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 March 31, 2002
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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 (I.R.S. Employer Identification No.)
of 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
--- ---
The number of shares of Common Stock outstanding as of April 26, 2002:
80,437,820
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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
March 31, 2002
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Earnings (Unaudited)
For the Three Months Ended March 31, 2002 and April 1, 2001 3
Consolidated Balance Sheet
March 31, 2002 (Unaudited) and December 31, 2001 4
Consolidated Statement of Stockholders' Equity (Unaudited)
For the Three Months Ended March 31, 2002 and April 1, 2001 5
Consolidated Statement of Cash Flows (Unaudited)
For the Three Months Ended March 31, 2002 and April 1, 2001 6
Notes to Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
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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
March 31, 2002 April 1, 2001
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Sales $951.7 $962.0
Cost of goods sold 644.8 636.4
Selling, general, and administrative expenses 244.7 253.2
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Operating Income 62.2 72.4
Interest expense (net of interest income) 15.8 22.4
Other expense 1.2 2.7
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Earnings Before Income Taxes 45.2 47.3
Income taxes 12.2 14.2
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Net Earnings $ 33.0 $ 33.1
================================================================================
Net Earnings Per Common Share -- Basic $ .41 $ .41
================================================================================
Shares Used in Computing Basic
Earnings Per Share (in Millions) 80.1 81.1
================================================================================
Net Earnings Per Common Share --
Assuming Dilution $ .41 $ .40
================================================================================
Shares Used in Computing Diluted
Earnings Per Share (in Millions) 80.6 81.7
================================================================================
Dividends Per Common Share $ .12 $ .12
================================================================================
See Notes to Consolidated Financial Statements (Unaudited).
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CONSOLIDATED BALANCE SHEET
The Black & Decker Corporation and Subsidiaries
(Dollars in Millions Except Per Share Amount)
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March 31, 2002
(Unaudited) December 31, 2001
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Assets
Cash and cash equivalents $ 260.2 $ 244.5
Trade receivables 730.7 708.6
Inventories 704.0 712.2
Other current assets 205.4 227.0
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Total Current Assets 1,900.3 1,892.3
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Property, Plant, and Equipment 671.1 687.5
Goodwill 705.5 710.4
Other Assets 703.5 724.0
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$3,980.4 $4,014.2
================================================================================
Liabilities and Stockholders' Equity
Short-term borrowings $ 11.4 $ 12.3
Current maturities of long-term debt 3.8 33.7
Trade accounts payable 341.1 312.7
Other accrued liabilities 664.3 711.9
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Total Current Liabilities 1,020.6 1,070.6
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Long-Term Debt 1,180.3 1,191.4
Deferred Income Taxes 261.9 261.1
Postretirement Benefits 238.8 238.0
Other Long-Term Liabilities 505.3 502.1
Stockholders' Equity
Common stock, par value $.50 per share 40.2 39.9
Capital in excess of par value 585.1 566.6
Retained earnings 356.6 333.2
Accumulated other comprehensive income (loss) (208.4) (188.7)
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Total Stockholders' Equity 773.5 751.0
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$3,980.4 $4,014.2
================================================================================
See Notes to Consolidated Financial Statements (Unaudited).
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CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)
The Black & Decker Corporation and Subsidiaries
(Dollars in Millions Except Per Share Data)
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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, 2000 80,343,094 $40.2 $560.0 $264.0 $(171.8) $692.4
Comprehensive income:
Net earnings -- -- -- 33.1 -- 33.1
Cumulative effect of accounting
change (net of tax) -- -- -- -- (.7) (.7)
Net gain on derivative
instruments (net of tax) -- -- -- -- 5.4 5.4
Foreign currency translation
adjustments, less effect of
hedging activities (net of tax) -- -- -- -- (4.3) (4.3)
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Comprehensive income -- -- -- 33.1 .4 33.5
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Cash dividends ($.12 per share) -- -- -- (9.8) -- (9.8)
Common stock retired under
equity forwards (240,276) (.1) .1 -- -- --
Common stock under
equity forwards -- -- (.4) -- -- (.4)
Common stock issued under
employee benefit plans 1,157,152 .5 25.3 -- -- 25.8
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Balance at April 1, 2001 81,259,970 $40.6 $585.0 $287.3 $(171.4) $741.5
=============================================================================================================================
Balance at December 31, 2001 79,829,641 $39.9 $566.6 $333.2 $(188.7) $751.0
Comprehensive income:
Net earnings -- -- -- 33.0 -- 33.0
Net gain on derivative
instruments (net of tax) -- -- -- -- .2 .2
Foreign currency translation
adjustments, less effect of
hedging activities (net of tax) -- -- -- -- (19.9) (19.9)
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Comprehensive income -- -- -- 33.0 (19.7) 13.3
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Cash dividends ($.12 per share) -- -- -- (9.6) -- (9.6)
Common stock issued under
employee benefit plans 586,854 .3 18.5 -- -- 18.8
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Balance at March 31, 2002 80,416,495 $40.2 $585.1 $356.6 $(208.4) $773.5
=============================================================================================================================
See Notes to Consolidated Financial Statements (Unaudited).
