decker (Switzerland) S.A. SWITZERLAND
Black & Decker (Thailand) Limited THAILAND
Black & Decker Ithalat Limited Sirketi TURKEY
Aven Tools Limited UNITED KINGDOM
Bandhart UNITED KINGDOM
Bandhart Overseas UNITED KINGDOM
Black & Decker Finance UNITED KINGDOM
Black & Decker International UNITED KINGDOM
Black & Decker UNITED KINGDOM
Black & Decker Europe UNITED KINGDOM
Emhart (Colchester) Limited UNITED KINGDOM
Emhart International Limited UNITED KINGDOM
Tucker Fasteners Limited UNITED KINGDOM
United Marketing (Leicester) UNITED KINGDOM
Black & Decker Rio de la Plata S.A. URUGUAY
Black & Decker de Venezuela, C.A. VENEZUELA
Black & Decker Holdings de Venezuela, C.A. VENEZUELA
Emhart Foreign Sales Corporation VIRGIN ISLANDS (US)
Exhibit 23
CONSENT of Independent Auditors
We consent to the incorporation by reference in the following Registration
Statements of The Black & Decker Corporation of our report dated January 27,
2000, with respect to the consolidated financial statements and schedule of The
Black & Decker Corporation included in the Annual Report (Form 10-K) for the
year ended December 31, 1999.
Registration Statement Number Description
33-6610 Form S-8
33-6612 Form S-8
33-26917 Form S-8
33-26918 Form S-8
33-33251 Form S-8
33-39608 Form S-3
33-47651 Form S-8
33-47652 Form S-8
33-53807 Form S-3
33-58795 Form S-8
33-65013 Form S-8
333-03593 Form S-8
333-03595 Form S-8
333-51155 Form S-8
333-51157 Form S-8
/s/ERNST & YOUNG LLP
Baltimore, Maryland
February 8, 2000
EXHIBIT 24
POWER OF ATTORNEY
We, the undersigned Directors and Officers of The Black & Decker
Corporation (the "Corporation"), hereby constitute and appoint Nolan D.
Archibald, Michael D. Mangan and Charles E. Fenton, and each of them, with power
of substitution, our true and lawful attorneys-in-fact with full power to sign
for us, in our names and in the capacities indicated below, the Corporation's
Annual Report on Form 10-K for the year ended December 31, 1999, and any and all
amendments thereto.
/s/NOLAN D. ARCHIBALD Director, Chairman, February 10, 2000
- ------------------------ President and Chief
Nolan D. Archibald Executive Officer
(Principal Executive
Officer)
/s/NORMAN R. AUGUSTINE Director February 10, 2000
- ------------------------
Norman R. Augustine
/s/BARBARA L. BOWLES Director February 10, 2000
- ------------------------
Barbara L. Bowles
/s/MALCOLM CANDLISH Director February 10, 2000
- ------------------------
Malcolm Candlish
/s/ALONZO G. DECKER, JR. Director February 10, 2000
- ------------------------
Alonzo G. Decker, Jr.
/s/MANUEL A. FERNANDEZ Director February 10, 2000
- ------------------------
Manuel A. Fernadez
/s/ANTHONY LUISO Director February 10, 2000
- ------------------------
Anthony Luiso
/s/MARK H. WILLES Director February 10, 2000
- ------------------------
Mark H. Willes
/s/MICHAEL D. MANGAN Senior Vice President February 10, 2000
- ------------------------ and Chief Financial
Michael D. Mangan Officer (Principal
Financial Officer)
/s/STEPHEN F. REEVES Vice President - Finance February 10, 2000
- ------------------------ and Strategic Planning
Stephen F. Reeves (Principal Accounting
Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Corporation's Consolidated Financial Statements as of and for the twelve months
ended December 31, 1999, and the accompanying footnotes and is qualified in its
entirety by the reference to such Consolidated Financial Statements.
