-----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, M1pfu6PpmDznmBJRTCmkuFfc1iqzxz8jWgZmOksXVfVipKOxNEbYsL5z0hY3LWcG vN39i5YQHMj7NxqXfzx8Bg== 0000012355-02-000032.txt : 20021112 0000012355-02-000032.hdr.sgml : 20021111 20021112160655 ACCESSION NUMBER: 0000012355-02-000032 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020929 FILED AS OF DATE: 20021112 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-03593 FILM NUMBER: 02817328 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-Q 1 form10q09292002a.txt PERIOD ENDED 09/29/2002 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 29, 2002 ------------------------------------------------- or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------------- -------------------- Commission File Number: 1-1553 -------------------------------------------------------- THE BLACK & DECKER CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Maryland 52-0248090 - -------------------------------------------------------------------------------- (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 701 East Joppa Road Towson, Maryland 21286 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (410) 716-3900 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable - -------------------------------------------------------------------------------- (Former name, former address, and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X YES NO ----- ------ The number of shares of Common Stock outstanding as of October 25, 2002: 80,552,525 - ---------- The exhibit index as required by item 601(a) of Regulation S-K is included in this report. -2- THE BLACK & DECKER CORPORATION INDEX - FORM 10-Q September 29, 2002 Page PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statement of Earnings (Unaudited) For the Three Months and Nine Months Ended September 29, 2002 and September 30, 2001 3 Consolidated Balance Sheet September 29, 2002 (Unaudited) and December 31, 2001 4 Consolidated Statement of Stockholders' Equity (Unaudited) For the Nine Months Ended September 29, 2002 and September 30, 2001 5 Consolidated Statement of Cash Flows (Unaudited) For the Nine Months Ended September 29, 2002 and September 30, 2001 6 Notes to Consolidated Financial Statements (Unaudited) 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 15 Item 3. Quantitative and Qualitative Disclosures about Market Risk 25 Item 4. Controls and Procedures 25 PART II - OTHER INFORMATION Item 1. Legal Proceedings 26 Item 6. Exhibits and Reports on Form 8-K 27 SIGNATURES 28 CERTIFICATIONS 29 -3- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF EARNINGS (Unaudited) The Black & Decker Corporation and Subsidiaries (Dollars in Millions Except Per Share Amounts)
- ---------------------------------------------------------------------------------------------------------------- Three Months Ended Nine Months Ended September 29, September 30, September 29, September 30, 2002 2001 2002 2001 - ---------------------------------------------------------------------------------------------------------------- Sales $1,085.2 $1,039.2 $3,162.2 $3,050.9 Cost of goods sold 704.5 696.4 2,096.1 2,043.0 Selling, general, and administrative expenses 259.0 253.8 774.7 762.3 Restructuring and exit costs 38.4 -- 38.4 -- - ---------------------------------------------------------------------------------------------------------------- Operating Income 83.3 89.0 253.0 245.6 Interest expense (net of interest income) 14.2 20.4 44.8 65.5 Other expense 1.7 2.7 5.1 7.3 - ---------------------------------------------------------------------------------------------------------------- Earnings Before Income Taxes 67.4 65.9 203.1 172.8 Income taxes 12.5 19.7 49.1 51.8 - ---------------------------------------------------------------------------------------------------------------- Net Earnings $ 54.9 $ 46.2 $ 154.0 $ 121.0 ================================================================================================================ Net Earnings Per Common Share -- Basic $ .68 $ .57 $ 1.92 $ 1.49 ================================================================================================================ Shares Used in Computing Basic Earnings Per Share (in Millions) 80.5 80.8 80.4 81.0 ================================================================================================================ Net Earnings Per Common Share -- Assuming Dilution $ .68 $ .57 $ 1.90 $ 1.49 ================================================================================================================ Shares Used in Computing Diluted Earnings Per Share (in Millions) 80.9 81.0 80.9 81.4 ================================================================================================================ Dividends Per Common Share $ .12 $ .12 $ .36 $ .36 ================================================================================================================ See Notes to Consolidated Financial Statements (Unaudited).
-4- CONSOLIDATED BALANCE SHEET The Black & Decker Corporation and Subsidiaries (Dollars in Millions Except Per Share Amount) - -------------------------------------------------------------------------------- September 29, 2002 December 31, (Unaudited) 2001 - -------------------------------------------------------------------------------- Assets Cash and cash equivalents $ 374.1 $ 244.5 Trade receivables 824.0 708.6 Inventories 787.3 712.2 Other current assets 200.5 227.0 - -------------------------------------------------------------------------------- Total Current Assets 2,185.9 1,892.3 - -------------------------------------------------------------------------------- Property, Plant, and Equipment 658.1 687.5 Goodwill 726.5 710.4 Other Assets 778.8 724.0 - -------------------------------------------------------------------------------- $4,349.3 $4,014.2 ================================================================================ Liabilities and Stockholders' Equity Short-term borrowings $ 7.8 $ 12.3 Current maturities of long-term debt 310.7 33.7 Trade accounts payable 418.0 312.7 Other accrued liabilities 762.3 711.9 - -------------------------------------------------------------------------------- Total Current Liabilities 1,498.8 1,070.6 - -------------------------------------------------------------------------------- Long-Term Debt 927.0 1,191.4 Deferred Income Taxes 257.5 261.1 Postretirement Benefits 233.8 238.0 Other Long-Term Liabilities 513.6 502.1 Stockholders' Equity Common stock, par value $.50 per share 40.3 39.9 Capital in excess of par value 590.3 566.6 Retained earnings 458.2 333.2 Accumulated other comprehensive income (loss) (170.2) (188.7) - -------------------------------------------------------------------------------- Total Stockholders' Equity 918.6 751.0 - -------------------------------------------------------------------------------- $4,349.3 $4,014.2 ================================================================================ See Notes to Consolidated Financial Statements (Unaudited). -5- CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited) The Black & Decker Corporation and Subsidiaries (Dollars in Millions Except Per Share Data)
- ------------------------------------------------------------------------------------------------------------------- Accumulated Outstanding Capital in Other Com- Total Common Par Excess of Retained prehensive Stockholders' Shares Value Par Value Earnings Income (Loss) Equity - ------------------------------------------------------------------------------------------------------------------- Balance at December 31, 2000 80,343,094 $40.2 $560.0 $264.0 $(171.8) $692.4 Comprehensive income: Net earnings -- -- -- 121.0 -- 121.0 Cumulative effect of accounting change (net of tax) -- -- -- -- (.7) (.7) Net gain on derivative instruments (net of tax) -- -- -- -- 1.1 1.1 Foreign currency translation adjustments, less effect of hedging activities (net of tax) -- -- -- -- (30.1) (30.1) - ------------------------------------------------------------------------------------------------------------------- Comprehensive income -- -- -- 121.0 (29.7) 91.3 - ------------------------------------------------------------------------------------------------------------------- Cash dividends ($.36 per share) -- -- -- (29.2) -- (29.2) Purchase and retirement of common stock (400,000) (.2) (12.5) -- -- (12.7) Common stock retired under equity forwards (765,326) (.4) -- -- -- (.4) Common stock issued under employee benefit plans 1,245,048 .6 27.9 -- -- 28.5 - ------------------------------------------------------------------------------------------------------------------- Balance at September 30, 2001 80,422,816 $40.2 $575.4 $355.8 $(201.5) $769.9 =================================================================================================================== Balance at December 31, 2001 79,829,641 $39.9 $566.6 $333.2 $(188.7) $751.0 Comprehensive income: Net earnings -- -- -- 154.0 -- 154.0 Net loss on derivative instruments (net of tax) -- -- -- -- (7.9) (7.9) Foreign currency translation adjustments, less effect of hedging activities (net of tax) -- -- -- -- 26.4 26.4 - ------------------------------------------------------------------------------------------------------------------- Comprehensive income -- -- -- 154.0 18.5 172.5 - ------------------------------------------------------------------------------------------------------------------- Cash dividends ($.36 per share) -- -- -- (29.0) -- (29.0) Common stock issued under employee benefit plans 714,327 .4 23.7 -- -- 24.1 - ------------------------------------------------------------------------------------------------------------------- Balance at September 29, 2002 80,543,968 $40.3 $590.3 $458.2 $(170.2) $918.6 =================================================================================================================== See Notes to Consolidated Financial Statements (Unaudited).
