UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 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
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 October 26, 2001:
79,789,041
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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
September 30, 2001
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Earnings (Unaudited)
For the Three Months and Nine Months Ended September 30, 2001
and October 1, 2000 3
Consolidated Balance Sheet
September 30, 2001 (Unaudited) and December 31, 2000 4
Consolidated Statement of Stockholders' Equity (Unaudited)
For the Nine Months Ended September 30, 2001 and October 1, 2000 5
Consolidated Statement of Cash Flows (Unaudited)
For the Nine Months Ended September 30, 2001 and October 1, 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 26
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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 Nine Months Ended
September 30, 2001 October 1, 2000 September 30, 2001 October 1, 2000
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Sales $1,063.0 $1,133.2 $3,112.4 $3,297.2
Cost of goods sold 696.4 707.3 2,043.0 2,081.6
Selling, general, and
administrative expenses 277.6 277.7 823.8 833.3
Gain on sale of business - - - 20.1
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Operating Income 89.0 148.2 245.6 402.4
Interest expense (net of
interest income) 20.4 26.5 65.5 75.7
Other expense (income) 2.7 (1.6) 7.3 (2.6)
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Earnings Before Income Taxes 65.9 123.3 172.8 329.3
Income taxes 19.7 37.0 51.8 99.8
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Net Earnings $ 46.2 $ 86.3 $ 121.0 $ 229.5
======================================================================================================================
Net Earnings Per Common
Share--Basic $ .57 $1.04 $1.49 $2.71
======================================================================================================================
Shares Used in Computing Basic
Earnings Per Share (in Millions) 80.8 83.2 81.0 84.6
======================================================================================================================
Net Earnings Per Common
Share--Assuming Dilution $ .57 $1.03 $1.49 $2.69
======================================================================================================================
Shares Used in Computing Diluted
Earnings Per Share (in Millions) 81.0 83.8 81.4 85.3
======================================================================================================================
Dividends Per Common Share $ .12 $ .12 $ .36 $ .36
======================================================================================================================
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
</FN>
-4-
CONSOLIDATED BALANCE SHEET
The Black & Decker Corporation and Subsidiaries
(Dollars in Millions Except Per Share Amount)
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September 30, 2001
(Unaudited) December 31, 2000
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ASSETS
Cash and cash equivalents $ 139.3 $ 135.0
Trade receivables 830.7 783.1
Inventories 878.7 844.0
Other current assets 201.9 199.9
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Total Current Assets 2,050.6 1,962.0
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Property, Plant, and Equipment 727.4 748.1
Goodwill 720.6 717.2
Other Assets 776.0 662.4
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$4,274.6 $4,089.7
======================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings $ 118.9 $ 402.9
Current maturities of long-term debt 41.2 47.7
Trade accounts payable 420.7 367.6
Other accrued liabilities 745.1 814.1
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Total Current Liabilities 1,325.9 1,632.3
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Long-Term Debt 1,209.5 798.5
Deferred Income Taxes 218.7 221.0
Postretirement Benefits 266.1 240.6
Other Long-Term Liabilities 484.5 479.8
Common Stock Under Equity Forwards - 25.1
Stockholders' Equity
Common stock, par value $.50 per share 40.2 40.2
Capital in excess of par value 575.4 560.0
Retained earnings 355.8 264.0
Accumulated other comprehensive income (loss) (201.5) (171.8)
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Total Stockholders' Equity 769.9 692.4
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$4,274.6 $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) $801.1
Comprehensive income:
Net earnings -- -- -- 229.5 -- 229.5
Foreign currency translation
adjustments, less effect of
hedging activities (net of tax) -- -- -- -- (46.1) (46.1)
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Comprehensive income -- -- -- 229.5 (46.1) 183.4
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Cash dividends ($.36 per share) -- -- -- (30.3) -- (30.3)
Purchase and retirement of
common stock (net of 144,416
shares issued under equity
forwards) (5,056,584) (2.5) (189.4) -- -- (191.9)
Common stock issued under
employee benefit plans 220,673 .1 6.6 -- -- 6.7
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Balance at October 1, 2000 82,354,329 $41.2 $660.5 $221.1 $(153.8) $769.0
=======================================================================================================================
Balance at December 31, 2000 80,343,094 $40.2 $560.0 $264.0 $(171.8) $692.4
Comprehensive income:
Net earnings -- -- -- 121.0 -- 121.0
Cumulative effect of accounting
change (net of tax) -- -- -- -- (.7) (.7)
Net gain on derivative
instruments (net of tax) -- -- -- -- 1.1 1.1
