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 April 2, 2000
-------------------------------------------------
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 of (I.R.S. Employer Identification No.)
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 April 28, 2000:
85,148,181
- ----------
The exhibit index as required by item 601(a) of Regulation S-K is included in
this report.
-2-
THE BLACK & DECKER CORPORATION AND SUBSIDIARIES
INDEX - FORM 10-Q
April 2, 2000
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Earnings (Unaudited)
For the Three Months Ended April 2, 2000 and April 4, 1999 3
Consolidated Balance Sheet
April 2, 2000 (Unaudited) and December 31, 1999 4
Consolidated Statement of Stockholders' Equity (Unaudited)
For the Three Months Ended April 2, 2000 and April 4, 1999 5
Consolidated Statement of Cash Flows (Unaudited)
For the Three Months Ended April 2, 2000 and April 4, 1999 6
Notes to Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
-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
- --------------------------------------------------------------------------------
April 2, 2000 April 4, 1999
- --------------------------------------------------------------------------------
Sales $1,037.6 $978.5
Cost of goods sold 674.6 628.2
Selling, general, and
administrative expenses 271.5 271.9
Gain on sale of business 20.1 --
- --------------------------------------------------------------------------------
Operating Income 111.6 78.4
Interest expense (net of
interest income) 23.8 22.2
Other (income) expense .4 (1.5)
- --------------------------------------------------------------------------------
Earnings Before Income Taxes 87.4 57.7
Income taxes 27.2 18.5
- --------------------------------------------------------------------------------
Net Earnings $ 60.2 $ 39.2
================================================================================
Net Earnings Per Common Share -- Basic $ .70 $ .45
================================================================================
Shares Used in Computing Basic
Earnings Per Share (in Millions) 86.0 87.3
================================================================================
Net Earnings Per Common Share -- Assuming
Dilution $ .69 $ .44
================================================================================
Shares Used in Computing Diluted
Earnings Per Share (in Millions) 86.9 88.6
================================================================================
Dividends Per Common Share $ .12 $ .12
================================================================================
See Notes to Consolidated Financial Statements (Unaudited)
-4-
CONSOLIDATED BALANCE SHEET
The Black & Decker Corporation and Subsidiaries
(Dollars in Millions Except Per Share Amount)
- --------------------------------------------------------------------------------
April 2, 2000
(Unaudited) December 31, 1999
- --------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 131.0 $ 147.3
Trade receivables 788.7 823.2
Inventories 813.0 751.0
Other current assets 193.2 189.9
- --------------------------------------------------------------------------------
Total Current Assets 1,925.9 1,911.4
- --------------------------------------------------------------------------------
Property, Plant, and Equipment 752.3 739.6
Goodwill 726.3 743.4
Other Assets 611.8 618.3
- --------------------------------------------------------------------------------
$4,016.3 $4,012.7
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings $ 324.3 $ 183.2
Current maturities of long-term debt 249.2 213.2
Trade accounts payable 404.5 367.3
Other accrued liabilities 679.4 809.0
- --------------------------------------------------------------------------------
Total Current Liabilities 1,657.4 1,572.7
- --------------------------------------------------------------------------------
Long-Term Debt 806.8 847.1
Deferred Income Taxes 243.5 243.8
Postretirement Benefits 245.4 246.3
Other Long-Term Liabilities 300.4 301.7
STOCKHOLDERS' EQUITY
Common stock, par value $.50 per share 42.5 43.6
Capital in excess of par value 756.3 843.3
Retained earnings 71.9 21.9
Accumulated other comprehensive
income (loss) (107.9) (107.7)
- --------------------------------------------------------------------------------
Total Stockholders' Equity 762.8 801.1
- --------------------------------------------------------------------------------
$4,016.3 $4,012.7
================================================================================
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 Total
Common Par Excess of Earnings Comprehensive Stockholders'
Shares Value Par Value (Deficit) Income (Loss) Equity
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 87,498,424 $43.7 $871.4 $(236.6) $(104.5) $574.0
Comprehensive income:
Net earnings -- -- -- 39.2 -- 39.2
Foreign currency translation
adjustments, less effect of
hedging activities (net of tax) -- -- -- -- (20.9) (20.9)
- ---------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) -- -- -- 39.2 (20.9) 18.3
- ---------------------------------------------------------------------------------------------------------------------
Cash dividends ($.12 per share) -- -- -- (10.4) -- (10.4)
Purchase and retirement of
common stock (610,900) (.3) (31.8) -- -- (32.1)
Common stock issued under
employee benefit plans 178,498 .1 6.9 -- -- 7.0
- ---------------------------------------------------------------------------------------------------------------------
Balance at April 4, 1999 87,066,022 $43.5 $846.5 $(207.8) $(125.4) $556.8
=====================================================================================================================
Balance at December 31, 1999 87,190,240 $43.6 $843.3 $ 21.9 $(107.7) $801.1
Comprehensive income:
Net earnings -- -- -- 60.2 -- 60.2