</LEGEND>
<CIK> 0000012355
<NAME> THE BLACK & DECKER CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 147,300
<SECURITIES> 0
<RECEIVABLES> 876,500
<ALLOWANCES> 53,300
<INVENTORY> 751,000
<CURRENT-ASSETS> 1,911,400
<PP&E> 1,559,200
<DEPRECIATION> 819,600
<TOTAL-ASSETS> 4,012,700
<CURRENT-LIABILITIES> 1,572,700
<BONDS> 847,100
0
0
<COMMON> 43,600
<OTHER-SE> 757,500
<TOTAL-LIABILITY-AND-EQUITY> 4,012,700
<SALES> 4,520,500
<TOTAL-REVENUES> 4,520,500
<CGS> 2,834,400
<TOTAL-COSTS> 3,984,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 126,300
<INCOME-PRETAX> 441,300
<INCOME-TAX> 141,000
<INCOME-CONTINUING> 300,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 300,300
<EPS-BASIC> 3.45
<EPS-DILUTED> 3.40
</TABLE>
AMENDMENT NUMBER 1
This AMENDMENT NUMBER 1(this "Amendment") to the SECURITIES PURCHASE
AGREEMENT dated as of September 30, 1998 among between True Temper Corporation
and the Purchaser (the "Securities Purchase Agreement"), the Debt Registration
Rights Agreement dated as of September 30, 1998 among True Temper Corporation
and the Purchaser (the "Debt Registration Rights Agreement") and the Escrow
Agreement dated as of September 30, 1998 among True Temper Corporation, the
Purchaser and Snoga, Inc. (the "Escrow Agreement") is dated as of September 29,
1999. Capitalized terms used herein and not otherwise defined have the meanings
ascribed to such terms in the Securities Purchase Agreement.
The parties wish to amend the Securities Purchase Agreement, the Debt
Registration Rights Agreement and the Escrow Agreement and hereto agree as
follows:
1. FEES. Section 2.03(b) of the Securities Purchase Agreement is
hereby amended by deleting therein the words "the first anniversary of the
Issuance Date" in their entirety and replacing them with "October 31, 1999" so
that Section 2.03(b) of the Securities Purchase Agreement is restated as
follows:
"(b) On October 31, 1999, the Company shall pay the
Purchaser the Extension Fee."
2. INTEREST. (a) Section 2.05(c) of the Securities Purchase
Agreement is hereby amended by deleting therein each occurrence of the words
"the first anniversary of the Issuance Date" in their entirety and replacing
them with "October 31, 1999" so that Section 2.05(c) of the Securities Purchase
Agreement is restated as follows:
"(c) The interest rate applicable to each Note commencing on
October 31, 1999 shall be a floating rate per annum equal to greatest
of (i) the sum of (A) the Prime Rate in effect from time to time plus
(B) 4.00%, (ii) the sum of (A) the Treasury Rate plus (B) 7.00%, (iii)
the sum of (A) the DLJ High Yield Composite Index plus (B) 3.00%, and
(iv) the sum of (A) the interest rate applicable to such Note on the
day immediately preceding October 31, 1999 plus (B) .50%, in each
case, increasing by .50% on each Interest Payment Date thereafter
until the date the principal amount of, and accrued and unpaid
interest on, if any, such Note is paid in full."
(b) Section 2.05(d) of the Securities Purchase Agreement is hereby
amended by deleting therein each occurrence of the words "the first anniversary
of the Issuance Date" in their entirety and replacing them with "October 31,
1999" so that Section 2.05(d) of the Securities Purchase Agreement is restated
as follows:
<PAGE>
"(d) In addition to any adjustments to the Interest Rate set
forth in subsections (b) and (c) of this Section 2.05, if, pursuant to
the terms of the Debt Registration Rights Agreement, a Shelf
Registration with respect to the Notes either (i) has not been filed
with the Commission on or prior to the 90th day following October 31,
1999 or (ii) has not been declared effective by the Commission on or
prior to the 180th day following October 31, 1999, then the Company
shall pay liquidated damages thereafter of $.192 per week per $1,000
principal amount of Notes outstanding until the date on which the
Shelf Registration is declared effective by the Commission. Following
the effectiveness of the Shelf Registration, the Company shall also
pay such liquidated damages beginning on the first date on which such
Shelf Registration ceases to remain effective and shall continue at
such increased interest rate until such Shelf Registration is again
declared effective by the Commission."
(c) Section 2.05(e) of the Securities Purchase Agreement is hereby
amended by deleting therein the words "the first anniversary of the Issuance
Date" in their entirety and replacing them with "October 31, 1999" so that
Section 2.05(e) of the Securities Purchase Agreement is restated as follows:
"(e) The Purchaser may, on October 31, 1999, fix the
interest rate on the Notes at a rate to be determined by the Purchaser
in its sole discretion provided that such rate shall not exceed
seventeen percent (17.00%)."
