-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NDaIP2eyocDbA0hMhNYYyAw1x8zdB9hjT/N70WiFAlT7dKEE01rs8RS6/iYSGKMT npK6GOiSxrDHCBXNJR3GGQ== 0000012355-00-000006.txt : 20000216 0000012355-00-000006.hdr.sgml : 20000216 ACCESSION NUMBER: 0000012355-00-000006 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000215 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLACK & DECKER CORP CENTRAL INDEX KEY: 0000012355 STANDARD INDUSTRIAL CLASSIFICATION: METALWORKING MACHINERY & EQUIPMENT [3540] IRS NUMBER: 520248090 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 333-03593 FILM NUMBER: 545582 BUSINESS ADDRESS: STREET 1: 701 E JOPPA RD CITY: TOWSON STATE: MD ZIP: 21286 BUSINESS PHONE: 4107163900 MAIL ADDRESS: STREET 1: 701 EAST JOPPA ROAD STREET 2: MAIL STOP TW 290 CITY: TOWSON STATE: MD ZIP: 21286 FORMER COMPANY: FORMER CONFORMED NAME: BLACK & DECKER MANUFACTURING CO DATE OF NAME CHANGE: 19850206 10-K405 1 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER December 31, 1999 1-1553 - ----------------------------------- ----------------------------------- THE BLACK & DECKER CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Maryland 52-0248090 - ----------------------------------- ----------------------------------- (State of Incorporation) (I.R.S. Employer Identification Number) Towson, Maryland 21286 - ----------------------------------- ----------------------------------- (Address of principal (Zip Code) executive offices) Registrant's telephone number, including area code: 410-716-3900 - -------------------------------------------------------------------------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered - ----------------------------------- ----------------------------------- Common Stock, par value New York Stock Exchange $.50 per share Pacific Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None --------------------- 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 twelve 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. Yes X No ___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (X) The aggregate market value of the voting stock held by non-affiliates of the registrant as of January 28, 2000, was $3,280,608,594. The number of shares of Common Stock outstanding as of January 28, 2000, was 87,192,255. The exhibit index as required by Item 601(a) of Regulation S-K is included in Item 14 of Part IV of this report. Documents Incorporated by Reference: Portions of the registrant's definitive Proxy Statement for the 2000 Annual Meeting of Stockholders are incorporated by reference in Part III of this Report. 1 PART I ITEM 1. BUSINESS (a) GENERAL DEVELOPMENT OF BUSINESS The Black & Decker Corporation (collectively with its subsidiaries, the Corporation), incorporated in Maryland in 1910, is a global marketer and manufacturer of quality products used in and around the home and for commercial applications. With products and services marketed in over 100 countries, the Corporation enjoys worldwide recognition of strong brand names and a superior reputation for quality, design, innovation, and value. The Corporation is one of the world's leading producers of power tools, power tool accessories, and residential security hardware, and the Corporation's product lines hold leading market share positions in these industries. The Corporation is a major global supplier of engineered fastening and assembly systems. The Corporation is one of the leading producers of faucets in North America. These assertions are based on total volume of sales of products compared to the total market for those products and are supported by market research studies sponsored by the Corporation as well as independent industry statistics available through various trade organizations and periodicals, internally generated market data, and other sources. As more fully described in Management's Discussion and Analysis of Financial Condition and Results of Operations included in Item 7 of Part II of this report under the caption "Strategic Repositioning" and in Note 2 of Notes to Consolidated Financial Statements included in Item 8 of Part II of this report, in January 1998, the Board of Directors approved a comprehensive strategic repositioning of the Corporation, consisting of three separate elements. The Corporation completed the first element of the strategic repositioning plan in 1998 through the divestiture of its non-strategic businesses: True Temper Sports, its recreational products business; Emhart Glass, its glass container-forming and inspection equipment business; and the household products businesses (other than certain assets associated with the Corporation's cleaning and lighting business) in North America, Central America, the Caribbean, South America (excluding Brazil), and Australia. In connection with the divestitures of these businesses during 1998, the Corporation received aggregate cash proceeds, net of selling expenses and taxes paid, of approximately $625 million and recognized a pre-tax gain on sale of businesses of $114.5 million ($16.5 million after tax). The net proceeds from these divestitures were utilized in the repurchase of a portion of the Corporation's outstanding common stock and to fund the restructuring program described below. The second element of the strategic repositioning plan - the repurchase of approximately 10% of its outstanding common stock over a two-year period - was completed during 1999 when the Corporation repurchased 610,900 shares of common stock at an aggregate cost of $32.1 million, supplementing the 9,025,400 shares of common stock repurchased during 1998 at an aggregate cost of $464.3 million. Net proceeds from the sale of divested businesses were used to fund the stock repurchase program. As of December 31, 1999, the Corporation neared completion of the third element of the strategic repositioning plan - a restructuring program undertaken to reduce fixed costs. The Corporation commenced the restructuring program and recorded a restructuring charge of $164.7 million during 1998. During 1999, the Corporation recognized $13.1 million of additional restructuring and exit costs, offset by a gain realized in 1999 on the sale of a facility, exited as part of the restructuring actions taken in 1998, that had a fair value exceeding its net book value at the time of the 1998 charge and by the reversal of $4.2 million of accruals, which were no longer required. As a consequence of the strategic repositioning plan, the Corporation elected to change the basis upon which it evaluates goodwill for impairment effective January 1, 1998. The change, from the undiscounted cash flow basis to the discounted cash flow basis, resulted in the write-off of $900 million of goodwill through a non-cash charge to operations in the first quarter of 1998. For additional information about the strategic repositioning plan and the change in accounting with respect to the measurement of goodwill impairment, see Management's Discussion and Analysis of Financial Condition and Results of Operations included in Item 7 of Part II of this report under the caption "Strategic Repositioning" and Note 2 of Notes to Consolidated Financial Statements included in Item 8 of Part II of this report. (b) FINANCIAL INFORMATION ABOUT BUSINESS SEGMENTS The Corporation operates in three reportable business segments: Power Tools and Accessories, including consumer and professional power tools and accessories, electric lawn and garden tools, electric cleaning and lighting products, and product service; Hardware and Home Improvement, including security hardware and plumbing products; and Fastening and Assembly Systems. For additional information about these segments, see Note 17 of Notes to Consolidated Financial Statements included in Item 8 of Part II, and Management's Discussion and Analysis of Financial Condition and Results of Operations included in Item 7 of Part II of this report. (c) NARRATIVE DESCRIPTION OF THE BUSINESS The following is a brief description of each of the Corporation's reportable business segments. Power Tools and Accessories - --------------------------- The Power Tools and Accessories segment has worldwide responsibility for the manufacture and sale of consumer (home use) and professional power tools and accessories, outdoor products (composed of electric lawn and garden tools), and electric cleaning and lighting products, as well as for product service. In addition, the Power Tools and Accessories segment has responsibility for the sale of plumbing products to customers outside of the United States and Canada and for sales of the retained portion of the household products business, which is principally in Europe and Brazil. Power tools 2 include both corded and cordless electric power tools, such as drills, screwdrivers, saws, sanders, and grinders; Workmate(R) project centers and related products; and bench and stationary machinery. Accessories include accessories and attachments for power tools. Outdoor products include a variety of both corded and cordless electric lawn and garden tools, such as hedge and yard (string) trimmers, lawn mowers, edgers, blower/vacuums, power sprayers, and related lawn and garden accessories. Electric cleaning and lighting products include cordless upright and hand-held vacuums, flexible flashlights, and wet scrubbers. Power tools, electric lawn and garden tools, electric cleaning and lighting products, and related accessories are marketed around the world under the BLACK & DECKER name as well as other trademarks and trade names, including, without limitation, DEWALT; ELU; VERSAPAK; WOOD HAWK; WIZARD; PIVOT DRIVER; SANDSTORM; WORKMATE; FIRESTORM; MOUSE; QUANTUM PRO; SCRUGUN; HOLGUN; WILDCAT; POWERDRIVER; QUATTRO; ALLIGATOR; POWERFILE; TWISTLOK; VERSA-CLUTCH; GROOM `N' EDGE; VAC `N' MULCH; MASTERVAC; LEAFBUSTER; STRIMMER; POWER COMBI; REFLEX; HEDGE HOG; HEDGE HOG XB; GRASS HOG; LEAF HOG; EDGE HOG; LOG HOG; 4 X 4; DUSTBUSTER; SCUMBUSTER; FLOORBUSTER; SNAKELIGHT; SPOTLITER; SAFELITER; SERIES 20; SERIES 40; SERIES 60; B&D; PIRANHA; ROCK CARBIDE; BULLET; PILOT POINT; SCORPION ANTI-SLIP; MAGNETIC DRILL AND DRIVE SYSTEM; RAPID LOAD; TOUGH PACK; and MASTER SERIES. The composition of the Corporation's sales by product groups for 1999, 1998, and 1997 is included in Note 17 of Notes to Consolidated Financial Statements included in Item 8 of Part II of this report. Within each product group shown, there existed no individual product that accounted for greater than 10% of the Corporation's consolidated sales for 1999, 1998, or 1997. The Corporation's product service program supports its power tools, electric lawn and garden tools, and electric cleaning and lighting products. Replacement parts and product repair services are available through a network of company-operated service centers, which are identified and listed in product information material generally included in product packaging. At December 31, 1999, there were approximately 135 such service centers, of which roughly two-thirds were located in the United States. The remainder were located around the world, primarily in Canada, Europe, and Asia. These company-operated service centers are supplemented by several hundred authorized service centers operated by independent local owners. The Corporation also operates a reconditioning center in which power tools, electric lawn and garden tools, and electric cleaning and lighting products are reconditioned and then re-sold through numerous company-operated factory outlets and service centers. Most of the Corporation's consumer power tools, electric lawn and garden tools, and electric cleaning and lighting products sold in the United States carry a two-year warranty, pursuant to which the consumer can return defective products during the two years following the purchase in exchange for a replacement product or repair at no cost to the consumer. Most of the Corporation's professional power tools sold in the United States carry a one-year warranty with similar provisions. Products sold outside of the United States generally have similar warranty arrangements. Such arrangements vary, however, depending upon local market conditions and laws and regulations. The Corporation's product offerings in the Power Tools and Accessories segment are sold primarily to retailers, wholesalers, distributors, and jobbers, although some reconditioned power tools, electric lawn and garden tools, and electric cleaning and lighting products are sold through company-operated service centers and factory outlets directly to end users. Sales to The Home Depot, one of the segment's customers, accounted for greater than 10% of the Corporation's consolidated sales for 1999, 1998, and 1997. For additional information regarding sales to The Home Depot, see Note 17 of Notes to Consolidated Financial Statements included in Item 8 of Part II of this report. The principal materials used in the manufacturing of products in the Power Tools and Accessories segment are plastics, aluminum, copper, steel, certain electronic components, and batteries. These materials are used in various forms. For example, aluminum or steel may be used in the form of wire, sheet, bar, and strip stock. The materials used in the various manufacturing processes are purchased on the open market, and the majority are available through multiple sources and are in adequate supply. The Corporation has experienced no significant work stoppages to date as a result of shortages of materials. The Corporation has certain long-term commitments for the purchase of various component parts and raw materials and believes that it is unlikely that any of these agreements would be terminated prematurely. Alternate sources of supply at competitive prices are available for most, if not all, materials for which long-term commitments exist. The Corporation believes that the termination of any of these commitments would not have a material adverse effect on operations. From time to time, the Corporation enters into commodity hedges on certain raw materials used in the manufacturing process to reduce the risk of market price fluctuations. As of December 31, 1999, the amount of product under commodity hedges was not material to the Corporation. As a global marketer and manufacturer, the Corporation purchases materials and supplies from suppliers in many different countries around the world. Certain of the finished products and component parts are purchased from suppliers that have manufacturing operations in mainland China. In addition, the Corporation carries on manufacturing operations in that country. China has been granted Normal Trade Relations (NTR) status through early July 2000, and currently there are no significant trade restrictions or tariffs imposed on such products. The Corporation has investigated alternate sources of supply and production arrangements in case the NTR status is not extended. Alternative sources of supply are available, or can be developed, for many of these products, and alternative production arrangements can be made available at certain of the Corporation's other manufacturing facilities. The Corporation believes that, although there could be some disruption in the supply of certain of these finished products and component parts if China's NTR status is not extended or if significant trade restrictions or tariffs are imposed, the impact would not have a material adverse effect on the operating results of the Power Tool and Accessories segment over the 3 long term. However, the Corporation believes that, in the event that China's NTR status is not extended or significant trade restrictions or tariffs are imposed, the impact would likely have a significant negative effect on the operating results of the Power Tool and Accessories segment, and therefore the Corporation, over the short term. For purposes of evaluating the impact on the operating results of the Power Tools and Accessories segment in the event that China's NTR status is not extended or that significant trade restrictions or tariffs are imposed, the Corporation defines the long term as an estimated period of time in excess of 18 to 24 months from inception of such action and the short term as an estimated period of time from inception of such action extending for the next 18 to 24 months. Principal manufacturing and assembly facilities of the power tools, electric lawn and garden tools, electric cleaning and lighting products, and accessories businesses in the United States are located in Fayetteville, North Carolina, and Easton and Hampstead, Maryland. Principal distribution facilities in the United States, other than those located at the manufacturing facilities listed above, are located in Fort Mill, South Carolina, and Rancho Cucamonga, California. Principal manufacturing and assembly facilities of the power tools, electric lawn and garden tools, electric cleaning and lighting products, and accessories businesses outside of the United States are located in Buchlberg, Germany; Perugia, Italy; Spennymoor and Rotherham, England; Mexicali, Mexico; Uberaba, Brazil; and Suzhou, China. The principal distribution facilities outside of the United States, other than those located at the manufacturing facilities listed above, were located in Northampton, England, and Idstein, Germany. The Idstein facility was sold in late 1999 and is being replaced in 2000 by a managed central-European distribution center in Tongeren, Belgium. For additional information with respect to these and other properties owned or leased by the Corporation, see Item 2, "Properties." The Corporation holds various patents and licenses on many of its products and processes in the Power Tools and Accessories segment. Although these patents and licenses are important, the Corporation is not materially dependent on such patents or licenses with respect to its operations. The Corporation holds various trademarks that are employed in its businesses and operates under various trade names, some of which are stated above. The Corporation believes that these trademarks and trade names are important to the marketing and distribution of its products. A significant portion of the Corporation's sales in the Power Tools and Accessories segment is derived from the do-it-yourself and home modernization markets, which generally are not seasonal in nature. However, sales of certain consumer and professional power tools tend to be higher during the period immediately preceding the Christmas gift-giving season, while the sales of most electric lawn and garden tools are at their peak during the winter and early spring period. Most of the Corporation's other product lines within this segment generally are not seasonal in nature, but may be influenced by other general economic trends. The Corporation is one of the world's leaders in the manufacturing and marketing of portable power tools, electric lawn and garden tools, and accessories. Worldwide, the markets in which the Corporation sells these products are highly competitive on the basis of price, quality, and after-sale service. A number of competing domestic and foreign companies are strong, well-established manufacturers that compete on a global basis. Some of these companies manufacture products that are competitive with a number of the Corporation's product lines. Other competitors restrict their operations to fewer categories, and some offer only a narrow range of competitive products. Competition from certain of these manufacturers has been intense in recent years and is expected to continue. Hardware and Home Improvement - ----------------------------- The Hardware and Home Improvement segment has worldwide responsibility for the manufacture and sale of security hardware products, for the manufacture of plumbing products, and for the sale of plumbing products to customers in the United States and Canada. Security hardware products consist of residential and commercial door locksets, including high-security and electronic locks and locking devices; door closers, hinges and exit devices; and master keying systems. Plumbing products consist of a variety of conventional and decorative lavatory, kitchen, and tub and shower faucets, bath accessories, and replacement parts. Security hardware products are marketed under a variety of trademarks and trade names, including, without limitation, KWIKSET; KWIKSET PLUS; TITAN; TITAN COMMERCIAL SERIES; ACCESSONE; LOCKMINDER; NIGHTSIGHT; THE SOCIETY BRASS COLLECTION; BLACK & DECKER; BLACK & DECKER PLUS; GEO; DOM; DIAMANT; PENTAGON; NEMEF; and CORBIN CO. Plumbing products are marketed under the trademarks and trade names PRICE PFISTER; BLACK & DECKER; THE PFABULOUS PFAUCET WITH THE PFUNNY NAME; THE PFABULOUS PFAUCET. PFOREVER; PFOREVER WARRANTY; PFILTER PFAUCET; THE SOCIETY BRASS COLLECTION; TWISTPFIT; JOB PACK; GENESIS; CARMEL; TRIBECA; PARISA; GEORGETOWN; SAVANNAH; EUROSTYLE; and MATCHMAKERS. The composition of the Corporation's sales by product groups for 1999, 1998, and 1997 is included in Note 17 of Notes to Consolidated Financial Statements included in Item 8 of Part II of this report. Within each product group shown, there existed no individual product that accounted for greater than 10% of the Corporation's consolidated sales for 1999, 1998, or 1997. Most of the Corporation's security hardware products sold in the United States carry a warranty, pursuant to which the consumer can return defective product during the warranty term in exchange for a replacement product at no cost to the consumer. Warranty terms vary by product and range from a 10-year to a lifetime warranty with respect to mechanical operations and from a 5-year to a lifetime warranty with respect to finish. Products sold outside of the United States for residential use generally have similar warranty arrangements. Such arrangements vary, however, depending upon local market conditions and laws and regulations. Most of the Corporation's plumbing products sold in the United States carry a lifetime warranty with respect to function and a limited lifetime warranty with respect to finish, pursuant to which the consumer can return defective product in exchange for a replacement product or repair at no cost to the consumer. 4 The Corporation's product offerings in the Hardware and Home Improvement segment are sold primarily to retailers, wholesalers, distributors, and jobbers. Certain security hardware products are sold to commercial, institutional, and industrial customers. Sales to The Home Depot, one of the segment's customers, accounted for greater than 10% of the Corporation's consolidated sales for 1999, 1998, and 1997. For additional information regarding sales to The Home Depot, see Note 17 of Notes to Consolidated Financial Statements included in Item 8 of Part II of this report. The principal materials used in the manufacturing of products in the Hardware and Home Improvement segment are plastics, aluminum, steel, brass, zamak, and ceramics. The materials used in the various manufacturing processes are purchased on the open market, and the majority are available through multiple sources and are in adequate supply. The Corporation has experienced no significant work stoppages to date as a result of shortages of materials. The Corporation has certain long-term commitments for the purchase of various component parts and raw materials and believes that it is unlikely that any of these agreements would be terminated prematurely. Alternate sources of supply at competitive prices are available for most, if not all, materials for which long-term commitments exist. The Corporation believes that the termination of any of these commitments would not have a material adverse effect on operations. From time to time, the Corporation enters into commodity hedges on certain raw materials used in the manufacturing process to reduce the risk of market price fluctuations. As of December 31, 1999, the amount of product under commodity hedges was not material to the Corporation. As a global marketer and manufacturer, the Corporation purchases materials and supplies from suppliers in many different countries around the world. Certain of the finished products and component parts are purchased from suppliers that have manufacturing operations in mainland China. As previously noted, China has been granted Normal Trade Relations (NTR) status through early July 2000, and currently there are no significant trade restrictions or tariffs imposed on such products. The Corporation has investigated alternate sources of supply and production arrangements in case the NTR status is not extended. Alternative sources of supply are available, or can be developed, for many of these products, and alternative production arrangements can be made available at certain of the Corporation's other manufacturing facilities. The Corporation believes that, although there could be some disruption in the supply of certain of these finished products and component parts if China's NTR status is not extended or if significant trade restrictions or tariffs are imposed, the impact would not have a material adverse effect on the operating results of the Hardware and Home Improvement segment. Principal manufacturing and assembly facilities of the Hardware and Home Improvement segment in the United States are located in Anaheim and Pacoima, California; Denison, Texas; Waynesboro, Georgia; and Bristow, Oklahoma. Principal manufacturing and assembly facilities of the Hardware and Home Improvement segment outside of the United States are located in Bruhl, Germany; Mexicali, Mexico; and Apeldoorn, Netherlands. For additional information with respect to these and other properties owned or leased by the Corporation, see Item 2, "Properties." The Corporation holds various patents and licenses on many of its products and processes in the Hardware and Home Improvement segment. Although these patents and licenses are important, the Corporation is not materially dependent on such patents or licenses with respect to its operations. The Corporation holds various trademarks that are employed in its businesses and operates under various trade names, some of which are stated above. The Corporation believes that these trademarks and trade names are important to the marketing and distribution of its products. A significant portion of the Corporation's sales in the Hardware and Home Improvement segment is derived from the do-it-yourself and home modernization markets, which generally are not seasonal in nature, but may be influenced by trends in the residential and commercial construction markets and other general economic trends. The Corporation is one of the world's leading producers of residential security hardware and is one of the leading producers of faucets in North America. Worldwide, the markets in which the Corporation sells these products are highly competitive on the basis of price, quality, and after-sale service. A number of competing domestic and foreign companies are strong, well-established manufacturers that compete on a global basis. Some of these companies manufacture products that are competitive with a number of the Corporation's product lines. Other competitors restrict their operations to fewer categories, and some offer only a narrow range of competitive products. Competition from certain of these manufacturers has been intense in recent years and is expected to continue. Fastening and Assembly Systems - ------------------------------ The Corporation's Fastening and Assembly Systems segment has worldwide responsibility for the manufacture and sale of an extensive line of metal and plastic fasteners and engineered fastening systems for commercial applications, including blind riveting, stud welding and assembly systems, specialty screws, prevailing torque nuts and assemblies, insert systems, metal and plastic fasteners, and self-piercing riveting systems. The fastening and assembly systems products are marketed under a variety of trademarks and trade names, including, without limitation, EMHART FASTENING TEKNOLOGIES; EMHART; DODGE; GRIPCO; GRIPCO ASSEMBLIES; HELICOIL; NPR; PARKER-KALON; POP; POP-LOK; POWERLINK 30; T-RIVET; ULTRA-GRIP; TUCKER; WARREN; DRIL-KWIK; PARABOLT; JACK NUT; KALEI; PLASTIFAST; PLASTI-KWICK; POPMATIC; POPNUT; POP-SERT; SWAGEFORM; WELDFAST; SWS; SPLITFAST; NUT-FAST; and WELL-NUT. The composition of the Corporation's sales by product groups for 1999, 1998, and 1997 is included in Note 17 of Notes to Consolidated Financial Statements included in Item 8 of Part II of this report. Within each product group shown, there existed no individual product that accounted for greater than 10% of the Corporation's consolidated sales for 1999, 1998, or 1997. The principal markets for these products include the automotive, transportation, construction, electronics, aerospace, machine tool, and appliance industries. Substantial sales are made to automotive manufacturers worldwide. 