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 1, 2001
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 1-1553
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THE BLACK & DECKER CORPORATION
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(Exact name of registrant as specified in its charter)
Maryland 52-0248090
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
701 East Joppa Road Towson, Maryland 21286
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(Address of principal executive offices) (Zip Code)
(410) 716-3900
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(Registrant's telephone number, including area code)
Not Applicable
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(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
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The number of shares of Common Stock outstanding as of July 27, 2001: 80,791,070
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The exhibit index as required by item 601(a) of Regulation S-K is included in
this report.
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THE BLACK & DECKER CORPORATION
INDEX - FORM 10-Q
July 1, 2001
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Earnings (Unaudited)
For the Three Months and Six Months Ended July 1, 2001
and July 2, 2000 3
Consolidated Balance Sheet
July 1, 2001 (Unaudited) and December 31, 2000 4
Consolidated Statement of Stockholders' Equity (Unaudited)
For the Six Months Ended July 1, 2001 and July 2, 2000 5
Consolidated Statement of Cash Flows (Unaudited)
For the Six Months Ended July 1, 2001 and July 2, 2000 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 23
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 6. Exhibits and Reports on Form 8-K 25
SIGNATURES 27
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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)
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Three Months Ended Six Months Ended
July 1, 2001 July 2, 2000 July 1, 2001 July 2, 2000
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Sales $1,070.4 $1,126.4 $2,049.4 $2,164.0
Cost of goods sold 710.2 699.7 1,346.6 1,374.3
Selling, general, and
administrative expenses 276.0 284.1 546.2 555.6
Gain on sale of business - - - 20.1
- -------------------------------------------------------------------------------------------------------------------
Operating Income 84.2 142.6 156.6 254.2
Interest expense (net of
interest income) 22.7 25.4 45.1 49.2
Other expense (income) 1.9 (1.4) 4.6 (1.0)
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Earnings Before Income Taxes 59.6 118.6 106.9 206.0
Income taxes 17.9 35.6 32.1 62.8
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Net Earnings $ 41.7 $ 83.0 $ 74.8 $ 143.2
===================================================================================================================
Net Earnings Per Common
Share -- Basic $ .52 $ .98 $ .92 $ 1.68
===================================================================================================================
Shares Used in Computing Basic
Earnings Per Share (in Millions) 81.0 84.7 81.1 85.4
===================================================================================================================
Net Earnings Per Common
Share -- Assuming Dilution $ .51 $ .97 $ .92 $ 1.66
===================================================================================================================
Shares Used in Computing Diluted
Earnings Per Share (in Millions) 81.4 85.3 81.6 86.1
===================================================================================================================
Dividends Per Common Share $ .12 $ .12 $ .24 $ .24
===================================================================================================================
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
</FN>
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CONSOLIDATED BALANCE SHEET
The Black & Decker Corporation and Subsidiaries
(Dollars in Millions Except Per Share Amount)
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July 1, 2001
(Unaudited) December 31, 2000
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Assets
Cash and cash equivalents $ 142.9 $ 135.0
Trade receivables 773.5 783.1
Inventories 799.4 844.0
Other current assets 213.9 199.9
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Total Current Assets 1,929.7 1,962.0
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Property, Plant, and Equipment 725.9 748.1
Goodwill 720.6 717.2
Other Assets 707.6 662.4
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$4,083.8 $4,089.7
===================================================================================================================
Liabilities and Stockholders' Equity
Short-term borrowings $ 178.3 $ 402.9
Current maturities of long-term debt 38.8 47.7
Trade accounts payable 343.2 367.6
Other accrued liabilities 653.9 814.1
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Total Current Liabilities 1,214.2 1,632.3
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Long-Term Debt 1,163.8 798.5
Deferred Income Taxes 216.7 221.0
Postretirement Benefits 253.8 240.6
Other Long-Term Liabilities 482.3 479.8
Common Stock Under Equity Forwards - 25.1
Stockholders' Equity
Common stock, par value $.50 per share 40.4 40.2
Capital in excess of par value 586.3 560.0
Retained earnings 319.3 264.0
Accumulated other comprehensive income (loss) (193.0) (171.8)
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Total Stockholders' Equity 753.0 692.4
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$4,083.8 $4,089.7
===================================================================================================================
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
</FN>
-5-
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)
The Black & Decker Corporation and Subsidiaries
(Dollars in Millions Except Per Share Amounts)
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Accumulated
Outstanding Capital in Other Com- Total
Common Par Excess of Retained prehensive Stockholders'
Shares Value Par Value Earnings Income (Loss) Equity
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Balance at December 31, 1999 87,190,240 $43.6 $843.3 $ 21.9 $(107.7) $801.1
Comprehensive income:
Net earnings -- -- -- 143.2 -- 143.2
Foreign currency translation
adjustments, less effect of
hedging activities (net of tax) -- -- -- -- (44.6) (44.6)
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Comprehensive income -- -- -- 143.2 (44.6) 98.6
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Cash dividends ($.24 per share) -- -- -- (20.3) -- (20.3)
Purchase and retirement of
common stock (net of 186,250
shares issued under equity
forwards) (3,904,750) (2.0) (150.0) -- -- (152.0)
Common stock issued under
employee benefit plans 138,004 .1 4.2 -- -- 4.3
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Balance at July 2, 2000 83,423,494 $41.7 $697.5 $144.8 $(152.3) $731.7
========================================================================================================================
Balance at December 31, 2000 80,343,094 $40.2 $560.0 $264.0 $(171.8) $692.4
Comprehensive income:
Net earnings -- -- -- 74.8 -- 74.8
Cumulative effect of accounting
change (net of tax) -- -- -- -- (.7) (.7)
Net gain on derivative
instruments (net of tax) -- -- -- -- 6.1 6.1
Foreign currency translation
adjustments, less effect of
hedging activities (net of tax) -- -- -- -- (26.6) (26.6)
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Comprehensive income -- -- -- 74.8 (21.2) 53.6
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Cash dividends ($.24 per share) -- -- -- (19.5) -- (19.5)
