-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VDHMsIWfYxmO4GdTqBE0qh2DNVhmMpkWokY6CYOXOoYGTCn1us8eTzVQLnUzJXB/ wPYjvcoXLW5OP1CXglV/5A== 0000012355-01-000003.txt : 20010226 0000012355-01-000003.hdr.sgml : 20010226 ACCESSION NUMBER: 0000012355-01-000003 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010223 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLACK & DECKER CORP CENTRAL INDEX KEY: 0000012355 STANDARD INDUSTRIAL CLASSIFICATION: METALWORKING MACHINERY & EQUIPMENT [3540] IRS NUMBER: 520248090 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 333-03593 FILM NUMBER: 1552484 BUSINESS ADDRESS: STREET 1: 701 E JOPPA RD CITY: TOWSON STATE: MD ZIP: 21286 BUSINESS PHONE: 4107163900 MAIL ADDRESS: STREET 1: 701 EAST JOPPA ROAD STREET 2: MAIL STOP TW 290 CITY: TOWSON STATE: MD ZIP: 21286 FORMER COMPANY: FORMER CONFORMED NAME: BLACK & DECKER MANUFACTURING CO DATE OF NAME CHANGE: 19850206 10-K405 1 0001.txt BLACK & DECKER FORM 10-K 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, 2000 1-1553 - -------------------------------------------------------------------------------- THE BLACK & DECKER CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Maryland 52-0248090 - -------------------------------------------------------------------------------- (State of Incorporation) (I.R.S. Employer Identification Number) Towson, Maryland 21286 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 410-716-3900 - -------------------------------------------------------------------------------- Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered - -------------------------------------------------------------------------------- Common Stock, New York Stock Exchange par value $.50 per share Pacific Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None -------------------- 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 26, 2001, was $3,360,843,959. The number of shares of Common Stock outstanding as of January 26, 2001, was 80,740,996. 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 2001 Annual Meeting of Stockholders are incorporated by reference in Part III of this Report. 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 leading global manufacturer and marketer of power tools and accessories, hardware and home improvement products, and technology-based fastening systems. 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. (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 16 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 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 security hardware to customers in Mexico, Central America, the Caribbean, and South America; 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 include both corded and cordless electric power tools, such as drills, screwdrivers, saws, sanders, grinders, and laser levels; Workmate(R) project centers and related products; air compressors; 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; EMGLO; VERSAPAK; CUT SAW; PIVOT DRIVER; XRT; XRP; SANDSTORM; WORKMATE; FIRESTORM; MOUSE; RTX; QUANTUM PRO; SCRUGUN; HOLGUN; WILDCAT; MOMENTUM; QUATTRO; ALLIGATOR; POWERFILE; TWISTLOK; VERSA-CLUTCH; YELLOW AND BLACK COLOR SCHEME; ORANGE AND BLACK COLOR SCHEME; TOOL FINDER; GIFT FINDER; TOOL SCHOOL; GROOM `N' EDGE; AFS AUTOMATIC FEED SPOOL; VAC `N' MULCH; MASTERVAC; LEAFBUSTER; STRIMMER; REFLEX; HEDGE HOG; GRASS HOG; LEAF HOG; EDGE HOG; LAWN HOG; LOG HOG; 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; and TOUGH CASE. The composition of the Corporation's sales by product groups for 2000, 1999, and 1998 is included in Note 16 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 2000, 1999, or 1998. 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, 2000, there were approximately 130 such service centers, of which roughly two-thirds were located in the United States. The remainders were located around the world, primarily in Canada, Asia and Europe. These company-operated service centers are supplemented by several hundred authorized service centers operated by independent local owners. The Corporation also operates reconditioning centers 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. 1 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 discontinued or 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 2000, 1999, and 1998. For additional information regarding sales to The Home Depot, see Note 16 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, 2000, 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 China. In addition, the Corporation carries on manufacturing operations in that country. China has been granted permanent Normal Trade Relations (NTR) status contingent upon its acceptance into the World Trade Organization (WTO), and currently there are no significant trade restrictions or tariffs imposed on products from China. The Corporation has investigated alternate sources of supply and production arrangements in case the NTR status is not maintained. 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 maintained or if significant trade restrictions or tariffs are imposed, the impact would not have a material adverse effect on the operating results of the Power Tool and Accessories segment over the long term. However, the Corporation believes that, in the event that China's NTR status is not maintained 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 maintained 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; Fort Mill, South Carolina; and Easton, Maryland. The principal distribution facility in the United States, other than those located at the manufacturing facilities listed above, is located in 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 and Reynosa, 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, consist of a central-European distribution center in Tongeren, Belgium, and a facility in Northampton, England. 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. 2 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 The Hardware and Home Improvement segment has worldwide responsibility for the manufacture and sale of security hardware products (except for the sale of security hardware in Mexico, Central America, the Caribbean, and South America). It also has responsibility for the manufacture of plumbing products, and for the sale of plumbing products to customers in the United States and Canada. 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; SOCIETY BRASS COLLECTION; BLACK & DECKER; BLACK & DECKER PLUS; GEO; DOM; DIAMANT; ELS; NEMEF; and CORBIN CO. Plumbing products are marketed under the trademarks and trade names PRICE PFISTER; BLACK & DECKER; CONTEMPRA; PFOREVER WARRANTY; PFILTER PFAUCET; TWISTPFIT; JOB PACK; GENESIS; CARMEL; TRIBECA; PARISA; GEORGETOWN; SAVANNAH; EUROSTYLE; and MATCHMAKERS. The composition of the Corporation's sales by product groups for 2000, 1999, and 1998 is included in Note 16 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 2000, 1999, or 1998. 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 finish, pursuant to which the consumer can return defective product in exchange for a replacement product or repair at no cost to the consumer. The Corporation's product offerings in the 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 2000, 1999, and 1998. For additional information regarding sales to The Home Depot, see Note 16 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, 2000, 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 China. As previously noted, China has been granted permanent NTR status contingent upon its acceptance into the WTO, and currently there are no significant trade restrictions or tariffs imposed on products from China. The Corporation has investigated alternate sources of supply and production arrangements in case the NTR status is not maintained. Alternative sources of supply 3 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 maintained, 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 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 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; HELI-COIL; NPR; PARKER-KALON; POP; POP-LOK; POWERLINK; T-RIVET; ULTRA-GRIP; TUCKER; WARREN; DRIL-KWIK; JACK NUT; KALEI; PLASTIFAST; PLASTI-KWICK; POPMATIC; POPNUT; POP-SERT; SWAGEFORM; WELDFAST; SWS; SPLITFAST; NUT-FAST; WELL-NUT; F-SERIES; MENTOR; POINT & SET; PARS; and ULTRASERT. The composition of the Corporation's sales by product groups for 2000, 1999, and 1998 is included in Note 16 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 2000, 1999, or 1998. 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. 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." 4 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. OTHER INFORMATION The Corporation's product development program for the Power Tools and Accessories segment is coordinated from the Corporation's headquarters in Towson, Maryland, in the United States and from Slough, England, outside of the United States. Additionally, product development activities are performed at facilities in Hampstead, Maryland, in the United States; Rotherham and Spennymoor, England; Brockville, Canada; Perugia, Italy; and Buchlberg and Idstein, Germany. Product development activities for the Hardware and Home Improvement segment are performed at facilities in 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, 2000, the Corporation employed approximately 23,600 persons in its operations worldwide. Approximately 1,200 employees in the United States are covered by collective bargaining agreements. During 2000, one collective bargaining agreement in the United States was negotiated without material disruption to operations. Two agreements are scheduled for negotiation during 2001. 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 the discharge of pollutants and the 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, 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. 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, 2000, 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 with respect to the sites, 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, 2000, the Corporation's aggregate probable exposure with respect to environmental liabilities, for which accruals have been established in the Consolidated Financial Statements, was $25.9 million. 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 Corporation's liability with respect to these sites has been adequately accrued, and the ultimate resolution of these matters will not have a material adverse effect on the Corporation. (d) Financial Information About Geographic Areas Reference is made to Note 16 of Notes to Consolidated Financial Statements, entitled "Business Segments and Geographic Information", included in Item 8 of Part II of this report. 5 (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. o Nolan D. Archibald - 57 Chairman, President, and Chief Executive Officer, January 1990 - present. o Paul A. Gustafson - 58 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. o Paul F. McBride - 44 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. o Charles E. Fenton - 52 Senior Vice President and General Counsel, December 1996 - present; Vice President and General Counsel, May 1989 - December 1996. o Barbara B. Lucas - 55 Senior Vice President - Public Affairs and Corporate Secretary, December 1996 - present; Vice President - Public Affairs and Corporate Secretary, July 1985 - December 1996. o Michael D. Mangan - 44 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. o Leonard A. Strom - 55 Senior Vice President - Human Resources, December 1996 - present; Vice President - Human Resources, May 1986 - December 1996. o Ian Carter - 39 Vice President of the Corporation and President - Europe, Power Tools and Accessories Group, July 2000 - present; Vice President and General Manager - European Professional Power Tools, Power Tools and Accessories Group, December 1999 - June 2000; Director - Low & Bonar PLC, August 1998 - December 1999; President - General Electric Company, Specialty Chemicals, July 1995 - July 1998. o Les H. Ireland - 36 Vice President of the Corporation and Vice President and General Manager - DEWALT Professional Power Tools, North America, Power Tools and Accessories Group, January 2001 - present; Vice President of the Corporation and President - Accessories, Power Tools and Accessories Group, September 2000 - January 2001; President - Price Pfister, Hardware and Home Improvement Group, March 1999 - September 2000; Vice President - Sales, Price Pfister, Hardware and Home Improvement Group, November 1998 - March 1999; Vice President - Sales, Industrial Construction Division, North American Power Tools, Power Tools and Accessories Group, October 1996 - November 1998; Director - Service Operations, Hardware and Home Improvement Group, October 1994 - October 1996. 6 o Thomas D. Koos - 37 Vice President of the Corporation and President - Black & Decker Consumer Products, Power Tools and Accessories Group, January 2001 - present; Vice President of the Corporation and President - North American Consumer Power Tools, Power Tools and Accessories Group, December 2000 - January 2001; President - North American Consumer Power Tools, Power Tools and Accessories Group, April 2000 - December 2000; Vice President - Business Development, Power Tools and Accessories Group, August 1999 - April 2000; President - Goody Products, Division of Newell Rubbermaid Corporation, January 1998 - August 1999; President - Bernzomatic, Division of Newell Rubbermaid Corporation, January 1997 - January 1998; Vice President - Merchandising, EZPaintr, Division of Newell Corporation, April 1995 - January 1997. o Christina M. McMullen - 45 Vice President and Controller, April 2000 - present; Controller, January 2000 - April 2000; Assistant Controller, April 1993 - January 2000. o Christopher T. Metz - 35 Vice President of the Corporation and President - North American Hardware and Home Improvement, Hardware and Home Improvement Group, January 2001 - present; Vice President of the Corporation and President - Kwikset, Hardware and Home Improvement Group, July 1999 - January 2001; President - Kwikset, Hardware and Home Improvement Group, June 1999 - July 1999; Vice President and General Manager - European Professional Power Tools and Accessories, Power Tools and Accessories Group, August 1996 - May 1999; Director - North American Professional Power Tools, Power Tools and Accessories Group, July 1995 - July 1996. o Stephen F. Reeves - 41 Vice President of the Corporation and Vice President - Finance, Power Tools and Accessories Group, April 2000 - present; Vice President - Finance and Strategic Planning, January 2000 - April 2000; Vice President and Controller, September 1996 - January 2000; Controller, May 1994 - September 1996. o Mark M. Rothleitner - 42 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. o Edward J. Scanlon - 46 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 and General Manager - The Home Depot Division, Power Tools and Accessories Group, December 1997 - May 1999; Senior Vice President of Sales - North American Power Tools and Accessories, Power Tools and Accessories Group, August 1995 - December 1997. o John W. Schiech - 42 Vice President of the Corporation and President - DEWALT Professional Products, Power Tools and Accessories Group, January 2001 - present; Vice President of the Corporation and President - North American Professional Power Tools, Power Tools and Accessories Group, May 1999 - January 2001; Vice President of the Corporation and Vice President and General Manager - North American Professional Power Tools, Power Tools and Accessories Group, December 1997 - May 1999; Vice President and General Manager - North American Professional Power Tools, Power Tools and Accessories Group, October 1995 - December 1997. 7 (f) Forward-Looking Statements The Private Securities Litigation Reform Act of 1995 (the Reform Act) provides a safe harbor for forward-looking statements made by or on behalf of the Corporation. The Corporation and its representatives may, from time to time, make written or verbal forward-looking statements, including statements contained in the Corporation's filings with the Securities and Exchange Commission and in its reports to stockholders. Generally, the inclusion of the words "believe," "expect," "intend," "estimate," "anticipate," "will," and similar expressions identify 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. All statements addressing operating performance, events, or developments that the Corporation expects or anticipates will occur in the future, including statements relating to sales growth, earnings or earnings per share growth, and market share, as well as statements expressing optimism or pessimism about future operating results, are forward-looking statements within the meaning of the Reform Act. The forward-looking statements are and will be based upon management's then-current views and assumptions regarding future events and operating performance, and are applicable only as of the dates of such statements. The Corporation undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. 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: o The strength of the retail economies in various parts of the world, primarily in the United States and Europe; and to a lesser extent in Latin America, including Mexico and Central America; Canada; and Asia, including Australia and New Zealand. The Corporation's business is subject to economic conditions in its major markets, including recession, inflation, general weakness in retail, automotive, and housing markets, and changes in consumer purchasing power. o Unforeseen difficulty in maintaining mutually beneficial relationships with key customers or penetrating new channels of distribution. The Corporation has a number of significant customers, including one customer that constituted in excess of 10% of the Corporation's consolidated sales. The loss of any of these significant customers or a material negative change in the Corporation's relationships with these significant customers could have an adverse effect on the Corporation's business. The Corporation's inability to continue penetrating new channels of distribution may have a negative impact on the Corporation's future sales and business. o Unforeseen inventory adjustments or changes in purchasing patterns by major customers and the resultant impact on manufacturing volumes and inventory levels. o Market acceptance of the new products introduced in 2000 and scheduled for introduction in 2001, as well as 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. o The Corporation's continuing ability to develop and introduce new products at favorable margins. o Adverse changes in currency exchange rates or raw material commodity prices, both in absolute terms and relative to competitors' risk profiles. o Increased competition and changes in consumer preferences or loyalties. o The impact of price reductions taken by the Corporation in response to customer and competitive pressures as well as price reductions taken in order to drive demand that may not result in anticipated sales levels. o Inability to achieve projected levels of efficiencies and cost reduction measures. o Delays in or unanticipated inefficiencies resulting from manufacturing and administrative reorganization actions in progress or contemplated. o The impact on foreign operations by factors such as tariffs, nationalization, exchange controls, interest rate fluctuations, civil unrest, governmental changes, limitations on foreign investment in local business, and other political, economic, and regulatory risks and difficulties. In addition, as more fully described in Item 1 of Part I of this report, the impact on the Corporation in the event that China's NTR status is not maintained. o The effects of litigation, environmental remediation matters, and product liability exposures, as well as other risks and uncertainties detailed from time to time in the Corporation's filings with the Securities and Exchange Commission. o The Corporation's ability to generate sufficient cash flows to support capital expansion, business acquisition plans, and the share repurchase program, and to fund general operating activities. o Inability of the Corporation to obtain necessary financing at favorable interest rates. o The ability of certain subsidiaries of the Corporation to maintain their capacity to generate future discounted cash flows sufficient to support the recorded amounts of goodwill related to such subsidiaries. o Changes in laws and regulations, including changes in accounting standards, taxation requirements (including tax rate changes, new tax laws, and revised tax law interpretations), and environmental laws, in both domestic and foreign jurisdictions. o Interest rate fluctuations and other capital market conditions. 8 o Adverse weather conditions, which could reduce demand for the Corporation's products. The foregoing list is not exhaustive. There can be no assurance that all factors affecting the Corporation have been correctly identified above and appropriately assessed or that the publicly available and other information with respect to these matters is complete and correct. ITEM 2. PROPERTIES The Corporation operates 40 manufacturing facilities around the world, including 19 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 Towson, Maryland. Outside of the United States: Rotherham, England; Tongeren, Belgium; 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 that is located on leased land in Suzhou, China. The Corporation's average utilization rate for its manufacturing facilities for 2000 was in the range of 75% to 85%. 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(c) 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. In the opinion of management, amounts accrued for awards or assessments in connection with environmental matters and 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, 2000, the Corporation had no known probable but inestimable exposures for awards and assessments in connection with environmental matters and 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. 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 2000 1999 - -------------------------------------------------------------------------------- January to March $52-3/8 to $29-3/4 $60-1/16 to $47-5/8 April to June $43-15/16 to $34 $64-1/8 to $52-23/32 July to September $42-9/16 to $33-3/8 $64-5/8 to $45-5/16 October to December $40-3/8 to $27-9/16 $52-1/4 to $41 - -------------------------------------------------------------------------------- (b) Holders of the Corporation's Capital Stock As of January 26, 2001, there were 16,646 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 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 2000 1999 - -------------------------------------------------------------------------------- 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, 80,343,094 and 87,190,240 shares outstanding as of December 31, 2000 and 1999, respectively. Preferred Stock: 5,000,000 shares authorized, without par value, no shares outstanding as of December 31, 2000 and 1999. (d) Changes in Securities and Use of Proceeds Settlement of forward purchase contracts resulted in the net issuance of 350,928 shares of common stock during 2000. The shares were issued to an investment banking firm in reliance upon the exemption from registration in Section 4(2) of the Securities Act of 1933. Reference is made to Note 13 of Notes to Consolidated Financial Statements included in Item 8 of Part II of this report. (e) Annual Meeting of Stockholders The 2001 Annual Meeting of Stockholders of the Corporation is scheduled to be held on April 25, 2001, at 9:00 a.m. at the Sheraton Baltimore North, 903 Dulaney Valley Road, Towson, Maryland 21204. ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR SUMMARY - ---------------------------------------------------------------------------------------------------------------------------- (Millions of Dollars Except Per Share Data) 2000(a) 1999 1998(b) 1997 1996(c) - ---------------------------------------------------------------------------------------------------------------------------- Sales $4,560.8 $4,520.5 $4,559.9 $4,940.5 $4,914.4 Earnings (loss) from continuing operations 282.0 300.3 (754.8) 227.2 159.2 Earnings from discontinued operations (d) -- -- -- -- 70.4 Net earnings (loss) 282.0 300.3 (754.8) 227.2 229.6 Net earnings (loss) per common share - basic: Continuing operations 3.37 3.45 (8.22) 2.40 1.69 Discontinued operations -- -- -- -- .79 Net earnings (loss) per common share - basic 3.37 3.45 (8.22) 2.40 2.48 Net earnings (loss) per common share - assuming dilution: Continuing operations 3.34 3.40 (8.22) 2.35 1.66 Discontinued operations -- -- -- -- .73 Net earnings (loss) per common share - assuming dilution 3.34 3.40 (8.22) 2.35 2.39 Total assets 4,089.7 4,012.7 3,852.5 5,360.7 5,153.5 Long-term debt 798.5 847.1 1,148.9 1,623.7 1,415.8 Redeemable preferred stock of a subsidiary 188.0 -- -- 42.3 44.8 Cash dividends per common share .48 .48 .48 .48 .48 - ---------------------------------------------------------------------------------------------------------------------------- (a)Earnings from continuing operations for 2000 include a restructuring charge of $39.1 million before taxes ($27.6 million after taxes) and a gain on sale of business of $20.1 million ($13.1 million after tax). (b)Earnings from continuing operations for 1998 include a restructuring charge of $164.7 million before taxes ($117.3 million after taxes), a gain on the sale of businesses of $114.5 million before taxes ($16.5 million after taxes), and a write-off of goodwill of $900.0 million. (c)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. (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.