Foreign currency translation
adjustments, less effect of
hedging activities (net of tax) -- -- -- -- (.2) (.2)
- ---------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) -- -- -- 60.2 (.2) 60.0
- ---------------------------------------------------------------------------------------------------------------------
Cash dividends ($.12 per share) -- -- -- (10.2) -- (10.2)
Purchase and retirement of
common stock (net of 255,791
shares issued under forward
purchase contracts) (2,185,209) (1.1) (90.3) -- -- (91.4)
Common stock issued under
employee benefit plans 96,404 -- 3.3 -- -- 3.3
- ---------------------------------------------------------------------------------------------------------------------
Balance at April 2, 2000 85,101,435 $42.5 $756.3 $ 71.9 $(107.9) $762.8
=====================================================================================================================
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
</FN>
-6-
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
The Black & Decker Corporation and Subsidiaries
(Dollars in Millions)
Three Months Ended
- --------------------------------------------------------------------------------
April 2, 2000 April 4, 1999
- --------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net earnings $ 60.2 $ 39.2
Adjustments to reconcile net earnings to
cash flow from operating activities:
Gain on sale of business (20.1) --
Non-cash charges and credits:
Depreciation and amortization 42.3 40.9
Other (4.2) 2.5
Changes in selected working capital items:
Trade receivables 27.0 15.6
Inventories (68.0) (78.1)
Trade accounts payable 39.9 55.9
Restructuring spending (4.5) (7.3)
Changes in other assets and liabilities (91.1) (73.5)
- --------------------------------------------------------------------------------
Cash Flow From Operating Activities (18.5) (4.8)
- --------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from sale of business 25.0 --
Proceeds from disposal of assets 1.1 12.9
Capital expenditures (66.6) (30.0)
Cash inflow from hedging activities 75.1 52.4
Cash outflow from hedging activities (76.8) (51.5)
- --------------------------------------------------------------------------------
Cash Flow From Investing Activities (42.2) (16.2)
- --------------------------------------------------------------------------------
Cash Flow Before Financing Activities (60.7) (21.0)
FINANCING ACTIVITIES
Net increase in short-term borrowings 144.6 128.0
Payments on long-term debt (3.8) (22.5)
Purchase of common stock (91.4) (32.1)
Issuance of common stock 5.9 3.8
Cash dividends (10.2) (10.4)
- --------------------------------------------------------------------------------
Cash Flow From Financing Activities 45.1 66.8
Effect of exchange rate changes on cash (.7) (3.5)
- --------------------------------------------------------------------------------
(Decrease) Increase In Cash And Cash Equivalents (16.3) 42.3
Cash and cash equivalents at beginning of period 147.3 87.9
- --------------------------------------------------------------------------------
Cash And Cash Equivalents At End Of Period $131.0 $130.2
================================================================================
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-month period ended April 2, 2000, are not
necessarily indicative of the results that may be expected for a full fiscal
year. For further information, refer to the consolidated financial statements
and notes included in the Corporation's Annual Report on Form 10-K for the year
ended December 31, 1999.
Certain amounts presented for the three months ended April 4, 1999, have
been reclassified to conform with the 2000 presentation.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, which is required to be adopted for years
beginning after June 15, 2000. Early adoption of SFAS No. 133 is permitted as of
the beginning of any fiscal quarter after its issuance. SFAS No. 133 will
require the Corporation to recognize all derivatives on the balance sheet at
fair value. Derivatives that do not qualify as hedges under the new standard
must be adjusted to fair value through income. If a derivative qualifies as a
hedge, depending on the nature of the hedge, changes in the fair value of
derivatives will either be offset against the change in fair value of the hedged
assets, liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in value will be immediately
recognized in earnings. The Corporation has not yet determined when it will
adopt SFAS No. 133, although early adoption is considered possible due to the
new standard's more favorable treatment of certain currency hedges than that
afforded under prior accounting standards. The Corporation has not yet
determined what effect SFAS No. 133 will have on its earnings and financial
position.
NOTE 2: GAIN ON SALE OF BUSINESS
In connection with the recapitalization of its recreational products business,
True Temper Sports, in 1998, the Corporation retained approximately 6% of
preferred and common stock of the recapitalized company, now known as True
Temper Corporation (True Temper), valued at approximately $4 million. In
addition, the Corporation received a senior, increasing-rate discount note
payable by True Temper, in an initial accreted amount of $25.0 million. Due to
True Temper's highly leveraged position and the lack of an active market for its
note, the Corporation established a full reserve for the note. For further
information about the recapitalization of True Temper, see Note 2 of Notes to
Consolidated Financial Statements included in Item 8 of the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1999.
-8-
During the first quarter of 2000, the Corporation sold its remaining
interest in True Temper, together with the note payable by True Temper, for
$25.0 million and recognized a pre-tax gain of $20.1 million.