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CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
The Black & Decker Corporation and Subsidiaries
(Dollars in Millions)
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Three Months Ended
March 31, 2002 April 1, 2001
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Operating Activities
Net earnings $ 33.0 $ 33.1
Adjustments to reconcile net earnings to cash
flow from operating activities:
Non-cash charges and credits:
Depreciation and amortization 34.2 43.3
Other 1.4 (1.8)
Changes in selected working capital items:
Trade receivables (24.4) 33.7
Inventories 6.0 (29.7)
Trade accounts payable 31.2 (26.9)
Restructuring spending (7.5) (3.4)
Other assets and liabilities (11.4) (122.4)
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Cash Flow From Operating Activities 62.5 (74.1)
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Investing Activities
Proceeds from disposal of assets 2.3 .2
Capital expenditures (22.1) (38.8)
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Cash Flow From Investing Activities (19.8) (38.6)
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Cash Flow Before Financing Activities 42.7 (112.7)
Financing Activities
Net (decrease) increase in short-term borrowings (.3) 153.0
Payments on long-term debt (30.5) (40.1)
Issuance of common stock 14.3 22.6
Cash dividends (9.6) (9.8)
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Cash Flow From Financing Activities (26.1) 125.7
Effect of exchange rate changes on cash (.9) 1.3
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Increase In Cash And Cash Equivalents 15.7 14.3
Cash and cash equivalents at beginning of period 244.5 135.0
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Cash And Cash Equivalents At End Of Period $260.2 $149.3
================================================================================
See Notes to Consolidated Financial Statements (Unaudited).
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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 of The Black &
Decker Corporation (collectively with its subsidiaries, the Corporation) have
been prepared in accordance with the instructions to Form 10-Q and do not
include all the information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, the
unaudited consolidated financial statements include all adjustments, consisting
only of normal recurring accruals, considered necessary for a fair presentation
of the financial position and the results of operations.
Operating results for the three-month period ended March 31, 2002, are not
necessarily indicative of the results that may be expected for a full fiscal
year. For further information, refer to the consolidated financial statements
and notes included in the Corporation's Annual Report on Form 10-K for the year
ended December 31, 2001.
Certain amounts presented for the three months ended April 1, 2001, have
been reclassified to conform to the 2002 presentation.
NOTE 2: CHANGES IN ACCOUNTING PRINCIPLE
Effective January 1, 2002, the Corporation adopted Emerging Issues Task Force
Issue No. 01-9, Accounting for Consideration Given by a Vendor to a Customer or
a Reseller of the Vendor's Products (EITF 01-9). Upon adoption of EITF 01-9, the
Corporation was required to classify certain payments to its customers as a
reduction of sales. The Corporation previously classified certain of these
payments as selling expenses in its Consolidated Statement of Earnings. Upon the
adoption of EITF 01-9, prior period amounts were restated and resulted in a
reduction of sales (and an offsetting reduction of selling expenses) of $17.0
million for the three months ended April 1, 2001.
Effective January 1, 2002, the Corporation adopted Statement of Financial
Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. SFAS
No. 142 requires that its provisions be applied on a prospective basis. Under
SFAS No. 142, goodwill and intangible assets deemed to have indefinite lives are
no longer amortized, but are subject to an annual impairment test. Other
intangible assets continue to be amortized over their useful lives. As of
January 1, 2002, the Corporation performed the first of the required impairment
tests of goodwill. At that date, goodwill associated with the Corporation's
reportable business segments was $29.4 million for Power Tools and Accessories,
$423.2 million for Hardware and Home Improvement, and $257.8 million for
Fastening and Assembly Systems. No impairment was present upon adoption of SFAS
No. 142.
The Corporation recognized goodwill amortization of $6.6 million during the
three-month period ended April 1, 2001. Net earnings for the three months ended
April 1, 2001, excluding goodwill amortization, would have been $39.7 million.
Basic and diluted earnings per share for the three months ended April 1, 2001,
would have been $.49 and $.48, respectively, excluding goodwill amortization.
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NOTE 3: INVENTORIES
The classification of inventories at the end of each period, in millions of
dollars, was as follows:
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March 31, 2002 December 31, 2001
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FIFO cost
Raw materials and work-in-process $198.3 $192.9
Finished products 513.9 527.0
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712.2 719.9
Excess of FIFO cost over LIFO inventory value (8.2) (7.7)
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$704.0 $712.2
================================================================================
Inventories are stated at the lower of cost or market. The cost of United
States inventories is based primarily on the last-in, first-out (LIFO) method;
all other inventories are based on the first-in, first-out (FIFO) method.
NOTE 4: LONG-TERM DEBT
Indebtedness of subsidiaries of the Corporation in the aggregate principal
amounts of $312.7 million and $314.4 million were included in the Consolidated
Balance Sheet at March 31, 2002, and December 31, 2001, respectively, in
short-term borrowings, current maturities of long-term debt, and long-term debt.
NOTE 5: INTEREST EXPENSE (NET OF INTEREST INCOME)
Interest expense (net of interest income) for each period, in millions of
dollars, was as follows:
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Three Months Ended
March 31, 2002 April 1, 2001
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Interest expense $ 21.7 $ 34.6
Interest (income) (5.9) (12.2)
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$ 15.8 $ 22.4
================================================================================
NOTE 6: BUSINESS SEGMENTS
The following table provides selected financial data for the Corporation's
business segments (in millions of dollars):
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Reportable Business Segments
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Power Hardware Fastening Currency Corporate,
Tools & & Home & Assembly Translation Adjustments,
Three Months Ended March 31, 2002 Accessories Improvement Systems Total Adjustments & Eliminations Consolidated
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Sales to unaffiliated customers $639.8 $198.8 $123.0 $961.6 $(9.9) $ - $951.7
Segment profit (loss) (for
Consolidated, operating income) 38.4 15.4 15.8 69.6 (.7) (6.7) 62.2
Depreciation and amortization 21.3 9.2 3.5 34.0 (.1) .3 34.2
Capital expenditures 15.0 3.4 3.6 22.0 (.1) .2 22.1
Three Months Ended April 1, 2001
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Sales to unaffiliated customers $634.5 $197.1 $120.0 $951.6 $10.4 $ - $962.0
Segment profit (loss) (for
Consolidated, operating income) 35.1 17.5 19.0 71.6 .7 .1 72.4
Depreciation and amortization 22.6 10.0 3.6 36.2 .6 6.5 43.3
Capital expenditures 25.3 9.4 3.0 37.7 .6 .5 38.8
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The Corporation operates in three reportable business segments: Power Tools
and Accessories, Hardware and Home Improvement, and Fastening and Assembly
Systems. The Power Tools and Accessories segment has worldwide responsibility
for the manufacture and sale of consumer and professional power tools and
accessories, electric cleaning and lighting products, and electric lawn and
garden tools, as well as for product service. In addition, the Power Tools and
Accessories segment has responsibility for the sale of security hardware to
customers in Mexico, Central America, the Caribbean, and South America; for the
sale of plumbing products to customers outside the United States and Canada; and
for sales of household products. The Hardware and Home Improvement segment has
worldwide responsibility for the manufacture and sale of security hardware
(except for the sale of security hardware in Mexico, Central America, the
Caribbean, and South America). It also has responsibility for the manufacture of
plumbing products and for the sale of plumbing products to customers in the
United States and Canada. The Fastening and Assembly Systems segment has
worldwide responsibility for the manufacture and sale of fastening and assembly
systems.
The Corporation assesses the performance of its reportable business
segments based upon a number of factors, including segment profit. In general,
segments follow the same accounting policies as those described in Note 1 of
Notes to Consolidated Financial Statements included in Item 8 of the
Corporation's Annual Report on Form 10-K for the year ended December 31, 2001,
except with respect to foreign currency translation and except as further
indicated below. The financial statements of a segment's operating units located
outside of the United States, except those units operating in highly
inflationary economies, are generally measured using the local currency as the
functional currency. For these units located outside of the United States,
segment assets and elements of segment profit are translated using budgeted
rates of exchange. Budgeted rates of exchange are established annually and, once
established, all prior period segment data is restated to reflect the current
year's budgeted rates of exchange. The amounts included in the preceding table
under the captions "Reportable Business Segments" and "Corporate, Adjustments, &
Eliminations" are reflected at the Corporation's budgeted rates of exchange for
2002. The amounts included in the preceding table under the caption "Currency
Translation Adjustments" represent the difference between consolidated amounts
determined using those budgeted rates of exchange and those determined based
upon the rates of exchange applicable under accounting principles generally
accepted in the United States.
Segment profit excludes interest income and expense, non-operating income
and expense, goodwill amortization (except for the amortization of goodwill
associated with certain acquisitions made by the Power Tools and Accessories and
Fastening and Assembly Systems segments), adjustments to eliminate intercompany
profit in inventory, and income tax expense. In addition, segment profit
excludes restructuring and exit costs. In determining segment profit, expenses
relating to pension and other postretirement benefits are based solely upon
estimated service costs. Corporate expenses, as well as certain centrally
managed expenses, are allocated to each reportable segment based upon budgeted
amounts. While sales and transfers between segments are accounted for at cost
plus a reasonable profit, the effects of intersegment sales are excluded from
the computation of segment profit. Intercompany profit in inventory is excluded
from segment assets and is recognized as a reduction of cost of goods sold by
the selling segment when the related inventory is sold to an unaffiliated
customer. Because the Corporation compensates the management of its various
businesses on, among other factors, segment profit, the Corporation may elect to
record certain segment-related expense items of an unusual or non-recurring
nature in consolidation rather than reflect such items in segment profit. In
addition, certain segment-related
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items of income or expense may be recorded in consolidation in one period and
transferred to the various segments in a later period.
The reconciliation of segment profit to the Corporation's earnings before
income taxes, in millions of dollars, is as follows:
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Three Months Ended
March 31, 2002 April 1, 2001
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Segment profit for total
reportable business segments $ 69.6 $71.6
Items excluded from segment profit:
Adjustment of budgeted foreign exchange
rates to actual rates (.7) .7
Depreciation of Corporate property and,
for 2001, amortization of certain
goodwill (.3) (6.5)
Adjustment to businesses' postretirement
benefit expenses booked in consolidation 10.3 11.0
Other adjustments booked in consolidation
directly related to reportable business
segments (4.7) 4.6
Amounts allocated to businesses in arriving
at segment profit in excess of (less
than) Corporate center operating
expenses, eliminations, and other
amounts identified above (12.0) (9.0)
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Operating income 62.2 72.4
Interest expense, net of interest income 15.8 22.4
Other expense 1.2 2.7
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Earnings before income taxes $ 45.2 $47.3
================================================================================
NOTE 7: EARNINGS PER SHARE
The computations of basic and diluted earnings per share for each period are as
follows:
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Three Months Ended
(Amounts in Millions Except Per Share Data) March 31, 2002 April 1, 2001
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Numerator:
Net earnings $33.0 $33.1
================================================================================
Denominator:
Denominator for basic earnings per share --
weighted-average shares 80.1 81.1
Employee stock options and stock issuable
under employee benefit plans .5 .6
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Denominator for diluted earnings per share --
adjusted weighted-average shares
and assumed conversions 80.6 81.7
================================================================================
Basic earnings per share $ .41 $ .41
================================================================================
Diluted earnings per share $ .41 $ .40
================================================================================
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As of March 31, 2002, approximately 5.9 million options to purchase shares
of common stock, with a weighted-average exercise price of $47.00, 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 8: LITIGATION AND CONTINGENT LIABILITIES
As more fully disclosed in Note 19 of Notes to Consolidated Financial Statements
included in Item 8 of the Corporation's Annual Report on Form 10-K for the year
ended December 31, 2001, the Corporation is involved in various lawsuits in the
ordinary course of business. These lawsuits involve claims for damages arising
out of the use of the Corporation's products, allegations of patent and
trademark infringement, and litigation and administrative proceedings relating
to employment matters and commercial disputes. In addition, the Corporation is
involved in lawsuits and administrative proceedings with respect to claims
involving the discharge of hazardous substances into the environment.
The Corporation's estimate of the costs associated with legal, product
liability, and environmental exposures is accrued if, in management's judgment,
the likelihood of a loss is probable. These accrued liabilities are not
discounted.
As of March 31, 2002, the Corporation had no known probable but inestimable
exposures that are expected to have a material adverse effect on the
Corporation.
NOTE 9: SUBSEQUENT EVENTS
In April 2002, the Corporation entered into a $250 million 364-day unsecured
revolving credit facility (the Credit Facility) replacing its expiring $400
million 364-day unsecured revolving credit facility. The Credit Facility
provides for annual renewals upon request by the Corporation and approval by the
lending banks. The terms of the Credit Facility remained unchanged from the
expiring 364-day unsecured revolving credit facility. The terms of that facility
and the Corporation's $1.0 billion unsecured revolving credit facility that
expires in April 2006 are more fully disclosed in Note 6 of Notes to
Consolidated Financial Statements included in Item 8 of the Corporation's Annual
Report on Form 10-K for the year ended December 31, 2001.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Corporation reported net earnings of $33.0 million, or $.41 per share on a
diluted basis, for the three-month period ended March 31, 2002, compared to net
earnings of $33.1 million, or $.40 per share on a diluted basis, for the
three-month period ended April 1, 2001. Net earnings for the three-month period
ended April 1, 2001, would have been $39.7 million, or $.48 per share on a
diluted basis, using the new accounting standard for goodwill, as discussed in
Note 2 of Notes to Consolidated Financial Statements.
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-month periods ended March 31, 2002 and April 1, 2001:
ANALYSIS OF CHANGES IN SALES
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Three Months Ended
(Dollars in Millions) March 31, 2002 April 1, 2001
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Total sales $951.7 $962.0
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Unit volume 2% (2)%
Price (1)% (1)%
Currency (2)% (3)%
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Change in total sales (1)% (6)%
================================================================================
Total consolidated sales for the three months ended March 31, 2002,
decreased by 1% from the 2001 level. Growth in unit volume during the
three-month period ended March 31, 2002, caused a 2% increase in sales as
compared to the same period in 2001. A strengthening of the North American
economy and the incremental sales of a business acquired by the Corporation in
April 2001 positively affected unit volume in the 2002 period. These positive
factors were partially offset by continued unfavorable economic conditions in
Europe, particularly Germany. Pricing actions had a 1% negative effect on sales
for the three-month period ended March 31, 2002, as compared to the
corresponding period in 2001. The negative effects of a stronger dollar compared
to other foreign currencies, particularly the euro, Japanese yen, Brazilian
real, and pound sterling, caused a 2% decrease in the Corporation's consolidated
sales during the three-month period ended March 31, 2002, as compared to the
corresponding period in 2001.
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EARNINGS
Operating income for the three months ended March 31, 2002, was $62.2 million,
or 6.5% of sales, compared to operating income of $72.4 million, or 7.5% of
sales, for the corresponding period in 2001.
Gross margin as a percentage of sales was 32.2% and 33.8% for the
three-month periods ended March 31, 2002, and April 1, 2001, respectively. The
decrease in gross margin as a percentage of sales for the three-month period
ended March 31, 2002, as compared to the corresponding period in 2001, was
principally the result of lower production levels in the Hardware and Home
Improvement segment and unfavorable mix, including the effects of a business
acquired in April 2001, in the Fastening and Assembly Systems segment.
Selling, general, and administrative expenses as a percentage of sales were
25.7% for the quarter ended March 31, 2002. Selling, general, and administrative
expenses as a percentage of sales for the three-month period ended April 1,
2001, would have been 25.6% using the new accounting standard for goodwill.
Excluding goodwill amortization recognized in 2001, selling, general, and
administrative expenses decreased by $1.9 million for the three months ended
March 31, 2002, as compared to the corresponding period in 2001, as the
favorable effect of cost reduction initiatives was partially offset by higher
legal-related expenses.
Net interest expense (interest expense less interest income) for the three
months ended March 31, 2002, was $15.8 million compared to net interest expense
of $22.4 million for the three months ended April 1, 2001. The decrease in net
interest expense for the three months ended March 31, 2002, as compared to the
corresponding period in 2001, was primarily the result of lower interest rates.
Other expense for the three months ended March 31, 2002, was $1.2 million
as compared to $2.7 million for the corresponding period in 2001.
The Corporation's effective tax rate for the three months ended March 31,
2002, was 27.0%, as compared to an effective tax rate of 30.0% for the three
months ended April 1, 2001. The reduction in the effective tax rate during 2002
is attributable to the amortization of non-deductible goodwill in the 2001
quarter.
The Corporation reported net earnings of $33.0 million, or $.41 per share on
a diluted basis, for the three-month period ended March 31, 2002, compared to
net earnings of $33.1 million, or $.40 per share on a diluted basis, for the
three-month period ended April 1, 2001. Net earnings for the three-month period
ended April 1, 2001, would have been $39.7 million, or $.48 per share on a
diluted basis, using the new accounting standard for goodwill, as discussed in
Note 2 of Notes to Consolidated Financial Statements.
BUSINESS SEGMENTS
As more fully described in Note 6 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.
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Power Tools and Accessories
Segment sales and profit for the Power Tools and Accessories segment, determined
on the basis described in Note 6 of Notes to Consolidated Financial Statements,
were as follows (in millions of dollars):
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Three Months Ended
March 31, 2002 April 1, 2001
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Sales to unaffiliated customers $639.8 $634.5
Segment profit 38.4 35.1
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Sales to unaffiliated customers in the Power Tools and Accessories segment
during the first quarter of 2002 increased 1% over the 2001 level. Sales of
power tools and accessories in North America increased at a low single-digit
rate in the first quarter of 2002 over the corresponding period in 2001 as a
double-digit rate of growth in sales of professional power tools and accessories
was partially offset by a high single-digit rate of decline in sales of consumer
power tools and accessories. Sales of professional power tools and accessories
increased in most product categories during the quarter. Sales of consumer power
tools and accessories in the first quarter of 2002 were negatively impacted by a
delay in orders of lawn and garden products for the spring outdoor season.
Sales in Europe decreased at a mid-single-digit rate in the first quarter
of 2002 from the corresponding period in 2001, as a decline in sales of consumer
power tools was partially offset by a low single-digit rate of growth in sales
of DEWALT(R) professional power tools and accessories. Sales across most product
categories in Germany during the first quarter of 2002 declined from the prior
year level due to weak economic conditions. Sales of consumer power tools during
the first quarter of 2002 continued to be negatively impacted by inventory
actions taken by retailers with high levels of private label Asian products.
Sales in other geographic areas increased at a low single-digit rate for
the first quarter of 2002 over the prior year level. Sales of professional power
tools increased at a high single-digit rate during the quarter. This sales
growth was partially offset by a low single-digit rate of decrease in sales of
consumer products from the corresponding period of the prior year.
Segment profit as a percentage of sales for the Power Tools and Accessories
segment was 6.0% for the three-month period ended March 31, 2002, compared to
5.5% for the corresponding 2001 period. The increase in segment profit during
2002 was driven by increased sales and slightly higher gross margins,
principally in North American professional power tools and accessories, and
reduced selling, general, and administrative expenses during the quarter
principally due to lower expenses in Europe resulting from restructuring
actions.
- 15 -
Hardware and Home Improvement
Segment sales and profit for the Hardware and Home Improvement segment,
determined on the basis described in Note 6 of Notes to Consolidated Financial
Statements, were as follows (in millions of dollars):
- --------------------------------------------------------------------------------
Three Months Ended
March 31, 2002 April 1, 2001
- --------------------------------------------------------------------------------
Sales to unaffiliated customers $198.8 $197.1
Segment profit 15.4 17.5
- --------------------------------------------------------------------------------
Sales to unaffiliated customers in the Hardware and Home Improvement
segment increased 1% for the three months ended March 31, 2002, compared to the
2001 level. While sales of security hardware in North America increased at a
mid-single-digit rate in the first quarter of 2002 over the corresponding period
in 2001, that increase was partially offset by a low single-digit rate of
decrease in sales of plumbing products during the first quarter of 2002 due to
sales declines in the non-home center channels. During the first quarter of
2002, sales of security hardware in North America were favorably impacted by the
brand and product repositioning that was introduced in home centers in late
2001.
Segment profit as a percentage of sales for the Hardware and Home
Improvement segment was 7.7% in the first three months of 2002 compared to 8.9%
in the corresponding period of 2001. Segment profit as a percentage of sales was
negatively impacted by a decline in gross margin during the quarter ended March
31, 2002. The decrease in gross margin was primarily a result of lower
production levels at North American security hardware plants as that business
took actions to reduce its inventory levels.
Fastening and Assembly Systems
Segment sales and profit for the Fastening and Assembly Systems segment,
determined on the basis described in Note 6 of Notes to Consolidated Financial
Statements, were as follows (in millions of dollars):
- --------------------------------------------------------------------------------
Three Months Ended
March 31, 2002 April 1, 2001
- --------------------------------------------------------------------------------
Sales to unaffiliated customers $123.0 $120.0
Segment profit 15.8 19.0
- --------------------------------------------------------------------------------
Sales to unaffiliated customers in the Fastening and Assembly Systems
segment increased by 3% in the first quarter of 2002 over the 2001 level. Sales
to automotive customers increased due to the effect of the acquisition of Bamal
Corporation's automotive division in April 2001 and sales related to a new
automotive platform. The increased automotive sales were partially offset by a
double-digit rate of decline in sales to industrial customers, reflecting
continued weakness in this sector.
Segment profit as a percentage of sales for the Fastening and Assembly
Systems segment decreased from 15.8% in the first quarter of 2001 to 12.8% in
2002. The decline in operating profit as a percentage of sales was due to lower
gross margins, reflecting the inherently lower margins in the distribution
business acquired from Bamal and unfavorable product mix.
- 16 -
RESTRUCTURING ACTIVITY
A summary of restructuring activity during the three-month period ended March
31, 2002, is as follows (in millions of dollars):
- --------------------------------------------------------------------------------
Utilization of Reserves
Reserves at ----------------------- Reserves at
December 31, 2001 Cash Non-Cash March 31, 2002
- --------------------------------------------------------------------------------
Severance benefits $53.7 $(6.2) $ - $47.5
Other charges 13.7 (1.3) - 12.4
- --------------------------------------------------------------------------------
Total $67.4 $(7.5) $ - $59.9
================================================================================
As more fully disclosed in Item 7 of the Corporation's Annual Report on
Form 10-K for the year ended December, 31, 2001, under the caption
"Restructuring Actions", the Corporation is committed to continuous productivity
improvement and continues to evaluate opportunities to reduce fixed costs,
simplify or improve processes, and eliminate excess capacity. During the fourth
quarter of 2001, the Corporation commenced the first phase of a restructuring
plan and anticipates that additional restructuring charges will be recognized
during the two- to three-year period over which the restructuring plan will be
completed.
FINANCIAL CONDITION
Operating activities provided cash of $62.5 million for the three months ended
March 31, 2002, compared to $74.1 million of cash used in the corresponding
period in 2001. The increase in cash provided by operating activities during the
quarter ended March 31, 2002, was primarily a result of favorable timing of
income tax payments and improved working capital management.
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 March 31, 2002, improved
slightly as compared to the number of days sales outstanding at April 1, 2001.
Inventory turns at March 31, 2002, increased in comparison to the comparable
period in 2001 as a result of the Corporation's focus on reducing inventory
levels. While the Corporation anticipates that inventory levels will rise during
the next two quarters in support of seasonal sales activity and to provide
safety stock required to implement the restructuring program, the Corporation
expects to end 2002 with inventories modestly below the prior year's level.
Investing activities for the three months ended March 31, 2002, used cash
of $19.8 million compared to $38.6 million of cash used for the corresponding
period in 2001. The decrease in cash usage was primarily due to lower capital
expenditures during the first quarter of 2002 compared to the corresponding
period in 2001. The Corporation anticipates that its capital spending in 2002
will approximate capital spending in 2001.
Financing activities used cash of $26.1 million for the three-month period
ended March 31, 2002, compared to cash provided of $125.7 million during the
first three months of 2001. The increase in cash used is primarily the result of
lower borrowings under the Corporation's short-term credit facilities at March
31, 2002, versus the prior year-end level as compared to the corresponding
change in the first quarter of 2001 when the Corporation borrowed to support its
working capital requirements.
As discussed further in Note 9 of Notes to Consolidated Financial
Statements, in April 2002, the Corporation entered into a $250 million 364-day
unsecured revolving credit facility. This facility replaced the Corporation's
former $400 million 364-day unsecured revolving credit facility.
- 17 -
The Corporation reduced the borrowing availability under the facility based upon
its anticipated short-term financing needs.
During the three months ended March 31, 2002, the Corporation did not
repurchase any shares of its common stock. At March 31, 2002, the Corporation
had remaining authorization from its Board of Directors to repurchase 1,911,595
shares of its common stock.
In addition to measuring its cash flow generation and usage based upon the
operating, investing, and financing classifications included in the Consolidated
Statement of Cash Flows, the Corporation also measures its free cash flow. Free
cash flow, a measure commonly employed by the financial community, is defined by
the Corporation as cash flow from operating activities, less capital
expenditures, plus proceeds from the disposal of assets (excluding proceeds from
business sales). During the three months ended March 31, 2002, the Corporation
had free cash flow of $42.7 million compared to negative free cash flow of
$112.7 million for the corresponding period in 2001.
The variable rate debt to total debt ratio, after taking interest rate
hedges into account, was 52% at March 31, 2002, compared to 51% at December 31,
2001. Average debt maturity was 7.9 years at March 31, 2002, and December 31,
2001.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the Reform Act) provides a
safe harbor for forward-looking statements made by or on behalf of the
Corporation. The Corporation and its representatives may, from time to time,
make written or verbal forward-looking statements, including statements
contained in the Corporation's filings with the Securities and Exchange
Commission and in its reports to stockholders. Generally, the inclusion of the
words "believe," "expect," "intend," "estimate," "anticipate," "will," and
similar expressions identify statements that constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 and that are intended to come
within the safe harbor protection provided by those sections. All statements
addressing operating performance, events, or developments that the Corporation
expects or anticipates will occur in the future, including statements relating
to sales growth, earnings or earnings per share growth, and market share, as
well as statements expressing optimism or pessimism about future operating
results, are forward-looking statements within the meaning of the Reform Act.
The forward-looking statements are and will be based upon management's
then-current views and assumptions regarding future events and operating
performance, and are applicable only as of the dates of such statements. The
Corporation undertakes no obligation to update or revise any forward-looking
statements, whether as a result of new information, future events, or otherwise.
By their nature, all forward-looking statements involve risks and
uncertainties. Actual results may differ materially from those contemplated by
the forward-looking statements for a number of reasons, including but not
limited to those factors identified in Item 1(f) of Part I of the Corporation's
Annual Report on Form 10-K for the year ended December 31, 2001.
- 18 -
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required under this Item is contained under the caption "Hedging
Activities", included in Item 7, and in Notes 1 and 9 of Notes to Consolidated
Financial Statements included in Item 8 of the Corporation's Annual Report on
Form 10-K for the year ended December 31, 2001, and is incorporated by reference
herein.
- 19 -
THE BLACK & DECKER CORPORATION
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Corporation is involved in various lawsuits in the ordinary course of
business. These lawsuits primarily involve claims for damages arising out of the
use of the Corporation's products and allegations of patent and trademark
infringement. The Corporation also is involved in litigation and administrative
proceedings involving employment matters and commercial disputes. Some of these
lawsuits include claims for punitive as well as compensatory damages. The
Corporation, using current product sales data and historical trends, actuarially
calculates the estimate of its exposure for product liability. The Corporation
is insured for product liability claims for amounts in excess of established
deductibles and accrues for the estimated liability as described above up to the
limits of the deductibles. All other claims and lawsuits are handled on a
case-by-case basis.
Pursuant to authority granted under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (CERCLA), the United States
Environmental Protection Agency (EPA) has issued a National Priority List (NPL)
of sites at which action is to be taken by the EPA or state authorities to
mitigate the risk of release of hazardous substances into the environment. The
Corporation is engaged in continuing activities with regard to various sites on
the NPL and other sites covered under CERCLA. The Corporation also is engaged in
site investigations and remedial activities to address environmental
contamination from past operations at current and former manufacturing
facilities in the United States and abroad. To minimize the Corporation's
potential liability with respect to these sites, when appropriate, management
has undertaken, among other things, active participation in steering committees
established at the sites and has agreed to remediation through consent orders
with the appropriate government agencies. Due to uncertainty over the
Corporation's involvement in some of the sites, uncertainty over the remedial
measures to be adopted at various sites and facilities, and the fact that
imposition of joint and several liability with the right of contribution is
possible under CERCLA and other laws and regulations, the liability of the
Corporation with respect to any site at which remedial measures have not been
completed cannot be established with certainty. On the basis of periodic reviews
conducted with respect to the sites, however, the Corporation has established
appropriate liability accruals.
The Corporation's estimate of the costs associated with legal, product
liability, and environmental exposures is accrued if, in management's judgment,
the likelihood of a loss is probable. These accrued liabilities are not
discounted.
As of March 31, 2002, the Corporation had no known probable but inestimable
exposures for awards and assessments in connection with environmental matters
and litigation and administrative proceedings that are expected to have a
material adverse effect on the Corporation. In the opinion of management,
amounts accrued for awards or assessments in connection with environmental
matters and litigation and administrative proceedings to which the Corporation
is a party are adequate and, accordingly, the ultimate resolution of these
matters will not have a material adverse effect on the Corporation.
- 20 -
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 2002 Annual Meeting of Stockholders was held on April 30, 2002, for the
election of directors, to ratify the selection of Ernst & Young LLP as
independent public accountants for the Corporation for fiscal year 2002, and to
act on certain stockholder proposals. A total of 72,438,882 of the 79,893,383
votes entitled to be cast at the meeting were present in person or by proxy. At
the meeting, the stockholders:
(1) Elected the following directors:
Number of Shares Number of Shares
Directors Voted For Authority Withheld
---------------------------------------------------------------------------
Nolan D. Archibald 71,991,773 447,109
Norman R. Augustine 71,609,259 829,623
Barbara L. Bowles 72,011,046 427,836
M. Anthony Burns 71,650,293 788,589
Malcolm Candlish 71,647,397 791,485
Manuel A. Fernandez 72,016,303 422,579
Benjamin H. Griswold, IV 71,638,753 800,129
Anthony Luiso 72,016,615 422,267
(2) Ratified the selection of Ernst & Young LLP as independent public
accountants for the Corporation for fiscal year 2002 by an affirmative
vote of 69,753,043; votes against ratification were 2,333,888; and
abstentions were 351,951.
(3) Rejected Stockholder Proposal 1, which was opposed by the Board of
Directors, by a negative vote of 56,047,132; affirmative votes for the
stockholder proposal were 3,943,954; abstentions were 3,458,178; and
broker non-votes were 8,989,618.
(4) Rejected Stockholder Proposal 2, which was opposed by the Board of
Directors, by a negative vote of 53,690,551; affirmative votes for the
stockholder proposal were 8,066,472; abstentions were 1,692,241; and
broker non-votes were 8,989,618.
No other matters were submitted to a vote of the stockholders at the meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
On January 29, 2002, the Corporation filed a Current Report on Form 8-K with the
Commission. That Current Report on Form 8-K, filed pursuant to Item 5 of that
Form, stated that, on January 29, 2002, the Corporation had reported its
earnings for the three months and year ended December 31, 2001.
The Corporation did not file any other reports on Form 8-K during the
three-month period ended March 31, 2002.
All other items were not applicable.
- 21 -
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: May 14, 2002