10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The Corporation reported net earnings of $282.0 million, or $3.34 per share on a diluted basis, for the year ended December 31, 2000, compared to net earnings of $300.3 million, or $3.40 per share on a diluted basis, for the year ended December 31, 1999. Net earnings for the year ended December 31, 2000, included a pre-tax restructuring charge of $39.1 million ($27.6 million net of tax) and a pre-tax gain of $20.1 million ($13.1 million net of tax) related to the 1998 recapitalization of True Temper Sports. Excluding the impact of both that restructuring charge and that gain, net earnings for the year ended December 31, 2000, would have been $296.5 million, or $3.51 per share on a diluted basis, compared to net earnings of $300.3 million, or $3.40 per share on a diluted basis, for the year ended December 31, 1999. In the discussion and analysis of financial condition and results of operations that follows, the Corporation generally attempts to list contributing factors in order of significance to the point being addressed. Sales The following chart provides an analysis of the consolidated changes in sales for the years ended December 31, 2000, 1999, and 1998. - -------------------------------------------------------------------------------- For the Year Ended December 31, -------------------------------- (Dollars in millions) 2000 1999 1998 - -------------------------------------------------------------------------------- Total sales $4,560.8 $4,520.5 $4,559.9 - -------------------------------------------------------------------------------- Unit volume - existing (a) 6% 10% 2% Unit volume - disposed (b) -- (8)% (8)% Price (2)% (1)% (1)% Currency (3)% (2)% (1)% - -------------------------------------------------------------------------------- Change in total sales 1% (1)% (8)% ================================================================================ (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, 2000, were $4,560.8 million, which represented a 1% increase over 1999 sales of $4,520.5 million. The negative effects of a stronger United States dollar compared to other foreign currencies caused a 3% decrease in the Corporation's consolidated sales during 2000 compared to the prior year. Pricing actions had a 2% negative effect on sales for the year ended December 31, 2000, compared to the 1999 level. Those pricing actions were taken in response to customer and competitive pressures. Growth in unit volume during 2000 caused a 6% increase in consolidated sales over the prior year level. Total consolidated sales for the first nine months of 2000 increased by 4% over the corresponding period in 1999, as higher unit volume for the 2000 period increased sales by 8% and the negative effects of pricing actions and currency decreased sales by 1% and 3%, respectively. The Corporation experienced a 6% decline in sales in the fourth quarter of 2000 from the corresponding quarter in 1999, reflecting a substantial slowdown in the United States economy as well as actions taken by certain of the Corporation's major customers to reduce inventory levels. For the fourth quarter of 2000, unit volume approximated the prior year's level, while the negative effects of pricing actions and a stronger United States dollar decreased consolidated sales by 2% and 4%, respectively, from the level experienced in the fourth quarter of 1999. The Corporation anticipates that the impact of the economic slowdown in the United States will continue to negatively impact the Corporation's sales in 2001. Total consolidated sales for the year ended December 31, 1999, were $4,520.5 million, which represented a 1% decrease from 1998 sales of $4,559.9 million. 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. Earnings The Corporation reported consolidated operating income of $503.3 million on sales of $4,560.8 million in 2000 compared to consolidated operating income of $536.3 million on sales of $4,520.5 million in 1999 and to a consolidated operating loss of $466.2 million on sales of $4,559.9 million in 1998. Consolidated operating income for 2000 included a pre-tax restructuring charge of $39.1 million and a pre-tax gain of $20.1 million related to the 1998 recapitalization of True Temper Sports. The consolidated operating loss experienced in 1998 included a pre-tax restructuring charge of $164.7 million, a pre-tax gain on sale of businesses of $114.5, and a write-off of goodwill in the amount of $900.0 million. Excluding these unusual items, consolidated operating income as a percentage of sales would have been 11.5% in 2000, 11.9% in 1999, and 10.6% in 1998. As more fully described under the caption "Strategic Repositioning and 2000 Restructuring Actions," operating results for the years ended December 31, 1999 and 1998, included $15.0 million and $44.4 million, respectively, of restructuring-related expenses. Restructuring-related expenses during 2000 were not significant. Excluding the effects of these restructuring-related expenses in 1999 and 1998 and, excluding the unusual items described in the preceding paragraph, operating income as a percentage of sales would have been 11.5% in 2000, compared to 12.2% and 11.6% in 1999 and 1998, respectively. Consolidated gross margin as a percentage of sales for 2000 was 36.7% compared to 37.3% for 1999. While the results of the Corporation's Six Sigma and other productivity initiatives positively impacted gross margin in 2000, other negative factors offset that favorability. Those negative factors included: (i) pricing actions taken, in response to both customer and competitive pressures; (ii) currency-related cost pressures that resulted from stronger currencies of countries in which certain products are manufactured relative to 11 currencies of countries in which those products are sold; and (iii) unfavorable manufacturing overhead absorption as the Corporation curtailed production levels late in 2000 in response to lower sales and rising inventory levels. The currency-related cost pressures previously described have been partially mitigated by the hedge program more fully described under the caption "Hedging Activities." Consolidated gross margin as a percentage of sales for 1999 was 37.3% compared to 35.3% for 1998. 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. Consolidated selling, general, and administrative expenses as a percentage of sales were 25.2% for 2000 compared to 25.4% for 1999 and 24.7% for 1998. The decrease in selling, general, and administrative expenses as a percentage of sales in 2000 from 1999 resulted primarily from cost containment efforts as the Corporation leveraged marginally lower selling, general, and administrative expenses over a slightly higher sales base. 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. Consolidated net interest expense (interest expense less interest income) was $104.2 million in 2000 compared to $95.8 million in 1999 and $114.4 million in 1998. The higher net interest expense for 2000 compared to 1999 was primarily the result of higher interest rates partially offset by lower average levels of net debt (total debt less cash and cash equivalents) during 2000. The lower net interest expense for 1999 compared to 1998 was primarily the result of lower average levels of net debt. Consolidated income tax expense of $122.6 million was recognized on the Corporation's pre-tax income of $404.6 million for 2000. 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. Excluding, for 2000, the income tax benefits of $11.5 million related to the pre-tax restructuring charge of $39.1 million and the income tax expense of $7.0 million related to the pre-tax gain on sale of business of $20.1 million and, for 1998, the income tax benefits of $47.4 million related to the pre-tax restructuring charge of $164.7 million, the income tax expense of $98.0 million recognized on the $114.5 million pre-tax gain on sale of businesses, and the non-deductible write-off of goodwill in the amount of $900.0 million, the Corporation's reported tax rate would have been 30% in 2000, compared to 32% in 1999 and 1998. The decrease in the effective tax rate (excluding the effects of the restructuring charge, gain on sale of businesses, and write-off of goodwill) from 32% in 1999 and 1998 to 30% in 2000 was a result of higher earnings in lower rate tax jurisdictions outside the United States. An analysis of taxes on earnings is included in Note 10 of Notes to Consolidated Financial Statements. The Corporation reported net earnings of $282.0 million, or per share earnings of $3.37 and $3.34 on a basic and a diluted basis, respectively, for the year ended December 31, 2000. Excluding the effects of the after-tax restructuring charge of $27.6 million and the after-tax gain on sale of business of $13.1 million in 2000, net earnings for 2000 would have been $296.5 million, or $3.54 and $3.51 on a basic and diluted basis, respectively, compared to net earnings for 1999 of $300.3 million, or per share earnings of $3.45 and $3.40 on a basic and diluted basis, respectively. In addition to the impact of the operational matters and lower effective tax rate previously described, earnings per share for 2000 also benefited from lower shares outstanding as a result of a stock repurchase program. 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. Business Segments As more fully described in Note 16 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 $14.4 million, $12.4 million, and $20.4 million for the years ended December 31, 2000, 1999, and 1998, respectively. The $14.4 million of segment-related expenses excluded from segment profit in 2000 principally related to reserves established in consolidation for certain legal matters associated with the Power Tools and Accessories and Hardware and Home Improvement segments and for the elimination of the Power Tools and Accessories segment's recognition of profit from a joint venture until such time as inventory purchased from that joint venture has been sold to external customers. 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 12 an $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. As indicated above and in Note 16 of Notes to Consolidated Financial Statements, the determination of segment profit excludes restructuring and exit costs. Of the $39.1 million pre-tax restructuring charge recognized in 2000, $29.6 million related to businesses in the Power Tools and Accessories segment and $9.5 million related to businesses in the Hardware and Home Improvement segment. 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 1998. 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 program for employees in the United States, including those of all three reportable business segments and of the Corporate center. POWER TOOLS AND ACCESSORIES Segment sales and profit for the Power Tools and Accessories segment, determined on the basis described in Note 16 of Notes to Consolidated Financial Statements, were as follows (in millions of dollars): - -------------------------------------------------------------------------------- For the Year Ended December 31, 2000 1999 1998 - -------------------------------------------------------------------------------- Sales to unaffiliated customers $3,292.9 $3,135.4 $2,840.1 Segment profit 361.7 369.8 283.7 - -------------------------------------------------------------------------------- Sales to unaffiliated customers in the Power Tools and Accessories segment during 2000 increased 5% over the 1999 level. Sales of power tools and accessories in North America increased at a mid-single-digit rate over the 1999 level. This growth in North America reflected mid-single-digit rates of growth in sales of both professional and consumer power tools augmented by low double-digit rates of growth in sales of outdoor products. That growth was partially offset by a slight decline in sales of accessories in North America during 2000. The growth in North American sales of power tools and accessories for the year ended December 31, 2000, was a result of a low double-digit rate of increase in sales in the first nine months of 2000, partially offset by a mid-single-digit rate of decrease in sales in the fourth quarter. That fourth quarter decrease resulted from a substantial slowdown in the United States economy as well as actions taken by certain major customers to reduce inventory levels. The accessories business in North America was most strongly impacted by these factors in the fourth quarter of 2000 as sales declined from the prior year's fourth quarter level by a percentage in the mid-teens. Sales in Europe increased at a low single-digit rate in 2000 over the 1999 level. Sales of professional power tools increased at a low double-digit rate over the prior year level due, in part, to the transition from the ELU(R)to the DEWALT(R)brand. Sales in Europe during 2000 also benefited from a mid-single-digit rate of increase in sales of outdoor products. However, those increases were partially offset by a mid-single-digit decline in sales of consumer power tools and a slight decline in sales of accessories during 2000 as the effects of intense competition from low-cost imports and a sluggish European economy adversely impacted the business. Sales in other geographic areas increased at a rate of growth in the mid-teens in 2000 over the 1999 levels, due principally to strong gains in South America, Central America, and Mexico. Segment profit as a percentage of sales for the Power Tools and Accessories segment was 11.0% in 2000 compared to 11.8% in 1999. Benefits experienced in 2000 as a result of leveraging of selling, general, and administrative expenses over a higher sales base were more than offset by a number of negative factors, including the impacts of slowing economies in the United States and Europe, price reductions, currency-related cost pressures, and costs associated with the transition to a centralized distribution center in Europe. Sales to unaffiliated customers in the Power Tools and Accessories segment during 1999 increased 10% 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 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 mitigated 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. 13 HARDWARE AND HOME IMPROVEMENT Segment sales and profit for the Hardware and Home Improvement segment, determined on the basis described in Note 16 of Notes to Consolidated Financial Statements, were as follows (in millions of dollars): - -------------------------------------------------------------------------------- For the Year Ended December 31, 2000 1999 1998 - -------------------------------------------------------------------------------- Sales to unaffiliated customers $863.2 $857.7 $829.8 Segment profit 115.5 120.7 122.1 - -------------------------------------------------------------------------------- Sales to unaffiliated customers in the Hardware and Home Improvement segment during 2000 increased 1% over the 1999 level. Sales of plumbing products increased at a high single-digit rate of growth in 2000, but that growth was substantially offset by lower sales of security hardware in North America due, in part, to lost listings of TITAN(R)product as a result of a line review by a major customer early in 2000 and to competition by low-cost imports in retail channels. Sales of security hardware in Europe during 2000 approximated the 1999 level. Segment profit as a percentage of sales for the Hardware and Home Improvement segment declined to 13.4% in 2000 from 14.1% in 1999 due, in part, to higher costs related to lower manufacturing levels and transitional cost issues at Kwikset that more than offset substantial improvements in profitability at Price Pfister. Sales to unaffiliated customers in the Hardware and Home Improvement segment during 1999 increased 3% over the 1998 level as a mid-single-digit rate of increase in sales by Kwikset was mitigated by a low single-digit rate of 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 experienced 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. FASTENING AND ASSEMBLY SYSTEMS Segment sales and profit for the Fastening and Assembly Systems segment, determined on the basis described in Note 16 of Notes to Consolidated Financial Statements, were as follows (in millions of dollars): - -------------------------------------------------------------------------------- For the Year Ended December 31, 2000 1999 1998 - -------------------------------------------------------------------------------- Sales to unaffiliated customers $518.0 $496.2 $461.7 Segment profit 86.0 82.7 75.3 - -------------------------------------------------------------------------------- Sales to unaffiliated customers in the Fastening and Assembly Systems segment increased 4% in 2000 over the 1999 level due, in part, to the strength of industrial sales worldwide and of the automotive sector outside the United States. Segment profit as a percentage of sales for the Fastening and Assembly Systems segment of 16.6% in 2000 approximated the 1999 level. 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 16.3% in 1998 to 16.7% in 1999. Strategic Repositioning and 2000 Restructuring Actions During 2000, the Corporation completed the final elements of its comprehensive strategic repositioning plan, recognizing a $20.1 million gain related to the 1998 recapitalization of True Temper Sports and recording an additional restructuring charge of $9.5 million. In reaction to the weakening economic conditions evident in late 2000, the Corporation took action to reduce costs and recorded an additional restructuring charge of $29.6 million, bringing the total restructuring charge recorded by the Corporation during 2000 to $39.1 million. For further details regarding the strategic repositioning plan and 2000 restructuring actions, see Note 19 of Notes to Consolidated Financial Statements. 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 was a highly leveraged entity and there was no active market for the note, the Corporation fully reserved the $25.0 million note at the time of the divestiture and continued to reserve the note through December 31, 1999. During 2000, 14 the Corporation sold the note, together with its remaining interest in True Temper Corporation for $25.0 million and recognized a pre-tax gain of $20.1 million ($13.1 million after tax). 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, South America (excluding Brazil), and Australia. 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 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. Proceeds from the divestitures of these businesses in 1998, 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 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 2000, the Corporation completed the third element of the strategic repositioning plan - a restructuring program undertaken to reduce fixed costs. As part of the restructuring program undertaken in 1998 and 1999, 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 Statement of Financial Accounting Standards (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, (Dollars in Millions) 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. 15 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. A summary of restructuring activity during 1999 is set forth below (in millions of dollars):