5 Products are marketed directly to customers and also through distributors and representatives. These products face competition from many manufacturers in several countries. Product quality, performance, reliability, price, delivery, and technical and application engineering services are the primary competitive factors. Except for sales to automotive manufacturers, which historically schedule plant shutdowns during July and August of each year, there is little seasonal variation. The Corporation owns a number of United States and foreign patents, trademarks, and license rights relating to the fastening and assembly systems business. While the Corporation considers those patents, trademarks, and license rights to be valuable, it is not materially dependent upon such patents or license rights with respect to its operations. Principal manufacturing facilities of the Fastening and Assembly Systems segment in the United States are located in Danbury, Connecticut; Montpelier, Indiana; Campbellsville and Hopkinsville, Kentucky; and Mt. Clemens, Michigan. Principal facilities outside of the United States are located in Birmingham, England; Giessen, Germany; and Toyohashi, Japan. For additional information with respect to these and other properties owned or leased by the Corporation, see Item 2, "Properties." The raw materials used in the fastening and assembly systems business consist primarily of ferrous and nonferrous metals in the form of wire, bar stock, and strip and sheet metals; plastics; and rubber. These materials are readily available from a number of suppliers. Backlog - ------- The following is a summary of total backlog by business segment, in millions of dollars, as of the referenced dates. - -------------------------------------------------------------------------------- December 31, ----------------- 1999 1998 - -------------------------------------------------------------------------------- Power Tools and Accessories $ 45 $ 56 Hardware and Home Improvement 27 29 Fastening and Assembly Systems 67 66 - -------------------------------------------------------------------------------- $ 139 $ 151 ================================================================================ Other Information - ----------------- The Corporation's product development program for the Power Tools and Accessories segment is coordinated from the Corporation's headquarters in Towson, Maryland, in the United States and from Slough, England, outside of the United States. Additionally, product development activities are performed at facilities in Rotherham and Spennymoor, England; Brockville, Canada; Perugia, Italy; and Idstein, Germany. Product development activities for the Hardware and Home Improvement segment are performed at facilities in Anaheim and Pacoima, California; and Apeldoorn, Netherlands. Product development activities for the Fastening and Assembly Systems segment are currently performed at various product or business group headquarters or at principal manufacturing locations as previously noted. Costs associated with development of new products and changes to existing products are charged to operations as incurred. See Note 1 of Notes to Consolidated Financial Statements included in Item 8 of Part II of this report for amounts of expenditures for product development activities. As of December 31, 1999, the Corporation employed approximately 22,100 persons in its operations worldwide. Approximately 1,000 employees in the United States are covered by collective bargaining agreements. During 1999, two collective bargaining agreements in the United States were negotiated without material disruption to operations. One agreement is scheduled for negotiation during 2000. Also, the Corporation has government-mandated collective bargaining arrangements or union contracts with employees in other countries. The Corporation's operations have not been affected significantly by work stoppages and, in the opinion of management, employee relations are good. The Corporation's operations worldwide are subject to certain foreign, federal, state, and local environmental laws and regulations. Many foreign, federal, state and local governments also have enacted laws and regulations that govern the labeling and packaging of products and limit the sale of products containing certain materials deemed to be environmentally sensitive. These laws and regulations not only limit the acceptable methods for disposal of products and components that contain certain substances, but also require that products be designed in a manner to permit easy recycling or proper disposal of environmentally sensitive components such as nickel cadmium batteries. The Corporation seeks to comply fully with these laws and regulations. Although compliance involves continuing costs, it has not materially increased capital expenditures and has not had a material adverse effect on the Corporation. 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. As of December 31, 1999, the Corporation had been identified as a potentially responsible party (PRP) in connection with approximately 24 sites being investigated by federal or state agencies 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, when appropriate, management has undertaken, among other things, active participation in steering committees established at the sites and has agreed to remediation through consent orders with the appropriate government agencies. Due to uncertainty over the Corporation's involvement in some of the sites, uncertainty over the remedial measures to be adopted at various sites and facilities, and the fact that imposition of joint and several liability with the right of contribution is possible under CERCLA and other laws and regulations, the liability of the Corporation with respect to any site at which remedial measures have not been completed cannot be established with certainty. On the basis of periodic reviews conducted with respect to these sites, however, the Corporation has established appropriate liability accruals. As of December 31, 1999, the Corporation's aggregate probable exposure with respect of environmental liabilities, for which accruals have 6 been established in the Consolidated Financial Statements, was $26.9 million. With respect to environmental liabilities, the Corporation does not believe that its liability with respect to any individual site will exceed $10.0 million. In the opinion of management, the costs of compliance with respect to environmental matters have been adequately accrued, and the ultimate resolution of these matters will not have a material adverse effect on the Corporation. The ongoing costs of compliance with existing environmental laws and regulations have not had, nor are they expected to have, a material adverse effect upon the Corporation's capital expenditures or financial position. (d) FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS Reference is made to Note 17 of Notes to Consolidated Financial Statements, entitled "Business Segments and Geographic Information", included in Item 8 of Part II of this report. (e) EXECUTIVE OFFICERS AND OTHER SENIOR OFFICERS OF THE CORPORATION The current Executive Officers and Other Senior Officers of the Corporation, their ages, current offices or positions, and their business experience during the past five years are set forth below. Nolan D. Archibald - 56 Chairman, President, and Chief Executive Officer; January 1990 - present. Paul A. Gustafson - 57 Executive Vice President of the Corporation and President - Fastening and Assembly Systems Group, December 1996 - present; Group Vice President and President - Emhart Fastening Teknologies, July 1996 - December 1996; President - Emhart Fastening Teknologies, April 1990 - July 1996. Paul F. McBride - 43 Executive Vice President of the Corporation and President - Power Tools and Accessories Group, April 1999 - present; Vice President - General Electric Company, GE Silicones, January 1998 - April 1999; President - GE Plastics Asia Pacific, August 1997 - January 1998; General Manager - GE Cycolac Resin, October 1995 - July 1997; General Manager - GE Plastics Automotive, October 1993 - September 1995. Charles E. Fenton - 51 Senior Vice President and General Counsel, December 1996 - present; Vice President and General Counsel, May 1989 - December 1996. Barbara B. Lucas - 54 Senior Vice President - Public Affairs and Corporate Secretary, December 1996 - present; Vice President - Public Affairs and Corporate Secretary, July 1985 - December 1996. Michael D. Mangan - 43 Senior Vice President and Chief Financial Officer, January 2000 - present; Vice President - Investor Relations, November 1999 - January 2000; Executive Vice President and Chief Financial Officer - The Ryland Group, Inc., November 1994 - September 1999. Thomas M. Schoewe - 47 Senior Vice President and Chief Financial Officer, December 1996 - January 2000; Vice President and Chief Financial Officer, October 1993 - December 1996. Mr. Schoewe left the Corporation in January 2000. Leonard A. Strom - 54 Senior Vice President - Human Resources, December 1996 - present; Vice President - Human Resources, May 1986 - December 1996. Christopher T. Metz - 34 Vice President of the Corporation and President - Kwikset, Hardware and Home Improvement Group, July 1999 - present; President - Kwikset, Hardware and Home Improvement Group, June 1999 - July 1999; Vice President and General Manager - Professional Tools and Accessories, Europe, August 1996 - May 1999; Director - Professional Power Tools, North American Power Tools, July 1995 - July 1996; Group Product Manager - North American Power Tools, February 1994 - June 1995. 7 Stephen F. Reeves - 40 Vice President - Finance and Strategic Planning, January 2000 - present; Vice President and Controller, September 1996 - January 2000; Corporate Controller, May 1994 - September 1996. James J. Roberts - 41 Vice President of the Corporation and President - Accessories, Power Tools and Accessories Group, May 1999 - present; Vice President of the Corporation and Vice President/General Manager - U.S. Accessories, Power Tools and Accessories Group, December 1996 - May 1999; Vice President and General Manager - U.S. Accessories, August 1996 - December 1996; Vice President and General Manager - Professional Power Tools, Europe, April 1994 - August 1996. Mark M. Rothleitner - 41 Vice President - Investor Relations and Treasurer, January 2000 - present; Vice President and Treasurer, March 1997 - January 2000; Treasurer - Dresser Industries, Inc., December 1996 - March 1997; Assistant Treasurer, International, June 1994 - December 1996. Edward J. Scanlon - 45 Vice President of the Corporation and President - Commercial Operations, Power Tools and Accessories Group, May 1999 - present; Vice President of the Corporation and Vice President/General Manager - The Home Depot Division, Power Tools and Accessories Group, December 1997 - May 1999; Senior Vice President Sales - North American Power Tools and Accessories, August 1995 - December 1997; Vice President Sales - The Home Depot Division, North American Power Tools, February 1994 - August 1995. John W. Schiech - 41 Vice President of the Corporation and President - North American Professional Power Tools, Power Tools and Accessories Group, May 1999 - present; Vice President of the Corporation and Vice President/General Manager - North American Professional Power Tools, Power Tools and Accessories Group, December 1997 - May 1999; Vice President and General Manager - Professional Power Tools, October 1995 - December 1997; Vice President Engineering - North American Power Tools, July 1994 - October 1995. Frederik B. van den Bergh - 54 Vice President of the Corporation and President - European Power Tools, Power Tools and Accessories Group, July 1997 - present; Executive Vice President, Coleman Company Inc., and President, Coleman International, May 1996 - July 1997; Member, Board of Management, Braun A.G. Business Management and Group Sales, April 1992 - May 1996. (f) FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K includes statements that constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and that are intended to come within the safe harbor protection provided by those sections. By their nature, all forward-looking statements involve risk and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements for a number of reasons, including but not limited to: market acceptance of the new products introduced in 1999 and scheduled for introduction in 2000; the level of sales generated from these new products relative to expectations, based on the existing investments in productive capacity and commitments of the Corporation to fund advertising and product promotions in connection with the introduction of these new products; the ability of the Corporation and its suppliers to meet scheduled timetables for new product introductions; unforeseen competitive pressure or other difficulties in maintaining 8 mutually beneficial relationships with key distributors or in penetrating new channels of distribution; adverse changes in currency exchange rates or raw material commodity prices, both in absolute terms and relative to competitors' risk profiles; delays in or unanticipated inefficiencies resulting from manufacturing and administrative reorganization actions in progress or contemplated by the strategic repositioning plan announced by the Corporation in January 1998 and described herein; the degree of working capital investment required to meet customer service levels; gradual improvement in the economic environment in Asia and Latin America; and the continuation of economic growth in North America which more than offsets economic softness in Europe. In addition to the foregoing, the Corporation's ability to realize the anticipated benefits of the restructuring actions undertaken in 1998 and 1999 is dependent upon current market conditions, as well as the timing and effectiveness of the relocation or consolidation of production and administrative processes. The ability to realize the benefits inherent in the balance of the restructuring actions is dependent on the selection and implementation of economically viable projects in addition to the restructuring actions taken to date. ITEM 2. PROPERTIES The Corporation operates 37 manufacturing facilities around the world, including 18 located outside of the United States in 9 foreign countries. The major properties associated with each business segment are listed in "Narrative Description of the Business" in Item 1(c) of Part I of this report. The Corporation owns most of its facilities with the exception of the following major leased facilities: In the United States: Mt. Clemens, Michigan, and Hampstead and Towson, Maryland. Outside of the United States: Rotherham, England; Tongeren, Belgium; Idstein, Germany; and Mexicali, Mexico. Additional property both owned and leased by the Corporation in Towson, Maryland, is used for administrative offices. Subsidiaries of the Corporation lease certain locations primarily for smaller manufacturing and/or assembly operations, service operations, sales and administrative offices, and for warehousing and distribution centers. The Corporation also owns a manufacturing plant which is located on leased land in Suzhou, China. The Corporation's average utilization rate for its manufacturing facilities for 1999 was in the range of 79% to 89%. The Corporation continues to evaluate its worldwide manufacturing cost structure to identify opportunities to improve capacity utilization and will take appropriate action as deemed necessary. Management believes that its owned and leased facilities are suitable and adequate to meet the Corporation's anticipated needs. ITEM 3. 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. As previously noted under Item 1(e) of Part I of this report, the Corporation also is party to litigation and administrative proceedings with respect to claims involving the discharge of hazardous substances into the environment. Certain of these matters assert damages and liability for remedial investigations and clean-up costs with respect to sites at which the Corporation has been identified as a PRP under federal and state environmental laws and regulations. Other matters involve sites that the Corporation owns and operates or previously sold. The Corporation and a customer of the Corporation's former glass container-forming and inspection equipment business are parties to two arbitration proceedings pending in the Court of Arbitration of the International Chamber of Commerce in London. In these proceedings, the customer alleges that the Corporation breached two contracts for the construction and equipping of two separate glass manufacturing plants owned by the customer and currently asserts that it is entitled to damages of approximately $40 million. Although the Corporation has sold its glass container-forming and inspection equipment business, the Corporation has retained responsibility for the defense of these proceedings and any damages awarded the customer in excess of $1 million (exclusive of legal fees and other costs). The Corporation intends to defend vigorously against the allegations made in these proceedings. In the opinion of management, amounts accrued for awards or assessments in connection with the matter specified above and with respect to environmental and other 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. As of December 31, 1999, the Corporation had no known probable but inestimable exposures for awards and assessments in connection with the matter specified above and with respect to environmental and other litigation and administrative proceedings that could have a material adverse effect on the Corporation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 9 PART II ITEM 5. MARKET FOR THE COMPANY'S STOCK AND RELATED STOCKHOLDER MATTERS (a) MARKET INFORMATION The Corporation's Common Stock is listed on the New York Stock Exchange and the Pacific Stock Exchange. The following table sets forth, for the periods indicated, the high and low sale prices of the Common Stock as reported in the consolidated reporting system for the New York Stock Exchange Composite Transactions: - -------------------------------------------------------------------------------- Quarter 1999 1998 - -------------------------------------------------------------------------------- January to March $60-1/16 to $47-5/8 $53-5/16 to $37-15/16 April to June $64-1/8 to $52-23/32 $60-13/16 to $48-3/4 July to September $64-5/8 to $45-5/16 $65-1/2 to $41-5/8 October to December $52-1/4 to $41 $58-1/2 to $38-15/16 - -------------------------------------------------------------------------------- (b) HOLDERS OF THE CORPORATION'S CAPITAL STOCK As of January 28, 2000, there were 17,470 holders of record of the Corporation's Common Stock. (c) DIVIDENDS The Corporation has paid consecutive quarterly dividends on its Common Stock since 1937. Future dividends necessarily will depend upon the Corporation's earnings, financial condition, and other factors. The Credit Facility does not restrict the Corporation's ability to pay regular dividends in the ordinary course of business on the Common Stock. Quarterly dividends per common share for the most recent two years are as follows: - -------------------------------------------------------------------------------- Quarter 1999 1998 - -------------------------------------------------------------------------------- January to March $.12 $.12 April to June .12 .12 July to September .12 .12 October to December .12 .12 - -------------------------------------------------------------------------------- $.48 $.48 ================================================================================ Common Stock: - ------------- 150,000,000 shares authorized, $.50 par value, 87,190,240 shares and 87,498,424 shares outstanding as of December 31, 1999 and 1998, respectively. Preferred Stock: - ---------------- 5,000,000 shares authorized, without par value, no shares outstanding as of December 31, 1999 and 1998. (d) ANNUAL MEETING OF STOCKHOLDERS The 2000 Annual Meeting of Stockholders of the Corporation is scheduled to be held on April 25, 2000, at 9:00 a.m. at Black & Decker, 4041 Pleasant Road, Fort Mill, South Carolina 29715. ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR SUMMARY - ---------------------------------------------------------------------------------------------------------------------------- (Millions of Dollars Except Per Share Data) 1999 1998(a) 1997 1996(b) 1995(c) - ---------------------------------------------------------------------------------------------------------------------------- Sales $4,520.5 $4,559.9 $4,940.5 $4,914.4 $4,766.1 Earnings (loss) from continuing operations 300.3 (754.8) 227.2 159.2 216.5 Earnings from discontinued operations (d) -- -- -- 70.4 38.4 Extraordinary items -- -- -- -- (30.9) Net earnings (loss) 300.3 (754.8) 227.2 229.6 224.0 Net earnings (loss) per common share - basic: Continuing operations 3.45 (8.22) 2.40 1.69 2.39 Discontinued operations -- -- -- .79 .45 Extraordinary items -- -- -- -- (.36) Net earnings (loss) per common share - basic 3.45 (8.22) 2.40 2.48 2.48 Net earnings (loss) per common share - assuming dilution: Continuing operations 3.40 (8.22) 2.35 1.66 2.29 Discontinued operations -- -- -- .73 .41 Extraordinary items -- -- -- -- (.33) Net earnings (loss) per common share - assuming dilution 3.40 (8.22) 2.35 2.39 2.37 Total assets 4,012.7 3,852.5 5,360.7 5,153.5 5,545.3 Long-term debt 847.1 1,148.9 1,623.7 1,415.8 1,704.5 Cash dividends per common share .48 .48 .48 .48 .40 - ---------------------------------------------------------------------------------------------------------------------------- (a)Earnings from continuing operations for 1998 include a write-off of goodwill of $900.0 million, a restructuring charge of $164.7 million before taxes ($117.3 million after taxes), and a gain on the sale of businesses of $114.5 million before taxes ($16.5 million after taxes). (b)Earnings from continuing operations for 1996 include a restructuring charge of $91.3 million before taxes ($74.8 million after taxes) and a $10.6 million reduction in income tax expense as a result of the reversal of a portion of the Corporation's deferred tax asset valuation allowance. (c)Earnings from continuing operations for 1995 include a $65.0 million reduction in income tax expense as a result of the reversal of a portion of the Corporation's deferred tax asset valuation allowance. In 1995, the Corporation recognized a $30.9 million extraordinary loss from early extinguishment of debt, net of income tax benefit of $2.6 million. (d)Earnings from discontinued operations represent the earnings, net of applicable income taxes, of the Corporation's discontinued PRC segment. The earnings of the discontinued PRC segment do not reflect any charge for interest allocated to that segment by the Corporation.
