-----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, JtkBRHDZdUtBSB5QYIZK+YKtd0i6httmwF6u47+ZOSLrDLdaVIRmiP8apC56U0dd hzwvWCTn1Q17Ef27zOZFPA== 0000012355-99-000023.txt : 19990819 0000012355-99-000023.hdr.sgml : 19990819 ACCESSION NUMBER: 0000012355-99-000023 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19990704 FILED AS OF DATE: 19990818 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: SEC FILE NUMBER: 333-03593 FILM NUMBER: 99695306 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 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 July 4, 1999 -------------------------------------------------- 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 July 30, 1999: 87,051,820 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 July 4, 1999 Page PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statement of Earnings (Unaudited) For the Three Months and Six Months Ended July 4, 1999 and June 28, 1998 3 Consolidated Balance Sheet July 4, 1999 (Unaudited) and December 31, 1998 4 Consolidated Statement of Stockholders' Equity (Unaudited) For the Six Months Ended July 4, 1999 and June 28, 1998 5 Consolidated Statement of Cash Flows (Unaudited) For the Six Months Ended July 4, 1999 and June 28, 1998 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 28 PART II - OTHER INFORMATION Item 1. Legal Proceedings 29 Item 2. Changes in Securities and Use of Proceeds 30 Item 5. Other Information 30 Item 6. Exhibits and Reports on Form 8-K 30 SIGNATURES 32 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 Six Months Ended July 4, 1999 June 28, 1998 July 4, 1999 June 28, 1998 - ------------------------------------------------------------------------------------------------------ Sales $ 1,084.2 $ 1,169.7 $ 2,062.7 $ 2,178.0 Cost of goods sold 671.2 771.9 1,299.4 1,430.2 Selling, general, and administrative expenses 285.9 285.5 557.8 565.4 Write-off of goodwill - - - 900.0 Restructuring and exit costs - - - 140.0 Gain on sale of businesses - 36.5 - 36.5 - ------------------------------------------------------------------------------------------------------ Operating Income (Loss) 127.1 148.8 205.5 (821.1) Interest expense (net of interest income) 22.5 29.8 44.7 58.2 Other (income) expense .7 2.7 (.8) 2.4 - ------------------------------------------------------------------------------------------------------ Earnings (Loss) Before Income Taxes 103.9 116.3 161.6 (881.7) Income taxes 33.2 57.9 51.7 31.3 - ------------------------------------------------------------------------------------------------------ Net Earnings (Loss) $ 70.7 $ 58.4 $ 109.9 $ (913.0) ====================================================================================================== Net Earnings (Loss) Per Common Share -- Basic $ .81 $ .62 $ 1.26 $ (9.65) ====================================================================================================== Shares Used in Computing Basic Earnings Per Share (in Millions) 87.0 94.1 87.1 94.6 ====================================================================================================== Net Earnings (Loss) Per Common Share -- Assuming Dilution $ .80 $ .61 $ 1.24 $ (9.65) ====================================================================================================== Shares Used in Computing Diluted Earnings Per Share (in Millions) 88.4 95.8 88.5 94.6 ====================================================================================================== Dividends Per Common Share $ .12 $ .12 $ .24 $ .24 ====================================================================================================== See Notes to Consolidated Financial Statements (Unaudited)
4 CONSOLIDATED BALANCE SHEET The Black & Decker Corporation and Subsidiaries (Dollars in Millions Except Per Share Amount)
- -------------------------------------------------------------------------------------------- July 4, 1999 (Unaudited) December 31, 1998 - -------------------------------------------------------------------------------------------- ASSETS Cash and cash equivalents $ 134.7 $ 87.9 Trade receivables 797.1 792.4 Inventories 806.5 636.9 Other current assets 200.8 234.6 - -------------------------------------------------------------------------------------------- Total Current Assets 1,939.1 1,751.8 - -------------------------------------------------------------------------------------------- Property, Plant, and Equipment 701.4 727.6 Goodwill 742.1 768.7 Other Assets 629.5 604.4 - -------------------------------------------------------------------------------------------- $ 4,012.1 $ 3,852.5 ============================================================================================ LIABILITIES AND STOCKHOLDERS' EQUITY Short-term borrowings $ 421.9 $ 152.5 Current maturities of long-term debt 58.7 59.2 Trade accounts payable 399.0 348.8 Other accrued liabilities 687.5 814.2 - -------------------------------------------------------------------------------------------- Total Current Liabilities 1,567.1 1,374.7 - -------------------------------------------------------------------------------------------- Long-Term Debt 1,058.7 1,148.9 Deferred Income Taxes 276.8 279.9 Postretirement Benefits 261.4 263.5 Other Long-Term Liabilities 231.6 211.5 Stockholders' Equity Common stock, par value $.50 per share 43.5 43.7 Capital in excess of par value 839.6 871.4 Retained earnings (deficit) (147.6) (236.6) Accumulated other comprehensive income (loss) (119.0) (104.5) - -------------------------------------------------------------------------------------------- Total Stockholders' Equity 616.5 574.0 - -------------------------------------------------------------------------------------------- $ 4,012.1 $ 3,852.5 ============================================================================================ 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 Amounts)
- ---------------------------------------------------------------------------------------------------------------------- Accumulated Outstanding Capital in Retained Other Com- Total Common Par Excess of Earnings prehensive Stockholders' Shares Value Par Value (Deficit) Income Equity - ---------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1997 94,842,544 $ 47.4 $1,278.2 $ 562.0 $ (96.2) $1,791.4 Comprehensive income: Net loss -- -- -- (913.0) -- (913.0) Foreign currency translation adjustments, less effect of hedging activities (net of tax) -- -- -- -- (20.6) (20.6) - ---------------------------------------------------------------------------------------------------------------------- Comprehensive income (loss) -- -- -- (913.0) (20.6) (933.6) - ---------------------------------------------------------------------------------------------------------------------- Cash dividends ($.24 per share) -- -- -- (22.7) -- (22.7) Purchase and retirement of common stock (2,876,000) (1.4) (153.3) -- -- (154.7) Common stock issued under employee benefit plans 990,050 .5 20.4 -- -- 20.9 - ---------------------------------------------------------------------------------------------------------------------- Balance at June 28, 1998 92,956,594 $ 46.5 $1,145.3 $ (373.7) $ (116.8) $ 701.3 ====================================================================================================================== Balance at December 31, 1998 87,498,424 $ 43.7 $ 871.4 $ (236.6) $ (104.5) $ 574.0 Comprehensive income: Net earnings -- -- -- 109.9 -- 109.9 Foreign currency translation adjustments, less effect of hedging activities (net of tax) -- -- -- -- (14.5) (14.5) - ---------------------------------------------------------------------------------------------------------------------- Comprehensive income (loss) -- -- -- 109.9 (14.5) 95.4 - ---------------------------------------------------------------------------------------------------------------------- Cash dividends ($.24 per share) -- -- -- (20.9) -- (20.9) Purchase and retirement of common stock (790,900) (.4) (41.3) -- -- (41.7) Common stock issued under employee benefit plans 270,858 .2 9.5 -- -- 9.7 - ---------------------------------------------------------------------------------------------------------------------- Balance at July 4, 1999 86,978,382 $ 43.5 $ 839.6 $ (147.6) $ (119.0) $ 616.5 ====================================================================================================================== See Notes to Consolidated Financial Statements (Unaudited)
6 CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) The Black & Decker Corporation and Subsidiaries (Dollars in Millions)
- ------------------------------------------------------------------------------------------ Six Months Ended July 4, 1999 June 28, 1998 - ------------------------------------------------------------------------------------------ OPERATING ACTIVITIES Net earnings (loss) $ 109.9 $ (913.0) Adjustments to reconcile net earnings (loss) to cash flow from operating activities: Gain on sale of businesses - (36.5) Non-cash charges and credits: Depreciation and amortization 80.6 76.6 Goodwill write-off - 900.0 Restructuring charges and exit costs - 140.0 Other (2.2) 5.6 Changes in selected working capital items (excluding, for 1998, effects of household products business sold): Trade receivables (26.1) (3.3) Inventories (188.7) (53.5) Trade accounts payable 56.4 2.8 Restructuring spending (14.7) (13.0) Changes in other assets and liabilities (63.9) (99.6) - ------------------------------------------------------------------------------------------ Cash Flow From Operating Activities (48.7) 6.1 - ------------------------------------------------------------------------------------------ INVESTING ACTIVITIES Proceeds from sale of business - 288.0 Proceeds from disposal of assets 19.0 3.9 Capital expenditures (67.9) (59.8) Cash inflow from hedging activities 406.6 168.7 Cash outflow from hedging activities (378.4) (166.0) - ------------------------------------------------------------------------------------------ Cash Flow From Investing Activities (20.7) 234.8 - ------------------------------------------------------------------------------------------ Cash Flow Before Financing Activities (69.4) 240.9 FINANCING ACTIVITIES Net decrease in short-term borrowings (99.0) (84.6) Proceeds from long-term debt (including revolving credit facility) 781.5 576.4 Payments on long-term debt (including revolving credit facility) (507.2) (569.7) Redemption of preferred stock of subsidiary - (41.7) Purchase of common stock (41.7) (154.7) Issuance of common stock 6.5 15.3 Cash dividends (20.9) (22.7) - ------------------------------------------------------------------------------------------ Cash Flow From Financing Activities 119.2 (281.7) Effect of exchange rate changes on cash (3.0) (1.9) - ------------------------------------------------------------------------------------------ Increase (Decrease) In Cash And Cash Equivalents 46.8 (42.7) Cash and cash equivalents at beginning of period 87.9 246.8 - ------------------------------------------------------------------------------------------ Cash And Cash Equivalents At End Of Period $ 134.7 $ 204.1 ========================================================================================== 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 have been prepared in accordance with the instructions to Form 10-Q and do not include all the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the unaudited consolidated financial statements include all adjustments, consisting only of normal recurring accruals, considered necessary for a fair presentation of the financial position and the results of operations. Operating results for the three- and six-month periods ended July 4, 1999, 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, 1998. Certain amounts presented for the six months ended June 28, 1998, have been reclassified to conform with the 1999 presentation. Statement of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income, requires that, as part of a full set of financial statements, entities must present comprehensive income, which is the sum of net income and other comprehensive income. Other comprehensive income represents total non-stockholder changes in equity. For the six months ended July 4, 1999, and June 28, 1998, the Corporation has presented comprehensive income in the accompanying Consolidated Statement of Stockholders' Equity. Comprehensive income for the three months ended July 4, 1999, and June 28, 1998, was $77.1 million and $57.6 million, respectively. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which is required to be adopted for years beginning after June 15, 2000. Early adoption of SFAS No. 133 is permitted as of the beginning of any fiscal quarter after its issuance. SFAS No. 133 will require the Corporation to recognize all derivatives on the balance sheet at fair value. Derivatives that do not qualify as hedges under the new standard must be adjusted to fair value through income. If a derivative qualifies as a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in value will be immediately recognized in earnings. The Corporation has not yet determined what effect SFAS No. 133 will have on its earnings and financial position. NOTE 2: STRATEGIC REPOSITIONING As more fully described in Note 2 of Notes to Consolidated Financial Statements included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1998, on January 26, 1998, the Corporation's Board of Directors approved a comprehensive strategic repositioning plan designed to intensify focus on core operations and improve operating 8 performance. The plan includes the following components: (i) the divestiture of the household products business in North America, Latin America, and Australia, the recreational products business, and the glass container-forming and inspection equipment business; (ii) the repurchase of up to 10% of the Corporation's then outstanding common stock over a two-year period; and (iii) a restructuring of the Corporation's remaining businesses. The Corporation sold its household products business (other than certain assets associated with the Corporation's cleaning and lighting products) in North America, Central America, the Caribbean, South America (excluding Brazil), and Australia, principally in the second quarter of 1998. The Corporation continues to evaluate various alternatives with respect to its household products business in Brazil. The Corporation completed the sale of Emhart Glass, its glass container-forming and inspection equipment business, during the third quarter of 1998, and completed the recapitalization of True Temper Sports, its recreational products business, during the fourth quarter of 1998. As of December 31, 1998, the Corporation had repurchased 9,025,400 shares of its outstanding common stock under the strategic repositioning plan, of which 2,876,000 shares were repurchased during the six months ended June 28, 1998, at an aggregate cost of $154.7 million (which is net of $.7 million in premiums received in connection with the Corporation's sale of put options on 400,000 shares of its common stock). During the first quarter of 1999, the Corporation repurchased an additional 610,900 shares of common stock at an aggregate cost of $32.1 million, completing the stock repurchase element of the strategic repositioning plan. Subsequent to the announcement of the strategic repositioning, the Corporation's Board of Directors authorized the repurchase of an incremental 2,000,000 shares of the Corporation's outstanding common stock with the intention of reducing the dilutive effect of stock issuances under various stock-based employee benefit plans. The restructuring program announced in January 1998 will be completed over a period of two years and is being undertaken to reduce fixed costs. During the six months ended June 28, 1998, the Corporation recognized restructuring and exit costs of $140.0 million. As a consequence of the strategic repositioning plan, the Corporation elected to change its method of measuring goodwill impairment from an undiscounted cash flow approach to a discounted cash flow approach effective January 1, 1998. In connection with the Corporation's change in accounting policy with respect to measurement of goodwill impairment, $900.0 million of goodwill was written off through a charge to operations during the first quarter of 1998. That goodwill write-off represented a per-share net loss of $9.51 both on a basic and diluted basis for the six-month period ended June 28, 1998. The write-off of goodwill related to the Building Products segment and the Fastening and Assembly Systems segment and included a $40.0 million write-down of goodwill associated with one of the divested businesses, and represented the amount necessary to reduce the carrying values of goodwill for those businesses to the Corporation's best estimate, as of January 1, 1998, of those businesses' future discounted cash flows. This change represented a change in accounting principle that is indistinguishable from a change in estimate. 9 NOTE 3: INVENTORIES The components of inventory at the end of each period, in millions of dollars, consisted of the following:
July 4, 1999 December 31, 1998 - ----------------------------------------------------------------------------------------------- FIFO cost: Raw materials and work-in-process $ 191.1 $ 173.5 Finished products 628.3 482.3 - ----------------------------------------------------------------------------------------------- 819.4 655.8 Excess of FIFO cost over LIFO inventory value (12.9) (18.9) - ----------------------------------------------------------------------------------------------- $ 806.5 $ 636.9 ===============================================================================================
Inventories are stated at the lower of cost or market. The cost of United States inventories is based primarily on the last-in, first-out (LIFO) method; all other inventories are based on the first-in, first-out (FIFO) method. NOTE 4: GOODWILL Goodwill at the end of each period, in millions of dollars, was as follows:
July 4, 1999 December 31, 1998 - ----------------------------------------------------------------------------------------------- Goodwill $ 1,287.1 $ 1,300.9 Less accumulated amortization 545.0 532.2 - ----------------------------------------------------------------------------------------------- $ 742.1 $ 768.7 ===============================================================================================
NOTE 5: LONG-TERM DEBT Indebtedness of subsidiaries of the Corporation in the aggregate principal amounts of $714.3 million and $412.4 million were included in the Consolidated Balance Sheet at July 4, 1999, and December 31, 1998, respectively, under the captions 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, consisted of the following:
- ----------------------------------------------------------------------------------------------- Three Months Ended Six Months Ended July 4, 1999 June 28, 1998 July 4, 1999 June 28, 1998 - ----------------------------------------------------------------------------------------------- Interest expense $29.7 $35.7 $59.9 $72.3 Interest (income) (7.2) (5.9) (15.2) (14.1) - ----------------------------------------------------------------------------------------------- $22.5 $29.8 $44.7 $58.2 ===============================================================================================
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 ----------------------------------------- Corporate, Power Fasten- Adjust- Tools ing & Currency ments, & Acces- Building Assembly All Translation & Elimi- Consoli- Three Months Ended July 4, 1999 sories Products Systems Total Others Adjustments nations dated - ----------------------------------------------------------------------------------------------------------------------- Sales to unaffiliated customers $ 761.3 $ 215.1 $ 128.0 $1,104.4 $ -- $ (20.2) $ -- $1,084.2 Segment profit (loss) (for Consolidated, operating income) 86.7 28.8 22.4 137.9 -- (2.2) (8.6) 127.1 Depreciation and amortization 21.0 8.6 3.8 33.4 -- (.5) 6.8 39.7 Capital expenditures 23.3 9.6 5.5 38.4 -- (.6) .1 37.9 Three Months Ended June 28, 1998 - ----------------------------------------------------------------------------------------------------------------------- Sales to unaffiliated customers $ 712.7 $ 214.7 $ 117.6 $1,045.0 $135.8 $ (11.1) $ -- $1,169.7 Segment profit (loss) (for Consolidated, operating income before gain on sale of businesses) 66.5 31.8 20.9 119.2 8.1 (1.6) (13.4) 112.3 Depreciation and amortization 21.7 6.5 3.6 31.8 -- (.3) 6.3 37.8 Capital expenditures 13.0 4.3 4.1 21.4 6.4 (.3) .1 27.6 Six Months Ended July 4, 1999 - ----------------------------------------------------------------------------------------------------------------------- Sales to unaffiliated customers $1,404.3 $ 429.9 $ 254.4 $2,088.6 $ -- $ (25.9) $ -- $2,062.7 Segment profit (loss) (for Consolidated, operating income) 126.3 54.8 43.6 224.7 -- (2.7) (16.5) 205.5 Depreciation and amortization 42.3 17.4 7.7 67.4 -- (.8) 14.0 80.6 Capital expenditures 43.4 16.8 8.6 68.8 -- (1.1) .2 67.9 Six Months Ended June 28, 1998 - ----------------------------------------------------------------------------------------------------------------------- Sales to unaffiliated customers $1,294.3 $ 404.3 $ 235.9 $1,934.5 $266.0 $ (22.5) $ -- $2,178.0 Segment profit (loss) (for Consolidated, operating income before restructuring and exit costs, write-off of goodwill, and gain on sale of businesses) 98.4 56.6 40.1 195.1 12.2 (3.4) (21.5) 182.4 Depreciation and amortization 44.5 12.6 6.8 63.9 -- (.7) 13.4 76.6 Capital expenditures 30.5 13.6 6.1 50.2 9.9 (.6) .3 59.8
The Corporation operates in three reportable business segments: Power Tools and Accessories, Building Products, 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, cleaning and lighting products, and electric lawn and garden tools, as well as for product service. In addition, the Power Tools and Accessories segment has responsibility for the sale of plumbing products to customers outside North America and for sales of the retained household products business. The Building Products segment has worldwide responsibility for the manufacture and sale of security hardware and for the manufacture of plumbing products as well as responsibility for the sale of plumbing products to 11 customers in North America. The Fastening and Assembly Systems segment has worldwide responsibility for the manufacture and sale of fastening and assembly systems. The Corporation also operated several businesses that do not constitute reportable business segments. These businesses included the manufacture and sale of glass container-forming and inspection equipment, as well as recreational and household products. In 1998, the Corporation completed the sale or recapitalization of its glass container-forming and inspection equipment business, Emhart Glass; its recreational products business, True Temper Sports; and its household products business (excluding certain assets associated with the Corporation's cleaning and lighting products) in North America, Latin America (excluding Brazil), and Australia. Because True Temper Sports, Emhart Glass, and the household products business in North America, Latin America (excluding Brazil), and Australia are not treated as discontinued operations under generally accepted accounting principles, they remain a part of the Corporation's reported results from continuing operations, and the results of operations and financial positions of these businesses have been included in the consolidated financial statements through the dates of consummation of the respective transactions. Amounts relating to these businesses are included in the preceding table under the caption "All Others." The results of the household products businesses included under the caption "All Others" are based upon certain assumptions and allocations. The household products businesses sold during 1998 were jointly operated with the cleaning and lighting products businesses retained by the Corporation. Further, the Corporation's divested household products businesses in Australia and Latin America (excluding Brazil) were operated jointly with the Corporation's power tools and accessories businesses. Accordingly, the results of the household products businesses included in the segment table above under the caption "All Others" were determined using certain assumptions and allocations that the Corporation believes are reasonable under the circumstances. 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 the Corporation's Annual Report on Form 10-K for the year ended December 31, 1998, except with respect to foreign currency translation and except as further indicated below. The financial statements of a segment's operating units located outside the United States, except those units operating in highly inflationary economies, are measured using the local currency as the functional currency. For these units located outside the United States, segment assets and elements of segment profit are translated using budgeted rates of exchange. Budgeted rates of exchange are established annually, and once established all prior period segment data is restated to reflect the newly established budgeted rates of exchange. The amounts included in the preceding table under the captions "Reportable Business Segments," "All Others," and "Corporate, Adjustments, & Eliminations" are reflected at the Corporation's current budgeted exchange rates. The amounts included in the preceding table under the caption "Currency Translation Adjustments" represent the difference between consolidated amounts determined using budgeted rates of exchange and those determined based upon the rates of exchange applicable under accounting principles generally accepted in the United States. 12 Segment profit excludes interest income and expense, non-operating income and expense, goodwill amortization, adjustments to eliminate intercompany profit in inventory, and income tax expense. In addition, segment profit excludes restructuring and exit costs and, for 1998, the write-off of goodwill and the gain on sale of businesses. For certain operations located in Brazil, Mexico, Venezuela, and Turkey, segment profit is reduced by net interest expense and non-operating expenses. In determining segment profit, expenses relating to pension and other postretirement benefits are based solely upon estimated service costs. Corporate expenses are allocated to each reportable segment based upon budgeted amounts. No corporate expenses have been allocated to divested businesses. While sales and transfers between segments are accounted for at cost plus a reasonable profit, the effects of intersegment sales are excluded from the computation of segment profit. Intercompany profit in inventory is excluded from segment assets and is recognized as a reduction of cost of sales by the selling segment when the related inventory is sold to an unaffiliated customer. Because the Corporation compensates the management of its various businesses on, among other factors, segment profit, the Corporation may elect to record certain segment-related expense items of an unusual or nonrecurring 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 Corporation's various segments in a later period. Amounts in the preceding table under the caption "Corporate, Adjustments, & Eliminations" on the lines entitled "Depreciation and amortization" represent depreciation of Corporate property and consolidated goodwill amortization. 13 The reconciliation of segment profit to the Corporation's earnings (loss) before income taxes for each period, in millions of dollars, is as follows:
Three Months Ended Six Months Ended - -------------------------------------------------------------------------------------------------------------------------- July 4, 1999 June 28, 1998 July 4, 1999 June 28, 1998 - -------------------------------------------------------------------------------------------------------------------------- Segment profit for total reportable business segments $ 137.9 $119.2 $224.7 $ 195.1 Segment profit for all other businesses - 8.1 - 12.2 Items excluded from segment profit: Adjustment of budgeted foreign exchange rates to actual rates (2.2) (1.6) (2.7) (3.4) Depreciation of Corporate property and amortization of goodwill (6.8) (6.3) (14.0) (13.4) Adjustment to businesses' postretirement benefit expenses booked in consolidation 8.4 8.2 16.6 16.5 Adjustment to eliminate net interest and non-operating expenses from results of certain operations in Brazil, Mexico, Venezuela, and Turkey .6 1.1 1.1 2.6 Other adjustments booked in consolidation directly related to reportable business segments .1 (17.6) (3.6) (19.0) Amounts allocated to businesses in arriving at segment profit in excess of (less than) Corporate center operating expenses, eliminations, and other amounts identified above (10.9) 1.2 (16.6) (8.2) - -------------------------------------------------------------------------------------------------------------------------- Operating income before restructuring and exit costs, write-off of goodwill, and gain on sale of businesses 127.1 112.3 205.5 182.4 Restructuring and exit costs - - - 140.0 Write-off of goodwill - - - 900.0 Gain on sale of businesses - 36.5 - 36.5 - -------------------------------------------------------------------------------------------------------------------------- Operating income (loss) 127.1 148.8 205.5 (821.1) Interest expense, net of interest income 22.5 29.8 44.7 58.2 Other (income) expense .7 2.7 (.8) 2.4 - -------------------------------------------------------------------------------------------------------------------------- Earnings (loss) before taxes $ 103.9 $116.3 $161.6 $(881.7) ==========================================================================================================================
14 NOTE 8: EARNINGS PER SHARE The computations of basic and diluted earnings per share for each period are as follows:
Three Months Ended Six Months Ended (Amounts in Millions Except Per Share Data) July 4, 1999 June 28, 1998 July 4, 1999 June 28, 1998 - ---------------------------------------------------------------------------------------------------------------------- Numerator: Net earnings (loss) $70.7 $58.4 $109.9 $ (913.0) ====================================================================================================================== Denominator: Average number of common shares outstanding for basic earnings per share 87.0 94.1 87.1 94.6 Employee stock options and stock issuable under employee benefit plans 1.4 1.7 1.4 - (a) - ---------------------------------------------------------------------------------------------------------------------- Average number of common shares outstanding for diluted earnings per share 88.4 95.8 88.5 94.6 ====================================================================================================================== Basic earnings (loss) per share $ .81 $ .62 $ 1.26 $ (9.65) ====================================================================================================================== Diluted earnings (loss) per share $ .80 $ .61 $ 1.24 $ (9.65) ====================================================================================================================== (a) Due to the net loss incurred by the Corporation for the six-month period ended June 28, 1998, the assumed exercise of stock options and stock issuable under employee benefit plans is anti-dilutive. Accordingly, the effect of 1.8 million shares, representing the dilutive effect of those stock options and shares issuable, was excluded from the calculation of diluted earnings per share for the six months ended June 28, 1998. As a result, the financial statements reflect diluted earnings per share equal to basic earnings per share for the six months ended June 28, 1998.