Common stock retired under
equity forwards (765,326) (.4) -- -- -- (.4)
Common stock issued under
employee benefit plans 1,191,227 .6 26.3 -- -- 26.9
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Balance at July 1, 2001 80,768,995 $40.4 $586.3 $319.3 $(193.0) $753.0
========================================================================================================================
<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)
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Six Months Ended
July 1, 2001 July 2, 2000
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OPERATING ACTIVITIES
Net earnings $ 74.8 $143.2
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 84.4 83.4
Other (.9) (2.0)
Changes in selected working capital items:
Trade receivables 4.2 14.8
Inventories 37.7 (87.9)
Trade accounts payable (23.2) 25.3
Restructuring spending (12.1) (7.6)
Changes in other assets and liabilities (172.0) (67.4)
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Cash Flow From Operating Activities (7.1) 81.7
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INVESTING ACTIVITIES
Proceeds from sale of business - 25.0
Purchase of businesses (30.5) (7.8)
Proceeds from disposal of assets 7.9 3.3
Capital expenditures (69.4) (105.0)
Cash inflow from hedging activities 16.3 113.1
Cash outflow from hedging activities (15.8) (113.5)
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Cash Flow From Investing Activities (91.5) (84.9)
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Cash Flow Before Financing Activities (98.6) (3.2)
FINANCING ACTIVITIES
Net (decrease) increase in short-term borrowings (224.1) 158.3
Proceeds from long-term debt (net of debt issue costs of $2.7) 394.2 -
Payments on long-term debt (40.2) (3.9)
Purchase of common stock (25.5) (152.0)
Issuance of common stock 23.5 6.9
Cash dividends (19.5) (20.3)
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Cash Flow From Financing Activities 108.4 (11.0)
Effect of exchange rate changes on cash (1.9) (5.3)
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Increase (Decrease) In Cash And Cash Equivalents 7.9 (19.5)
Cash and cash equivalents at beginning of period 135.0 147.3
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Cash And Cash Equivalents At End Of Period $142.9 $127.8
=================================================================================================
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
</FN>
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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 1, 2001,
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, 2000.
Certain amounts presented for the three and six months ended July 2, 2000,
have been reclassified to conform to the 2001 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 1, 2001,
and July 2, 2000, the Corporation has presented comprehensive income in the
accompanying Consolidated Statement of Stockholders' Equity. Comprehensive
income for the three months ended July 1, 2001, and July 2, 2000, was $20.1
million and $38.6 million, respectively.
In April 2001, the Emerging Issues Task Force reached consensus on Issue
No. 00-25, Vendor Income Statement Characterization of Consideration from a
Vendor to a Retailer (EITF 00-25). Upon adoption of this consensus on January 1,
2002, the Corporation will be required to classify certain payments to its
customers as a reduction of revenue. The Corporation currently classifies
certain of these payments as selling expenses in its statement of earnings. Upon
adoption, prior period amounts will be reclassified. Because adoption of EITF
00-25 will solely result in reclassification within the statement of earnings,
there will be no impact on the Corporation's financial condition, operating
income, or net earnings.
In July 2001, the Financial Accounting Standards Board issued SFAS No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under SFAS No. 142, goodwill and intangible assets deemed to
have indefinite lives will no longer be amortized but will be subject to annual
impairment tests. Other intangible assets will continue to be amortized over
their useful lives. The Corporation will apply the provisions of SFAS No. 142
beginning on January 1, 2002. Application of the nonamortization provisions of
SFAS No. 142 is expected to result in an increase in net income of approximately
$27 million per year. During 2002, the Corporation will perform the first of the
required impairment tests of goodwill using the methodology prescribed by SFAS
No. 142, and has not yet determined what the effect of these tests will be on
the earnings and financial position of the Corporation.
-8-
NOTE 2: INVENTORIES
The components of inventory at the end of each period, in millions of dollars,
consisted of the following:
July 1, 2001 December 31, 2000
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FIFO cost:
Raw materials and work-in-process $216.0 $219.6
Finished products 590.5 627.9
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806.5 847.5
Excess of FIFO cost over LIFO inventory value (7.1) (3.5)
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$799.4 $844.0
=========================================================================================
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 3: GOODWILL
Goodwill at the end of each period, in millions of dollars, was as follows:
July 1, 2001 December 31, 2000
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Goodwill $1,317.1 $1,300.5
Less accumulated amortization 596.5 583.3
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$ 720.6 $ 717.2
=========================================================================================
NOTE 4: SHORT-TERM BORROWINGS
In April 2001, the Corporation replaced its expiring unsecured revolving credit
facilities with a $975.0 million unsecured revolving credit facility that
expires in April 2006 and a $390.0 million 364-day unsecured revolving credit
facility (the Credit Facilities). In July 2001, these unsecured credit
facilities were increased to $1.0 billion and $400.0 million, respectively. The
364-day revolving credit facility provides for annual renewals upon request by
the Corporation and approval by the lending banks. Under the Credit Facilities,
the Corporation has the option of borrowing at the London Interbank Offered Rate
("LIBOR") plus a specified percentage, or at other variable rates set forth
therein. The Credit Facilities provide that the interest rate margin over LIBOR,
as well as the annual facility and utilization fees, will increase or decrease
based upon changes in the ratings of the Corporation's long-term senior
unsecured debt.
The Credit Facilities include various customary covenants, including
covenants limiting the ability of the Corporation and its subsidiaries to pledge
assets or incur liens on assets, and financial covenants requiring the
Corporation to maintain specified leverage and interest coverage ratios.
NOTE 5: LONG-TERM DEBT
In June 2001, the Corporation issued senior unsecured notes in the principal
amount of $400.0 million. The notes bear interest at a fixed rate of 7.125% and
are due in 2011. Concurrently, the
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Corporation entered into fixed-to-variable interest rate swap agreements with
notional amounts totaling $400.0 million. Under these agreements, the
Corporation receives a weighted-average fixed rate of 6.27% and pays at variable
rates based on LIBOR. The Corporation has designated these swap agreements as
fair value hedges of the underlying fixed-rate obligations and has structured
the agreements to be 100% effective. As a result, there is no current impact to
earnings resulting from hedge ineffectiveness.