Foreign currency translation
adjustments, less effect of
hedging activities (net of tax) -- -- -- -- (30.1) (30.1)
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Comprehensive income -- -- -- 121.0 (29.7) 91.3
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Cash dividends ($.36 per share) -- -- -- (29.2) -- (29.2)
Purchase and retirement of
common stock (400,000) (.2) (12.5) -- -- (12.7)
Common stock retired under
equity forwards (765,326) (.4) -- -- -- (.4)
Common stock issued under
employee benefit plans 1,245,048 .6 27.9 -- -- 28.5
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Balance at September 30, 2001 80,422,816 $40.2 $575.4 $355.8 $(201.5) $769.9
=======================================================================================================================
<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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Nine Months Ended
September 30, 2001 October 1, 2000
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OPERATING ACTIVITIES
Net earnings $121.0 $229.5
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 122.8 123.3
Other (5.7) (10.7)
Changes in selected working capital items:
Trade receivables (45.2) (61.2)
Inventories (34.0) (182.7)
Trade accounts payable 53.0 80.2
Restructuring spending (18.7) (9.2)
Changes in other assets and liabilities (93.2) (54.8)
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Cash Flow From Operating Activities 100.0 94.3
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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 8.1 3.3
Capital expenditures (100.4) (149.7)
Cash inflow from hedging activities 16.3 135.7
Cash outflow from hedging activities (15.8) (135.5)
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Cash Flow From Investing Activities (122.3) (129.0)
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Cash Flow Before Financing Activities (22.3) (34.7)
FINANCING ACTIVITIES
Net (decrease) increase in short-term borrowings (284.5) 250.5
Proceeds from long-term debt (net of debt issue costs of $3.1) 393.8 -
Payments on long-term debt (40.9) (4.7)
Purchase of common stock (38.2) (191.9)
Issuance of common stock 25.2 9.2
Cash dividends (29.2) (30.3)
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Cash Flow From Financing Activities 26.2 32.8
Effect of exchange rate changes on cash .4 (7.2)
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Increase (Decrease) In Cash And Cash Equivalents 4.3 (9.1)
Cash and cash equivalents at beginning of period 135.0 147.3
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Cash And Cash Equivalents At End Of Period $139.3 $138.2
======================================================================================================
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
</FN>
-7-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The Black & Decker Corporation and Subsidiaries
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and do not include all the
information and notes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, the unaudited
consolidated financial statements include all adjustments, consisting only of
normal recurring accruals, considered necessary for a fair presentation of the
financial position and the results of operations.
Operating results for the three- and nine-month periods ended September 30,
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 nine months ended October 1,
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 nine months ended September 30,
2001, and October 1, 2000, the Corporation has presented comprehensive income in
the accompanying Consolidated Statement of Stockholders' Equity. Comprehensive
income for the three months ended September 30, 2001, and October 1, 2000, was
$37.7 million and $84.8 million, respectively.
As discussed in Note 2 of Notes to Consolidated Financial Statements
(Unaudited) included in Item 1 of Part I of the Corporation's Quarterly Report
on Form 10-Q for the three months ended April 1, 2001, effective January 1,
2001, the Corporation adopted SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended.
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 Consolidated 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
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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.
NOTE 2: INVENTORIES
The components of inventory at the end of each period, in millions of dollars,
consisted of the following:
September 30, 2001 December 31, 2000
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FIFO cost:
Raw materials and work-in-process $211.4 $219.6
Finished products 673.9 627.9
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885.3 847.5
Excess of FIFO cost over LIFO
inventory value (6.6) (3.5)
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$878.7 $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:
September 30, 2001 December 31, 2000
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Goodwill $1,323.7 $1,300.5
Less accumulated amortization 603.1 583.3
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$ 720.6 $ 717.2
================================================================================
NOTE 4: SHORT-TERM BORROWINGS
During the nine months ended September 30, 2001, the Corporation replaced its
expiring unsecured revolving credit facilities with a $1.0 billion unsecured
revolving credit facility that expires in April 2006 and a $400.0 million
364-day unsecured revolving credit facility (the Credit Facilities). 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.