- ------------------------------------------------------------------------------------------------------------------------------ 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 - ------------------------------------------------------------------------------------------------------------------------------ Severance benefits $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 ==============================================================================================================================
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. During 2000, the Corporation recorded a restructuring charge of $9.5 million to rationalize manufacturing in the Hardware and Home Improvement segment, completing the restructuring element of the strategic repositioning plan. Also during 2000, the Corporation took action to reduce costs in its Power Tools and Accessories segment and recorded an additional restructuring charge of $29.6 million, bringing the total restructuring charge recorded by the Corporation during 2000 to $39.1 million. As part of that cost reduction initiative, certain power tools production in the United Kingdom will be transferred to lower-cost manufacturing facilities in China, including the facilities of one of the Corporation's joint ventures. In addition, the cost reduction initiative includes reductions in administrative functions, principally in Europe, and the integration of the Accessories business in North America, previously operated on a relatively stand-alone basis, into the professional and consumer power tools businesses in North America. A summary of restructuring activity during 2000 is set forth below (in millions of dollars):
- ------------------------------------------------------------------------------------------------------------------------------ Reserve at Reserves Utilization of Reserve Reserve at December 31, Established ---------------------- December 31, 1999 in 2000 Cash Non-Cash 2000 - ------------------------------------------------------------------------------------------------------------------------------ Severance benefits $18.7 $21.4 $(10.4) $ - $29.7 Write-down to net realizable value of certain land, buildings, and equipment - 13.9 - (13.9) - Other charges 3.7 3.8 (2.2) (.9) 4.4 - ------------------------------------------------------------------------------------------------------------------------------ Total $22.4 $39.1 $(12.6) $(14.8) $34.1 ==============================================================================================================================
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"). Restructuring-related expenses for 2000 were not significant. 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 2000 from the restructuring element of the strategic repositioning plan were approximately $10 million. Those savings, together with the incremental savings realized in 1999 and 1998 of approximately $40 million and $30 million, respectively, brought the estimated annual savings in 2000 from the restructuring element of the strategic repositioning plan to $80 million. The Corporation estimates that incremental savings of $10 million in 2001 and $20 million in 2002 will be realized upon completion of the additional restructuring actions undertaken in 2000, both as part of the strategic repositioning plan and in order to reduce costs in its Power Tools and Accessories segment. As indicated in Note 19 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. The Corporation estimates that, as a result of shifting certain production and replacing certain employees who retired under the United States voluntary retirement plan, 2,200 replacement positions were filled, yielding a net total of 2,800 positions eliminated as a result of the 1998 and 1999 restructuring actions. The restructuring actions undertaken in 2000 reflect the net elimination of approximately 400 positions. The Corporation's estimate of savings from the restructuring actions taken, both in connection with the strategic repositioning plan as well in connection with planned cost reduction efforts in the Power Tools and Accessories segment, reflects estimated savings from a net reduction of approximately 3,200 positions. 16 Ultimate savings realized from restructuring actions will likely be mitigated by such factors as continued economic deterioration in the United States and Europe as well as decisions to increase costs in areas such 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 19 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 19 of Notes to Consolidated Financial Statements. 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 reduce 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 in 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. 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 2000, translation adjustments, recorded in the accumulated other comprehensive income component of stockholders' equity, decreased stockholders' equity by $64.8 million compared to a decrease of $10.2 million in 1999. 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 2000 and 1999, these activities netted to a cash inflow of $3.7 million and $30.4 million, respectively. The corresponding gains and losses on these hedging activities were recorded in the accumulated other comprehensive income component of stockholders' equity. The lower cash inflow from hedging activities in 2000 compared to 1999 resulted from the maturation during 1999 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 2000 and 1999. As more fully explained in Note 8 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 and currency 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 65% at December 31, 2000, compared to 52% at December 31, 1999, and 47% at December 31, 1998. At December 31, 2000, average debt maturity was 5.4 years compared to 6.2 years at December 31, 1999, and 6.7 years at December 31, 1998. 17 INTEREST RATE SENSITIVITY The following table provides information as of December 31, 2000, 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, 2000.
Principal Payments and Interest Rate Detail by Contractual Maturity Dates - ---------------------------------------------------------------------------------------------------------------------------------- Fair Value (Assets)/ (U.S. Dollars in Millions) 2001 2002 2003 2004 2005 Thereafter Total Liabilities - ---------------------------------------------------------------------------------------------------------------------------------- LIABILITIES Short-term borrowings Variable rate (U.S. dollars) $364.9 $ -- $ -- $ -- $ -- $ -- $364.9 $364.9 Average interest rate 6.72% 6.72% Variable rate (other currencies) $ 38.0 $ -- $ -- $ -- $ -- $ -- $ 38.0 $ 38.0 Average interest rate 5.59% 5.59% Long-term debt Fixed rate (U.S. dollars) $ 35.8 $32.3 $309.5 $ -- $ -- $454.5 $832.1 $825.5 Average interest rate 8.95% 8.86% 7.50% 6.87% 7.27% Fixed rate (other currencies) $ 4.4 $ 1.5 $ .7 $ -- $ -- $ -- $ 6.6 $ 6.6 Average interest rate 5.40% 1.48% 1.49% 4.09% Variable rate (U.S. dollars) $ 7.5 $ -- $ -- $ -- $ -- $ -- $ 7.5 $ 7.5 Average interest rate L+.70%(a) Other long-term liabilities Fixed rate (U.S. dollars) $ -- $ -- $ -- $ -- $188.0 $ -- $188.0 $188.0 Average interest rate 5.69% 5.69% INTEREST RATE DERIVATIVES Fixed to Variable Rate Interest Rate Swaps (U.S. dollars) $ -- $ -- $125.0 $ -- $188.0 $275.0 $588.0 $ 4.2 Average pay rate (b) Average receive rate 6.02% 6.49% 6.01% 6.17% - ---------------------------------------------------------------------------------------------------------------------------------- (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 2005 and is based upon 3-month forward LIBOR.
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, 2000, the Corporation has hedged a portion of its 2001 estimated foreign currency transactions using forward exchange contracts and purchased options. The Corporation estimated the effect on 2001 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 2001 by approximately $35 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 previously described 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 2000, inherent in the foreign exchange hedging portfolio at December 31, 2000. IMPACT OF NEW ACCOUNTING STANDARD WITH RESPECT TO DERIVATIVES As more fully described in Note 1 of Notes to Consolidated Financial Statements, the Corporation is required to adopt SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, effective January 1, 2001. While the Corporation does not expect the adoption of this new accounting standard to have a significant impact on its financial condition and earnings, it believes that the adoption of SFAS No. 133 will result in a number of changes from that of prior accounting standards. These changes include the "grossing up" of the Corporation's balance sheet and the potential for greater earnings volatility on a quarterly basis, particularly with respect to the Corporation's purchased foreign currency options. While prior accounting standards permitted many derivatives to be accounted for on an "off-balance sheet" basis, SFAS No. 133 requires all derivatives to be recognized on the balance sheet at fair value. Derivatives that do not qualify as hedges under SFAS No. 133 must be adjusted to fair value through income. If a derivative qualifies as a fair value hedge -- as do the Corporation's fixed to variable rate interest rate swaps as of December 31, 2000 -- changes in the fair value of the derivative are recognized through earnings. SFAS No. 133 18 requires that, subject to certain limitations, changes in the fair value of the underlying debt be recognized through earnings, providing an offset to the earnings recognition related to the derivative's changes in fair value. If a derivative qualifies as a cash flow hedge -- as do the Corporation's foreign currency options as of December 31, 2000, which generally hedge forecasted intercompany inventory purchases -- changes in the fair value of the derivative are recognized in accumulated other comprehensive income, a component of stockholders' equity, until such time as the underlying transaction ultimately affects earnings. In the case of the Corporation's foreign currency options as of December 31, 2000, changes in fair value of the options would be recognized in accumulated other comprehensive income until such time as the underlying hedged inventory is sold to a third party. The ineffective portion of a derivative's change in fair value must be immediately recognized in earnings under SFAS No. 133. The Corporation believes that the adoption of SFAS No. 133 will afford greater flexibility in hedging the foreign currency risk inherent in its forecasted intercompany inventory purchases. In order to qualify for hedge accounting under prior accounting standards, forecasted intercompany transactions were required to be hedged with purchased foreign currency options, rather than with less expensive foreign currency forward contracts. SFAS No. 133 eliminated this restriction and permits the use of foreign currency forward contracts in hedging the foreign currency risk inherent in forecasted intercompany transactions. Financial Condition Operating activities generated cash of $349.9 million for the year ended December 31, 2000, compared to $375.5 million of cash generated for the year ended December 31, 1999. Cash from operations during 2000 benefited from lower cash usage for working capital, which was mainly driven by decreases in accounts receivable as a result of lower sales in the fourth quarter. This decrease in accounts receivable in 2000 provided cash of $12.7 million in comparison to cash used of $57.0 million in 1999. As part of its capital management, the Corporation reviews certain working capital metrics. For example, the Corporation evaluates its accounts receivable and inventory levels through the computation of days sales outstanding and inventory turnover ratio, respectively. The number of days sales outstanding as of December 31, 2000, approximated the 1999 level. Inventory turns, however, decreased during 2000 due to an increase in inventory levels as a result of lower than anticipated sales in the fourth quarter of 2000. The Corporation's goal is to increase inventory turns in 2001. Investing activities for the year ended December 31, 2000, used cash of $202.2 million compared to $108.6 million of cash used in 1999. The increase in cash usage was partially driven from higher capital expenditures during 2000 compared to the corresponding period in 1999. Cash flow from investing activities during 2000 also was impacted by lower cash from hedging activities. During 1999, net cash inflow from hedging activities benefited from the maturation of certain interest rate swaps that swapped from fixed United States dollars to fixed foreign currencies. In addition, cash flow from investing activities was impacted by lower cash proceeds from disposal of assets during 2000 than in 1999. Benefiting cash flow from investing activities in 2000 was the Corporation's receipt of $25.0 million related to the True Temper recapitalization more fully described in Note 19 of Notes to Consolidated Financial Statements. Investing activities for the year ended December 31, 2000, included an aggregate payment of $35.5 million related to the purchases of two businesses by the Power Tools and Accessories segment in the United States. The businesses acquired were Emglo Products, L.P. (Emglo), purchased in mid-December 2000, and Momentum Laser (Momentum), purchased in June 2000. The results of Emglo and Momentum, included in the consolidated financial statements from the date of acquisition, were not material. Under the terms of the Momentum purchase agreement, additional purchase consideration of up to $7.0 million and $15.0 million, respectively, may be payable based on the income of Momentum in the first and second years following the acquisition. Financing activities used cash of $150.0 million in 2000, compared to cash used of $201.6 million in 1999. The decrease in cash used from financing activities principally resulted from increased cash from borrowing activities and the issuance of preferred stock of a subsidiary partially offset by higher cash expenditures for stock repurchases during 2000. During the year ended December 31, 2000, the Corporation repurchased 7,454,000 shares of its common stock at an aggregate cost of $269.8 million. During 1999, the Corporation repurchased 1,015,900 shares of its common stock at an aggregate cost of $53.3 million. For further discussion of the subsidiary's preferred stock issued during 2000, see Note 12 of Notes to Consolidated Financial Statements. At December 31, 2000, the Corporation had remaining authorization from its Board of Directors to repurchase an additional 2,996,595 shares of its common stock. In addition to measuring its cash flow generation and usage based upon the operating, investing, and financing classifications included in the Consolidated Statement of Cash Flows, the Corporation also measures its free cash flow. Free cash flow, a measure 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). During the year ended December 31, 2000, the Corporation generated free cash flow of $154.5 million compared to free cash flow of $241.7 million generated in 1999. 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. As discussed further in Note 6 of Notes to Consolidated Financial Statements, the Corporation's $1.0 billion revolving credit facility expires in April 2001. The Corporation intends to replace the expiring revolving credit facility with a new revolving credit facility, and discussions are currently underway with prospective lenders. 19 The Corporation will continue to have cash requirements to support seasonal working capital needs and capital expenditures, to pay interest, to service debt, and to complete the restructuring actions previously described. For amounts available at December 31, 2000, under the Corporation's revolving credit facility and under short-term borrowing facilities, see Note 6 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 existing and future 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 8 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, 2000, 1999, and 1998. Consolidated Balance Sheet - December 31, 2000 and 1999. Consolidated Statement of Stockholders' Equity - years ended December 31, 2000, 1999, and 1998. Consolidated Statement of Cash Flows - years ended December 31, 2000, 1999, and 1998. Notes to Consolidated Financial Statements. Report of Independent Auditors. 20 CONSOLIDATED STATEMENT OF EARNINGS The Black & Decker Corporation and Subsidiaries (Dollars in Millions Except Per Share Data)
- ---------------------------------------------------------------------------------------------------------------- Year Ended December 31, 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------------- Sales $4,560.8 $4,520.5 $4,559.9 Cost of goods sold 2,889.0 2,834.4 2,951.0 Selling, general, and administrative expenses 1,149.5 1,149.8 1,124.9 Restructuring and exit costs 39.1 -- 164.7 Gain on sale of businesses 20.1 -- 114.5 Write-off of goodwill -- -- 900.0 - ---------------------------------------------------------------------------------------------------------------- Operating Income (Loss) 503.3 536.3 (466.2) Interest expense (net of interest income of $44.1 for 2000, $30.5 for 1999, and $30.9 for 1998) 104.2 95.8 114.4 Other income (expense) 5.5 .8 (7.7) - ---------------------------------------------------------------------------------------------------------------- Earnings (Loss) Before Income Taxes 404.6 441.3 (588.3) Income taxes 122.6 141.0 166.5 - ---------------------------------------------------------------------------------------------------------------- Net Earnings (Loss) $ 282.0 $ 300.3 $ (754.8) ================================================================================================================ - ---------------------------------------------------------------------------------------------------------------- Net Earnings (Loss) Per Common Share -- Basic $ 3.37 $ 3.45 $ (8.22) ================================================================================================================ Net Earnings (Loss) Per Common Share -- Assuming Dilution $ 3.34 $ 3.40 $ (8.22) ================================================================================================================ See Notes to Consolidated Financial Statements.