Indebtedness of subsidiaries of the Corporation in the aggregate principal
amounts of $481.2 million and $599.6 million were included in the Consolidated
Balance Sheet at July 1, 2001, and December 31, 2000, 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:
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Three Months Ended Six Months Ended
July 1, 2001 July 2, 2000 July 1, 2001 July 2, 2000
- -----------------------------------------------------------------------------------------
Interest expense $31.5 $36.0 $66.1 $71.1
Interest (income) (8.8) (10.6) (21.0) (21.9)
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$22.7 $25.4 $45.1 $49.2
=========================================================================================
NOTE 7: OTHER EXPENSE (INCOME)
Other expense of $1.9 million and $4.6 million for the three and six months
ended July 1, 2001, respectively, consisted primarily of dividends related to
preferred shares of a subsidiary. For additional information on the subsidiary's
preferred shares, which were issued during the fourth quarter of 2000, see Note
12 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, 2000.
Other income for the three and six months ended July 2, 2000, was not material.
-10-
NOTE 8: BUSINESS SEGMENTS
The following table provides selected financial data for the Corporation's
business segments (in millions of dollars):
Reportable Business Segments
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Power Hardware Fastening Currency Corporate,
Tools & & Home & Assembly Translation Adjustments,
Three Months Ended July 1, 2001 Accessories Improvement Systems Total Adjustments & Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 773.1 $191.5 $127.6 $1,092.2 $(21.8) $ - $1,070.4
Segment profit (loss) (for
Consolidated, operating income) 55.0 8.5 20.6 84.1 (1.5) 1.6 84.2
Depreciation and amortization 22.8 8.8 3.9 35.5 (1.0) 6.6 41.1
Capital expenditures 19.6 8.2 2.9 30.7 (.3) .2 30.6
Three Months Ended July 2, 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 775.6 $211.5 $127.5 $1,114.6 $ 11.8 $ - $1,126.4
Segment profit (loss) (for
Consolidated, operating income) 100.6 27.1 22.1 149.8 1.2 (8.4) 142.6
Depreciation and amortization 21.1 8.9 4.2 34.2 .3 6.6 41.1
Capital expenditures 24.2 7.7 6.1 38.0 .1 .3 38.4
Six Months Ended July 1, 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $1,429.5 $392.4 $251.1 $2,073.0 $(23.6) $ - $2,049.4
Segment profit (loss) (for
Consolidated, operating income) 90.0 25.9 40.1 156.0 (1.7) 2.3 156.6
Depreciation and amortization 46.0 18.7 7.7 72.4 (1.1) 13.1 84.4
Capital expenditures 45.5 17.6 6.2 69.3 (.6) .7 69.4
Six Months Ended July 2, 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $1,455.5 $412.0 $259.8 $2,127.3 $ 36.7 $ - $2,164.0
Segment profit (loss) (for
Consolidated, operating income
before gain on sale of business) 153.8 46.2 44.4 244.4 3.5 (13.8) 234.1
Depreciation and amortization 42.1 18.7 8.1 68.9 1.2 13.3 83.4
Capital expenditures 75.2 14.8 13.0 103.0 1.5 .5 105.0
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.
-11-
The Corporation assesses the performance of its reportable business
segments based upon a number of factors, including segment profit. In general,
segments follow the same accounting policies as those described in Note 1 of the
Corporation's Annual Report on Form 10-K for the year ended December 31, 2000,
except with respect to foreign currency translation and except as further
indicated below. The financial statements of a segment's operating units located
outside of the United States, except those units operating in highly
inflationary economies, are generally measured using the local currency as the
functional currency. For these units located outside of the United States,
segment assets and elements of segment profit are translated using budgeted
rates of exchange. Budgeted rates of exchange are established annually and, once
established, all prior period segment data is restated to reflect the current
year's budgeted rates of exchange. The amounts included in the preceding table
under the captions "Reportable Business Segments" and "Corporate, Adjustments, &
Eliminations" are reflected at the Corporation's budgeted exchange rates for
2001. The amounts included in the preceding table under the caption "Currency
Translation Adjustments" represent the difference between consolidated amounts
determined using those budgeted rates of exchange and those determined based
upon the rates of exchange applicable under accounting principles generally
accepted in the United States.
Segment profit excludes interest income and expense, non-operating income
and expense, goodwill amortization (except for amortization of goodwill
associated with certain small acquisitions made by the Power Tools and
Accessories and Fastening and Assembly Systems segments), 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
reportable segment based upon budgeted amounts. While sales and transfers
between segments are accounted for at cost plus a reasonable profit, the effects
of intersegment sales are excluded from the computation of segment profit.
Intercompany profit in inventory is excluded from segment assets and is
recognized as a reduction of cost of sales by the selling segment when the
related inventory is sold to an unaffiliated customer. Because the Corporation
compensates the management of its various businesses on, among other factors,
segment profit, the Corporation may elect to record certain segment-related
expense items of an unusual or non-recurring nature in consolidation rather than
reflect such items in segment profit. In addition, certain segment-related items
of income or expense may be recorded in consolidation in one period and
transferred to the various segments in a later period.