-9-
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 Corporation entered into fixed-to-variable
interest rate swap agreements with notional amounts totaling $400.0 million.
During the quarter ended September 30, 2001, the Corporation terminated one of
those swap agreements in the notional amount of $100.0 million. The gain
realized on that swap termination will be amortized as an adjustment to the
yield of the related debt over the remaining period covered by the terminated
swap. Under the remaining swap 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 $414.0 million and $599.6 million were included in the Consolidated
Balance Sheet at September 30, 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 Nine Months Ended
September 30, 2001 October 1, 2000 September 30, 2001 October 1, 2000
- ----------------------------------------------------------------------------------------------------
Interest expense $28.1 $37.2 $94.2 $108.3
Interest (income) (7.7) (10.7) (28.7) (32.6)
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$20.4 $26.5 $65.5 $ 75.7
====================================================================================================
NOTE 7: OTHER EXPENSE (INCOME)
Other expense of $2.7 million and $7.3 million for the three and nine months
ended September 30, 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 nine months ended October 1, 2000, was
not material.
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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 September 30, 2001 Accessories Improvement Systems Total Adjustments & Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 770.1 $190.8 $121.5 $1,082.4 $(19.4) $ - $1,063.0
Segment profit (loss) (for
Consolidated, operating income) 78.5 16.0 14.8 109.3 (1.2) (19.1) 89.0
Depreciation and amortization 20.2 8.1 4.1 32.4 (.3) 6.3 38.4
Capital expenditures 20.6 7.2 3.8 31.6 (.6) - 31.0
Three Months Ended October 1, 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 792.6 $213.8 $123.1 $1,129.5 $ 3.7 $ - $1,133.2
Segment profit (loss) (for
Consolidated, operating income) 101.3 30.8 19.6 151.7 .1 (3.6) 148.2
Depreciation and amortization 21.7 7.5 4.1 33.3 .1 6.5 39.9
Capital expenditures 31.3 7.6 5.5 44.4 .2 .1 44.7
Nine Months Ended September 30, 2001
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Sales to unaffiliated customers $2,199.6 $583.2 $372.6 $3,155.4 $(43.0) $ - $3,112.4
Segment profit (loss) (for
Consolidated, operating income) 168.5 41.9 54.9 265.3 (2.9) (16.8) 245.6
Depreciation and amortization 66.2 26.8 11.8 104.8 (1.4) 19.4 122.8
Capital expenditures 66.1 24.8 10.0 100.9 (1.2) .7 100.4
Nine Months Ended October 1, 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $2,248.1 $625.8 $382.9 $3,256.8 $ 40.4 $ - $3,297.2
Segment profit (loss) (for
Consolidated, operating income
before gain on sale of business) 255.1 77.0 64.0 396.1 3.6 (17.4) 382.3
Depreciation and amortization 63.8 26.2 12.2 102.2 1.3 19.8 123.3
Capital expenditures 106.5 22.4 18.5 147.4 1.7 .6 149.7
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
exchange rates. Budgeted exchange rates are established annually and, once
established, all prior period segment data is restated to reflect the current
year's budgeted exchange rates. 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 exchange rates and those determined based upon
the exchange rates 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, 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, as well as certain centrally
managed expenses, are allocated to each reportable segment based upon budgeted
amounts. While sales and transfers between segments are accounted for at cost
plus a reasonable profit, the effects of intersegment sales are excluded from
the computation of segment profit. Intercompany profit in inventory is excluded
from segment assets and is recognized as a reduction of cost of 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 Nine Months Ended
September 30, 2001 October 1, 2000 September 30, 2001 October 1, 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Segment profit for total reportable business segments $109.3 $151.7 $265.3 $396.1
Items excluded from segment profit:
Adjustment of budgeted foreign exchange rates to
actual rates (1.2) .1 (2.9) 3.6
Depreciation of Corporate property and amortization
of certain goodwill (6.3) (6.5) (19.4) (19.8)
Adjustment to businesses' postretirement benefit
expenses booked in consolidation 9.4 9.0 30.3 27.2
Adjustment to eliminate net interest and non-operating
expenses from results of certain operations in Brazil,
Venezuela, and Turkey .2 .2 .6 .4
Other adjustments booked in consolidation directly
related to reportable business segments (8.3) (2.0) (3.3) (14.7)
Amounts allocated to businesses in arriving at segment
profit in excess of (less than) Corporate center operating
expenses, eliminations, and other amounts
identified above (14.1) (4.3) (25.0) (10.5)