NOTE 3: INVENTORIES
The components of inventory at the end of each period, in millions of dollars,
consisted of the following:
April 2, 2000 December 31, 1999
- --------------------------------------------------------------------------------
FIFO cost:
Raw materials and work-in-process $200.4 $171.3
Finished products 617.7 584.5
- --------------------------------------------------------------------------------
818.1 755.8
Excess of FIFO cost over LIFO
inventory value (5.1) (4.8)
- --------------------------------------------------------------------------------
$813.0 $751.0
================================================================================
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:
April 2, 2000 December 31, 1999
- --------------------------------------------------------------------------------
Goodwill $1,290.5 $1,301.3
Less accumulated amortization 564.2 557.9
- --------------------------------------------------------------------------------
$ 726.3 $ 743.4
================================================================================
NOTE 5: LONG-TERM DEBT
Indebtedness of subsidiaries of the Corporation in the aggregate principal
amounts of $612.0 million and $435.4 million were included in the Consolidated
Balance Sheet at April 2, 2000, and December 31, 1999, 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
- --------------------------------------------------------------------------------
April 2, 2000 April 4, 1999
- --------------------------------------------------------------------------------
Interest expense $ 35.1 $ 30.2
Interest (income) (11.3) (8.0)
- --------------------------------------------------------------------------------
$ 23.8 $ 22.2
================================================================================
-9-
NOTE 7: BUSINESS SEGMENTS
The following table provides selected financial data for the Corporation's
business segments (in millions of dollars):
Reportable Business Segments
------------------------------------------------
Power Hardware Fastening Currency Corporate,
Tools & & Home & Assembly Translation Adjustments,
Three Months Ended April 2, 2000 Accessories Improvement Systems Total Adjustments & Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $706.0 $204.8 $136.3 $1,047.1 $(9.5) $ - $1,037.6
Segment profit (loss) (for
Consolidated, operating income
before gain on sale of business) 55.4 19.6 23.4 98.4 (1.2) (5.7) 91.5
Depreciation and amortization 21.7 10.0 4.0 35.7 (.1) 6.7 42.3
Capital expenditures 52.2 7.3 7.0 66.5 (.1) .2 66.6
Three Months Ended April 4, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $625.6 $208.8 $126.0 $ 960.4 $18.1 $ - $ 978.5
Segment profit (loss) (for
Consolidated, operating income) 38.4 25.0 20.9 84.3 1.6 (7.5) 78.4
Depreciation and amortization 20.7 8.7 3.9 33.3 .4 7.2 40.9
Capital expenditures 19.3 7.0 3.1 29.4 .5 .1 30.0
The Corporation operates in three reportable business segments: Power Tools
and Accessories, Hardware and Home Improvement, and Fastening and Assembly
Systems. The Power Tools and Accessories segment has worldwide responsibility
for the manufacture and sale of consumer and professional power tools and
accessories, electric cleaning and lighting products, and electric lawn and
garden tools, as well as for product service. In addition, the Power Tools and
Accessories segment has responsibility for the sale of security hardware to
customers in Mexico, Central America, the Caribbean, and South America; for the
sale of plumbing products to customers outside the United States and Canada; and
for sales of the retained portion of the household products business. The
Hardware and Home Improvement segment has worldwide responsibility for the
manufacture and sale of security hardware (except for the sale of security
hardware in Mexico, Central America, the Caribbean, and South America). It also
has responsibility for the manufacture of plumbing products and for the sale of
plumbing products to customers in the United States and Canada. The Fastening
and Assembly Systems segment has worldwide responsibility for the manufacture
and sale of fastening and assembly systems.
The Corporation assesses the performance of its reportable business
segments based upon a number of factors, including segment profit. In general,
segments follow the same accounting policies as those described in Note 1 of the
Corporation's Annual Report on Form 10-K for the year ended December 31, 1999,
except with respect to foreign currency translation and except as further
indicated below. The financial statements of a segment's operating units located
outside the United States, except units operating in highly inflationary
economies, are generally measured using the local currency as the functional
currency. For these units located outside the United States, segment assets and
elements of segment profit are translated using budgeted rates of exchange.
Budgeted rates of exchange are established annually and, once established, all
prior period segment data is updated to reflect the translation of segment
assets and elements of segment profit at the current year's budgeted rates of
exchange. The amounts included in the preceding segment table under the captions
"Reportable Business Segments" and "Corporate, Adjustments, & Eliminations" are
reflected at the Corporation's budgeted rates of exchange for 2000. The amounts
included in the
-10-
preceding segment table under the caption "Currency Translation Adjustments"
represent the difference between consolidated amounts determined using the
budgeted rates of exchange for 2000 and those determined based upon the rates of
exchange applicable under accounting principles generally accepted in the United
States.
Note 17 of Notes to Consolidated Financial Statements included in Item 8 of
the Corporation's Annual Report on Form 10-K for the year ended December 31,
1999, reflected the translation of certain segment data at the Corporation's
budgeted rates of exchange for 1999. For informational purposes, the Corporation
has included in its Current Report on Form 8-K, filed on April 10, 2000,
selected unaudited supplemental information about its business segments for
1999, 1998, and 1997 updated to reflect the translation of elements of segment
profit and certain other segment data at the Corporation's budgeted rates of
exchange for 2000.
Segment profit excludes interest income and expense, non-operating income
and expense, goodwill amortization, adjustments to eliminate intercompany profit
in inventory, and income tax expense. In addition, segment profit excludes the
gain on sale of business. For certain operations located in Brazil, Mexico,
Venezuela, and Turkey, segment profit is reduced by net interest expense and
non-operating expenses. In determining segment profit, expenses relating to
pension and other postretirement benefits are based solely upon estimated
service costs. Corporate expenses are allocated to each segment based upon
budgeted amounts. While sales and transfers between segments are accounted for
at cost plus a reasonable profit, the effects of intersegment sales are excluded
from the computation of segment profit. Intercompany profit in inventory is
excluded from segment assets and is recognized as a reduction of cost of sales
by the selling segment when the related inventory is sold to an unaffiliated
customer. Because the Corporation compensates the management of its various
businesses on, among other factors, segment profit, the Corporation may elect to
record certain segment-related expense items of an unusual or nonrecurring
nature in 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.