21 CONSOLIDATED BALANCE SHEET The Black & Decker Corporation and Subsidiaries (Millions of Dollars)
- ------------------------------------------------------------------------------------------ December 31, 2000 1999 - ------------------------------------------------------------------------------------------ ASSETS Cash and cash equivalents $ 135.0 $ 147.3 Trade receivables, less allowances of $51.8 for 2000 and $53.3 for 1999 783.1 823.2 Inventories 844.0 751.0 Other current assets 199.9 189.9 - ------------------------------------------------------------------------------------------ TOTAL CURRENT ASSETS 1,962.0 1,911.4 - ------------------------------------------------------------------------------------------ PROPERTY, PLANT, AND EQUIPMENT 748.1 739.6 GOODWILL 717.2 743.4 OTHER ASSETS 662.4 618.3 - ------------------------------------------------------------------------------------------ $4,089.7 $4,012.7 ========================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Short-term borrowings $ 402.9 $ 183.2 Current maturities of long-term debt 47.7 213.2 Trade accounts payable 367.6 367.3 Other accrued liabilities 814.1 809.0 - ------------------------------------------------------------------------------------------ TOTAL CURRENT LIABILITIES 1,632.3 1,572.7 - ------------------------------------------------------------------------------------------ LONG-TERM DEBT 798.5 847.1 DEFERRED INCOME TAXES 221.0 243.8 POSTRETIREMENT BENEFITS 240.6 246.3 OTHER LONG-TERM LIABILITIES 479.8 301.7 COMMON STOCK UNDER EQUITY FORWARDS 25.1 -- STOCKHOLDERS' EQUITY Common stock (outstanding: December 31, 2000-- 80,343,094 shares; December 31, 1999-- 87,190,240 shares) 40.2 43.6 Capital in excess of par value 560.0 843.3 Retained earnings 264.0 21.9 Accumulated other comprehensive income (171.8) (107.7) - ------------------------------------------------------------------------------------------ TOTAL STOCKHOLDERS' EQUITY 692.4 801.1 - ------------------------------------------------------------------------------------------ $4,089.7 $4,012.7 ========================================================================================== See Notes to Consolidated Financial Statements.
22 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY The Black & Decker Corporation and Subsidiaries (Dollars in Millions Except Per Share Data)
- --------------------------------------------------------------------------------------------------------------------------- Accumulated Outstanding Capital in Retained Other Total Common Par Excess of Earnings Comprehensive Stockholders' Shares Value Par Value (Deficit) Income Equity - --------------------------------------------------------------------------------------------------------------------------- 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 ($.48 per share) -- -- -- (41.8) -- (41.8) Purchase and retirement of common stock (net of 57,682 shares issued under forward purchase contracts) (958,218) (.4) (52.9) -- -- (53.3) Common stock issued under employee benefit plans 650,034 .3 24.8 -- -- 25.1 - --------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1999 87,190,240 43.6 843.3 21.9 (107.7) 801.1 Comprehensive income: Net earnings -- -- -- 282.0 -- 282.0 Minimum pension liability adjustment (net of tax) -- -- -- -- (1.2) (1.2) Foreign currency translation adjustments, less effect of hedging activities (net of tax) -- -- -- -- (62.9) (62.9) - --------------------------------------------------------------------------------------------------------------------------- Comprehensive income -- -- -- 282.0 (64.1) 217.9 - --------------------------------------------------------------------------------------------------------------------------- Cash dividends on common stock ($.48 per share) -- -- -- (39.9) -- (39.9) Purchase and retirement of common stock (net of 350,928 shares issued under forward purchase contracts) (7,103,072) (3.5) (266.3) -- -- (269.8) Common stock under equity forwards -- -- (25.1) -- -- (25.1) Common stock issued under employee benefit plans 255,926 .1 8.1 -- -- 8.2 - --------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 2000 80,343,094 $40.2 $ 560.0 $264.0 $(171.8) $ 692.4 =========================================================================================================================== See Notes to Consolidated Financial Statements.
23 CONSOLIDATED STATEMENT OF CASH FLOWS The Black & Decker Corporation and Subsidiaries (Millions of Dollars)
- ---------------------------------------------------------------------------------------------------------------- Year Ended December 31, 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net earnings (loss) $282.0 $300.3 $ (754.8) Adjustments to reconcile net earnings (loss) to cash flow from operating activities: Gain on sale of businesses (20.1) -- (114.5) Non-cash charges and credits: Depreciation and amortization 163.4 160.0 155.2 Deferred income taxes (benefit) (.4) (5.8) 67.5 Restructuring charges and exit costs 39.1 -- 164.7 Goodwill write-off -- -- 900.0 Other (8.8) (8.3) (1.7) Changes in selected working capital items (excluding, for 2000 and 1999, effects of acquired businesses and, for 1998, effects of divested businesses): Trade receivables 12.7 (57.0) (24.3) Inventories (123.1) (136.1) 26.9 Trade accounts payable 13.6 21.9 16.9 Restructuring spending (12.6) (26.7) (55.6) Other assets and liabilities 4.1 127.2 (14.0) - ---------------------------------------------------------------------------------------------------------------- CASH FLOW FROM OPERATING ACTIVITIES 349.9 375.5 366.3 - ---------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Proceeds from sale of businesses, net of selling expenses 25.0 -- 653.6 Purchase of businesses (35.5) (5.2) -- Proceeds from disposal of assets 4.8 37.3 20.4 Capital expenditures (200.2) (171.1) (146.0) Cash inflow from hedging activities 193.6 565.9 343.5 Cash outflow from hedging activities (189.9) (535.5) (340.1) - ---------------------------------------------------------------------------------------------------------------- CASH FLOW FROM INVESTING ACTIVITIES (202.2) (108.6) 531.4 - ---------------------------------------------------------------------------------------------------------------- CASH FLOW BEFORE FINANCING ACTIVITIES 147.7 266.9 897.7 FINANCING ACTIVITIES Net increase (decrease) in short-term borrowings 225.6 1.4 (587.5) Proceeds from long-term debt -- 2.6 325.2 Payments on long-term debt (213.8) (122.0) (270.6) Debt issue costs paid -- -- (2.9) Issuance (redemption) of preferred stock of subsidiary 188.0 -- (41.7) Increase in long-term deposit (50.0) -- -- Purchase of common stock (269.8) (53.3) (464.3) Issuance of common stock 9.9 11.5 31.3 Cash dividends (39.9) (41.8) (43.8) - ---------------------------------------------------------------------------------------------------------------- CASH FLOW FROM FINANCING ACTIVITIES (150.0) (201.6) (1,054.3) Effect of exchange rate changes on cash (10.0) (5.9) (2.3) - ---------------------------------------------------------------------------------------------------------------- (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (12.3) 59.4 (158.9) Cash and cash equivalents at beginning of year 147.3 87.9 246.8 - ---------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $135.0 $147.3 $ 87.9 ================================================================================================================ See Notes to Consolidated Financial Statements.
24 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 2000. 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. 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 other than with two major customers. As of December 31, 2000, approximately 24% of the Corporation's trade receivables were due from two large home improvement retailers. The Corporation continuously evaluates the creditworthiness of its customers and generally does not require collateral. 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 19, 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 $95.3 million in 2000, $91.0 million in 1999, and $90.5 million in 1998. Shipping and Handling Costs: Shipping and handling costs represent costs associated with shipping products to customers and handling finished goods. Included in selling, general, and administrative expenses are shipping and handling costs of $205.6 million in 2000, $195.7 million in 1999, and $194.7 million in 1998. 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 $237.8 million in 2000, $223.7 million in 1999, and $211.2 million in 1998. 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. 25 Amounts to be paid or received under interest rate swap agreements are accrued as interest rates change and are recognized over the life of the swap agreements as an adjustment to interest expense. The related amounts due to or from the counterparties are included in other accrued liabilities. Since they are accounted for as hedges, the fair value of the swap agreements is not recognized in the Consolidated Financial Statements. The costs of interest rate cap agreements are included in interest expense ratably over the lives of the agreements. Payments to be received as a result of the cap agreements are accrued as a reduction of interest expense. The unamortized costs of the cap agreements are included in other assets. Gains or losses resulting from the early termination of interest rate swaps or caps are deferred and amortized as an adjustment to the yield of the related debt instrument over the remaining period originally covered by the terminated swaps or caps. Were that related debt instrument later to be retired prior to its scheduled maturity, the unamortized gain or loss resulting from the early termination of the interest rate swap or cap would be included in the gain or loss on the extinguishment of debt. 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. 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 will adopt SFAS No. 133, effective January 1, 2001, and does not expect SFAS No. 133 to have a significant impact on its earnings and financial position. Stock-Based Compensation: As described in Note 15, 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: INVENTORIES The classification of inventories at the end of each year, in millions of dollars, was as follows: - -------------------------------------------------------------------------------- 2000 1999 - -------------------------------------------------------------------------------- FIFO cost Raw materials and work-in-process $219.6 $171.3 Finished products 627.9 584.5 - -------------------------------------------------------------------------------- 847.5 755.8 Excess of FIFO cost over LIFO inventory value (3.5) (4.8) - -------------------------------------------------------------------------------- $844.0 $751.0 ================================================================================ The cost of United States inventories stated under the LIFO method was approximately 56% and 48% of the value of total inventories at December 31, 2000 and 1999, respectively. NOTE 3: PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment at the end of each year, in millions of dollars, consisted of the following: - -------------------------------------------------------------------------------- 2000 1999 - -------------------------------------------------------------------------------- Property, plant, and equipment at cost: Land and improvements $ 56.0 $ 54.1 Buildings 269.2 264.0 Machinery and equipment 1,267.8 1,241.1 - -------------------------------------------------------------------------------- 1,593.0 1,559.2 Less accumulated depreciation 844.9 819.6 - -------------------------------------------------------------------------------- $ 748.1 $ 739.6 ================================================================================ 26 NOTE 4: GOODWILL Goodwill amortization was $25.4 million in 2000, $25.7 million in 1999, and $25.2 million in 1998. Goodwill at the end of each year, in millions of dollars, was as follows: - -------------------------------------------------------------------------------- 2000 1999 - -------------------------------------------------------------------------------- Goodwill $1,300.5 $1,301.3 Less accumulated amortization 583.3 557.9 - -------------------------------------------------------------------------------- $ 717.2 $ 743.4 ================================================================================ NOTE 5: OTHER ACCRUED LIABILITIES Other accrued liabilities at the end of each year, in millions of dollars, included the following: - -------------------------------------------------------------------------------- 2000 1999 - -------------------------------------------------------------------------------- Salaries and wages $ 61.9 $ 67.2 Employee benefits 99.1 109.1 Trade discounts and allowances 139.8 145.9 Income taxes, including deferred taxes 92.6 66.7 Accruals related to restructuring actions 34.1 22.4 All other 386.6 397.7 - -------------------------------------------------------------------------------- $814.1 $809.0 ================================================================================ All other at December 31, 2000 and 1999, consisted primarily of accruals for advertising, warranty costs, interest, insurance, and taxes other than income taxes. NOTE 6: SHORT-TERM BORROWINGS Short-term borrowings in the amounts of $402.9 million and $183.2 million at December 31, 2000 and 1999, respectively, consisted primarily of borrowings under the Corporation's unsecured revolving credit facility (the Credit Facility) or under the terms of uncommitted lines of credit or other short-term borrowing arrangements. The weighted-average interest rate on short-term borrowings outstanding was 6.6% at both December 31, 2000 and 1999. Under the terms of uncommitted lines of credit at December 31, 2000, certain subsidiaries outside of the United States may borrow up to an additional $318.6 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, 2000, was $670.1 million. The Credit Facility expires in April 2001. 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, 2000, the Corporation was in compliance with all terms and conditions of the Credit Facility. NOTE 7: LONG-TERM DEBT The composition of long-term debt at the end of each year, in millions of dollars, was as follows: - -------------------------------------------------------------------------------- 2000 1999 - -------------------------------------------------------------------------------- Medium Term Notes due through 2002 $ 75.6 $ 75.6 6.625% notes due 2000 -- 208.7 7.50% notes due 2003 309.5 309.5 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 Other loans due through 2003 6.5 11.9 Less current maturities of long-term debt (47.7) (213.2) - -------------------------------------------------------------------------------- $798.5 $ 847.1 ================================================================================ As of December 31, 2000, $75.6 million aggregate principal amount of unsecured Medium Term Notes was 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 $599.6 million and $435.4 million were included in the Consolidated Balance Sheet at December 31, 2000 and 1999, 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 three years are as follows: $47.7 million in 2001, $33.8 million in 2002, and $310.2 million in 2003. No principal payments are due in 2004 or 2005. Interest payments on all indebtedness were $145.1 million in 2000, $140.1 million in 1999, and $160.8 million in 1998. NOTE 8: 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. 27 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 9. 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 derivative financial instruments. The Corporation's portfolio of interest rate swap instruments as of December 31, 2000, and 1999, consisted of $588.0 and $450.0 million notional amounts of fixed to variable rate swaps with a weighted-average fixed rate receipt of 6.17% and 5.96%, respectively. The basis of the variable rates paid is LIBOR. No credit exposure on the Corporation's interest rate derivatives existed as of December 31, 2000 and 1999. Gross deferred gains and losses on the early termination of interest rate swaps as of December 31, 2000 and 1999, 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, 2000 and 1999, in millions of dollars, including details by major currency as of December 31, 2000. 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, 2000 Buy Sell - -------------------------------------------------------------------------------- United States dollar $ 813.2 $ (647.1) Pound sterling 543.9 (280.5) Deutsche mark 64.7 (122.6) Dutch guilder 21.9 (24.8) French franc -- (105.7) Canadian dollar 65.4 (96.4) Italian lira 11.3 -- Euro 143.5 (228.3) Japanese yen -- (44.6) Other 17.9 (112.3) - -------------------------------------------------------------------------------- Total $1,681.8 $(1,662.3) ================================================================================ As of December 31, 1999 - -------------------------------------------------------------------------------- Total $1,363.1 $(1,344.3) ================================================================================ The contractual amounts of purchased options to buy currencies, predominantly the euro, pound sterling, and United States dollar, were $193.4 million and $432.5 million, at December 31, 2000 and 1999, respectively. The contractual amounts of purchased options to sell various currencies were $181.6 million and $421.6 million at December 31, 2000 and 1999, respectively. Credit exposure on foreign currency derivatives as of December 31, 2000 and 1999, was $43.7 million and $51.3 million, respectively. Deferred realized gains from option contracts on hedges of forecasted transactions were not significant at December 31, 2000 and 1999. Substantially all of the amounts deferred at December 31, 2000, are expected to be recognized in earnings during 2001, when the gains or losses on the underlying transactions also will be recognized. 28 NOTE 9: 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 Other long-term liabilities: The fair value of a subsidiary's redeemable preferred shares approximates the carrying value since those preferred shares were recently issued. o Interest rate hedges: The fair value of interest rate hedges reflects the estimated amounts that the Corporation would receive or pay to terminate the contracts at the reporting date. o Foreign currency contracts: The fair value of forward exchange contracts and options is estimated using prices established by financial institutions for comparable instruments. The following table sets forth, in millions of dollars, the carrying amounts and fair values of the Corporation's financial instruments, except for those noted above for which carrying amounts approximate fair values: - -------------------------------------------------------------------------------- Assets (Liabilities) Carrying Fair As of December 31, 2000 Amount Value - -------------------------------------------------------------------------------- Non-derivatives: Long-term debt $(798.5) $(791.9) - -------------------------------------------------------------------------------- Derivatives relating to: Debt Liabilities (1.5) (4.1) Other long-term liabilities Liabilities -- (.1) Foreign currency Assets 43.8 43.7 Liabilities (18.7) (19.7) - -------------------------------------------------------------------------------- Assets (Liabilities) Carrying Fair As of December 31, 1999 Amount Value - -------------------------------------------------------------------------------- Non-derivatives: Long-term debt $(847.1) $(810.5) - -------------------------------------------------------------------------------- Derivatives relating to: Debt Assets .1 (26.7) Foreign currency Assets 43.4 51.3 Liabilities (19.0) (22.8) - -------------------------------------------------------------------------------- NOTE 10: INCOME TAXES Earnings (loss) before income taxes for each year, in millions of dollars, were as follows: - -------------------------------------------------------------------------------- 2000 1999 1998 - -------------------------------------------------------------------------------- United States $209.3 $174.4 $(734.3) Other countries 195.3 266.9 146.0 - -------------------------------------------------------------------------------- $404.6 $441.3 $(588.3) ================================================================================ Significant components of income taxes (benefits) for each year, in millions of dollars, were as follows: - -------------------------------------------------------------------------------- 2000 1999 1998 - -------------------------------------------------------------------------------- Current: United States $ 93.7 $128.3 $ 55.0 Other countries 29.3 18.5 44.0 - -------------------------------------------------------------------------------- 123.0 146.8 99.0 Deferred: United States 3.5 (17.7) 92.9 Other countries (3.9) 11.9 (25.4) - -------------------------------------------------------------------------------- (.4) (5.8) 67.5 - -------------------------------------------------------------------------------- $122.6 $141.0 $166.5 ================================================================================ Income tax expense recorded directly as an adjustment to equity as a result of hedging activities was not significant in 2000, 1999 and 1998. Income tax benefits recorded directly as an adjustment to equity as a result of employee stock options were $.9 million, $4.9 million and $17.0 million in 2000, 1999, and 1998, respectively. Income tax payments were $98.8 million in 2000, $97.1 million in 1999, and $95.4 million in 1998. Deferred tax (liabilities) assets at the end of each year, in millions of dollars, were composed of the following: - -------------------------------------------------------------------------------- 2000 1999 - -------------------------------------------------------------------------------- Deferred tax liabilities: Fixed assets $ (5.7) $(19.9) Postretirement benefits (227.8) (224.3) Other (24.6) (37.0) - -------------------------------------------------------------------------------- Gross deferred tax liabilities (258.1) (281.2) - -------------------------------------------------------------------------------- Deferred tax assets: Tax loss carryforwards 57.2 53.0 Tax credit and capital loss carryforwards 82.6 89.6 Other 109.9 116.2 - -------------------------------------------------------------------------------- Gross deferred tax assets 249.7 258.8 - -------------------------------------------------------------------------------- Deferred tax asset valuation allowance (50.5) (37.0) - -------------------------------------------------------------------------------- Net deferred tax liabilities $ (58.9) $ (59.4) ================================================================================ 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, 2000, consisted of net operating losses expiring from 2001 to 2006. At December 31, 2000, unremitted earnings of subsidiaries outside of the United States were approximately $1.6 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 29 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: - -------------------------------------------------------------------------------- 2000 1999 1998 - -------------------------------------------------------------------------------- Income taxes (benefit) at federal statutory rate $141.6 $154.5 $(205.9) Lower effective taxes on earnings in other countries (28.7) (42.6) (19.8) Amortization and write-off of goodwill 9.0 9.0 386.6 Other -- net .7 20.1 5.6 - -------------------------------------------------------------------------------- Income taxes $122.6 $141.0 $ 166.5 ================================================================================ NOTE 11: 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.