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income before gain on sale of business 89.0 148.2 245.6 382.3
Gain on sale of business - - - 20.1
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income 89.0 148.2 245.6 402.4
Interest expense, net of interest income 20.4 26.5 65.5 75.7
Other expense (income) 2.7 (1.6) 7.3 (2.6)
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes $ 65.9 $123.3 $172.8 $329.3
====================================================================================================================================
-13-
NOTE 9: EARNINGS PER SHARE
The computations of basic and diluted earnings per share for each period are as
follows:
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
(Amounts in Millions Except Per Share Data) September 30, 2001 October 1, 2000 September 30, 2001 October 1, 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Numerator:
Net earnings $46.2 $86.3 $121.0 $229.5
====================================================================================================================================
Denominator:
Average number of common shares outstanding
for basic earnings per share 80.8 83.2 81.0 84.6
Employee stock options and stock issuable
under employee benefit plans .2 .6 .4 .7
- ------------------------------------------------------------------------------------------------------------------------------------
Average number of common shares outstanding
for diluted earnings per share 81.0 83.8 81.4 85.3
====================================================================================================================================
Basic earnings per share $ .57 $1.04 $ 1.49 $ 2.71
====================================================================================================================================
Diluted earnings per share $ .57 $1.03 $ 1.49 $ 2.69
====================================================================================================================================
As of September 30, 2001, approximately 6.9 million options to purchase
shares of common stock, with a weighted-average exercise price of $46.17, 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 10: 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 11: STOCKHOLDERS' EQUITY
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
70,791 shares of its common stock during the first quarter of 2001. At each
settlement date, the Corporation elected net share settlement.
-14-
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.
During the nine months ended September 30, 2001, the Corporation
repurchased an additional 400,000 shares of its common stock at an aggregate
cost of $12.7 million through its share repurchase program. During the
comparable period in 2000, the Corporation repurchased 5,201,000 shares of its
common stock at an aggregate cost of $191.9 million.
-15-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Corporation reported net earnings of $46.2 million, or $.57 per share on a
diluted basis, for the three-month period ended September 30, 2001, compared to
net earnings of $86.3 million, or $1.03 per share on a diluted basis, for the
three-month period ended October 1, 2000.
For the nine months ended September 30, 2001, the Corporation reported net
earnings of $121.0 million, or $1.49 per share on a diluted basis, compared to
net earnings of $229.5 million, or $2.69 per share on a diluted basis, for the
nine months ended October 1, 2000. As described in Note 10 of Notes to
Consolidated Financial Statements, earnings for the nine months ended October 1,
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 nine months ended October 1, 2000,
would have been $216.4 million, or $2.54 per share on a diluted basis, compared
to net earnings of $121.0 million, or $1.49 per share on a diluted basis, for
the 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 nine-month periods ended September 30, 2001, and October 1,
2000:
ANALYSIS OF CHANGES IN SALES
- --------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
(Dollars in Millions) September 30, 2001 October 1, 2000 September 30, 2001 October 1, 2000
- --------------------------------------------------------------------------------------------------------
Total sales $1,063.0 $1,133.2 $3,112.4 $3,297.2
Unit volume (2)% 7 % (1)% 8 %
Price (2)% (2)% (2)% (1)%
Currency (2)% (3)% (3)% (3)%
- --------------------------------------------------------------------------------------------------------
Change in total sales (6)% 2 % (6)% 4 %
========================================================================================================
Total consolidated sales for the three and nine months ended September 30,
2001, decreased by 6% from the corresponding 2000 levels. Total unit volume had
a 2% and 1% negative impact on sales during the three- and nine-month periods
ended September 30, 2001, respectively, as compared to the same periods in 2000.