-12-
The reconciliation of segment profit to the Corporation's earnings before
income taxes for each period, in millions of dollars, is as follows:
- ----------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
July 1, 2001 July 2, 2000 July 1, 2001 July 2, 2000
- ----------------------------------------------------------------------------------------------------------------------
Segment profit for total reportable business segments $84.1 $149.8 $156.0 $244.4
Items excluded from segment profit:
Adjustment of budgeted foreign exchange rates to
actual rates (1.5) 1.2 (1.7) 3.5
Depreciation of Corporate property and amortization
of certain goodwill (6.6) (6.6) (13.1) (13.3)
Adjustment to businesses' postretirement benefit
expenses booked in consolidation 9.9 8.7 20.9 18.2
Adjustment to eliminate net interest and non-operating
expenses from results of certain operations in Brazil,
Mexico, Venezuela, and Turkey .2 .1 .4 .2
Other adjustments booked in consolidation directly
related to reportable business segments .6 (5.7) 5.0 (12.7)
Amounts allocated to businesses in arriving at segment
profit in excess of (less than) Corporate center operating
expenses, eliminations, and other amounts
identified above (2.5) (4.9) (10.9) (6.2)
- ----------------------------------------------------------------------------------------------------------------------
Operating income before gain on sale of business 84.2 142.6 156.6 234.1
Gain on sale of business - - - 20.1
- ----------------------------------------------------------------------------------------------------------------------
Operating income 84.2 142.6 156.6 254.2
Interest expense, net of interest income 22.7 25.4 45.1 49.2
Other expense (income) 1.9 (1.4) 4.6 (1.0)
- ----------------------------------------------------------------------------------------------------------------------
Earnings before income taxes $59.6 $118.6 $106.9 $206.0
======================================================================================================================
-13-
NOTE 9: GAIN ON SALE OF BUSINESS
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. For further information about
this transaction and the recapitalization of True Temper, see Note 19 of Notes
to Consolidated Financial Statements included in Item 8 of the Corporation's
Annual Report on Form 10-K for the year ended December 31, 2000.
NOTE 10: 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 1, 2001 July 2, 2000 July 1, 2001 July 2, 2000
- -------------------------------------------------------------------------------------------------------------------
Numerator:
Net earnings $41.7 $83.0 $74.8 $143.2
===================================================================================================================
Denominator:
Average number of common shares outstanding
for basic earnings per share 81.0 84.7 81.1 85.4
Employee stock options and stock issuable
under employee benefit plans .4 .6 .5 .7
- -------------------------------------------------------------------------------------------------------------------
Average number of common shares outstanding
for diluted earnings per share 81.4 85.3 81.6 86.1
===================================================================================================================
Basic earnings per share $ .52 $ .98 $ .92 $ 1.68
===================================================================================================================
Diluted earnings per share $ .51 $ .97 $ .92 $ 1.66
===================================================================================================================
As of July 1, 2001, approximately 7.0 million options to purchase shares of
common stock, with a weighted-average exercise price of $46.21, were
outstanding, but were not included in the computation of diluted earnings per
share because the effect would be anti-dilutive. These options were
anti-dilutive because the related exercise price was greater than the average
market price of the common shares during the quarter.
NOTE 11: COMMON STOCK UNDER EQUITY FORWARDS
As more fully discussed in Note 13 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, 2000, the Corporation entered into two agreements (the
"Agreements") under which the Corporation was able to enter into forward
purchase contracts on its common stock. The Agreements provided 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 first quarter of 2001, settlements occurred on standard forward
purchase contracts with respect to 691,186 shares of the Corporation's common
stock, resulting in a net receipt of 169,485 shares of common stock. In
addition, settlements occurred on capped forward contracts with respect to
750,000 shares of the Corporation's common stock, resulting in a net receipt of
-14-
70,791 shares of its common stock during the first quarter of 2001. At each
settlement date, the Corporation elected net share settlement.
During the second quarter of 2001, the Corporation terminated the
Agreements, electing full physical settlement through its purchase of the final
525,050 shares subject to the Agreements for $25.5 million.
-15-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Corporation reported net earnings of $41.7 million, or $.51 per share on a
diluted basis, for the three-month period ended July 1, 2001, compared to net
earnings of $83.0 million, or $.97 per share on a diluted basis, for the
three-month period ended July 2, 2000.
For the six months ended July 1, 2001, the Corporation reported net earnings
of $74.8 million or $.92 per share on a diluted basis, compared to net earnings
of $143.2 million, or $1.66 per share on a diluted basis, for the six months
ended July 2, 2000. As described in Note 9 of Notes to Consolidated Financial
Statements, earnings for the six months ended July 2, 2000, included a pre-tax
gain of $20.1 million ($13.1 million net of tax) related to the 1998
recapitalization of True Temper Sports. Excluding this non-recurring gain, net
earnings for the six months ended July 2, 2000, would have been $130.1 million,
or $1.51 per share on a diluted basis, compared to net earnings of $74.8
million, or $.92 per share on a diluted basis, for the corresponding period in
2001.
In the discussion and analysis of financial condition and results of
operations that follows, the Corporation generally attempts to list contributing
factors in order of significance to the point being addressed.
RESULTS OF OPERATIONS
SALES
The following chart sets forth an analysis of the consolidated changes in sales
for the three- and six-month periods ended July 1, 2001, and July 2, 2000:
ANALYSIS OF CHANGES IN SALES
- ---------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
(Dollars in Millions) July 1, 2001 July 2, 2000 July 1, 2001 July 2, 2000
- ---------------------------------------------------------------------------------------------------
Total sales $1,070.4 $1,126.4 $2,049.4 $2,164.0
Unit volume - % 8 % - % 9 %
Price (2)% (1)% (2)% (1)%
Currency (3)% (3)% (3)% (3)%
- ---------------------------------------------------------------------------------------------------
Change in total sales (5)% 4 % (5)% 5 %
===================================================================================================
Total consolidated sales for the three and six months ended July 1, 2001,
decreased by 5% from the corresponding 2000 levels. Total unit volume remained
constant during the three- and six-month periods ended July 1, 2001, as compared
to the same periods in 2000. The effects of unfavorable economic conditions and
the reduction of inventories by retailers in the United States and Europe were
offset by incremental sales of three businesses acquired by the Corporation
since June 2000. The Corporation anticipates that the impact of the economic
slowdown in the United States and Europe will continue to negatively impact its
sales over the near term. Pricing actions
-16-
taken in response to customer and competitive pressures, as well as to reduce
the Corporation's inventory levels, had a 2% negative effect on sales for both
the three and six months ended July 1, 2001, respectively, as compared to the
corresponding periods in 2000. The negative effects of a stronger dollar
compared to other foreign currencies, particularly the Euro and pound sterling,
caused a 3% decrease in the Corporation's consolidated sales during both the
three- and six-month periods ended July 1, 2001, as compared to the
corresponding periods in 2000.