10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Corporation reported net earnings of $300.3 million, or $3.40 per share on a diluted basis, for the year ended December 31, 1999, compared to a net loss of $754.8 million, or $8.22 per share on a diluted basis, for the year ended December 31, 1998. The net loss of $754.8 million for 1998 was principally due to the recognition of pre-tax restructuring and exit costs of $164.7 million ($117.3 million net of tax) and the write-off of goodwill in the amount of $900.0 million, partially offset by a pre-tax gain on the sale of businesses of $114.5 million ($16.5 million net of tax). Excluding the effects of the gain on sale of businesses, restructuring charge, and goodwill write-off, net earnings for the year ended December 31, 1998, would have been $246.0 million, or $2.63 per diluted share, compared to net earnings of $300.3 million, or $3.40 per diluted share, for the year ended December 31, 1999. The rise in net earnings in 1999 over the 1998 level, excluding those items described in the preceding sentence, resulted from lower restructuring-related expenses and operating and productivity improvements. As more fully described under the caption "Strategic Repositioning" and in Note 2 of Notes to Consolidated Financial Statements, by the end of 1999, the Corporation neared completion of the comprehensive strategic repositioning plan, which was approved by the Board of Directors in January 1998. In the discussion and analysis of financial condition and results of operations that follows, the Corporation generally attempts to list contributing factors in order of significance to the point being addressed. STRATEGIC REPOSITIONING As more fully described in Note 2 of Notes to Consolidated Financial Statements, as of December 31, 1999, the Corporation neared completion of the comprehensive strategic repositioning plan approved by the Board of Directors on January 26, 1998. The plan included the following components: (i) the divestiture of non-strategic businesses; (ii) the repurchase of approximately 10% of the Corporation's outstanding common stock over a two-year period; and (iii) a restructuring of remaining operations. Also, on January 26, 1998, the Board of Directors elected to authorize a change in the basis upon which the Corporation evaluates goodwill for impairment. The first element of the strategic repositioning plan - designed to focus the Corporation on its strategic businesses - was completed in 1998 through the divestiture of non-strategic businesses: True Temper Sports, its recreational products business; Emhart Glass, its glass container-forming and inspection equipment business; and the household products businesses (other than certain assets associated with the Corporation's cleaning and lighting business) in North America, Central America, the Caribbean, South America (excluding Brazil), and Australia. The Corporation received proceeds of approximately $625 million, net of selling expenses and taxes paid, in 1998 for these businesses. In June 1998, the Corporation closed on the sale of its household products businesses in North America, Central America, the Caribbean, and South America (excluding Brazil). The household products business in Australia was sold earlier in 1998. In September 1998, the Corporation announced that it had closed on the sale of Emhart Glass. Also in September 1998, the Corporation completed the recapitalization of True Temper Sports. The Corporation retained approximately 6% of preferred and common stock of the recapitalized company, now known as True Temper Corporation, valued at approximately $4 million. In addition to cash proceeds included in the aggregate $625 million noted above, the Corporation received a senior, increasing-rate discount note, bearing interest at a variable rate, in an initial accreted amount of $25.0 million in connection with the recapitalization. Because True Temper Corporation is a highly leveraged entity and there was no active market for the note, the Corporation fully reserved the $25.0 million note at the time of the divestiture and continued to reserve the note through December 31, 1999. The pre-tax gain on the sale of businesses of $114.5 million ($16.5 million net of tax) recognized by the Corporation during 1998 represented the gain on the divested Emhart Glass, True Temper Sports, and the household products businesses (excluding certain assets associated with the cleaning and lighting product lines) in North America, Central America, the Caribbean, and South America (excluding Brazil). That gain was net of an impairment loss of approximately $15 million recognized in June 1998 in connection with the then-anticipated exit from the household products business in Brazil. Due to a lack of response from qualified buyers, the Corporation has ceased actively marketing its household products business in Brazil. Because True Temper Sports, Emhart Glass, and the household products businesses in North America, Central America, the Caribbean, South America (excluding Brazil), and Australia were not treated as discontinued operations under generally accepted accounting principles, they remained a part of the Corporation's reported results from continuing operations until their sale. Under the accounting prescribed by Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, the Corporation reflected the long-lived assets of these businesses at the lower of their carrying amounts or their expected fair value less costs to sell, and ceased depreciation of the businesses' fixed assets and amortization of goodwill related to these businesses during the period held for sale. Had depreciation not ceased on the fixed assets of these businesses while they were held for sale, aggregate depreciation in 1998 through the dates of their sale or recapitalization would have approximated $10 million. 11 Proceeds from these divestitures, net of selling expenses and taxes paid, of approximately $625 million were utilized in the repurchase of a portion of the Corporation's common stock and to fund the restructuring program described below. The second element of the strategic repositioning plan - the planned repurchase of approximately 10% of its common stock over a two-year period - was also completed in 1999. During 1999, the Corporation repurchased 610,900 shares of its common stock at an aggregate cost of $32.1 million, bringing the total repurchased under this element of the strategic repositioning plan in both 1999 and 1998 to 9,636,300 shares at an aggregate cost of $496.4 million. By the close of 1999, the Corporation neared completion of the third element of the strategic repositioning plan - a restructuring program undertaken to reduce fixed costs. As part of the restructuring program, the Corporation undertook significant change in its European power tools and accessories businesses by consolidating distribution and transportation and centralizing finance, marketing, and support services. These changes in Europe were accompanied by investment in state-of-the-art information systems similar to the investments made in the North American business. In addition, the worldwide power tools and accessories business rationalized its manufacturing plant network, resulting in the closure of a number of manufacturing plants. The restructuring program also included actions to improve the cost position of other businesses. This restructuring program resulted in a pre-tax charge of $164.7 million during the year ended December 31, 1998 ($117.3 million after tax). Restructuring and exit costs recognized by the Corporation during 1998 were principally associated with severance benefits and voluntary retirement program costs, as well as the write-down to net realizable value of certain land, buildings, and equipment in accordance with SFAS No. 121. In connection with the restructuring component of the strategic repositioning plan, the Corporation recorded severance obligations when the liability became probable under its established severance policies or as provided statutorily or, when no policy or statutory provision existed or applied, based on when the benefits were communicated to affected employees. The timing of the charge was dictated based on the later of: (i) approval by management having the ultimate authority to approve the actions; (ii) resolution of contingencies affecting the feasibility of, or returns from, the project; or (iii) if applicable, notification of affected employees. The severance component of the restructuring reserve established in 1998, as adjusted in 1999, is net of adjustments that occurred due to: (i) actual attrition factors that differed from those initially estimated; (ii) more cost-effective methods of severing employment that became probable, typically based on negotiations with trade unions or local government institutions; and (iii) amendments to the initial plan that were approved by the appropriate level of management, based primarily on changes in market conditions that dictated a modification to the intended course of action. None of the adjustments to the severance obligations recorded as part of the strategic repositioning plan was individually material. A summary of restructuring activity during 1998 is as follows (in millions of dollars): - -------------------------------------------------------------------------------- Utilization of Reserve Reserve As During 1998 Reserve at Established ---------------------- December 31, in 1998 Cash Non-Cash 1998 - -------------------------------------------------------------------------------- Severance benefits and cost of voluntary retirement program $121.3 $(52.8) $(28.6) $39.9 Write-down to net realizable value of certain land, buildings, and equipment 29.5 -- (29.5) -- Other charges 13.9 (2.8) (.2) 10.9 - -------------------------------------------------------------------------------- Total $164.7 $(55.6) $(58.3) $50.8 ================================================================================ Asset write-downs taken as part of the 1998 restructuring charge principally related to the book value of manufacturing equipment and furniture and fixtures net of estimated salvage, which was negligible. The carrying values of land and building to be abandoned or sold were written down to their fair value, generally based on third party offers, when that fair value was less than net book value. Gains were realized when two facilities, exited as part of the restructuring, that had a fair value exceeding their net book value at the time of the charge, were sold. Those gains, when realized, were reported as a reduction of the 1998 restructuring charge. In the preceding table, the $28.6 million non-cash utilization of the reserve established for severance benefits and cost of voluntary retirement program represents the present value of payments to be made as a result of a voluntary retirement program for employees in the United States. Those payments will be made from the assets of the Corporation's pension plan trust rather than from working capital of the Corporation. During 1999, the Corporation recognized $13.1 million of additional pre-tax restructuring and exit costs associated with restructuring of North American accessories and packaging operations and Latin American power tool operations, exiting certain small foreign entities, and the settlement of claims regarding a divested business. That $13.1 million charge was offset, however, by an $8.9 million gain realized in 1999 on the sale of a facility, exited as part of the restructuring actions taken in 1998, that had a fair value exceeding its net book value at the time of the charge and by the reversal of $4.2 million of severance accruals established as part of the 1998 charge, which will no longer be required. 12 A summary of restructuring activity during 1999 is set forth below (in millions of dollars):
- ------------------------------------------------------------------------------------------------------------------------------------ Reserves Established Reserve at in 1999, Utilization of Reserve Reserve at December 31, Net of Gain Reversal of ---------------------- December 31, 1998 Recognized Reserves Cash Non-Cash 1999 - ------------------------------------------------------------------------------------------------------------------------------------ Severance benefits and cost of voluntary retirement program $39.9 $ 4.4 $(4.2) $(21.4) $ - $18.7 Write-down to net realizable value of certain land, buildings, and equipment - (4.2) - - 4.2 - Other charges 10.9 4.0 - (5.3) (5.9) 3.7 - ------------------------------------------------------------------------------------------------------------------------------------ Total $50.8 $ 4.2 $(4.2) $(26.7) $(1.7) $22.4 ====================================================================================================================================
In the preceding table, the negative $1.7 million of non-cash reserve usage in 1999 represents $7.2 million of non-cash reserve usage, including an additional $4.7 million write-down of property to its net realizable value, offset by the $8.9 million gain on the sale of the facility described previously. In addition to the restructuring and exit costs recognized as part of the strategic repositioning plan, the Corporation also recognized related expenses, incremental to the cost of the restructuring plans being implemented, that do not qualify as restructuring or exit costs under generally accepted accounting principles ("restructuring-related expenses"). Operating results for the years ended December 31, 1999 and 1998, included $15.0 million and $44.4 million, respectively, of restructuring-related expenses. Included in the $44.4 million of restructuring-related expenses recognized in 1998 were $11.5 million of inventory write-downs associated with products in the retained cleaning and lighting business that were being discontinued. Incremental benefits realized during 1999 from the restructuring element of the strategic repositioning plan were approximately $40 million. Those benefits, in addition to the estimated $30 million of restructuring benefits realized in 1998, resulted in annual restructuring savings for 1999 of $70 million. The Corporation estimates that an additional $30 million in restructuring benefits will be realized - in roughly equal amounts - in 2000 and 2001 as it realizes the benefits of restructuring actions in the European power tools business and in the Hardware and Home Improvement segment. As a result, total expected benefits from the restructuring element of the strategic repositioning plan are estimated at approximately $100 million on an annual, pre-tax basis by the end of 2001. As indicated in Note 2 of Notes to Consolidated Financial Statements, the severance and voluntary retirement accrual included in the $164.7 million restructuring charge taken in 1998, as adjusted in 1999, related to the elimination of approximately 5,000 positions. As the Corporation shifts certain production and other activities and replaces certain employees who retired under the United States voluntary retirement program, it is anticipated that an additional 2,200 positions will be created. As a result, the Corporation's estimate of annual, pre-tax savings of approximately $100 million, expected once the restructuring actions taken in 1998 and 1999 are fully implemented, reflects the savings from a net reduction of approximately 2,800 positions. The Corporation's estimate of savings was based upon a comparison to the pre-restructuring cost base. Actual savings will likely be mitigated by such factors as continued economic deterioration in foreign markets and decisions to increase costs in such areas as promotion and research and development above levels that were otherwise assumed. As a consequence of the strategic repositioning plan, the Corporation elected to change its method of measuring goodwill impairment from an undiscounted cash flow approach to a discounted cash flow approach, effective January 1, 1998. The Corporation believes that measurement of the value of goodwill through the discounted cash flow approach, as more fully described in Note 2 of Notes to Consolidated Financial Statements, is preferable in that the discounted cash flow measurement facilitates the timely identification of impairment of the carrying value of investments in businesses and provides a more current - and with respect to the businesses sold, provided a more realistic - valuation than the undiscounted approach. The adoption of this discounted cash flow approach, however, may result in greater earnings volatility because decreases in projected discounted cash flows of certain businesses will result in timely recognition of future impairment. In connection with this change in accounting with respect to the measurement of goodwill impairment, a non-cash charge of $900.0 million was recognized in January 1998 ($9.80 per share both on a basic and a diluted basis for the year ended December 31, 1998). The $900.0 million write-down, which related to goodwill associated with the Fastening and Assembly Systems segment and the Hardware and Home Improvement segment and included a $40.0 million write-down of goodwill associated with one of the divested businesses, represented the amount necessary to reduce the carrying values of goodwill for those businesses to the Corporation's best estimate, as of January 1, 1998, of those businesses' future discounted cash flows using the methodology described in Note 2 of Notes to Consolidated Financial Statements. As a result of the goodwill write-off and the cessation of goodwill amortization related to the businesses sold, goodwill amortization declined to $25.7 million and $25.2 million for the years ended December 31, 1999 and 1998, respectively, from $63.3 million for the year ended December 31, 1997. 13 SALES The following chart provides an analysis of the consolidated changes in sales for the years ended December 31, 1999, 1998, and 1997. - -------------------------------------------------------------------------------- For the Year Ended December 31, ------------------------------- (Dollars in millions) 1999 1998 1997 - -------------------------------------------------------------------------------- Total sales $4,520.5 $4,559.9 $4,940.5 ================================================================================ Unit volume - existing (a) 10% 2% 5% Unit volume - disposed (b) (8)% (8)% -- Price (1)% (1)% (1)% Currency (2)% (1)% (3)% - -------------------------------------------------------------------------------- Change in total sales (1)% (8)% 1% ================================================================================ (a) Represents change in unit volume for businesses where year-to-year comparability exists. (b) Represents change in unit volume for businesses that were included in prior years results but were sold or recapitalized in 1998. Total consolidated sales for the year ended December 31, 1999, were $4.52 billion, which represented a 1% decrease from 1998 sales of $4.56 billion. Unit volume growth in existing businesses was offset by unit volume declines associated with the divested household products, recreational products, and glass container-forming and inspection equipment businesses. The negative effects of a stronger United States dollar compared to other foreign currencies caused a 2% decrease in the Corporation's consolidated sales during 1999 compared to the prior year. Pricing actions, taken in response to competitive pressures and as a result of volume-related price reductions associated with higher unit volumes in the North American power tools and accessories business, had a 1% negative effect on sales for the year ended December 31, 1999, compared to the 1998 level. Total consolidated sales for the year ended December 31, 1998, were $4.56 billion, which represented an 8% decrease from 1997 sales of $4.94 billion. The negative effects of a stronger United States dollar compared to most major foreign currencies caused a 1% decrease in the Corporation's consolidated sales during 1998 from the prior year's level. Pricing actions had a 1% negative effect on sales for 1998 as compared to 1997. Total unit volume declined by 6% during 1998 from the 1997 level, as increased unit volume in the Corporation's existing businesses was more than offset by unit volume declines as a result of the divestitures during 1998 of the household products businesses in North America, Central America, the Caribbean, South America (excluding Brazil), and Australia, of the glass container-forming and inspection equipment business, and of the recreational products business. EARNINGS The Corporation reported consolidated operating income of $536.3 million on sales of $4,520.5 million in 1999 compared to a consolidated operating loss of $466.2 million on sales of $4,559.9 million in 1998 and to consolidated operating income of $489.3 million on sales of $4,940.5 million in 1997. Consolidated operating income as a percentage of sales was 11.9% for 1999 compared to 10.6% for 1998, excluding the $900.0 million write-off of goodwill, the $114.5 million gain on sale of businesses, and the $164.7 million restructuring charge, all recognized in 1998, and 9.9% for 1997. As more fully described under the caption "Strategic Repositioning", operating results for the years ended December 31, 1999 and 1998, included $15.0 million and $44.4 million, respectively, of restructuring-related expenses. Excluding the effects of these restructuring-related expenses in 1999 and 1998 and, for 1998, excluding the restructuring and exit costs, the goodwill write-off, and the gain on sale of businesses, operating income as a percentage of sales was 12.2% for 1999 compared to 11.6% and 9.9% for 1998 and 1997, respectively. In addition to the realization of benefits from restructuring actions taken in 1998, a major contributor to this increase in operating income as a percentage of sales from 1997 to 1998 was the $38.1 million reduction in goodwill amortization in 1998 as compared to 1997. This reduced goodwill amortization was a result of the goodwill write-off and cessation of amortization of goodwill associated with the divested businesses. Consolidated gross margin as a percentage of sales for 1999 was 37.3% compared to 35.3% for 1998 and 35.9% for 1997. The increase in gross margin during 1999 over 1998 primarily resulted from significantly lower restructuring-related expenses, cost benefits from restructuring actions taken, and Six Sigma and other productivity improvements, partially offset by excess capacity and product mix issues in the Kwikset business of the Hardware and Home Improvement segment and negative pricing actions. The decline in gross margin during 1998 from 1997 primarily resulted from adverse foreign exchange effects on product costs, principally in the European operations; competitive pressures that continued to constrain pricing; manufacturing inefficiencies in the security hardware portion of the Hardware and Home Improvement segment; and restructuring-related expenses; partially offset by higher production volumes and the decline in sales of lower margin products in the household products, recreational products, and glass container-forming and inspection equipment businesses as a result of the divestiture of those businesses in 1998. Consolidated selling, general, and administrative expenses as a percentage of sales were 25.4% for 1999 compared to 24.7% for 1998 and 25.9% for 1997. The increase in selling, general, and administrative expenses as a percentage of sales in 1999 over 1998 resulted, in part, from increased promotional activities, particularly in the power tools and accessories businesses in North America, which increased the number of end-user specialists. The improvements in 1998 compared to 1997 were the result of lower goodwill amortization in 1998 compared to 1997 as a result of the goodwill write-off and cessation of amortization of goodwill related to the businesses to be sold, as well as benefits realized from restructuring actions taken in 1998, partially offset by restructuring-related expenses in 1998. Consolidated net interest expense (interest expense less interest income) was $95.8 million in 1999 compared to $114.4 million in 1998 and $124.6 million in 1997. The lower net interest expense for 1999 compared to 1998 was primarily the result of lower average borrowing levels. The lower net 14 interest expense for 1998 compared to 1997 was primarily the result of lower debt levels in 1998, due to improved cash flows from operating activities and debt reductions that occurred with net proceeds from business sales in excess of amounts used to repurchase common stock, and as a result of more favorable interest rates and debt mix in 1998. Consolidated other (income) expense for 1999 was not significant. Consolidated other expense for 1998 and 1997 principally consisted of currency losses and, for 1997, the discount on the sale of receivables. Consolidated income tax expense of $141.0 million was recognized on the Corporation's pre-tax income of $441.3 million for 1999. Consolidated income tax expense of $166.5 million was recognized on the Corporation's pre-tax loss of $588.3 million for 1998. Consolidated income tax expense of $122.3 million was recognized on the Corporation's pre-tax income of $349.5 million in 1997. Excluding the income tax benefits of $47.4 million related to the pre-tax restructuring charge of $164.7 million recognized in 1998, the non-deductible write-off of goodwill in the amount of $900.0 million recognized in 1998, and the income tax expense of $98.0 million recognized on the $114.5 million pre-tax gain on sale of businesses in 1998, the Corporation's reported tax rate was 32% in 1999 and 1998 compared to 35% in 1997. The decrease in the effective tax rate in 1999 and 1998 compared to that in 1997 resulted primarily from the lower amount of goodwill amortization, which is not tax deductible, due to the write-off of goodwill in 1998. An analysis of taxes on earnings is included in Note 12 of Notes to Consolidated Financial Statements. The Corporation reported net earnings of $300.3 million, or per share earnings of $3.45 and $3.40 on a basic and a diluted basis, respectively, for the year ended December 31, 1999. The Corporation reported a net loss of $754.8 million, or $8.22 per share both on a basic and a diluted basis, for the year ended December 31, 1998, principally as a result of the goodwill write-off and restructuring and exit costs, less the gain on sale of businesses, recognized in 1998. Because the Corporation reported a net loss for the year ended December 31, 1998, the calculation of reported earnings per share on a diluted basis excludes the impact of