Unit volume was negatively effected by weak economic conditions, as well as
inventory reductions by retailers, in the United States and Europe and, for the
three months ended September 30, 2001, by a change in shipping terms with a
significant customer in the North American consumer power tools business. The
impact of these negative factors was partially offset by incremental sales of
businesses acquired by the Corporation. The Corporation
-16-
anticipates that the effect of the economic slowdown in the United States and
Europe will continue to negatively impact its sales over the rest of 2001 and
into 2002. Pricing actions 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 the three- and nine-month periods ended September
30, 2001, as compared to the corresponding periods in 2000. The negative effects
of a stronger dollar compared to other foreign currencies, particularly the
Euro, pound sterling, and Brazilian real, caused a 2% and 3% decrease in the
Corporation's consolidated sales during the three- and nine-month periods ended
September 30, 2001, respectively, as compared to the corresponding periods in
2000.
EARNINGS
Operating income for the three months ended September 30, 2001, was $89.0
million, or 8.4% of sales, compared to operating income of $148.2 million, or
13.1% of sales, for the corresponding period in 2000. Operating income for the
nine months ended September 30, 2001, was $245.6 million, compared to operating
income of $402.4 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 $382.3 million, or 11.6% of
sales, for the nine months ended October 1, 2000, to $245.6 million, or 7.9% of
sales, for the nine months ended September 30, 2001.
Gross margin as a percentage of sales was 34.5% and 37.6% for the
three-month periods ended September 30, 2001, and October 1, 2000, respectively,
and was 34.4% and 36.9% for the nine-month periods ended September 30, 2001, and
October 1, 2000, respectively. The decreases in gross margin for the three- and
nine-month periods ended September 30, 2001, as compared to the corresponding
periods in the prior year, reflect pricing actions taken by the Corporation in
response to both customer and competitive pressures, as well as price reductions
to increase sales of certain inventories. In addition, gross margin for the
three and nine months ended September 30, 2001, declined as a result of lower
manufacturing volumes as the Corporation took actions to reduce its inventory
levels. Those lower volumes resulted in unfavorable manufacturing variances as
well as reduced productivity. 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 competition from low-cost consumer power
tools imported from Asia and currency.
The Corporation held selling, general, and administrative expenses flat and
reduced those expenses by $9.5 million for the three and nine months ended
September 30, 2001, respectively, as compared to the corresponding periods in
the prior year. For the nine months ended September 30, 2001, the Corporation
reduced selling, general and administrative expenses through cost containment
efforts and the impact of certain variable expenses associated with lower sales
and/or profitability levels. For the three months ended September 30, 2001,
these reductions were offset by spending in support of new product initiatives
and expenses related to recently acquired businesses. 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 24.5% for
the quarter ended October 1, 2000, to 26.1% for the quarter ended September 30,
2001. For the nine months ended September 30, 2001, selling, general, and
administrative expenses as a percentage of sales was 26.5%, reflecting an
increase from the prior year level of 25.3%.
-17-
Net interest expense (interest expense less interest income) for the three
months ended September 30, 2001, was $20.4 million compared to net interest
expense of $26.5 million for the three months ended October 1, 2000. Net
interest expense was $65.5 million for the nine months ended September 30, 2001,
compared to net interest expense of $75.7 million for the corresponding period
in 2000. The decrease in net interest expense for the three and nine months
ended September 30, 2001, as compared to the corresponding periods in 2000, was
primarily the result of lower interest rates.
Other expense for the three months ended September 30, 2001, was $2.7
million as compared to income of $1.6 million for the corresponding period in
2000. Other expense for the nine months ended September 30, 2001, was $7.3
million as compared to other income of $2.6 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 nine months ended
September 30, 2001, was 30.0%, as compared to an effective tax rate of 30.0% and
30.3% for the three and nine months ended October 1, 2000, respectively. During
the nine months ended October 1, 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 nine months ended October 1, 2000.