EARNINGS
Operating income for the three months ended July 1, 2001, was $84.2 million, or
7.9% of sales, compared to operating income of $142.6 million, or 12.7% of sales
for the corresponding period in 2000. Operating income for the six months ended
July 1, 2001, was $156.6 million, compared to operating income of $254.2 million
for the corresponding period in 2000. Excluding the effect of the $20.1 million
gain on sale of business recognized in the first quarter of 2000, operating
income decreased from $234.1 million, or 10.8% of sales, for the six months
ended July 2, 2000, to $156.6 million, or 7.6% of sales, for the six months
ended July 1, 2001.
Gross margin as a percentage of sales was 33.7% and 37.9% for the
three-month periods ended July 1, 2001, and July 2, 2000, respectively, and was
34.3% and 36.5% for the six-month periods ended July 1, 2001, and July 2, 2000,
respectively. The decreases in gross margin for the three- and six-month periods
ended July 1, 2001, as compared to the corresponding periods in the prior year,
reflect actions taken by the Corporation to reduce inventory levels, including
price reductions to increase sales of certain inventories and lower
manufacturing volumes. Those lower manufacturing volumes resulted in unfavorable
manufacturing variances as well as reduced productivity. In addition, gross
margin for the three- and six-month periods ended July 1, 2001, was adversely
affected by pricing actions taken by the Corporation in response to both
customer and competitive pressures. The Corporation anticipates continued lower
gross margins in the near term as a result of a reduction in manufacturing
volumes in response to the economic slowdown in the United States and Europe,
pricing actions, and pressure in Europe from currency and competition from
low-cost consumer power tools imported from Asia.
The Corporation reduced selling, general, and administrative expenses by
$8.1 million and $9.4 million for the three and six months ended July 1, 2001,
respectively, as compared to the corresponding periods in the prior year,
through cost containment efforts and the impact of certain variable expenses
associated with lower sales and/or profitability levels. However, those selling,
general, and administrative expenses increased as a percentage of sales due to
the lower sales base in 2001 as compared to the prior year. Selling, general,
and administrative expenses as a percentage of sales increased from 25.2% for
the quarter ended July 2, 2000, to 25.8% for the quarter ended July 1, 2001. For
the six months ended July 1, 2001, selling, general, and administrative expenses
as a percentage of sales was 26.7%, reflecting an increase from the prior year
level of 25.7%.
-17-
Net interest expense (interest expense less interest income) for the three
months ended July 1, 2001, was $22.7 million compared to net interest expense of
$25.4 million for the three months ended July 2, 2000. Net interest expense was
$45.1 million for the six months ended July 1, 2001, compared to net interest
expense of $49.2 million for the corresponding period in 2000. The decrease in
net interest expense for the three months ended July 1, 2001, as compared to the
corresponding period in 2000, was primarily the result of lower interest rates,
partially offset by higher average debt balances. The decrease in net interest
expense for the six months ended July 1, 2001, as compared to the corresponding
period in 2000, was primarily the result of lower interest rates.
Other expense for the three months ended July 1, 2001, was $1.9 million as
compared to income of $1.4 million for the corresponding period in 2000. Other
expense for the six months ended July 1, 2001, was $4.6 million as compared to
other income of $1.0 million for the corresponding period in 2000. The increase
in other expense was primarily the result of dividends on a subsidiary's
preferred shares. Those preferred shares were issued in December 2000.
The Corporation's effective tax rate for the three and six months ended
July 1, 2001, was 30.0%, as compared to an effective tax rate of 30.0% and 30.5%
for the three and six months ended July 2, 2000, respectively. During the six
months ended July 2, 2000, the Corporation recognized income tax expense of $7.0
million relating to the $20.1 million pre-tax gain on the sale of a business.
Excluding the effects of that gain, the Corporation's effective tax rate would
have been 30.0% for the six months ended July 2, 2000.
The Corporation reported net earnings of $41.7 million, or $.51 per share
on a diluted basis, for the three-month period ended July 1, 2001, compared to
net earnings of $83.0 million, or $.97 per share on a diluted basis, for the
three-month period ended July 2, 2000. The Corporation reported net earnings of
$74.8 million, or $.92 per share on a diluted basis, for the six months ended
July 1, 2001, compared to net earnings of $143.2 million, or $1.66 per share on
a diluted basis for the comparable period in 2000. Excluding the gain on the
sale of business, net earnings for the six-month period ended July 2, 2000,
would have been $130.1 million, or $1.51 per share on a diluted basis.
BUSINESS SEGMENTS
As more fully described in Note 8 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.
-18-
Power Tools and Accessories
Segment sales and profit for the Power Tools and Accessories segment, determined
on the basis described in Note 8 of Notes to Consolidated Financial Statements,
were as follows (in millions of dollars):
- ---------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
July 1, 2001 July 2, 2000 July 1, 2001 July 2, 2000
- ---------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $773.1 $775.6 $1,429.5 $1,455.5
Segment profit 55.0 100.6 90.0 153.8
- ---------------------------------------------------------------------------------------------------
Sales to unaffiliated customers in the Power Tools and Accessories segment
during the second quarter of 2001 were flat as compared to the 2000 level.
Sales of power tools and accessories in North America for the second
quarter of 2001 were flat as compared to the prior year level as both the
professional and consumer power tools businesses were negatively impacted by the
slowdown in the United States economy. During the three months ended July 1,
2001, a low single-digit rate increase in sales of professional power tools and
accessories was offset by a high single-digit rate decline in sales of consumer
power tools and accessories. Sales of professional power tools and accessories
in the quarter benefited from incremental sales associated with two businesses
acquired since June 2000.
Sales in Europe decreased at a mid-single-digit rate in the second quarter
of 2001 from the corresponding period in 2000, as sales of consumer power tools
and outdoor products were negatively impacted by slowing economic conditions in
Europe, and inventory actions taken by retailers with high levels of private
label Asian products. This decline in sales of consumer products was partially
offset by a mid-single-digit rate of growth in sales of professional power tools
and accessories in the quarter. That growth partly resulted from the impact of
the transition from the ELU(R) to the DEWALT(R) brand in Europe.