-6- CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) The Black & Decker Corporation and Subsidiaries (Dollars in Millions) - -------------------------------------------------------------------------------- Nine Months Ended September 29, September 30, 2002 2001 - -------------------------------------------------------------------------------- Operating Activities Net earnings $154.0 $ 121.0 Adjustments to reconcile net earnings to cash flow from operating activities: Non-cash charges and credits: Depreciation and amortization 95.9 122.8 Restructuring and exit costs 38.4 -- Other (4.2) (5.7) Changes in selected working capital items: Trade receivables (92.5) (45.2) Inventories (58.0) (34.0) Trade accounts payable 98.5 53.0 Restructuring spending (26.7) (18.7) Other assets and liabilities 28.6 (92.7) - -------------------------------------------------------------------------------- Cash Flow From Operating Activities 234.0 100.5 - -------------------------------------------------------------------------------- Investing Activities Purchase of business -- (30.5) Proceeds from disposal of assets 3.9 8.1 Capital expenditures (70.2) (100.4) Cash inflow from other investing activities 1.4 -- - -------------------------------------------------------------------------------- Cash Flow From Investing Activities (64.9) (122.8) - -------------------------------------------------------------------------------- Cash Flow Before Financing Activities 169.1 (22.3) Financing Activities Net decrease in short-term borrowings (4.2) (284.5) Proceeds from long-term debt (net of debt issue costs of $3.1) -- 393.8 Payments on long-term debt (33.8) (40.9) Purchase of common stock -- (38.2) Issuance of common stock 18.8 25.2 Cash dividends (29.0) (29.2) - -------------------------------------------------------------------------------- Cash Flow From Financing Activities (48.2) 26.2 Effect of exchange rate changes on cash 8.7 .4 - -------------------------------------------------------------------------------- Increase In Cash And Cash Equivalents 129.6 4.3 Cash and cash equivalents at beginning of period 244.5 135.0 - -------------------------------------------------------------------------------- Cash And Cash Equivalents At End Of Period $374.1 $ 139.3 ================================================================================ See Notes to Consolidated Financial Statements (Unaudited). -7- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The Black & Decker Corporation and Subsidiaries NOTE 1: BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of The Black & Decker Corporation (collectively with its subsidiaries, the Corporation) have been prepared in accordance with the instructions to Form 10-Q and do not include all the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the unaudited consolidated financial statements include all adjustments, consisting only of normal recurring accruals, considered necessary for a fair presentation of the financial position and the results of operations. Operating results for the three- and nine-month periods ended September 29, 2002, are not necessarily indicative of the results that may be expected for a full fiscal year. For further information, refer to the consolidated financial statements and notes included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2001. Certain amounts presented for the three and nine months ended September 30, 2001, have been reclassified to conform to the 2002 presentation. Statement of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income, requires that, as part of a full set of financial statements, entities must present comprehensive income, which is the sum of net income and other comprehensive income. Other comprehensive income represents total non-stockholder changes in equity. For the nine months ended September 29, 2002, and September 30, 2001, the Corporation has presented comprehensive income in the accompanying Consolidated Statement of Stockholders' Equity. Comprehensive income for the three months ended September 29, 2002, and September 30, 2001, was $78.9 million and $37.7 million, respectively. In July 2002, the Financial Accounting Standards Board issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 addresses the financial accounting and reporting for certain costs associated with exit or disposal activities, including restructuring actions. SFAS No. 146 excludes from its scope severance benefits that are subject to an on-going benefit arrangement governed by SFAS No. 112, Employer's Accounting for Postemployment Benefits, and asset impairments governed by SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 146 is effective for exit or disposal activities initiated after December 31, 2002. The Corporation has not determined the effect that the adoption of SFAS No. 146, effective January 1, 2003, will have on its earnings or financial position. However, the impact of SFAS No. 146 on the Corporation will likely be mitigated as restructuring charges recognized by the Corporation to date have principally consisted of severance benefits that are subject to an on-going benefit arrangement and asset impairments. -8- NOTE 2: CHANGES IN ACCOUNTING PRINCIPLE Effective January 1, 2002, the Corporation adopted Emerging Issues Task Force Issue No. 01-9, Accounting for Consideration Given by a Vendor to a Customer or a Reseller of the Vendor's Products (EITF 01-9). Upon adoption of EITF 01-9, the Corporation was required to classify certain payments to its customers as a reduction of sales. The Corporation previously classified certain of these payments as selling expenses in its Consolidated Statement of Earnings. Upon the adoption of EITF 01-9, prior period amounts were restated and resulted in a reduction of sales (and an offsetting reduction of selling expenses) of $23.8 million and $61.5 million for the three- and nine-month periods ended September 30, 2001, respectively. Effective January 1, 2002, the Corporation adopted SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 requires that its provisions be applied on a prospective basis. Under SFAS No. 142, goodwill and intangible assets deemed to have indefinite lives are no longer amortized, but are subject to an annual impairment test. Other intangible assets continue to be amortized over their useful lives. As of January 1, 2002, the Corporation performed the first of the required impairment tests of goodwill. At that date, goodwill associated with the Corporation's reportable business segments was $29.4 million for Power Tools and Accessories, $423.2 million for Hardware and Home Improvement, and $257.8 million for Fastening and Assembly Systems. No impairment was present upon adoption of SFAS No. 142. The Corporation cannot predict the occurrence of certain events that might adversely affect the reported value of goodwill. Such events may include, but are not limited to, strategic decisions made in response to economic and competitive conditions, the impact of the economic environment on the Corporation's customer base, or a material negative change in its relationships with significant customers. The Corporation recognized goodwill amortization of $6.6 million and $19.8 million during the three- and nine-month periods ended September 30, 2001, respectively. Net earnings for the three and nine months ended September 30, 2001, excluding goodwill amortization, would have been $52.8 million and $140.8 million, respectively. Basic earnings per share for the three and nine months ended September 30, 2001, would have been $.65 and $1.74, respectively, excluding goodwill amortization. Diluted earnings per share for the three and nine months ended September 30, 2001, would have been $.65 and $1.73, respectively, excluding goodwill amortization. NOTE 3: INVENTORIES The classification of inventories at the end of each period, in millions of dollars, was as follows: - -------------------------------------------------------------------------------- September 29, December 31, 2002 2001 - -------------------------------------------------------------------------------- FIFO cost Raw materials and work-in-process $185.2 $192.9 Finished products 604.1 527.0 - -------------------------------------------------------------------------------- 789.3 719.9 Excess of FIFO cost over LIFO inventory value (2.0) (7.7) - -------------------------------------------------------------------------------- $787.3 $712.2 ================================================================================ 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. -9- NOTE 4: SHORT-TERM BORROWINGS In April 2002, the Corporation entered into a $250 million 364-day unsecured revolving credit facility (the Credit Facility) replacing its expiring $400 million 364-day unsecured revolving credit facility. The Corporation reduced the borrowing availability under the Credit Facility based upon its anticipated short-term financing needs. The Credit Facility provides for annual renewals upon request by the Corporation and approval by the lending banks. The terms of the Credit Facility remained unchanged from the expiring 364-day unsecured revolving credit facility. The terms of that facility and the Corporation's $1.0 billion unsecured revolving credit facility that expires in April 2006 are more fully disclosed in Note 6 of Notes to Consolidated Financial Statements included in Item 8 of the Corporation's Annual Report on Form 10-K for the year ended December 31, 2001. NOTE 5: LONG-TERM DEBT Indebtedness of subsidiaries of the Corporation in the aggregate principal amounts of $310.2 million and $314.4 million was included in the Consolidated Balance Sheet at September 29, 2002, and December 31, 2001, respectively, in short-term borrowings, current maturities of long-term debt, and long-term debt. NOTE 6: INTEREST EXPENSE (NET OF INTEREST INCOME) Interest expense (net of interest income) for each period, in millions of dollars, was as follows: - -------------------------------------------------------------------------------- Three Months Ended Nine Months Ended September 29, September 30, September 29, September 30, 2002 2001 2002 2001 - -------------------------------------------------------------------------------- Interest expense $20.8 $28.1 $63.8 $94.2 Interest (income) (6.6) (7.7) (19.0) (28.7) - -------------------------------------------------------------------------------- $14.2 $20.4 $44.8 $65.5 ================================================================================ -10- NOTE 7: BUSINESS SEGMENTS The following table provides selected financial data for the Corporation's business segments (in millions of dollars):
- ------------------------------------------------------------------------------------------------------------------------------------ Reportable Business Segments ---------------------------------------------- Power Hardware Fastening Currency Corporate, Tools & & Home & Assembly Translation Adjustments, Three Months Ended September 29, 2002 Accessories Improvement Systems Total Adjustments & Eliminations Consolidated - ------------------------------------------------------------------------------------------------------------------------------------ Sales to unaffiliated customers $ 767.6 $177.6 $123.4 $1,068.6 $16.6 $ - $1,085.2 Segment profit (loss) (for Consoli- dated, operating income before restructuring and exit costs) 105.6 10.5 18.5 134.6 1.4 (14.3) 121.7 Depreciation and amortization 19.7 7.3 3.5 30.5 .5 .1 31.1 Capital expenditures 16.3 2.4 1.6 20.3 .6 .4 21.3 Three Months Ended September 30, 2001 - ------------------------------------------------------------------------------------------------------------------------------------ Sales to unaffiliated customers $ 741.2 $185.2 $118.1 $1,044.5 $(5.3) $ - $1,039.2 Segment profit (loss) (for Consoli- dated, operating income) 77.9 16.1 14.5 108.5 .1 (19.6) 89.0 Depreciation and amortization 20.2 8.0 4.0 32.2 (.1) 6.3 38.4 Capital expenditures 20.1 7.3 3.6 31.0 - - 31.0 Nine Months Ended September 29, 2002 - ------------------------------------------------------------------------------------------------------------------------------------ Sales to unaffiliated customers $2,209.9 $571.0 $376.2 $3,157.1 $ 5.1 $ - $3,162.2 Segment profit (loss) (for Consoli- dated, operating income before restructuring and exit costs) 237.9 32.6 52.8 323.3 .8 (32.7) 291.4 Depreciation and amortization 59.2 24.7 10.5 94.4 .4 1.1 95.9 Capital expenditures 51.4 8.5 8.9 68.8 .7 .7 70.2 Nine Months Ended September 30, 2001 - ------------------------------------------------------------------------------------------------------------------------------------ Sales to unaffiliated customers $2,121.5 $569.9 $362.1 $3,053.5 $(2.6) $ - $3,050.9 Segment profit (loss) (for Consoli- dated, operating income) 167.5 42.0 53.8 263.3 .7 (18.4) 245.6 Depreciation and amortization 64.8 26.8 11.4 103.0 .4 19.4 122.8 Capital expenditures 64.6 24.9 9.7 99.2 .5 .7 100.4
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 household products. 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. -11- The Corporation assesses the performance of its reportable business segments based upon a number of factors, including segment profit. In general, segments follow the same accounting policies as those described in Note 1 of Notes to Consolidated Financial Statements included in Item 8 of the Corporation's Annual Report on Form 10-K for the year ended December 31, 2001, 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" and "Corporate, Adjustments, & Eliminations" are reflected at the Corporation's budgeted rates of exchange for 2002. 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, adjustments to eliminate intercompany profit in inventory, income tax expense, and, for 2001, goodwill amortization (except for the amortization of goodwill associated with certain acquisitions made by the Power Tools and Accessories and Fastening and Assembly Systems segments). In addition, segment profit excludes restructuring and exit costs. In determining segment profit, expenses relating to pension and other postretirement benefits are based solely upon estimated service costs. Corporate expenses, as well as certain centrally managed expenses, are allocated to each reportable segment based upon budgeted amounts. While sales and transfers between segments are accounted for at cost plus a reasonable profit, the effects of intersegment sales are excluded from the computation of segment profit. Intercompany profit in inventory is excluded from segment assets and is recognized as a reduction of cost of goods sold 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. -12- The reconciliation of segment profit to the Corporation's earnings before income taxes, in millions of dollars, is as follows:
- ---------------------------------------------------------------------------------------------------------------------------- Three Months Ended Nine Months Ended September 29, September 30, September 29, September 30, 2002 2001 2002 2001 - ---------------------------------------------------------------------------------------------------------------------------- Segment profit for total reportable business segments $134.6 $108.5 $323.3 $263.3 Items excluded from segment profit: Adjustment of budgeted foreign exchange rates to actual rates 1.4 .1 .8 .7 Depreciation of Corporate property and, for 2001, amortization of certain goodwill (.1) (6.3) (1.1) (19.4) Adjustment to businesses' postretirement benefit expenses booked in consolidation 9.3 9.4 28.3 30.3 Other adjustments booked in consolidation directly related to reportable business segments (2.1) (8.2) (3.6) (2.9) Amounts allocated to businesses in arriving at segment profit in excess of (less than) Corporate center operating expenses, eliminations, and other amounts identified above (21.4) (14.5) (56.3) (26.4) - ---------------------------------------------------------------------------------------------------------------------------- Operating income before restructuring and exit costs 121.7 89.0 291.4 245.6 Restructuring and exit costs 38.4 - 38.4 - - ---------------------------------------------------------------------------------------------------------------------------- Operating income 83.3 89.0 253.0 245.6 Interest expense, net of interest income 14.2 20.4 44.8 65.5 Other expense 1.7 2.7 5.1 7.3 - ---------------------------------------------------------------------------------------------------------------------------- Earnings before income taxes $ 67.4 $ 65.9 $203.1 $172.8 ============================================================================================================================
NOTE 8: EARNINGS PER SHARE The computations of basic and diluted earnings per share for each period are as follows:
- ------------------------------------------------------------------------------------------------------------------- Three Months Ended Nine Months Ended September 29, September 30, September 29, September 30, (Amounts in Millions Except Per Share Data) 2002 2001 2002 2001 - ------------------------------------------------------------------------------------------------------------------- Numerator: Net earnings $54.9 $46.2 $154.0 $121.0 =================================================================================================================== Denominator: Denominator for basic earnings per share - weighted-average shares 80.5 80.8 80.4 81.0 Employee stock options and stock issuable under employee benefit plans .4 .2 .5 .4 - ------------------------------------------------------------------------------------------------------------------- Denominator for diluted earnings per share - adjusted weighted-average shares and assumed conversions 80.9 81.0 80.9 81.4 =================================================================================================================== Basic earnings per share $ .68 $ .57 $ 1.92 $ 1.49 =================================================================================================================== Diluted earnings per share $ .68 $ .57 $ 1.90 $ 1.49 ===================================================================================================================
As of September 29, 2002, approximately 3.9 million options to purchase shares of common stock, with a weighted-average exercise price of $50.76, were outstanding, but were not included in the computation of diluted earnings per share because the effect would be anti-dilutive. These -13- options were anti-dilutive because the related exercise price was greater than the average market price of the common shares during the quarter. NOTE 9: RESTRUCTURING ACTIVITY As more fully disclosed in Note 18 of Notes to Consolidated Financial Statements included in Item 8 of the Corporation's Annual Report on Form 10-K for the year ended December 31, 2001, the Corporation recorded a restructuring charge of $99.8 million during the fourth quarter of 2001. During the three and nine months ended September 29, 2002, the Corporation recorded a $38.4 million restructuring charge. A summary of restructuring activity during the nine-month period ended September 29, 2002, is as follows (in millions of dollars):
- ------------------------------------------------------------------------------------------------------------------------- Reserves at Reserves Utilization of Reserves Foreign Reserves at December 31, Established Reversal of ----------------------- Currency September 29, 2001 In 2002 Reserves Cash Non-Cash Translation 2002 - ------------------------------------------------------------------------------------------------------------------------- Severance benefits $53.7 $18.6 $(4.5) $(20.9) $ - $2.2 $49.1 Write-down to net realizable value of certain buildings and equipment - 11.4 (2.1) - (9.3) - - Other charges 13.7 16.6 (1.6) (5.8) (9.1) - 13.8 - ------------------------------------------------------------------------------------------------------------------------- Total $67.4 $46.6 $(8.2) $(26.7) $(18.4) $2.2 $62.9 =========================================================================================================================
During the nine months ended September 29, 2002, the Corporation recognized $46.6 million of additional pre-tax restructuring and exit costs, of which $23.9 million relates to actions taken in its Hardware and Home Improvement segment and $22.7 million relates to actions taken in its Power Tools and Accessories segment. The restructuring actions taken in 2002 principally reflect: (1) severance benefits related to the reduction of approximately 750 manufacturing and administrative positions; (2) pension curtailment losses stemming from headcount reductions associated with restructuring actions; (3) lease termination costs; and (4) the write-down of certain equipment and buildings to fair value less, if applicable, cost to sell. The severance costs include the elimination of manufacturing employees in high-cost locations. The Corporation estimates that, as a result of increases in manufacturing employee headcount in low-cost locations, approximately 500 replacement positions will be filled, yielding a net total of 250 positions eliminated as a result of the 2002 restructuring actions. In the preceding table, the $9.1 million non-cash utilization of the reserves established for other charges represents curtailment losses relating to certain of the Corporation's defined benefit pension plans in the United States and England. The $46.6 million charge recognized during the nine months ended September 29, 2002, was offset by the reversal of $8.2 million of severance accruals, asset impairment charges, and other exit costs. That $8.2 million, established as part of the 2001 restructuring charge, will no longer be required, principally as a result of higher employee attrition and higher salvage values than initially contemplated. -14- NOTE 10: POSTRETIREMENT BENEFITS Due to declines in equity markets, the fair value of the Corporation's pension fund assets has decreased since the fourth quarter of 2001. At the same time, due to lower interest rates, the Corporation's accumulated benefit obligation--a discounted measure of its current pension obligation--has increased. The combination of these two factors has resulted in an underfunded status in certain of the Corporation's pension plans. As a result, the Corporation expects to record a minimum pension liability adjustment at December 31, 2002, in accordance with SFAS No. 87, Employers' Accounting for Pensions. This adjustment, which will not impact net earnings or cash flow in 2002, will result in a direct charge to stockholders' equity and be included in accumulated other comprehensive income (loss). The charge to stockholders' equity is expected to approximate $350 million, net of tax. NOTE 11: INCOME TAXES The tax provisions for the three- and nine-month periods ended September 29, 2002 and September 30, 2001 are based on the estimated effective tax rates applicable for the full years, after giving effect to significant unusual items, if any, related specifically to the interim periods. The Corporation's effective tax rates for the three- and nine-month periods ended September 29, 2002, were 19% and 24%, respectively, compared to an effective tax rate of 30% for the three- and nine-month periods ended September 30, 2001. Excluding the income tax benefit of $16.1 million relating to the pre-tax restructuring charge of $38.4 million recognized in 2002, the effective tax rate for the three- and nine-month periods ended September 29, 2002, would have been 27%. The reduction in the effective tax rate during 2002, excluding the income tax benefit associated with the 2002 restructuring charge, is attributable to the amortization of non-deductible goodwill in the 2001 periods. NOTE 12: LITIGATION AND CONTINGENT LIABILITIES As more fully disclosed in Note 19 of Notes to Consolidated Financial Statements included in Item 8 of the Corporation's Annual Report on Form 10-K for the year ended December 31, 2001, the Corporation is involved in various lawsuits in the ordinary course of business. These lawsuits involve claims for damages arising out of the use of the Corporation's products, allegations of patent and trademark infringement, and litigation and administrative proceedings relating to employment matters and commercial disputes. In addition, the Corporation is involved in lawsuits and administrative proceedings with respect to claims involving the discharge of hazardous substances into the environment. 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. As of September 29, 2002, the Corporation had no known probable but inestimable exposures that are expected to have a material adverse effect on the Corporation. -15- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Corporation reported net earnings of $54.9 million, or $.68 per share on a diluted basis, for the three-month period ended September 29, 2002, compared to net earnings of $46.2 million, or $.57 per share on a diluted basis, for the three-month period ended September 30, 2001. Net earnings for the three-month period ended September 29, 2002, included a pre-tax restructuring charge of $38.4 million ($22.3 million net of tax). Excluding the impact of this restructuring charge, net earnings for the three-month period ended September 29, 2002, would have been $77.2 million, or $.95 per share on a diluted basis. Net earnings for the three-month period ended September 30, 2001, would have been $52.8 million, or $.65 per share on a diluted basis, using the new accounting standard for goodwill. For the nine months ended September 29, 2002, the Corporation reported net earnings of $154.0 million, or $1.90 per share on a diluted basis, compared to net earnings of $121.0 million, or $1.49 per share on a diluted basis, for the nine-month period ended September 30, 2001. Excluding the restructuring charge, net earnings for the nine-month period ended September 29, 2002, would have been $176.3 million, or $2.18 per share on a diluted basis. Net earnings for the nine-month period ended September 30, 2001, would have been $140.8 million, or $1.73 per share on a diluted basis, using the new accounting standard for goodwill. 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. RESULTS OF OPERATIONS SALES The following chart sets forth an analysis of the consolidated changes in sales for the three- and nine-month periods ended September 29, 2002, and September 30, 2001:
ANALYSIS OF CHANGES IN SALES - ------------------------------------------------------------------------------------------------------- Three Months Ended Nine Months Ended September 29, September 30, September 29, September 30, (Dollars in Millions) 2002 2001 2002 2001 - ------------------------------------------------------------------------------------------------------- Total sales $1,085.2 $1,039.2 $3,162.2 $3,050.9 - ------------------------------------------------------------------------------------------------------- Unit volume 4 % (2)% 5 % (1)% Price (2)% (2)% (1)% (2)% Currency 2 % (2)% - % (3)% - ------------------------------------------------------------------------------------------------------- Change in total sales 4 % (6)% 4 % (6)% =======================================================================================================
Total consolidated sales for the three and nine months ended September 29, 2002, increased by 4% over the corresponding 2001 levels, as unit volume growth more than offset negative pricing effects. For the three months ended September 29, 2002, that unit volume growth was augmented by positive foreign currency effects. -16- Growth in unit volume during the three- and nine-month periods ended September 29, 2002, caused a 4% and 5% increase, respectively, in sales as compared to the same periods in 2001. The increase in both the three- and nine-month periods was primarily attributable to higher unit volumes in both the power tools and accessories and security hardware businesses in North America. For the nine-month period ended September 29, 2002, the incremental sales of a business acquired by the Fastening and Assembly Systems segment in April 2001 also contributed to unit volume growth. Those increases were partially offset by unit volume declines in the plumbing products and European security hardware businesses. Pricing actions, taken as a result of customer and competitive pressure, had a 2% and 1% negative effect on sales for the three- and nine-month periods ended September 29, 2002, respectively, as compared to the corresponding periods in 2001. The effects of a weaker U.S. dollar compared to certain other foreign currencies, particularly the euro and the pound sterling, caused a 2% increase in the Corporation's consolidated sales during the three-month period ended September 29, 2002, as compared to the corresponding period in 2001. The effects of foreign currency translation did not have a material impact on sales for the nine months ended September 29, 2002, as compared to the corresponding 2001 period. EARNINGS Operating income for the three months ended September 29, 2002, was $83.3 million compared to operating income of $89.0 million for the corresponding period in 2001. Operating income for the nine months ended September 29, 2002, was $253.0 million compared to operating income of $245.6 million for the corresponding period in 2001. Operating income for the three and nine months ended September 29, 2002, included a restructuring charge of $38.4 million. Operating income for the three and nine months ended September 30, 2001, included goodwill amortization of $6.6 million and $19.8 million, respectively. No goodwill amortization is included in the 2002 results due to a change in accounting standards. Excluding both the 2002 restructuring charge and the 2001 goodwill amortization, operating income for the third quarter increased from $95.6 million, or 9.2% of sales, in 2001 to $121.7 million, or 11.2% of sales, in 2002. Excluding