The Corporation reported net earnings of $46.2 million, or $.57 per share
on a diluted basis, for the three-month period ended September 30, 2001,
compared to net earnings of $86.3 million, or $1.03 per share on a diluted
basis, for the three-month period ended October 1, 2000. The Corporation
reported net earnings of $121.0 million, or $1.49 per share on a diluted basis,
for the nine months ended September 30, 2001, compared to net earnings of $229.5
million, or $2.69 per share on a diluted basis for the comparable period in
2000. Excluding the gain on the sale of business, net earnings for the
nine-month period ended October 1, 2000, would have been $216.4 million, or
$2.54 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.
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 Nine Months Ended
September 30, 2001 October 1, 2000 September 30, 2001 October 1, 2000
- ----------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $770.1 $792.6 $2,199.6 $2,248.1
Segment profit 78.5 101.3 168.5 255.1
- ----------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers in the Power Tools and Accessories segment
during the third quarter of 2001 decreased 3% from the 2000 level.
-18-
Sales of power tools and accessories in North America decreased at a
mid-single-digit rate in the third quarter of 2001 from the corresponding period
in 2000 as both the professional and consumer power tools businesses were
negatively impacted by weak economic conditions in the United States. During the
three months ended September 30, 2001, a double-digit rate of decline in sales
of consumer power tools and accessories offset a low single-digit rate of
increase in sales of professional power tools and accessories. Sales of
professional power tools and accessories in the quarter benefited from
incremental sales associated with a business acquired in December of 2000. Sales
of consumer power tools and accessories in the third quarter of 2001 were
negatively impacted by a change in shipping terms with a major customer, from
free on board (FOB) the Corporation's Asian plant to FOB its United States
distribution center. Excluding the effects of that change in shipping terms,
sales of consumer power tools and accessories during the third quarter of 2001
would have approximated the prior year's level.
Sales in Europe decreased at a mid-single-digit rate in the third 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, particularly in Germany, and by 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 low single-digit rate of growth in
sales of professional power tools and accessories in the quarter, which
continued to benefit from the transition from the ELU(R) to the DEWALT(R) brand
in Europe.
Sales in other geographic areas increased at a mid-single-digit rate for
the third quarter of 2001 over the prior year level. Sales of professional power
tools increased at a high single-digit rate during the quarter. This sales
growth was tempered by a low single-digit rate increase in sales of consumer
products over the corresponding period of the prior year.
Sales to unaffiliated customers in the Power Tools and Accessories segment
during the nine months ended September 30, 2001, decreased 2% from the 2000
level.
In North America, sales of power tools and accessories during the first
nine months of 2001 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 in June and December of 2000.
Sales in Europe during the first nine months of 2001 decreased at a low
single-digit rate from the 2000 level, driven by a double-digit rate of decline
in sales of both outdoor products and 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, particularly in Germany,
coupled with inventory actions by retailers with high levels of private label
Asian products. The growth in professional power tools during the nine months
ended September 30, 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 nine months of 2001 from the 2000 level, as higher sales were achieved in
all regions in both professional power tools and consumer products.
Segment profit as a percentage of sales for the Power Tools and Accessories
segment was 10.2% and 7.7% for the three- and nine-month periods ended September
30, 2001, compared to
-19-
12.8% and 11.3% for the three- and nine-month periods ended October 1, 2000,
respectively. The declines in segment profit during 2001 were 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 for the
nine months ended September 30, 2001, was also negatively impacted by higher
selling, general, and administrative expenses. Those higher expenses reflected
expenses related to recently acquired businesses, and increased distribution and
transportation expenses.
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 Nine Months Ended
September 30, 2001 October 1, 2000 September 30, 2001 October 1, 2000
- ----------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $190.8 $213.8 $583.2 $625.8
Segment profit 16.0 30.8 41.9 77.0
- ----------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers in the Hardware and Home Improvement
segment decreased by 11% for the three months ended September 30, 2001, from the
2000 level. Sales of security hardware in North America and plumbing products
both decreased at a double-digit rate, with sales decreasing at a double-digit
rate in the retail channels and at a single-digit rate in the construction
channels. Sales in the retail channels continue to be impacted by the weak
retail environment and inventory correction actions taken by retailers. In
addition, retail sales in North America were negatively impacted as customers
worked down inventories of existing product in preparation for Kwikset's fourth
quarter launch of its major brand and product repositioning. Sales of security
hardware in Europe increased at a double-digit rate over the prior year level.