Sales in other geographic areas increased at a double-digit rate for the
second quarter of 2001 over the prior year level as higher sales were achieved
in all regions in both consumer and professional power tools and accessories.
Sales to unaffiliated customers in the Power Tools and Accessories segment
during the first half of 2001 decreased 2% from the 2000 level.
During the first six months of 2001, sales of power tools and accessories
in North America decreased at a low single-digit rate from the 2000 level, with
sales declines experienced in both professional and consumer power tools and
accessories. Those declines were mainly driven by unfavorable economic
conditions in the United States and actions taken by certain major customers to
reduce inventory levels. These negative factors were partially offset by
incremental sales of professional power tools associated with two businesses
acquired since June 2000.
Sales in Europe during the first half of 2001 decreased at a low
single-digit rate from the 2000 level, driven by a double-digit rate of decline
in sales of outdoor products and a high single-digit rate of decline in sales of
consumer power tools. These declines were partially offset by a high
single-digit rate of growth in sales of professional power tools. Sales of
outdoor products and consumer power tools were negatively impacted during 2001
by slowing economic conditions, coupled with inventory actions by retailers with
high levels of private label Asian products. The
-19-
growth in professional power tools during the six months ended July 1, 2001,
resulted, in part, from the transition from the ELU to the DEWALT brand in
Europe.
Sales in other geographic areas increased at a double-digit rate in the
first half of 2001 from the 2000 levels, as higher sales were achieved in
substantially all product categories.
Segment profit as a percentage of sales for the Power Tools and Accessories
segment was 7.1% and 6.3% for the three- and six-month periods ended July 1,
2001, compared to 13.0% and 10.6% for the three-and six-month periods ended July
2, 2000, respectively. The declines in segment profit during 2001 were mainly
driven by lower gross margins as a percentage of sales resulting from the
Corporation's actions to reduce inventory, including price reductions and lower
production levels, which resulted in unfavorable manufacturing absorption.
Segment profit was also negatively impacted by higher selling, general, and
administrative expenses. Those higher expenses reflected higher distribution and
transportation expenses, expenses related to recently acquired businesses, and
increased research and development spending.
Hardware and Home Improvement
Segment sales and profit for the Hardware and Home Improvement segment,
determined on the basis described in Note 8 of Notes to Consolidated Financial
Statements, were as follows (in millions of dollars):
- ---------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
July 1, 2001 July 2, 2000 July 1, 2001 July 2, 2000
- ---------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $191.5 $211.5 $392.4 $412.0
Segment profit 8.5 27.1 25.9 46.2
- ---------------------------------------------------------------------------------------------------
Sales to unaffiliated customers in the Hardware and Home Improvement
segment decreased by 9% for the three months ended July 1, 2001, from the 2000
level. The decline was most significant in the security hardware business in
North America, where sales decreased at a double-digit rate in both the retail
and construction channels. Sales of security hardware in Europe increased
modestly over the prior year level. Sales of plumbing products decreased at a
low single-digit rate as strong sales to the new construction market were more
than offset by lower sales in retail channels.
Sales to unaffiliated customers in the Hardware and Home Improvement
segment decreased by 5% for the six months ended July 1, 2001, from the 2000
level. Sales of security hardware in North America were negatively impacted by
the continuing effects of a line review conducted in 2000 by a major customer,
unfavorable economic conditions, and inventory actions taken by some retailers.
Sales of security hardware in Europe approximated the prior year level. Sales of
plumbing products decreased during the six-month period due to unfavorable
economic conditions and inventory actions taken by some retailers.
Segment profit as a percentage of sales for the Hardware and Home
Improvement segment was 4.4% and 6.6% for the three and six months ended July 1,
2001, compared to 12.8% and 11.2% for the three and six months ended July 2,
2000, respectively. Segment profit as a percentage of sales in both periods was
negatively impacted by a decline in gross margin. The decrease in gross margin
was primarily a result of manufacturing inefficiencies and costs associated with
manufacturing
-20-
transition issues in the North American security hardware business and with
lower production volumes of plumbing products.
Fastening and Assembly Systems
Segment sales and profit for the Fastening and Assembly Systems segment,
determined on the basis described in Note 8 of Notes to Consolidated Financial
Statements, were as follows (in millions of dollars):
- ---------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
July 1, 2001 July 2, 2000 July 1, 2001 July 2, 2000
- ---------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $127.6 $127.5 $251.1 $259.8
Segment profit 20.6 22.1 40.1 44.4
- ---------------------------------------------------------------------------------------------------
Sales to unaffiliated customers in the Fastening and Assembly Systems
segment were flat during the three-month period ended July 1, 2001, as compared
to the three-month period ended July 2, 2000, as lower sales to industrial and
automotive customers in North America were offset by incremental sales
associated with a business acquired in April 2001, double-digit rates of growth
in sales of both automotive and industrial products in Asia, and growth in sales
of automotive products in Europe.
Sales to unaffiliated customers in the Fastening and Assembly Systems
segment for the six months ended July 1, 2001, declined 3%, as compared to the
six months ended July 2, 2000, due to lower sales to automotive and industrial
customers in North America, partially offset by incremental sales associated
with a business acquired in April 2001, double-digit rates of growth in sales of
both automotive and industrial products in Asia, and growth in sales of
automotive products in Europe.
Segment profit as a percentage of sales for the Fastening and Assembly
Systems segment was 16.1% for the three months ended July 1, 2001, as compared
to 17.3% for the corresponding period in 2000. Segment profit as a percentage of
sales for the Fastening and Assembly Systems segment decreased from 17.1% in the
first half of 2000 to 16.0% for the corresponding period in 2001. The decline in
segment profit as a percentage of sales for the three- and six-month periods was
principally due to slight declines in gross margin as a percentage of sales due
to unfavorable mix.
RESTRUCTURING ACTIVITY
A summary of restructuring activity during the six-month period ended July 1,
2001, is as follows (in millions of dollars):
Utilization of Reserve
Reserve at ---------------------- Reserve at
December 31, 2000 Cash Non-Cash July 1, 2001
- ---------------------------------------------------------------------------------------------------
Severance benefits $29.7 $(10.0) $ -- $19.7
Other charges 4.4 (2.1) -- 2.3
- ---------------------------------------------------------------------------------------------------
Total $34.1 $(12.1) $ -- $22.0
===================================================================================================
-21-
The Corporation remains committed to continuous productivity improvement
and continues to evaluate opportunities to reduce fixed costs and eliminate
excess capacity.