both the 2002 restructuring charge and 2001 goodwill amortization, operating income for the first nine months increased from $265.4 million, or 8.7% of sales, in 2001 to $291.4 million, or 9.2% of sales, in 2002. Gross margin as a percentage of sales was 35.1% and 33.0% for the three-month periods ended September 29, 2002, and September 30, 2001, respectively, and was 33.7% and 33.0% for the nine-month periods ended September 29, 2002, and September 30, 2001, respectively. The increase in gross margin as a percentage of sales for both the three- and nine-month periods ended September 29, 2002, as compared to the corresponding period in 2001, was principally the result of higher production levels in the Power Tools and Accessories segment in 2002 from the lower levels experienced in 2001 when the business took actions to reduce inventory levels. Those higher production levels in the Power Tools and Accessories segment in 2002 were partially offset by lower production levels in the Hardware and Home Improvement segment. The Hardware and Home Improvement segment operated at lower production levels during the three and nine months ended September 29, 2002, both in order to reduce inventory levels and in response to lower sales in the plumbing products and European security hardware businesses. For the quarter ended September 29, 2002, gross margin improvements also stemmed from savings associated with Six Sigma initiatives and restructuring actions, as well as from lower warranty costs. -17- Selling, general, and administrative expenses as a percentage of sales were 23.9% and 24.5% for the three and nine months ended September 29, 2002, respectively. Selling, general, and administrative expenses as a percentage of sales for the three- and nine-month periods ended September 30, 2001, would have been 23.8% and 24.3%, respectively, using the new accounting standard for goodwill. Excluding goodwill amortization recognized in 2001, selling, general, and administrative expenses increased by $11.8 million for the three months ended September 29, 2002, and $32.2 million for the nine months ended September 29, 2002, as compared to the corresponding periods in 2001, as the Corporation increased its reserves for certain environmental remediation matters, recognized greater employee-related expenses, and incurred additional transportation and distribution costs as a result of the higher sales levels in 2002. Net interest expense (interest expense less interest income) for the three months ended September 29, 2002, was $14.2 million compared to net interest expense of $20.4 million for the three months ended September 30, 2001. Net interest expense was $44.8 million for the nine months ended September 29, 2002, compared to net interest expense of $65.5 million for the corresponding period in 2001. The decrease in net interest expense for the three- and nine-month periods ended September 29, 2002, as compared to the corresponding periods in 2001, resulted from both lower borrowing levels and interest rates. Other expense was $1.7 million and $5.1 million for the three and nine months ended September 29, 2002, respectively, compared to $2.7 million and $7.3 million for the corresponding periods in 2001. The Corporation's effective tax rates for the three- and nine-month periods ended September 29, 2002, were 19% and 24%, respectively, compared to an effective tax rate of 30% for the three- and nine-month periods ended September 30, 2001. Excluding the income tax benefit of $16.1 million relating to the pre-tax restructuring charge of $38.4 million, the effective tax rate for the three- and nine-month periods ended September 29, 2002 would have been 27%. The reduction in the effective tax rate during 2002, excluding the income tax benefit associated with the 2002 restructuring charge, is attributable to the amortization of non-deductible goodwill in the 2001 periods. The Corporation reported net earnings of $54.9 million, or $.68 per share on a diluted basis, for the three-month period ended September 29, 2002, compared to net earnings of $46.2 million, or $.57 per share on a diluted basis, for the three-month period ended September 30, 2001. The Corporation reported net earnings of $154.0 million, or $1.90 per share on a diluted basis, for the nine-month period ended September 29, 2002, compared to net earnings of $121.0 million, or $1.49 per share on a diluted basis, for the corresponding period in 2001. Net earnings for the three- and nine-month periods ended September 29, 2002, included a $22.3 million after-tax restructuring charge. Net earnings for the three- and nine-month periods ended September 30, 2001, included $6.6 million and $19.8 million, respectively, of goodwill amortization. No goodwill amortization is included in the 2002 results due to a change in accounting standards. Excluding both the 2002 restructuring charge and the 2001 goodwill amortization, net earnings for the three-month period ended September 29, 2002 would have been $77.2 million, or $.95 per share on a diluted basis, as compared to $52.8 million, or $.65 per share on a diluted basis, for the corresponding period in 2001. Excluding both the 2002 restructuring charge and the 2001 goodwill amortization, net earnings for the nine-month period ended September 29, 2002, would have been $176.3 million, or $2.18 per share on a diluted basis, compared to $140.8 million, or $1.73 per share on a diluted basis, for the corresponding period in 2001. -18- BUSINESS SEGMENTS As more fully described in Note 7 of Notes to Consolidated Financial Statements, the Corporation operates in three reportable business segments: Power Tools and Accessories, Hardware and Home Improvement, and Fastening and Assembly Systems. Power Tools and Accessories Segment sales and profit for the Power Tools and Accessories segment, determined on the basis described in Note 7 of Notes to Consolidated Financial Statements, were as follows (in millions of dollars):
- ------------------------------------------------------------------------------------------------------ Three Months Ended Nine Months Ended September 29, September 30, September 29, September 30, 2002 2001 2002 2001 - ------------------------------------------------------------------------------------------------------ Sales to unaffiliated customers $767.6 $741.2 $2,209.9 $2,121.5 Segment profit 105.6 77.9 237.9 167.5 - ------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers in the Power Tools and Accessories segment during the third quarter of 2002 increased 4% over the 2001 level. Sales of power tools and accessories in North America increased at a mid-single-digit rate in the third quarter of 2002 over the corresponding period in 2001, reflecting a double-digit rate of growth in sales of consumer power tools and accessories. Sales of consumer power tools and accessories in North America increased in most product categories during the quarter and benefited from new product launches and success in the mass merchant channel. Sales of professional power tools and accessories in North America during the third quarter of 2002 matched the level of the third quarter of 2001, a period in which the business introduced a significant number of new products. During the three months ended September 29, 2002, the power tools and accessories business in North America benefited from orders in preparation for fourth-quarter promotions. The Corporation believes that, at September 29, 2002, the levels of its inventories held by certain large customers increased over the comparable levels held earlier in 2002. The Corporation attributes that increase to purchases by those customers in anticipation of planned fourth quarter promotional activities by both the Corporation and the customers. The Corporation's sales during the fourth quarter of 2002 could be adversely impacted if those promotional activities do not meet the customers' expectations. Sales of power tools and accessories in Europe increased at a low single-digit rate during the third quarter of 2002 over the corresponding period in 2001, as a high single-digit rate of growth in sales of professional power tools and accessories was offset by a low single-digit decline in sales of consumer products. Lower sales in Germany were more than offset by higher sales in most other European countries. The sales declines in Germany were mainly driven by the continued lower sales of consumer products. Sales of power tools and accessories in other geographic areas increased at a mid-single-digit rate for the third quarter of 2002 over the prior year level. Sales of consumer power tools and accessories increased at a high single-digit rate, while sales of professional power tools approximated the prior year's level. Segment profit as a percentage of sales for the Power Tools and Accessories segment was 13.8% for the three-month period ended September 29, 2002, compared to 10.5% for the -19- corresponding 2001 period. The increase in segment profit as a percentage of sales during the third quarter of 2002 was driven by higher gross margins and by slightly lower selling, general, and administrative expenses as a percentage of sales. The higher gross margins principally resulted from higher production levels in 2002 as compared to the lower levels experienced in the corresponding period in 2001 when the business took actions to reduce inventory levels. Gross margin improvements also resulted from savings gained through Six Sigma initiatives and restructuring actions, more favorable product mix, and a decrease in warranty costs during the third quarter of 2002. Gross margins in 2001 were also depressed by price reductions taken by the business in order to trim inventory levels. Segment profit as a percentage of sales during the third quarter of 2002 also increased due to the leverage of selling, general, and administrative expenses over the higher sales volume and to cost reduction initiatives. Sales to unaffiliated customers in the Power Tools and Accessories segment during the nine months ended September 29, 2002, increased 4% over the 2001 level. During the first nine months of 2002, sales of power tools and accessories in North America increased at a mid-single-digit rate over the same period in 2001. That increase resulted as sales of consumer power tools and accessories grew at a high single-digit rate and sales of professional power tools and accessories grew at a mid-single-digit rate. The consumer business experienced double-digit rates of growth in sales of both its outdoor and home products lines and a mid-single-digit rate of growth in sales of consumer power tools. The consumer business benefited from new product introductions and success in the mass merchant channels. Both the consumer and professional businesses in North America benefited from strong promotional activities during the first nine months of 2002. Sales of power tools and accessories in Europe during the first nine months of 2002 decreased at a low single-digit rate from the 2001 level. That decrease resulted as a mid-single-digit rate of increase in sales of professional power tools and accessories was offset by a mid-single-digit rate of decline in sales of consumer products. Lower sales in Germany and the United Kingdom were partially offset by higher sales in most other European countries. The sales declines in Germany and the United Kingdom were mainly driven by lower sales of consumer products, due to the exit of the lawnmower product line in the United Kingdom and to the high level of private label Asian-sourced inventory held by retailers. Sales of power tools and accessories in other geographic areas increased at a mid-single-digit rate in the first nine months of 2002 over the 2001 level. That increase occurred as sales of professional power tools and accessories increased at a low single-digit rate and sales of consumer power tools and accessories increased at a mid-single-digit rate. Segment profit as a percentage of sales for the Power Tools and Accessories segment was 10.8% for the first nine months of 2002 as compared to 7.9% for the corresponding period in 2001. The principal factors that contributed to this improvement also were the primary factors for the improvement in segment profit as a percentage of sales in the three months ended September 29, 2002, previously described. The higher gross margins for the first nine months of 2002 as compared to the corresponding period in 2001 were realized despite the business's provision for expected costs associated with product recalls. -20- Hardware and Home Improvement Segment sales and profit for the Hardware and Home Improvement segment, determined on the basis described in Note 7 of Notes to Consolidated Financial Statements, were as follows (in millions of dollars):