Sales to unaffiliated customers in the Hardware and Home Improvement
segment decreased by 7% for the nine months ended September 30, 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 increased at a low single-digit
rate over the prior year level. Sales of plumbing products decreased during the
nine-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 8.4% and 7.2% for the three and nine months ended
September 20, 2001, respectively, compared to 14.4% and 12.3% for the three and
nine months ended October 1, 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 for the three months ended September 30, 2001, was
primarily a result of lower production volumes of North American security
hardware and plumbing products. The decrease in gross margin for the nine months
ended September 30, 2001, was primarily a result of manufacturing inefficiencies
and costs associated with manufacturing transition issues in the North American
security hardware business and with lower production volumes of North American
security hardware and plumbing products.
-20-
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 Nine Months Ended
September 30, 2001 October 1, 2000 September 30, 2001 October 1, 2000
- ----------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $121.5 $123.1 $372.6 $382.9
Segment profit 14.8 19.6 54.9 64.0
- ----------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers in the Fastening and Assembly Systems
segment decreased by 1% for the three-month period ended September 30, 2001, as
compared to the three-month period ended October 1, 2000, as lower sales to
industrial customers in all regions and automotive customers in North America
were partially offset by incremental sales associated with a business acquired
in April 2001, a double-digit rate of growth in sales of automotive products in
Asia, and a mid-single digit rate of growth in sales of automotive products in
Europe.
Sales to unaffiliated customers in the Fastening and Assembly Systems
segment for the nine months ended September 30, 2001, declined 3%, as compared
to the nine months ended October 1, 2000, due to lower sales to industrial
customers in both North America and Europe, partially offset by incremental
sales associated with a business acquired in April 2001, a double-digit rate of
growth in sales of automotive products in Asia, and a high single-digit rate of
growth in sales of automotive products in Europe.
Segment profit as a percentage of sales for the Fastening and Assembly
Systems segment was 12.2% for the three months ended September 30, 2001, as
compared to 15.9% for the corresponding period in 2000. Segment profit as a
percentage of sales for the Fastening and Assembly Systems segment decreased
from 16.7% in the first nine months of 2000 to 14.7% for the corresponding
period in 2001. The decline in segment profit as a percentage of sales for the
three month period was principally due to declines in gross margin as a
percentage of sales resulting from unfavorable mix and pricing pressure. The
decline in segment profit as a percentage of sales for the nine-month period was
principally due to slight declines in gross margin as a percentage of sales as a
result of pricing pressure.
-21-
RESTRUCTURING ACTIVITY
A summary of restructuring activity during the nine-month period ended September
30, 2001, is as follows (in millions of dollars):
Reserves at Reserves Utilization of Reserves Reserves at
December 31, Established Reversal of ---------------------------- September 30,
2000 in 2001 Reserves Cash Non-Cash 2001
- ---------------------------------------------------------------------------------------------------------------------
Severance benefits $29.7 $3.5 $(3.8) $(15.8) $ - $13.6
Other charges 4.4 .7 (.4) (2.9) (.4) 1.4
- ---------------------------------------------------------------------------------------------------------------------
Total $34.1 $4.2 $(4.2) $(18.7) $(.4) $15.0
=====================================================================================================================
During the nine months ended September 30, 2001, the Corporation recognized
$4.2 million of additional pre-tax restructuring and exit costs associated with
the restructuring of its Power Tools and Accessories segment in Europe and its
Hardware and Home Improvement segment. The restructuring actions taken in 2001
principally reflect the reduction of approximately 150 administrative positions.
The $4.2 million charge was offset, however, by the reversal of $4.2 million of
severance accruals and other exit costs established as part of the 2000
restructuring charge, which will no longer be required.
The Corporation remains committed to continuous productivity improvement and
continues to evaluate opportunities to reduce fixed costs and eliminate excess
capacity. As 2001 has progressed, the challenging economic conditions have
become even more difficult. As a result, the Corporation is intensifying its
focus on structural cost reductions, including evaluation of its manufacturing
footprint.