3. SHELF REGISTRATION. Section 3 of the Debt Registration Rights
Agreement is hereby amended by deleting therein the words "September 30, 1999"
in their entirety and replacing them with "October 31, 1999" so that Section 3
of the Debt Registration Rights Agreement is restated as follows:
"3. SHELF REGISTRATION. The Registrants shall file, and shall use
their best efforts to cause to become effective a "shelf" registration
statement on any appropriate form pursuant to Rule 415 (or similar
rule that may be adopted by the SEC) under the Securities Act (a
"Shelf Registration") on or as soon as practicable after October 31,
1999 in order to permit registered resales of all of the Registrable
Securities. Subject to the last paragraph of Section 6, the
Registrants agree to use their best efforts thereafter to keep such
Shelf Registration continuously effective, and to prevent the
happening of any event of the kind described in Section 6(c) hereof
that requires the Registrants to give notice pursuant to the last
paragraph of Section 6 hereof, until such time as all the Registrable
Securities covered by the Shelf Registration have been sold pursuant
to such Shelf Registration or have been otherwise redeemed in full by
the Company."
4. RELEASE OF WARRANTS. Section 2 of the Escrow Agreement is
hereby amended by deleting therein each occurrence of the words "the first
anniversary of the Closing Date" in their entirety and replacing them with
"October 31, 1999" so that Section 2 of the Escrow Agreement is restated as
follows (with the defined term "First Anniversary Date" now being used to refer
to October 31, 1999):
<PAGE>
"2. RELEASE OF WARRANTS.
(a) If Notes remain outstanding on October 31, 1999 (the
"FIRST ANNIVERSARY DATE") and, so long as Notes remain outstanding,
and if the Escrow Agent shall have received written notice in the form
of Exhibit A hereto from the Majority Holders (as such term is defined
in the Securities Purchase Agreement), then the Escrow Agent shall
release Warrants on any one or more occasions in an aggregate amount
not to exceed the Eligible Percentage (as defined below) (as of the
date of any such notice) as shall be specified in the notice to the
Escrow Agent of the amount of Warrants originally placed into escrow
pursuant to this Escrow Agreement. Upon the redemption in full of the
Notes, and the receipt by the Escrow Agent of written notice in the
form of Exhibit B hereto from the Majority Holders, the Escrow Agent
shall release Warrants remaining in escrow, to the extent that such
Warrants have not been "earned" as set forth in Section 2(b) below,
upon such sale or redemption to Holdings. If, upon such redemption,
Warrants that have been "earned" but not released shall be released to
the holders of the Notes in accordance with Section 2(b) below.
(b) The "ELIGIBLE PERCENTAGE" with respect to any Warrants to be
released from escrow pursuant to this Escrow Agreement on October 31,
1999 (the "FIRST ANNIVERSARY DATE") and on each date after the First
Anniversary Date (each such date, including the First Anniversary
Date, a "RELEASE DATE") set forth under Column A below, until the
Notes have been redeemed or repurchased in full, shall be the sum of
(1) the percentage set forth in Column B below and (2) the cumulative
percentage of all Warrants previously "earned" pursuant to clause (1)
above on each of the prior dates under Column A that have occurred and
that have not been previously released pursuant to this Escrow
Agreement. Each holder of Notes shall be entitled to a pro rata share
of Warrants equal to the product of (a) the ratio of the aggregate
principal amount of all Notes held by such holder at the time of such
"earn-in" release to the aggregate principal amount of all Notes then
outstanding and (b) the amount of Warrants "earned" pursuant to
clauses (1) and (2) above.
Once "earned," Warrants remain "earned" and the fully-vested
property of the holder of Notes, as the case may be, despite any
future payments or redemptions of the Notes.
A B
Release Date Percentage
First Anniversary Date 5.0%
91 5.0%
181 10.0%
271 10.0%
361 12.5%
451 12.5%
541 15.0%
631 15.0%
721 15.0%
(c) Holdings will provide, or cause to be provided, to the
Escrow Agent all such information as the Escrow Agent may from time to
time reasonably request."
5. COUNTERPARTS. This Amendment be executed in any number of
counterparts, each of which shall be an original with the same effect as if the
signatures thereto and hereto were upon the same instrument.