- -------------------------------------------------------------------------------------------------------------------------- Pension Benefits Pension Benefits Other Postretirement Plans in the Plans outside of the Benefits United States United States All Plans - -------------------------------------------------------------------------------------------------------------------------- (Dollars in Millions) 2000 1999 2000 1999 2000 1999 - -------------------------------------------------------------------------------------------------------------------------- CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year $ 759.7 $845.5 $414.2 $408.2 $ 132.8 $ 130.0 Service cost 13.2 14.8 10.9 11.6 .8 .7 Interest cost 53.4 53.4 23.0 23.3 9.1 8.0 Plan participants' contributions -- -- 2.1 2.3 5.5 4.2 Actuarial (gains) losses 4.7 (87.4) 15.8 6.6 25.2 12.4 Foreign currency exchange rate changes -- -- (41.6) (17.6) (.2) .1 Benefits paid (61.9) (67.0) (23.3) (22.0) (22.7) (22.6) Plan amendments -- -- 2.0 2.3 -- -- Divestitures (6.3) -- .4 -- -- -- Settlements -- -- (2.0) (.5) -- -- Special termination benefits -- .4 -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Benefit obligation at end of year 762.8 759.7 401.5 414.2 150.5 132.8 - -------------------------------------------------------------------------------------------------------------------------- CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year 992.3 902.7 426.4 383.3 -- -- Actual return on plan assets 113.2 160.3 61.2 71.8 -- -- Expenses (7.9) (6.7) (.7) (1.1) -- -- Benefits paid (61.9) (67.0) (22.6) (20.9) (22.7) (22.6) Employer contributions 3.1 3.0 2.5 2.7 17.2 18.4 Contributions by plan participants -- -- 2.1 2.3 5.5 4.2 Divestitures (11.5) -- -- -- -- -- Settlements -- -- (6.1) (.5) -- -- Effects of currency exchange rates -- -- (42.1) (11.2) -- -- - -------------------------------------------------------------------------------------------------------------------------- Fair value of plan assets at end of year 1,027.3 992.3 420.7 426.4 -- -- - -------------------------------------------------------------------------------------------------------------------------- Funded status 264.5 232.6 19.2 12.2 (150.5) (132.8) Unrecognized net actuarial (gain) loss (31.5) (19.1) 7.2 28.1 13.9 (11.4) Unrecognized prior service cost 7.3 7.5 18.1 20.8 (26.0) (34.3) Unrecognized net obligation (asset) at date of adoption, net of amortization .3 .3 (2.4) (4.4) -- -- - -------------------------------------------------------------------------------------------------------------------------- Prepaid (accrued) benefit cost $ 240.6 $221.3 $ 42.1 $ 56.7 $(162.6) $(178.5) ========================================================================================================================== AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEET Prepaid benefit cost $ 274.5 $251.9 $105.4 $123.8 $ -- $ -- Accrued benefit cost (46.7) (42.5) (63.7) (67.4) (162.6) (178.5) Intangible asset 4.4 5.3 -- -- -- -- Accumulated other comprehensive income 8.4 6.6 .4 .3 -- -- - -------------------------------------------------------------------------------------------------------------------------- Net amount recognized $ 240.6 $221.3 $ 42.1 $ 56.7 $(162.6) $(178.5) ==========================================================================================================================
The total accumulated benefit obligation for unfunded defined benefit pension plans as of December 31, 2000 and 1999, was $46.1 million and $42.1 million, respectively, for plans in the United States and $57.7 million and $61.6 million, respectively, for plans outside of the United States. The total projected benefit obligation for unfunded defined benefit 30 pension plans as of December 31, 2000 and 1999, was $54.3 million and $50.7 million, respectively, for plans in the United States and $63.9 million and $69.0 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:
- -------------------------------------------------------------------------------------------------------------------------- Pension Benefits Pension Benefits Plans in the United States Plans outside of the United States - -------------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 2000 1999 1998 - -------------------------------------------------------------------------------------------------------------------------- Service cost $ 14.2 $ 15.6 $ 16.7 $ 10.9 $ 11.7 $ 8.4 Interest cost 53.4 53.4 51.5 23.0 23.3 22.5 Expected return on plan assets (85.9) (83.5) (79.0) (28.5) (28.5) (33.2) Amortization of the unrecognized transition obligation or asset (.1) (1.1) (1.1) (1.7) (1.9) 2.7 Amortization of prior service cost 1.1 1.0 .8 2.2 2.2 (2.4) Curtailment (gain) loss -- .6 .9 .2 .3 (.3) Amortization of net actuarial loss 1.1 9.1 3.8 1.9 3.3 (.3) Settlement loss -- -- 11.4 -- -- 1.4 - -------------------------------------------------------------------------------------------------------------------------- Net periodic benefit cost $(16.2) $ (4.9) $ 5.0 $ 8.0 $ 10.4 $ (1.2) ========================================================================================================================== WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31: Discount rate 7.50% 7.50% 6.50% 6.00% 6.00% 6.00% Expected return on plan assets 9.50% 9.75% 9.75% 8.00% 8.00% 9.50% Rate of compensation increase 5.00% 5.00% 5.00% 3.90% 3.90% 3.90% - --------------------------------------------------------------------------------------------------------------------------
The net periodic benefit cost related to the defined benefit postretirement plans included the following components, in millions of dollars:
- -------------------------------------------------------------------------------- 2000 1999 1998 - -------------------------------------------------------------------------------- Service cost $ .8 $ .7 $ 1.5 Interest cost 9.1 8.0 10.4 Amortization of prior service cost (8.3) (8.3) (7.9) Amortization of net actuarial gain -- (.9) (.7) - -------------------------------------------------------------------------------- Net periodic benefit cost $ 1.6 $ (.5) $ 3.3 - -------------------------------------------------------------------------------- Weighted-average discount rate as of December 31 7.25% 7.25% 6.50% ================================================================================
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 $ (.6) Effect on postretirement benefit obligation 7.5 (8.9) - --------------------------------------------------------------------------------
Expense for defined contribution plans amounted to $10.1 million, $8.6 million, and $10.7 million in 2000, 1999, and 1998, respectively. NOTE 12: OTHER LONG-TERM LIABILITIES In December 2000, a newly created subsidiary of the Corporation issued preferred shares to private investors. The preferred shares are redeemable in five years, although redemption may be accelerated under certain conditions, principally related to changes in tax laws. Holders of the subsidiary's preferred shares are entitled to annual cash dividends of $10.7 million. Included in other long-term liabilities in the Consolidated Balance Sheet at December 31, 2000, is $188.0 million related to those preferred shares. NOTE 13: STOCKHOLDERS' EQUITY AND COMMON STOCK UNDER EQUITY FORWARDS 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. 31 At each settlement date under the Agreements, the Corporation elected net share settlement, resulting in a net issuance of 350,928 and 57,682 shares of its common stock during 2000 and 1999, respectively. At December 31, 2000, capped forward contracts under the Agreements were outstanding with respect to 750,000 shares of the Corporation's common stock with a weighted-average strike price of $34.08 per share and a weighted-average cap price of $39.20 per share; these contracts settle in the first quarter of 2001. At December 31, 2000, standard forward purchase contracts with respect to 691,186 shares of the Corporation's common stock with a weighted-average forward purchase price of $36.30 per share were outstanding under the Agreements; these contracts mature in November 2001. At December 31, 2000, $25.1 million, representing the amount which would have been payable by the Corporation upon full physical settlement of those 691,186 shares as of that date, has been classified as common stock under equity forwards in the Consolidated Balance Sheet. As more fully described in Note 19, 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, 2000 or 1999. The Corporation repurchased an additional 7,103,072 and 347,318 shares of its common stock (net of 350,928 and 57,682 shares issued under forward purchase contracts) during 2000 and 1999 at an aggregate cost of $269.8 million and $21.2 million, respectively. NOTE 14: 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) 2000 1999 1998 - -------------------------------------------------------------------------------- Numerator: Earnings (loss) $282.0 $300.3 $(754.8) ================================================================================ Denominator: Denominator for basic earnings per share-- weighted-average shares 83.7 87.0 91.8 Employee stock options and stock issuable under employee benefit plans .7 1.4 -- - -------------------------------------------------------------------------------- Denominator for diluted earnings per share-- adjusted weighted- average shares and assumed conversions 84.4 88.4 91.8 ================================================================================ Basic earnings (loss) per share $ 3.37 $ 3.45 $ (8.22) ================================================================================ Diluted earnings (loss) per share $ 3.34 $ 3.40 $ (8.22) ================================================================================ 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 2000 and 1999, 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. - -------------------------------------------------------------------------------- 2000 1999 1998 - -------------------------------------------------------------------------------- Number of options (in millions) 6.4 1.0 5.3 Weighted-average exercise price $46.73 $52.54 $33.47 - -------------------------------------------------------------------------------- NOTE 15: 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, 2000, 9,540,825 non-qualified stock options were outstanding under domestic plans. There were 16,300 stock options outstanding under the United Kingdom plan. 32 Under all plans, there were 2,846,356 shares of common stock reserved for future grants as of December 31, 2000. Transactions are summarized as follows: - -------------------------------------------------------------------------------- Weighted- Average Stock Options Exercise Price - -------------------------------------------------------------------------------- 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 Granted 3,892,450 42.77 Exercised 155,278 23.59 Forfeited 784,837 46.69 - -------------------------------------------------------------------------------- Outstanding at December 31, 2000 9,557,125 $40.42 ================================================================================ Shares exercisable at December 31, 1998 2,663,535 $23.64 ================================================================================ Shares exercisable at December 31, 1999 2,876,120 $27.55 ================================================================================ Shares exercisable at December 31, 2000 3,637,612 $32.07 ================================================================================ Exercise prices for options outstanding as of December 31, 2000, ranged from $12.63 to $61.00. The following table provides certain information with respect to stock options outstanding at December 31, 2000: - -------------------------------------------------------------------------------- Weighted- Weighted- Average Range of Stock Options Average Remaining Exercise Prices Outstanding Exercise Price Contractual Life - -------------------------------------------------------------------------------- Under $18.95 772,750 $12.73 .2 $18.95-$28.41 566,999 21.34 2.1 $28.42-$42.63 1,993,776 36.04 6.5 Over $42.63 6,223,600 46.99 9.0 - -------------------------------------------------------------------------------- 9,557,125 $40.42 7.3 ================================================================================ The following table provides certain information with respect to stock options exercisable at December 31, 2000: - -------------------------------------------------------------------------------- Weighted- Range of Stock Options Average Exercise Prices Exercisable Exercise Price - -------------------------------------------------------------------------------- Under $18.95 772,750 $12.73 $18.95-$28.41 566,999 21.34 $28.42-$42.63 1,518,775 35.71 Over $42.63 779,088 51.95 - -------------------------------------------------------------------------------- 3,637,612 $32.07 ================================================================================ 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 2000, 1999, and 1998 were $16.50, $18.13, and $17.67, respectively, and were estimated using the Black-Scholes option valuation model with the following weighted-average assumptions: - -------------------------------------------------------------------------------- 2000 1999 1998 - -------------------------------------------------------------------------------- Expected life in years 5.9 5.8 5.7 Interest rate 6.50% 5.75% 4.54% Volatility 32.2% 29.4% 29.0% Dividend yield 1.12% .95% .90% - -------------------------------------------------------------------------------- The Corporation's pro forma information for the years ended December 31, 2000, 1999, and 1998, 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) 2000 1999 1998 - -------------------------------------------------------------------------------- Pro forma net earnings (loss) $263.3 $293.9 $(755.8) Pro forma net earnings (loss) per common share -- basic $ 3.15 $ 3.38 $ (8.23) Pro forma net earnings (loss) per common share -- assuming dilution $ 3.12 $ 3.33 $ (8.23) - -------------------------------------------------------------------------------- Note 16: 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 security hardware to customers in Mexico, Central America, the Caribbean, and South America; for the sale of plumbing products to customers outside the United States and Canada; and for sales of the retained portion of the household products business. The Hardware and Home Improvement segment has worldwide responsibility for the manufacture and sale of security hardware (except for the sale of security hardware in Mexico, Central America, the Caribbean, and South America). It also has responsibility for the manufacture of plumbing products and for the sale of plumbing products to customers in the United States and Canada. The Fastening and Assembly Systems segment has worldwide responsibility for the manufacture and sale of fastening and assembly systems. The Corporation also operated several businesses that do not constitute reportable business segments. These businesses included the manufacture and sale of glass container- 33 forming and inspection equipment, as well as recreational and household products. As more fully described in Note 19, 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 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.