stock options since their inclusion would be anti-dilutive - that is, decrease the per-share loss. For comparative purposes, however, the dilutive effect of these options has been included for the evaluation of the Corporation's performance that follows. Excluding the effects of the goodwill write-off of $900.0 million, after-tax restructuring and exit costs of $117.3 million, and the after-tax gain on sale of businesses of $16.5 million, net earnings for 1998 would have been $246.0 million or $2.63 per share on this diluted basis compared to net earnings of $300.3 million, or $3.40 per diluted share, for 1999 and net earnings of $227.2 million, or $2.35 per diluted share, for 1997. BUSINESS SEGMENTS As more fully described in Note 17 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. Expenses directly related to reportable business segments booked in consolidation and, thus, excluded from segment profit for the reportable business segments were $12.4 million, $20.4 million, and $17.6 million for the years ended December 31, 1999, 1998, and 1997, respectively. The $12.4 million of segment-related expenses excluded from segment profit in 1999 primarily related to reserves established in consolidation for certain legal matters associated with the Power Tools and Accessories and Hardware and Home Improvement segments. The $20.4 million of segment-related expenses excluded from segment profit in 1998 primarily consisted of unbudgeted restructuring-related expenses, including the aforementioned $11.5 million write-down of cleaning and lighting inventory to net realizable value associated with the product line rationalization undertaken to integrate the retained cleaning and lighting business into the Power Tools and Accessories operations. The $17.6 million of segment-related expenses excluded from segment profit in 1997 consisted of certain unbudgeted costs recognized by the Corporation on behalf of the Power Tools and Accessories segment, primarily related to deteriorating business conditions in Asia, and on behalf of the Hardware and Home Improvement segment, primarily related to the cost of programs initiated by the prior management of that segment. As indicated above and in Note 17 of Notes to Consolidated Financial Statements, the determination of segment profit excludes restructuring and exit costs. Of the $164.7 million pre-tax charge taken in 1998 for restructuring and exit costs, $97.8 million related to businesses in the Power Tools and Accessories segment, $15.4 million related to the businesses in the Hardware and Home Improvement segment, $3.3 million related to businesses in the Fastening and Assembly Systems segment, and $17.1 million related to divested businesses. The balance of $31.1 million related principally to the $28.6 million charge for the voluntary retirement for employees in the United States, including those of all three reportable business segments and of the Corporate center. As more fully described under the caption "Strategic Repositioning", during 1999, the Corporation recognized $13.1 million of additional pre-tax restructuring and exit costs associated with restructuring of the Power Tools and Accessories segment, exiting certain small foreign entities in the Power Tools and Accessories and Hardware and Home Improvement segments, and the settlement of claims regarding a divested business. That $13.1 million charge was offset, however, by an $8.9 gain realized in 1999 on the sale of a Power Tools facility, exited as part of the restructuring actions taken in 1998, that had a fair value exceeding its net book value at the time of the 1998 charge and by the reversal during 1999 of $4.2 million of restructuring reserves established in the prior year. Power Tools and Accessories - --------------------------- Segment sales and profit for the Power Tools and Accessories segment, determined on the basis described in Note 17 of Notes to Consolidated Financial Statements, were as follows (in millions of dollars): - -------------------------------------------------------------------------------- For the Year Ended December 31, 1999 1998 1997 - -------------------------------------------------------------------------------- Sales to unaffiliated customers $3,209.3 $2,946.4 $2,936.4 Segment profit 377.3 293.4 290.7 - -------------------------------------------------------------------------------- 15 Sales to unaffiliated customers in the Power Tools and Accessories segment during 1999 increased 9% over the 1998 level despite negative pricing actions taken in response to competitive pressures and as a result of volume-related price reductions. Sales of power tool products in North America benefited from double-digit rates of growth in sales of consumer and DEWALT(R) professional power tools due, in part, to new product introductions. Sales of accessories in North America grew at a high single-digit rate during 1999 over the 1998 level. Sales in Europe during 1999 increased slightly over the 1998 level as solid growth in some countries was offset by weakness in Germany. Sales in other geographic areas during 1999 increased over the 1998 level, but that increase was offset by the impact of a currency devaluation in Brazil. Segment profit as a percentage of sales for the Power Tools and Accessories segment was 11.8% in 1999 compared to 10.0% in 1998. Higher sales in 1999, coupled with improved gross margins resulting from restructuring benefits as well as Six Sigma and other productivity improvements, more than offset increased selling, general, and administrative expenses in 1999 to support investments in marketing, promotion, and technical staff. Sales to unaffiliated customers in the Power Tools and Accessories segment during 1998 approximated the 1997 level despite competitive pressures that resulted in price reductions. Sales of power tool products in North America benefited from double-digit rates of growth in sales of the DEWALT professional power tools and outdoor products lines in the United States coupled with a double-digit growth rate in the power tools business in Canada. This growth in North America, however, was offset by a sharp decline in sales of cleaning and lighting products. In addition, sales of accessories in North America during 1998 declined slightly from the 1997 level as that business undertook SKU reduction efforts and exited its fastening line in 1998. Sales in Europe increased at a low-single-digit rate in 1998 over the 1997 level as increased sales of consumer and professional power tools and accessories offset declines in sales of household products and cleaning and lighting products. Sales of outdoor products in Europe in 1998 approximated the 1997 level. Sales in other geographic areas declined at a double-digit rate in 1998 from the 1997 levels, due principally to continued economic turmoil in Asia during 1998 and worsening economic conditions in Latin America during the latter part of 1998. Segment profit as a percentage of sales for the Power Tools and Accessories segment was 10.0% in 1998 compared to 9.9% in 1997. Hardware and Home Improvement - ----------------------------- Segment sales and profit for the Hardware and Home Improvement segment, determined on the basis described in Note 17 of Notes to Consolidated Financial Statements, were as follows (in millions of dollars): - -------------------------------------------------------------------------------- For the Year Ended December 31, 1999 1998 1997 - -------------------------------------------------------------------------------- Sales to unaffiliated customers $881.8 $851.1 $804.8 Segment profit 124.0 125.2 121.3 - -------------------------------------------------------------------------------- Sales to unaffiliated customers in the Hardware and Home Improvement segment during 1999 increased 4% over the 1998 level as a 6% increase in sales by Kwikset was mitigated by a 1% increase in sales by Price Pfister and a slight decline in sales by the European security hardware businesses. Segment profit as a percentage of sales for the Hardware and Home Improvement segment declined from 14.7% in 1998 to 14.1% in 1999. This decrease in 1999 was driven by margin declines at Kwikset, which continues to experience excess capacity and product mix issues, and European security hardware but was partially offset by significant margin improvements at Price Pfister, stemming from Six Sigma and other productivity initiatives as well as higher margin new products. Sales to unaffiliated customers in the Hardware and Home Improvement segment during 1998 increased 6% over the 1997 level, due principally to increased sales of security hardware and plumbing products in North America, driven by sales of TITAN(R) locksets and new plumbing product introductions, and of security hardware in Europe. These increases were partially offset by lower sales of security hardware products in Latin America and Asia. Segment profit as a percentage of sales for the Hardware and Home Improvement segment was 14.7% in 1998 compared to 15.1% in 1997. Segment profit as a percentage of sales in 1998 declined from the 1997 level as decreased profitability with respect to security hardware products, principally associated with manufacturing inefficiencies, more than offset profitability gains in plumbing products experienced in 1998. Those gains, however, were in comparison to an extremely weak 1997. Fastening and Assembly Systems - ------------------------------ Segment sales and profit for the Fastening and Assembly Systems segment, determined on the basis described in Note 17 of Notes to Consolidated Financial Statements, were as follows (in millions of dollars): - -------------------------------------------------------------------------------- For the Year Ended December 31, 1999 1998 1997 - -------------------------------------------------------------------------------- Sales to unaffiliated customers $497.7 $463.0 $451.3 Segment profit 84.3 76.6 69.7 - -------------------------------------------------------------------------------- Sales to unaffiliated customers in the Fastening and Assembly Systems segment during 1999 were 7% higher than the 1998 level as strong sales to automotive customers in North America and Europe offset weakness in the European industrial sector. Segment profit as a percentage of sales for the Fastening and Assembly Systems segment increased from 16.5% in 1998 to 16.9% in 1999. Sales to unaffiliated customers in the Fastening and Assembly Systems segment increased 3% in 1998 over the 1997 level, due in part to the strength of European automotive sales, despite lower automotive sales during 1998 as a result of softness in Asia and the effects of a strike at General Motors in the United States. Segment profit as a percentage of sales for the Fastening and Assembly Systems segment increased from 15.4% in 1997 to 16.5% in 1998 as a result of cost reduction initiatives. 16 HEDGING ACTIVITIES The Corporation has a number of manufacturing sites throughout the world and sells its products in more than 100 countries. As a result, it is exposed to movements in the exchange rates of various currencies against the United States dollar and against the currencies of countries in which it manufactures. The major foreign currencies in which foreign currency risks exist are the euro (and its legacy currencies, including the deutsche mark, Dutch guilder, French franc, and Italian lira), pound sterling, Canadian dollar, Swedish krona, Japanese yen, Australian dollar, Mexican peso, and Brazilian real. Through its foreign currency activities, the Corporation seeks to minimize the risk that cash flows resulting from the sales of products manufactured in a currency different from that of the selling subsidiary will be affected by changes in exchange rates. At the time of the euro's introduction on January 1, 1999, the eleven participating member countries of the European Monetary Union established fixed conversion rates between their legacy currencies and the euro. During a three-year phase-in period during which special conversion rules apply, the legacy currencies will continue to be used as legal tender. On January 1, 2002, the legacy currencies will be canceled and replaced by the euro as legal tender. The Corporation has initiated actions to ensure that computer systems in its European operation will be in a position to accommodate the adoption of the euro by no later than January 1, 2002. The Corporation believes that the introduction of the euro has resulted in increased competitive pressures in continental Europe due to the heightened transparency of intra-European pricing structures. From time to time, currency devaluations may occur in countries in which the Corporation sells or manufactures its product. While the Corporation will take actions to mitigate the impacts of any future currency devaluations, there is no assurance that such devaluations will not adversely affect the Corporation. In January 1999, a devaluation of the Brazilian real took place and, in response, a lesser devaluation in the value of the Mexican peso occurred. Because the Corporation's exposures in Brazil and Mexico either offset or were partially hedged, the impact of the January 1999 devaluations on its reported results was not material. While the Corporation will take actions to mitigate its exposures, there can be no assurance that any future devaluation of the Brazilian real or Mexican peso will not adversely affect the Corporation. Assets and liabilities of subsidiaries located outside of the United States are translated at rates of exchange at the balance sheet date as more fully explained in Note 1 of Notes to Consolidated Financial Statements. The resulting translation adjustments are included in the accumulated other comprehensive income component of stockholders' equity. During 1999, translation adjustments, recorded in the accumulated other comprehensive income component of stockholders' equity, decreased stockholders' equity by $10.2 million compared to a decrease of $37.7 million in 1998. In order to minimize the volatility of reported equity, the Corporation hedges, on a limited basis, the exposure to foreign currency fluctuations on its net investments in subsidiaries located outside of the United States through the use of currency swaps, forward contracts, and options. These hedging activities generate cash inflows and outflows that offset the translation adjustment. During 1999 and 1998, these activities netted to a cash inflow of $30.4 million and $3.4 million, respectively. The corresponding gains and losses on these hedging activities were recorded in the accumulated other comprehensive income component of stockholders' equity. The increased cash inflow from hedging activities in 1999 compared to 1998 resulted from the maturities of certain interest rate swaps that swapped from fixed United States dollars to fixed foreign currencies. Also included in the accumulated other comprehensive income component were the costs of maintaining the hedge portfolio of foreign exchange contracts. These hedge costs were not significant in 1999 and 1998. As more fully explained in Note 10 of Notes to Consolidated Financial Statements, the Corporation seeks to issue debt opportunistically, whether at fixed or variable rates, at the lowest possible costs. Based upon its assessment of the future interest rate environment and its desired variable rate debt to total debt ratio, the Corporation may later convert such debt from fixed to variable or from variable to fixed interest rates, or from United States dollar-based rates to rates based upon another currency, through the use of interest rate swap agreements. In order to meet its goal of fixing or limiting interest costs, the Corporation maintains a portfolio of interest rate hedge instruments. The variable rate debt to total debt ratio, after taking interest rate hedges into account, was 52% at December 31, 1999, compared to 47% at December 31, 1998, and 63% at December 31, 1997. At December 31, 1999, average debt maturity was 6.2 years compared to 6.7 years at December 31, 1998, and 3.9 years at December 31, 1997. Interest Rate Sensitivity - ------------------------- The following table provides information as of December 31, 1999, about the Corporation's derivative financial instruments and other financial instruments that are sensitive to changes in interest rates, including interest rate swaps and debt obligations. For debt obligations, the table presents principal cash flows and related average interest rates by contractual maturity dates. For interest rate swaps, the table presents notional principal amounts and weighted-average interest rates by contractual maturity dates. Notional amounts are used to calculate the contractual payments to be exchanged under the interest rate swaps. Weighted-average variable rates are generally based on the London Interbank Offered Rate (LIBOR) as of the reset dates. The cash flows of these instruments are denominated in a variety of currencies. Unless otherwise indicated, the information is presented in U.S. dollar equivalents, which is the Corporation's reporting currency, as of December 31, 1999. 17
Principal Payments and Interest Rate Detail by Contractual Maturity Dates - ------------------------------------------------------------------------------------------------------------------------------------ Fair Value (Assets)/ (U.S. Dollars in Millions) 2000 2001 2002 2003 2004 Thereafter Total Liabilities - ------------------------------------------------------------------------------------------------------------------------------------ Liabilities Short-term borrowings Variable rate (U.S. dollars) $144.7 $ -- $ -- $ -- $ -- $ -- $ 144.7 $ 144.7 Average interest rate 6.47% 6.47% Variable rate (other currencies) $ 38.5 $ -- $ -- $ -- $ -- $ -- $ 38.5 $ 38.5 Average interest rate 7.04% 7.04% Long-term debt Fixed rate (U.S. dollars) $208.7 $35.8 $32.3 $309.5 $ -- $454.6 $1,040.9 $1,004.3 Average interest rate 6.63% 8.95% 8.86% 7.50% 6.87% 7.14% Fixed rate (other currencies) $ 4.5 $ 4.9 $ 1.8 $ .7 $ -- $ -- $ 11.9 $ 11.9 Average interest rate 5.50% 5.35% 1.03% 1.05% 4.43% Variable rate (U.S. dollars) $ -- $ 7.5 $ -- $ -- $ -- $ -- $ 7.5 $ 7.5 Average interest rate L+.70%(a) Interest Rate Derivatives Fixed to Variable Rate Interest Rate Swaps (U.S. dollars) $ 50.0 $ -- $ -- $125.0 $ -- $275.0 $ 450.0 $ 26.7 Average pay rate (b) Average receive rate 5.54% 6.02% 6.01% 5.96% - ------------------------------------------------------------------------------------------------------------------------------------ (a)Variable rate specified is based upon LIBOR plus the specified margin over LIBOR. (b)The average pay rate is based upon 6-month forward LIBOR, except for $150.0 million in notional principal amount which matures after 2004 and is based upon 3-month forward LIBOR.
Foreign Currency Exchange Rate Sensitivity - ------------------------------------------ As discussed above, the Corporation is exposed to market risks arising from changes in foreign exchange rates. As of December 31, 1999, the Corporation has hedged a substantial portion of its 2000 estimated foreign currency transactions using forward exchange contracts and purchased options. The Corporation estimated the effect on 2000 gross profits, based upon a recent estimate of foreign exchange exposures, of a uniform 10% strengthening in the value of the United States dollar and a uniform 10% weakening in the value of the United States dollar. The larger loss computed was that under an assumed uniform 10% strengthening of the United States dollar, which the Corporation estimated would have the effect of reducing gross profits for 2000 by approximately $19 million. In addition to their direct effects, changes in exchange rates also affect sales volumes and foreign currency sales prices as competitors' products become more or less attractive. The sensitivity analysis of the effects of changes in foreign currency exchange rates described above does not reflect a potential change in sales levels or local currency prices nor does it reflect higher exchange rates, compared to those experienced during 1999, inherent in the foreign exchange hedging portfolio at December 31, 1999. IMPACT OF YEAR 2000 The year 2000 ("Y2K") issue arose out of the fact that many computer programs were written using two digits to identify the applicable year rather than four digits. It was feared that computer programs with date-sensitive software or equipment with embedded date-sensitive technology might misinterpret a two-digit code; for example, "00," entered in a date-field for the year "2000," might be wrongly interpreted as the year "1900." This error could result in system or equipment failures or miscalculations and disruptions of operations. During the last several years, the Corporation has spent approximately $13.6 million to address issues related to the Y2K problem. These costs include internal information systems resources redirected to the Corporation's Y2K program. Other costs for implementing systems improvements within the Corporation that were planned primarily for operational and supply-chain improvements and were not accelerated as a result of Y2K concerns are not included in the foregoing costs. The external costs associated with these systems improvements, which are significant, generally have been capitalized as part of other assets. The internal information systems department costs that are included above as Y2K costs are expensed as incurred, were funded by cash flow from operations, and did not have a material adverse effect on the Corporation. As of December 31, 1999, the Corporation had completed all aspects of its Y2K readiness program and, through February 10, 2000, the Corporation has not experienced any significant problems related to the Y2K issue. FINANCIAL CONDITION Operating activities generated cash of $375.5 million for the year ended December 31, 1999, compared to $366.3 million of cash generated for the year ended December 31, 1998. This increase in cash generation was the result of higher operating income and a decrease in restructuring spending. These benefits to cash flow from operating activities were partially offset by cash usage from increases in working capital, primarily inventory and accounts receivable, compared to cash generation from reductions in working capital in 1998. The increased inventory levels during 1999 reflect an investment by the Power Tools and Accessories business, principally in North America, to better meet service level requirements 18 compared to the reduction in inventories that occurred during 1998 which adversely affected service levels. Accounts receivable increased principally as a result of higher sales in the fourth quarter of 1999 compared to the prior year. In addition to analyzing absolute cash flows, 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 as of December 31, 1999, approximated the 1998 level. Inventory turns, however, decreased during 1999 due to the increase in inventory levels discussed in the preceding paragraph. The Corporation's goal is to increase inventory turns in 2000. Investing activities for 1999 used cash of $108.6 million compared to cash generated of $531.4 million in 1998. The cash generation in 1998, however, was due principally to the receipt of $653.6 million of proceeds, net of selling expenses paid, from the divested businesses. Excluding those proceeds, investing activities for 1998 used cash of $122.2 million. Net cash inflows from hedging activities in 1999 increased $27.0 million over 1998 primarily as a result of the maturities of certain interest rate swaps that swapped from fixed United States dollars to fixed foreign currencies. These increases were partially offset by an increase in capital expenditures during 1999. The Corporation expects capital spending in 2000 to increase over the 1999 level as the Corporation addresses capacity constraints that necessitated the working capital build in 1999 and funds an increasing amount of new production. Financing activities used cash of $201.6 million in 1999 compared to cash used of $1,054.3 million in 1998. This decrease is cash usage during 1999 was primarily the result of a decrease in cash expended for stock repurchases and debt reduction. During the first quarter of 1999, the Corporation completed the share repurchase element of the strategic repositioning program described more fully in Note 2 to the Consolidated Financial Statements. Additional share repurchases were made during 1999, and future share repurchases are anticipated, in order to reduce the dilutive effect of stock issuances under various stock-based employee benefit plans. A net reduction in debt during 1999 of $118.0 million was in comparison to a net reduction in debt during 1998 of $532.9 million with sales proceeds from the divested businesses. 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 credit providers, is defined by the Corporation as cash flow from operating activities, less capital expenditures of continuing operations, plus proceeds from the disposal of assets (excluding proceeds from business sales). It is the Corporation's intention when reporting historical information to exclude changes in its accounts receivable sale program, which was discontinued in 1997, from the calculation of free cash flow. During the year ended December 31, 1999, the Corporation generated free cash flow of $241.7 million compared to free cash flow of $240.7 million generated in 1998. The ongoing costs of compliance with existing environmental laws and regulations have not had, and are not expected to have, a material adverse effect on the Corporation's capital expenditures or financial position. While the Corporation neared completion of the restructuring element of its strategic repositioning plan by the end of 1999, it remains committed to continuous productivity improvement and continues to evaluate opportunities to reduce fixed costs and eliminate excess capacity. The Corporation currently anticipates recognizing an additional restructuring charge, expected to approximate $25 million, in the first half of 2000. The Corporation will continue to have cash requirements to support seasonal working capital needs and capital expenditures, to pay interest, and to service debt. For amounts available at December 31, 1999, under the Corporation's revolving credit facility and under short-term borrowing facilities, see Note 8 of Notes to Consolidated Financial Statements. In order to meet its cash requirements, the Corporation intends to use internally generated funds and to borrow under its unsecured revolving credit facility or under short-term borrowing facilities. The Corporation believes that cash generated from these sources will be adequate to meet its cash requirements over the next 12 months. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information required under this Item is contained in Item 7 of this report under the caption "Hedging Activities" and in Item 8 of this report in Notes 1 and 10 of Notes to Consolidated Financial Statements, and is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following consolidated financial statements of the Corporation and its subsidiaries are included herein as indicated below: Consolidated Financial Statements Consolidated Statement of Earnings - years ended December 31, 1999, 1998, and 1997. Consolidated Balance Sheet - December 31, 1999 and 1998. Consolidated Statement of Stockholders' Equity - years ended December 31, 1999, 1998, and 1997. Consolidated Statement of Cash Flows - years ended December 31, 1999, 1998, and 1997. Notes to Consolidated Financial Statements. Report of Independent Auditors. 19 CONSOLIDATED STATEMENT OF EARNINGS The Black & Decker Corporation and Subsidiaries (Dollars in Millions Except Per Share Data)