15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Corporation reported net earnings of $70.7 million or $.80 per share on a diluted basis for the three months ended July 4, 1999, compared to net earnings of $58.4 million or $.61 per share on a diluted basis for the three months ended June 28, 1998. Included in net earnings for the quarter ended June 28, 1998, was an after-tax gain on sale of businesses of $4.2 million ($36.5 million before tax) or $.04 per share on a diluted basis. Excluding the gain on sale of businesses, net earnings were $54.2 million or $.57 per share on a diluted basis for the quarter ended June 28, 1998. The Corporation reported net earnings of $109.9 million or $1.24 per share on a diluted basis for the six months ended July 4, 1999, compared to a net loss of $913.0 million or $9.65 per share on a diluted basis for the six months ended June 28, 1998. Excluding the effects of the restructuring charge of $140.0 million ($100.0 million after tax) and the goodwill write-off of $900.0 million, both recognized in the first quarter of 1998, and the after-tax gain on sale of businesses recognized in the second quarter of 1998, net earnings for the six months ended June 28, 1998, would have been $82.8 million or $.86 per share on a diluted basis. STRATEGIC REPOSITIONING As more fully described in Note 2 of Notes to Consolidated Financial Statements and in Management's Discussion and Analysis of Financial Condition and Results of Operations under the caption "Strategic Repositioning" included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1998, on January 26, 1998, the Board of Directors approved a comprehensive strategic repositioning of the Corporation, consisting of three separate elements. The first element of the strategic repositioning plan is to focus the Corporation on its core operations -- that is, those strategic businesses that the Corporation believes are capable of delivering superior operating and financial performance. The Corporation substantially completed this aspect of the strategic repositioning plan through the sale or recapitalization of the following non-strategic businesses: True Temper Sports, its recreational products business, in the fourth quarter of 1998; Emhart Glass, its glass container-forming and inspection equipment business, in the third quarter of 1998; and the household products business (other than certain assets associated with the Corporation's cleaning and lighting business) in North America, Latin America (excluding Brazil), and Australia, the majority of which was sold in the second quarter of 1998. The net proceeds from the sale of these businesses were used to fund the second element of the strategic repositioning plan-the planned repurchase of approximately 10% of the Corporation's then outstanding common shares over a two-year period. As of December 31, 1998, the Corporation had repurchased 9,025,400 shares of its outstanding common stock under the strategic repositioning plan, of which 2,876,000 shares were repurchased during the six months ended June 28, 1998, at an aggregate cost of $154.7 million (which is net of $.7 million in premiums received in connection with the Corporation's sale of put options on 400,000 shares of its common stock). During the first quarter of 1999, the 16 Corporation repurchased an additional 610,900 shares of common stock at an aggregate cost of $32.1 million, completing the stock repurchase element of the strategic repositioning plan. The third element of the strategic repositioning plan involves a major restructuring program, which is being undertaken to reduce fixed costs. As part of the restructuring program, the Corporation is making significant changes to its European power tools and accessories businesses by consolidating distribution and transportation and centralizing finance, marketing, and support services. These changes in Europe are being accompanied by investment in state-of-the-art information systems similar to the investments being made in the North American business. In addition, the worldwide power tools and accessories business is rationalizing its manufacturing plant network, resulting in the closure of a number of manufacturing plants. The restructuring program also includes actions to improve the cost position of other businesses. This restructuring program resulted in a pre-tax charge of $140.0 million during the first quarter of 1998 ($100.0 million after tax). During the three months ended April 4, 1999, the Corporation recognized $8.9 million of additional pre-tax restructuring and exit costs associated with restructuring of North American accessories packaging operations and Latin American power tools operations, and as a result of the settlement of claims associated with a divested business. That $8.9 million charge was offset, however, by a gain realized on the sale in the first quarter of 1999 of a facility, exited as part of the restructuring actions taken in 1998, that had a fair value exceeding its net book value at the time of the 1998 charge. Additional actions are possible as the program progresses in 1999. A summary of the Corporation's restructuring activity during the six months ended July 4, 1999, is as follows:
Reserve Established Utilization of Reserve Reserve at in 1999, Net of ---------------------- Reserve at (Dollars in Millions) December 31, 1998 Gain Recognized Cash Non-Cash July 4, 1999 - ---------------------------------------------------------------------------------------------------------------------- Severance benefits and cost of voluntary retirement program $39.9 $4.4 $(10.8) $ - $33.5 Asset write-offs - .5 - (.5) - Other charges 10.9 (4.9) (3.9) 3.0 5.1 - ---------------------------------------------------------------------------------------------------------------------- Total $50.8 $ - $(14.7) $2.5 $38.6 ======================================================================================================================
In the preceding table, the negative $2.5 million non-cash reserve usage in 1999 represents $6.4 million of non-cash reserve usage offset by the $8.9 million gain on the sale of the facility described above. In addition to the restructuring charge, the Corporation anticipates that related expenses of approximately $60 million will be charged to operations over a two-year period as the restructuring program progresses, $44.4 million of which were recognized during the year ended December 31, 1998. These related expenses, which are incremental to the plans being implemented, do not qualify as restructuring or exit costs under generally accepted accounting principles. During the three-month periods ended July 4, 1999, and June 28, 1998, the Corporation recognized $2.3 million and $22.8 million, respectively, of expenses related to the restructuring program. During the six month periods ended July 4, 1999, and June 28, 1999, the 17 Corporation recognized $5.8 million and $28.4 million, respectively, of restructuring-related expenses. Benefits from the restructuring actions taken in 1998 and 1999 are expected to approximate $100 million on an annual, pre-tax basis once the restructuring plan is fully implemented. Those benefits will be mitigated, however, by other factors impacting the Corporation's results. As a consequence of the strategic repositioning plan, the Corporation elected to change its method of measuring goodwill impairment from an undiscounted cash flow approach to a discounted cash flow approach, effective January 1, 1998. The Corporation believes that measurement of the value of goodwill through the discounted cash flow approach is preferable in that the discounted cash flow measurement facilitates the timely identification of impairment of the carrying value of investments in businesses and provides a more current and, with respect to the sold businesses, realistic valuation than the undiscounted approach. The adoption of this discounted cash flow approach, however, may result in greater earnings volatility because decreases in projected discounted cash flows of certain businesses will result in timely recognition of future impairment. This change in method of measuring goodwill impairment represents a change in accounting principle that is indistinguishable from a change in estimate. In connection with this change in accounting with respect to the measurement of goodwill impairment, the Corporation recognized a non-cash charge of $900.0 million in the first quarter of 1998 ($9.51 per share both on a basic and diluted basis for the six months ended June 28, 1998). The $900.0 million write-down, which related to goodwill associated with the Corporation's Fastening and Assembly Systems segment and the Building Products segment and included a $40.0 million write-down of goodwill associated with one of the divested businesses, represented the amount necessary to reduce the carrying values of goodwill for those businesses to the Corporation's best estimate, as of January 1, 1998, of those businesses' future discounted cash flows using the methodology described in Note 2 of Notes to Consolidated Financial Statements included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1998. 18 RESULTS OF OPERATIONS Sales The following chart sets forth an analysis of the consolidated changes in sales for the three- and six-month periods ended July 4, 1999, and June 28, 1998:
ANALYSIS OF CHANGES IN SALES - ----------------------------------------------------------------------------------------------------------------------- Three Months Ended Six Months Ended (Dollars in Millions) July 4, 1999 June 28, 1998 July 4, 1999 June 28, 1998 - ----------------------------------------------------------------------------------------------------------------------- Total sales $1,084.2 $1,169.7 $2,062.7 $2,178.0 Unit volume - existing 8 % 2 % 10 % 3 % - disposed (12)% -- % (13)% --% Price (1)% (1)% (1)% (1)% Currency (2)% (2)% (1)% (3)% - ----------------------------------------------------------------------------------------------------------------------- Change in total sales (7)% (1)% (5)% (1)% ======================================================================================================================= Note: In the above table and in the following discussion, existing unit volume relates to businesses where period-to-period comparability exists. Disposed unit volume relates to businesses where period-to-period comparability does not exist due to the sale or recapitalization of a particular business. For the three and six months ended July 4, 1999, disposed unit volume relates to sales of the household products business (excluding assets associated with the cleaning and lighting product lines retained by the Corporation) in North America, Australia, Central America, the Caribbean, and South America (excluding Brazil); the glass container-forming and inspection equipment business, Emhart Glass; and the recreational products business, True Temper Sports; all of which were sold or recapitalized during 1998.
Total consolidated sales for the three and six months ended July 4, 1999, declined from the corresponding 1998 level. The negative effects of a stronger United States dollar compared to other foreign currencies caused a decrease in the Corporation's consolidated sales from the prior year's level of 2% and 1% for the three and six months ended July 4, 1999, respectively. Pricing actions, taken in response to competitive pressures and as a result of volume-related price reductions associated with higher unit volumes in the North American power tools and accessories business, had a 1% negative effect on sales for both the three and six months ended July 4, 1999, as compared to the corresponding periods in 1998. Total unit volume declined during the three and six months ended July 4, 1999, from the 1998 levels, as unit volume growth in the Corporation's existing businesses was more than offset by unit volume declines associated with the divested household products, recreational products, and glass container-forming and inspection equipment businesses. A contributing factor to the growth in existing unit volume for the six months ended July 4, 1999, was the inclusion of four additional business days in the first half of 1999 as compared to the first half of 1998 due to the timing of the Corporation's fiscal calendar. Earnings Operating income for the three months ended July 4, 1999, was $127.1 million, or 11.7% of sales, compared to operating income of $112.3 million (excluding the gain on sale of businesses of $36.5 million), or 9.6% of sales, for the corresponding period in 1998. Operating income for the 19 six months ended July 4, 1999, was $205.5 million, or 10.0% of sales, compared to an operating loss of $821.1 million for the corresponding period in 1998. Excluding the effects of the $140.0 million restructuring charge and the $900.0 million write-off of goodwill, both recognized in the first quarter of 1998, and the gain on sale of businesses recognized in the second quarter of 1998, operating income for the first six months of 1998 was $182.4 million, or 8.4% of sales. Operating results for the three months ended July 4, 1999, and June 28, 1998, included $2.3 million and $22.8 million, respectively, of expenses directly related to the restructuring program undertaken that do not qualify as restructuring or exit costs under generally accepted accounting principles. Excluding the effects of these restructuring-related expenses, as well as the gain on sale of businesses recognized in 1998, operating income for the three months ended July 4, 1999, would have decreased by 4% from $135.1 million for the second quarter of 1998 to $129.4 million for the second quarter of 1999. However, on this same basis, operating income as a percentage of sales increased from 11.5% for the second quarter of 1998 to 11.9% for the second quarter of 1999. Operating results for the six months ended July 4, 1999, and June 28, 1998, included $5.8 million and $28.4 million, respectively, of restructuring-related expenses. Excluding the effects of these restructuring-related expenses, as well as the restructuring charge, the goodwill write-off, and the gain on sale of businesses, all recognized in the first half of 1998, operating income for the six months ended July 4, 1999, would have slightly increased from $210.8 million for the first half of 1998 to $211.3 million for the first half of 1999. On this same basis, operating income as a percentage of sales increased from 9.7% for the first half of 1998 to 10.2% for the first half of 1999. Gross margin as a percentage of sales was 38.1% and 34.0% for the three-month periods ended July 4, 1999, and June 28, 1998, respectively. Gross margin as a percentage of sales was 37.0% and 34.3% for the six-month periods ended July 4, 1999, and June 28, 1998, respectively. The increase in gross margin during the three- and six-month periods ended July 4, 1999, compared to the corresponding periods in 1998, primarily resulted from cost benefits from restructuring actions taken, significantly lower restructuring-related expenses, increased productivity, and the absence of lower margin products in the divested businesses, partially offset by negative pricing actions. Selling, general, and administrative expenses as a percentage of total sales were 26.4% and 24.4% for the three-month periods ended July 4, 1999, and June 28, 1998, respectively. Selling, general, and administrative expenses as a percentage of total sales were 27.0% and 26.0% for the six-month periods ended July 4, 1999, and June 28, 1998, respectively. The increase in selling, general, and administrative expenses as a percentage of total sales during the three- and six- month periods ended July 4, 1999, resulted, in part, from higher research and development expenditures and increased promotional activities, particularly in the power tools and accessories business in North America which increased the number of end-user specialists. 20 Net interest expense (interest expense less interest income) for the three- and six-month periods ended July 4, 1999, was $22.5 million and $44.7 million, respectively, as compared to $29.8 million and $58.2 million for the three- and six-month periods ended June 28, 1998, respectively. The lower level of net interest expense in the three and six months ended July 4, 1999, as compared to the corresponding periods in 1998 was primarily the result of lower average borrowing levels. The Corporation maintains a portfolio of interest rate hedge instruments for the purpose of managing interest rate exposure. During the six months ended July 4, 1999, the Corporation entered into new fixed to variable rate interest rate swaps with an aggregate notional principal amount of $25.0 million. In addition, interest rate swaps with an aggregate notional principal amount of $250.0 million, which swapped from fixed United States dollars to fixed foreign currencies, matured during the six months ended July 4, 1999. The variable rate debt to total debt ratio, after taking interest rate hedges into account, was 59% at July 4, 1999, compared to 47% at December 31, 1998. Other (income) expense for the three- and six-month periods ended July 4, 1999, was not significant. Other expense for the three- and six-month periods ended June 28, 1998, principally consisted of currency losses. The Corporation recognized income tax expense of $33.2 million on pre-tax earnings of $103.9 million, which equates to a reported tax rate of 32%, for the second quarter of 1999. The Corporation recognized income tax expense of $57.9 million for the second quarter of 1998, including income tax expense of $32.3 million related to the $36.5 million pre-tax gain on sale of businesses recognized during that quarter. Excluding the taxes associated with the gain on sale of businesses, the Corporation's reported tax rate for the second quarter of 1998 would have been 32%. The Corporation recognized income tax expense of $51.7 million on pre-tax earnings of $161.6 million during the six months ended July 4, 1999, which equates to a reported tax rate of 32%. The Corporation recognized income tax expense of $31.3 million for the six months ended June 28, 1998, on a pre-tax loss of $881.7 million. Excluding the income tax benefit of $40.0 million related to the pre-tax restructuring charge of $140.0 million and the non-deductible write-off of goodwill in the amount of $900.0 million, both recognized in the first quarter of 1998, and the $32.3 million of tax expense recognized on the gain on sale of businesses in the second quarter of 1998, the Corporation's reported tax rate for the six months ended June 28, 1998, would have been 32%. The Corporation reported net income of $70.7 million, or $.80 per share on a diluted basis, for the three months ended July 4, 1999. The Corporation reported net earnings of $58.4 million, or $.61 per share on a diluted basis, for the three months ended June 28, 1998. Excluding the after-tax gain on sale of businesses of $4.2 million recognized in the second quarter of 1998, net earnings were $54.2 million, or $.57 per diluted share for the three months ended June 28, 1998. The Corporation reported net income of $109.9 million, or $1.24 per share on a diluted basis, for the six months ended July 4, 1999. The Corporation reported a net loss of $913.0 million, or $9.65 per share both on a basic and diluted basis, for the six months ended June 28, 1998, principally as a result of the restructuring charge and goodwill write-off during that period. Because the Corporation reported a net loss for the six months ended June 28, 1998, the calculation of reported earnings per share on a diluted basis excludes the impact of stock options, 21 since their inclusion would be anti-dilutive -- that is, decrease the per-share loss. For comparative purposes, however, the Corporation believes that the dilutive effect of stock options should be considered when evaluating the Corporation's performance excluding the restructuring charge and goodwill write-off. If the dilutive effect of stock options were considered, net earnings, excluding the goodwill write-off and the after-tax restructuring charge and gain on sale of businesses, would have been $82.8 million or $.86 per share on this diluted basis for the six months ended June 28, 1998. 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, Building Products, and Fastening and Assembly Systems. Expenses (income) directly related to reportable business segments booked in consolidation and, thus, excluded from segment profit for the Corporation's reportable business segments were $(.1) million and $3.6 million for the three and six months ended July 4, 1999, respectively, and $17.6 million and $19.0 million for the three and six months ended June 28, 1998, respectively. As discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations under the heading "Business Segments" included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1998, the segment-related expenses excluded from segment profit in 1998 primarily related to unbudgeted restructuring-related expenses, including an $11.5 million write-down of cleaning and lighting inventory to net realizable value associated with the product line rationalization undertaken in the second quarter of 1998 to integrate the retained cleaning and lighting business into the Power Tools and Accessories operations. These segment-related expenses excluded from segment profit are generally non-recurring in nature. 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 Six Months Ended July 4, 1999 June 28, 1998 July 4, 1999 June 28, 1998 - ---------------------------------------------------------------------------------------------------------------------- Sales to unaffiliated customers $761.3 $712.7 $1,404.3 $1,294.3 Segment profit 86.7 66.5 126.3 98.4