-11-
The reconciliation of segment profit to the Corporation's earnings before
income taxes, in millions of dollars, is as follows:
Three Months Ended
- --------------------------------------------------------------------------------------------------
April 2, 2000 April 4, 1999
- --------------------------------------------------------------------------------------------------
Segment profit for total reportable business segments $ 98.4 $84.3
Items excluded from segment profit:
Adjustment of budgeted foreign exchange rates
to actual rates (1.2) 1.6
Depreciation of Corporate property and
amortization of goodwill (6.7) (7.2)
Adjustment to businesses' postretirement benefit
expenses booked in consolidation 9.5 8.2
Adjustment to eliminate net interest and non-operating
expenses from results of certain operations in Brazil,
Mexico, Venezuela, and Turkey .1 .5
Other adjustments booked in consolidation directly
related to reportable business segments (7.0) (3.7)
Amounts allocated to businesses in arriving at segment profit
in excess of (less than) Corporate center operating expenses,
eliminations, and other amounts identified above (1.6) (5.3)
- --------------------------------------------------------------------------------------------------
Operating income before gain on sale of business 91.5 78.4
Gain on sale of business 20.1 --
- --------------------------------------------------------------------------------------------------
Operating income 111.6 78.4
Interest expense, net of interest income 23.8 22.2
Other (income) expense .4 (1.5)
- --------------------------------------------------------------------------------------------------
Earnings before income taxes $ 87.4 $57.7
==================================================================================================
-12-
NOTE 8: EARNINGS PER SHARE
The computations of basic and diluted earnings per share for each period are as
follows:
Three Months Ended
- --------------------------------------------------------------------------------
(Amounts in Millions Except Per Share Data) April 2, 2000 April 4, 1999
- --------------------------------------------------------------------------------
Numerator:
Net earnings $60.2 $39.2
================================================================================
Denominator:
Average number of common shares outstanding
for basic earnings per share 86.0 87.3
Employee stock options and stock issuable
under employee benefit plans .9 1.3
- --------------------------------------------------------------------------------
Average number of common shares outstanding
for diluted earnings per share 86.9 88.6
================================================================================
Basic earnings per share $ .70 $ .45
================================================================================
Diluted earnings per share $ .69 $ .44
================================================================================
NOTE 9: STOCKHOLDERS' EQUITY
As more fully discussed in Note 14 of Notes to Consolidated Financial Statements
included in Item 8 of the Corporation's Annual Report on Form 10-K for the year
ended December 31, 1999, the Corporation has entered into two agreements (the
"Agreements") under which the Corporation may enter into forward purchase
contracts on its common stock. The Agreements provide the Corporation with two
purchase alternatives: a standard forward purchase contract and a forward
purchase contract subject to a cap (a "capped forward contract").
During the three months ended April 2, 2000, quarterly settlements occurred
on standard forward purchase contracts with respect to 261,020 shares of the
Corporation's common stock, resulting in a net issuance of 63,375 shares of
common stock. In addition, settlements occurred during the first quarter of 2000
on capped forward contracts with respect to 650,000 shares of the Corporation's
common stock, resulting in a net issuance of 192,416 shares of its common stock.
At each settlement date, the Corporation elected net share settlement.
At April 2, 2000, standard forward purchase contracts with respect to
525,787 shares of the Corporation's common stock, with a weighted-average
forward price of $36.90 per share, were outstanding under the Agreements. These
contracts mature in November 2001. Additionally, capped forward contracts with
respect to 650,000 shares of the Corporation's common stock, with a
weighted-average strike price of $36.27 per share and a weighted-average cap
price of $41.71 per share, were outstanding under the Agreements. These
contracts settle in the second quarter of 2000.
During the three months ended April 2, 2000, the Corporation repurchased
2,441,000 shares of its common stock at an aggregate cost of $91.4 million.
During the quarter ended April 4, 1999, the Corporation repurchased 610,900
shares of its common stock at an aggregate cost of $32.1 million.
-13-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Corporation reported net earnings of $60.2 million, or $.69 per share on a
diluted basis, for the three-month period ended April 2, 2000, compared to net
earnings of $39.2 million or $.44 per share on a diluted basis for the
three-month period ended April 4, 1999. As more fully described in Note 2 of
Notes to Consolidated Financial Statements, earnings for the three-month period
ended April 2, 2000, included a pre-tax gain of $20.1 million ($13.1 million net
of tax, or $.15 per share on a diluted basis) related to the 1998
recapitalization of True Temper Sports. Excluding this non-recurring gain, net
earnings for the three-month period ended April 2, 2000, would have been $47.1
million or $.54 per share on a diluted basis, compared to net earnings of $39.2
million or $.44 per share on a diluted basis for the three-month period ended
April 4, 1999.
In the discussion and analysis of financial condition and results of
operations that follows, the Corporation generally attempts to list contributing
factors in order of significance to the point being addressed.
STRATEGIC REPOSITIONING
As more fully described in the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1999, in Note 2 of Notes to Consolidated Financial
Statements and in Management's Discussion and Analysis of Financial Condition
and Results of Operations under the caption "Strategic Repositioning," by the
end of 1999, the Corporation neared completion of the comprehensive strategic
repositioning plan approved by the Board of Directors on January 26, 1998. The
plan included the following components: (i) the divestiture of non-strategic
businesses; (ii) the repurchase of approximately 10% of the Corporation's
outstanding common stock over a two-year period; and (iii) a restructuring of
remaining operations.