Business Segments (Millions of Dollars) - ------------------------------------------------------------------------------------------------------------------------------------ Reportable Business Segments --------------------------------------------- Power Hardware Fastening Currency Corporate, Tools & & Home & Assembly All Translation Adjustments, Consoli- Year Ended December 31, 2000 Accessories Improvement Systems Total Others Adjustments & Eliminations dated - ------------------------------------------------------------------------------------------------------------------------------------ Sales to unaffiliated customers $3,292.9 $863.2 $518.0 $4,674.1 $ -- $ (113.3) $ -- $4,560.8 Segment profit (loss) (for Consolidated, operating income before restructuring and exit costs and gain on sale of business) 361.7 115.5 86.0 563.2 -- (6.8) (34.1) 522.3 Depreciation and amortization 87.8 35.0 16.6 139.4 -- (2.5) 26.5 163.4 Income from equity method investees 15.6 -- -- 15.6 -- -- (.1) 15.5 Capital expenditures 143.7 31.6 27.4 202.7 -- (3.3) .8 200.2 Segment assets (for Consolidated, total assets) 1,863.7 547.0 284.9 2,695.6 -- (125.0) 1,519.1 4,089.7 Investment in equity method investees 26.0 -- .1 26.1 -- (.2) (1.8) 24.1 Year Ended December 31, 1999 - ------------------------------------------------------------------------------------------------------------------------------------ Sales to unaffiliated customers $3,135.4 $857.7 $496.2 $4,489.3 $ -- $ 31.2 $ -- $4,520.5 Segment profit (loss) (for Consolidated, operating income) 369.8 120.7 82.7 573.2 -- 2.9 (39.8) 536.3 Depreciation and amortization 85.4 30.6 15.3 131.3 -- 1.0 27.7 160.0 Income from equity method investees 16.8 -- -- 16.8 -- -- (2.1) 14.7 Capital expenditures 106.0 37.3 26.6 169.9 -- .9 .3 171.1 Segment assets (for Consolidated, total assets) 1,717.1 489.8 260.3 2,467.2 -- (3.6) 1,549.1 4,012.7 Investment in equity method investees 26.3 -- .8 27.1 -- .4 2.3 29.8 Year Ended December 31, 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Sales to unaffiliated customers $2,840.1 $829.8 $461.7 $4,131.6 $327.6 $ 100.7 $ -- $4,559.9 Segment profit (loss) (for Consolidated, operating income before restructuring and exit costs, gain on sale of businesses, and write-off of goodwill) 283.7 122.1 75.3 481.1 16.2 7.4 (20.7) 484.0 Depreciation and amortization 84.3 26.7 13.3 124.3 -- 3.3 27.6 155.2 Income from equity method investees 8.8 -- -- 8.8 -- -- (2.9) 5.9 Capital expenditures 76.6 35.9 16.3 128.8 13.2 2.0 2.0 146.0 Segment assets (for Consolidated, total assets) 1,504.0 486.1 239.4 2,229.5 -- 61.2 1,561.8 3,852.5 Investment in equity method investees 22.5 -- .7 23.2 -- (.1) 2.4 25.5 - ------------------------------------------------------------------------------------------------------------------------------------
34 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 2000. 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, gain on sale of businesses and, for 1998, write-off of goodwill. 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: - -------------------------------------------------------------------------------- 2000 1999 1998 - -------------------------------------------------------------------------------- Segment profit for total reportable business segments $563.2 $573.2 $ 481.1 Segment profit for all other businesses -- -- 16.2 Items excluded from segment profit: Adjustment of budgeted foreign exchange rates to actual rates (6.8) 2.9 7.4 Depreciation of Corporate property and amortization of goodwill (26.5) (27.7) (27.6) Adjustment to businesses' postretirement benefit expenses booked in consolidation 36.4 24.8 24.4 Adjustment to eliminate net interest and non-operating expenses from results of certain operations in Brazil, Mexico, Venezuela, and Turkey .4 1.2 4.9 Other adjustments booked in consolidation directly related to reportable business segments (14.4) (12.4) (20.4) Amounts allocated to businesses in arriving at segment profit in excess of (less than) Corporate center operating expenses, eliminations, and other amounts identified above (30.0) (25.7) (2.0) - -------------------------------------------------------------------------------- Operating income before restructuring and exit costs, gain on sale of businesses, and write-off of goodwill 522.3 536.3 484.0 Restructuring and exit costs 39.1 -- 164.7 Gain on sale of businesses 20.1 -- 114.5 Write-off of goodwill -- -- 900.0 - -------------------------------------------------------------------------------- Operating income (loss) 503.3 536.3 (466.2) Interest expense, net of interest income 104.2 95.8 114.4 Other income (expense) 5.5 .8 (7.7) - -------------------------------------------------------------------------------- Earnings (loss) before income taxes $404.6 $441.3 $(588.3) ================================================================================ 35 The reconciliation of segment assets to the consolidated total assets at the end of each year, in millions of dollars, is as follows: - -------------------------------------------------------------------------------- 2000 1999 1998 - -------------------------------------------------------------------------------- Segment assets for total reportable business segments $2,695.6 $2,467.2 $2,229.5 Items excluded from segment assets: Adjustment of budgeted foreign exchange rates to actual rates (125.0) (3.6) 61.2 Goodwill 717.2 743.4 768.7 Pension assets 380.0 377.0 348.8 Other Corporate assets 421.9 428.7 444.3 - -------------------------------------------------------------------------------- $4,089.7 $4,012.7 $3,852.5 ================================================================================ 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 $872.2 million, $755.9 million, and $622.3 million of the Corporation's consolidated sales for the years ended December 31, 2000, 1999, and 1998, respectively. The composition of the Corporation's sales by product group for each year, in millions of dollars, is set forth below: - -------------------------------------------------------------------------------- 2000 1999 1998 - -------------------------------------------------------------------------------- Consumer and professional power tools and product service $2,363.1 $2,318.6 $2,123.9 Consumer and professional accessories 342.9 357.3 339.8 Electric lawn and garden products 305.6 287.7 283.6 Electric cleaning and lighting products 122.4 134.3 99.0 Security hardware 585.8 619.2 596.3 Plumbing products 284.3 260.6 257.0 Fastening and assembly systems 506.0 498.4 461.0 Household products 50.7 44.4 197.1 Glass container-forming and inspection equipment -- -- 130.3 Recreational products -- -- 71.9 - -------------------------------------------------------------------------------- $4,560.8 $4,520.5 $4,559.9 ================================================================================ 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: - -------------------------------------------------------------------------------- 2000 1999 1998 - -------------------------------------------------------------------------------- United States $2,922.5 $2,825.2 $2,703.7 Canada 149.8 137.0 137.4 - -------------------------------------------------------------------------------- North America 3,072.3 2,962.2 2,841.1 Europe 1,138.5 1,255.5 1,364.5 Other 350.0 302.8 354.3 - -------------------------------------------------------------------------------- $4,560.8 $4,520.5 $4,559.9 ================================================================================ 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: - -------------------------------------------------------------------------------- 2000 1999 1998 - -------------------------------------------------------------------------------- United States $466.4 $471.0 $469.0 United Kingdom 100.5 121.2 118.3 Other countries 181.2 147.4 140.3 - -------------------------------------------------------------------------------- $748.1 $739.6 $727.6 ================================================================================ NOTE 17: OTHER INCOME (EXPENSE) Other income for 2000 and 1999 was not significant. Other expense for 1998 primarily included currency losses. NOTE 18: 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 2000, 1999, and 1998 amounted to $83.6 million, $84.0 million, and $81.4 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, 2000, in millions of dollars, were as follows: - -------------------------------------------------------------------------------- 2001 $ 56.2 2002 47.6 2003 37.8 2004 30.3 2005 21.7 Thereafter 21.0 - -------------------------------------------------------------------------------- $214.6 ================================================================================ 36 NOTE 19: STRATEGIC REPOSITIONING AND 2000 RESTRUCTURING ACTIONS Overview: During 2000, the Corporation completed the final elements of its comprehensive strategic repositioning plan, recognizing a $20.1 million gain related to the 1998 recapitalization of the True Temper Sports business and recording an additional restructuring charge of $9.5 million to rationalize manufacturing in its Hardware and Home Improvement segment. Also during 2000, the Corporation took further actions to reduce costs in its Power Tools and Accessories segment and recorded an additional restructuring charge of $29.6 million, bringing the total restructuring charge recorded by the Corporation during 2000 to $39.1 million. The strategic repositioning plan, approved by the Corporation's Board of Directors on January 26, 1998, was designed to intensify focus on core operations and improve operating performance. The strategic repositioning 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 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 Applica Incorporated (formerly known as 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 Applica 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 Applica and at the discretion of the Corporation on a royalty-bearing basis. At the request of Applica, additional product categories may be licensed at the Corporation's option on a royalty-bearing basis. 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 was a highly leveraged entity and there was no active market for the note, the Corporation fully reserved the $25.0 million note at the time of the divestiture and continued to reserve the note through December 31, 1999. During 2000, the Corporation sold the note, together with its remaining interest in True Temper Corporation, for $25.0 million and recognized a gain of $20.1 million. Net proceeds of $653.6 million received in 1998 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: During 2000, the Corporation recorded a restructuring charge of $9.5 million to rationalize manufacturing in its Hardware and Home Improvement segment, completing the third element of the strategic repositioning plan -- a restructuring program undertaken to reduce fixed costs. Also during 2000, the Corporation took further actions to reduce costs in its Power Tools and Accessories segment and recorded an additional restructuring charge of $29.6 million, bringing the total restructuring charge recorded by the Corporation during 2000 to $39.1 million. Included in those additional cost reduction initiatives are the transfer of certain production from manufacturing facilities in the United Kingdom to lower-cost facilities in China, reductions in administrative functions, principally in Europe, and the integration of the accessories business in North America into the professional and consumer power tools businesses. The major component of the 2000 restructuring charge related to the net elimination of approximately 400 positions. As a result, an accrual of $21.4 million, principally related to the Power Tools and Accessories segment in Europe, was included in the restructuring charge. The Corporation also took action to rationalize manufacturing and reduce administrative costs. As a result, the restructuring charge recognized in 2000 also includes a $13.9 million write-down of machinery and equipment to fair value. Such write-down primarily related to the Hardware and Home Improvement segment's operations in the United States and to the European and United States businesses of the Power Tools and Accessories segment. The balance of the 2000 restructuring charge, or $3.8 million, primarily related to the accrual of future expenditures, principally consisting of lease and other contractual obligations, for which no future benefit will be realized. 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. 37 The principal component of the 1998 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 1998 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, 2000, all facilities exited as part of the strategic repositioning plan had been sold with the exception of two facilities. The carrying value of those facilities at December 31, 2000, was not significant. The remaining 1998 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. 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 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 38 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, 2000, the Corporation had no known probable but inestimable exposures that could have a material effect on the Corporation. NOTE 21: QUARTERLY RESULTS (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------ (Millions of Dollars Except Per Share Data) First Second Third Fourth Year Ended December 31, 2000 Quarter Quarter Quarter Quarter - ------------------------------------------------------------------------------------------------------------ Sales $1,037.6 $1,126.4 $1,133.2 $1,263.6 Gross margin 363.0 426.7 425.9 456.2 Net earnings 60.2 83.0 86.3 52.5 ============================================================================================================ Net earnings per common share -- basic $ .70 $ .98 $ 1.04 $ .65 ============================================================================================================ Net earnings per common share -- assuming dilution $ .69 $ .97 $ 1.03 $ .64 ============================================================================================================ Year Ended December 31, 1999 - ------------------------------------------------------------------------------------------------------------ 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 ============================================================================================================ Results for the first quarter of 2000 included a gain on sale of business of $20.1 million ($13.1 million net of tax). Results for the fourth quarter of 2000 included a restructuring charge of $39.1 million ($27.6 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 be equal to the full year earnings per share amounts.
39 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, 2000 and 1999, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2000. 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, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, 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. /s/ Ernst & Young LLP Baltimore, Maryland January 25, 2001 40 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, 2001, 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, 2001, 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, 2001, 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, 2001, 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, 2000, 1999, and 1998. Consolidated Balance Sheet - December 31, 2000 and 1999. Consolidated Statement of Stockholders' Equity - years ended December 31, 2000, 1999, and 1998. Consolidated Statement of Cash Flows - years ended December 31, 2000, 1999, and 1998. 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 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, included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1999, is incorporated herein by reference. 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. 41 Exhibit 3(b) Bylaws of the Corporation, as amended, included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended July 2, 2000, is incorporated herein by reference. 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. 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. 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. 42 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(p)(4) Amendment No. 3 to The Black & Decker Supplement Retirement Savings Plan dated as of July 20, 2000, included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended October 1, 2000, 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. 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)(1) Form of Amendment and Restatement of Severance Benefits Agreement by and between the Corporation and approximately 16 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(w)(2) Form of Severance Benefits Agreement by and between the Corporation and approximately 16 of its key employees, included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended October 1, 2000, is incorporated herein by reference. 43 Exhibit 10(x)(1) 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(x)(2) Severance Benefits Agreement, dated August 2, 2000, by and between the Corporation and Nolan D. Archibald, included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended October 1, 2000, is incorporated herein by reference. Exhibit 10(y)(1) 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(y)(2) Severance Benefits Agreement, dated August 2, 2000, by and between the Corporation and Paul F. McBride, included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended October 1, 2000, is incorporated herein by reference. Exhibit 10(z)(1) 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(z)(2) Severance Benefits Agreement, dated August 2, 2000, by and between the Corporation and Charles E. Fenton, included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended October 1, 2000, 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)(1) Severance Benefits Agreement, dated November 1, 1999, by and between the Corporation and Michael D. Mangan. Exhibit 10(bb)(2) Severance Benefits Agreement, dated August 2, 2000, by and between the Corporation and Michael D. Mangan. Exhibit 10(cc)(1) Amendment and Restatement of Severance Benefits Agreement, dated January 1, 1997, by and between the Corporation and Paul A. Gustafson, included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1999, is incorporated herein by reference. Exhibit 10(cc)(2) Special Deferral Agreement, dated February 7, 2000, by and between the Corporation and Paul A. Gustafson, included in the Corporation's Annual Report for the year ended December 31, 1999, is incorporated herein by reference. Exhibit 10(cc)(3) Severance Benefits Agreement, dated August 2, 2000, by and between the Corporation and Paul A. Gustafson, included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended October 1, 2000, is incorporated herein by reference. Exhibit 10(dd)(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(dd)(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. Items 10(a) through 10(dd)(2) constitute management contracts and compensatory plans and arrangements required to be filed as exhibits under Item 14(c) of this report. Exhibit 10(ee) 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 12 Computation of Ratios. Exhibit 21 List of Subsidiaries. Exhibit 23 Consent of Independent Auditors. Exhibit 24 Powers of Attorney. All other items are "not applicable" or "none". 44 (b) Reports on Form 8-K The Corporation filed the following reports on Form 8-K during the three months ended December 31, 2000: On October 18, 2000, 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 1, 2000. On December 15, 2000, 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 announced lower earnings expectations for the fourth quarter of 2000 and for 2001. 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 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 - -------------------------------------------------------------------------------------------------------------------------- Year Ended December 31, 2000 Reserve for doubtful accounts and cash discounts $53.3 $64.8 $65.4(a) $ (.9)(b) $51.8 - -------------------------------------------------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------------------------------------------------- (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.