- ------------------------------------------------------------------------------------------------- Year Ended December 31, 1999 1998 1997 - ------------------------------------------------------------------------------------------------- SALES $4,520.5 $4,559.9 $4,940.5 Cost of goods sold 2,834.4 2,951.0 3,169.2 Selling, general, and administrative expenses 1,149.8 1,124.9 1,282.0 Write-off of goodwill -- 900.0 -- Restructuring and exit costs -- 164.7 -- Gain on sale of businesses -- 114.5 -- - ------------------------------------------------------------------------------------------------- OPERATING INCOME (LOSS) 536.3 (466.2) 489.3 Interest expense (net of interest income of $30.5 for 1999, $30.9 for 1998, and $8.1 for 1997) 95.8 114.4 124.6 Other (income) expense (.8) 7.7 15.2 - ------------------------------------------------------------------------------------------------- EARNINGS (LOSS) BEFORE INCOME TAXES 441.3 (588.3) 349.5 Income taxes 141.0 166.5 122.3 - ------------------------------------------------------------------------------------------------- NET EARNINGS (LOSS) $ 300.3 $ (754.8) $ 227.2 ================================================================================================= NET EARNINGS (LOSS) PER COMMON SHARE -- BASIC $ 3.45 $ (8.22) $ 2.40 ================================================================================================= NET EARNINGS (LOSS) PER COMMON SHARE -- ASSUMING DILUTION $ 3.40 $ (8.22) $ 2.35 ================================================================================================= See Notes to Consolidated Financial Statements
20 CONSOLIDATED BALANCE SHEET The Black & Decker Corporation and Subsidiaries (Millions of Dollars) - -------------------------------------------------------------------------------- December 31, 1999 1998 - -------------------------------------------------------------------------------- ASSETS Cash and cash equivalents $ 147.3 $ 87.9 Trade receivables, less allowances of $53.3 for 1999 and $44.3 for 1998 823.2 792.4 Inventories 751.0 636.9 Other current assets 189.9 234.6 - -------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 1,911.4 1,751.8 - -------------------------------------------------------------------------------- PROPERTY, PLANT, AND EQUIPMENT 739.6 727.6 GOODWILL 743.4 768.7 OTHER ASSETS 618.3 604.4 - -------------------------------------------------------------------------------- $4,012.7 $3,852.5 ================================================================================ LIABILITIES AND STOCKHOLDERS' EQUITY Short-term borrowings $ 183.2 $ 152.5 Current maturities of long-term debt 213.2 59.2 Trade accounts payable 367.3 348.8 Other accrued liabilities 809.0 814.2 - -------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 1,572.7 1,374.7 - -------------------------------------------------------------------------------- LONG-TERM DEBT 847.1 1,148.9 DEFERRED INCOME TAXES 243.8 279.9 POSTRETIREMENT BENEFITS 246.3 263.5 OTHER LONG-TERM LIABILITIES 301.7 211.5 STOCKHOLDERS' EQUITY Common stock (outstanding: December 31, 1999 -- 87,190,240 shares; December 31, 1998 -- 87,498,424 shares) 43.6 43.7 Capital in excess of par value 843.3 871.4 Retained earnings (deficit) 21.9 (236.6) Accumulated other comprehensive income (107.7) (104.5) - -------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY 801.1 574.0 - -------------------------------------------------------------------------------- $4,012.7 $3,852.5 ================================================================================ See Notes to Consolidated Financial Statements 21 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY The Black & Decker Corporation and Subsidiaries (Dollars in Millions Except Per Share Data)
- --------------------------------------------------------------------------------------------------------------------------- Accumulated Outstanding Capital in Retained Other Total Common Par Excess of Earnings Comprehensive Stockholders' Shares Value Par Value (Deficit) Income Equity - --------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1996 94,248,807 $47.1 $1,261.7 $380.2 $(56.6) $1,632.4 Comprehensive income: Net earnings -- -- -- 227.2 -- 227.2 Foreign currency translation adjustments, less effect of hedging activities (net of tax) -- -- -- -- (39.6) (39.6) - --------------------------------------------------------------------------------------------------------------------------- Comprehensive income -- -- -- 227.2 (39.6) 187.6 - --------------------------------------------------------------------------------------------------------------------------- Cash dividends on common stock ($.48 per share) -- -- -- (45.4) -- (45.4) Common stock issued under employee benefit plans 593,737 .3 16.5 -- -- 16.8 - --------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1997 94,842,544 47.4 1,278.2 562.0 (96.2) 1,791.4 Comprehensive income (loss): Net loss -- -- -- (754.8) -- (754.8) Minimum pension liability adjustment (net of tax) -- -- -- -- (6.1) (6.1) Foreign currency translation adjustments, less effect of hedging activities (net of tax) -- -- -- -- (37.8) (37.8) Write-off of accumulated foreign currency translation adjustments due to sale of businesses -- -- -- -- 35.6 35.6 - --------------------------------------------------------------------------------------------------------------------------- Comprehensive income (loss) -- -- -- (754.8) (8.3) (763.1) - --------------------------------------------------------------------------------------------------------------------------- Cash dividends on common stock ($.48 per share) -- -- -- (43.8) -- (43.8) Purchase and retirement of common stock (9,025,400) (4.5) (459.8) -- -- (464.3) Common stock issued under employee benefit plans 1,681,280 .8 53.0 -- -- 53.8 - --------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1998 87,498,424 43.7 871.4 (236.6) (104.5) 574.0 Comprehensive income: Net earnings -- -- -- 300.3 -- 300.3 Minimum pension liability adjustment (net of tax) -- -- -- -- 1.6 1.6 Foreign currency translation adjustments, less effect of hedging activities (net of tax) -- -- -- -- (4.8) (4.8) - --------------------------------------------------------------------------------------------------------------------------- Comprehensive income -- -- -- 300.3 (3.2) 297.1 - --------------------------------------------------------------------------------------------------------------------------- Cash dividends on common stock ($.48 per share) -- -- -- (41.8) -- (41.8) Purchase and retirement of common stock (net of 57,682 shares issued under forward purchase contracts) (958,218) (.4) (52.9) -- -- (53.3) Common stock issued under employee benefit plans 650,034 .3 24.8 -- -- 25.1 - --------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1999 87,190,240 $43.6 $843.3 $21.9 $(107.7) $801.1 =========================================================================================================================== See Notes to Consolidated Financial Statements
22
CONSOLIDATED STATEMENT OF CASH FLOWS The Black & Decker Corporation and Subsidiaries (Millions of Dollars) - -------------------------------------------------------------------------------------------------------------------- Year Ended December 31, 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net earnings (loss) $ 300.3 $ (754.8) $ 227.2 Adjustments to reconcile net earnings (loss) to cash flow from operating activities: Gain on sale of businesses -- (114.5) -- Non-cash charges and credits: Depreciation and amortization 160.0 155.2 214.2 Deferred income taxes (benefit) (5.8) 67.5 71.7 Goodwill write-off -- 900.0 -- Restructuring charges and exit costs -- 164.7 -- Other (8.3) (1.7) 1.5 Changes in selected working capital items (excluding, for 1998, effects of divested businesses): Trade receivables (57.0) (24.3) (85.1) Inventories (136.1) 26.9 (63.7) Trade accounts payable 21.9 16.9 2.3 Restructuring spending (26.7) (55.6) (27.4) Other assets and liabilities 127.2 (14.0) 12.5 Net decrease in receivables sold -- -- (212.0) - -------------------------------------------------------------------------------------------------------------------- CASH FLOW FROM OPERATING ACTIVITIES 375.5 366.3 141.2 - -------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Proceeds from sale of businesses, net of selling expenses -- 653.6 -- Purchase of businesses (5.2) -- -- Proceeds from disposal of assets 37.3 20.4 13.4 Capital expenditures (171.1) (146.0) (203.1) Cash inflow from hedging activities 565.9 343.5 384.8 Cash outflow from hedging activities (535.5) (340.1) (357.9) - -------------------------------------------------------------------------------------------------------------------- CASH FLOW FROM INVESTING ACTIVITIES (108.6) 531.4 (162.8) - -------------------------------------------------------------------------------------------------------------------- CASH FLOW BEFORE FINANCING ACTIVITIES 266.9 897.7 (21.6) FINANCING ACTIVITIES Net decrease in short-term borrowings (49.9) (23.2) (18.4) Proceeds from long-term debt (including revolving credit facility) 1,091.9 586.6 667.2 Payments on long-term debt (including revolving credit facility) (1,160.0) (1,096.3) (483.9) Debt issue costs paid -- (2.9) -- Redemption of preferred stock of subsidiary -- (41.7) -- Purchase of common stock (53.3) (464.3) -- Issuance of common stock 11.5 31.3 10.1 Cash dividends (41.8) (43.8) (45.4) - -------------------------------------------------------------------------------------------------------------------- CASH FLOW FROM FINANCING ACTIVITIES (201.6) (1,054.3) 129.6 Effect of exchange rate changes on cash (5.9) (2.3) (3.0) - -------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 59.4 (158.9) 105.0 Cash and cash equivalents at beginning of year 87.9 246.8 141.8 - -------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 147.3 $ 87.9 $ 246.8 ==================================================================================================================== See Notes to Consolidated Financial Statements
23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Black & Decker Corporation and Subsidiaries NOTE 1: SUMMARY OF ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION: The Consolidated Financial Statements include the accounts of the Corporation and its subsidiaries. Intercompany transactions have been eliminated. RECLASSIFICATIONS: Certain prior years' amounts in the Consolidated Financial Statements have been reclassified to conform to the presentation used in 1999. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements. REVENUE RECOGNITION: Revenue from sales of product is recognized when title passes, which generally occurs upon shipment. FOREIGN CURRENCY TRANSLATION: The financial statements of subsidiaries located outside of the United States, except those subsidiaries operating in highly inflationary economies, generally are measured using the local currency as the functional currency. Assets, including goodwill, and liabilities of these subsidiaries are translated at the rates of exchange at the balance sheet date. The resultant translation adjustments are included in accumulated other comprehensive income, a separate component of stockholders' equity. Income and expense items are translated at average monthly rates of exchange. Gains and losses from foreign currency transactions of these subsidiaries are included in net earnings. For subsidiaries operating in highly inflationary economies, gains and losses from balance sheet translation adjustments are included in net earnings. CASH AND CASH EQUIVALENTS: Cash and cash equivalents include cash on hand, demand deposits, and short-term investments with maturities of three months or less from the date of acquisition. INVENTORIES: 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. PROPERTY AND DEPRECIATION: Property, plant, and equipment is stated at cost. Depreciation is computed generally on the straight-line method for financial reporting purposes. GOODWILL AND OTHER INTANGIBLES: Goodwill and other intangibles are amortized on the straight-line method. Goodwill is amortized principally over a 40-year period. As more fully described in Note 2, effective January 1, 1998, the Corporation changed its method for measuring and recognizing an impairment of goodwill from an undiscounted cash flow approach to a discounted cash flow approach. PRODUCT DEVELOPMENT COSTS: Costs associated with the development of new products and changes to existing products are charged to operations as incurred. Product development costs were $91.0 million in 1999, $90.5 million in 1998, and $99.1 million in 1997. ADVERTISING AND PROMOTION: All costs associated with advertising and promoting products are expensed as incurred. Advertising and promotion expense, including expense of consumer rebates, was $223.7 million in 1999, $211.2 million in 1998, and $248.0 million in 1997. POSTRETIREMENT BENEFITS: Pension plans, which cover substantially all of the Corporation's employees, consist primarily of non-contributory defined benefit plans. The defined benefit plans are funded in conformity with the funding requirements of applicable government regulations. Generally, benefits are based on age, years of service, and the level of compensation during the final years of employment. Prior service costs for defined benefit plans generally are amortized over the estimated remaining service periods of employees. Certain employees are covered by defined contribution plans. The Corporation's contributions to these plans are based on a percentage of employee compensation or employee contributions. These plans are funded on a current basis. In addition to pension benefits, certain postretirement medical, dental, and life insurance benefits are provided, principally to most United States employees. Retirees in other countries generally are covered by government-sponsored programs. The Corporation uses the corridor approach in the valuation of defined benefit plans and other postretirement benefits. The corridor approach defers all actuarial gains and losses resulting from variances between actual results and economic estimates or actuarial assumptions. For defined benefit pension plans, these unrecognized gains and losses are amortized when the net gains and losses exceed 10% of the greater of the market-related value of plan assets or the projected benefit obligation at the beginning of the year. For other postretirement benefits, amortization occurs when the net gains and losses exceed 10% of the accumulated postretirement benefit obligation at the beginning of the year. The amount in excess of the corridor is amortized over the average remaining service period to retirement date of active plan participants or, for retired participants, the average remaining life expectancy. DERIVATIVE FINANCIAL INSTRUMENTS: Derivative financial instruments are used principally in the management of interest rate and foreign currency exposures. Amounts to be paid or received under interest rate swap agreements are accrued as interest rates change and are recognized over the life of the swap agreements as an adjustment to interest expense. The related amounts due to or from the counterparties are included in other accrued liabilities. Since they are accounted for as hedges, the fair value of the swap agreements is not recognized in the Consolidated Financial Statements. The costs of interest rate cap agreements are included in interest expense ratably over the lives of the agreements. Payments to be received as a result of the cap agreements are accrued as a reduction of interest expense. The unamortized costs of the cap agreements are included in other assets. 24 Gains or losses resulting from the early termination of interest rate swaps or caps are deferred and amortized as an adjustment to the yield of the related debt instrument over the remaining period originally covered by the terminated swaps or caps. Were that related debt instrument later to be retired prior to its scheduled maturity, the unamortized gain or loss resulting from the early termination of the interest rate swap or cap would be included in the gain or loss on the extinguishment of debt. Gains and losses on hedges of net investments in subsidiaries located outside of the United States are reflected in the Consolidated Balance Sheet in accumulated other comprehensive income, with the related amounts due to or from the counterparties included in other liabilities or other assets. Gains and losses resulting from the early termination of hedges of net investments are reflected in accumulated other comprehensive income at the time of termination. Gains and losses on foreign currency transaction hedges are recognized in income and offset the foreign exchange gains and losses on the underlying transactions. Deferred gains on options that hedge forecasted transactions, generally related to inventory purchases, are recognized in cost of sales when the related inventory is sold or when a hedged purchase is no longer expected to occur. The carrying amounts of foreign currency-related derivatives with respect to net investment and commitment hedges are included in the Consolidated Balance Sheet in other current assets and other accrued liabilities. The carrying amounts of foreign currency-related derivatives associated with transaction hedges are included in the same balance sheet line item as the hedged transaction. Cash effects of the Corporation's derivative financial instruments are included in the Consolidated Statement of Cash Flows in the periods in which they occur. Except as noted below, the cash effects of the Corporation's interest rate swaps and caps, foreign currency transaction hedges, hedges of foreign currency firm commitments, and hedges of forecasted transactions are included in the Consolidated Statement of Cash Flows as cash flow from operating activities. The cash effects of hedges of net investments in subsidiaries located outside of the United States are included in the Consolidated Statement of Cash Flows as cash flow from investing activities. The cash effects of the exchange of notional principal amounts on interest rate swaps that swap from fixed United States dollars to fixed or variable foreign currencies are included in the Consolidated Statement of Cash Flows as cash flow from investing activities because such amounts have been designated as hedges of net investments in subsidiaries located outside of the United States. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which is required to be adopted for years beginning after June 15, 2000. Early adoption of SFAS No. 133 is permitted as of the beginning of any fiscal quarter after its issuance. SFAS No. 133 will require the Corporation to recognize all derivatives on the balance sheet at fair value. Derivatives that do not qualify as hedges under the new standard must be adjusted to fair value through income. If a derivative qualifies as a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in value will be immediately recognized in earnings. The Corporation has not yet determined when it will adopt SFAS No. 133, although early adoption is considered possible due to the new standard's more favorable treatment of certain foreign currency hedges than that afforded under prior accounting standards. The Corporation has not yet determined what effect SFAS No. 133 will have on its earnings and financial position. STOCK-BASED COMPENSATION: As described in Note 16, the Corporation has elected to follow the accounting provisions of Accounting Principles Board Opinion (APBO) No. 25, Accounting for Stock Issued to Employees, for stock-based compensation and to furnish the pro forma disclosures required under SFAS No. 123, Accounting for Stock-Based Compensation. NOTE 2: STRATEGIC REPOSITIONING OVERVIEW: As of December 31, 1999, the Corporation neared completion of the comprehensive strategic repositioning plan approved by the Corporation's Board of Directors on January 26, 1998. The plan, designed to intensify focus on core operations and improve operating performance, included the following components: (i) the divestiture of non-strategic businesses; (ii) the repurchase of approximately 10% of the Corporation's outstanding common stock over a two-year period; and (iii) a restructuring of the Corporation's remaining businesses. Also on January 26, 1998, the Board of Directors elected to authorize a change in the basis upon which the Corporation evaluates goodwill for impairment. DIVESTITURES: The Corporation completed the divestiture element of its strategic repositioning plan during 1998 through the sale of its household products businesses in North America, Central America, the Caribbean, South America (excluding Brazil), and Australia, recapitalization of its recreational products business, and sale of its glass container-forming and inspection equipment business. The Corporation elected to retain the cleaning and lighting products component of the household products businesses. In mid-1998, the Corporation completed the sale to Windmere-Durable Holdings, Inc. of the household products businesses for $315.0 million. As part of the transaction, the Corporation retained certain liabilities and agreed to license the Black & Decker name to Windmere in existing household product categories for a period of six and one-half years on a royalty-free basis, with extension options upon request of Windmere and at the discretion of the Corporation on a royalty-bearing basis. At the request of Windmere, additional product categories may be licensed at the Corporation's option on a royalty-bearing basis. 25 On September 22, 1998, the Corporation completed the sale of its glass container-forming and inspection equipment business, Emhart Glass. In connection with the sale, the Corporation received cash of $178.7 million. On September 30, 1998, the Corporation completed the recapitalization of its recreational products business, True Temper Sports. In connection with the transaction, the Corporation received $177.7 million in cash and retained approximately 6% of preferred and common stock of the recapitalized company, now known as True Temper Corporation, valued at approximately $4 million. In addition, the Corporation received a senior increasing rate discount note payable by True Temper Corporation, in an initial accreted amount of $25.0 million. Because True Temper Corporation is a highly leveraged entity and there was no active market for the note, the Corporation fully reserved the $25.0 million note through December 31, 1999. Net proceeds of $653.6 million from these divestitures were utilized in the repurchase of a portion of the Corporation's outstanding common stock and to fund the restructuring program described below. REPURCHASE OF COMMON STOCK: The second element of the strategic repositioning plan - the planned repurchase of approximately 10% of its common stock over a two-year period - was completed during 1999 when the Corporation repurchased 610,900 shares of common stock at an aggregate cost of $32.1 million, supplementing the 9,025,400 shares of common stock repurchased during 1998 at an aggregate cost of $464.3 million. Net proceeds from the sale of divested businesses were used to fund the stock repurchase program. RESTRUCTURING CHARGE: By the close of 1999, the Corporation neared completion of the third element of the strategic repositioning plan - a restructuring program undertaken to reduce fixed costs. The Corporation commenced the restructuring program and recorded a restructuring charge of $164.7 million during 1998. During 1999, the Corporation recognized $13.1 million of additional restructuring and exit costs, but those additional costs were offset by a gain realized in 1999 on the sale of a facility, exited as part of the restructuring actions taken in 1998, that had a fair value exceeding its net book value at the time of the 1998 charge and by the reversal during 1999 of certain severance accruals, established as part of the 1998 restructuring charge, which were no longer necessary. The principal component of the restructuring charge, as adjusted in 1999, related to the elimination of approximately 5,000 positions. As a result, an accrual of $121.5 million, principally associated with the Power Tools and Accessories segment in Europe and North America, was included in the restructuring charge. Included in that accrual were costs of approximately $30 million related to the acceptance of a voluntary retirement plan by certain employees in the United States. Also included in that accrual was $8.1 million related to severance actions taken in the divested businesses and with respect to the closure of a facility in Kuantan, Malaysia. The Kuantan facility manufactured household products predominantly for sale in the United States and was not included in the assets sold with the household products business. To reduce fixed costs, the Corporation took actions to rationalize certain manufacturing, sales, and administrative operations, resulting in the closure of a number of facilities. As a result, the restructuring charge, as adjusted in 1999, also included a $25.3 million write-down to fair value - less, if applicable, costs to sell - of certain land, buildings, and equipment. Included in that $25.3 million write-down was $9.0 million related to the closure of the Kuantan facility described above. The balance of the write-down to fair value primarily related to long-lived assets of the Power Tools and Accessories segment in Europe and North America and is net of gains of $8.9 million and $8.7 million realized in 1999 and 1998, respectively, on the sales of facilities exited as part of the restructuring plan that had fair values in excess of net book values at the time of the restructuring charge. As of December 31, 1999, all facilities exited as part of the strategic repositioning plan had been sold with the exception of the Kuantan facility. The carrying value of the Kuantan facility at December 31, 1999, was not significant. The remaining restructuring charge, as adjusted in 1999, of $17.9 million primarily related to the accrual of future expenditures, principally consisting of lease and other contractual obligations associated with the Power Tools and Accessories segment in Europe, for which no future benefit will be realized and to the settlement of claims in 1999 regarding a divested business. CHANGE IN ACCOUNTING FOR GOODWILL: As a consequence of the strategic repositioning plan, the Corporation elected to change its method of measuring goodwill impairment from an undiscounted cash flow approach to a discounted cash flow approach effective January 1, 1998. On a periodic basis, the Corporation estimates the future discounted cash flows of the businesses to which goodwill relates. When such estimate of the future discounted cash flows, net of the carrying amount of tangible net assets, is less than the carrying amount of goodwill, the difference will be charged to operations. For purposes of determining the future discounted cash flows of the businesses to which goodwill relates, the Corporation, based upon historical results, current projections, and internal earnings targets, determines the projected future operating cash flows, net of income tax payments, of the individual businesses. These projected future cash flows are then discounted at a rate corresponding to the Corporation's estimated cost of capital, which also is the hurdle rate used by the Corporation in making investment decisions. Future discounted cash flows for the recreational products business, the glass container-forming and inspection equipment business, and the household products businesses in North America, Latin America, and Australia included an estimate of the proceeds from the sale of such businesses, net of associated selling expenses and taxes. The Corporation believes that measurement of the value of goodwill through a discounted cash flow approach is preferable in that such a measurement facilitates the timely identification of impairment of the carrying value of investments in businesses and provides a more current - and with respect to the businesses sold, provided a more realistic - valuation than the undiscounted approach. 