Sales to unaffiliated customers in the Power Tools and Accessories segment during the second quarter of 1999 increased 6.8% over the 1998 level despite negative pricing actions taken in response to competitive pressures and as a result of volume-related price reductions. Sales of power tool products in North America benefited from double-digit rates of growth in sales of the DEWALT(R) professional power tools and consumer power tools lines due, in part, to new product introductions. Sales of accessories in North America grew at a high single-digit rate in the 22 second quarter of 1999 over the 1998 level, substantially offsetting lower sales of outdoor products during the quarter ended July 4, 1999. Sales in Europe increased at a low single-digit rate in the second quarter of 1999 over the 1998 level. This improvement during 1999 was mainly driven by sales growth in professional power tools, as increased sales of outdoor products and accessories were substantially offset by lower sales of consumer power tools and household products. Sales in other geographic areas declined at a double-digit rate in the second quarter of 1999 from the 1998 levels. Sales to unaffiliated customers in the Power Tools and Accessories segment during the first half of 1999 increased 8.5% over the 1998 level despite the negative impact of pricing actions as discussed previously. Sales of power tool products in North America benefited from double-digit rates of growth in sales of DEWALT professional power tools and consumer power tools. In addition, sales of accessories in North America during 1999 increased at a double-digit rate over the 1998 level. Sales of outdoor products in North America during the first half of 1999 increased at a mid single-digit rate over the corresponding period in 1998. Sales in Europe during the first half of 1999 approximated the 1998 level. Sales in other geographic areas declined at a double-digit rate in the first half of 1999 from the 1998 levels. Segment profit as a percentage of sales for the Power Tools and Accessories segment was 11.4% and 9.0% for the three- and six-month periods ended July 4, 1999, respectively, compared to 9.3% and 7.6%, for the three- and six-month periods ended June 28, 1998, respectively. This improvement was driven by higher gross margins across all major geographic areas, which were the result of restructuring benefits and higher manufacturing volumes that more than offset negative price pressures. Building Products - ----------------- Segment sales and profit for the Building Products 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 Six Months Ended July 4, 1999 June 28, 1998 July 4, 1999 June 28, 1998 - ---------------------------------------------------------------------------------------------------------------------- Sales to unaffiliated customers $215.1 $214.7 $429.9 $404.3 Segment profit 28.8 31.8 54.8 56.6
Sales to unaffiliated customers in the Building Products segment for the quarter ended July 4, 1999, approximated the 1998 level. While sales of security hardware for the second quarter of 1999 benefited from a mid single-digit rate of growth in North America and a double-digit rate of growth in Latin America, those increases were substantially offset by decreased sales of plumbing products in North America and by lower sales of security hardware in other geographic areas. Sales to unaffiliated customers in the Building Products segment increased by 6.3% for the six months ended July 4, 1999, over the 1998 level, due principally to a double-digit rate of growth in sales of security hardware in North America. That growth, supplemented by strong sales in Latin 23 America during the first half of 1999, was partially offset by decreased sales of plumbing products in North America and by lower sales of security hardware in other geographic areas, excluding Europe. Sales of security hardware in Europe for the first half of 1999 approximated the prior year's level. Segment profit as a percentage of sales for the Building Products segment was 13.4% and 12.7% for the three and six months ended July 4, 1999, respectively, compared to 14.8% and 14.0% for the three and six months ended June 28, 1998, respectively. Segment profit as a percentage of sales in both the three and six months ended July 4, 1999, declined from the 1999 levels as decreased profitability with respect to security hardware products, more than offset profitability gains in plumbing products which stemmed from productivity initiatives and headcount reductions. The decreased profitability with respect to security hardware products principally resulted from excess fixed costs, a shift in sales mix to lower margin products, manufacturing inefficiencies, and higher administrative expenses, including increased promotion. 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 Six Months Ended July 4, 1999 June 28, 1998 July 4, 1999 June 28, 1998 - ---------------------------------------------------------------------------------------------------------------------- Sales to unaffiliated customers $128.0 $117.6 $254.4 $235.9 Segment profit 22.4 20.9 43.6 40.1
Sales to unaffiliated customers in the Fastening and Assembly Systems segment increased by 8.8% and 7.8% for the three- and six-month periods ending July 4, 1999, respectively, over the 1998 levels, as strong sales to automotive customers in North America and Europe offset weakness in the European industrial sector. Segment profit as a percentage of sales for the Fastening and Assembly Systems segment was 17.5% for the three months ended July 4, 1999, compared to 17.8% for the corresponding period in 1998, and was 17.1% for the six months ended July 4, 1999, compared to 17.0% for the six months ended June 28, 1998. 24 INTEREST RATE SENSITIVITY Due to the change during the six months ended July 4, 1999, described previously, in the Corporation's interest rate hedge portfolio, the following table provides information as of July 4, 1999, about the portfolio. This table should be read in conjunction with the information contained in Management's Discussion and Analysis of Financial Condition and Results of Operations under the heading "Interest Rate Sensitivity" included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1998. Notional Principal Amounts and Interest Rate Detail by Contractual Maturity Dates
Year Ending Dec. 31, Fair Value 6 Mos. Ending -------------------------------------- (Assets)/ (U.S. Dollars in Millions) Dec. 31, 1999 2000 2001 2002 2003 Thereafter Total Liabilities - ------------------------------------------------------------------------------------------------------------------------------ Fixed to variable rate interest rate swaps (a) $ -- $50.0 $ -- $ -- $125.0 $ 275.0 $ 450.0 $ 13.4 Average pay rate (b) Average receive rate 5.54% 6.02% 6.01% 5.96% - ------------------------------------------------------------------------------------------------------------------------------ (a) All U.S. dollar denominated. (b) The average pay rate is based upon 6-month forward LIBOR, except for $150.0 million in notional amount which matures after 2003 and is based upon 3-month forward LIBOR.
IMPACT OF YEAR 2000 The year 2000 ("Y2K") issue arises out of the fact that many computer programs were written using two digits to identify the applicable year rather than four digits. As a result, computer programs with date-sensitive software or equipment with embedded date-sensitive technology may recognize a two-digit code for any year in the next century as related to this century. For example, "00," entered in a date-field for the year "2000," may be interpreted as the year "1900." This error may result in system or equipment failures or miscalculations and disruptions of operations, including, among other things, an inability to process transactions or engage in other normal business activities. The Corporation has taken and is taking action to minimize the impact of Y2K issues in its business. These actions, which are being separately undertaken by each of the Corporation's businesses and monitored by the Corporation on a centralized basis, are categorized into the following phases: (i) awareness, during which the businesses conduct Y2K awareness meetings and establish Y2K project offices; (ii) assessment, during which the businesses complete inventories of Y2K issues, determine remediation strategies, and assign priorities to various remediation efforts based, in part, on the significance of the individual system or location to the businesses' overall operations; (iii) remediation, during which the businesses take the necessary actions to renovate, upgrade, replace, or retire systems that are not Y2K compliant; (iv) testing, during which remediation actions are evaluated for effectiveness; and (v) implementation, during which remediation actions are integrated into the production environment. These phases are being evaluated separately for each of the businesses' significant Y2K exposures, which consist of: (i) software and hardware; (ii) manufacturing equipment; (iii) facilities equipment; (iv) key customers; (v) key suppliers; and (vi) products. 25 For each of the businesses' significant Y2K exposures, the awareness, assessment and remediation phases have been completed and approximately 90% to 95% of the testing and implementation phases have been completed with the balance scheduled for completion in the third quarter of 1999. Surveys of key customers, suppliers, and partners for Y2K compliance generally have been completed, with a response rate in the 80% to 100% range. Follow-up surveys and visits have been done for key suppliers. Selective customer review meetings have been held, and others are planned. The Corporation has been certified for electronic data interface (EDI) transactions by the National Retailers Federation. Contingency planning with critical suppliers is planned or is, in some cases, completed. Evaluation of the Corporation's products has been completed without identification of any significant Y2K impact. To date, the Corporation has not discovered any significant Y2K issues related to embedded systems. Each of the Corporation's businesses have established key milestones for completion of any remaining remediation, testing, and implementation phases of the Y2K program. In general, these milestones specified the completion of implementation of all critical systems by no later than the end of the second quarter of 1999, and were met as discussed previously. For non-critical systems, these milestones generally call for completion of the remediation phase by no later than the end of the second quarter of 1999 and completion of the testing and implementation phases by no later than the end of the third quarter of 1999 so that any slippage in milestones can be corrected in the fourth quarter of 1999. In order to improve operating performance over the last several years, the Corporation has undertaken or commenced a number of significant systems initiatives, including a major reengineering of supply-chain and distribution systems throughout the world. In the North American Power Tools business, for example, the Corporation has implemented advanced supply-chain management systems and SAP information systems. Although the Corporation's systems initiatives were unrelated to concerns over the Y2K issue, an ancillary benefit of many of these systems improvements is that the new systems are Y2K compliant. During the last several years, the Corporation has spent approximately $12 million to address issues related to the Y2K problem. During the remainder of 1999, the Corporation expects to spend an additional $2 million to address Y2K issues. These costs include internal information systems resources redirected to the Corporation's Y2K program. Other costs for implementing systems improvements within the Corporation that were planned primarily for operational and supply-chain improvements and were not accelerated as a result of Y2K concerns are not included in the foregoing costs. The external costs associated with these systems improvements, which are significant, generally have been capitalized as part of other assets. The internal information systems department costs that are included above as Y2K costs are expensed as incurred, are being funded by cash flow from operations, and are not expected to have a material adverse effect on the Corporation. As noted above, the Corporation has not yet completed all necessary phases of its Y2K program. In the event that the Corporation does not fully complete any additional phases of its program, significant subsidiaries of the Corporation would be unable to take customer orders, manufacture or ship products, invoice customers, or collect payments. In addition, although the Corporation has undertaken surveys and other follow-up activities of key customers, suppliers, and partners to determine the extent to which the Corporation's interface systems are vulnerable to those third parties' failure to remediate their own Y2K issues, there is no guarantee that the systems of other companies on which the Corporation's systems rely will be timely converted. If 26 those systems are not updated or otherwise are not Y2K compliant, the inability of the Corporation to interface effectively with these third parties could have a material adverse effect on the Corporation and its financial condition and operating and financial performance. In addition, disruptions to the economy generally resulting from Y2K issues could also materially adversely affect the Corporation. The amount of potential liability and lost revenue cannot be reasonably estimated at this time. The Corporation has contingency plans for certain critical applications and continues to develop such plans for other critical applications with its customers, suppliers, and partners during 1999 based on risks and business impact. Such contingency plans involve consideration of a number of possible actions, including, to the extent necessary, manual workarounds, temporary increases in inventories, and adjustments to staffing strategies. The Corporation is also considering methods for "early warning" of problems related to Y2K with rapid escalation and resolution through teams of in-house and outside experts. FINANCIAL CONDITION Operating activities used cash of $48.7 million for the six months ended July 4, 1999, compared to $6.1 million of cash provided for the corresponding period in 1998. This decreased cash generation was principally the result of an increase in working capital in the first half of 1999, as compared to the corresponding period in 1998. The working capital increase primarily relates to increased inventories to support higher sales and to improve service levels, net of the related increase in accounts payable, and to higher trade receivables due to sales growth in the Corporation's existing businesses. Investing activities for the six months ended July 4, 1999, used cash of $20.7 million compared to $234.8 million of cash provided in the corresponding period in 1998. The decrease in cash from investing activities was principally related to the receipt of $288.0 million of proceeds from the sale of the household products business in North America and Latin America (excluding Mexico and Brazil) in the first half of 1998. Excluding the $288.0 million of sales proceeds, investing activities for the six months ended June 28, 1998, used cash of $53.2 million compared to $20.7 million in cash used in the corresponding period in 1999. This lower cash usage in 1999 primarily resulted from increases in net cash inflow from hedging activities as a result of the maturities of certain interest rate swaps that swapped from fixed United States dollars to fixed foreign currencies. As more fully described in Note 1 of Notes to Consolidated Financial Statements included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1998, the cash effects of the exchange of notional principal amounts on interest rate swaps that swapped from fixed United States dollars to fixed foreign currencies are included in the Consolidated Statement of Cash Flows as cash flow from investing activities because such amounts were designated as hedges of net investments in subsidiaries located outside of the United States. Financing activities generated cash of $119.2 million for the six months ended July 4, 1999, compared to cash used of $281.7 million in the first six months of 1998. This change is primarily the result of an increase in borrowings at July 4, 1999, compared to the 1998 year-end level, to support working capital requirements, compared to a decrease in borrowings at June 28, 1998, compared to the 1997 year-end level due, in part, to debt reductions which occurred with the net proceeds from the sale of the household products business in June 1998. In addition, cash usage 27 for financing activities was higher in the first half of 1998 compared to the 1999 levels due to increased levels of stock repurchased by the Corporation in 1998 over that repurchased in 1999 and the redemption of preferred stock of a subsidiary in 1998. 