45 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 21, 2001 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 21, 2001, 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 21, 2001 - ---------------------- ----------------- Nolan D. Archibald Chairman, President, and Chief Executive Officer Principal Financial Officer /s/MICHAEL D. MANGAN February 21, 2001 - -------------------- ----------------- Michael D. Mangan Senior Vice President and Chief Financial Officer Principal Accounting Officer /s/CHRISTINA M. McMULLEN February 21, 2001 - ------------------------ ----------------- Christina M. McMullen Vice President and Controller - -------------------------------------------------------------------------------- This report has been signed by the following directors, constituting a majority of the Board of Directors, by Nolan D. Archibald, Attorney-in-Fact. Nolan D. Archibald Manual A. Fernandez Barbara L. Bowles Anthony Luiso M. Anthony Burns Mark H. Willes Malcolm Candlish By /s/ NOLAN D. ARCHIBALD Date: February 21, 2001 ---------------------- ----------------- Nolan D. Archibald Attorney-in-Fact 46 EX-10 2 0002.txt EXHIBIT 10(A) Exhibit 10(a) As Amended 10/20/94 and 10/19/00 THE BLACK & DECKER CORPORATION DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS 1. Eligibility. ----------- Each member of the Board of Directors of The Black & Decker Corporation (the "Corporation") who is not an employee of the Corporation or any of the Corporation's subsidiaries, is eligible to participate in this Deferred Compensation Plan for Non-Employee Directors (the "Plan"). 2. Administration of Plan. ---------------------- The Plan will be administered by a committee of three persons (the "Committee") consisting of the persons who from time to time shall be: (a) the Chief Executive Officer of the Corporation, (b) the Chief Financial Officer of the Corporation, and (c) the Secretary of the Corporation. The Committee shall have full power to interpret and administer the Plan, and the Committee's interpretations and actions shall be binding and conclusive on all persons for all purposes. The Committee shall act by vote or written consent of a majority of its members. Neither the Committee nor any person acting on its behalf shall be liable to any person for any action taken or omitted in connection with the interpretation and administration of the Plan unless attributable to willful misconduct or lack of good faith. 3. Participation. ------------- a. An eligible director may elect to defer all or any part of the compensation which would otherwise have been payable currently for services as a member of the Board of Directors (including fees payable for services as a member of a committee of the Board). An election must be executed and filed with the Committee prior to the date on which the compensation will be earned. A new director may elect to participate in the Plan by executing and filing an election with the Committee prior to the commencement of the director's term of office. b. An election shall be in writing substantially in the form attached as Exhibit A. c. An election to participate in the Plan shall be effective from the date of the election and for all subsequent years until the calendar year following the year in which the participant files a revised election or a notice of termination. d. A participant may terminate participation in the Plan by executing and filing with the Committee a notice of termination. Any such termination shall be effective at the end of the calendar year in which the notice is given. In the event of termination, the amount already deferred under the Plan and interest thereon shall be paid to the participant only as indicated in Section 5, Distribution from Plan. A director who has filed a termination of election may thereafter file an election to participate in the Plan for any calendar year commencing after filing the election. 4. Deferred Compensation Account. ----------------------------- A general ledger account, hereinafter referred to as the Deferred Compensation Account (the "Account") shall be established for the purpose of reflecting deferred compensation. All deferred compensation otherwise payable to the participant for the calendar year to which the election applies shall be credited to the Account, together with interest compounded semi-annually on January 1 and July 1 at a rate equal to the higher of the yield on the Income Fund of The Black & Decker Corporation Retirement Savings Plan or the T. Rowe Price Equity Index Fund during the period then ended. Title to and beneficial ownership of the Account shall remain in the Corporation. The obligation to pay shall be a general unsecured obligation of the Corporation, and the participating director and his designated beneficiaries shall not have any property interest whatsoever in any specific assets of the Corporation. The Corporation may, however, establish a "Rabbi Trust" for individual participants or all participants as a group. With the consent of a participant, the Trustee of a "Rabbi Trust" established for that participant may be directed to invest the participant's deferred compensation in common stock of the Corporation, and if that is done, (1) neither the Corporation nor the trustee shall have any liability for any decrease in the value of the stock held in the trust and (2) the timing of any distribution from the trust shall be in accordance with the election made under section 5 of the Plan. 5. Distribution from Plan. ---------------------- a. All compensation deferred under the Plan, plus accumulated interest, shall be distributed in a lump sum or in approximately equal annual installments not exceeding ten, as specified by the participant at the time of making the election. The first installment, or the lump sum distribution, shall be paid on the first day of the calendar year immediately following the year in which the participant ceases to be a director of the Corporation. Subsequent installments shall be paid on the first day of each succeeding calendar year until all amounts in the participant's Deferred Compensation Account have been paid. b Notwithstanding the above, if a participant incurs a severe financial hardship, the Committee administering the Plan may, in its sole discretion, revise the payment schedule to the extent reasonably necessary to eliminate the severe financial hardship. The severe financial hardship must have been caused by an accident, illness or other event beyond the control of the participant. In the event a participant ceases to be a director of the Corporation and becomes a proprietor, officer, partner, employee or otherwise becomes affiliated with any business that is in competition with the Corporation or any of its subsidiaries, or becomes employed by any governmental agency having jurisdiction over the activities of the Corporation or any of its subsidiaries, the Committee, at its sole discretion, may pay to the participant the entire balance of the participant's Deferred Compensation Account. In the event a participant dies before all deferred amounts are distributed, the remaining balance of the participant's Deferred Compensation Account shall be paid on the first day of the calendar year following the year of death, to the beneficiaries most recently designated by the director in writing. If no beneficiaries are designated or being designated, fail to survive the participant, payment shall be made to the estate of the participant. 6. Rights. ------ The right of a participant in the Plan to any deferred compensation or interest thereon shall not be subject to assignment, anticipation, alienation, transfer, pledge, or encumbrance except by laws of descent and distribution. 7. No Trusts. --------- Nothing contained in the Plan and no action taken pursuant to the provisions of the Plan shall be construed to create a trust of any kind or an escrow arrangement of any form. 8. Copies of Plan. -------------- Copies of the Plan and any and all amendments thereto shall be made available to all members of the Board of Directors during normal business hours at the office of the Secretary of the Corporation. Exhibit A THE BLACK & DECKER CORPORATION Election to Defer Compensation Deferred Compensation Plan for Non-Employee Directors I acknowledge receiving a copy of the Deferred Compensation Plan for Non-Employee Directors. Pursuant to the terms of the Plan, I elect to defer receiving the following: --- Board retainers --- Board attendance fees --- Committee attendance fees My election will continue in effect until the first day of the calendar year following the year in which I file written notice of termination or of amendment of this election with the Secretary of the Corporation. I also elect that all amounts deferred under the Plan, together with accumulated interest earned thereon, shall be distributed to me in (specify number, not exceeding ten) annual installment(s) commencing on the first day of the calendar year immediately following the year in which I cease to be a director of the Corporation, and subsequent installments shall be paid on the first day of each succeeding calendar year until the entire amount credited to my account shall have been paid. If I die prior to distribution of the entire amount, I direct that the remaining amount be paid to: (name) (relationship) (street address) (city, state, zip code) (dated) (signature) (printed name) ================================================================================ FOR CORPORATION'S USE Date Received Corporate Secretary EX-10 3 0003.txt EXHIBIT 10(BB)(1) Exhibit 10(bb)(1) November 1, 1999 Mr. Michael D. Mangan The Black & Decker Corporation 701 East Joppa Road Towson, Maryland 21286 Dear Mr. Mangan: The Black & Decker Corporation (the "Corporation") considers it essential to the best interests of its stockholders to foster the continuous employment of key management personnel. In this connection, the Board of Directors of the Corporation (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a change in control of the Corporation may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Corporation and its stockholders. The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Corporation's management, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control of the Corporation, although no such change is now contemplated. In order to induce you to remain in the employ of the Corporation, the Corporation agrees that you shall receive the severance benefits set forth in this letter agreement (the "Agreement") in the event your employment with the Corporation is terminated subsequent to a "change in control of the Corporation" (as defined in Section 2 hereof) under the circumstances described below. 1. Term of Agreement. This Agreement shall commence on the date hereof and shall continue in effect through December 31, 2000; provided, however, that if a change in control of the Corporation shall have occurred prior to December 31, 2000, this Agreement shall continue in effect for a period of 36 months beyond the month in which such change in control occurred, at which time this Agreement shall terminate. Notwithstanding the foregoing, and provided no change in control of the Corporation shall have occurred, this Agreement shall automatically terminate upon the earlier to occur of (i) your termination of employment with the Corporation, or (ii) the Corporation's furnishing you with notice of termination, irrespective of the effective date of such termination. 2. Change in Control. No benefits shall be payable hereunder unless there shall have been a change in control of the Corporation, as set forth below. For purposes of this Agreement, a "change in control of the Corporation" shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Corporation is in fact required to comply therewith, provided that, without limitation, such a change in control shall be deemed to have occurred if (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or any of its subsidiaries or a corporation owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities; (B) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with the Corporation to effect a transaction described in clauses (A) or (D) of this Section) whose election by the Board or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; (C) the Corporation enters into an agreement, the consummation of which would result in the occurrence of a change in control of the Corporation; or (D) the stockholders of the Corporation approve a merger, share exchange or consolidation of the Corporation with any other corporation, other than a merger, share exchange or consolidation which would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 60% of the combined voting power of the voting securities of the Corporation or such surviving entity outstanding immediately after such merger, share exchange or consolidation, or the stockholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of all or substantially all the Corporation's assets. 3. Termination Following Change in Control of the Corporation. If any of the events described in Section 2 hereof constituting a change in control of the Corporation shall have occurred, you shall be entitled to the benefits provided in Subsection 4(iii) hereof upon the subsequent termination of your employment during the term of this Agreement unless such termination is (A) because of your death or Disability, (B) by the Corporation for Cause, or (C) by you other than for Good Reason. (i) Disability. If, as a result of your incapacity due to physical or mental illness, you shall have been absent from the full-time performance of your duties with the Corporation for six consecutive months, and within 30 days after written notice of termination is given you shall not have returned to the full-time performance of your duties, your employment may be terminated for "Disability." (ii) Cause. Termination by the Corporation of your employment for "Cause" shall mean termination upon (A) the willful and continued failure by you to substantially perform your duties with the Corporation, other than any such failure resulting from your incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance by you of a Notice of Termination (as defined in Subsection 3(iv) hereof) for Good Reason (as defined in Subsection 3(iii) hereof), after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties, or (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the Corporation, monetarily or otherwise. For purposes of this Subsection, no act or failure to act on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Corporation. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of conduct set forth above in clauses (A) or (B) of the first sentence of this Subsection and specifying the particulars thereof in detail. (iii) Good Reason. You shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, the occurrence after a change in control of the Corporation of any of the following circumstances unless, in the case of paragraphs (A), (E), (F), (G) or (H), such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination, as such terms are defined in Subsections 3(v) and 3(iv) hereof, respectively, given in respect thereof: (A) the assignment to you of any duties inconsistent with your current status as an executive of the Corporation or a substantial adverse alteration in the nature or status of your responsibilities from those in effect immediately prior to the change in control of the Corporation; (B) a reduction by the Corporation in your annual base salary as in effect on the date hereof or as the same may be increased from time to time, except for across-the-board salary reductions similarly affecting all senior executives of the Corporation and all senior executives of any person in control of the Corporation; (C) your relocation to a location not within 25 miles of your present office or job location, except for required travel on the Corporation's business to an extent substantially consistent with your present business travel obligations; (D) the failure by the Corporation, without your consent, to pay to you any portion of your current compensation, or to pay to you any portion of an installment of deferred compensation under any deferred compensation program of the Corporation, within seven days of the date such compensation is due; (E) the failure by the Corporation to continue in effect any bonus to which you were entitled, or any compensation plan in which you participated immediately prior to the change in control of the Corporation which is material to your total compensation, including but not limited to the Corporation's (i) Executive Annual Incentive Plan or other annual incentive compensation plan ("AIP"); (ii) Performance Equity Plan or other long-term incentive compensation plan ("PEP"); (iii) stock option plans; (iv) retirement and savings plans; and (v) Supplemental Executive Retirement Plan ("SERP"); or any substitute plan or plans adopted prior to the change in control of the Corporation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan and such equitable arrangement provides substantially equivalent benefits not materially less favorable to you (both in terms of the amount of benefits provided and the level of your participation relative to other participants), or the failure by the Corporation to continue your participation therein (or in such substitute or alternative plan) on a basis not materially less favorable (both in terms of the amount of benefits provided and the level of your participation relative to other participants) as existed at the time of the change in control of the Corporation; (F) the failure by the Corporation to continue to provide you with benefits substantially similar to those enjoyed by you under any of the Corporation's life insurance, medical, dental, health and accident, or disability plans in which you were participating at the time of the change in control of the Corporation, the failure to continue to provide you with a Corporation automobile or allowance in lieu thereof, if you were provided with such an automobile or allowance in lieu thereof at the time of the change in control of the Corporation, the taking of any action by the Corporation which would directly or indirectly materially reduce any of such benefits or deprive you of any material fringe benefit enjoyed by you at the time of the change in control of the Corporation, or the failure by the Corporation to provide you with the number of paid vacation days to which you are entitled on the basis of years of service with the Corporation in accordance with the Corporation's normal vacation policy in effect at the time of the change in control of the Corporation; (G) the failure of the Corporation to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 5 hereof; or (H) any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Subsection 3(iv) hereof (and, if applicable, the requirements of Subsection 3(ii) hereof); for purposes of this Agreement, no such purported termination shall be effective. Your rights to terminate your employment pursuant to this Subsection shall not be affected by your incapacity due to physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. (iv) Notice of Termination. Any purported termination of your employment by the Corporation or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 6 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (v) Date of Termination, Etc. "Date of Termination" shall mean (A) if your employment is terminated for Disability, 30 days after Notice of Termination is given (provided that you shall not have returned to the full-time performance of your duties during such 30-day period), and (B) if your employment is terminated pursuant to Subsections 3(ii) or 3(iii) hereof or for any other reason (other than Disability), the date specified in the Notice of Termination (which, in the case of a termination pursuant to Subsection 3(ii) hereof shall not be less than 30 days, and in the case of a termination pursuant to Subsection 3(iii) hereof shall not be less than 15 nor more than 60 days, respectively, from the date such Notice of Termination is given); provided that if within 15 days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this proviso), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Corporation will continue to pay you your full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue you as a participant in all compensation, benefit and insurance plans in which you were participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this Subsection. Amounts paid under this Subsection are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 4. Compensation Upon Termination or During Disability. Following a change in control of the Corporation, as defined by Section 2 hereof, upon termination of your employment or during a period of Disability you shall be entitled to the following benefits: (i) During any period that you fail to perform your full-time duties with the Corporation as a result of incapacity due to physical or mental illness, you shall continue to receive your base salary at the rate in effect at the commencement of any such period, together with all amounts payable to you under any compensation plan of the Corporation during such period, until this Agreement is terminated pursuant to Subsection 3(i) hereof. Thereafter, or in the event your employment shall be terminated by you other than for Good Reason or by reason of your death, your benefits shall be determined under the Corporation's retirement, insurance and other compensation programs then in effect in accordance with the terms of such programs. (ii) If your employment shall be terminated by the Corporation for Cause, Disability or death, or by you other than for Good Reason, the Corporation shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any retirement, insurance and other compensation programs of the Corporation at the time such payments are due, and the Corporation shall have no further obligations to you under this Agreement. (iii) If your employment by the Corporation shall be terminated (a) by the Corporation other than for Cause, Disability or death or (b) by you for Good Reason, then you shall be entitled to the benefits provided below: (A) The Corporation shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation plan of the Corporation, at the time such payments are due, except as otherwise provided below. (B) In lieu of any further salary payments to you for periods subsequent to the Date of Termination, the Corporation shall pay as severance pay to you a lump sum severance payment (together with the payments provided in paragraphs (C) and (D) of this Subsection 4(iii), the "Severance Payments") equal to three times the sum of your (a) annual base salary in effect immediately prior to the occurrence of the circumstance giving rise to the Notice of Termination given in respect thereof, and (b) AIP Maximum Payment for the year in which the Date of Termination occurs. AIP Maximum Payment shall mean the higher of (1) the award you would be entitled to receive for 1999 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. (C) In lieu of shares of common stock of the Corporation (the "Shares") issuable upon exercise of outstanding options, if any, granted to you under the Corporation's stock option plans ("Options"), which Options (and any related limited stock appreciation rights) shall be cancelled upon the making of the payment referred to below, you shall receive an amount in cash equal to the product of (i) the excess of the higher of the closing price of the Shares as reported on the NYSE on or nearest to the Date of Termination (or, if not listed on the NYSE, on a nationally recognized exchange or quotation system on which trading volume in the Shares is highest), and the highest per share price for the Shares actually paid in connection with any change in control of the Corporation, over the per share exercise price of each Option held by you (whether or not then fully exercisable) plus the amount, if any, of any applicable cash appreciation rights, times (ii) the number of the Shares covered by each such Option. (D) The Corporation shall pay to you any deferred compensation allocated or credited to you or your account as of the Date of Termination. (E) The Corporation shall also pay to you all legal fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment or benefit provided hereunder). (F) If the payments provided under paragraphs (B), (C) and (D) above (the "Contract Payments") or any other portion of the Total Payments (as defined below) will be subject to the tax imposed by Section 4999 of the Code (the "Excise Tax"), the Corporation shall pay to you at the time specified in paragraph (G) below, an additional amount (the "Gross-Up Payment") such that the net amount retained by you, after deduction of any Excise Tax on the Contract Payments and such other Total Payments and any federal and state and local income tax and Excise Tax upon the payment provided for by this paragraph, shall be equal to the Contract Payments and such other Total Payments. For purposes of determining whether any of the payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) any other payments or benefits received or to