26 In connection with the Corporation's change in accounting policy with respect to measurement of goodwill impairment, $900.0 million of goodwill was written off through a charge to operations during 1998 and represented a per-share net loss of $9.80 both on a basic and a diluted basis for 1998. That write-off of goodwill, which related to the Hardware and Home Improvement segment and the Fastening and Assembly Systems segment, and included a $40.0 million write-down of goodwill associated with one of the divested businesses, represented the amount necessary to write-down the carrying values of goodwill for those businesses to the Corporation's best estimate, as of January 1, 1998, of those businesses' future discounted cash flows using the methodology described in the preceding paragraph. This change represented a change in accounting principle that is indistinguishable from a change in estimate. NOTE 3: TRADE RECEIVABLES CONCENTRATION OF CREDIT: The Corporation sells products and services to customers in diversified industries and geographic regions and, therefore, has no significant concentrations of credit risk. The Corporation continuously evaluates the creditworthiness of its customers and generally does not require collateral. SALE OF RECEIVABLES PROGRAM: Prior to December 1997, the Corporation maintained a sale of receivables program under which receivables were sold on a revolving basis. In December 1997, the Corporation voluntarily terminated its sale of receivables program as the program was no longer deemed necessary to support its liquidity requirements. The discount on the sale of receivables was included in other expense. NOTE 4: INVENTORIES The classification of inventories at the end of each year, in millions of dollars, was as follows: - -------------------------------------------------------------------------------- 1999 1998 - -------------------------------------------------------------------------------- FIFO cost Raw materials and work-in-process $171.3 $173.5 Finished products 584.5 482.3 - -------------------------------------------------------------------------------- 755.8 655.8 Excess of FIFO cost over LIFO inventory value (4.8) (18.9) - -------------------------------------------------------------------------------- $751.0 $636.9 ================================================================================ The cost of United States inventories stated under the LIFO method was approximately 48% and 43% of the value of total inventories at December 31, 1999 and 1998, respectively. NOTE 5: PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment at the end of each year, in millions of dollars, consisted of the following: - -------------------------------------------------------------------------------- 1999 1998 - -------------------------------------------------------------------------------- Property, plant, and equipment at cost: Land and improvements $ 54.1 $ 60.2 Buildings 264.0 304.3 Machinery and equipment 1,241.1 1,209.2 - -------------------------------------------------------------------------------- 1,559.2 1,573.7 Less accumulated depreciation 819.6 846.1 - -------------------------------------------------------------------------------- $ 739.6 $ 727.6 ================================================================================ NOTE 6: GOODWILL Goodwill amortization was $25.7 million in 1999, $25.2 million in 1998, and $63.3 million in 1997. Goodwill at the end of each year, in millions of dollars, was as follows: - -------------------------------------------------------------------------------- 1999 1998 - -------------------------------------------------------------------------------- Goodwill $1,301.3 $1,300.9 Less accumulated amortization 557.9 532.2 - -------------------------------------------------------------------------------- $ 743.4 $ 768.7 ================================================================================ NOTE 7: OTHER ACCRUED LIABILITIES Other accrued liabilities at the end of each year, in millions of dollars, included the following: - -------------------------------------------------------------------------------- 1999 1998 - -------------------------------------------------------------------------------- Salaries and wages $ 67.2 $ 63.6 Employee benefits 109.1 93.1 Trade discounts and allowances 145.9 114.0 Income taxes, including deferred taxes 66.7 107.9 Accruals related to restructuring actions taken in connection with strategic repositioning plan 22.4 50.8 All other 397.7 384.8 - -------------------------------------------------------------------------------- $ 809.0 $ 814.2 ================================================================================ All other at December 31, 1999 and 1998, consisted primarily of accruals for advertising, warranty costs, interest, insurance, and taxes other than income taxes. NOTE 8: SHORT-TERM BORROWINGS Short-term borrowings in the amounts of $183.2 million and $152.5 million at December 31, 1999 and 1998, respectively, consisted primarily of borrowings under the terms of uncommitted lines of credit or other short-term borrowing arrangements and, at December 31, 1999, borrowings under the Corporation's unsecured revolving credit facility (the Credit Facility). The weighted-average interest rate on short-term borrowings outstanding at December 31, 1999 and 1998, was 6.6% and 7.1%, respectively. 27 Under the terms of uncommitted lines of credit at December 31, 1999, certain subsidiaries outside of the United States may borrow up to an additional $388.2 million on such terms as may be mutually agreed. These arrangements do not have termination dates and are reviewed periodically. No material compensating balances are required or maintained. The Corporation may borrow up to $1.0 billion under the Credit Facility, which consists of two individual facilities. The amount available for borrowing under the Credit Facility at December 31, 1999, was $865.9 million. Under the Credit Facility, the Corporation has the option of borrowing at the London Interbank Offered Rate (LIBOR) plus a specified percentage, or at other variable rates set forth therein. The Credit Facility provides that the interest rate margin over LIBOR, initially set at .15% and .25%, respectively, for each of 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 under the Credit Facility by means of competitive bid rate loans 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 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 facility fee changes based on the ratings of the Corporation's long-term senior unsecured debt. The Credit Facility includes various customary covenants. Some of the covenants limit the ability of the Corporation and its subsidiaries to pledge assets or incur liens on assets. Other covenants require the Corporation to maintain a specified leverage ratio and to achieve certain cash flow to fixed expense coverage ratios. As of December 31, 1999, the Corporation was in compliance with all terms and conditions of the Credit Facility. NOTE 9: LONG-TERM DEBT The composition of long-term debt at the end of each year, in millions of dollars, was as follows: - -------------------------------------------------------------------------------- 1999 1998 - -------------------------------------------------------------------------------- Medium Term Notes due through 2002 $ 75.6 $ 150.0 6.625% notes due 2000 208.7 214.4 7.50% notes due 2003 309.5 335.7 7.0% notes due 2006 154.6 154.6 6.55% notes due 2007 150.0 150.0 7.05% notes due 2028 150.0 150.0 Revolving credit facility expiring 2001 -- 29.4 Other loans due through 2003 11.9 24.0 Less current maturities of long-term debt (213.2) (59.2) - -------------------------------------------------------------------------------- $ 847.1 $1,148.9 ================================================================================ As of December 31, 1999, $75.6 million aggregate principal amount of unsecured Medium Term Notes were outstanding. Of that amount, $68.1 million bear interest at fixed rates ranging from 8.36% to 8.95%, while the remainder bear interest at variable rates. Indebtedness of subsidiaries in the aggregate principal amounts of $435.4 million and $412.4 million were included in the Consolidated Balance Sheet at December 31, 1999 and 1998, respectively, in short-term borrowings, current maturities of long-term debt, and long-term debt. Principal payments on long-term debt obligations due over the next four years are as follows: $213.2 million in 2000, $48.2 million in 2001, $34.1 million in 2002, and $310.2 million in 2003. No principal payments are due in 2004. Interest payments on all indebtedness were $140.1 million in 1999, $160.8 million in 1998, and $159.3 million in 1997. NOTE 10: DERIVATIVE FINANCIAL INSTRUMENTS The Corporation is exposed to market risks arising from changes in interest rates. With products and services marketed in over 100 countries and with manufacturing sites in ten countries, the Corporation also is exposed to risks arising from changes in foreign exchange rates. CREDIT EXPOSURE: The Corporation is exposed to credit-related losses in the event of non-performance by counterparties to certain derivative financial instruments. The Corporation monitors the creditworthiness of the counterparties and presently does not expect default by any of the counterparties. The Corporation does not obtain collateral in connection with its derivative financial instruments. The credit exposure that results from interest rate and foreign exchange contracts is the fair value of contracts with a positive fair value as of the reporting date. Some derivatives are not subject to credit exposures. The fair value of all financial instruments is summarized in Note 11. INTEREST RATE RISK MANAGEMENT: The Corporation manages its interest rate risk, primarily through the use of interest rate swap and cap agreements, in order to achieve a cost-effective mix of fixed and variable rate indebtedness. It seeks to issue debt opportunistically, whether at fixed or variable rates, at the lowest possible costs and then, based upon its assessment of the future interest rate environment, may convert such debt from fixed to variable or from variable to fixed interest rates through the use of interest rate derivatives. Similarly, the Corporation may, at times, seek to limit the effects of rising interest rates on its variable rate debt through the use of interest rate caps. It does not utilize derivative financial instruments that contain leverage features. Because the Corporation's interest rate derivative financial instruments are designated as hedges, are effective in changing the tenor of existing indebtedness (e.g., from fixed to variable rate debt or from variable to fixed rate debt), and do not contain leverage features, they are afforded hedge accounting treatment. The amounts exchanged by the counterparties to interest rate swap and cap agreements normally are based upon the notional amounts and other terms, generally related to interest rates, of the derivatives. While notional amounts of interest rate swaps and caps form part of the basis for the amounts exchanged by the counterparties, the notional amounts are not themselves exchanged and, therefore, do not represent a measure of the Corporation's exposure as an end user of 28 derivative financial instruments. The notional amounts of interest rate derivatives at the end of each year, in millions of dollars, were as follows: - -------------------------------------------------------------------------------- 1999 1998 - -------------------------------------------------------------------------------- Interest rate swaps: Fixed to variable rates $450.0 $425.0 U.S. rates to foreign rates -- 250.0 - -------------------------------------------------------------------------------- The Corporation's portfolio of interest rate swap instruments as of December 31, 1999, consisted of $450.0 million notional amounts of fixed to variable rate swaps with a weighted-average fixed rate receipt of 5.96%. The basis of the variable rates paid is LIBOR. The Corporation's credit exposure on its interest rate derivatives was $14.2 million as of December 31, 1998. No credit exposure existed as of December 31, 1999. Gross deferred gains and losses on the early termination of interest rate swaps as of December 31, 1999 and 1998, were not significant. FOREIGN CURRENCY MANAGEMENT: The Corporation enters into various foreign currency contracts in managing its foreign exchange risks. The contractual amounts of foreign currency derivative financial instruments (principally, forward exchange contracts and purchased options) generally are exchanged by the counterparties. The Corporation's foreign currency derivative financial instruments are designated to, and generally are denominated in the currencies of, the underlying exposures. Because the derivative financial instruments are effective in managing foreign exchange risks and are appropriately designated to the underlying exposures, they are afforded hedge accounting treatment. To minimize the volatility of reported equity, the Corporation hedges, on a limited basis, a portion of its net investment in subsidiaries located outside of the United States through the use of foreign currency forward contracts, foreign currency swaps, and purchased foreign currency options. Through its foreign currency hedging activities, the Corporation seeks to minimize the risk that cash flows resulting from the sales of products manufactured in a currency different from that of the selling subsidiary will be affected by changes in exchange rates. The Corporation responds to foreign exchange movements through various means, such as pricing actions, changes in cost structure, and changes in hedging strategies. The Corporation hedges its foreign currency transaction exposures, as well as certain forecasted transactions, based on management's judgment, generally through options and forward exchange contracts. Some of the contracts involve the exchange of two foreign currencies according to the local needs of the subsidiaries. Some natural hedges also are used to mitigate transaction and forecasted exposures. The following table summarizes the contractual amounts of forward exchange contracts as of December 31, 1999 and 1998, in millions of dollars, including details by major currency as of December 31, 1999. Foreign currency amounts were translated at current rates as of the reporting date. The "Buy" amounts represent the United States dollar equivalent of commitments to purchase currencies, and the "Sell" amounts represent the United States dollar equivalent of commitments to sell currencies. - -------------------------------------------------------------------------------- As of December 31, 1999 Buy Sell - -------------------------------------------------------------------------------- United States dollar $ 730.1 $ (504.6) Pound sterling 372.9 (82.0) Deutsche mark 92.1 (174.0) Dutch guilder 16.9 (82.1) French franc 22.4 (125.0) Canadian dollar 76.3 (131.7) Italian lira 24.9 (14.8) Euro 2.8 (7.6) Japanese yen 1.4 (51.0) Other 23.3 (171.5) - -------------------------------------------------------------------------------- Total $1,363.1 $(1,344.3) ================================================================================ As of December 31, 1998 - -------------------------------------------------------------------------------- Total $1,732.2 $(1,711.6) ================================================================================ The contractual amounts of purchased options to buy currencies, predominantly the euro, pound sterling, and United States dollar, were $432.5 million and $343.8 million, at December 31, 1999 and 1998, respectively. The contractual amounts of purchased options to sell various currencies were $421.6 million and $338.5 million at December 31, 1999 and 1998, respectively. Credit exposure on foreign currency derivatives as of December 31, 1999 and 1998, was $51.3 million and $40.8 million, respectively. Deferred realized gains from option contracts on hedges of forecasted transactions were not significant at December 31, 1999 and 1998. Substantially all of the amounts deferred at December 31, 1999, are expected to be recognized in earnings during 2000, when the gains or losses on the underlying transactions also will be recognized. NOTE 11: FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. Significant differences can arise between the fair value and carrying amount of financial instruments that are recognized at historical cost amounts. The following methods and assumptions were used by the Corporation in estimating fair value disclosures for financial instruments: o Cash and cash equivalents, trade receivables, certain other current assets, short-term borrowings, and current maturities of long-term debt: The amounts reported in the Consolidated Balance Sheet approximate fair value. o Long-term debt: Publicly traded debt is valued based on quoted market values. The fair value of other long-term debt is estimated based on quoted market prices for the same or similar issues or on the current rates offered to the Corporation for debt of the same remaining maturities. o Interest rate hedges: The fair value of interest rate hedges reflects the estimated amounts that the Corporation would receive or pay to terminate the contracts at the reporting date. o Foreign currency contracts: The fair value of forward exchange contracts and options is estimated using prices established by financial institutions for comparable instruments. 29 The following table sets forth, in millions of dollars, the carrying amounts and fair values of the Corporation's financial instruments, except for those noted above for which carrying amounts approximate fair values: - -------------------------------------------------------------------------------- Assets (Liabilities) Carrying Fair As of December 31, 1999 Amount Value - -------------------------------------------------------------------------------- Non-derivatives: Long-term debt $(847.1) $(810.5) - -------------------------------------------------------------------------------- Derivatives relating to: Debt Liabilities .1 (26.7) Foreign currency Assets 43.4 51.3 Liabilities (19.0) (22.8) - -------------------------------------------------------------------------------- Assets (Liabilities) Carrying Fair As of December 31, 1998 Amount Value - -------------------------------------------------------------------------------- Non-derivatives: Long-term debt $(1,148.9) $(1,200.2) - -------------------------------------------------------------------------------- Derivatives relating to: Debt Assets .5 14.2 Foreign currency Assets 60.1 40.8 Liabilities (35.2) (34.9) - -------------------------------------------------------------------------------- NOTE 12: INCOME TAXES Earnings (loss) before income taxes for each year, in millions of dollars, were as follows: - -------------------------------------------------------------------------------- 1999 1998 1997 - -------------------------------------------------------------------------------- United States $174.4 $(734.3) $180.3 Other countries 266.9 146.0 169.2 - -------------------------------------------------------------------------------- $441.3 $(588.3) $349.5 ================================================================================ Significant components of income taxes (benefits) for each year, in millions of dollars, were as follows: - -------------------------------------------------------------------------------- 1999 1998 1997 - -------------------------------------------------------------------------------- Current: United States $128.3 $ 55.0 $ 32.4 Other countries 18.5 44.0 16.3 Withholding on remittances from other countries -- -- 1.9 - -------------------------------------------------------------------------------- 146.8 99.0 50.6 - -------------------------------------------------------------------------------- Deferred: United States (17.7) 92.9 92.5 Other countries 11.9 (25.4) (20.8) - -------------------------------------------------------------------------------- (5.8) 67.5 71.7 - -------------------------------------------------------------------------------- $141.0 $166.5 $122.3 ================================================================================ Income tax expense recorded directly as an adjustment to equity as a result of hedging activities in 1997 was $14.9 million, and was not significant in 1999 and 1998. Income tax benefits recorded directly as an adjustment to equity as a result of employee stock options were $4.9 million and $17.0 million in 1999 and 1998, respectively, and were not significant in 1997. Income tax payments were $97.1 million in 1999, $95.4 million in 1998, and $60.2 million in 1997. Deferred tax (liabilities) assets at the end of each year, in millions of dollars, were composed of the following: - -------------------------------------------------------------------------------- 1999 1998 - -------------------------------------------------------------------------------- Deferred tax liabilities: Fixed assets $ (19.9) $ (35.0) Postretirement benefits (224.3) (227.7) Other (37.0) (38.7) - -------------------------------------------------------------------------------- Gross deferred tax liabilities (281.2) (301.4) - -------------------------------------------------------------------------------- Deferred tax assets: Tax loss carryforwards 53.0 46.1 Tax credit and capital loss carryforwards 89.6 98.0 Other 116.2 127.9 - -------------------------------------------------------------------------------- Gross deferred tax assets 258.8 272.0 - -------------------------------------------------------------------------------- Deferred tax asset valuation allowance (37.0) (41.3) - -------------------------------------------------------------------------------- Net deferred tax liabilities $ (59.4) $ (70.7) ================================================================================ Deferred income taxes are included in the Consolidated Balance Sheet in other current assets, other assets, other accrued liabilities, and deferred income taxes. Tax basis carryforwards at December 31, 1999, consisted of net operating losses expiring from 2001 to 2007. At December 31, 1999, unremitted earnings of subsidiaries outside of the United States were approximately $1.3 billion, on which no United States taxes had been provided. The Corporation's intention is to reinvest these earnings permanently or to repatriate the earnings only when tax effective to do so. It is not practicable to estimate the amount of additional taxes that might be payable upon repatriation of foreign earnings; however, the Corporation believes that United States foreign tax credits would largely eliminate any United States taxes and offset any foreign withholding taxes not previously provided. A reconciliation of income taxes at the federal statutory rate to the Corporation's income taxes for each year, in millions of dollars, is as follows: - -------------------------------------------------------------------------------- 1999 1998 1997 - -------------------------------------------------------------------------------- Income taxes (benefit) at federal statutory rate $154.5 $(205.9) $122.3 Lower effective taxes on earnings in other countries (42.6) (19.8) (14.5) Amortization and write-off of goodwill 9.0 386.6 22.0 Other -- net 20.1 5.6 (7.5) - -------------------------------------------------------------------------------- Income taxes $141.0 $166.5 $122.3 ================================================================================ 30 NOTE 13: POSTRETIREMENT BENEFITS The following table sets forth the funded status of the defined benefit pension and postretirement plans, and amounts recognized in the Consolidated Balance Sheet, in millions of dollars. Assets of the defined benefit pension plans consist principally of investments in equity securities, debt securities, and cash equivalents. Defined postretirement benefits consist of several unfunded health care plans that provide certain postretirement medical, dental, and life insurance benefits for most United States employees. The postretirement medical benefits are contributory and include certain cost-sharing features, such as deductibles and co-payments.