As part of its divestitures of non-strategic businesses under the strategic
repositioning plan, the Corporation recapitalized its recreational products
business, True Temper Sports, in September 1998. At the time of the
recapitalization, the Corporation retained approximately 6% of preferred and
common stock of the recapitalized company, now known as True Temper Corporation
(True Temper), valued at approximately $4 million. In addition to cash proceeds
received as part of the True Temper recapitalization, the Corporation received a
senior, increasing-rate discount note in an initial accreted amount of $25.0
million. Because True Temper was a highly leveraged entity and there was no
active market for the note, the Corporation fully reserved the $25.0 million
note at the time of the divestiture and continued to reserve the note through
December 31, 1999. During the first quarter of 2000, the Corporation sold the
note, together with its remaining interest in True Temper, for $25.0 million and
recognized a pre-tax gain of $20.1 million ($13.1 million after tax).
-14-
A summary of activity during the three-month period ended April 2, 2000, in
the restructuring element of the Corporation's strategic repositioning plan is
as follows (in millions of dollars):
Utilization of Reserve
Reserve at ------------------------- Reserve at
December 31, 1999 Cash Non-Cash April 2, 2000
- -------------------------------------------------------------------------------------------------------
Severance benefits and cost of
voluntary retirement program $18.7 $(3.2) $-- $15.5
Other charges 3.7 (1.3) (.5) 1.9
- -------------------------------------------------------------------------------------------------------
Total $22.4 $(4.5) $(.5) $17.4
=======================================================================================================
The Corporation remains committed to continuous productivity improvement
and continues to evaluate opportunities to reduce fixed costs and eliminate
excess capacity. The Corporation currently anticipates recognizing an additional
restructuring charge, expected to approximate $25 million, later in 2000.
RESULTS OF OPERATIONS
SALES
The following chart sets forth an analysis of the consolidated changes in sales
for the three-month periods ended April 2, 2000, and April 4, 1999:
ANALYSIS OF CHANGES IN SALES
- --------------------------------------------------------------------------------
For the Three Months Ended
(Dollars in Millions) April 2, 2000 April 4, 1999
- --------------------------------------------------------------------------------
Total sales $1,037.6 $978.5
Unit volume - existing (a) 10 % 13 %
- disposed (b) -- % (14)%
Price (1)% (2)%
Currency (3)% -- %
- --------------------------------------------------------------------------------
Change in total sales 6 % (3)%
================================================================================
(a) Represents change in unit volume for businesses where period-to-period
comparability exists.
(b) Represents change in unit volume for businesses that were included in prior
year results but were sold or recapitalized in 1998.
Total consolidated sales for the three months ended April 2, 2000,
increased by 6% over the 1999 level. Total unit volume increased by 10% during
the quarter ended April 2, 2000, over the same period in 1999, as sales growth
in the Power Tools and Accessories, and Fastening and Assembly Systems segments
more than offset a sales decline in the Hardware and Home Improvement segment.
Pricing actions had a 1% negative effect on sales for the first quarter of 2000
as compared to the corresponding period in 1999. The negative effects of a
stronger dollar compared to other foreign currencies caused a 3% decrease in the
Corporation's consolidated sales during the first quarter of 2000 as compared to
the corresponding period in 1999.
-15-
EARNINGS
Operating income for the three months ended April 2, 2000, was $111.6 million
compared to operating income of $78.4 million for the corresponding period in
1999. Excluding the effect of the $20.1 million gain on sale of business
recognized in the first quarter of 2000, operating income increased by 17%, from
$78.4 million, or 8.0% of sales, for the first quarter of 1999 to $91.5 million,
or 8.8% of sales, for the first quarter of 2000.
Gross margin as a percentage of sales declined from 35.8% for the quarter
ended April 4, 1999, to 35.0% for the quarter ended April 2, 2000. While the
results of the Corporation's Six Sigma and other productivity initiatives and
restructuring actions positively impacted gross margin during the first quarter
of 2000, certain negative factors offset that favorability. Those negative
factors included: (i) pricing actions taken, in response to both customer and
competitive pressures; (ii) impacts of lower sales volumes of security hardware
products in North America, including manufacturing inefficiencies and overhead
absorption issues associated with lower production volumes; (iii) certain
actions taken by the Corporation to manage inventory levels; and (iv) higher
period costs, including costs associated with the move of North American
accessories packaging operations to Fort Mill, South Carolina.
Selling, general, and administrative expenses as a percentage of sales
improved from 27.8% for the quarter ended April 4, 1999, to 26.2% for the
quarter ended April 2, 2000. This improvement reflected the benefit of cost
containment and productivity efforts, as the Corporation leveraged substantially
equivalent selling, general, and administrative expenses during the first
quarters of 1999 and 2000 over a higher sales base in the first quarter of 2000.
Net interest expense (interest expense less interest income) for the
three-month period ended April 2, 2000, was $23.8 million as compared to $22.2
million for the three-month period ended April 4, 1999. The increase in net
interest expense during the first quarter of 2000 as compared to the first
quarter of 1999 was primarily the result of higher interest rates partially
offset by lower borrowing levels during 2000.