- ------------------------------------------------------------------------------------------------------ Three Months Ended Nine Months Ended September 29, September 30, September 29, September 30, 2002 2001 2002 2001 - ------------------------------------------------------------------------------------------------------ Sales to unaffiliated customers $177.6 $185.2 $571.0 $569.9 Segment profit 10.5 16.1 32.6 42.0 - ------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers in the Hardware and Home Improvement segment decreased 4% for the three months ended September 29, 2002, as compared to the 2001 level. Lower sales of plumbing products, coupled with lower sales of security hardware in Europe, more than offset a double-digit rate of growth in sales of security hardware in the rest of the world. During the third quarter of 2002, sales of plumbing products declined at a double-digit rate from the prior year level, principally as a result of its loss of shelf space at The Home Depot, and sales of security hardware in Europe also declined at a double-digit rate, principally due to weakness in the construction industry. Those declines were partially offset by a double-digit-rate of growth in sales of security hardware in the rest of the world, due primarily to the success of the brand and product repositioning introduced in North American home centers in late 2001 and to other retailers in 2002. As a result of a line review in 2002, the Corporation's plumbing products business will lose significant shelf space at The Home Depot. The plumbing products business expects to lose its shelf space at Home Depot stores in the central and eastern United States, and retain most of its shelf space at Home Depot stores in the western United States. The transition should be complete by the end of 2002. The Corporation expects that this loss of shelf space will negatively impact its plumbing product sales by approximately $15 million in 2002 and by approximately $50 million on an annual basis thereafter. While the plumbing products business is expected to take action to mitigate the impact of this sales loss, the Corporation believes that profitability of its plumbing products business will be adversely affected during the remainder of 2002 and beyond. Because the Corporation has goodwill associated with the plumbing products business, a sustained reduction in the future cash flows of that business beyond that currently anticipated could result in a non-cash write-down of goodwill. Sales to unaffiliated customers in the Hardware and Home Improvement segment for the nine months ended September 29, 2002, approximated the 2001 level. Sales of security hardware in North America grew at a high single-digit rate over the corresponding period in 2001 due to the brand and product repositioning previously described. That increase was substantially offset by a double-digit rate of decline in sales of plumbing products, due primarily to the effects of the loss of shelf space at The Home Depot, lower sales in non-home center channels, and a high single-digit rate of decline in sales of European security hardware. Segment profit as a percentage of sales for the Hardware and Home Improvement segment was 5.9% and 5.7% for the three and nine months ended September 29, 2002, respectively, compared to 8.7% and 7.4% for the three and nine months ended September 30, 2001, respectively. That decrease in segment profit as a percentage of sales for the three- and nine-month periods ended September 29, 2002, was principally due to declines in gross margins which were only partially -21- offset by lower selling, general, and administrative expenses as a percentage of sales. Those declines in gross margin resulted from lower production levels at North American security hardware and plumbing product plants, as those businesses took action to reduce inventory levels, and from lower production volumes at European security hardware plants in response to lower sales. In addition, gross margins were negatively impacted by costs related to restructuring activities underway in the plumbing products business. Lower selling, general, and administrative expenses as a percentage of sales for both the three- and nine-month periods ended September 29, 2002, principally resulted from restructuring actions that were taken in 2001 to reduce headcount and reduced promotional spending. Fastening and Assembly Systems Segment sales and profit for the Fastening and Assembly Systems segment, determined on the basis described in Note 7 of Notes to Consolidated Financial Statements, were as follows (in millions of dollars):
- ------------------------------------------------------------------------------------------------------ Three Months Ended Nine Months Ended September 29, September 30, September 29, September 30, 2002 2001 2002 2001 - ------------------------------------------------------------------------------------------------------ Sales to unaffiliated customers $123.4 $118.1 $376.2 $362.1 Segment profit 18.5 14.5 52.8 53.8 - ------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers in the Fastening and Assembly Systems segment increased 4% for the three-month period ended September 29, 2002, as compared to the corresponding 2001 level. That increase stemmed from mid-single-digit rates of increase in sales to automotive and industrial customers in North America, and customers in Asia, coupled with a low single-digit rate of increase in sales to automotive customers in Europe. Those increases were partially offset by lower sales to industrial customers in Europe, where sales declined at a low single-digit rate. Sales to unaffiliated customers in the Fastening and Assembly Systems segment increased 4% for the nine months ended September 29, 2002, over the corresponding 2001 period. Incremental sales associated with a distribution business acquired in April 2001 accounted for 3% of the 4% sales growth realized. A double-digit rate of increase in sales to automotive customers, including the effect of the business acquired in April 2001, was partially offset by a mid-single-digit rate of decline in sales to industrial customers, particularly in Europe. Segment profit as a percentage of sales for the Fastening and Assembly Systems segment was 15.0% for the three months ended September 29, 2002, compared to 12.3% for the corresponding period in 2001. That increase in segment profit as a percentage of sales for the three-month period was principally due to higher gross margins, reflecting higher production levels and lower material costs. Segment profit as a percentage of sales for the Fastening and Assembly Systems segment decreased from 14.9% in the first nine months of 2001 to 14.0% for the corresponding period in 2002. That decline in segment profit as a percentage of sales for the nine-month period was principally due to lower gross margins, reflecting the inherently lower margins in the distribution business acquired in April 2001, and unfavorable product mix. -22- Other Segment-Related Matters Amounts allocated to businesses in arriving at segment profit in excess of (less than) Corporate center operating expenses, eliminations, and other amounts identified in the final table included in Note 7 of Notes to Consolidated Financial Statements were $(21.4) million and $(56.3) million for the three- and nine-month periods ended September 29, 2002, respectively, compared to $(14.5) million and $(26.4) million for the comparable periods in 2001. The increase in these unallocated Corporate center operating expenses for the three and nine months ended September 29, 2002, as compared to the prior year levels, was primarily due to an increase in reserves for certain environmental remediation matters and to higher employee-related expenses, including certain centrally managed expenses not allocated directly to the Corporation's business segments. RESTRUCTURING ACTIVITY As more fully discussed in Note 9 of Notes to Consolidated Financial Statements and Item 7 of the Corporation's Annual Report on Form 10-K for the year ended December 31, 2001, under the caption "Restructuring Actions", during the fourth quarter of 2001, the Corporation formulated a restructuring plan--expected to be completed over a two- to three-year period at a total cost of approximately $190 million. During the fourth quarter of 2001, the Corporation commenced the first phase of that plan and recorded a $99.8 million pre-tax restructuring charge to reduce the Corporation's manufacturing cost base in its Power Tools and Accessories and Hardware and Home Improvement segments, as well as to reduce selling, general, and administrative expenses throughout all of its businesses. During the three and nine months ended September 29, 2002, the Corporation recorded a $38.4 million restructuring charge relating to its Power Tools and Accessories and Hardware and Home Improvement segments, bringing the project-to-date charges to $138.2 million. During the first nine months of 2002, the Corporation spent approximately $26.7 million on the restructuring plan. A number of the severance actions taken under the restructuring plan require payouts over time periods mandated by local authorities or by the Corporation's existing severance plans. The $38.4 million restructuring charge recognized by the Corporation during the three and nine months ended September 29, 2002, principally provides for the closure of a security hardware facility in Waynesboro, Georgia; closure of an accessories packaging facility in England; transfer of certain power tool production from a facility in England to a low-cost facility in the Czech Republic; and the elimination of certain administrative positions, principally in Europe. The Corporation anticipates that the pre-tax savings associated with its restructuring actions will benefit 2002 results by at least $10 million. The Corporation expects that pre-tax savings associated with its restructuring actions will approximate $60 million in 2003. The savings that the Corporation expects to achieve in 2002 and 2003 are net of restructuring-related expenses and inefficiencies inherent in the transfer of production and services. As more fully described in Note 1 of Notes to Consolidated Financial Statements, the Corporation is required to adopt SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, for restructuring actions initiated after December 31, 2002. As previously indicated, the overall restructuring plan, formulated in the fourth quarter of 2001, is expected to be completed over a two- to three-year period. The Corporation anticipates that additional restructuring actions under this overall plan will be undertaken during the balance of 2002 and/or the 2003-2004 timeframe. After adoption of SFAS No. 146 in 2003, the timing of recognition of -23- certain costs--associated with restructuring actions to be taken by the Corporation in the future--will be affected. The Corporation believes that the impact of the adoption of SFAS No. 146 will be mitigated as the new standard excludes from its scope two significant components of its overall restructuring plan--severance benefits that are subject to an on-going benefit arrangement and asset impairments. The Corporation is committed to continuous productivity improvement and continues to evaluate opportunities to reduce fixed costs, simplify or improve processes, and eliminate excess capacity. FINANCIAL CONDITION Operating activities provided cash of $234.0 million for the nine months ended September 29, 2002, compared to $100.5 million of cash provided in the corresponding period in 2001. The increase in cash provided by operating activities during the nine months ended September 29, 2002, was primarily a result of the amount and timing of payments on certain accrued liabilities, including the favorable timing of income tax payments, and higher net earnings. 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 at September 29, 2002, improved slightly as compared to the number of days sales outstanding at September 30, 2001. Inventory turns at September 29, 2002, increased in comparison to the corresponding period in 2001 as a result of the Corporation's focus on reducing inventory levels. The Corporation expects that its year-end inventory level for 2002 will be similar to 2001, reflecting additional safety stock required to implement its restructuring program. Investing activities for the nine months ended September 29, 2002, used cash of $64.9 million compared to $122.8 million of cash used for the corresponding period in 2001. Cash flow from investing activities for the nine-month period ended September 30, 2001, included the use of $30.5 million associated with the acquisition of the automotive division of Bamal Corporation. Cash flow from investing activities benefited from lower capital expenditures during the first nine months of 2002 compared to the corresponding period in 2001. The Corporation anticipates that its capital spending in 2002 will be lower than capital spending in 2001. Financing activities used cash of $48.2 million for the nine-month period ended September 29, 2002, compared to cash provided of $26.2 million during the first nine months of 2001. The decrease in cash provided from financing activities is primarily the result of reduced cash proceeds from the issuance of long-term debt, lower outstanding borrowings under the Corporation's short-term credit facilities during the 2002 period as compared to the 2001 period when the Corporation was reducing its borrowing levels, and stock repurchases that occurred during the 2001 period. As discussed further in Note 4 of Notes to Consolidated Financial Statements, in April 2002, the Corporation entered into a $250 million 364-day unsecured revolving credit facility. This facility replaced the Corporation's former $400 million 364-day unsecured revolving credit facility. The Corporation reduced the borrowing availability under the facility based upon its anticipated short-term financing needs. During the nine months ended September 29, 2002, the Corporation did not repurchase any shares of its common stock. At September 29, 2002, the Corporation had remaining authorization from its Board of Directors to repurchase 1,911,595 shares of its common stock. On October 23, 2002, the Corporation announced that, in order to reduce account servicing -24- costs, it has implemented a Selling/Purchasing Program (the "program") for stockholders who, as of November 4, 2002, own fewer than 100 shares of the Corporation's common stock. The Corporation anticipates that the maximum amount of common stock that will be repurchased under the program will be approximately 215,000 shares. As discussed further in Note 10 of Notes to Consolidated Financial Statements, in accordance with SFAS No. 87, Employers' Accounting for Pensions, the Corporation expects to record a minimum pension liability adjustment at December 31, 2002 that will result in a direct charge to stockholders' equity of approximately $350 million, net of tax. That charge to stockholders' equity will not impact the Corporation's compliance with its covenants under its borrowing agreements, net earnings in 2002, or cash flow in 2002. The Corporation anticipates that the expense recognized relating to its pension benefit plans in 2003 will increase by approximately $20 million from the 2002 levels. 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 the financial community, is defined by the Corporation as cash flow from operating activities, less capital expenditures, plus proceeds from the disposal of assets (excluding proceeds from business sales). During the nine months ended September 29, 2002, the Corporation had free cash flow of $167.7 million compared to free cash flow of $8.2 million for the corresponding period in 2001. The variable rate debt to total debt ratio, after taking interest rate hedges into account, was 52% at September 29, 2002, compared to 51% at December 31, 2001. Average debt maturity was 7.4 years at September 29, 2002, compared to 7.9 years at December 31, 2001. 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 risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements for a number of reasons, including but not limited to those factors identified in Item 1(f) of Part I of the Corporation's Annual Report on Form 10-K for the year ended December 31, 2001. An additional risk factor that should be considered is the effect of the U.S. longshoreman's lockout at West Coast -25- ports on the Corporation's ability to obtain products from its facilities and suppliers in China and elsewhere in a timely and cost-effective manner. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information required under this Item is contained under the caption "Hedging Activities," included in Item 7, and in Notes 1 and 9 of Notes to Consolidated Financial Statements included in Item 8 of the Corporation's Annual Report on Form 10-K for the year ended December 31, 2001, and is incorporated by reference herein. There have been no material changes in the reported market risks since the end of the most recent fiscal year. ITEM 4. CONTROLS AND PROCEDURES (a) Within 90 days prior to the date of this report, the Corporation carried out an evaluation--under the supervision and with the participation of the Corporation's management, including the Corporation's Chief Executive Officer and Chief Financial Officer--of the effectiveness of the design and operation of the Corporation's disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Corporation's Chief Executive Officer and Chief Financial Officer have concluded that the Corporation's disclosure controls and procedures are effective. (b) There have been no significant changes in the Corporation's internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation described in the preceding paragraph. -26- THE BLACK & DECKER CORPORATION PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Corporation is involved in various lawsuits in the ordinary course of business. 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. 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. 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 these 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 the sites, however, the Corporation has established appropriate liability accruals. 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. As of September 29, 2002, the Corporation's aggregate probable exposure with respect to environmental liabilities, for which accruals have been established in the Consolidated Financial Statements, was $39.4 million. As of September 29, 2002, the Corporation had no known probable but inestimable exposures for awards and assessments in connection with environmental matters and litigation and administrative proceedings that are expected to have a material adverse effect on the Corporation. 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. -27- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibit No. Description 3 Bylaws of the Corporation, as amended. 99.0 Chief Executive Officer's Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002. 99.1 Chief Financial Officer's Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002. On July 23, 2002, the Corporation filed a Current Report on Form 8-K with the Commission. That Current Report on Form 8-K, filed pursuant to Item 5 of that Form, stated that, on July 23, 2002, the Corporation had reported its earnings for the three and six months ended June 30, 2002. On August 12, 2002, the Corporation filed a Current Report on Form 8-K with the Commission. That Current Report on Form 8-K, filed pursuant to Item 9 of that Form, stated that, on August 12, 2002, the Corporation's principal executive officer and principal financial officer submitted to the Securities and Exchange Commission sworn statements pursuant to Securities and Exchange Commission Order No. 4-460. On September 23, 2002, the Corporation filed a Current Report on Form 8-K with the Commission. That Current Report on Form 8-K, filed pursuant to Item 9 of that Form, stated that, on September 23, 2002, the Corporation announced that it affirmed comfort with consensus earnings estimates for the third quarter and full year 2002 despite the loss of shelf space by its plumbing products business. The Corporation did not file any other reports on Form 8-K during the three-month period ended September 29, 2002. All other items were not applicable. -28- THE BLACK & DECKER CORPORATION S I G N A T U R E S Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE BLACK & DECKER CORPORATION By /s/ MICHAEL D. MANGAN ----------------------------------------------------- Michael D. Mangan Senior Vice President and Chief Financial Officer Principal Accounting Officer By /s/ CHRISTINA M. McMULLEN ----------------------------------------------------- Christina M. McMullen Vice President and Controller Date: November 11, 2002 -29- THE BLACK & DECKER CORPORATION C E R T I F I C A T I O N S I, Nolan D. Archibald, certify that: 1. I have reviewed this quarterly report on Form 10-Q of The Black & Decker Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ NOLAN D. ARCHIBALD - ------------------------------------------------ Nolan D. Archibald Chairman, President, and Chief Executive Officer November 11, 2002 -30- THE BLACK & DECKER CORPORATION C E R T I F I C A T I O N S I, Michael D. Mangan, certify that: 1. I have reviewed this quarterly report on Form 10-Q of The Black & Decker Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ MICHAEL D. MANGAN - ------------------------------------------------- Michael D. Mangan Senior Vice President and Chief Financial Officer November 11, 2002 EX-3.(II) 3 form10q09292002b.txt EXHIBIT 3 BYLAWS Adopted 10/17/96 Amended 07/16/98 Amended 12/10/98 Amended 02/11/99 Amended 07/20/00 Amended 07/19/01 Amended 10/17/02 BYLAWS OF THE BLACK & DECKER CORPORATION ARTICLE I Stockholders SECTION 1. Annual Meeting. -------------- The annual meeting of stockholders shall be held on the last Tuesday in April of each year or on such day within 15 days thereof and at such time and at such place as the Board of Directors may by resolution provide for the purpose of electing directors and for the transaction of only such other business as is properly brought before the meeting in accordance with these Bylaws. To be properly brought before the meeting, business must be either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board, (b) otherwise properly brought before the meeting by or at the direction of the Board, or (c) otherwise properly brought before the meeting by a stockholder. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, the stockholder must have given written notice thereof that is received by the Secretary of the Corporation at the principal executive offices of the Corporation not less than 90 days nor more than 110 days prior to the meeting; provided, however, that in the event that less than 100 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder must be so received not later than the close of business on the 10th day following the day on which the notice of the date of the annual meeting was mailed or the public disclosure was made, whichever first occurred. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of the stockholder proposing such business, (iii) the class and number of shares of the Corporation which are beneficially owned by the stockholder, and (iv) any material interest of the stockholder in such business. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this section, provided, however, that nothing in this section shall be deemed to preclude discussion by any stockholder of any business properly brought before the annual meeting. The Chairman of the annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Article, and if the Chairman should so determine, he or she shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. SECTION 2. Special Meetings. ---------------- Special meetings of the stockholders may be called at any time for any purpose or purposes by the Chief Executive Officer, by a majority of the Board of Directors, or by a majority of the Executive Committee. Stockholders entitled to cast a majority of all votes entitled to be cast at a special meeting may request that the Board of Directors call a special meeting of the stockholders for the purpose or purposes stated in the written request. Upon receiving the request, the Board of Directors shall determine the validity of the request and, if valid, shall determine the time (which shall be not less than 90 nor more than 110 days from the date the request was received) and place of the meeting. However called, the Secretary shall give notice of the time and place of the special meeting and the business to be transacted at the meeting. No business other than that stated in the notice shall be transacted at any special meeting. SECTION 3. Place of Meetings. ----------------- All meetings of stockholders shall be held at the principal offices of the Corporation at Towson, Baltimore County, Maryland, or at such other location in the United States of America as the Board of Directors may provide in the notice of the meeting. SECTION 4. Notice of Meetings. ------------------ Notice of each meeting of the stockholders shall be given to each stockholder either by written notice mailed to the stockholder's mailing address as it appears on the records of the Corporation or by a form of electronic transmission to an address consented to by the stockholder. The notice shall be given not more than 90 nor less than 20 days before the meeting and shall state the place, day, and hour at which the meeting is to be held. Notice of a meeting of the stockholders does not need to be given to any stockholder who waives notice in a signed writing filed with the records of the meeting either before or after the meeting is held. SECTION 5. Quorum. ------ At any meeting of stockholders the presence in person or by proxy of the holders of record of a majority of the shares of stock entitled to vote at the meeting shall constitute a quorum. In the absence of a quorum, the stockholders entitled to vote who shall be present in person or by proxy at any meeting (or adjournment thereof) may, by a majority vote and without further notice, adjourn the meeting from time to time, but not for a period of over thirty days at any one time, until a quorum shall attend. At any adjourned meeting at which a quorum shall be present, any business may be transacted that could have been transacted if the meeting had been held as originally scheduled. SECTION 6. Conduct of Meetings. ------------------- Meetings of stockholders shall be presided over by the Chairman of the Board of Directors of the Corporation or, in the Chairman's absence, by the Vice Chairman of the Board, or if both of such officers are absent, by the President of the Corporation. The Secretary of the Corporation shall act as secretary of meetings of the stockholders and in the Secretary's absence, the records of the proceedings shall be kept and authenticated by such other person as may be appointed for that purpose at the meeting by the presiding officer. To participate in a meeting, stockholders must be present in person or by proxy; stockholders may not participate by means of a conference telephone or other communications equipment. The rules contained in the current edition of Robert's Rules of Order Newly Revised shall govern in all cases to which they are applicable and in which they are not inconsistent with these Bylaws and any special rules of order that the meeting may adopt. SECTION 7. Approval of Minutes. ------------------- The minutes of all meetings of stockholders shall be corrected and approved by a committee of directors designated by the Board and if none is designated, by the Organization Committee. At a subsequent meeting of stockholders, a synopsis of the minutes shall be read for information at the request of the presiding officer or any stockholder. SECTION 8. Proxies. ------- Stockholders may vote either in person or by proxy, and if by proxy, in any manner authorized by the Maryland General Corporation Law. A proxy that is dated more than 11 months before the meeting at which it is offered shall not be accepted unless the proxy shall state a longer period for which it is to remain in force. A written proxy shall be dated and signed by the stockholder, or the stockholder's duly authorized agent but need not be sealed, witnessed or acknowledged. Proxies shall be filed with the Secretary of the Corporation at or before the meeting. SECTION 9. Voting. ------ Except as otherwise provided in the charter of the Corporation, at all meetings of stockholders, each holder of shares of Common Stock shall be entitled to one vote for each share of stock of the Corporation registered in the stockholder's name upon the books of the Corporation on the date fixed by the Board of Directors as the record date for the determination of stockholders entitled to vote at the meeting. Except as otherwise provided in the charter of the Corporation, all elections and matters submitted to a vote at meetings of stockholders shall be decided by a majority of all votes cast in person or by proxy, unless more than a majority of the votes cast is required by statute, by charter, or by these Bylaws. If the presiding officer shall so determine, a vote by ballot may be taken upon any election or matter, and the vote shall be so taken upon the request of the holders of ten percent of the stock present and entitled to vote on the election or matter. If the presiding officer shall so determine, the votes on all matters to be voted upon by ballot may be postponed to be voted on at the same time or on a single ballot. SECTION 10. Inspectors of Elections. ----------------------- One or more inspectors may be appointed by the presiding officer at any meeting. If so appointed, the inspector or inspectors shall open and close the polls, receive and take charge of the proxies and ballots, decide all questions as to the qualifications of voters and the validity of proxies, determine and report the results of elections and votes on matters before the meeting, and do such other acts as may be proper to conduct the election and the vote with fairness to all stockholders. SECTION 11. List of Stockholders. -------------------- Prior to each meeting of the stockholders, the Secretary of the Corporation shall prepare, as of the record date fixed by the Board of Directors with respect to the meeting, a full and accurate list of all stockholders entitled to vote at the meeting, indicating the number of shares and class of stock held by each. The Secretary shall be responsible for the production of that list at the meeting. ARTICLE II Board of Directors SECTION 1. Powers. ------ The property, business, and affairs of the Corporation shall be managed by the Board of Directors of the Corporation. The Board of Directors may exercise all the powers of the Corporation, except those conferred upon or reserved to the stockholders by statute, by charter or by these Bylaws. The Board of Directors shall keep minutes of each of its meetings and a full account of all of its transactions. SECTION 2. Number of Directors. ------------------- The number of directors of the Corporation shall be 14 or such lesser number not less than eight as may from time to time be determined by the vote of three-fourths of the entire Board of Directors. However, the tenure of Office of a director shall not be affected by any change in number. SECTION 3. Nomination of Directors. ----------------------- Only persons who are nominated in accordance with the following procedures shall be eligible for election as Directors at a meeting of stockholders. Nominations of persons for election as Directors may be made at a meeting of stockholders by or at the direction of the Board of Directors by any nominating committee or person appointed by the Board or by any stockholder of the Corporation entitled to vote for the election of Directors at the meeting who complies with the notice procedures set forth in this section. Nominations, other than those made by or at the direction of the Board, shall be made pursuant to written notice delivered to or mailed and received by the Secretary of the Corporation at the principal executive offices of the Corporation not less than 90 days nor more than 110 days prior to the meeting; provided, however, that in the event that less than 100 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder must be so received not later than the close of business on the 10th day following the day on which notice of the date of the meeting was mailed or public disclosure was made, whichever first occurred. The notice to the Secretary shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a Director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of capital stock of the Corporation which are beneficially owned by the person and (iv) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of Directors pursuant to Rule 14a under the Securities Exchange Act of 1934; and (b) as to the stockholder giving the notice (i) the name and record address of stockholder and (ii) the class and number of shares of capital stock of the Corporation which are beneficially owned by the stockholder. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of the proposed nominee to serve as Director of the Corporation. The presiding officer of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if the presiding officer shall so determine and shall so declare to the meeting, the defective nomination shall be disregarded. SECTION 4. Election. -------- Except as hereinafter provided, the members of the Board of Directors shall be elected each year at the annual meeting of stockholders by the vote of the holders of record of a majority of the shares of stock present in person or by proxy and entitled to vote at the meeting. Each director shall hold office until the next annual meeting of stockholders held after his or her election and until his or her successor shall have been duly elected and qualified, or until death, or until he or she shall have resigned, or shall have been removed as hereinafter provided. Each person elected as director of the Corporation shall qualify as such by written acceptance or by attendance at and participation as a director in a duly called meeting of the Board of Directors. SECTION 5. Removal. ------- At a duly called meeting of the stockholders at which a quorum is present, the stockholders may, by vote of the holders of a majority of the votes entitled to be cast at the meeting, remove with or without cause any director or directors from office, and may elect a successor or successors to fill any resulting vacancy for the remainder of the term of the director so removed. SECTION 6. Vacancies. --------- If any director shall die or resign, or if the stockholders shall remove any director without electing a successor to fill the remaining term, that vacancy may be filled by the vote of a majority of the remaining members of the Board of Directors, although a majority may be less than a quorum. Vacancies in the Board created by an increase in the number of directors may be filled by the vote of a majority of the entire Board as constituted prior to the increase. A director elected by the Board of Directors to fill any vacancy, however created, shall hold office until the next annual meeting of stockholders and until his or her successor shall have been duly elected and qualified. SECTION 7. Meetings. -------- Immediately after each annual meeting of stockholders at which a Board of Directors shall have been elected, the Board of Directors shall meet, without notice, for the election of an Executive Committee of the Board of Directors, for the election of officers of the Corporation, and for the transaction of other business. Other regular meetings of the Board of Directors shall be held in the months of February, July, October and December on the day and at the time designated by the Chief Executive Officer. Special meetings of the Board of Directors may be called at any time by the Chief Executive Officer or by any two directors. Regular and special meetings of the Board of Directors may be held at such place, in or out of the State of Maryland, as the Board may from time to time determine. SECTION 8. Notice of Meetings. ------------------ Except for the meeting immediately following the annual meeting of stockholders, notice of the place, day and hour of a regular meeting of the Board of Directors shall be given in writing to each director not less than three days prior to the meeting and delivered to the director or to the director's residence or usual place of business, or by mailing it, postage prepaid and addressed to the director at his or her address as it appears upon the records of the Corporation. Notice of special meetings may be given in the same way, or may be given personally, by telephone, or by telegraph or facsimile message sent to the director's home or business address as it appears upon the records of the Corporation, not less than one day prior to the meeting. Unless required by these Bylaws or by resolution of the Board of Directors, no notice of any meeting of the Board of Directors need state the business to be transacted at the meeting. No notice of any meeting of the Board of Directors need be given to any director who attends, or to any director who, in writing executed and filed with the records of the meeting either before or after the holding thereof, waives notice. SECTION 9. Quorum. ------ A majority of the Board of Directors shall constitute a quorum for the transaction of business at meetings of the Board of Directors. Except as otherwise provided by statute, by charter, or by these Bylaws, the vote of a majority of the directors present at a duly constituted meeting shall be sufficient to pass any measure, and such decision shall be the decision of the Board of Directors. In the absence of a quorum, the directors present, by majority vote and without further notice, may adjourn the meeting from time to time until a quorum shall be present. The Board of Directors may also take action or make decisions by any other method which may be permitted by statute, by charter, or by these Bylaws. SECTION 10. Presumption of Assent. --------------------- A director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless the director announces his or her dissent at the meeting, and (a) the dissent is entered in the minutes of the meeting, (b) before the meeting adjourns the director files with the person acting as the secretary of the meeting a written dissent to the action, or (c) the director forwards a written dissent within 24 hours after the meeting is adjourned by registered or certified mail to the Secretary of the Corporation. The right to dissent does not apply to a director who voted in favor of the action or who failed to announce his or her dissent at the meeting. A director may abstain from voting on any matter before the meeting by so stating at the time the vote is taken and by causing the abstention to be recorded or stated in writing in the same manner as provided above for a dissent. SECTION 11. Compensation. ------------ Each director shall be entitled to receive such remuneration as may be fixed from time to time by the Board of Directors. However, no director who receives a salary as an officer or employee of the Corporation or of any subsidiary thereof shall receive any remuneration as a director or as a member of any committee of the Board of Directors. Each director may also receive reimbursement for the reasonable expenses incurred in attending the meetings of the Board of Directors, the meetings of any committee thereof, or otherwise in connection with attending to the affairs of the Corporation. ARTICLE III Committees SECTION 1. Executive Committee. ------------------- At its first meeting after the annual meeting of the stockholders, the Board of Directors shall elect an Executive Committee consisting of at least five members of the Board, of whom the Chairman of the Board, if any, shall be one. The Board shall designate a Chairman of the Committee who shall serve as Chairman of the Committee at the pleasure of the Board. During the intervals between the meetings of the Board of Directors, the Executive Committee shall possess and may exercise all powers in the management and direction of the business and affairs of the Corporation except as limited by the Maryland General Corporation Law or by resolution of the Board of Directors. All action taken by the Executive Committee shall be reported to the Board of Directors at its meeting next succeeding such action, and shall be subject to revision and alteration by the Board, provided that no rights of third parties may be adversely affected by any revision or alteration. Delegation of authority to the Executive Committee shall not relieve the Board of Directors or any director of any responsibility imposed by law or statute or by charter. SECTION 2. Other Committees. ---------------- From time to time the Board of Directors by resolution adopted by the affirmative vote of a majority of the members of the entire Board may provide for and appoint other committees to have the powers and perform the duties assigned to them by the Board of Directors. SECTION 3. Meetings of Committees. ---------------------- Each Committee of the Board of Directors shall fix its own rules of procedure, and shall meet as provided by those rules or by resolution of the Board, or at the call of the chairman or any two members of the committee. A majority of each committee shall constitute a quorum thereof, and in every case the affirmative vote of a majority of the entire committee shall be necessary to take any action. Each committee may also take action by any other method that may be permitted by statute, by charter, or by these Bylaws. In the event a member of a committee fails to attend any meeting of the committee, the other members of the committee present at the meeting, whether or not they constitute a quorum, may appoint a member of the Board of Directors to act in the place of the absent member. Regular minutes of the proceedings of each committee and a full account of all its transactions shall be kept in a book provided for the purpose, except that the Organization Committee shall not be required to keep minutes. Vacancies in any committee of the Board of Directors shall be filled by the Board of Directors. ARTICLE IV Officers SECTION 1. Election and Tenure. ------------------- The Board of Directors may elect a Chairman and a Vice Chairman from among the directors. The Board of Directors shall elect a President, a Treasurer and a Secretary, and one or more Vice Presidents, one or more Assistant Treasurers, one or more Assistant Secretaries, and such other officers with such powers and duties as the Board may designate, none of whom need be a director. Each officer shall hold office until the first meeting of the Board of Directors after the annual meeting of stockholders next succeeding his or her election and until a successor shall have been duly chosen and qualified or until he or she shall have resigned or been removed. All elections to office shall be by a majority vote of the entire Board of Directors. SECTION 2. Chairman of the Board. --------------------- The Chairman of the Board shall preside at all meetings of stockholders and of the Board of Directors at which he or she shall be present. The Chairman shall have such other powers and perform such other duties as from time to time may be assigned by the Board of Directors. SECTION 3. Vice Chairman of the Board. -------------------------- The Vice Chairman of the Board, in the absence of the Chairman of the Board, shall preside at all meetings of stockholders and the Board of Directors. (In the absence of the Chairman and the Vice Chairman, the Board of Directors shall elect a chairman of the meeting.) The Vice Chairman shall have such other powers and perform such other duties as from time to time may be assigned by the Board of Directors or by the Chairman of the Board. SECTION 4. President. --------- The President shall be the Chief Executive Officer of the Corporation and, subject to the control of the Board of Directors and the Executive Committee, shall have general charge and supervision of the Corporation's business, affairs, and properties. The President shall have authority to sign and execute, in the name of the Corporation, all authorized deeds, mortgages, bonds, contracts or other instruments. The President may sign, with the Secretary or the Treasurer, stock certificates of the Corporation. In the absence of the Chairman and the Vice Chairman of the Board, the President shall preside at meetings of stockholders. In general, the President shall perform all the duties ordinarily incident to the office of a president of a corporation, and such other duties as, from time to time, may be assigned by the Board of Directors or by the Executive Committee. SECTION 5. Vice Presidents. --------------- Each Vice President, which term shall include any Executive Vice President or Group Vice President, shall have the power to sign and execute, unless otherwise provided by resolution of the Board of Directors, all contracts or other obligations in the name of the Corporation in the ordinary course of business, and with the Secretary, or with the Treasurer, or with an Assistant Secretary, or with an Assistant Treasurer, may sign stock certificates of the Corporation. At the request of the President or in the President's absence or during the President's inability to act, the Vice President or Vice Presidents shall perform the duties and exercise the functions of the President, and when so acting shall have the powers of the President. If there is more than one Vice President, the Board of Directors may determine which one or more of the Vice Presidents shall perform any of such duties or exercise any of such functions, or if the determination is not made by the Board, the President may make the determination. The Vice President or Vice Presidents shall have such other powers and perform such other duties as may be assigned by the Board of Directors or by the President. For purposes of this Article IV, Section 5, the term Vice President does not include a Vice President appointed pursuant to Article IV, Section 9. SECTION 6. Secretary. --------- The Secretary shall keep the minutes of the meetings of the stockholders, of the Board of Directors, and of the Executive Committee, including all the votes taken at the meetings, and record them in books provided for that purpose. The Secretary shall see that all notices are duly given in accordance with the provisions of these Bylaws or as required by statute. The Secretary shall be the custodian of the records and of the corporate seal of the Corporation. The Secretary may affix the corporate seal to any document executed on behalf of the Corporation, and may attest the same. The Secretary may sign, with the President or a Vice President, stock certificates of the Corporation. In general, the Secretary shall perform