- ------------------------------------------------------------------------------------------------------------------------------------ Pension Benefits Pension Benefits Other Postretirement Plans in the Plans outside of the Benefits United States United States All Plans - ------------------------------------------------------------------------------------------------------------------------------------ (Dollars in Millions) 1999 1998 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year $845.5 $709.9 $408.2 $324.9 $ 130.0 $ 150.5 Service cost 14.8 16.0 11.6 8.4 .7 1.5 Interest cost 53.4 51.5 23.3 22.5 8.0 10.4 Plan participants' contributions -- -- 2.3 2.4 4.2 3.8 Actuarial (gains) losses (87.4) 96.8 6.6 82.9 12.4 (1.4) Foreign currency exchange rate changes -- -- (17.6) (4.7) .1 (.3) Benefits paid (66.9) (49.1) (22.0) (21.9) (22.6) (16.3) Plan amendments -- 4.8 2.3 3.3 -- (12.5) Divestitures -- -- -- (9.2) -- (5.7) Curtailment (gain) loss -- (13.5) -- -- -- -- Settlements -- -- (.5) (.4) -- -- Special termination benefits .3 29.1 -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Benefit obligation at end of year 759.7 845.5 414.2 408.2 132.8 130.0 - ------------------------------------------------------------------------------------------------------------------------------------ CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year 902.7 942.4 383.3 400.4 -- -- Actual return on plan assets 160.3 12.9 71.8 19.0 -- -- Expenses (6.7) (6.1) (1.1) (.8) -- -- Benefits paid (67.0) (49.1) (20.9) (21.9) (26.8) (20.1) Employer contributions 3.0 2.6 2.7 3.5 22.6 16.3 Contributions by plan participants -- -- 2.3 2.4 4.2 3.8 Divestitures -- -- -- (9.3) -- -- Settlements -- -- (.5) (.4) -- -- Effects of currency exchange rates -- -- (11.2) (9.6) -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Fair value of plan assets at end of year 992.3 902.7 426.4 383.3 -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Funded status 232.6 57.2 12.2 (24.9) (132.8) (130.0) Unrecognized net actuarial (gain) loss (19.1) 149.2 28.1 69.9 (11.4) (24.7) Unrecognized prior service cost 7.5 7.8 20.8 21.4 (34.3) (42.7) Unrecognized net obligation (asset) at date of adoption, net of amortization .3 (.8) (4.4) (6.4) -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Prepaid (accrued) benefit cost $221.3 $213.4 $ 56.7 $ 60.0 $(178.5) $(197.4) ==================================================================================================================================== AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEET Prepaid benefit cost $251.9 $241.0 $123.8 $131.2 $ -- $ -- Accrued benefit cost (42.5) (42.8) (67.4) (71.9) (178.5) (197.4) Intangible asset 5.3 6.1 -- -- -- -- Accumulated other comprehensive income 6.6 9.1 .3 .7 -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Net amount recognized $221.3 $213.4 $ 56.7 $ 60.0 $(178.5) $(197.4) ====================================================================================================================================
31 The total accumulated benefit obligation for unfunded defined benefit pension plans as of December 31, 1999 and 1998, was $42.1 million and $42.0 million, respectively, for plans in the United States and $61.6 million and $63.0 million, respectively, for plans outside of the United States. The total projected benefit obligation for unfunded defined benefit pension plans as of December 31, 1999 and 1998, was $50.7 million and $49.6 million, respectively, for plans in the United States and $69.0 million and $70.8 million, respectively, for plans outside of the United States. The net periodic benefit cost related to the defined benefit pension plans included the following components, in millions of dollars:
- --------------------------------------------------------------------------------------------------------------------------- Pension Benefits Pension Benefits Plans in the United States Plans outside of the United States --------------------------------------------------------------------------- 1999 1998 1997 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------------------- Service cost $15.6 $ 16.7 $ 14.8 $ 11.7 $ 8.4 $ 8.3 Interest cost 53.5 51.5 48.6 23.3 22.5 21.7 Expected return on plan assets (83.6) (79.0) (73.0) (28.5) (33.2) (32.1) Amortization of the unrecognized transition obligation or asset (1.1) (1.1) (1.1) (1.9) 2.7 -- Amortization of prior service cost 1.0 .8 .8 2.2 (2.4) -- Curtailment (gain) loss .6 .9 -- .3 (.3) 1.3 Amortization of net actuarial loss 9.1 3.8 1.3 3.3 (.3) .1 Settlement loss -- 11.4 -- -- 1.4 -- - --------------------------------------------------------------------------------------------------------------------------- Net periodic benefit cost $(4.9) $ 5.0 $ (8.6) $ 10.4 $ (1.2) $ (.7) =========================================================================================================================== WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31: Discount rate 7.50% 6.50% 7.50% 6.00% 6.00% 7.40% Expected return on plan assets 9.75% 9.75% 9.75% 8.00% 9.50% 9.90% Rate of compensation increase 5.00% 5.00% 5.00% 3.90% 3.90% 3.90% - ---------------------------------------------------------------------------------------------------------------------------
The net periodic benefit cost related to the defined benefit postretirement plans included the following components, in millions of dollars: - -------------------------------------------------------------------------------- 1999 1998 1997 - -------------------------------------------------------------------------------- Service cost $ .7 $ 1.5 $ 1.2 Interest cost 8.0 10.4 10.8 Amortization of prior service cost (8.3) (7.9) (8.5) Amortization of net actuarial gain (.9) (.7) (1.7) - -------------------------------------------------------------------------------- Net periodic benefit cost $ (.5) $ 3.3 $ 1.8 ================================================================================ Weighted-average discount rate as of December 31 7.25% 6.50% 7.50% - -------------------------------------------------------------------------------- The health care cost trend rate used to determine the postretirement benefit obligation was 8.0% for 2000. This rate decreases gradually to an ultimate rate of 5.0% in 2006, and remains at that level thereafter. The trend rate is a significant factor in determining the amounts reported. A one-percentage-point change in these assumed health care cost trend rates would have the following effects, in millions of dollars: - -------------------------------------------------------------------------------- One-Percentage-Point Increase Decrease - -------------------------------------------------------------------------------- Effect on total of service and interest cost components $ .4 $ (.3) Effect on postretirement benefit obligation 5.9 (4.9) - -------------------------------------------------------------------------------- Expense for defined contribution plans amounted to $8.6 million, $10.7 million, and $12.0 million in 1999, 1998, and 1997, respectively. NOTE 14: STOCKHOLDERS' EQUITY During 1999, the Corporation executed two agreements (the "Agreements") under which the Corporation may enter into forward purchase contracts on its common stock. The Agreements provide the Corporation with two purchase alternatives: a standard forward purchase contract and a forward purchase contract subject to a cap (a "capped forward contract"). The settlement methods generally available under the Agreements, at the Corporation's option, are net settlement, either in cash or in shares, or physical settlement. To the extent that the market price of the Corporation's common stock on the settlement date is higher (lower) than the forward purchase/strike price, the net differential is received (paid) by the Corporation under the net settlement alternatives, except in the case of a capped forward contract under which the net differential received is limited by a cap price. In the case of physical settlement under a capped forward contract, the Corporation must, in addition to purchasing the shares covered by the contract at the strike price, pay to the counterparty the excess of the market price at the date of settlement, if any, over the cap price. The standard forward contract alternative provides for quarterly settlements on a net share basis for differences between the average forward purchase price, which includes carrying costs through the respective quarterly settlement date, and the current market value of the Corporation's common stock. At each quarterly settlement, the average forward purchase price is reset based upon the then-current market price of the Corporation's common stock. Capped forward contracts with respect to 500,000 shares of the Corporation's common stock settled during 1999. At each settlement date, the Corporation elected net share settlement, resulting in a net issuance of 57,682 shares of its common stock during 1999. At December 31, 1999, standard forward purchase contracts with respect to 261,020 shares of the Corporation's common stock with a weighted-average forward purchase 32 price of $45.80 per share, were outstanding under the Agreements. These contracts mature in November 2001. At December 31, 1999, capped forward contracts under the Agreements were outstanding with respect to 650,000 shares of the Corporation's common stock with a weighted-average strike price of $46.06 per share and a weighted-average cap price of $52.97 per share; these contracts settle in the first quarter of 2000. As more fully described in Note 2, the Corporation completed the stock repurchase element of its strategic repositioning plan during 1999 when the Corporation repurchased 610,900 shares of its common stock at an aggregate cost of $32.1 million, supplementing the 9,025,400 shares of common stock repurchased during 1998 at an aggregate cost of $464.3 million. The aggregate cost of $464.3 million is net of $1.4 million of premiums received in connection with the Corporation's sale of put options on 800,000 shares of its common stock. No put options were outstanding as of December 31, 1999. The Corporation repurchased an additional 347,318 shares of its common stock (net of 57,682 shares issued under forward purchase contracts) during 1999 at an aggregate cost of $21.2 million. NOTE 15: EARNINGS PER SHARE The computations of basic and diluted earnings per share for each year were as follows: - -------------------------------------------------------------------------------- (Amounts in Millions Except Per Share Data) 1999 1998 1997 - -------------------------------------------------------------------------------- Numerator: Earnings (loss) $300.3 $(754.8) $227.2 ================================================================================ Denominator: Denominator for basic earnings per share -- weighted-average shares 87.0 91.8 94.6 Employee stock options and stock issuable under employee benefit plans 1.4 -- 1.9 - -------------------------------------------------------------------------------- Denominator for diluted earnings per share -- adjusted weighted- average shares and assumed conversions 88.4 91.8 96.5 ================================================================================ Basic earnings (loss) per share $3.45 $ (8.22) $ 2.40 ================================================================================ Diluted earnings (loss) per share $3.40 $ (8.22) $ 2.35 ================================================================================ The following options to purchase shares of common stock were outstanding during each year, but were not included in the computation of diluted earnings per share because the effect would be anti-dilutive. For 1999 and 1997, the options indicated below were anti-dilutive because the related exercise price was greater than the average market price of the common shares for the year. For 1998, the loss experienced by the Corporation caused all options to be anti-dilutive. - -------------------------------------------------------------------------------- 1999 1998 1997 - -------------------------------------------------------------------------------- Number of options (in millions) 1.0 5.3 .7 Weighted-average exercise price $52.54 $33.47 $38.64 - -------------------------------------------------------------------------------- NOTE 16: STOCK-BASED COMPENSATION The Corporation has elected to follow APBO No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its stock-based compensation and to provide the disclosures required under SFAS No. 123, Accounting for Stock-Based Compensation. APBO No. 25 requires no recognition of compensation expense for most of the stock-based compensation arrangements provided by the Corporation, namely, broad-based employee stock purchase plans and option grants where the exercise price is equal to the market value at the date of grant. However, APBO No. 25 requires recognition of compensation expense for variable award plans over the vesting periods of such plans, based upon the then-current market values of the underlying stock. In contrast, SFAS No. 123 requires recognition of compensation expense for grants of stock, stock options, and other equity instruments over the vesting periods of such grants, based on the estimated grant-date fair values of those grants. Under various stock option plans, options to purchase common stock may be granted until 2006. Options generally are granted at fair market value at the date of grant, are exercisable in installments beginning one year from the date of grant, and expire 10 years after the date of grant. The plans permit the issuance of either incentive stock options or non-qualified stock options, which, for certain of the plans, may be accompanied by stock or cash appreciation rights or limited stock appreciation rights. Additionally, certain plans allow for the granting of stock appreciation rights on a stand-alone basis. As of December 31, 1999, 6,587,415 non-qualified stock options were outstanding under domestic plans. There were 17,375 stock options outstanding under the United Kingdom plan. Under all plans, there were 975,994 shares of common stock reserved for future grants as of December 31, 1999. Transactions are summarized as follows: - -------------------------------------------------------------------------------- Weighted- Average Stock Options Exercise Price - -------------------------------------------------------------------------------- Outstanding at December 31, 1996 5,652,479 $24.12 Granted 1,191,650 37.79 Exercised 429,402 19.74 Forfeited 241,333 29.74 - -------------------------------------------------------------------------------- Outstanding at December 31, 1997 6,173,394 26.86 Granted 1,101,000 53.46 Exercised 1,646,389 22.18 Forfeited 291,395 32.70 - -------------------------------------------------------------------------------- Outstanding at December 31, 1998 5,336,610 33.47 Granted 2,267,350 50.77 Exercised 551,352 27.35 Forfeited 447,818 41.47 - -------------------------------------------------------------------------------- Outstanding at December 31, 1999 6,604,790 $39.38 ================================================================================ Shares exercisable at December 31, 1997 3,607,991 $20.87 ================================================================================ Shares exercisable at December 31, 1998 2,663,535 $23.64 ================================================================================ Shares exercisable at December 31, 1999 2,876,120 $27.55 ================================================================================ 33 Exercise prices for options outstanding as of December 31, 1999, ranged from $11.50 to $61.00. The following table provides certain information with respect to stock options outstanding at December 31, 1999: - -------------------------------------------------------------------------------- Weighted- Weighted- Average Range of Stock Options Average Remaining Exercise Prices Outstanding Exercise Price Contractual Life - -------------------------------------------------------------------------------- Under $17.25 822,140 $12.85 1.1 $17.25-$25.87 613,899 21.33 3.2 $25.88-$38.80 1,437,901 34.52 7.3 $38.81-$58.21 3,719,850 50.04 9.1 Over $58.21 11,000 61.00 9.5 - -------------------------------------------------------------------------------- 6,604,790 $39.38 7.1 ================================================================================ The following table provides certain information with respect to stock options exercisable at December 31, 1999: - -------------------------------------------------------------------------------- Weighted- Range of Stock Options Average Exercise Prices Exercisable Exercise Price - -------------------------------------------------------------------------------- Under $17.25 822,140 $12.85 $17.25-$25.87 613,899 21.33 $25.88-$38.80 912,469 34.03 $38.81-$58.21 527,612 46.53 Over $58.21 -- -- - -------------------------------------------------------------------------------- 2,876,120 $27.55 ================================================================================ In electing to continue to follow APBO No. 25 for expense recognition purposes, the Corporation is obliged to provide the expanded disclosures required under SFAS No. 123 for stock-based compensation granted in 1995 and thereafter, including, if materially different from reported results, disclosure of pro forma net income and earnings per share had compensation expense relating to grants made after December 31, 1994 been measured under the fair value recognition provisions of SFAS No. 123. The weighted-average fair values at date of grant for options granted during 1999, 1998, and 1997 were $18.13, $17.67, and $11.86, respectively, and were estimated using the Black-Scholes option valuation model with the following weighted-average assumptions: - -------------------------------------------------------------------------------- 1999 1998 1997 - -------------------------------------------------------------------------------- Expected life in years 5.8 5.7 5.7 Interest rate 5.75% 4.54% 5.91% Volatility 29.4% 29.0% 24.8% Dividend yield .95% .90% 1.28% - -------------------------------------------------------------------------------- The Corporation's pro forma information for the years ended December 31, 1999, 1998, and 1997, prepared in accordance with the provisions of SFAS No. 123, is provided below. For purposes of pro forma disclosures, stock-based compensation is amortized to expense on a straight-line basis over the vesting period. The pro forma effects of applying SFAS No. 123 are not indicative of future amounts because this statement does not apply to awards granted prior to 1995. Additional stock option awards are anticipated in future years. - -------------------------------------------------------------------------------- (Dollars in Millions Except Per Share Amounts) 1999 1998 1997 - -------------------------------------------------------------------------------- Pro forma net earnings (loss) $ 293.9 $(755.8) $ 224.3 Pro forma net earnings (loss) per common share -- basic $ 3.38 $ (8.23) $ 2.37 Pro forma net earnings (loss) per common share -- assuming dilution $ 3.33 $ (8.23) $ 2.32 - -------------------------------------------------------------------------------- NOTE 17: BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION The Corporation has elected to organize its businesses based principally upon products and services. In certain instances where a business does not have a local presence in a particular country or geographic region, however, the Corporation has assigned responsibility for sales of that business's products to one of its other businesses with a presence in that country or region. 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 plumbing products to customers outside of the United States and Canada and for sales of the retained portion of the household products business. The Hardware and Home Improvement segment has worldwide responsibility for the manufacture and sale of security hardware. 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 also operated several businesses that do not constitute reportable business segments. These businesses included the manufacture and sale of glass container-forming and inspection equipment, as well as recreational and household products. As more fully described in Note 2, during 1998, the Corporation completed the sale or recapitalization of its glass container-forming and inspection equipment business, Emhart Glass; its recreational products business, True Temper Sports; and its household products businesses (excluding certain assets associated with cleaning and lighting products) in North America, Central America, the Caribbean, South America (excluding Brazil), and Australia. Because True Temper Sports, Emhart Glass, and the divested household products businesses are not treated 34 as discontinued operations under generally accepted accounting principles, they remain a part of the Corporation's reported results from continuing operations, and the results of operations and financial positions of these businesses have been included in the consolidated financial statements through the dates of consummation of the respective transactions. Amounts relating to these businesses are included in the following table under the caption "All Others". The results of the household products businesses included under the caption "All Others" are based upon certain assumptions and allocations. The household products businesses sold during 1998 were jointly operated with the cleaning and lighting products businesses retained by the Corporation. Further, the Corporation's divested household products businesses in Central America, the Caribbean, South America (excluding Brazil), and Australia were operated jointly with the power tools and accessories businesses. Accordingly, the results of the household products businesses included in the segment table under the caption "All Others" were determined using certain assumptions and allocations that the Corporation believes are reasonable under the circumstances.