Other (income) expense for the three-month periods ended April 2, 2000, and
April 4, 1999, was not significant.
The Corporation recognized income tax expense of $27.2 million on pre-tax
earnings of $87.4 million, which equates to a reported tax rate of 31%, for the
three months ended April 2, 2000. Excluding the income tax expense of $7.0
million recognized on the gain on sale of business, the Corporation's effective
tax rate would have been 30% for the first quarter of 2000. The Corporation
recognized income tax expense of $18.5 million on pre-tax earnings of $57.7
million, which equates to an effective tax rate of 32%, for the first quarter of
1999. The decrease in the effective tax rate from 32% in 1999 to 30% in 2000 is
a result of anticipated higher earnings in lower tax rate jurisdictions outside
the United States during 2000 as compared to 1999. Excluding the impact of the
gain on sale of business, the decline in the effective tax rate from 32% to 30%
increased net earnings by $1.3 million, or $.02 per diluted share, in the first
quarter of 2000.
The Corporation reported net earnings of $60.2 million, or $.69 per share
on a diluted basis, for the three-month period ended April 2, 2000. Excluding
the gain on the sale of business, net earnings for the three-month period ended
April 2, 2000, would have been $47.1 million, or $.54 per share on a diluted
basis. The Corporation reported net earnings of $39.2 million, or $.44 per share
on a diluted basis, for the three-month period ended April 4, 1999.
-16-
BUSINESS SEGMENTS
As more fully described in Note 7 of Notes to Consolidated Financial Statements,
the Corporation operates in three reportable business segments: Power Tools and
Accessories, Hardware and Home Improvement, and Fastening and Assembly Systems.
Power Tools and Accessories
Segment sales and profit for the Power Tools and Accessories segment, determined
on the basis described in Note 7 of Notes to Consolidated Financial Statements,
were as follows (in millions of dollars):
For the Three Months Ended
- --------------------------------------------------------------------------------
April 2, 2000 April 4, 1999
- --------------------------------------------------------------------------------
Sales to unaffiliated customers $706.0 $625.6
Segment profit 55.4 38.4
- --------------------------------------------------------------------------------
Sales to unaffiliated customers in the Power Tools and Accessories segment
during the first quarter of 2000 increased 13% over the 1999 level. Sales of
power tool products in North America benefited from double-digit rates of growth
in sales of both professional power tools, reflecting solid demand for DEWALT(R)
cordless tools, including the 24-volt high-performance line introduced in the
fourth quarter of 1999, and outdoor products. Sales in North America also
benefited from upper single-digit rate growth in consumer power tools and mid
single-digit rate growth in accessories.
Sales in Europe increased at a mid single-digit rate in the first quarter
of 2000 over the corresponding period in 1999. Sales of professional power tools
and outdoor products increased at a double-digit rate in the first quarter of
2000 over the 1999 levels, due to expansion of the DEWALT professional power
tool line across Europe and to the introduction of the 4x4TM lawnmower,
respectively. In addition, sales in Europe benefited from mid single-digit rate
growth in accessories and household products in the first quarter of 2000 over
the 1999 levels, but that growth was partially offset by lower sales of consumer
power tools.
Sales in other geographic areas increased at a double-digit rate in the
first quarter of 2000 over the 1999 levels.
Segment profit as a percentage of sales for the Power Tools and Accessories
segment was 7.8% in the first quarter of 2000 compared to 6.1% in the first
quarter of 1999. This improvement was driven by the leveraging of selling,
general and administrative costs over a higher sales base. Gross margin as a
percentage of sales declined slightly for the segment in the first quarter of
2000 compared to the corresponding period in 1999, as a result of pricing
actions, actions taken to manage inventory levels, and higher period costs.
-17-
Hardware and Home Improvement
Segment sales and profit for the Hardware and Home Improvement segment,
determined on the basis described in Note 7 of Notes to Consolidated Financial
Statements, were as follows (in millions of dollars):
For the Three Months Ended
- --------------------------------------------------------------------------------
April 2, 2000 April 4, 1999
- --------------------------------------------------------------------------------
Sales to unaffiliated customers $204.8 $208.8
Segment profit 19.6 25.0
- --------------------------------------------------------------------------------
Sales to unaffiliated customers in the Hardware and Home Improvement
segment decreased by 2% for the three months ended April 2, 2000, from the 1999
level. While sales of plumbing products in North America increased at a low
double-digit rate in the first quarter of 2000 over the corresponding period in
1999, that increase was more than offset by decreased sales of security hardware
in North America. Security hardware sales in North America were negatively
impacted during the first quarter of 2000 by a line review at a major customer,
which resulted in lost listings of TITAN(R) product. The effect of the lost
TITAN listings are expected to be partially mitigated during the balance of 2000
by new listings gained by the business in other product lines. Sales of security
hardware in Europe for the first quarter of 2000 increased at a low single-digit
rate over the corresponding period in 1999.
Segment profit as a percentage of sales for the Hardware and Home
Improvement segment was 9.6% in the first three months of 2000 compared to 12.0%
in 1999. Segment profit as a percentage of sales in 2000 declined from the 1999
level as decreased profitability with respect to security hardware products
more than offset profitability gains in plumbing products which stemmed from Six
Sigma and other productivity initiatives, as well as higher margin new products.