6. ENTIRE AGREEMENT. This Amendment, together with the Securities
Purchase Agreement, the Debt Registration Rights Agreement and the Escrow
Agreement, and the exhibits and schedules thereto, is intended by the parties as
a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein and therein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein or therein. This Amendment, together with the Securities
Purchase Agreement, the Debt Registration Rights Agreement and the Escrow
Agreement, and the exhibits and schedules thereto, supersede all prior
agreements and understandings between the parties with respect to such subject
matter. Except to the extent specifically set forth herein, the Securities
Purchase Agreement, the Debt Registration Rights Agreement and the Escrow
Agreement, shall remain in full force and effect and shall not be deemed amended
or superseded in any respect.
7. INCORPORATION BY REFERENCE. Sections 9.01, 9.02, 9.07, 9.09
and 9.10 of the Securities Purchase Agreement are incorporated herein by
reference as if included herein.
[Signature Pages Follow]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective authorized officers, as of the date first
above written.
TRUE TEMPER CORPORATION
By:/s/FRED H. GEYER
Name:Fred H. Geyer
Title:
EMHART, INC.
By:/s/CHARLES E. FENTON
Name: Charles E. Fenton
Title: Vice President
SNOGA, INC., as Escrow Agent
By:/s/CAMERAN FLEMING
Name:Cameran Fleming
Title:
AMENDMENT NUMBER 2
This AMENDMENT NUMBER 2 (this "Amendment") to the SECURITIES PURCHASE
AGREEMENT dated as of September 30, 1998 among between True Temper Corporation
and the Purchaser (the "Securities Purchase Agreement"), the Debt Registration
Rights Agreement dated as of September 30, 1998 among True Temper Corporation
and the Purchaser (the "Debt Registration Rights Agreement") and the Escrow
Agreement dated as of September 30, 1998 among True Temper Corporation, the
Purchaser and Snoga, Inc. (the "Escrow Agreement"), each as amended by Amendment
Number 1 thereto, dated as of September 29, 1999 ("Amendment Number 1") is dated
as of October 19, 1999. Capitalized terms used herein and not otherwise defined
have the meanings ascribed to such terms in the Securities Purchase Agreement.
The parties wish to amend the Securities Purchase Agreement, the Debt
Registration Rights Agreement and the Escrow Agreement, each as amended by
Amendment Number 1, and hereto agree as follows:
1. FEES. Section 2.03(b) of the Securities Purchase Agreement, as
amended by Amendment Number 1, is hereby amended by deleting therein the words
"October 31, 1999" in their entirety and replacing them with "June 30, 2000" so
that Section 2.03(b) of the Securities Purchase Agreement is restated as
follows:
"(b) On June 30, 2000, the Company shall pay the Purchaser
the Extension Fee."
2. INTEREST. (a) Section 2.05(c) of the Securities Purchase
Agreement, as amended by Amendment Number 1, is hereby amended by deleting such
Section in its entirety and replacing it with the following so that Section
2.05(c) of the Securities Purchase Agreement is restated as follows:
"(c) (1) The interest rate applicable to each Note for the
period commencing on October 1, 1999 and ending on December 31, 1999,
shall be a floating rate per annum equal to the sum of (A) the Prime
Rate in effect from time to time plus (B) 4.00%; PROVIDED, that if the
principal amount of, and accrued and unpaid interest, if any, on such
Note is not paid in full as of or prior to December 31, 1999, then the
interest rate applicable to each Note for such period shall be a
floating rate per annum equal to greatest of (i) the sum of (A) the
Prime Rate in effect from time to time plus (B) 4.00%, (ii) the sum of
(A) the Treasury Rate plus (B) 7.00% and (iii) the sum of (A) the DLJ
High Yield Composite Index plus (B) 3.00%.
<PAGE>
(2) The interest rate applicable to each Note for the period
commencing on January 1, 2000 and ending on March 31, 2000, shall be a
floating rate per annum equal to the sum of (A) the Prime Rate in
effect from time to time plus (B) 4.50%; PROVIDED, that if the
principal amount of, and accrued and unpaid interest, if any, on such
Note is not paid in full as of or prior to March 31, 2000, then the
interest rate applicable to each Note for such period shall be 17.00%.