INTEREST RATE SENSITIVITY
As a result of the changes during the six months ended July 1, 2001, in the
Corporation's short-term borrowings, long-term debt, and interest rate hedge
portfolio, as described in Notes 4 and 5 of Notes to Consolidated Financial
Statements, the following table provides information as of July 1, 2001, about
that 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,
2000.
Principal Payments 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, 2001 2002 2003 2004 2005 Thereafter Total Liabilities
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Short-Term Borrowings
Variable rate (U.S. dollars) $154.9 $ -- $ -- $ -- $ -- $ -- $ 154.9 $ 154.9
Average interest rate 4.23% 4.23%
Variable rate (other currencies) $ 23.4 $ -- $ -- $ -- $ -- $ -- $ 23.4 $ 23.4
Average interest rate 5.37% 5.37%
Long-Term Debt
Fixed rate (U.S. dollars) $ -- $32.3 $309.5 $ -- $ -- $854.6 $1,196.4 $1,193.0
Average interest rate 8.86% 7.50% 6.99% 7.17%
Fixed rate (other currencies) $ .8 $ 1.4 $ .7 $ -- $ -- $ -- $ 2.9 $ 2.9
Average interest rate 1.48% 1.49% 1.53% 1.50%
Variable rate (U.S. dollars) $ 7.5 $ -- $ -- $ -- $ -- $ -- $ 7.5 $ 7.5
Average interest rate L+.70%(a)
Other Long-Term Liabilities
Fixed rate (U.S. dollars) $ -- $ -- $ -- $ -- $187.8 $ -- $ 187.8 $ 193.0
Average interest rate 5.69% 5.69%
INTEREST RATE DERIVATIVES
Fixed-to-Variable Interest
Rate Swaps (U.S. dollars) $ -- $ -- $125.0 $ -- $188.0 $675.0 $ 988.0 $ (5.9)
Average pay rate (b)
Average receive rate 6.02% 6.49% 6.16% 6.21%
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Variable rate specified is based upon LIBOR plus the specified margin over
LIBOR.
(b) The average pay rate is based upon 6-month forward LIBOR, except for $550.0
million in notional principal amount that matures after 2005 and is based
upon 3-month forward LIBOR.
</FN>
FINANCIAL CONDITION
Operating activities used cash of $7.1 million for the six months ended July 1,
2001, compared to $81.7 million of cash provided in the corresponding period in
2000. The increase in cash usage in 2001 was primarily the result of lower net
earnings, the timing of payments of certain expenses, and
-22-
higher cash taxes, offset by improved working capital, principally associated
with the inventory reductions in the current six-month period as compared to the
corresponding 2000 period.
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 July 1, 2001, approximated
the number of days sales outstanding at July 2, 2000. Inventory turns at July 1,
2001, also approximated the comparable period in 2000. The Corporation believes
that it was able to maintain adequate service levels while reducing its overall
investment in inventory. While the Corporation expects inventory levels to rise
during the next quarter in support of both seasonal sales activity and
anticipated significant new product introductions in the second half of 2001,
the Corporation's goal is to end 2001 with inventories at or below $800 million.
Investing activities for the six months ended July 1, 2001, used cash of
$91.5 million compared to $84.9 million of cash used for the corresponding
period in 2000. Cash flow from investing activities benefited from lower capital
expenditures during the first half of 2001, as compared to the corresponding
period in 2000. This benefit was offset by the Corporation's receipt of $25.0
million in 2000 related to the True Temper recapitalization, as described in
Note 9 of Notes to Consolidated Financial Statements, and an increase in cash
usage during 2001 for the purchase of a business. On April 30, 2001, the
Corporation acquired the automotive division of Bamal Corporation, a component
of the Fastening and Assembly Systems segment, for $34.0 million. Under the
purchase agreement, the purchase price may be adjusted depending on the closing
balance sheet. During the six months ended July 1, 2001, in connection with the
Bamal purchase, the Corporation made a cash payment of $30.5 million and issued
a promissory note in the amount of $3.5 million. The results of Bamal were
included in the consolidated financial statements from the date of acquisition
and are not expected to be material to the Corporation's results during 2001.
Financing activities provided cash of $108.4 million for the six-month
period ended July 1, 2001, compared to cash used of $11.0 million during the
first six months of 2000. The increase in cash provided is primarily the result
of lower cash expenditures for stock repurchases during the first half of 2001.
During the six months ended July 1, 2001, the Corporation repurchased 525,050
shares of its common stock at an aggregate cost of $25.5 million upon the
termination of its equity forward purchase agreements, as more fully described
in Note 11 of Notes to Consolidated Financial Statements. During the same period
in 2000, the Corporation repurchased 4,091,000 shares of its common stock at an
aggregate cost of $152.0 million through its share repurchase program.
Future share repurchases are anticipated, in part to reduce the dilutive
effect of stock issuances under various stock-based employee benefit plans. At
July 1, 2001, the Corporation had remaining authorization from its Board of
Directors to repurchase an additional 2,996,595 shares of its common stock.
In addition to measuring its cash flow generation and usage based upon the
operating, investing, and financing classifications included in the Consolidated
Statement of Cash Flows, the Corporation also measures its free cash flow. Free
cash flow, a measure commonly employed by 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 six months ended July 1, 2001, the Corporation had
negative free cash flow of
-23-
$68.6 million compared to negative free cash flow of $20.0 million for the
corresponding period in 2000.
The variable rate debt to total debt ratio, after taking interest rate
hedges into account, was 71% at July 1, 2001, compared to 65% at December 31,
2000. Average debt maturity was 7.4 years at July 1, 2001, compared to 5.4 years
at December 31, 2000.