FINANCIAL CONDITION
Operating activities provided $100.0 million of cash for the nine months ended
September 30, 2001, compared to $94.3 million of cash provided in the
corresponding period in 2000. The increase in cash provided from operating
activities in 2001 was primarily the result of improved working capital,
principally associated with the reduced inventory build in the current
nine-month period as compared to the corresponding 2000 period, offset by lower
net earnings, and the timing of payments of certain expenses.
The Corporation reviews certain working capital metrics. For example, the
Corporation evaluates its accounts receivable and inventory levels through the
computation of days sales outstanding and inventory turnover ratio,
respectively. The number of days sales outstanding at September 30, 2001, was
modestly higher than the number of days sales outstanding at October 1, 2000.
Inventory turns at September 30, 2001, 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. The Corporation's
goal is to end 2001 with inventories at or below $800 million.
Investing activities for the nine months ended September 30, 2001, used
cash of $122.3 million compared to $129.0 million of cash used for the
corresponding period in 2000. Cash flow from investing activities benefited from
lower capital expenditures during the first nine months 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 10 of Notes to Consolidated Financial Statements, and an
increase in cash usage during 2001 for the
-22-
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. During the nine months ended
September 30, 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 $26.2 million for the nine-month
period ended September 30, 2001, compared to $32.8 million during the first nine
months of 2000. The decrease in cash provided is primarily the result of reduced
cash proceeds from borrowing activities offset by lower cash expenditures for
stock repurchases during the nine months of 2001. During the nine months ended
September 30, 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, and repurchased 400,000 shares of its common
stock at an aggregate cost of $12.7 million through its share repurchase
program. During the same period in 2000, the Corporation repurchased 5,201,000
shares of its common stock at an aggregate cost of $191.9 million.
During October 2001, the Corporation repurchased an additional 685,000
shares of its common stock at an aggregate cost of $20.8 million. After those
share repurchases, the Corporation had remaining authorization from its Board of
Directors to repurchase an additional 1,911,595 shares of its common stock.
Future share repurchases are anticipated, in part, to reduce the dilutive effect
of stock issuances under various stock-based employee benefit plans.
In addition to measuring its cash flow generation and usage based upon the
operating, investing, and financing classifications included in the Consolidated
Statement of Cash Flows, the Corporation also measures its free cash flow. Free
cash flow, a measure commonly employed by the financial community, is defined by
the Corporation as cash flow from operating activities, less capital
expenditures, plus proceeds from the disposal of assets (excluding proceeds from
business sales). During the nine months ended September 30, 2001, the
Corporation generated free cash flow of $7.7 million compared to negative free
cash flow of $52.1 million for the corresponding period in 2000.
The variable rate debt to total debt ratio, after taking interest rate
hedges into account, was 63% at September 30, 2001, compared to 65% at December
31, 2000. Average debt maturity was 7.5 years at September 30, 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
-23-
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 the following and is
incorporated by reference herein:
o in Note 5 of Notes to Consolidated Financial Statements, included in Item 1
of Part I of this Quarterly Report on Form 10-Q;
o under the caption "Interest Rate Sensitivity", included in Item 2 of Part I
of the Corporation's Quarterly Report on Form 10-Q for the three months
ended July 1, 2001;
o under the caption "Hedging Activities", included in Item 7, and in Notes 1
and 9 of Notes to Consolidated Financial Statements, included in Item 8, of
the Corporation's Annual Report on Form 10-K for the year ended December
31, 2000.
-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.
As of September 30, 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 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.
-25-
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit No. Description
10(a) The Black & Decker Performance Equity Plan, as amended.
10(b) Amendment No. 4 to The Black & Decker Supplemental Retirement
Savings Plan dated as of October 18, 2001.
12 Computation of Ratios.
On July 17, 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, on July 17, 2001, the Corporation had reported its earnings
for the three and six months ended July 1, 2001.
The Corporation did not file any other reports on Form 8-K during the
three-month period ended September 30, 2001.
All other items were not applicable.
-26-
THE BLACK & DECKER CORPORATION
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE BLACK & DECKER CORPORATION
By /s/ MICHAEL D. MANGAN
----------------------------------------
Michael D. Mangan
Senior Vice President and
Chief Financial Officer
Principal Accounting Officer
By /s/ CHRISTINA M. McMULLEN
----------------------------------------
Christina M. McMullen
Vice President and Controller
Date: November 9, 2001