(3) The interest rate applicable to each Note for the period
commencing on April 1, 2000 and ending on June 30, 2000, shall be a
floating rate per annum equal to the sum of (A) the Prime Rate in
effect from time to time plus (B) 5.00%; PROVIDED, that if the
principal amount of, and accrued and unpaid interest, if any, on such
Note is not paid in full as of or prior to June 30, 2000, then the
interest rate applicable to each Note for such period shall be 17.00%.
(4) If the principal amount of, and accrued and unpaid
interest, if any, on any Note is not paid in full as of or prior to
June 30, 2000, then such Note shall accrete an additional amount of
interest equal to the difference between (A) the amount of interest
which would have accrued on such Note had the interest rate applicable
to such Note for the period commencing on October 1, 1999 and ending
on June 30, 2000 been equal to 17.00% and (B) the amount of interest
actually accrued on such Note.
(5) The interest rate applicable to each Note commencing on
June 30, 2000 shall be a floating rate per annum equal to greatest of
(i) the sum of (A) the Prime Rate in effect from time to time plus (B)
4.00%, (ii) the sum of (A) the Treasury Rate plus (B) 7.00%, (iii) the
sum of (A) the DLJ High Yield Composite Index plus (B) 3.00%, and (iv)
the sum of (A) the interest rate applicable to such Note on the day
immediately preceding June 30, 2000 plus (B) .50%, in each case,
increasing by .50% on each Interest Payment Date thereafter until the
date the principal amount of, and accrued and unpaid interest on, if
any, such Note is paid in full."
(b) Section 2.05(d) of the Securities Purchase Agreement, as amended
by Amendment Number 1, is hereby amended by deleting therein each occurrence of
the words "Ocotber 31, 1999" in their entirety and replacing them with "June 30,
2000" so that Section 2.05(d) of the Securities Purchase Agreement is restated
as follows:
"(d) In addition to any adjustments to the Interest Rate set
forth in subsections (b) and (c) of this Section 2.05, if, pursuant to
the terms of the Debt Registration Rights Agreement, a Shelf
Registration with respect to the Notes either (i) has not been filed
with the Commission on or prior to the 90th day following June 30,
2000 or (ii) has not been declared effective by the Commission on or
prior to the 180th day following June 30, 2000, then the Company shall
pay liquidated damages thereafter of $.192 per week per $1,000
principal amount of Notes outstanding until the date on which the
Shelf Registration is declared effective by the Commission. Following
the effectiveness of the Shelf Registration, the Company shall also
pay such liquidated damages beginning on the first date on which such
Shelf Registration ceases to remain effective and shall continue at
such increased interest rate until such Shelf Registration is again
declared effective by the Commission."
<PAGE>
(c) Section 2.05(e) of the Securities Purchase Agreement, as amended
by Amendment Number 1, is hereby amended by deleting therein the words October
31, 1999" in their entirety and replacing them with "June 30, 2000" so that
Section 2.05(e) of the Securities Purchase Agreement is restated as follows:
"(e) The Purchaser may, on June 30, 2000, fix the interest
rate on the Notes at a rate to be determined by the Purchaser in its
sole discretion provided that such rate shall not exceed seventeen
percent (17.00%)."
3. Shelf Registration. Section 3 of the Debt Registration Rights
Agreement, as amended by Amendment Number 1, is hereby amended by deleting
therein the words "October 31, 1999" in their entirety and replacing them with
"June 30, 2000" so that Section 3 of the Debt Registration Rights Agreement is
restated as follows:
"3. SHELF REGISTRATION. The Registrants shall file, and shall use
their best efforts to cause to become effective a "shelf" registration
statement on any appropriate form pursuant to Rule 415 (or similar
rule that may be adopted by the SEC) under the Securities Act (a
"Shelf Registration") on or as soon as practicable after June 30, 2000
in order to permit registered resales of all of the Registrable
Securities. Subject to the last paragraph of Section 6, the
Registrants agree to use their best efforts thereafter to keep such
Shelf Registration continuously effective, and to prevent the
happening of any event of the kind described in Section 6(c) hereof
that requires the Registrants to give notice pursuant to the last
paragraph of Section 6 hereof, until such time as all the Registrable
Securities covered by the Shelf Registration have been sold pursuant
to such Shelf Registration or have been otherwise redeemed in full by
the Company."