be received by you in connection with a change in control of the Corporation or your termination of employment (whether payable pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Corporation, its successors, any person whose actions result in a change in control of the Corporation or any corporation affiliated (or which, as a result of the completion of a transaction causing a change in control of the Corporation, will become affiliated) with the Corporation within the meaning of Section 1504 of the Code) (together with the Contract Payments, the "Total Payments") shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Corporation's independent auditors and acceptable to you the Total Payments (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4)(B) of the Code either to the extent such reasonable compensation is in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax, (ii) the amount of the Total Payments that shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Total Payments or (B) the amount of excess parachute payments within the meaning of Section 280G(b)(1) (after applying clause (i), above), and (iii) the value of any non-cash benefits or any deferred payment or benefit shall be as determined by the Corporation's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, you shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of your residence on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of your employment, you shall repay to the Corporation at the time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by you if such repayment results in a reduction in Excise Tax and/or a federal and state and local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(d) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of your employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Corporation shall make an additional Gross-Up Payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. (G) The payments provided for in paragraphs (B), (C), (D) and (F) above, shall be made not later than the fifth day following the Date of Termination, provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Corporation shall pay to you on such day an estimate, as determined in good faith by the Corporation, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at a rate equal to 120% of the rate provided in Section 1274(d) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Corporation to you payable on the fifth day after demand by the Corporation (together with interest at a rate equal to 120% of the rate provided in Section 1274(d) of the Code). The payments provided for in paragraph (E) above shall be made from time to time, in each instance not later than the fifth day following a written request for payment by you. (iv) If your employment shall be terminated (A) by the Corporation other than for Cause, Disability or death or (B) by you for Good Reason, then for a 36-month period after such termination, the Corporation shall arrange to provide you with life, disability, accident, medical, dental and health insurance benefits substantially similar to those that you are receiving immediately prior to the Notice of Termination. Benefits otherwise receivable by you pursuant to this Subsection 4(iv) shall be reduced to the extent comparable benefits are actually received by you from another employer during the 36-month period following your termination, and any such benefits actually received by you shall be reported to the Corporation. (v) You shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 4 be reduced by any compensation earned by you as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by you to the Corporation, or otherwise except as specifically provided in this Section 4. (vi) In addition to all other amounts payable to you under this Section 4, you shall be entitled to receive all benefits payable to you under The Black & Decker Executive Salary Continuance Plan, the SERP, or any plan or agreement sponsored by the Corporation or any of its subsidiaries relating to retirement benefits. 5. Successors; Binding Agreement. (i) The Corporation will require any successor (whether direct or indirect, by purchase, merger, share exchange, consolidation or otherwise) to all or substantially all of the business and/or assets of the Corporation to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession had taken place. Failure of the Corporation to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Corporation in the same amount and on the same terms as you would be entitled to hereunder if you terminate your employment for Good Reason following a change in control of the Corporation, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Corporation" shall mean the Corporation as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, heirs, distributees, and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your legatee or other designee or, if there is no such designee, to your estate. (iii) In the event that you are employed by a subsidiary of the Corporation, wherever in this Agreement reference is made to the "Corporation," unless the context otherwise requires, such reference shall also include such subsidiary. The Corporation shall cause such subsidiary to carry out the terms of this Agreement insofar as they relate to the employment relationship between you and such subsidiary, and the Corporation shall indemnify you and save you harmless from and against all liability and damage you may suffer as a consequence of such subsidiary's failure to perform and carry out such terms. Wherever reference is made to any benefit program of the Corporation, such reference shall include, where appropriate, the corresponding benefit program of such subsidiary if you were a participant in such benefit program on the date a change in control of the Corporation has occurred. 6. Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Corporation shall be directed to the attention of the Board with a copy to the Secretary of the Corporation, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 7. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Maryland. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Corporation under Section 4 hereof shall survive the expiration of the term of this Agreement. 8. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 9. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 10. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in the State of Maryland, in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the Corporation the enclosed copy of this letter which will then constitute our agreement on this subject. Sincerely, THE BLACK & DECKER CORPORATION /s/ NOLAN D. ARCHIBALD Nolan D. Archibald Chairman, President and Chief Executive Officer Agreed to as of the 29th day of November 1999 /s/MICHAEL D. MANGAN Michael D. Mangan EX-10 4 0004.txt EXHIBIT 10 (BB)(2) Exhibit 10 (bb)(2) August 2, 2000 Mr. Michael D. Mangan The Black & Decker Corporation 701 East Joppa Road Towson, Maryland 21286 Dear Mike: 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 that 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, 2005; provided, however, that if a change in control of the Corporation shall have occurred prior to December 31, 2005, this Agreement shall continue in effect for a period of 36 months beyond the month in which the change in control of the Corporation occurred and then 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 giving you notice of termination, regardless 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 that would be reportable 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"), provided that, without limitation, such a change in control shall be deemed to have occurred if (A) any "person" (as that 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 that 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 of the Board; (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 that 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 the surviving entity outstanding immediately after the merger, share exchange or consolidation, or the stockholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of all or substantially all the Corporation's assets. 3. Termination Following Change in Control of the Corporation. If any of the events described in Section 2 hereof constituting a change in control of the Corporation shall have occurred, you shall be entitled to the benefits provided in Subsection 4(iii) hereof upon the subsequent termination of your employment during the term of this Agreement unless the 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 failure resulting from your incapacity due to physical or mental illness or any 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) your willfully engaging in conduct that 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 that purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of conduct set forth above in clauses (A) or (B) of the first sentence of this Subsection and specifying the particulars thereof in detail. (iii) Good Reason. You shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, the occurrence after a change in control of the Corporation of any of the following circumstances unless, in the case of paragraphs (A), (E), (F), (G) or (H), the circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination, as those terms are defined in Subsections 3(v) and 3(iv) hereof, respectively, given in respect thereof: (A) the assignment to you of any duties inconsistent with your current status as an executive of the Corporation or a substantial adverse alteration in the nature or status of your responsibilities from those in effect immediately prior to the change in control of the Corporation; (B) a reduction by the Corporation in your annual base salary as in effect on the date hereof or as the same may be increased from time to time, except for across-the-board salary reductions similarly affecting all senior executives of the Corporation and all senior executives of any person in control of the Corporation; (C) your relocation to a location not within 25 miles of your office or job location immediately prior to the change in control of the Corporation, 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 that is material to your total compensation, including but not limited to the Corporation's (i) Executive Annual Incentive Plan or other annual incentive compensation plan ("AIP"); (ii) Performance Equity Plan or other long-term incentive compensation plan ("PEP"); (iii) stock option plans; (iv) retirement and savings plans; and (v) Supplemental Executive Retirement Plan ("SERP"); or any substitute plan or plans adopted prior to the change in control of the Corporation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to the plan and the equitable arrangement provides substantially equivalent benefits not materially less favorable to you (both in terms of the amount of benefits provided and the level of your participation relative to other participants), or the failure by the Corporation to continue your participation therein (or in such a 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) than those you enjoyed immediately prior to the change in control of the Corporation; (F) the failure by the Corporation to continue to provide to you 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 to you an automobile or allowance in lieu thereof, if an automobile or allowance in lieu thereof was provided to you at the time of the change in control of the Corporation, the taking of any action by the Corporation that would directly or indirectly materially reduce any of these 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 to you 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 that 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 in accordance with Section 6 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice that indicates the specific termination provision in this Agreement relied upon and that sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision 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 the 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 from the date that the Notice of Termination is given); provided that if within 15 days after Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this proviso), the party receiving the 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 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 the notice is given in good faith and the party giving the notice pursues the resolution of the dispute with reasonable diligence. Notwithstanding the pendency of the dispute, the Corporation will continue to pay you your full compensation in effect when the Notice of Termination 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 upon termination of your employment or during a period of Disability you shall be entitled to the following benefits: (i) During any period that you fail to perform your full-time duties with the Corporation as a result of incapacity due to physical or mental illness, you shall continue to receive your base salary at the rate in effect at the commencement of the period, together with all amounts payable to you under any compensation plan of the Corporation during the 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 those 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 the 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 those 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, 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 2000 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 the subsequent year. The provisions of this Section 4(iii)(B) shall not in any way affect your rights under the Corporation's stock option plans or the PEP. (C) In lieu of shares of common stock of the Corporation (the "Shares") issuable upon exercise of outstanding options, if any, granted to you under the Corporation's stock option plans ("Options"), which Options (and any related limited stock appreciation rights) shall be cancelled upon the making of the payment referred to below, you shall receive an amount in cash equal to the product of (i) the excess of the higher of the closing price of the Shares as reported on the New York Stock Exchange ("NYSE") on or nearest to the Date of Termination (or, if not listed on the NYSE, on a nationally recognized exchange or quotation system on which trading volume in the Shares is highest), and the highest per share price for the Shares actually paid in connection with any change in control of the Corporation, over the per share exercise price of each Option held by you (whether or not then fully exercisable) plus the amount, if any, of any applicable cash appreciation rights, times (ii) the number of the Shares covered by each such Option. (D) The Corporation shall pay to you any deferred compensation allocated or credited to you or your account as of the Date of Termination. (E) The Corporation shall also pay to you all legal fees and expenses incurred by you as a result of the termination (including all legal fees and expenses, if any, incurred in contesting or disputing the 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 Internal Revenue Code (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") so that the net amount retained by you, after deduction of any Excise Tax on the Contract Payments and 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 other Total Payments. For purposes of determining whether any of the payments will be subject to the Excise Tax and the amount of the Excise Tax, (i) any other payments or benefits received or to be received by you in connection with a change in control of the Corporation or your termination of employment (whether payable pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Corporation, its successors, any person whose actions result in a change in control of the Corporation or any corporation affiliated (or which, as a result of the completion of a transaction causing a change in control of the Corporation, will become affiliated) with the Corporation within the meaning of Section 1504 of the Code) (together with the Contract Payments, the "Total Payments") shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Corporation's independent auditors and acceptable to you the Total Payments (in whole or in part) do not constitute parachute payments, or the 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 that could be obtained from deduction of the state and local taxes. If 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 the reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to the 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 the repayment results in a reduction in Excise Tax or a federal and state and local income tax deduction) plus interest on the amount of the repayment at the rate provided in Section 1274(d) of the Code. If 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 the excess (plus any interest payable with respect to the excess) at the time that the amount of the 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 the payments cannot be finally determined on or before that day, the Corporation shall pay to you on that day an estimate, as determined in good faith by the Corporation, of the minimum amount of the payments and shall pay the remainder of the 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. If the amount of the estimated payments exceeds the amount subsequently determined to have been due, the 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 to you 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. (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 (subject to Section 2.3 of that plan), the SERP, or any plan or agreement sponsored by the Corporation or any of its subsidiaries relating to retirement benefits. 5. Successors; Binding Agreement. (i) The Corporation will require any successor to all or substantially all of the business or assets of the Corporation (whether direct or indirect, by purchase, merger, share exchange, consolidation or otherwise) 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 the succession had not taken place. Failure of the Corporation to obtain the assumption and agreement prior to the effectiveness of the 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 the 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 or assets as described above that 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 representatives, 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) If you are employed by a subsidiary of the Corporation, wherever in this Agreement reference is made to the "Corporation," unless the context otherwise requires, the reference shall also include the subsidiary. The Corporation shall cause the subsidiary to carry out the terms of this Agreement insofar as they relate to the employment relationship between you and the subsidiary, and the Corporation shall indemnify you and save you harmless from and against all liability and damage that you may suffer as a consequence of the subsidiary's failure to perform and carry out such terms. Wherever reference is made to any benefit program of the Corporation, the reference shall include, where appropriate, the corresponding benefit program of the subsidiary if you were a participant in the 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 a notice of change of address shall be effective only upon receipt. 7. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless the waiver, modification or discharge is agreed to in writing and signed by you and an officer of the Corporation specifically designated by the Board. No waiver by either party at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement to be performed by the other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement constitutes the entire agreement between the parties hereto in respect of the matters set forth herein, and all prior negotiations, writings and understandings relating to the subject matter of this Agreement are superseded and cancelled by this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Maryland, without regard to its principles of conflicts of laws. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Corporation under Section 4 hereof shall survive the expiration of the term of this Agreement. 8. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 9. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same instrument. 10. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in the State of Maryland and in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. If you agree to the terms of this letter, please sign and return to the Corporation the enclosed copy, which will then constitute our agreement on this subject. Sincerely, THE BLACK & DECKER CORPORATION /s/ NOLAN D. ARCHIBALD Nolan D. Archibald Chairman, President and Chief Executive Officer Agreed to as of the 26th day of September 2000 /s/MICHAEL D. MANGAN Michael D. Mangan EX-12 5 0005.txt EXHIBIT 12 EXHIBIT 12 THE BLACK & DECKER CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Millions of Dollars Except Ratios)
Three Months Ended Year Ended December 31, 2000 December 31, 2000 ------------------ ------------------- EARNINGS: Earnings before income taxes $ 75.3 $ 404.6 Interest expense 40.0 148.3 Portion of rent expense representative of an interest factor 6.9 27.6 -------- -------- Adjusted earnings before taxes and fixed charges $ 122.2 $ 580.5 ======== ======== FIXED CHARGES: Interest expense $ 40.0 $ 148.3 Portion of rent expense representative of an interest factor 6.9 27.6 -------- -------- Total fixed charges $ 46.9 $ 175.9 ======== ======== RATIO OF EARNINGS TO FIXED CHARGES 2.61 3.30 ======== ========
EX-21 6 0006.txt EXHIBIT 21 EXHIBIT 21 THE BLACK & DECKER CORPORATION AND SUBSIDIARIES LIST OF SUBSIDIARIES Listed below are the subsidiaries of The Black & Decker Corporation as of December 31, 2000. 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 LLC UNITED STATES Black & Decker Holdings Inc. UNITED STATES Black & Decker Investment Company UNITED STATES Black & Decker Investments LLC 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 Emglo Products LLC UNITED STATES Emhart Corporation UNITED STATES Emhart Credit Corporation UNITED STATES Emhart Harttung Inc. UNITED STATES Emhart Inc. UNITED STATES Emhart Industries, Inc. UNITED STATES Kwikset Corporation UNITED STATES Momentum Laser, Inc. 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 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 Shanghai Emhart Fastening Systems 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 Chesapeake Factoring Company IRELAND Chesapeake Falls Holdings Company IRELAND Gamrie Limited IRELAND Black & Decker Italia S.P.A. ITALY Fasteners & Tools, Ltd. JAPAN Nippon Pop Rivets & Fasteners Ltd. JAPAN Black & Decker (Overseas) A.G. LIECHTENSTEIN Black & Decker Luxembourg S.A. LUXEMBOURG Chaesapeake Investments Company S.A.R.L. LUXEMBOURG Black & Decker Asia Pacific (Malaysia) Sdn. Bhd. MALAYSIA Black & Decker (Malaysia) Sdn. Bhd. MALAYSIA BD Power Tools Mexicana, S. de R.L. de C.V. MEXICO Black & Decker de Reynosa S. de R.L. de C.V. MEXICO Black & Decker, S.A. de C.V. MEXICO DeWalt Industrial Tools, S.A. de C.V. MEXICO Price-Pfister de Mexico, 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 Emhart Sjong 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 ABC 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 International Limited UNITED KINGDOM Tucker Fasteners Limited UNITED KINGDOM United Marketing (Leicester) UNITED KINGDOM Black & Decker de Venezuela, C.A. VENEZUELA Black & Decker Holdings de Venezuela, C.A. VENEZUELA Emhart Foreign Sales Corporation VIRGIN ISLANDS (US) EX-23 7 0007.txt CONSENT OF INDEPENDENT AUDITORS 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 25, 2001, 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, 2000. 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-8 333-35986 Form S-8 /s/Ernst & Young LLP Baltimore, Maryland February 16, 2001 EX-24 8 0008.txt POWER OF ATTORNEY 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, 2000, and any and all amendments thereto. /s/ Norman D. Archibald Director, Chairman, February 8, 2001 - -------------------------- President and Chief Nolan D. Archibald Executive Officer (Principal Executive (Officer) Director February 8, 2001 - -------------------------- Norman R. Augustine /s/ Barbara L. Bowles Director February 8, 2001 - -------------------------- Barbara L. Bowles /s/ M. Anthony Burns Director February 8, 2001 - -------------------------- M. Anthony Burns /s/ Malcolm Candlish Director February 8, 2001 - -------------------------- Malcolm Candlish /s/ Manuel A. Fernandez Director February 8, 2001 - -------------------------- Manuel A. Fernandez /s/ Anthony Luiso Director February 8, 2001 - -------------------------- Anthony Luiso /s/ Mark H. Willes Director February 8, 2001 - -------------------------- Mark H. Willes /s/ Michael D. Mangan Senior Vice President February 8, 2001 - -------------------------- and Chief Financial Michael D. Mangan Officer (Principal Financial Officer) /s/ Christina M. McMullen Vice President and Controller February 8, 2001 - -------------------------- (Principal Accounting Christina M. McMullen Officer) -----END PRIVACY-ENHANCED MESSAGE-----