all duties ordinarily incident to the office of a secretary of a corporation, and such other duties as, from time to time, may be assigned by the Board of Directors or by the President. SECTION 7. Treasurer. --------- The Treasurer shall have charge of and be responsible for all funds, securities, receipts and disbursements of the Corporation, and shall deposit or cause to be deposited, in the name of the Corporation, all moneys or other valuable effects in such banks, trust companies, or depositories as may be designated by the Board of Directors. The Treasurer shall maintain full and accurate accounts of all assets, liabilities and transactions of the Corporation, and shall render to the President and the Board of Directors, whenever they may require it, an account of all transactions as Treasurer and of the financial condition of the Corporation. In general, the Treasurer shall perform all the duties ordinarily incident to the office of a treasurer of a corporation, and such other duties as, from time to time, may be assigned to him or her by the Board of Directors or by the President. The Treasurer shall give the Corporation a bond, if required by the Board of Directors, in a sum, and with one or more sureties, satisfactory to the Board of Directors, for the faithful performance of the duties of the office and for the restoration to the Corporation in case of death, resignation, retirement or removal from office of all corporate books, papers, vouchers, moneys, and other properties of whatever kind in his or her possession or under his or her control. SECTION 8. Subordinate Officers. -------------------- The subordinate officers shall consist of such assistant officers and agents as may be deemed desirable and as may be elected by a majority of the members of the Board of Directors. Each such subordinate officer shall hold office for such period, have such authority and perform such duties as the Board of Directors may prescribe. SECTION 9. Appointed Vice Presidents. ------------------------- The Chief Executive Officer may from time to time appoint one or more Vice Presidents with such administrative powers and duties as may be designated or approved by the Chief Executive Officer. An appointed Vice President shall not be a corporate officer and may be removed by the Chief Executive Officer. SECTION 10. Officers Holding Two or More Offices. ------------------------------------ Any two or more of the above named offices, except those of Chairman and Vice Chairman of the Board and those of President and Vice President, may be held by the same person, but no officer shall execute, acknowledge or verify any instrument in more than one capacity, if the instrument is required by statute, by charter, by these Bylaws, or by resolution of the Board of Directors to be executed, acknowledged, or verified by two or more officers. SECTION 11. Compensation. ------------ The Board of Directors shall have power to fix the compensation of all officers of the Corporation. It may authorize any officer upon whom the power of appointing subordinate officers may have been conferred to fix the compensation of the subordinate officers. SECTION 12. Removal. ------- Any officer of the Corporation may be removed, with or without cause, by a vote of a majority of the entire Board of Directors, and any officer of the Corporation appointed by another officer may also be removed, with or without cause, by the appointing officer, by the Executive Committee, or by the Board of Directors. SECTION 13. Vacancies. --------- A vacancy in any office because of death, resignation, removal, or any other cause shall be filled for the unexpired portion of the term by election of the Board of Directors at any regular or special meeting. ARTICLE V Stock SECTION 1. Certificates. ------------ Each stockholder shall be entitled to a certificate or certificates which shall represent and certify the number and kind of shares of the Corporation's stock owned by the stockholder for which full payment has been made, or for which payment is being made by installments in conjunction with a stockholder-approved option plan. Each stock certificate shall be signed by the Chairman, the President or a Vice President and countersigned by the Secretary or Treasurer or Assistant Treasurer of the Corporation. A stock certificate shall be deemed to be so signed and sealed whether the required signatures are manual or facsimile signatures and whether the seal is a facsimile seal or any other form of seal. In case any officer of the Corporation who has signed a stock certificate ceases to be an officer of the Corporation, whether because of death, resignation or otherwise, before the stock certificate is issued, the certificate may nevertheless be issued and delivered by the Corporation as if the officer had not ceased to be such officer on the date of issue. SECTION 2. Transfer of Shares. ------------------ Shares of stock shall be transferable only on the books of the Corporation by the holder thereof, in person or by duly authorized agent, upon the surrender of the stock certificate representing the shares to be transferred, properly endorsed. The Board of Directors shall have power and authority to make other rules and regulations concerning the issue, transfer and registration of stock certificates as it may deem expedient. SECTION 3. Transfer Agents and Registrars. ------------------------------ The Corporation may have one or more transfer agents and one or more registrars of its stock, whose respective duties the Board of Directors may, from time to time, define. No stock certificate shall be valid until countersigned by a transfer agent, if the Corporation has a transfer agent in respect of that class or series of capital stock, or until registered by a registrar, if the Corporation has a registrar in respect of that class or series of capital stock. The duties of transfer agent and registrar may be combined. SECTION 4. New Certificates. ---------------- In case any stock certificate is alleged to have been lost, stolen, mutilated, or destroyed, the Board of Directors may authorize the issue of a new certificate in place thereof upon such terms and conditions as it may deem advisable. The Board of Directors may, in its discretion, further require the owner of the stock certificate or the owner's duly authorized agent to give bond with sufficient surety to the Corporation to indemnify it against any loss or claim which may arise by reason of the issue of a stock certificate in the place of one reportedly lost, stolen, or destroyed. SECTION 5. Record Dates. ------------ The Board of Directors may fix, in advance, a date as the record date for the purpose of determining those stockholders who shall be entitled to notice of, or to vote at, any meeting of stockholders, or for the purpose of determining those stockholders who shall be entitled to receive payment of any dividend or the allotment of any rights, or for the purpose of making any other proper determination with respect to stockholders. The date shall be not more than 90 days, and in the case of a meeting of stockholders, not less than 20 days, prior to the date on which the particular action, requiring such determination of stockholders, is to be taken. In lieu of fixing a record date, the Board of Directors may provide that the stock transfer books shall be closed for a stated period, not to exceed in any case 20 days. When the stock transfer books are closed for the purpose of determining stockholders entitled to notice of or to vote at a meeting of stockholders, the closing of the transfer books shall be at least 10 days before the date of the meeting. SECTION 6. Annual Report. ------------- The President of the Corporation shall annually prepare a full and correct statement of the affairs of the Corporation, including a balance sheet and a financial statement of operations for the preceding fiscal year. These statements shall be sent to the extent possible to each beneficial owner of the stock of the Corporation prior to or with the proxy statement and notice to stockholders of the annual meeting of stockholders. It will be submitted at the annual meeting, and within 20 days thereafter be placed on file at the Corporation's principal offices in Maryland. ARTICLE VI Dividends and Finance SECTION 1. Dividends. --------- Subject to any statutory or charter conditions and limitations, the Board of Directors may in its discretion declare what, if any, dividends shall be paid from the surplus or from the net profits of the Corporation, the date when the dividends shall be payable, and the date for the determination of holders of record to whom the dividends shall be paid. SECTION 2. Depositories. ------------ The Board of Directors from time to time shall designate one or more banks or trust companies as depositories of the Corporation and shall designate those officers and agents who shall have authority to deposit corporate funds in such depositories. It shall also designate those officers and agents who shall have authority to withdraw from time to time any or all of the funds of the Corporation so deposited upon checks, drafts, or orders for the payment of money, notes and other evidences of indebtedness, drawn against the account and issued in the name of the Corporation. The signatures of the officers or agents may be made manually or by facsimile. No check or order for the payment of money shall be invalidated because a person whose signature appears thereon has ceased to be an officer or agent of the Corporation prior to the time of payment of the check or order by any depository. SECTION 3. Corporate Obligations. --------------------- No loans shall be contracted on behalf of the Corporation and no evidences of indebtedness or guaranties of the obligations of others shall be issued in the name of the Corporation unless authorized by a resolution of the Board of Directors. Such authority may be either general or specific. When duly authorized, all loans, promissory notes, acceptances, other evidences of indebtedness and guaranties shall be signed by the President, a Vice President, the Treasurer, or an Assistant Treasurer. SECTION 4. Fiscal Year. ----------- The fiscal year of the Corporation shall begin on the first day of January and end on the last day of December of each year. ARTICLE VII Books and Records SECTION 1. Books and Records. ----------------- The Corporation shall maintain a stock ledger which shall contain the name and address of each stockholder and the number of shares of stock of the Corporation which the stockholder holds. The ledger shall be kept at the principal offices of the Corporation in Towson, Baltimore County, Maryland, or at the offices of the Corporation's stock transfer agent. All other books, accounts, and records of the Corporation, including the original or a certified copy of these Bylaws, the minutes of all stockholders meetings, a copy of the annual statement, and any voting trust agreements on file with the Corporation, shall be kept and maintained by the Secretary at the principal offices of the Corporation in Towson. SECTION 2. Inspection Rights. ----------------- Except as otherwise provided by statute or by charter, the Board of Directors shall determine whether and to what extent the books, accounts, and records of the Corporation, or any of them, shall be open to the inspection of stockholders. No stockholder shall have any right to inspect any book, account, document or record of the Corporation except as conferred by statute, by charter, or by resolution of the stockholders or the Board of Directors. ARTICLE VIII Seal SECTION 1. Seal. ---- The seal of the Corporation shall consist of a circular impression bearing the name of the Corporation and the word "Maryland" around the rim and in the center the word "Incorporated" and the year "1910." ARTICLE IX Indemnification SECTION 1. Indemnification. --------------- The Corporation to the full extent permitted by, and in the manner permissible under, the laws of the State of Maryland and other applicable laws and regulations may indemnify any person who is or was an employee or agent of the Corporation or who is or was serving at the request of the Corporation as an employee or agent of another corporation or entity and shall indemnify any person who is or was serving as an officer or director of the Corporation or at the request of the Corporation as an officer or director of another corporation or entity, who by reason of his or her position was, is, or is threatened to be made a party to an action or proceeding, whether civil, criminal, administrative, or investigative, against any and all expenses (including, but not limited to, attorneys' fees, judgments, fines, penalties and amounts paid in settlement) actually incurred by the director, officer, employee or agent in connection with the proceeding. Repeal or modification of this Section or the relevant law shall not affect adversely any rights or obligations then existing with respect to any state of facts then or theretofore existing or any action, suit, or proceeding theretofore or thereafter brought or threatened based in whole or in part upon any such state of facts. ARTICLE X Amendments SECTION 1. Amendment of Bylaws. ------------------- These Bylaws may be amended at any meeting of the stockholders by a majority of all the votes cast, provided the text of the amendment is submitted with the notice of the meeting. The Board of Directors may also amend these Bylaws by a vote of a majority of the directors present at a meeting, provided that the Board of Directors shall not consider or act on any amendment to these Bylaws that, directly or indirectly, modifies the meaning or effect of any amendment to these Bylaws adopted by the stockholders within the preceding 12-month period, or any amendment to these Bylaws that, directly or indirectly, contains substantially similar provisions to those of an amendment rejected by the stockholders within the preceding 12-month period. EX-99 4 form10q09292002c.txt EXHIBIT 99.0 Exhibit 99.0 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of The Black & Decker Corporation (the "Corporation") on Form 10-Q for the period ended September 29, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Nolan D. Archibald, Chief Executive Officer of the Corporation, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation. /s/ NOLAN D. ARCHIBALD - ----------------------- Nolan D. Archibald Chief Executive Officer November 11, 2002 EX-99 5 form10q09292002d.txt EXHIBIT 99.1 Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of The Black & Decker Corporation (the "Corporation") on Form 10-Q for the period ended September 29, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael D. Mangan, Chief Financial Officer of the Corporation, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation. /s/ MICHAEL D. MANGAN - ------------------------ Michael D. Mangan Chief Financial Officer November 11, 2002 -----END PRIVACY-ENHANCED MESSAGE-----