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. The Corporation has modified its definition of free cash flow to be cash flow from operating activities of continuing operations, less capital expenditures of continuing operations, plus proceeds from the disposal of assets (excluding proceeds from business sales). The revised definition is intended to represent cash generation available to all capital providers. The Corporation's prior definition was oriented towards creditors. Free cash flow can now be derived directly from the relevant captions on the Consolidated Statement of Cash Flows. Based on the revised definition, during the six months ended July 4, 1999, the Corporation experienced negative free cash flow of $97.6 million compared to negative free cash flow of $49.8 million for the corresponding period in 1998. The increased level of negative free cash flow for the six months ended July 4, 1999, compared to the corresponding period in 1998, was primarily a result of lower cash flow from operating activities. Average debt maturity was 5.4 years at July 4, 1999, compared to 6.7 years at December 31, 1998, principally as a result of higher levels of short-term borrowings. At July 4, 1999, borrowings in the amount of $372.2 million under the Corporation's unsecured revolving credit facility were included in short-term borrowings. FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q includes statements that constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and that are intended to come within the safe harbor protection provided by those sections. By their nature, all forward-looking statements involve risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements for a number of reasons, including but not limited to: market acceptance of the new products introduced in 1998 and 1999 and scheduled for introduction in 1999; the level of sales generated from these new products relative to expectations, based on the existing investments in productive capacity and commitments of the Corporation to fund advertising and product promotions in connection with the introduction of these new products; the ability of the Corporation and its suppliers to meet scheduled timetables of new product introductions; unforeseen competitive pressure or other difficulties in maintaining mutually beneficial relationships with key distributors or penetrating new channels of distribution; adverse changes in currency exchange rates or raw material commodity prices, both in absolute terms and relative to competitors' risk profiles; delays in or unanticipated inefficiencies resulting from manufacturing and administrative reorganization actions in progress or contemplated by the strategic repositioning described in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1998 and updated herein; the degree of working capital investment required to meet customer service levels; gradual improvement in the economic environment in Asia and Latin America; and economic growth in North America which more than offsets economic softness in Europe. 28 In addition to the foregoing, the Corporation's ability to realize the anticipated benefits of the restructuring actions undertaken in 1998 and 1999 is dependent upon current market conditions, as well as the timing and effectiveness of the relocation or consolidation of production and administrative processes. The ability to realize the benefits inherent in the balance of the restructuring actions is dependent on the selection and implementation of economically viable projects in addition to the restructuring actions taken to date. The ability to achieve certain sales and profitability targets and cash flow projections also is dependent upon the Corporation's ability to identify appropriate selected acquisitions that are complementary to the Corporation's existing businesses at acquisition prices that are consistent with these objectives. The incremental costs of the year 2000 program and the time by which the Corporation believes it will complete the year 2000 remediation, testing, and implementation phases, as well as new systems initiatives that are year 2000-compliant, are based upon management's best estimates, which were derived using numerous assumptions of future events including the continued availability of certain resources and other factors. However, there can be no guarantee that these estimates will be achieved, and actual results could differ materially from those anticipated. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes, and similar uncertainties. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information required under this Item is included in Item 2 of Part I of this report under the caption "Interest Rate Sensitivity" and in the sixth paragraph under the caption "Earnings" and is incorporated by reference herein. In addition, reference is made to Item 7A of the Corporation's Annual Report on Form 10-K for the year ended December 31, 1998. 29 THE BLACK & DECKER CORPORATION PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Corporation is involved in various lawsuits in the ordinary course of business. The lawsuits primarily involve claims for damages arising out of the use of the Corporation's products and allegations of patent and trademark infringement. The Corporation is also involved in litigation and administrative proceedings involving employment matters and commercial disputes. Some of these lawsuits include claims for punitive as well as compensatory damages. The Corporation, using current product sales data and historical trends, actuarially calculates the estimate of its current exposure for product liability claims for amounts in excess of established deductibles and accrues for the estimated liability as described above up to the limits of the deductibles. All other claims and lawsuits are handled on a case-by-case basis. The Corporation is also involved in lawsuits and administrative proceedings with respect to claims involving the discharge of hazardous substances into the environment. Certain of these claims assert damages and liability for remedial investigations and cleanup costs with respect to sites at which the Corporation has been identified as a potentially responsible party under federal and state environmental laws and regulations (off-site). Other matters involve sites that the Corporation currently owns or has previously sold (on-site). For off-site claims, the Corporation makes an assessment of the cost involved based on environmental studies, prior experience at similar sites, and the experience of other named parties. The Corporation also considers the ability of other parties to share costs, the percentage of the Corporation's exposure relative to all other parties, and the effects of inflation on these estimated costs. For on-site matters associated with properties currently owned, an assessment is made as to whether an investigation and remediation would be required under applicable federal and state law. For on-site matters associated with properties previously sold, the Corporation considers the terms of sale as well as applicable federal and state laws to determine if the Corporation has any remaining liability. If the Corporation is determined to have potential liability for properties currently owned or previously sold, an estimate is made of the total cost of investigation and remediation and other potential costs associated with the site. The Corporation's estimate of the costs associated with legal, product liability, and environmental exposures is accrued if, in management's judgment, the likelihood of a loss is probable. These accrued liabilities are not discounted. Insurance recoveries for environmental and certain general liability claims are not recognized until realized. Reference is made to the discussion in Item 3 of Part I of the Corporation's Annual Report on Form 10-K for the year ended December 31, 1998, in respect of a suit filed against the Corporation by Emerson Electric Company ("Emerson") alleging that the Corporation made false representations in connection with the sale of the Mallory Controls business to Emerson in 1991. As previously reported, in October 1997 the United States District Court for the Southern District of New York granted the Corporation's motion to dismiss Emerson's claims for fraud and negligent misrepresentation. On June 2, 1999, the District Court entered a dismissal with 30 prejudice with respect to Emerson's breach of contract and contribution claims, and Emerson subsequently noted its appeal with the United States Court of Appeals for the Second Circuit with respect to the District Court's dismissal of the fraud and negligent misrepresentation claims. The Corporation intends to defend vigorously against the allegations made in this matter. In the opinion of management, the ultimate resolution of the suit will not have a material adverse effect on the Corporation. As of July 4, 1999, the Corporation had no known probable but inestimable exposures for awards and assessments in connection with environmental matters and other litigation and administrative proceedings that could have a material effect on the Corporation. Management is of the opinion that the amounts accrued for awards or assessments in connection with the environmental matters and other litigation and administrative proceedings to which the Corporation is a party are adequate and, accordingly, ultimate resolution of these matters will not have a material adverse effect on the Corporation. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS During the quarter ended July 4, 1999, the Corporation sold put options on 100,000 shares of its common stock. The put options were sold in a transaction with an investment banking firm subject to customary transfer restrictions in reliance upon the exemption from registration in Section 4(2) of the Securities Act of 1933. The Corporation received premiums of $156,000 on the sale of the put options, which had a strike price of $50 and expired unexercised on July 26, 1999. ITEM 5. OTHER INFORMATION During the quarter ended July 4, 1999, the Corporation announced the resignation of Dennis G. Heiner, former Executive Vice President of the Corporation and President - Building Products Group. The Corporation also announced the promotion of Christopher T. Metz to Vice President of the Corporation and president of the Kwikset security hardware business, a component of the Building Products Group. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibit No. Description 2(a)(i) Amendment No. 5 dated as of April 30, 1999, to the Transaction Agreement dated as of May 10, 1998, by and between The Black & Decker Corporation and Windmere-Durable Holdings, Inc. 2(a)(ii) Amendment No. 6 dated as of June 30, 1999, to the Transaction Agreement dated as of May 10, 1998, by and between The Black & Decker Corporation and Windmere-Durable Holdings, Inc. 31 2(b) Amendment No. 3 dated as of May 4, 1999, to the Transaction Agreement dated as of July 12, 1998, by and between The Black & Decker Corporation and Bucher Holding AG. 10(a) The Black & Decker Corporation 1995 Stock Option Plan for Non-Employee Directors, as amended. 10(b) Letter Agreement dated April 21, 1999, between the Corporation and Joseph Galli. 10(c) Letter Agreement dated April 19, 1999, between the Corporation and Paul F. McBride. 10(d) Severance Benefits Agreement dated April 27, 1999, between the Corporation and Paul F. McBride. 12 Computation of Ratios. 27 Financial Data Schedule. On April 22, 1999, the Corporation filed a Current Report on Form 8-K with the Commission. That Current Report on Form 8-K, filed pursuant to Item 5 of that Form, stated that, on April 21, 1999, the Corporation had reported its earnings for the three months ended April 4, 1999. The Corporation did not file any other reports on Form 8-K during the three-month period ended July 4, 1999. All other items were not applicable. 32 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/ THOMAS M. SCHOEWE --------------------------------- Thomas M. Schoewe Senior Vice President and Chief Financial Officer Principal Accounting Officer By /s/ STEPHEN F. REEVES --------------------------------- Stephen F. Reeves Vice President and Controller Date: August 18, 1999 EX-2 2 EXHIBIT 2(A)(I) EXHIBIT 2(a)(i) AMENDMENT NO. 5 TO TRANSACTION AGREEMENT This Amendment No. 5 to Transaction Agreement (this "Amendment") is made as of the 30 day of April, 1999, by and between The Black & Decker Corporation, a Maryland corporation ("Seller"), and Windmere-Durable Holdings, Inc., a Florida corporation ("Buyer"). WITNESSETH WHEREAS, Seller and Buyer have entered into a Transaction Agreement dated as of May 10, 1998, as amended by Amendment No. 1 to Transaction Agreement dated as of June 26, 1998, a letter agreement dated as of July 23, 1998, Amendment No. 3 to Transaction Agreement dated as of September 23, 1998, and Amendment No. 4 to Transaction Agreement dated as of October 15, 1998 (as amended, the "Agreement"), pursuant to which Seller transferred and caused the Affiliated Transferors to transfer substantially all of the assets held, owned by or use to conduct the HPG Business, and assigned certain liabilities associated with the HPG Business, to Buyer or Buyer Companies designated by Buyer, and Buyer received and caused such designated Buyer Companies to receive such assets and assume such liabilities upon the terms and subject to the conditions set forth in the Agreement; and WHEREAS, the Seller and Buyer desire to further amend the Agreement in accordance with the terms of this Amendment. NOW, THEREFORE, in consideration of the mutual covenants and agreements of the parties contained herein, the parties agree as follows: Section 1. Capitalized terms used but not defined herein have the meanings given to them in the Agreement. Section 2. The definition of "Designated Products" set forth in the Agreement is deleted in its entirety and the following is inserted in its place and stead: "Designated Products" means coffeemakers, espresso makers, cappuccino makers, coffee mills, toasters, toaster ovens (including those with convection features), table top ovens with new kind of heat source, portable microwave ovens, steamers, rice cookers, choppers, can openers, mixers, food processors, irons, breadmakers, skillets, electric WOKs, electric griddles, slow cookers, electric knives, blenders, juicers, grills, kettles and wafflebakers, as well as floor polishers, hair dryers and corded canister and corded upright floor vacuums sold in Mexico, Central America, South America (other than Brazil) and the Caribbean, together in each case with any related accessories or attachments, and all products in the foregoing categories under development in the HPG Business as of the Closing Date or that have been under development in the HPG Business at any time during the year prior to the Closing Date, but excluding step stools, Cleaning and Lighting Products, shop, construction and similar vacuums, and VersaPak(R) rechargeable battery packs and chargers, together in each case with related accessories or attachments. It is expressly understood and agreed that floor polishers, hair dryers and corded canister and corded upright floor vacuums (and any related accessories or attachments) shall only be "Designated Products" to the extent and only to the extent sold in Mexico, Central America, South America (other than Brazil) and the Caribbean. IN WITNESS WHEREOF, the parties hereto caused this Amendment to be duly executed by their respective authorized officers on the day and year first above written. THE BLACK & DECKER CORPORATION By: /s/CHARLES E. FENTON Charles E. Fenton WINDMERE-DURABLE HOLDINGS, INC. By: /s/HARRY D. SCHULMAN Harry D. Schulman EX-2 3 EXHIBIT 2(A)(II) EXHIBIT 2(a)(ii) AMENDMENT NO. 6 TO TRANSACTION AGREEMENT This Amendment No. 6 to Transaction Agreement (this "Amendment") is made as of the 30th day of June, 1999, by and between The Black & Decker Corporation, a Maryland corporation ("Seller"), and Windmere-Durable Holdings, Inc., a Florida corporation ("Buyer"). WITNESSETH WHEREAS, Seller and Buyer have entered into a Transaction Agreement dated as of May 10, 1998, as amended by Amendment No. 1 to Transaction Agreement dated as of June 26, 1998, a letter agreement dated as of July 23, 1998, Amendment No. 3 to Transaction Agreement dated as of September 23, 1998, Amendment No. 4 to Transaction Agreement dated as of October 15, 1998, and Amendment No. 5 to Transaction Agreement dated as of April 30, 1999 (as amended, the "Agreement"), pursuant to which Seller transferred and caused the Affiliated Transferors to transfer substantially all of the assets held, owned by or use to conduct the HPG Business, and assigned certain liabilities associated with the HPG Business, to Buyer or Buyer Companies designated by Buyer, and Buyer received and caused such designated Buyer Companies to receive such assets and assume such liabilities upon the terms and subject to the conditions set forth in the Agreement; and WHEREAS, the Seller and Buyer desire to further amend the Agreement in accordance with the terms of this Amendment. NOW, THEREFORE, in consideration of the mutual covenants and agreements of the parties contained herein, the parties agree as follows: Section 1. Capitalized terms used but not defined herein have the meanings given to them in the Agreement. Section 2. The definition of "Designated Products" set forth in the Agreement is deleted in its entirety and the following is inserted in its place and stead: "Designated Products" means coffeemakers, espresso makers, cappuccino makers, coffee mills, toasters, toaster ovens (including those with convection features), table top ovens with new kind of heat source, portable microwave ovens, steamers, rice cookers, choppers, can openers, mixers, food processors, irons, breadmakers, skillets, electric WOKs, electric griddles, slow cookers, pressure cookers, electric knives, blenders, juicers, grills, kettles and wafflebakers, as well as floor polishers, hair dryers and corded canister and corded upright floor vacuums sold in Mexico, Central America, South America (other than Brazil) and the Caribbean, together in each case with any related accessories or attachments, and all products in the foregoing categories under development in the HPG Business as of the Closing Date or that have been under development in the HPG Business at any time during the year prior to the Closing Date, but excluding step stools, Cleaning and Lighting Products, shop, construction and similar vacuums, and VersaPak(R) rechargeable battery packs and chargers, together in each case with related accessories or attachments. It is expressly understood and agreed that floor polishers, hair dryers and corded canister and corded upright floor vacuums (and any related accessories or attachments) shall only be "Designated Products" to the extent and only to the extent sold in Mexico, Central America, South America (other than Brazil) and the Caribbean. IN WITNESS WHEREOF, the parties hereto caused this Amendment to be duly executed by their respective authorized officers on the day and year first above written. THE BLACK & DECKER CORPORATION By: /s/CHARLES E. FENTON Charles E. Fenton WINDMERE-DURABLE HOLDINGS, INC. By: /s/HARRY D. SCHULMAN Harry D. Schulman EX-2 4 EXHIBIT 2(B) Exhibit 2(b) AMENDMENT NO. 3 Dated as of May 4, 1999 to TRANSACTION AGREEMENT Dated as of July 12, 1998 By and Between THE BLACK & DECKER CORPORATION and BUCHER HOLDING AG AMENDMENT NO. 3 TO TRANSACTION AGREEMENT This Amendment No. 3 to Transaction Agreement ("Amendment No. 3") is made as of the 4th day of May, 1999, by and between The Black & Decker Corporation, a Maryland corporation ("Black & Decker"), and Bucher Holding AG, a Swiss corporation ("Buyer"). W I T N E S S E T H: WHEREAS, Black & Decker, through certain of its direct and indirect Subsidiaries, was engaged in the Glass Machinery Business; WHEREAS, Black & Decker and Buyer entered into a Transaction Agreement dated as of July 12, 1998 (the "Agreement") pursuant to which Black & Decker agreed to sell and Buyer agreed to purchase the Glass Machinery Business upon the terms and subject to the conditions set forth therein; WHEREAS, Black & Decker and Buyer entered into an Amendment No. 1 to Transaction Agreement dated as of September 21, 1998 amending the Agreement (the "First Amendment"); WHEREAS, Black & Decker and Buyer entered into an Amendment No. 2 to Transaction Agreement dated as of November 20, 1999 amending the Agreement (the "Second Amendment"); WHEREAS, Black & Decker and Buyer desire to amend certain of the Agreement in accordance with the terms of this Amendment No. 3; NOW, THEREFORE, in consideration of the mutual covenants and agreements of the parties contained herein, the parties agree as follows: Section 1. Definitions. Capitalized terms used but not defined herein have the meanings given to them in the Agreement. In addition, the following term shall have the following meaning: "Notice of Objections" means Buyer's February 5, 1999 notice of its objections to the Proposed Final Net Tangible Asset Amount as provided by Black & Decker to Buyer on November 20, 1998. Section 2. Amendments. The Agreement, the First Amendment and the Second Amendment are hereby amended as follows: 2.01. The parties agree that the Final Net Tangible Asset Amount is $61,295,000. Such Final Net Tangible Asset Amount represents a $6,200,000 reduction of the Proposed Final Net Tangible Asset Amount which reduction of the Exchange Consideration shall be allocated to Transferred Assets located in Switzerland. On May 14, 1999, in accordance with Section 2.04(c) of the Agreement, Black & Decker shall pay to Buyer the sum of $11,370,000 representing the difference between $61,295,000 and $72,665,000. Notwithstanding any contrary provision of the Agreement, no interest shall be due on such payment. 2.02. Section 2.04(f) is hereby amended by providing that the $15,344,000 payment to be made by Buyer to Black & Decker thereunder shall be made on May 14, 1999. Notwithstanding any contrary provision of the Agreement, no interest shall be due on such payment. 2.03. Section 7.09 of the Agreement is hereby amended to provide that Black & Decker will pay to Buyer the sum of $7,000,000 on May 14, 1999 as an advance reimbursement of the restructuring costs that are described in such section. Such payment shall fully satisfy all of Black & Decker's obligations under Section 7.09 of the Agreement. 2.04. Section 10.02(b) of the Agreement is hereby amended by adding to the end of such section the following clauses: (v) the ALVER performance bond guaranteed by the Union Bank of Switzerland as described in Sections B.2 and B.3 of the Notice of Objections; and (vi) the ENAVA performance bond guaranteed by the Midland Bank as described in Section D.2 of the Notice of Objections. 2.05. Section 10.04(b) of the Agreement is hereby amended by adding to the end of such section the following clauses: (iii) with respect to the matter described in Section 10.02(b)(v), to the extent of the first $200,000 of Damages incurred by all Indemnified Parties as a result thereof; and (iv) with respect to the matter described in Section 10.02(b)(vi), to the extent that the Damages incurred by all Indemnified Parties as a result thereof exceed $92,000. 2.06. This Amendment No. 3 is intended by the parties to constitute a settlement of all matters raised in the Notice of Objections and, except as expressly provided for herein, Buyer hereby releases and discharges Black & Decker from each and every obligation, claim, liability or expense for which Black & Decker or any of its Affiliates may be or become liable to Buyer or any of its Affiliates with respect to any and all of the matters raised in the Notice of Objections. IN WITNESS WHEREOF, the parties hereto caused this Amendment No. 3 to be duly executed by their respective authorized officers on the day and year first above written. THE BLACK & DECKER CORPORATION By: /s/CHARLES E. FENTON Name: Charles E. Fenton Title: BUCHER HOLDING AG By: /s/RUDOLF HAUSER Name: Rudolf Hauser Title: EX-10 5 EXHIBIT 10(A) Exhibit 10(a) As Amended 2/12/98 and 4/27/99 THE BLACK & DECKER CORPORATION 1995 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS Attracting and retaining qualified individuals to serve as non-employee directors is vital to the continued success of The Black & Decker Corporation. To that end and to bind the interests of those individuals to the interests of the Corporation and its stockholders, this stock option plan offers them an attractive opportunity to acquire a proprietary interest in the Corporation. ARTICLE 1:00 Definitions 1:01 The term "Board of Directors" shall mean the Board of Directors of the Corporation. 1:02 The term "Change in Control" shall have the meaning provided in Section 7:02 of the Plan. 1:03 The term "Code" shall mean the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder. 1:04 The term "Common Stock" shall mean the shares of common stock, par value $.50 per share, of the Corporation. 1:05 The term "Corporation" shall mean The Black & Decker Corporation. 1:06 The term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. 1:07 The term "Fair Market Value of a share of Common Stock" shall mean the average of the high and low sale price per share of Common Stock as finally reported in the New York Stock Exchange Composite Transactions for the New York Stock Exchange, or if shares of Common Stock are not sold on such date, the average of the high & low sole price per share of Common Stock as finally reported in the New York Stock Exchange Composite Transactions for the New York Stock Exchange for the most recent prior date on which shares of Common Stock were sold. 1:08 The term "Limited Stock Appreciation Right" shall mean a limited tandem stock appreciation right that entitles the holder to receive cash upon a Change in Control pursuant to Article 7:00 of the Plan. 1:09 The term "Option" or "Stock Option" shall mean a right granted pursuant to the Plan to purchase shares of Common Stock. 1:10 The term "Option Agreement" shall mean the written agreement representing Options granted pursuant to the Plan as contemplated by Article 5:00 of the Plan. 1:11 The term "Plan" shall mean The Black & Decker 1995 Stock Option Plan for Non-Employee Directors as approved by the Board of Directors on December 8, 1994, and adopted by the stockholders of the Corporation at the 1995 Annual Meeting of Stockholders, as the same may be amended from time to time. ARTICLE 2:00 Effective Date of the Plan 2:01 The Plan shall become effective upon stockholder approval, provided that such approval is received on or before May 31, 1995. ARTICLE 3:00 Participation in the Plan 3:01 Participation in the Plan shall be limited to individuals who are directors of the Corporation but not full-time employees of the Corporation on the date of grant of an Option. 3:02 No member of the Board of Directors who is a full-time employee shall be eligible to participate in the Plan. No director who owns beneficially more than 10% of the total combined voting power of all classes of stock of the Corporation shall be eligible to participate in the Plan. 3:03 Upon initial election to the Board of Directors and upon each successive reelection to the Board, a director who on the date of election or reelection is not a full-time employee of the Corporation shall automatically receive an Option to purchase 2,500 shares of Common Stock, provided, however, that if the initial election occurs at other than an annual meeting of stockholders, the number of shares shall be prorated based on the number of months, rounded up to whole months, in the twelve-month period ending at the next annual meeting of stockholders. ARTICLE 4:00 Stock Subject to the Plan 4:01 There shall be reserved for the granting of Option pursuant to the Plan and for issuance and sale pursuant to such Options 150,000 shares of Common Stock. To determine the number of shares of Common Stock available at any time for the granting of Options, there shall be deducted from the total number of reserved shares of Common Stock the number of shares of Common Stock in respect of which Options have been granted pursuant to the Plan that are still outstanding or have been exercised. The shares of Common Stock to be issued upon the exercise of Options granted pursuant to the Plan shall be made available from the authorized and unissued shares of Common Stock. If for any reason shares of Common Stock as to which an Option has been granted cease to be subject to purchase thereunder, then such shares of Common Stock again shall be available for issuance pursuant to the Plan. Except as provided in Section 4:03, however, the aggregate number of shares of Common Stock that may be issued upon the exercise of Options pursuant to the Plan shall not exceed 150,000 shares. 4:02 Proceeds from the purchase of shares of Common Stock upon the exercise of Options granted pursuant to the Plan shall be used for the general business purposes of the Corporation. 4:03 Subject to the provisions of Section 7:02, in the event of reorganization, recapitalization, stock split, stock dividend, combination of shares of Common Stock, merger, consolidation, share exchange, acquisition of property or stock, or any change in the capital structure of the Corporation, the number and kind of shares reserved for the granting of Options and the number, kind and price of shares covered by Options granted pursuant to the Plan but not then exercised shall be adjusted appropriately by resolution of the Board. ARTICLE 5:00 Terms and Conditions of Options 5:01 Each Option granted pursuant to the Plan shall be evidenced by an Option Agreement in such form as the Board of Directors from time to time may determine. 5:02 The exercise price per share for Options shall be equal to the Fair Market Value of a share of Common Stock on the date of grant of the Options. 5:03 Subject to the other limitations set forth in the Plan, the term of the Option shall be 10 years from the date on which it is granted. 5:04 Each Option shall become exercisable eleven months after the date the Option was granted. If an Option holder does not purchase the full number of shares of Common Stock that he or she at any time has become entitled to purchase, he or she may purchase all or any part of those shares of Common Stock at any subsequent time during the term of the Option. 5:05 Options shall be nontransferable and nonassignable, except that Options may be transferred by testamentary instrument or by the laws of descent and distribution and may be transferred pursuant to a qualified domestic relations order as defined by the Internal Revenue Code of 1986, as amended, or Title I of the Employee Retirement Income Security Act. 5:06 If an Option holder ceases to be a director of the Corporation, his or her Option and all rights thereunder shall terminate effective at the close of business on the date the Option holder ceases to be a director of the Corporation, except (i) to the extent previously exercised, (ii) as provided in Section 5:07 and 5:08 and (iii) for a period of 30 days after he or she ceases to be a director of the Corporation, the Option holder shall be entitled to exercise any Option that was exercisable at the close of business on the date the Option holder ceased to be a director of the Corporation. 5:07 If an Option holder dies during the term of his or her Option without having fully exercised the Option, the executor or administrator of his or her estate or the person who inherits the right to exercise the Option by bequest or inheritance shall have the right within three years of the Option holder's death to purchase the number of shares of Common Stock that the deceased Option holder was entitled to purchase at the date of his or her death, after which the Option shall lapse, provided that in no event may any Option be exercised after the expiration of the term of the Option. 5:08 If an Option holder ceases to be a director of the Corporation without having fully exercised his or her Option and (i) the Option holder is 65 years of age or older, or (ii) the Option holder has been a director of the Corporation or any of its subsidiaries for at least 5 years, then the Option holder shall have the right within three years of the Option holder's termination as a director to purchase the number of shares of Common Stock that the Option holder was entitled to purchase at the date of termination, after which the Option shall lapse, provided that in no event may any Option be exercised after the expiration of the term of the Option. 5:09 The granting of an Option pursuant to the Plan shall not constitute or be evidence of any agreement or understanding, express or implied, on the part of the Corporation to continue the Option holder as a director for any specified period. ARTICLE 6:00 Methods of Exercise of Options 6:01 An Option holder (or other person or persons, if any, entitled to exercise an Option hereunder) desiring to exercise an Option granted pursuant to the Plan as to all or part of the shares of Common Stock covered by the Option shall (i) notify the Corporation in writing at is principal office at 701 East Joppa Road, Towson, Maryland 21286, to that effect, specifying the number of shares of Common Stock to be purchased and the method of payment therefor, and (ii) make payment or provision for payment for the shares of Common Stock so purchased in accordance with this Article 6:00. Such written notice may be given by means of a facsimile transmission. If a facsimile transmission is used, the Option holder should mail the original executed copy of the written notice to the Corporation promptly thereafter. 6:02 Payment or provision for payment shall be made as follows: (a) The Option holder shall deliver to the Corporation at the address set forth in Section 6:01 United States currency in an amount equal to the aggregate purchase price of the shares of Common Stock as to which such exercise relates; or (b) The Option holder shall tender to the Corporation shares of Common Stock already owned by the Option holder that, together with any cash tendered therewith, have an aggregate fair market value (determined based on the Fair Market Value of a share of Common Stock on the date the notice set forth in Section 6:01 is received by the Corporation) equal to the aggregate purchase price of the shares of Common Stock as to which such exercise relates; or (c) The Option holder shall deliver to the Corporation an exercise notice together with irrevocable instructions to a broker to deliver promptly to the Corporation the amount of sale or loan proceeds necessary to pay the aggregate purchase price of the shares of Common Stock as to which such exercise relates and to sell the shares of Common Stock to be issued upon exercise of the Option and deliver the cash proceeds less commissions and brokerage fees to the Option holder or to deliver the remaining shares of Common Stock to the Option holder. Notwithstanding the foregoing provisions, the Board of Directors may limit the methods in which an Option may be exercised by any person and, in processing any purported exercise of an Option granted pursuant to the Plan, may refuse to recognize the method of exercise selected by the Option holder (other than the method of exercise set forth in Section 6:02(a)) if, in the opinion of counsel to the Corporation, (i) the Option holder is or within the six months preceding such exercise was subject to reporting under Section 16(a) of the Exchange Act and (ii) there is a substantial likelihood that the method of exercise selected by the Option holder would subject the Option holder to a substantial risk of liability under Section 16 of the Exchange Act. 6:03 In addition to the alternative methods of exercise set forth in Section 6:02, the Option holder shall be entitled, at or prior to the time the written notice provided for in Section 6:01 is delivered to the Corporation, to elect to have the Corporation withhold from the shares of Common Stock to be delivered upon exercise of the Option that number of shares of Common Stock (determined based on the Fair Market Value of a share of Common Stock on the date the notice set forth in Section 6:01 is received by the Corporation) necessary to satisfy any withholding taxes attributable to the exercise of the Option. Alternatively the holder may elect to deliver previously owned shares of Common Stock upon exercise of the Stock Option to satisfy any withholding taxes attributable to the exercise of the Stock Option. The maximum amount that an Option holder may elect to have withheld from the shares of Common Stock otherwise deliverable upon exercise or the maximum number of previously owned shares an Option holder may deliver shall be equal to his or her federal and state withholding. Notwithstanding the foregoing provisions, the Board of Directors may include in the Option Agreement relating to any such Option provisions limiting or eliminating the Option holder's ability to pay his or her withholding tax obligation with shares of Common Stock or, if no such provisions are included in the Option Agreement but in the opinion of the Board of Directors such withholding would have an adverse tax or accounting effect to the Corporation, at or prior to exercise of the Option, the Board of Directors may so limit or eliminate the Option holder's ability to pay withholding tax obligations with shares of Common Stock. Notwithstanding the foregoing provisions, a holder of an Option may not elect any of the methods of satisfying his or her withholding tax obligation in respect of any exercise if, in the opinion of counsel to the Corporation, (i) the holder of the Stock Option is or within the six months preceding such exercise was subject to reporting under Section 16(a) of the Exchange Act and (ii) there is a substantial likelihood that the election or timing of the election would subject the holder to a substantial risk of liability under Section 16 of the Exchange Act. 6:04 An Option holder at any time may elect in writing to abandon an Option in respect of all or part of the number of shares of Common Stock as to which the Option shall not have been exercised. 6:05 An Option holder shall have none of the rights of a stockholder of the Corporation until the shares of Common Stock covered by the Option are issued upon exercise of the Option. ARTICLE 7:00 Limited Stock Appreciation Rights 7:01 Option holders shall have Limited Stock Appreciation Rights entitling Option holders to receive, in connection with a Change in Control (as defined in Section 7:02), a cash payment in cancellation of all of their Options that are outstanding on the date the Change in Control occurs (whether or not such Options are then presently exercisable if they have been held for a period of at least six months from the date of acquisition to the date of cash settlement), which payment shall be equal to the number of shares covered by the cancelled Options multiplied by the excess over the exercise price of the Options of the higher of (i) the Fair Market Value of a share of Common Stock on the date of the Change in Control or (ii) the highest per share price paid for the shares of Common Stock in connection with the Change in Control (with the value of any noncash consideration paid in connection with the Change in Control to be determined by the Board of Directors in its sole and absolute discretion). For purposes of this Section 7:01 as well as the other provisions of this Plan, once an Option or portion of an Option has terminated, lapsed or expired, or has been abandoned, in accordance with the provisions of the Plan, the Option (or the portion of the Option) that has terminated, lapsed or expired, or has been abandoned, shall cease to be outstanding, Limited Stock Appreciation Rights shall not be exercisable at the discretion of the holder but shall automatically be exercised upon a Change in Control. 7:02 For purposes of Section 7:01, a "Change in Control" shall mean a change in control of the Corporation of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act, whether or not the Corporation is in fact required to comply therewith, provided that, without limitation, such a Change in Control shall be deemed to have occurred if (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or any of its subsidiaries, or a corporation owned, directly or indirectly, by the stockholders of the Corporation, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities; or (B) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors and any new director (other than a director designated by a person who has entered into an agreement with the Corporation to effect a transaction described in clauses (A) or (C) of this Section 7:02) whose election by the Board of Directors or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (C) the stockholders of the Corporation approve a merger, share exchange or consolidation of the Corporation with any other corporation, other than a merger, share exchange or consolidation which would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 60% of the combined voting power of the voting securities of the Corporation or such surviving entity outstanding immediately after such merger, share exchange or consolidation, or the stockholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of all or substantially all the Corporation's assets. ARTICLE 8:00 Amendments and Discontinuance of the Plan 8:01 The Board of Directors shall have the right at any time and from time to time to amend, modify, or discontinue the Plan provided that, except as provided in Section 4:03, no such amendment, modification, or discontinuance of the Plan shall (i) revoke or alter the terms of any valid Option or Limited Stock Appreciation right previously granted pursuant to the Plan, (ii) increase the number of shares of Common Stock to be reserved for issuance and sale pursuant to Options or Stock Appreciation Rights granted pursuant to the Plan, (iii) decrease the price determined pursuant to the provisions of Section 5:02 or increase the amount of cash that a holder of a Limited Stock Appreciation Right is entitled to receive upon exercise of a Limited Stock Appreciation Right, (iv) change the class of individuals to whom Options or Limited Stock Appreciation Rights may be granted pursuant to the Plan, or (v) provide for Options or Limited Stock Appreciation Rights exercisable more than 10 years after the date granted. Notwithstanding the foregoing, the provisions of the Plan that determine the amount, price or timing of benefits or the grant of exercise of Options as Limited Stock Appreciation Rights shall not be amended more than once every six months, unless the amendment would be consistent with the provisions of Rule 16b-3(c)(2)(ii) promulgated under the Exchange Act (or any successor provision thereto). ARTICLE 9:00 Plan Subject to Governmental Laws and Regulations 9:01 The Plan and the grant and exercise of Options and Limited Stock Appreciation Rights pursuant to the Plan shall be subject to all applicable governmental laws and regulations. Notwithstanding any other provision of the Plan to the contrary, the Board of Directors may in its sole and absolute discretion make such changes in the Plan as may be required to conform the Plan to such laws and regulations. ARTICLE 10:00 Duration of the Plan 10:01 No Option or Limited Stock Appreciation Right shall be granted pursuant to the Plan after the close of business on April 30, 2005. EX-10 6 EXHIBIT 10(B) Exhibit 10(b) [BLACK & DECKER LETTERHEAD] April 21, 1999 By Hand Delivery Mr. Joseph Galli 21 Oakridge Court Timonium, Maryland 21093 Dear Joe: This letter states the Corporation's agreement with you concerning the termination of your employment. It supersedes all prior agreements but does not affect any benefits to which you may be entitled under any pension plan or thrift plan. 1. Your resignation as Executive Vice President and an employee of the Corporation and as an officer and director of any subsidiaries of the Corporation will be effective today. 2. You will receive $500,000 per year payable in monthly installments (less tax withholding) for a period of two years without regard to your earnings from other employment, and for a period of one year you will receive the benefits provided under Section 2.4 of the Corporation's Executive Salary Continuance Plan (the "Plan"). In addition to the benefits provided under that Section, the Corporation for a period of one year will provide the special benefits heretofore provided for your son, Mathew. The Corporation will also provide outplacement services with an outplacement firm of your choice for a period of six months from the date of this letter. 3. Your stock options will continue to vest as though your employment had continued through December 31, 1999 as shown on the attached schedule, and will remain exercisable for a period of three years from the date of this letter. In addition, 35,000 of the 60,000 options that would have vested on April 23, 2000 will vest on that date and remain exercisable for three years from the date of this letter. 4. In addition to your obligations to maintain confidentiality and not to compete set out in the Plan, you agree that (a) for a period of three years from the date of this letter you will not solicit or hire or permit your employer or any entity controlled by your employer to solicit or hire any person who was an employee of the Corporation or a subsidiary of the Corporation at or within 90 days prior to the date you left the Corporation's employ, or encourage, advise, or assist (including acting as personal reference) any such person to leave the employ of the Corporation or a subsidiary of the Corporation or to seek other employment, and (b) for a period of two years, accept employment with an entity that (i) is a customer (as defined in Exhibit A) of the Corporation or a subsidiary of the Corporation or (ii) a competitor listed on the schedule attached as Exhibit B, its successors or assigns, or an affiliate of a competitor if thereby you would have any significant role in the management of the competitor. Clause (a) notwithstanding, you may, without violating that clause, hire your current secretary, Janine Ducker, and you will have reasonable access to her by telephone and by correspondence in connection with your affairs so long as she remains in our employ. 5. You also agree that you will never disparage, orally or in writing, privately or publicly, the Corporation, its subsidiaries, or its or their officers, directors, employees or products. 6. You agree that if you violate any provision of this agreement, the Corporation, in addition to seeking monetary relief for violation of this agreement, shall be entitled to enjoin you from violating any provision of this agreement. You also agree that your rights under this letter may be terminated at any time if you have violated any of these provisions. If you agree, please sign, date, and return one copy of this letter by 5:00 p.m. on Friday, April 23, 1999, and it will become binding on you and the Corporation. If by that time I have not received a copy signed by you, this proposal is withdrawn. Sincerely, /s/ Nolan D. Archibald Agreed, April 23, 1999 /s/ Joseph Galli Joseph Galli Stock Option Schedule Stock options exercisable as of December 31, 1999: Granted Number Price P/S 11/16/89 2,100 $21.6250 07/19/90 15,000 16.0000 12/09/93 50,000 20.5625 10/20/94 50,000 22.5625 07/20/95 100,000 31.0000 04/23/96 180,000 39.8750* 12/12/96 22,500 30.5000 12/11/97 25,000 38.0000 12/10/98 18,750 53.7187 - ---------------- *See letter agreement dated April 23, 1996 regarding this grant. EXHIBIT A: Customers List 1. Warehouse Home Centers, such as Home Depot, Lowes, Hechingers, Builders Square, Home Base. 2. Regional Home Centers. 3. Hardware Wholesalers, such as Ace, Tru-Serve. 4. Contractor Supply Companies, such as W. W. Grainger, Acme Electric. 5. Industrial Supply Companies, such as W. W. Grainger, Camreon & Barkley. 6. Mass Merchandisers, such as Wal-Mart, K-Mart, Sears. EXHIBIT B: Competitors American Saw & Manufacturing Co. American Tool Co. Atlas Copco; AEG; Milwaukee; Kango; Wagner Bosch/Skil; Qualcast Electrolux Emerson Electric Hilti Hitachi Kennemetal Makita Metabo; Elecktra Beckum; EMC; Lurem Oldham Panasonic Pentair; Porter Cable Ryobi Sandvik Stanley Works Starrett Toro Vermont American EX-10 7 EXHIBIT 10(C) Exhibit 10(c) [BLACK & DECKER LETTERHEAD] April 19, 1999 via Facsimile: 518/782-7074 Mr. Paul F. McBride 5 East Ridge Road Laudonville, New York 12211 Dear Paul: This letter will confirm our offer and your acceptance of the position of Executive Vice President and President - Power Tools and Accessories Group reporting to me. The following terms will apply: 1. The appointment is effective April 21, 1999. 2. Your salary will be $500,000 annually and will be reviewed every fourteen months. 3. You will participate in Black & Decker's Annual Incentive Plan with a target award of 75% of base salary and a maximum award of 150% of salary without proration. 4. You will participate in The Black & Decker Performance Equity Plan for the performance periods ending 1999 without proration and thereafter with a target of 60% of your base salary. 5. We will recommend to the Board of Directors that you be granted stock options to purchase 500,000 shares of Black & Decker Common Stock with limited stock appreciation rights. 6. If terminated by the Company, you will receive a two-year salary continuance in accordance with the Company's Executive Salary Continuance Plan. 7. If terminated by the Company, your Black & Decker stock options will continue to vest until the earlier of (a) the date that the value of your options is equal to the value as of April 21, 1999 of your unvested GE options and restricted stock that you forfeit or (b) three years from your severance date. 8. Finally, you will be eligible for the benefits listed on the schedule attached to this letter. By accepting this offer, you will agree that if your employment is terminated, voluntarily or involuntarily, you will not (a) for a period of one year accept employment with or engage in a business that competes with any Black & Decker business that you have worked in or (b) disclose at any time to any person the business plans, trade secrets, or confidential information pertaining to The Black & Decker Corporation or any of its subsidiaries. Paul, I am very excited about the prospect of you joining our Company. Please give me a call if you have any questions about this letter or would like copies of any of the plans referred to in this letter. Please date and sign one of the enclosed copies and return it to me. Sincerely, /s/ Nolan D. Archibald Nolan D. Archibald ACCEPTED AND AGREED: /s/ Paul F. McBride April 19, 1999 Paul F. McBride Date BLACK & DECKER SCHEDULE OF BENEFITS 1. Supplemental Executive Retirement Plan (SERP) - See Attached. 2. Automobile Allowance - $1,350/paid monthly. 3. Basic life insurance - 125% of annual salary plus accidental death and dismemberment and travel accident insurance per Company policy. 4. Executive life insurance - five times annual salary. 5. Medical insurance (your choice of health care partnership or standard medical plan). 6. Dental insurance (your choice of a dental HMO or a standard indemnity plan). 7. Long-term disability plan (your choice of basic, preferred, or premium). 8. Tax preparation expenses per Company policy. 9. Country Club membership per Company policy. 10. Moving costs from primary residence per Company policy. (Grossed-up for taxes). EX-10 8 EXHIBIT 10(D) Exhibit 10(d) April 27, 1999 Mr. Paul F. McBride 5 East Ridge Road Loudonville, New York 12211 Dear Mr. McBride: The Black & Decker Corporation (the "Corporation") considers it essential to the best interests of its stockholders to foster the continuous employment of key management personnel. In this connection, the Board of Directors of the Corporation (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a change in control of the Corporation may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Corporation and its stockholders. The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Corporation's management, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control of the Corporation, although no such change is now contemplated. In order to induce you to remain in the employ of the Corporation, the Corporation agrees that you shall receive the severance benefits set forth in this letter agreement (the "Agreement") in the event your employment with the Corporation is terminated subsequent to a "change in control of the Corporation" (as defined in Section 2 hereof) under the circumstances described below. 1. Term of Agreement. This Agreement shall commence on the date hereof and shall continue in effect through December 31, 2000; provided, however, that if a change in control of the Corporation shall have occurred prior to December 31, 2000, this Agreement shall continue in effect for a period of 36 months beyond the month in which such change in control occurred, at which time this Agreement shall terminate. Notwithstanding the foregoing, and provided no change in control of the Corporation shall have occurred, this Agreement shall automatically terminate upon the earlier to occur of (i) your termination of employment with the Corporation, or (ii) the Corporation's furnishing you with notice of termination, irrespective of the effective date of such termination. 2. Change in Control. No benefits shall be payable hereunder unless there shall have been a change in control of the Corporation, as set forth below. For purposes of this Agreement, a "change in control of the Corporation" shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Corporation is in fact required to comply therewith, provided that, without limitation, such a change in control shall be deemed to have occurred if (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or any of its subsidiaries or a corporation owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities; (B) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with the Corporation to effect a transaction described in clauses (A) or (D) of this Section) whose election by the Board or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; (C) the Corporation enters into an agreement, the consummation of which would result in the occurrence of a change in control of the Corporation; or (D) the stockholders of the Corporation approve a merger, share exchange or consolidation of the Corporation with any other corporation, other than a merger, share exchange or consolidation which would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 60% of the combined voting power of the voting securities of the Corporation or such surviving entity outstanding immediately after such merger, share exchange or consolidation, or the stockholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of all or substantially all the Corporation's assets. 3. Termination Following Change in Control of the Corporation. If any of the events described in Section 2 hereof constituting a change in control of the Corporation shall have occurred, you shall be entitled to the benefits provided in Subsection 4(iii) hereof upon the subsequent termination of your employment during the term of this Agreement unless such termination is (A) because of your death or Disability, (B) by the Corporation for Cause, or (C) by you other than for Good Reason. (i) Disability. If, as a result of your incapacity due to physical or mental illness, you shall have been absent from the full-time performance of your duties with the Corporation for six consecutive months, and within 30 days after written notice of termination is given you shall not have returned to the full-time performance of your duties, your employment may be terminated for "Disability." (ii) Cause. Termination by the Corporation of your employment for "Cause" shall mean termination upon (A) the willful and continued failure by you to substantially perform your duties with the Corporation, other than any such failure resulting from your incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance by you of a Notice of Termination (as defined in Subsection 3(iv) hereof) for Good Reason (as defined in Subsection 3(iii) hereof), after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties, or (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the Corporation, monetarily or otherwise. For purposes of this Subsection, no act or failure to act on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Corporation. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of conduct set forth above in clauses (A) or (B) of the first sentence of this Subsection and specifying the particulars thereof in detail. (iii) Good Reason. You shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, the occurrence after a change in control of the Corporation of any of the following circumstances unless, in the case of paragraphs (A), (E), (F), (G) or (H), such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination, as such terms are defined in Subsections 3(v) and 3(iv) hereof, respectively, given in respect thereof: (A) the assignment to you of any duties inconsistent with your current status as an executive of the Corporation or a substantial adverse alteration in the nature or status of your responsibilities from those in effect immediately prior to the change in control of the Corporation; (B) a reduction by the Corporation in your annual base salary as in effect on the date hereof or as the same may be increased from time to time, except for across-the-board salary reductions similarly affecting all senior executives of the Corporation and all senior executives of any person in control of the Corporation; (C) your relocation to a location not within 25 miles of your present office or job location, except for required travel on the Corporation's business to an extent substantially consistent with your present business travel obligations; (D) the failure by the Corporation, without your consent, to pay to you any portion of your current compensation, or to pay to you any portion of an installment of deferred compensation under any deferred compensation program of the Corporation, within seven days of the date such compensation is due; (E) the failure by the Corporation to continue in effect any bonus to which you were entitled, or any compensation plan in which you participated immediately prior to the change in control of the Corporation which is material to your total compensation, including but not limited to the Corporation's (i) Executive Annual Incentive Plan or other annual incentive compensation plan ("AIP"); (ii) Performance Equity Plan or other long-term incentive compensation plan ("PEP"); (iii) stock option plans; (iv) retirement and savings plans; and (v) Supplemental Executive Retirement Plan ("SERP"); or any substitute plan or plans adopted prior to the change in control of the Corporation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan and such equitable arrangement provides substantially equivalent benefits not materially less favorable to you (both in terms of the amount of benefits provided and the level of your participation relative to other participants), or the failure by the Corporation to continue your participation therein (or in such substitute or alternative plan) on a basis not materially less favorable (both in terms of the amount of benefits provided and the level of your participation relative to other participants) as existed at the time of the change in control of the Corporation; (F) the failure by the Corporation to continue to provide you with benefits substantially similar to those enjoyed by you under any of the Corporation's life insurance, medical, dental, health and accident, or disability plans in which you were participating at the time of the change in control of the Corporation, the failure to continue to provide you with a Corporation automobile or allowance in lieu thereof, if you were provided with such an automobile or allowance in lieu thereof at the time of the change in control of the Corporation, the taking of any action by the Corporation which would directly or indirectly materially reduce any of such benefits or deprive you of any material fringe benefit enjoyed by you at the time of the change in control of the Corporation, or the failure by the Corporation to provide you with the number of paid vacation days to which you are entitled on the basis of years of service with the Corporation in accordance with the Corporation's normal vacation policy in effect at the time of the change in control of the Corporation; (G) the failure of the Corporation to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 5 hereof; or (H) any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Subsection 3(iv) hereof (and, if applicable, the requirements of Subsection 3(ii) hereof); for purposes of this Agreement, no such purported termination shall be effective. Your rights to terminate your employment pursuant to this Subsection shall not be affected by your incapacity due to physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. (iv) Notice of Termination. Any purported termination of your employment by the Corporation or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 6 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (v) Date of Termination, Etc. "Date of Termination" shall mean (A) if your employment is terminated for Disability, 30 days after Notice of Termination is given (provided that you shall not have returned to the full-time performance of your duties during such 30-day period), and (B) if your employment is terminated pursuant to Subsections 3(ii) or 3(iii) hereof or for any other reason (other than Disability), the date specified in the Notice of Termination (which, in the case of a termination pursuant to Subsection 3(ii) hereof shall not be less than 30 days, and in the case of a termination pursuant to Subsection 3(iii) hereof shall not be less than 15 nor more than 60 days, respectively, from the date such Notice of Termination is given); provided that if within 15 days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this proviso), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Corporation will continue to pay you your full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue you as a participant in all compensation, benefit and insurance plans in which you were participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this Subsection. Amounts paid under this Subsection are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 4. Compensation Upon Termination or During Disability. Following a change in control of the Corporation, as defined by Section 2 hereof, upon termination of your employment or during a period of Disability you shall be entitled to the following benefits: (i) During any period that you fail to perform your full-time duties with the Corporation as a result of incapacity due to physical or mental illness, you shall continue to receive your base salary at the rate in effect at the commencement of any such period, together with all amounts payable to you under any compensation plan of the Corporation during such period, until this Agreement is terminated pursuant to Subsection 3(i) hereof. Thereafter, or in the event your employment shall be terminated by you other than for Good Reason or by reason of your death, your benefits shall be determined under the Corporation's retirement, insurance and other compensation programs then in effect in accordance with the terms of such programs. (ii) If your employment shall be terminated by the Corporation for Cause, Disability or death, or by you other than for Good Reason, the Corporation shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any retirement, insurance and other compensation programs of the Corporation at the time such payments are due, and the Corporation shall have no further obligations to you under this Agreement. (iii) If your employment by the Corporation shall be terminated (a) by the Corporation other than for Cause, Disability or death or (b) by you for Good Reason, then you shall be entitled to the benefits provided below: (A) The Corporation shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation plan of the Corporation, at the time such payments are due, except as otherwise provided below. (B) In lieu of any further salary payments to you for periods subsequent to the Date of Termination, the Corporation shall pay as severance pay to you a lump sum severance payment (together with the payments provided in paragraphs (C) and (D) of this Subsection 4(iii), the "Severance Payments") equal to three times the sum of your (a) annual base salary in effect immediately prior to the occurrence of the circumstance giving rise to the Notice of Termination given in respect thereof, and (b) AIP Maximum Payment for the year in which the Date of Termination occurs. AIP Maximum Payment shall mean the higher of (1) the award you would be entitled to receive for 1999 based on the maximum payout factor for the AIP or (2) any greater award you would be entitled to receive for any subsequent year (including the year in which your employment is terminated) based on the maximum payout factor for the AIP for such subsequent year. The provisions of this Section 4(iii)(B) shall not in any way affect your rights under the Corporation's stock option plans or the PEP. (C) In lieu of shares of common stock of the Corporation (the "Shares") issuable upon exercise of outstanding options, if any, granted to you under the Corporation's stock option plans ("Options"), which Options (and any related limited stock appreciation rights) shall be cancelled upon the making of the payment referred to below, you shall receive an amount in cash equal to the product of (i) the excess of the higher of the closing price of the Shares as reported on the NYSE on or nearest to the Date of Termination (or, if not listed on the NYSE, on a nationally recognized exchange or quotation system on which trading volume in the Shares is highest), and the highest per share price for the Shares actually paid in connection with any change in control of the Corporation, over the per share exercise price of each Option held by you (whether or not then fully exercisable) plus the amount, if any, of any applicable cash appreciation rights, times (ii) the number of the Shares covered by each such Option. (D) The Corporation shall pay to you any deferred compensation allocated or credited to you or your account as of the Date of Termination. (E) The Corporation shall also pay to you all legal fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment or benefit provided hereunder). (F) If the payments provided under paragraphs (B), (C) and (D) above (the "Contract Payments") or any other portion of the Total Payments (as defined below) will be subject to the tax imposed by Section 4999 of the Code (the "Excise Tax"), the Corporation shall pay to you at the time specified in paragraph (G) below, an additional amount (the "Gross-Up Payment") such that the net amount retained by you, after deduction of any Excise Tax on the Contract Payments and such other Total Payments and any federal and state and local income tax and Excise Tax upon the payment provided for by this paragraph, shall be equal to the Contract Payments and such other Total Payments. For purposes of determining whether any of the payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) any other payments or benefits received or to be received by you in connection with a change in control of the Corporation or your termination of employment (whether payable pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Corporation, its successors, any person whose actions result in a change in control of the Corporation or any corporation affiliated (or which, as a result of the completion of a transaction causing a change in control of the Corporation, will become affiliated) with the Corporation within the meaning of Section 1504 of the Code) (together with the Contract Payments, the "Total Payments") shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Corporation's independent auditors and acceptable to you the Total Payments (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4)(B) of the Code either to the extent such reasonable compensation is in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax, (ii) the amount of the Total Payments that shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Total Payments or (B) the amount of excess parachute payments within the meaning of Section 280G(b)(1) (after applying clause (i), above), and (iii) the value of any non-cash benefits or any deferred payment or benefit shall be as determined by the Corporation's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, you shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of your residence on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of your employment, you shall repay to the Corporation at the time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by you if such repayment results in a reduction in Excise Tax and/or a federal and state and local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(d) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of your employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Corporation shall make an additional Gross-Up Payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. (G) The payments provided for in paragraphs (B), (C), (D) and (F) above, shall be made not later than the fifth day following the Date of Termination, provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Corporation shall pay to you on such day an estimate, as determined in good faith by the Corporation, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at a rate equal to 120% of the rate provided in Section 1274(d) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Corporation to you payable on the fifth day after demand by the Corporation (together with interest at a rate equal to 120% of the rate provided in Section 1274(d) of the Code). The payments provided for in paragraph (E) above shall be made from time to time, in each instance not later than the fifth day following a written request for payment by you. (iv) If your employment shall be terminated (A) by the Corporation other than for Cause, Disability or death or (B) by you for Good Reason, then for a 36-month period after such termination, the Corporation shall arrange to provide you with life, disability, accident, medical, dental and health insurance benefits substantially similar to those that you are receiving immediately prior to the Notice of Termination. Benefits otherwise receivable by you pursuant to this Subsection 4(iv) shall be reduced to the extent comparable benefits are actually received by you from another employer during the 36-month period following your termination, and any such benefits actually received by you shall be reported to the Corporation. (v) You shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 4 be reduced by any compensation earned by you as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by you to the Corporation, or otherwise except as specifically provided in this Section 4. (vi) In addition to all other amounts payable to you under this Section 4, you shall be entitled to receive all benefits payable to you under The Black & Decker Executive Salary Continuance Plan, the SERP, or any plan or agreement sponsored by the Corporation or any of its subsidiaries relating to retirement benefits. 5. Successors; Binding Agreement. (i) The Corporation will require any successor (whether direct or indirect, by purchase, merger, share exchange, consolidation or otherwise) to all or substantially all of the business and/or assets of the Corporation to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession had taken place. Failure of the Corporation to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Corporation in the same amount and on the same terms as you would be entitled to hereunder if you terminate your employment for Good Reason following a change in control of the Corporation, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Corporation" shall mean the Corporation as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, heirs, distributees, and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your legatee or other designee or, if there is no such designee, to your estate. (iii) In the event that you are employed by a subsidiary of the Corporation, wherever in this Agreement reference is made to the "Corporation," unless the context otherwise requires, such reference shall also include such subsidiary. The Corporation shall cause such subsidiary to carry out the terms of this Agreement insofar as they relate to the employment relationship between you and such subsidiary, and the Corporation shall indemnify you and save you harmless from and against all liability and damage you may suffer as a consequence of such subsidiary's failure to perform and carry out such terms. Wherever reference is made to any benefit program of the Corporation, such reference shall include, where appropriate, the corresponding benefit program of such subsidiary if you were a participant in such benefit program on the date a change in control of the Corporation has occurred. 6. Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Corporation shall be directed to the attention of the Board with a copy to the Secretary of the Corporation, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 7. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Maryland. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Corporation under Section 4 hereof shall survive the expiration of the term of this Agreement. 8. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 9. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 10. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in the State of Maryland, in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the Corporation the enclosed copy of this letter which will then constitute our agreement on this subject. Sincerely, THE BLACK & DECKER CORPORATION By/s/ Nolan D. Archibald Nolan D. Archibald Chairman, President and Chief Executive Officer Agreed to as of the 27th day of April 1999 /s/ Paul F. McBride Paul F. McBride EX-12 9 EXHIBIT 12 Exhibit 12 THE BLACK & DECKER CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Millions of Dollars Except Ratios) Three Months Ended Six Months Ended July 4, 1999 July 4, 1999 ------------------ ---------------- EARNINGS: Earnings before income taxes $ 103.9 $ 161.6 Interest expense 29.7 59.9 Portion of rent expense representative of an interest factor 6.7 13.4 -------- -------- Adjusted earnings before taxes and fixed charges $ 140.3 $ 234.9 ======== ======== FIXED CHARGES: Interest expense $ 29.7 $ 59.9 Portion of rent expense representative of an interest factor 6.7 13.4 -------- -------- Total fixed charges $ 36.4 $ 73.3 ======== ======== RATIO OF EARNINGS TO FIXED CHARGES 3.85 3.20 ======== ======== EX-27 10 EXHIBIT 27
5 This schedule contains financial information extracted from the Corporation's unaudited interim financial statements as of and for the six months ended July 4, 1999, and the accompanying footnotes and is qualified in its entirety by the reference to such financial statements. 0000012355 THE BLACK & DECKER CORPORATION 1,000 6-MOS DEC-31-1999 Jul-04-1999 134,700 0 797,100 0 806,500 1,939,100 701,400 0 4,012,100 1,567,100 1,058,700 0 0 43,500 573,000 4,012,100 2,062,700 2,062,700 1,299,400 1,857,200 0 0 59,900 161,600 51,700 109,900 0 0 0 109,900 1.26 1.24 Represents net trade receivables. Represents net property, plant, and equipment. Represents basic earnings per share.
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