IMPACT OF NEW ACCOUNTING STANDARDS
As more fully described in Note 1 of Notes to Consolidated Financial Statements,
on January 1, 2002, the Corporation is required to adopt two new accounting
standards. For a discussion of the impact of those new accounting standards upon
the Corporation, see Note 1.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the Reform Act) provides a
safe harbor for forward-looking statements made by or on behalf of the
Corporation. The Corporation and its representatives may, from time to time,
make written or verbal forward-looking statements, including statements
contained in the Corporation's filings with the Securities and Exchange
Commission and in its reports to stockholders. Generally, the inclusion of the
words "believe," "expect," "intend," "estimate," "anticipate," "will," and
similar expressions identify statements that constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 and that are intended to come
within the safe harbor protection provided by those sections. All statements
addressing operating performance, events, or developments that the Corporation
expects or anticipates will occur in the future, including statements relating
to sales growth, earnings or earnings per share growth, and market share, as
well as statements expressing optimism or pessimism about future operating
results, are forward-looking statements within the meaning of the Reform Act.
The forward-looking statements are and will be based upon management's
then-current views and assumptions regarding future events and operating
performance, and are applicable only as of the dates of such statements. The
Corporation undertakes no obligation to update or revise any forward-looking
statements, whether as a result of new information, future events, or otherwise.
By their nature, all forward-looking statements involve risk and
uncertainties. Actual results may differ materially from those contemplated by
the forward-looking statements for a number of reasons, including but not
limited to those factors identified in Item 1(f) of Part I of the Corporation's
Annual Report on Form 10-K for the year ended December 31, 2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required under this Item is contained in Item 2 of Part I of this
report under the caption "Interest Rate Sensitivity" and in Item 7 of the
Corporation's Annual Report on Form 10-K for the year ended December 31, 2000,
under the caption "Hedging Activities", and in Item 8 of that report in Notes 1
and 9 of Notes to Consolidated Financial Statements, and is incorporated by
reference herein.
-24-
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 up to the limits of the deductibles. All other claims and lawsuits are
handled on a case-by-case basis.
Pursuant to authority granted under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (CERCLA), the United States
Environmental Protection Agency (EPA) has issued a National Priority List (NPL)
of sites at which action is to be taken by the EPA or state authorities to
mitigate the risk of release of hazardous substances into the environment. The
Corporation is engaged in continuing activities with regard to various sites on
the NPL and other sites covered under CERCLA. The Corporation also is engaged in
site investigations and remedial activities to address environmental
contamination from past operations at current and former manufacturing
facilities in the United States and abroad. To minimize the Corporation's
potential liability with respect to these sites, when appropriate, management
has undertaken, among other things, active participation in steering committees
established at the sites and has agreed to remediation through consent orders
with the appropriate government agencies. Due to uncertainty over the
Corporation's involvement in some of the sites, uncertainty over the remedial
measures to be adopted at various sites and facilities, and the fact that
imposition of joint and several liability with the right of contribution is
possible under CERCLA and other laws and regulations, the liability of the
Corporation with respect to any site at which remedial measures have not been
completed cannot be established with certainty. On the basis of periodic reviews
conducted with respect to these sites, however, the Corporation has established
appropriate liability accruals.
The Corporation's estimate of the costs associated with legal, product
liability, and environmental exposures is accrued if, in management's judgment,
the likelihood of a loss is probable. These accrued liabilities are not
discounted. Insurance recoveries for environmental and certain general liability
claims are not recognized until realized.
As of July 1, 2001, 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 environmental
-25-
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 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit No. Description
3 Bylaws of the Corporation, as amended.
4(a) Credit Agreement, dated as of April 2, 2001, among
the Corporation, Black & Decker Holdings, Inc., as
Initial Borrowers, the initial lenders named therein,
as Initial Lenders, Citibank, N.A., as Administrative
Agent, JPMorgan, a division of Chase Securities Inc.,
as Syndication Agent, and Bank of America, N.A. and
Commerzbank AG, as Co-Syndication Agents.
4(b) Credit Agreement, dated as of April 2, 2001, among
the Corporation, Black & Decker Holdings, Inc., as
Initial Borrowers, the initial lenders named therein,
as Initial Lenders, Citibank, N.A., as Administrative
Agent, JPMorgan, a division of Chase Securities Inc.,
as Syndication Agent, and Bank of America, N.A. and
Commerzbank AG, as Co-Syndication Agents.
4(c) Indenture between the Corporation and The Bank of New
York, as trustee, dated as of June 5, 2001, included
in the Corporation's Registration Statement on Form
S-4 (Reg. No. 333-64790), is incorporated herein by
reference.
4(d) Exchange and Registration Rights Agreement among the
Corporation and Banc of America Securities LLC, J.P.
Morgan Securities Inc. and the other initial
purchasers named on Schedule I thereto, dated as of
June 5, 2001, included in the Corporation's
Registration Statement on Form S-4 (Reg. No.
333-64790), is incorporated herein by reference.
4(e) Form of 7.125% Senior Note Due 2011, included in the
Corporation's Registration Statement on Form S-4
(Reg. No. 333-64790), is incorporated herein by
reference.
12 Computation of Ratios.
On April 23, 2001, 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 the Corporation had established budgeted rates of exchange for
2001 and, accordingly, had updated segment data for
-26-
prior periods to reflect the translation of segment assets and elements of
segment profit at the budgeted rates of exchanges for 2001.
On April 24, 2001, the Corporation filed a Current Report on Form 8-K with the
Commission. That Current Report of Form 8-K, filed pursuant to Item 5 of that
Form, stated that, on April 24, 2001, the Corporation had reported its earnings
for the three months ended April 1, 2001.
The Corporation did not file any other reports on Form 8-K during the
three-month period ended July 1, 2001.
All other items were not applicable.
-27-
THE BLACK & DECKER CORPORATION
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE BLACK & DECKER CORPORATION
By /s/ MICHAEL D. MANGAN
---------------------------------------
Michael D. Mangan
Senior Vice President and
Chief Financial Officer
Principal Accounting Officer
By /s/ CHRISTINA M. McMULLEN
--------------------------------------
Christina M. McMullen
Vice President and Controller
Date: August 13, 2001