The decreased profitability with respect to security hardware products stemmed
from the impacts of lower sales volumes in North America, including
manufacturing inefficiencies and overhead absorption issues associated with
lower production volumes.
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):
For the Three Months Ended
- --------------------------------------------------------------------------------
April 2, 2000 April 4, 1999
- --------------------------------------------------------------------------------
Sales to unaffiliated customers $136.3 $126.0
Segment profit 23.4 20.9
- --------------------------------------------------------------------------------
Sales to unaffiliated customers in the Fastening and Assembly Systems
segment increased by 8% in the first quarter of 2000 over the 1999 level, due,
in part, to strong results with automotive and industrial customers in North
America and to strong growth in Asia.
Segment profit as a percentage of sales for the Fastening and Assembly
Systems segment increased from 16.6% in the first quarter of 1999 to 17.2% in
2000 as a result of productivity
-18-
initiatives and the leveraging of selling, general, and administrative expenses
over a higher sales base.
FINANCIAL CONDITION
Operating activities used cash of $18.5 million for the three months ended April
2, 2000, compared to $4.8 million of cash used for the corresponding period in
1999. The higher cash usage was primarily a result of acceleration of the timing
of certain types of payments from the second quarter during 1999 to the first
quarter during 2000.
The Corporation reviews certain working capital metrics. For example, the
Corporation evaluates its accounts receivable and inventory levels through the
computation of days sales outstanding and inventory turnover ratio,
respectively. The number of days sales outstanding at April 2, 2000, improved in
comparison to those days outstanding at the end of the first quarter of 1999.
Inventory turns at April 2, 2000, however, decreased in comparison to the
comparable period in 1999. The Corporation's goal is to increase inventory turns
in 2000 and 2001.
Investing activities for the three months ended April 2, 2000, used cash of
$42.2 million compared to $16.2 million of cash used for the corresponding
period in 1999. The increase in cash usage was primarily due to higher capital
expenditures during the first quarter of 2000 compared to the corresponding
period in 1999. Cash flow from investing activities was also impacted by a
reduction in cash proceeds from disposal of assets during 2000. Partially
offsetting the higher cash usage in 2000 was the Corporation's receipt of $25.0
million related to the True Temper recapitalization more fully described in Note
2 of Notes to Consolidated Financial Statements.
Financing activities provided cash of $45.1 million for the three-month
period ended April 2, 2000, compared to cash provided of $66.8 million during
the first three months of 1999. The decrease in cash provided is primarily the
result of higher cash expenditures for stock repurchases during the first
quarter of 2000. During the three months ended April 2, 2000, the Corporation
repurchased 2,441,000 shares of its common stock at an aggregate cost of $91.4
million. During the same period in 1999, the Corporation repurchased 610,900
shares of its common stock at an aggregate cost of $32.1 million.
Future share repurchases are anticipated, in part to reduce the dilutive
effect of stock issuances under various stock-based employee benefit plans. At
April 2, 2000, the Corporation had remaining authorization from its Board of
Directors to repurchase an additional 3,009,595 shares of its common stock.
In addition to measuring its cash flow generation and usage based upon the
operating, investing, and financing classifications included in the Consolidated
Statement of Cash Flows, the Corporation also measures its free cash flow. Free
cash flow, a measure commonly employed by the financial community, is defined by
the Corporation as cash flow from operating activities, less capital
expenditures, plus proceeds from the disposal of assets (excluding proceeds from
business sales). During the three months ended April 2, 2000, the Corporation
had negative free cash flow of $84.0 million compared to negative free cash flow
of $21.9 million for the corresponding period in 1999.
The variable rate debt to total debt ratio, after taking interest rate
hedges into account, was 57% at April 2, 2000, compared to 52% at December 31,
1999. Average debt maturity was 5.4 years at April 2, 2000, compared to 6.2
years at December 31, 1999.
-19-
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes statements that constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and that are
intended to come within the safe harbor protection provided by those sections.
By their nature, all forward-looking statements involve risks and uncertainties.
Actual results may differ materially from those contemplated by the
forward-looking statements for a number of reasons, including but not limited
to: market acceptance of the new products introduced in 1999 and 2000 and
scheduled for introduction in the remainder of 2000; the level of sales
generated from these new products relative to expectations, based on the
existing investments in productive capacity and commitments of the Corporation
to fund advertising and product promotions in connection with the introduction
of these new products; the ability of the Corporation and its suppliers to meet
scheduled timetables of new product introductions; unforeseen competitive
pressure or other difficulties in maintaining mutually beneficial relationships
with key distributors or penetrating new channels of distribution; adverse
changes in currency exchange rates or raw material commodity prices, both in
absolute terms and relative to competitors' risk profiles; delays in or
unanticipated inefficiencies resulting from manufacturing and administrative
reorganization actions in progress or contemplated by the strategic
repositioning plan described in the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1999; the degree of working capital investment
required to meet customer service levels; economic uncertainty in Asia and Latin
America; sluggish economic conditions in Europe; and continuation of economic
growth in North America.