4. RELEASE OF WARRANTS. Section 2 of the Escrow Agreement, as
amended by Amendment Number 1, is hereby amended by deleting therein each
occurrence of the words "October 31, 1999" in their entirety and replacing them
with "June 30, 2000" so that Section 2 of the Escrow Agreement is restated as
follows (with the defined term "First Anniversary Date" now being used to refer
to June 30, 2000):
<PAGE>
"2. RELEASE OF WARRANTS.
(a) If Notes remain outstanding on June 30, 2000 (the "FIRST
ANNIVERSARY DATE") and, so long as Notes remain outstanding, and if
the Escrow Agent shall have received written notice in the form of
Exhibit A hereto from the Majority Holders (as such term is defined in
the Securities Purchase Agreement), then the Escrow Agent shall
release Warrants on any one or more occasions in an aggregate amount
not to exceed the Eligible Percentage (as defined below) (as of the
date of any such notice) as shall be specified in the notice to the
Escrow Agent of the amount of Warrants originally placed into escrow
pursuant to this Escrow Agreement. Upon the redemption in full of the
Notes, and the receipt by the Escrow Agent of written notice in the
form of Exhibit B hereto from the Majority Holders, the Escrow Agent
shall release Warrants remaining in escrow, to the extent that such
Warrants have not been "earned" as set forth in Section 2(b) below,
upon such sale or redemption to Holdings. If, upon such redemption,
Warrants that have been "earned" but not released shall be released to
the holders of the Notes in accordance with Section 2(b) below.
(b) The "ELIGIBLE PERCENTAGE" with respect to any Warrants to be
released from escrow pursuant to this Escrow Agreement on June 30,
2000 (the "FIRST ANNIVERSARY DATE") and on each date after the First
Anniversary Date (each such date, including the First Anniversary
Date, a "RELEASE DATE") set forth under Column A below, until the
Notes have been redeemed or repurchased in full, shall be the sum of
(1) the percentage set forth in Column B below and (2) the cumulative
percentage of all Warrants previously "earned" pursuant to clause (1)
above on each of the prior dates under Column A that have occurred and
that have not been previously released pursuant to this Escrow
Agreement. Each holder of Notes shall be entitled to a pro rata share
of Warrants equal to the product of (a) the ratio of the aggregate
principal amount of all Notes held by such holder at the time of such
"earn-in" release to the aggregate principal amount of all Notes then
outstanding and (b) the amount of Warrants "earned" pursuant to
clauses (1) and (2) above.
Once "earned," Warrants remain "earned" and the fully-vested
property of the holder of Notes, as the case may be, despite any
future payments or redemptions of the Notes.
A B
Release Date Percentage
First Anniversary Date 5.0%
91 5.0%
181 10.0%
271 10.0%
361 12.5%
451 12.5%
541 15.0%
631 15.0%
721 15.0%
(c) Holdings will provide, or cause to be provided, to the
Escrow Agent all such information as the Escrow Agent may from time to
time reasonably request."
5. COUNTERPARTS. This Amendment be executed in any number of
counterparts, each of which shall be an original with the same effect as if the
signatures thereto and hereto were upon the same instrument.
<PAGE>
6. ENTIRE AGREEMENT. This Amendment, together with the Securities
Purchase Agreement, the Debt Registration Rights Agreement and the Escrow
Agreement, and the exhibits and schedules thereto, is intended by the parties as
a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein and therein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein or therein. This Amendment, together with the Securities
Purchase Agreement, the Debt Registration Rights Agreement and the Escrow
Agreement, and the exhibits and schedules thereto, supersede all prior
agreements and understandings between the parties with respect to such subject
matter. Except to the extent specifically set forth herein, the Securities
Purchase Agreement, the Debt Registration Rights Agreement and the Escrow
Agreement, shall remain in full force and effect and shall not be deemed amended
or superseded in any respect.
7. INCORPORATION BY REFERENCE. Sections 9.01, 9.02, 9.07, 9.09
and 9.10 of the Securities Purchase Agreement are incorporated herein by
reference as if included herein.
[Signature Pages Follow]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective authorized officers, as of the date first
above written.
TRUE TEMPER CORPORATION
By:/s/FRED H. GEYER
Name:Fred H. Geyer
Title:
EMHART, INC.
By:/s/CHARLES E. FENTON
Name: Charles E. Fenton
Title: Vice President
SNOGA, INC., as Escrow Agent
By:/s/CAMERAN FLEMING
Name:Cameran Fleming
Title:
