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 June 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-1553
THE BLACK & DECKER CORPORATION
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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
The number of shares of Common Stock outstanding as of June 30, 1996: 87,683,574
The exhibit index as required by item 601(a) of Regulation S-K is included in
this report.
THE BLACK & DECKER CORPORATION AND SUBSIDIARIES
INDEX - FORM 10-Q
June 30, 1996
Page
PART I - FINANCIAL INFORMATION
Consolidated Statement of Earnings (Unaudited) For the Three
Months and Six Months Ended June 30, 1996 and July 2, 1995 3
Consolidated Balance Sheet
June 30, 1996 (Unaudited) and December 31, 1995 4
Consolidated Statement of Cash Flows (Unaudited)
For the Six Months Ended June 30, 1996 and July 2, 1995 5
Notes to Consolidated Financial Statements (Unaudited) 6
Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II - OTHER INFORMATION 19
SIGNATURES 22
CONSOLIDATED STATEMENT OF EARNINGS (Unaudited)
The Black & Decker Corporation and Subsidiaries
(Dollars in Millions Except Per Share Amounts)
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Three Months Ended Six Months Ended
June 30, 1996 July 2, 1995 June 30, 1996 July 2, 1995
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Revenues $1,207.9 $1,135.4 $2,272.9 $2,156.8
Cost of goods sold 781.9 716.2 1,452.0 1,358.7
Marketing and administrative expenses 322.2 325.7 628.4 623.9
Restructuring costs - - 81.6 -
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Operating Income 103.8 93.5 110.9 174.2
Interest expense (net of interest income) 35.9 47.5 73.8 94.3
Other expense 5.8 3.7 9.2 6.5
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Earnings From Continuing Operations
Before Income Taxes 62.1 42.3 27.9 73.4
Income taxes 16.8 14.2 15.0 26.2
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Earnings From Continuing Operations 45.3 28.1 12.9 47.2
Earnings from discontinued operations (net
of income taxes) - 6.7 70.4 13.3
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Net Earnings $ 45.3 $ 34.8 $ 83.3 $ 60.5
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Net Earnings Applicable to Common
Shares $ 42.4 $ 31.9 $ 77.5 $ 54.7
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Net Earnings Per Common and Common
Equivalent Share:
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Primary:
Earnings from continuing operations $ .47 $ .29 $ .08 $ .48
Earnings from discontinued operations - .08 .78 .16
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Primary Earnings Per Share $ .47 $ .37 $ .86 $ .64
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Shares Used in Computing Primary Earnings
Per Share (in Millions) 90.1 85.5 89.7 85.2
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Assuming Full Dilution:
Earnings from continuing operations $ .47 $ .29 $ .08 $ .48
Earnings from discontinued operations - .08 .78 .16
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Fully Diluted Earnings Per Share $ .47 $ .37 $ .86 $ .64
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Shares Used in Computing Fully Diluted
Earnings Per Share (in Millions) 96.4 85.5 89.9 85.2
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Dividends Per Common Share $ .12 $ .10 $ .24 $ .20
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See Notes to Consolidated Financial Statements (Unaudited)
CONSOLIDATED BALANCE SHEET
The Black & Decker Corporation and Subsidiaries
(Millions of Dollars Except Per Share Amount)
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June 30, 1996
(Unaudited) December 31, 1995
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Assets
Cash and cash equivalents $ 141.7 $ 131.6
Trade receivables 603.8 651.3
Inventories 843.8 855.7
Net assets of discontinued operations - 302.4
Other current assets 162.1 165.6
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Total Current Assets 1,751.4 2,106.6
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Property, Plant and Equipment 858.1 866.8
Goodwill 2,065.9 2,142.0
Other Assets 426.7 429.9
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$ 5,102.1 $ 5,545.3
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Liabilities and Stockholders' Equity
Short-term borrowings $ 236.7 $ 599.2
Current maturities of long-term debt 48.9 48.0
Trade accounts payable 348.0 396.7
Other accrued liabilities 743.8 743.0
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Total Current Liabilities 1,377.4 1,786.9
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Long-Term Debt 1,666.3 1,704.5
Deferred Income Taxes 53.4 52.8
Postretirement Benefits 305.6 307.8
Other Long-Term Liabilities 237.5 270.1
Stockholders' Equity
Convertible preferred stock, no par value
(outstanding: June 30, 1996 and
December 31, 1995--150,000 shares) 150.0 150.0
Common stock, par value $.50 per share
(outstanding: June 30, 1996--87,683,574 shares;
December 31, 1995--86,447,588 shares) 43.8 43.2
Capital in excess of par value 1,110.1 1,084.5
Retained earnings 259.1 202.6
Equity adjustment from translation (101.1) (57.1)
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Total Stockholders' Equity 1,461.9 1,423.2
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$ 5,102.1 $ 5,545.3
===================================================================================================================
See Notes to Consolidated Financial Statements (Unaudited)
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
The Black & Decker Corporation and Subsidiaries
(Millions of Dollars)
Six Months Ended
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June 30, 1996 July 2, 1995
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Operating Activities
Net earnings $ 83.3 $ 60.5
Adjustments to reconcile net earnings to cash flow from
operating activities of continuing operations:
Non-cash charges and credits:
Restructuring charges 81.6 -
Depreciation and amortization 105.3 103.2
Other (.1) 7.3
Earnings of discontinued operations (70.4) (13.3)
Changes in selected working capital items:
Trade receivables 82.4 95.2
Inventories (2.1) (132.6)
Trade accounts payable (45.7) 44.6
Restructuring (8.1) -
Other assets and liabilities (111.4) (104.8)
Net decrease in receivables sold (48.5) (64.5)
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Cash flow from operating activities of continuing operations 66.3 (4.4)
Cash flow from operating activities of discontinued operations (10.1) (15.1)
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Cash Flow From Operating Activities 56.2 (19.5)
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Investing Activities
Proceeds from partial sale of discontinued operations 414.2 60.0
Investing activities of discontinued operations - (2.7)
Proceeds from disposal of assets 22.4 6.5
Capital expenditures (82.9) (79.0)
Cash inflow from hedging activities 208.6 295.6
Cash outflow from hedging activities (212.6) (284.1)
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Cash Flow From Investing Activities 349.7 (3.7)
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Cash Flow Before Financing Activities 405.9 (23.2)
Financing Activities
Net (decrease)/increase in short-term borrowings (358.9) 20.0
Proceeds from long-term debt (including revolving credit facility) 459.3 186.1
Payments on long-term debt (including revolving credit facility) (486.7) (117.1)
Issuance of common stock 19.1 12.6
Cash dividends (26.8) (22.9)
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Cash Flow From Financing Activities (394.0) 78.7
Effect of exchange rate changes on cash (1.8) 4.9
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Increase In Cash And Cash Equivalents 10.1 60.4
Cash and cash equivalents at beginning of period 131.6 65.0
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Cash And Cash Equivalents At End Of Period $ 141.7 $ 125.4
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See Notes to Consolidated Financial Statements (Unaudited)
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. The accompanying Consolidated
Statement of Earnings for the three and six months ended July 2, 1995, and
Consolidated Statement of Cash Flows for the six months ended July 2, 1995, have
been reclassified to identify separately the results of operations and cash
flows of the Corporation's discontinued information technology and services
segment (see Note 2). Certain prior year amounts in the consolidated financial
statements have been reclassified to conform to the presentation used for 1996.
Operating results for the three- and six-month periods ended June 30, 1996,
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, 1995.
NOTE 2: DISCONTINUED OPERATIONS
The accompanying Consolidated Statement of Earnings reflect the net income
attributable to the Corporation's discontinued information technology and
services (PRC) segment as earnings from discontinued operations. Revenues of the
discontinued PRC segment are excluded from revenues as reported in the
accompanying Consolidated Statement of Earnings. The results of the discontinued
operations of PRC do not reflect any expense for interest allocated by or
management fees charged by the Corporation.
On February 16, 1996, the Corporation announced that it had completed the
previously announced sale of PRC Inc. for $425.0 million to Litton Industries,
Inc. No earnings from discontinued operations were recognized during the three
months ended June 30, 1996. Earnings from discontinued operations of $70.4
million for the six months ended June 30, 1996, consist primarily of the gain on
the sale of PRC Inc., net of applicable income taxes of $55.6 million. Revenues
and operating income of PRC Inc. for the period from January 1, 1996, through
February 15, 1996, were not significant. The terms of the sale of PRC Inc.
provide for an adjustment to the sales price, expected to be finalized later in
1996, based upon the changes in the net assets of PRC Inc. through February 15,
1996.
The Corporation sold PRC Realty Systems, Inc. ( RSI) on March 31, 1995, for
proceeds of $60.0 million and sold PRC Environmental Management, Inc. (EMI) on
September 15, 1995. Together, PRC Inc., RSI and EMI comprised the discontinued
PRC segment. Earnings from the discontinued PRC segment amounted to $6.7 and
$13.3 million for the three- and six-month periods ended July 2, 1995, net of
applicable income taxes of $.7 million and $7.0 million, respectively. The
pre-tax gain on the sale of RSI recognized during the six months ended July 2,
1995, was offset by tax expense associated with the sale. Revenues of the
discontinued PRC segment for the three- and six-month periods ended July 2,
1995, were $193.6 million and $372.0 million, respectively.
NOTE 3: RESTRUCTURING
During the three months ended March 31, 1996, the Corporation commenced a
restructuring of certain of its operations and recorded a restructuring charge
of $81.6 million.
The major component of the restructuring charge relates to the severance of
approximately 1,100 of the Corporation's employees. An accrual of $62.8 million
for severance, principally associated with the Corporation's European Consumer
businesses, is included in the restructuring charge.
In connection with the restructuring, the Corporation will also take actions
to rationalize certain manufacturing and service operations. Such
rationalization, principally associated with the Corporation's Consumer
businesses in the United States, will include the outsourcing of certain
products currently manufactured by the Corporation and the closure of several
small manufacturing facilities as well as a number of service centers. As a
result, the restructuring charge also includes an $8.9 million write-down to net
realizable value of certain land and buildings. The remaining restructuring
charge primarily relates to the write-down to net realizable value of certain
equipment made obsolete or redundant due to the Corporation's decision to close
certain facilities or outsource certain production.
NOTE 4: SALE OF RECEIVABLES
At June 30, 1996, under its sale of receivables program, the Corporation had
sold $181.5 million of receivables compared to $230.0 million at December 31,
1995. The discount on sale of receivables is included in "Other expense."
NOTE 5: INVENTORIES
The components of inventory at the end of each period, in millions of dollars,
consisted of the following:
June 30, 1996 December 31, 1995
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FIFO Cost
Raw materials and work-in-process $231.8 $231.6
Finished products 654.5 665.0
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886.3 896.6
Excess of FIFO cost over LIFO inventory value (42.5) (40.9)
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$843.8 $855.7
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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 6: GOODWILL
Goodwill at the end of each period, in millions of dollars, was as follows:
June 30, 1996 December 31, 1995
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Goodwill $2,592.2 $2,635.0
Less accumulated amortization 526.3 493.0
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$2,065.9 $2,142.0
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NOTE 7: LONG-TERM DEBT
In April 1996, the Corporation replaced its former unsecured revolving credit
facility, which was scheduled to expire in 1997, with a new unsecured revolving
credit facility (the Credit Facility), which will expire in 2001. Under the
Credit Facility, which consists of two individual facilities, the Corporation
may borrow up to $1.0 billion.
Borrowing options under the Credit Facility are at the London Interbank
Offered Rate (LIBOR) plus a specified percentage, or at other variable rates set
forth therein. The Credit Facility provides that the interest rate margin over
LIBOR, initially set at .15% and .25% for the two individual facilities, will
increase or decrease based upon changes in the ratings of the Corporation's
long-term senior unsecured debt. The Corporation also is able to borrow by means
of competitive bid rate loans under the Credit Facility. Competitive bid rate
loans will be made through an auction process at then-current market rates. In
addition to interest payable on the principal amount of indebtedness outstanding
from time to time under the Credit Facility, the Corporation is also required to
pay an annual facility fee to each bank, initially equal to .125% of the amount
of each bank's commitment, whether used or unused. The Credit Facility provides
that the facility fee also will increase or decrease based upon changes in the
ratings of the Corporation's long-term senior unsecured debt.
The Credit Facility includes 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 a specified leverage ratio and to achieve a certain
level of cash flow to fixed expense coverage. As of June 30, 1996, the
Corporation was in compliance with all terms and conditions of the Credit
Facility. The Corporation expects to continue to meet the covenants imposed by
the Credit Facility. Meeting the cash flow coverage ratio is dependent upon the
level of future earnings and interest rates, each of which can have a
significant impact on the ratio.
Indebtedness of subsidiaries of the Corporation in the aggregate principal
amounts of $636.5 million and $759.1 million were included in the Consolidated
Balance Sheet at June 30, 1996, and December 31, 1995, respectively, under the
captions short-term borrowings, current maturities of long-term debt, and
long-term debt.
NOTE 8: INTEREST EXPENSE (NET OF INTEREST INCOME)
Interest expense (net of interest income) for each period, in millions of
dollars, consisted of the following:
Three Months Ended Six Months Ended
June 30, 1996 July 2, 1995 June 30, 1996 July 2, 1995
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Interest expense $37.7 $49.4 $77.6 $98.3
Interest (income) (1.8) (1.9) (3.8) (4.0)
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$35.9 $47.5 $73.8 $94.3
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NOTE 9: STOCKHOLDERS' EQUITY
As more fully described in the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1995, the Corporation had a Stockholder Rights Plan
pursuant to which, under certain conditions, each stockholder had share purchase
rights for each outstanding share of common stock and Series B Cumulative
Preferred Stock of the Corporation. At December 31, 1995, the Corporation had
reserved 1,500,000 shares of Series A Junior Participating Preferred Stock for
possible issuance upon exercise of the rights. During the quarter ended June 30,
1996, the Corporation's Stockholder Rights Plan expired in accordance with its
terms without the issuance of any shares of Series A Junior Participating
Preferred Stock.
NOTE 10: NET EARNINGS PER COMMON SHARE
Primary earnings per common and common equivalent share are computed by dividing
net earnings, after deducting preferred stock dividends, by the weighted average
number of common shares outstanding during each period plus, for the three- and
six-month periods ended June 30, 1996, the incremental shares that would have
been outstanding under certain employee benefit plans and upon the assumed
exercise of dilutive stock options. For the three- and six-month periods ended
July 2, 1995, those incremental shares were immaterial and, accordingly, were
not considered in the calculation of primary earnings per share.
Preferred dividends were $2.9 million for the three months ended June 30,
1996 and July 2, 1995, and $5.8 million for the six months ended June 30, 1996
and July 2, 1995.
Fully diluted earnings per share for the three-month period ended June 30,
1996, are computed by dividing net earnings by the weighted average number of
common shares outstanding during the period plus the incremental shares that
would have been outstanding under certain employee benefit plans and upon the
assumed exercise of dilutive stock options and conversion of the preferred
shares. For the six-month periods ended June 30, 1996 and July 2, 1995 and for
the three-month period ended July 2, 1995, conversion of the preferred shares is
anti-dilutive and is, therefore, not considered in the computation of fully
diluted earnings per share. Fully diluted earnings per share for the six months
ended June 30, 1996, and for the three and six months ended July 2, 1995, are
computed by dividing net earnings applicable to common shares, which are after
preferred stock dividends, by the weighted average number of common shares
outstanding plus, for the six months ended June 30, 1996, the incremental shares
that would have been outstanding under certain employee benefit plans and upon
the assumed exercise of dilutive stock options. For the three- and six-month
periods ended July 2, 1995, those incremental shares were immaterial and,
accordingly, were not considered in the calculation of fully diluted earnings
per share. As a result, fully diluted earnings per share for the three- and
six-month periods ended July 2, 1995, were not materially different from primary
earnings per share.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Corporation reported net earnings of $45.3 million or $.47 per share on a
fully diluted basis for the three-month period ended June 30, 1996, compared to
net earnings of $34.8 million or $.37 per share on a fully diluted basis for the
three-month period ended July 2, 1995. Earnings from continuing operations
increased to $45.3 million or $.47 per share on a fully diluted basis for the
three-month period ended June 30, 1996, from $28.1 million or $.29 per share on
a fully diluted basis for the three-month period ended July 2, 1995. This
improvement was primarily due to higher sales volume, lower interest expense as
a result of reduced debt levels, and a lower effective income tax rate.
The Corporation reported net earnings of $83.3 million or $.86 per share on
a fully diluted basis for the six-month period ended June 30, 1996, compared to
net earnings of $60.5 or $.64 per share on a fully diluted basis for the
six-month period ended July 2, 1995. Excluding the effects of the restructuring
charge of $81.6 million ($67.0 million after tax) recognized in the first
quarter of 1996, earnings from continuing operations increased to $79.9 million
($.83 per share on a fully diluted basis) in the first six months of 1996 from
$47.2 million ($.48 per share on a fully diluted basis) in the first six months
of 1995. This improvement was attributable to higher sales volume, the
continuing effects of cost reduction initiatives, lower interest expense due
primarily to reduced debt levels, and a lower effective income tax rate.
DISCONTINUED OPERATIONS
Discontinued operations consist of the results of PRC Inc., PRC Realty Systems,
Inc. (RSI) and PRC Environmental Management, Inc. (EMI). Together, PRC Inc., RSI
and EMI comprised the Corporation's former information technology and services
(PRC) segment.
On February 16, 1996, the Corporation announced that it had completed the
previously announced sale of PRC Inc., the remaining business in the
discontinued PRC segment, to Litton Industries, Inc. Proceeds of $425.0 million
from the sale of PRC Inc., less cash selling expenses of $10.8 million paid
during the six months ended June 30, 1996, were used to reduce short-term
borrowings. As a result of the sale of PRC Inc. in the first quarter of 1996, no
earnings from discontinued operations were recognized during the quarter ended
June 30, 1996. Earnings from discontinued operations of $70.4 million or $.78
per share on a fully diluted basis for the six-month period ended June 30, 1996,
consist primarily of the gain on the sale of PRC Inc., net of applicable income
taxes of $55.6 million. The gain is net of provisions for adjustment to the
sales price and retained liabilities. Revenues and operating income of PRC Inc.
for the period from January 1, 1996, through the date of sale were not
significant.
Earnings from discontinued operations amounted to $6.7 million, net of
income taxes of $.7 million, or $.08 per share on a fully diluted basis for the
three months ended July 2, 1995, and $13.3 million, net of income taxes of $7.0
million, or $.16 per share on a fully diluted basis for the six months ended
July 2, 1995. On March 31, 1995, the Corporation sold RSI for proceeds of $60.0
million. The pre-tax gain on the sale of RSI recognized during the six months
ended July 2, 1995, was offset by tax expense associated with the sale.
The results of the discontinued operations of the PRC segment do not reflect
any expense for interest expense allocated by or management fees charged by the
Corporation.
CONTINUING OPERATIONS
RESTRUCTURING
The Corporation actively seeks to identify opportunities to improve its cost
structure. These opportunities may involve the closure of manufacturing
facilities or the reorganization of other operations.
The Corporation has undertaken restructuring actions in the past which
improved its cost structure; those improvements, however, are subject to erosion
over time as competitive pressures intensify or commodity prices increase. In
order to preserve those improvements, the Corporation continuously seeks
opportunities to improve its cost structure. Based upon a number of factors,
including the weak retail environment in Europe which began to soften in the
latter part of 1995 and the insights of the new management team in the
Corporation's Consumer operations, the Corporation decided to intensify its cost
reduction efforts during the quarter ended March 31, 1996. Accordingly, as more
fully described in Note 3 of Notes to Consolidated Financial Statements, the
Corporation commenced a restructuring of certain of its operations during the
first quarter of 1996 and recorded a restructuring charge in the amount of $81.6
million ($67.0 million after tax).
The major component of the restructuring charge relates to the severance of
approximately 1,100 of the Corporation's employees, approximately 1,000 of whom
are employees of its Consumer segment. Severance benefits totaling $62.8
million, principally associated with the Corporation's European Consumer
businesses, were accrued in the restructuring charge and are expected to be
substantially paid in cash during the remainder of 1996 and during the first
quarter of 1997.
The balance of the restructuring charge primarily represents non-cash
charges associated with the Corporation's decision to rationalize certain
manufacturing and service operations, principally in the Corporation's domestic
Consumer businesses. Such rationalization will include the outsourcing of
certain products currently manufactured by the Corporation and the closure of
several small manufacturing facilities as well as a number of service centers.
The principal non-cash charge consists of an $8.9 million write-down to net
realizable value of certain land and buildings affected by the rationalization.
The remaining restructuring charge primarily relates to the write-down to net
realizable value of certain equipment made obsolete or redundant due to the
Corporation's decision to close facilities or outsource certain production.
While the Corporation has commenced this restructuring to improve its cost
structure, it does not believe that the full benefit to the Corporation's
reported results will be apparent during 1996 due to the timing of the planned
actions as well as the fact that the incremental benefit of the severance and
other actions described above will be partially offset by additional expenses
associated with those actions which are not accruable as restructuring charges
but rather will be expensed as incurred. The Corporation estimates that the
restructuring actions undertaken will result in incremental pre-tax savings of
approximately $10 million in 1996 and approximately $40 million annually
thereafter.
The Corporation is committed to continuous productivity improvement. As part
of this commitment, the Corporation has embarked on the specific actions
included in the aforementioned restructuring plan. Many of these actions involve
the relocation or consolidation of production processes. Realization of the
savings identified above is dependent upon the effectiveness and timing of these
actions.
REVENUES
The following chart sets forth an analysis of the consolidated changes in
revenues for the three- and six-month periods ended June 30, 1996 and July 2,
1995.
ANALYSIS OF CHANGES IN REVENUES OF CONTINUING OPERATIONS
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For the Three Months Ended For the Six Months Ended
(Dollars in Millions) June 30, 1996 July 2, 1995 June 30, 1996 July 2, 1995
- -------------------------------------------------------------------------------------------------------------------
Total revenues $1,207.9 $1,135.4 $2,272.9 $2,156.8
Unit volume - existing (1) 8% 7% 6% 8%
- disposed (2) -% -% -% -%
Price 1% 1% -% 1%
Currency (3)% 4% (1)% 4%
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Change in total revenues 6% 12% 5% 13%
===================================================================================================================
In the following chart and throughout the remainder of this discussion, the
following definitions apply:
(1) Existing - Reflects the change in volume for businesses where period-to-
period comparability exists.
(2) Disposed - Reflects the change in total revenues from continuing operations
for businesses that were included in prior year results, but
subsequently have been sold.
The Corporation operates in two business segments: Consumer and Home
Improvement Products (Consumer), including consumer and professional power tools
and accessories, household products, security hardware, outdoor products
(composed of electric lawn and garden tools and recreational products), plumbing
products, and product service; and Commercial and Industrial Products
(Commercial), including fastening systems and glass container-making equipment.
The following chart sets forth an analysis of the change in revenues of
continuing operations for the three and six months ended June 30, 1996, compared
to the three and six months ended July 2, 1995, by geographic area for each
business segment.
ANALYSIS OF CHANGES IN REVENUES OF CONTINUING OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996
United States Europe Other Total
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(Dollars in Millions) 3 Months 6 Months 3 Months 6 Months 3 Months 6 Months 3 Months 6 Months
- ----------------------------------------------------------------------------------------------------------------------
Consumer
Total Revenues $591.6 $1,084.6 $285.6 $574.0 $147.2 $257.5 $1,024.4 $1,916.1
Existing unit volume 14% 13% (1)% (2)% 7% (2)% 8% 6%
Price -% -% (1)% (1)% 5% 5% 1% -%
Currency -% -% (5)% (1)% (2)% (2)% (2)% (1)%
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14% 13% (7)% (4)% 10% 1% 7% 5%
- ----------------------------------------------------------------------------------------------------------------------
Commercial
Total Revenues $ 69.3 $ 135.1 $ 83.0 $153.7 $ 31.2 $ 68.0 $ 183.5 $ 356.8
Existing unit volume 5% 1% 8% 7% 22% 22% 10% 7%
Price 1% 1% 1% 1% -% -% 1% 1%
Currency -% -% (6)% (2)% (17)% (12)% (6)% (3)%
- ----------------------------------------------------------------------------------------------------------------------
6% 2% 3% 6% 5% 10% 5% 5%
- ----------------------------------------------------------------------------------------------------------------------
Consolidated
Total Revenues $660.9 $1,219.7 $368.6 $727.7 $178.4 $325.5 $1,207.9 $2,272.9
Existing unit volume 13% 11% 1% -% 10% 3% 8% 6%
Price -% -% (1)% -% 4% 4% 1% -%
Currency -% -% (5)% (2)% (5)% (4)% (3)% (1)%
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Change in Total Revenues 13% 11% (5)% (2)% 9% 3% 6% 5%
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Existing unit volume grew by 8% and 6% for the three- and six-month
periods ended June 30, 1996, over the prior year levels. The negative effects of
a stronger United States dollar compared to most major foreign currencies caused
a decrease in revenues of 3% and 1% for the three and six months ended June 30,
1996, respectively, from the prior year levels. Pricing actions for the three
months ended June 30, 1996, modestly improved revenue comparisons to the prior
year but had minimal effect for the six months ended June 30, 1996.
Existing unit volume in the Consumer segment increased by 8% and 6% for
the three- and six-month periods ended June 30, 1996, compared to the same
periods in 1996.
Revenues in the Corporation's Consumer businesses in the United States grew
by 14% and 13% for the three- and six-month periods ended June 30, 1996, over
1995 levels as those businesses enjoyed continued strong growth from new
products and a good retail environment. Existing unit volume in the three and
six months ended June 30, 1996, exceeded the prior year levels for all domestic
Consumer businesses. For the quarter ended June 30, 1996, double-digit rates of
growth over prior year levels were experienced in the domestic power tools,
accessories, security hardware, and plumbing products businesses. Revenue growth
in the domestic power tools business during the three and six months ended June
30, 1996, was experienced across all product categories, with strong growth in
the DEWALT(R) professional power tools line, in outdoor lawn and garden
products, and in the consumer power tools line. In the domestic consumer power
tools line, revenue growth benefited by comparison to a weak 1995, during which
sales were depressed as a result of the Corporation's announced plans to
undertake a global repositioning of its consumer power tools during the second
half of 1995. Following a weak first quarter, revenues in the domestic
accessories business rebounded strongly during the second quarter of 1996.
Economic improvements in the western United States contributed to strong revenue
growth by the domestic security hardware and plumbing products businesses in the
three and six months ended June 30, 1996, over the comparable periods in 1995.
The continued success of the SnakeLightTM flexible flashlight drove the
household products business' double-digit rate of growth in existing unit volume
during the first half of 1996 over the 1995 level, despite unit volume decreases
experienced in certain other product lines as a result of a soft retail
environment. During the quarter ended June 30, 1996, revenues of the household
products business were up modestly from the sharply higher revenues of the
corresponding quarter in 1995, as the effects of the successful introduction of
the Quick N' EasyTM iron and higher sales of the SnakeLight product line in 1996
were partially offset by lower sales in certain other product lines.
Excluding the negative effect of changes in foreign exchange rates, revenues
in the Corporation's Consumer businesses in Europe declined by 2% and 3% for the
three and six months ended June 30, 1996, respectively, from the corresponding
periods in 1995. The European Consumer businesses' price reduction of 1% during
the quarter ended June 30, 1996, was in response to competitive pressures. The
retail environment in Europe continued to be difficult in the second quarter of
1996, with mixed results experienced throughout Europe. These mixed results were
the product of revenue increases in a number of European countries more than
offset by revenue declines in other countries, most notably in Germany where
sales have significantly declined from the prior year level. Despite decreased
sales of consumer power tools, outdoor lawn and garden tools, accessories, and
security hardware in Europe during the three and six months ended June 30, 1996,
as compared to 1995 levels, increased sales of professional power tools were
experienced during these periods in 1996 over the corresponding periods in
1995. Sales of household products, which were essentially flat to the prior year
during the quarter ended June 30, 1996, exceeded the prior year level for the
six months ended June 30, 1996.
Excluding the negative effect of changes in foreign exchange rates, revenues
in the Corporation's Consumer businesses in Other geographic areas for the three
and six months ended June 30, 1996, increased by 12% and 3%, respectively, over
1995 levels. Included in these increases were significant pricing actions taken
during the three and six months ended June 30, 1996, primarily in the
Corporation's businesses in Latin America.
Excluding the negative effect of changes in foreign exchange rates, revenues
in the Corporation's Commercial businesses during the three months and six
months ended June 30, 1996, increased by 11% and 8%, respectively, over the
corresponding periods in 1995. This improvement was driven by strong revenues in
the Corporation's glass-container making equipment business while revenues in
the fastening systems business were modestly ahead of the prior year levels.
EARNINGS
Operating income for the three months ended June 30, 1996, increased by 11% to
$103.8 million, compared to $93.5 million for the corresponding period in 1995.
Operating income as a percentage of revenues was 8.6% for the three months ended
June 30, 1996, compared to 8.2% for the comparable quarter in 1995. This
operating income improvement was experienced in the Corporation's domestic power
tools, security hardware, plumbing products, and household products businesses
as well as in the Corporation's fastening systems business.
Operating income for the six months ended June 30, 1996, was $110.9 million,
compared to $174.2 million for the corresponding period in 1995. Excluding the
effects of the $81.6 million restructuring charge recognized in the first
quarter of 1996, operating income for the first six months of 1996 increased 11%
to $192.5 million, compared to $174.2 million for first six months of 1995.
Excluding the 1996 restructuring charge, operating income as a percentage of
revenues would have been 8.5% for the six-month period ended June 30, 1996,
compared to 8.1% for the corresponding period in 1995. This operating income
improvement was experienced in the Corporation's domestic power tools, security
hardware, plumbing products, and household products businesses as well as in the
Corporation's Consumer businesses in Latin America and in its Commercial
fastening systems business.
Gross margin as a percentage of revenues was 35.3% and 36.1% for the three-
and six-month periods ended June 30, 1996, compared to 36.9% and 37.0% for the
corresponding periods in 1995. This decrease in gross margin percentage was
primarily attributable to several factors. First, actions taken by the
Corporation in 1996 to reduce inventory levels resulted in lower production
levels during 1996 and the associated lower overhead absorption negatively
impacted gross margin. Also, excess inventories were liquidated during the
period, often at reduced margin. Second, competitive pressures did not permit
the Corporation's businesses to institute certain price increases and, in
some cases, caused the businesses to reduce prices from prior year levels.
Finally, gross margin was negatively affected by changes in the mix of products
sold.
Decreases in gross margin as a percentage of revenues during the three and
six months ended June 30, 1996, were more than offset by improvements in
marketing and administrative expenses. Marketing and administrative expenses as
a percentage of total revenues for the three- and six-month periods ended June
30, 1996, were 26.7% and 27.6%, compared to 28.7% and 28.9% for the comparable
periods in 1995 as the benefits of the Corporation's cost reduction initiatives
and the realization of the leverage effects of higher sales volumes on fixed and
semi-fixed costs continued to be recognized.
Net interest expense (interest expense less interest income) for the three-
and six-month periods ended June 30, 1996, was $35.9 million and $73.8 million,
respectively, compared to $47.5 million and $94.3 million for the three- and
six-month periods ended July 2, 1995, respectively. The lower level of net
interest expense was primarily the result of reduced debt levels in 1996 as
compared to 1995 as the Corporation used the proceeds from the sales of its
discontinued operations and cash generated by operations to repay debt.
The Corporation maintains a portfolio of interest rate hedge instruments for
the purpose of managing interest rate exposure. During the six months ended June
30, 1996, the Corporation decreased its portfolio through the termination of a
variable to fixed rate interest rate swap of $50.0 million notional amount and
through the scheduled maturity of a rate basis swap with a notional principal
amount of $50.0 million. Deferred gains and losses on the early termination of
interest rate swaps as of June 30, 1996, were not significant. In addition,
during the six months ended June 30, 1996, the Corporation entered into an
additional $250.0 million notional amount of interest rate swaps, maturing in
1999, that swap from United States dollars into foreign currencies. Of that
amount, $100.0 million swap from fixed rate United States dollars (with a
weighted average fixed rate of 6.66%) into fixed rate Japanese yen (with a
weighted average fixed rate of 1.99%), $100.0 million swap from fixed rate
United States dollars (with a weighted average fixed rate of 6.64%) into fixed
rate Deutsche marks (with a weighted average fixed rate of 4.73%), and $50.0
million swap from fixed rate United States dollars (with a weighted average
fixed rate of 6.77%) into fixed rate Dutch guilders (with a weighted average
fixed rate of 4.58%).
The repayment of short-term borrowings during the first six months of 1996
with the proceeds from the sale of PRC Inc. and other reductions in borrowings
during that period, coupled with the changes in the Corporation's interest rate
hedge portfolio described above, had the effect of decreasing the Corporation's
variable rate debt to total debt ratio from 43% at December 31, 1995, to 38% at
June 30, 1996.
Other expense for the three- and six-month periods ended June 30, 1996, and
July 2, 1995, primarily includes the discount on the sale of receivables.
For the three months ended June 30, 1996, income tax expense of $16.8
million was recognized on the Corporation's pre-tax earnings from continuing
operations of $62.1 million, compared to income tax expense of $14.2 million on
pre-tax earnings from continuing operations of $42.3 million for the
corresponding quarter in 1995. For the six months ended June 30, 1996, income
tax expense of $15.0 million was recognized on the Corporation's pre-tax
earnings from continuing operations of $27.9 million, compared to income tax
expense of $26.2 million on pre-tax earnings from continuing operations of $73.4
million for the corresponding period in 1995. The Corporation's reported tax
rate on its continuing operations was 27% for the quarter ended June 30, 1996,
as compared to 34% for the corresponding quarter in 1995. Excluding the income
tax benefit of $14.6 million recognized on the restructuring charge of $81.6
million recognized in the first quarter of 1996, the Corporation's reported tax
rate on its continuing operations for the six months ended June 30, 1996, would
have been 27% compared to a tax rate of 36% for the corresponding period in
1995.
The lower rate for the three and six months ended June 30, 1996, as
compared to 1995 is due to two factors. First, the reported tax rate on
continuing operations of 34% and 36% for the three- and six-month periods ended
July 2, 1995, was abnormally high due to the effects of the allocation of taxes
associated with PRC to discontinued operations. Because the Corporation recorded
income tax expense during the first three quarters of 1995 based upon estimated
taxable earnings that included PRC, the allocation of income tax expense
attributable to PRC to earnings from discontinued operations caused the
Corporation's tax rate on continuing operations to fluctuate during each of the
quarters in the year ended December 31, 1995. Excluding the effects of the tax
benefit that resulted from the reduction of its deferred tax asset valuation
allowance in the fourth quarter of 1995, the Corporation's reported tax rate on
continuing operations was 33% for the year ended December 31, 1995. Second,
higher taxable earnings in the United States and a change in the mix of
operating income outside the United States from those subsidiaries in higher
rate tax jurisdictions to those subsidiaries in lower rate tax jurisdictions or
subsidiaries that profit from the utilization of net operating loss
carryforwards also contributed to a lower tax rate on continuing operations
during the three- and six-month periods ended June 30, 1996, compared to the
corresponding periods in 1995.
FINANCIAL CONDITION
Operating activities of continuing operations before the sale of receivables
generated cash of $114.8 million for the six months ended June 30, 1996,
compared to $60.1 million of cash generated for the six months ended July 2,
1995. This improvement was primarily attributable to three factors. First, the
Corporation's focus on reducing inventories during 1996 resulted in inventories
which were essentially flat to the prior year end, compared to the significant
build in inventories experienced during the first half of 1995 when the
Corporation repositioned its global power tools line. The improvement in
inventory management experienced in 1996 was partially offset by the timing of
certain accrual and expense payments. In particular, a decrease was experienced
in the level of trade accounts payable at June 30, 1996, from the prior year end
compared to the increase that occurred in the corresponding period in 1995 when
the Corporation sought to increase vendor terms to improve operating cash flow.
Finally, excluding the non-cash effects of the Corporation's 1996 restructuring,
improved operating income from continuing operations during the six months ended
June 30, 1996, over the corresponding period in 1995 contributed to increased
cash generation.
Investing activities for the six months ended June 30, 1996, generated cash
of $349.7 million compared to $3.7 million of cash usage in the corresponding
period in 1995. The improvement in cash flow from investing activities is
primarily attributable to the receipt of proceeds from the sale of PRC Inc., net
of cash selling expenses paid, in the amount of $414.2 million in the first half
of 1996 compared to the receipt of proceeds from the sale of RSI in the amount
of $60.0 million in the first half of 1995. Both PRC Inc. and RSI were
components of the Corporation's discontinued PRC segment.
Financing activities used cash of $394.0 million for the six months ended
June 30, 1996, compared to cash generated of $78.7 million in the first six
months of 1995. The additional use of cash associated with financing activities
in the first half of 1996 compared to 1995 relates primarily to two factors.
First, the Corporation reduced short-term borrowings with the net proceeds
received from the sale of PRC Inc. Second, improved operating cash flow
permitted to the Corporation to reduce its net long-term debt by $27.4 million
at June 30, 1996 from the December 31, 1995 level. Due, in part, to the
Corporation's replacement of its former revolving credit facility with the new
unsecured credit facility, more fully described in Note 7 of Notes to
Consolidated Financial Statements, average debt maturity increased to 4.9 years
at June 30, 1996, from 4.0 years at December 31, 1995.
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 bond rating agencies and banks, is
defined by the Corporation as cash available for debt reduction (including
short-term borrowings), prior to the effects of cash received from divested
businesses, equity offerings, and sales of receivables. Free cash flow, a more
inclusive measure of the Corporation's cash flow generation than cash flow from
operating activities included in the Consolidated Statement of Cash Flows,
considers items such as cash used for capital expenditures and dividends, as
well as net cash inflows or outflows from hedging activities. During the six
months ended June 30, 1996, the Corporation experienced positive free cash flow
of $22.3 million compared to negative free cash flow of $77.1 million for the
corresponding period in 1995. This $99.4 million increase in free cash flow
during the first half of 1996 over the 1995 level was primarily the result of
improved cash flows from operating activities.
As more fully described in Note 7 of Notes to Consolidated Financial
Statements, in April 1996, the Corporation replaced its former unsecured
revolving credit facility, which expired in 1997, with a new unsecured revolving
credit facility (the Credit Facility), expiring in 2001. The Credit Facility
consists of two separate unsecured revolving credit facilities, both of which
include certain covenants that require the Corporation to meet specified minimum
cash flow coverage and maximum leverage (debt to equity) ratios. As of June 30,
1996, the Corporation was well within the limits specified for the cash flow
coverage and leverage ratios and was in compliance with all other covenants and
provisions of the Credit Facility.
The Corporation will continue to have cash requirements to support seasonal
working capital needs and capital expenditures, to pay interest, to service
debt, and to complete previously announced restructuring plans. In order to meet
these cash requirements, the Corporation intends to use internally generated
funds and to borrow under the Credit Facility or under short-term borrowing
facilities. Management believes that cash generated from these sources will be
adequate to meet the Corporation's cash requirements over the next 12 months.
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 is also involved in litigation and administrative
proceedings involving employment matters and commercial disputes. Some of these
lawsuits include claims for punitive as well as compensatory damages. The
Corporation, using current product sales data and historical trends, actuarially
calculates the estimate of its current exposure for product liability claims for
amounts in excess of established deductibles and accrues for the estimated
liability as described above up to the limits of the deductibles. All other
claims and lawsuits are handled on a case-by-case basis.
The Corporation also is involved in lawsuits and administrative proceedings
with respect to claims involving the discharge of hazardous substances into the
environment. Certain of these claims assert damages and liability for remedial
investigations and cleanup costs with respect to sites at which the Corporation
has been identified as a potentially responsible party under federal and state
environmental laws and regulations (off-site). Other matters involve sites that
the Corporation currently owns and operates or has previously sold (on-site).
For off-site claims, the Corporation makes an assessment of the cost involved
based on environmental studies, prior experience at similar sites, and the
experience of other named parties. The Corporation also considers the ability of
other parties to share costs, the percentage of the Corporation's exposure
relative to all other parties, and the effects of inflation on these estimated
costs. For on-site matters associated with properties currently owned, an
assessment is made as to whether an investigation and remediation would be
required under applicable federal and state law. For on-site matters associated
with properties previously sold, the Corporation considers the terms of sale as
well as applicable federal and state laws to determine if the Corporation has
any remaining liability. If the Corporation is determined to have potential
liability for properties currently owned or previously sold, an estimate is made
of the total cost of investigation and remediation and other potential costs
associated with the site.
Reference is made to the discussion in Item 1 of Part I of the
Corporation's Annual Report of Form 10-K for the year ended December 31, 1995,
in respect of the suit filed by the owners of a farm that is adjacent to the
Corporation's Hampstead, Maryland facility. The United States District Court for
the District of Maryland (Northern Division) granted the Corporation's motion
for summary judgment on the remaining claim under the Resource Conservation and
Recovery Act. Subsequent to the Court's grant of the motion for summary
judgment, plaintiffs appealed the Court's decision together with the Court's
earlier decision dismissing the other claims. That appeal is pending before the
United States Court of Appeals for the Fourth Circuit.
Following the decision of the United States District Court for the District
of Maryland (Northern Division) granting the Corporation's motion for summary
judgment, plaintiffs filed suit against the Corporation in the Circuit Court for
Baltimore County, Maryland asserting that contamination, allegedly emanating
from the facility, has migrated in groundwater and has adversely affected
plaintiffs' property. Plaintiffs' claims are substantially identical to the
state claims previously dismissed by the United States District Court for the
District of Maryland (Northern Division). Plaintiffs seek various forms of
relief, including compensatory damages of $20 million and punitive damages of
$100 million. The Corporation believes that plaintiffs' claims are without merit
and intends to defend vigorously against the allegations made in this matter.
Management is of the opinion that the ultimate resolution of this matter will
not have a material adverse effect on the Corporation.
In June 1996, Emerson Electric Company ("Emerson") filed suit against the
Corporation in the United States District Court for the Southern District of New
York alleging that the Corporation made false representations in connection with
the sale of the Mallory Controls business to Emerson in 1991. Emerson's suit
includes claims for negligent misrepresentation and fraud as well as breach of
contract, and asserts liability for contribution relating to the settlement by
Emerson of a suit arising out of the Mallory Controls business. Emerson seeks
damages in the amount of $15 million on the negligent misrepresentation, fraud
and breach of contract claims, and damages of not less than $8 million on the
contribution claim. The Corporation believes that Emerson's claims are without
merit and intends to defend vigorously against the allegations made in this
matter. Management is of the opinion that the ultimate resolution of this matter
will not have a material adverse effect on the Corporation.
In January 1996, Liberty Mutual Insurance Company ("Liberty Mutual") filed
suit in the Superior Court in Massachusetts against the Corporation and certain
of its subsidiaries seeking a declaratory judgment that various insurance
policies issued by Liberty Mutual to the Corporation did not cover liability and
expenses relating to certain on-site and off-site environmental contamination.
The Corporation and subsidiary defendants removed the case to the United States
District Court for the District of Massachusetts and filed a counterclaim
asserting, among other things, bad faith, unlawful business practices and breach
of contract on the part of Liberty Mutual. The Corporation recently filed a
separate suit in the Circuit Court for Baltimore County, Maryland against
Liberty Mutual and certain other primary and excess insurance carriers asserting
that various insurance policies issued by Liberty Mutual and the other carriers
cover liability and expenses associated with the Corporation's Hampstead,
Maryland facility.
The Corporation's estimate of the costs associated with legal, product
liability, and environmental exposures is accrued if, in management's judgment,
the likelihood of a loss is probable. These accrued liabilities are not
discounted. Insurance recoveries for environmental and certain general liability
claims are not recognized until realized.
As of June 30, 1996, the Corporation has no known probable but inestimable
exposures for awards and assessments in connection with environmental matters
and other litigation and administrative proceedings that could have a material
effect on the Corporation.
Management is of the opinion that the amounts accrued for awards or
assessments in connection with the environmental matters and other litigation
and administrative proceedings to which the Corporation is a party are adequate
and, accordingly, ultimate resolution of these matters will not have a material
adverse effect on the Corporation.
ITEM 2 CHANGE IN SECURITIES
As noted above in Note 9 of Notes to Consolidated Financial Statements, the
Corporation's Stockholder Rights Plan expired in accordance with its terms in
April 1996. As a result, the Preferred Share Purchase Rights that previously
traded in tandem with the Corporation's Common Stock have terminated and the
Corporation has deregistered its Preferred Share Purchase Rights under the
Securities Exchange Act of 1934.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
Exhibit No. Description
10(d)(i) The Black & Decker Executive Deferred Compensation
Plan, included in the Corporation's Quarterly Report
on Form 10-Q for the quarter ended October 3, 1993,
is incorporated herein by reference.
10(d)(ii) Amendment to The Black & Decker Executive Deferred
Compensation Plan dated as of July 17, 1996.
11 Computation of Earnings Per Share.
12 Computation of Ratios.
27 Financial Data Schedule.
99 Unaudited Consolidated Balance Sheet as of July 2,
1995 of The Black & Decker Corporation and
Subsidiaries (reclassified to identify separately the
net assets of the Corporation's discontinued
information technology and services segment)
The Corporation did not file any reports on Form 8-K during the three-month
period ended June 30, 1996.
All other items were not applicable.
THE BLACK & DECKER CORPORATION
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE BLACK & DECKER CORPORATION
By /s/ THOMAS M. SCHOEWE
Thomas M. Schoewe
Vice President and Chief Financial Officer
Principal Accounting Officer
By /s/ STEPHEN F. REEVES
Stephen F. Reeves
Corporate Controller
Date: August 12, 1996