In addition to the foregoing, the Corporation's ability to realize the
anticipated benefits of the restructuring actions undertaken in 1998 and 1999 is
dependent upon current market conditions, as well as the timing and
effectiveness of the relocation or consolidation of production and
administrative processes. The ability to realize the benefits inherent in the
balance of the restructuring actions is dependent on the selection and
implementation of economically viable projects in addition to the restructuring
actions taken to date.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required under this Item is contained in Item 7 of the Corporation's
Annual Report on Form 10-K for the year ended December 31, 1999, under the
caption "Hedging Activities", and in Item 8 of that report in Notes 1 and 10 of
Notes to Consolidated Financial Statements, and is incorporated by reference
herein.
-20-
THE BLACK & DECKER CORPORATION
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Corporation is involved in various lawsuits in the ordinary course of
business. The lawsuits primarily involve claims for damages arising out of the
use of the Corporation's products and allegations of patent and trademark
infringement. The Corporation is also involved in litigation and administrative
proceedings involving employment matters and commercial disputes. Some of these
lawsuits include claims for punitive as well as compensatory damages. The
Corporation, using current product sales data and historical trends, actuarially
calculates the estimate of its current exposure for product liability claims for
amounts in excess of established deductibles and accrues for the estimated
liability as described above up to the limits of the deductibles. All other
claims and lawsuits are handled on a case-by-case basis.
The Corporation also is involved in lawsuits and administrative proceedings
with respect to claims involving the discharge of hazardous substances into the
environment. Certain of these claims assert damages and liability for remedial
investigations and cleanup costs with respect to sites at which the Corporation
has been identified as a potentially responsible party under federal and state
environmental laws and regulations (off-site). Other matters involve sites that
the Corporation currently owns or has previously sold (on-site). For off-site
claims, the Corporation makes an assessment of the cost involved based on
environmental studies, prior experience at similar sites, and the experience of
other named parties. The Corporation also considers the ability of other parties
to share costs, the percentage of the Corporation's exposure relative to all
other parties, and the effects of inflation on these estimated costs. For
on-site matters associated with properties currently owned, an assessment is
made as to whether an investigation and remediation would be required under
applicable federal and state laws. For on-site matters associated with
properties previously sold, the Corporation considers the terms of sale as well
as applicable federal and state laws to determine if the Corporation has any
remaining liability. If the Corporation is determined to have potential
liability for properties currently owned or previously sold, an estimate is made
of the total cost of investigation and remediation and other potential costs
associated with the site.
The Corporation's estimate of the costs associated with legal, product
liability, and environmental exposures is accrued if, in management's judgment,
the likelihood of a loss is probable. These accrued liabilities are not
discounted. Insurance recoveries for environmental and certain general liability
claims are not recognized until realized.
As of April 2, 2000, the Corporation had no known probable but inestimable
exposures for awards and assessments in connection with environmental matters
and other litigation and administrative proceedings that could have a material
effect on the Corporation. Management is of the opinion that the amounts accrued
for awards or assessments in connection with the environmental matters and other
litigation and administrative proceedings to which the Corporation is a party
are adequate and, accordingly, ultimate resolution of these matters will not
have a material adverse effect on the Corporation.
-21-
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 2000 Annual Meeting of Stockholders was held on April 25, 2000, for the
election of directors, to consider and approve an amendment to The Black &
Decker 1996 Stock Option Plan, and to ratify the selection of Ernst & Young LLP
as independent public accountants for the Corporation for fiscal year 2000. A
total of 74,417,207 of the 85,890,443 votes entitled to be cast at the meeting
were present in person or by proxy. At the meeting, the stockholders:
(1) Elected the following directors:
Number of Shares
Number of Shares AUTHORITY
Directors VOTED FOR WITHHELD
- --------------------------------------------------------------------------------
Nolan D. Archibald 73,915,207 502,000
Norman R. Augustine 73,930,730 486,477
Barbara L. Bowles 73,896,560 520,647
Malcolm Candlish 73,930,441 486,766
Alonzo G. Decker, Jr. 73,905,292 511,915
Manuel A. Fernandez 73,936,706 480,501
Anthony Luiso 73,930,734 486,473
Mark H. Willes 73,926,772 490,435
(2) Approved an amendment to The Black & Decker 1996 Stock Option Plan by
an affirmative vote of 60,697,536; votes against ratification were
4,593,327; abstentions were 392,245; and broker non-votes were
8,734,099.
(3) Ratified the selection of Ernst & Young LLP as independent public
accountants for the Corporation for fiscal year 2000 by an affirmative
vote of 74,090,090; votes against ratification were 84,218; and
abstentions were 242,899.
No other matters were submitted to a vote of the stockholders at the meeting.
-22-
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit No. Description
12 Computation of Ratios.
27 Financial Data Schedule.
On January 27, 2000, the Corporation filed a Current Report on Form 8-K with the
Commission. That Current Report on Form 8-K, filed pursuant to Item 5 of that
Form, stated that, on January 27, 2000, the Corporation had reported its
earnings for the three and twelve months ended December 31, 1999.
The Corporation did not file any other reports on Form 8-K during the
three-month period ended April 2, 2000.
All other items were not applicable.
-23-
THE BLACK & DECKER CORPORATION
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE BLACK & DECKER CORPORATION
By /s/ MICHAEL D. MANGAN
----------------------------
Michael D. Mangan
Senior Vice President and
Chief Financial Officer
Principal Accounting Officer
By /s/ CHRISTINA M. McMULLEN
----------------------------
Christina M. McMullen
Vice President and
Corporate Controller
Date: May 16, 2000