BUSINESS SEGMENTS (Millions of Dollars) - ------------------------------------------------------------------------------------------------------------------------------------ Reportable Business Segments ---------------------------------------------- Corporate, Adjust- Power Hardware Fastening Currency ments, Tools & & Home & Assembly All Translation & Elimi- Consoli- Year Ended December 31, 1999 Accessories Improvement Systems Total Others Adjustments nations dated - ------------------------------------------------------------------------------------------------------------------------------------ Sales to unaffiliated customers $3,209.3 $881.8 $497.7 $4,588.8 $ -- $(68.3) $ -- $4,520.5 Segment profit (loss) (for Consolidated, operating income) 377.3 124.0 84.3 585.6 -- (6.9) (42.4) 536.3 Depreciation and amortization 87.7 31.1 15.4 134.2 -- (1.8) 27.6 160.0 Income from equity method investees 16.8 -- -- 16.8 -- -- (2.1) 14.7 Capital expenditures 109.1 38.3 26.9 174.3 -- (3.5) .3 171.1 Segment assets (for Consolidated, total assets) 1,836.0 508.2 273.2 2,617.4 -- (59.4) 1,454.7 4,012.7 Investment in equity method investees 26.3 -- .6 26.9 -- .6 2.3 29.8 Year Ended December 31, 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Sales to unaffiliated customers $2,946.4 $851.1 $463.0 $4,260.5 $333.6 $(34.2) $ -- $4,559.9 Segment profit (loss) (for Consolidated, operating income before restructuring and exit costs, write-off of goodwill, and gain on sales of businesses) 293.4 125.2 76.6 495.2 16.5 (4.4) (23.3) 484.0 Depreciation and amortization 88.2 27.1 13.4 128.7 -- (1.1) 27.6 155.2 Income from equity method investees 8.8 -- -- 8.8 -- -- (2.9) 5.9 Capital expenditures 79.1 36.5 16.2 131.8 13.3 (1.1) 2.0 146.0 Segment assets (for Consolidated, total assets) 1,631.3 507.8 246.7 2,385.8 -- (4.6) 1,471.3 3,852.5 Investment in equity method investees 22.5 -- .6 23.1 -- .1 2.3 25.5 Year Ended December 31, 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Sales to unaffiliated customers $2,936.4 $804.8 $451.3 $4,192.5 $718.1 $ 29.9 $ -- $4,940.5 Segment profit (loss) (for Consolidated, operating income) 290.7 121.3 69.7 481.7 61.7 (2.3) (51.8) 489.3 Depreciation and amortization 87.5 24.7 11.9 124.1 24.4 (.3) 66.0 214.2 Income from equity method investees 6.1 -- -- 6.1 -- .3 (1.7) 4.7 Capital expenditures 113.2 47.3 15.4 175.9 25.3 (.2) 2.1 203.1 Segment assets (for Consolidated, total assets) 1,635.4 476.5 248.2 2,360.1 438.6 8.0 2,554.0 5,360.7 Investment in equity method investees 23.1 -- .6 23.7 -- .9 1.0 25.6 - ------------------------------------------------------------------------------------------------------------------------------------
35 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, 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", "All Others", and "Corporate, Adjustments, & Eliminations" are reflected at the Corporation's budgeted exchange rates for 1999. 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, adjustments to eliminate intercompany profit in inventory, and income tax expense. In addition, segment profit excludes restructuring and exit costs and, for 1998, the write-off of goodwill and gain on sale of businesses. For certain operations located in Brazil, Mexico, Venezuela, and Turkey, segment profit is reduced by net interest expense and non-operating expenses. In determining segment profit, expenses relating to pension and other postretirement benefits are based solely upon estimated service costs. Corporate expenses are allocated to each reportable segment based upon budgeted amounts. No Corporate expenses have been allocated to divested businesses. While sales and transfers between segments are accounted for at cost plus a reasonable profit, the effects of intersegment sales are excluded from the computation of segment profit. Intercompany profit in inventory is excluded from segment assets and is recognized as a reduction of cost of sales by the selling segment when the related inventory is sold to an unaffiliated customer. Because the Corporation compensates the management of its various businesses on, among other factors, segment profit, the Corporation may elect to record certain segment-related expense items of an unusual or non-recurring nature in consolidation rather than reflect such items in segment profit. In addition, certain segment-related items of income or expense may be recorded in consolidation in one period and transferred to the various segments in a later period. Segment assets exclude pension and tax assets, goodwill, intercompany profit in inventory, and intercompany receivables. Amounts in the preceding table under the caption "Corporate, Adjustments & Eliminations" on the lines entitled "Depreciation and amortization" represent depreciation of Corporate property and consolidated goodwill amortization. The reconciliation of segment profit to consolidated earnings (loss) before income taxes for each year, in millions of dollars, is as follows: - -------------------------------------------------------------------------------- 1999 1998 1997 - -------------------------------------------------------------------------------- Segment profit for total reportable business segments $585.6 $ 495.2 $481.7 Segment profit for all other businesses -- 16.5 61.7 Items excluded from segment profit: Adjustment of budgeted foreign exchange rates to actual rates (6.9) (4.4) (2.3) Depreciation of Corporate property and amortization of goodwill (27.6) (27.6) (66.0) Adjustment to businesses' postretirement benefit expenses booked in consolidation 24.8 24.4 23.8 Adjustment to eliminate net interest and non-operating expenses from results of certain operations in Brazil, Mexico, Venezuela, and Turkey 1.0 5.7 3.6 Other adjustments booked in consolidation directly related to reportable business segments (12.4) (20.4) (17.6) Amounts allocated to businesses in arriving at segment profit in excess of (less than) Corporate center operating expenses, eliminations, and other amounts identified above (28.2) (5.4) 4.4 - -------------------------------------------------------------------------------- Operating income before restructuring and exit costs, write-off of goodwill, and gain on sale of businesses 536.3 484.0 489.3 Restructuring and exit costs -- 164.7 -- Write-off of goodwill -- 900.0 -- Gain on sale of businesses -- 114.5 -- - -------------------------------------------------------------------------------- Operating income (loss) 536.3 (466.2) 489.3 Interest expense, net of interest income 95.8 114.4 124.6 Other (income) expense (.8) 7.7 15.2 - -------------------------------------------------------------------------------- Earnings (loss) before income taxes $441.3 $(588.3) $349.5 ================================================================================ 36 The reconciliation of segment assets to the consolidated total assets at the end of each year, in millions of dollars, is as follows: - -------------------------------------------------------------------------------- 1999 1998 1997 - -------------------------------------------------------------------------------- Segment assets for total reportable business segments $2,617.4 $2,385.8 $2,360.1 Segment assets for all other businesses -- -- 438.6 Items excluded from segment assets: Adjustment of budgeted foreign exchange rates to actual rates (59.4) (4.6) 8.0 Goodwill 743.4 768.7 1,877.3 Pension assets 377.0 348.8 391.6 Other Corporate assets 334.3 353.8 285.1 - -------------------------------------------------------------------------------- $4,012.7 $3,852.5 $5,360.7 ================================================================================ Other Corporate assets principally consist of cash and cash equivalents, tax assets, property, and other assets. Sales to The Home Depot, a customer of the Power Tools and Accessories and Hardware and Home Improvement segments, accounted for $755.9 million, $622.3 million and $541.6 million of the Corporation's consolidated sales for the years ended December 31, 1999, 1998 and 1997, respectively. The composition of the Corporation's sales by product group for each year, in millions of dollars, is set forth below: - -------------------------------------------------------------------------------- 1999 1998 1997 - -------------------------------------------------------------------------------- Consumer and professional power tools and product service $2,318.6 $2,123.9 $2,070.4 Consumer and professional accessories 357.3 339.8 342.1 Electric lawn and garden products 287.7 283.6 262.1 Electric cleaning and lighting products 134.3 99.0 183.3 Security hardware 619.2 596.3 573.5 Plumbing products 260.6 257.0 242.3 Fastening and assembly systems 498.4 461.0 460.2 Household products 44.4 197.1 485.4 Glass container-forming and inspection equipment -- 130.3 238.6 Recreational products -- 71.9 82.6 - -------------------------------------------------------------------------------- $4,520.5 $4,559.9 $4,940.5 ================================================================================ The Corporation markets its products and services in over 100 countries and has manufacturing sites in ten countries. Other than in the United States, the Corporation does not conduct business in any country in which its sales in that country exceed 10% of consolidated sales. Sales are attributed to countries based on the location of customers. The composition of the Corporation's sales to unaffiliated customers between those in the United States and those in other locations for each year, in millions of dollars, is set forth below: - -------------------------------------------------------------------------------- 1999 1998 1997 - -------------------------------------------------------------------------------- United States $2,825.2 $2,703.7 $2,855.7 Canada 137.0 137.4 179.4 - -------------------------------------------------------------------------------- North America 2,962.2 2,841.1 3,035.1 Europe 1,255.5 1,364.5 1,378.0 Other 302.8 354.3 527.4 - -------------------------------------------------------------------------------- $4,520.5 $4,559.9 $4,940.5 ================================================================================ The composition of the Corporation's property, plant, and equipment between those in the United States and those in other countries as of the end of each year, in millions of dollars, is set forth below: - -------------------------------------------------------------------------------- 1999 1998 1997 - -------------------------------------------------------------------------------- United States $480.8 $469.0 $532.9 United Kingdom 121.2 118.3 105.1 Other countries 137.6 140.3 277.1 - -------------------------------------------------------------------------------- $739.6 $727.6 $915.1 ================================================================================ NOTE 18: OTHER EXPENSE Other expense for 1999 was not significant. Other expense for 1998 and 1997 primarily included currency losses and, for 1997, the costs associated with the sale of receivables program. NOTE 19: LEASES The Corporation leases certain service centers, offices, warehouses, manufacturing facilities, and equipment. Generally, the leases carry renewal provisions and require the Corporation to pay maintenance costs. Rental payments may be adjusted for increases in taxes and insurance above specified amounts. Rental expense for 1999, 1998, and 1997 amounted to $84.0 million, $81.4 million, and $76.3 million, respectively. Capital leases were immaterial in amount. Future minimum payments under non-cancelable operating leases with initial or remaining terms of more than one year as of December 31, 1999, in millions of dollars, were as follows: - -------------------------------------------------------------------------------- 2000 $ 48.9 2001 38.8 2002 33.7 2003 27.8 2004 24.0 Thereafter 27.1 - -------------------------------------------------------------------------------- $200.3 ================================================================================ 37 NOTE 20: LITIGATION AND CONTINGENT LIABILITIES 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 relating to employment matters and commercial disputes. Some of these lawsuits include claims for punitive as well as compensatory damages. Using current product sales data and historical trends, the Corporation actuarially calculates the estimate of its current 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 up to the limits of the deductibles. The Corporation accrues for all other claims and lawsuits 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 costs 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, the Corporation makes an assessment as to whether an investigation and remediation would be required under applicable federal and state laws. For on-site matters associated with properties previously sold, the Corporation considers the terms of sale as well as applicable federal and state laws to determine if it 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 costs of investigation and remediation and other potential costs associated with the site. The Corporation's estimate of the costs associated with legal, product liability, and environmental exposures is accrued if, in management's judgment, the likelihood of a loss is probable. These accrued liabilities are not discounted. Insurance recoveries for environmental and certain general liability claims are not recognized until realized. In the opinion of the Corporation, amounts accrued for awards or assessments in connection with these matters are adequate and, accordingly, ultimate resolution of these matters will not have a material effect on the Corporation. As of December 31, 1999, the Corporation had no known probable but inestimable exposures that could have a material effect on the Corporation. NOTE 21: QUARTERLY RESULTS (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------- (Millions of Dollars Except Per Share Data) First Second Third Fourth Year Ended December 31, 1999 Quarter Quarter Quarter Quarter - -------------------------------------------------------------------------------------------------------------------------- Sales $ 978.5 $1,084.2 $1,110.6 $1,347.2 Gross margin 350.3 413.0 416.6 506.2 Net earnings 39.2 70.7 75.3 115.1 ========================================================================================================================== Net earnings per common share -- basic $ .45 $ .81 $ .87 $ 1.32 ========================================================================================================================== Net earnings per common share -- assuming dilution $ .44 $ .80 $ .85 $ 1.31 ========================================================================================================================== Year Ended December 31, 1998 - -------------------------------------------------------------------------------------------------------------------------- Sales $1,008.3 $1,169.7 $1,107.7 $1,274.2 Gross margin 350.0 397.8 398.7 462.4 Net earnings (loss) (971.4) 58.4 66.6 91.6 ========================================================================================================================== Net earnings (loss) per common share -- basic $ (10.21) $ .62 $ .73 $ 1.05 ========================================================================================================================== Net earnings (loss) per common share -- assuming dilution $ (10.21) $ .61 $ .72 $ 1.03 ==========================================================================================================================
Results for the first quarter of 1998 included a write-off of goodwill of $900.0 million and a restructuring charge of $140.0 million ($100.0 million net of tax). Results for the second quarter of 1998 included a gain on sale of businesses of $36.5 million ($4.2 million net of tax). Results for the third quarter of 1998 included a gain on sale of businesses of $26.9 million ($9.2 million net of tax) and a restructuring charge of $14.2 million ($7.7 million net of tax). Results for the fourth quarter of 1998 included a gain on sale of businesses of $51.1 million ($3.1 million net of tax) and a restructuring charge of $10.5 million ($9.6 million net of tax). Earnings per common share are computed independently for each of the quarters presented. Therefore, the sum of the quarters may not necessarily be equal to the full year earnings per share amounts. 38 REPORT OF INDEPENDENT AUDITORS To the Stockholders and Board of Directors of The Black & Decker Corporation: We have audited the accompanying consolidated balance sheet of The Black & Decker Corporation and Subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1999. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Black & Decker Corporation and Subsidiaries at December 31, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As discussed in Note 2 to the financial statements, effective January 1, 1998, the Corporation changed its method of accounting for measuring goodwill impairment. /s/ERNST & YOUNG LLP Baltimore, Maryland January 27, 2000 39 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND FINANCIAL DISCLOSURES Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS Information required under this Item with respect to Directors is contained in the Corporation's Proxy Statement for the Annual Meeting of Stockholders to be held April 25, 2000, under the captions "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" and is incorporated herein by reference. Information required under this Item with respect to Executive Officers of the Corporation is included in Item 1 of Part I of this report. ITEM 11. EXECUTIVE COMPENSATION Information required under this Item is contained in the Corporation's Proxy Statement for the Annual Meeting of Stockholders to be held April 25, 2000, under the captions "Board of Directors" and "Executive Compensation" and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required under this Item is contained in the Corporation's Proxy Statement for the Annual Meeting of Stockholders to be held April 25, 2000, under the captions "Voting Securities" and "Security Ownership of Management" and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required under this Item is contained in the Corporation's Proxy Statement for the Annual Meeting of Stockholders to be held April 25, 2000, under the caption "Executive Compensation" and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) List of Financial Statements, Financial Statement Schedules, and Exhibits (1) List of Financial Statements The following consolidated financial statements of the Corporation and its subsidiaries are included in Item 8 of Part II: Consolidated Statement of Earnings - years ended December 31, 1999, 1998, and 1997. Consolidated Balance Sheet - December 31, 1999 and 1998. Consolidated Statement of Stockholders' Equity - years ended December 31, 1999, 1998, and 1997. Consolidated Statement of Cash Flows - years ended December 31, 1999, 1998, and 1997. Notes to Consolidated Financial Statements. Report of Independent Auditors. (2) List of Financial Statement Schedules The following financial statement schedules of the Corporation and its subsidiaries are included herein. Schedule II - Valuation and Qualifying Accounts and Reserves. All other schedules for which provision is made in the applicable accounting regulations of the Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. (3) List of Exhibits The following exhibits are either included in this report or incorporated herein by reference as indicated below: Exhibit 2(a)(i) Amendment No. 5 dated as of April 30, 1999, to the Transaction Agreement dated as of May 10, 1998, by and between The Black & Decker Corporation and Windmere-Durable Holdings, Inc., included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended July 4, 1999, is incorporated herein by reference. 40 Exhibit 2(a)(ii) Amendment No. 6 dated as of June 30, 1999, to the Transaction Agreement dated as of May 10, 1998, by and between The Black & Decker Corporation and Windmere-Durable Holdings, Inc., included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended July 4, 1999, is incorporated herein by reference. Exhibit 2(b)(i) Amendment No. 3 dated as of May 4, 1999, to the Transaction Agreement dated as of July 12, 1998, by and between The Black & Decker Corporation and Bucher Holding AG, included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended July 4, 1999, is incorporated herein by reference. Exhibit 2(b)(ii) Amendment No. 4 dated as of January 6, 2000, to the Transaction Agreement dated as of July 12, 1998, by and between The Black & Decker Corporation and Bucher Holding AG. Exhibit 3(a) Articles of Restatement of the Charter of the Corporation included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended June 29, 1997, are incorporated herein by reference. Exhibit 3(b) Bylaws of the Corporation, as amended. Exhibit 4(a) Indenture dated as of March 24, 1993, by and between the Corporation and Security Trust Company, National Association, included in the Corporation's Current Report on Form 8-K filed with the Commission on March 26, 1993, is incorporated herein by reference. Exhibit 4(b) Form of 7-1/2% Notes due April 1, 2003, included in the Corporation's Current Report on Form 8-K filed with the Commission on March 26, 1993, is incorporated herein by reference. Exhibit 4(c) Form of 6-5/8% Notes due November 15, 2000, included in the Corporation's Current Report on Form 8-K filed with the Commission on November 22, 1993, is incorporated herein by reference. Exhibit 4(d) Form of 7% Notes due February 1, 2006, included in the Corporation's Current Report on Form 8-K filed with the Commission on January 20, 1994, is incorporated herein by reference. Exhibit 4(e) Indenture dated as of September 9, 1994, by and between the Corporation and Marine Midland Bank, as Trustee, included in the Corporation's Current Report on Form 8-K filed with the Commission on September 9, 1994, is incorporated herein by reference. Exhibit 4(f) Credit Agreement dated as of April 23, 1996, among the Corporation, Black & Decker Holdings Inc. and Black & Decker, as Initial Borrowers, and the initial Lenders named therein, as Initial Lenders, and Citibank International plc, as Facility Agent, and Citibank International plc and Midland Bank plc, as Co-Arrangers, included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, is incorporated herein by reference. Exhibit 4(g) Credit Agreement dated as of April 23, 1996, among the Corporation, Black & Decker Holdings Inc., Black & Decker, Black & Decker International Holdings B.V., Black & Decker G.m.b.H., Black & Decker (France) S.A.S., Black & Decker (Nederland) B.V. and Emhart Glass S.A., as Initial Borrowers, and the initial Lenders named therein, as Initial Lenders, and Credit Suisse, as Administrative Agent, and Citibank, N.A., as Documentation Agent, and NationsBank, N.A., as Syndication Agent, included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, is incorporated herein by reference. Exhibit 4(h) Indenture dated as of June 26, 1998, by and between Black & Decker Holdings Inc., as Issuer, the Corporation, as Guarantor, and The First National Bank of Chicago, as Trustee, included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended June 28, 1998, is incorporated herein by reference. The Corporation agrees to furnish a copy of any other documents with respect to long-term debt instruments of the Corporation and its subsidiaries upon request. Exhibit 10(a) The Black & Decker Corporation Deferred Compensation Plan for Non-Employee Directors, as amended, included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended October 2, 1994, is incorporated herein by reference. Exhibit 10(b) The Black & Decker 1986 Stock Option Plan, as amended, included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended March 30, 1997, is incorporated herein by reference. Exhibit 10(c) The Black & Decker 1986 U.K. Approved Option Scheme, as amended, included in the Corporation's Registration Statement on Form S-8 (Reg. No. 33-47651), filed with the Commission on May 5, 1992, is incorporated herein by reference. Exhibit 10(d) The Black & Decker 1989 Stock Option Plan, as amended, included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended March 30, 1997, is incorporated herein by reference. 41 Exhibit 10(e) The Black & Decker 1992 Stock Option Plan, as amended, included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended March 30, 1997, is incorporated herein by reference. Exhibit 10(f) The Black & Decker 1995 Stock Option Plan for Non-Employee Directors, as amended, included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1998, is incorporated herein by reference. Exhibit 10(g) The Black & Decker Non-Employee Directors Stock Plan, included as Exhibit A to the Proxy Statement of the Corporation dated March 3, 1998, for the 1998 Annual Meeting of Stockholders of the Corporation, is incorporated herein by reference. Exhibit 10(h) The Black & Decker 1996 Stock Option Plan, as amended, included in the Corporation's Registration Statement on Form S-8 (Reg. No. 333-51155), is incorporated herein by reference. Exhibit 10(i) The Black & Decker Performance Equity Plan, as amended, included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1996, is incorporated herein by reference. Exhibit 10(j) The Black & Decker Executive Annual Incentive Plan, included in the definitive Proxy Statement for the 1996 Annual Meeting of Stockholders of the Corporation dated March 1, 1996, is incorporated herein by reference. Exhibit 10(k) The Black & Decker Management Annual Incentive Plan, included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1995, is incorporated herein by reference. Exhibit 10(l) Amended and Restated Employment Agreement, dated as of November 1, 1995, by and between the Corporation and Nolan D. Archibald, included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1995, is incorporated herein by reference. Exhibit 10(m) Letter Agreement, dated February 1, 1975, by and between the Corporation and Alonzo G. Decker, Jr., included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1990, is incorporated herein by reference. Exhibit 10(n)(1) The Black & Decker Supplemental Pension Plan, as amended, included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1991, is incorporated herein by reference. Exhibit 10(n)(2) Amendment to The Black & Decker Supplemental Pension Plan dated as of May 21, 1997, included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1997, is incorporated herein by reference. Exhibit 10(o)(1) 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. Exhibit 10(o)(2) Amendment to The Black & Decker Executive Deferred Compensation Plan dated as of July 17, 1996, included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, is incorporated herein by reference. Exhibit 10(p)(1) The Black & Decker Supplemental Retirement Savings Plan, included in the Corporation's Registration Statement on Form S-8 (Reg. No. 33-65013), filed with the Commission on December 14, 1995, is incorporated herein by reference. Exhibit 10(p)(2) Amendment to The Black & Decker Supplemental Retirement Savings Plan dated as of April 22, 1997, included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1997, is incorporated herein by reference. Exhibit 10(p)(3) Amendment No. 2 to The Black & Decker Supplemental Retirement Savings Plan dated as of July 16, 1998, included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1998, is incorporated herein by reference. Exhibit 10(q) The Black & Decker Supplemental Executive Retirement Plan, as amended, included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1998, is incorporated herein by reference. Exhibit 10(r) The Black & Decker Executive Life Insurance Program, as amended, included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended April 4, 1993, is incorporated herein by reference. Exhibit 10(s) The Black & Decker Executive Salary Continuance Plan, included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended April 12, 1995, is incorporated herein by reference. Exhibit 10(t) Description of the Corporation's policy and procedure for relocation of existing employees (individual transfers), included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1991, is incorporated herein by reference. 42 Exhibit 10(u) Description of the Corporation's policy and procedures for relocation of new employees, included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1991, is incorporated herein by reference. Exhibit 10(v) Description of certain incidental benefits provided to executive officers of the Corporation, included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1997, is incorporated herein by reference. Exhibit 10(w) Form of Amendment and Restatement of Severance Benefits Agreement by and between the Corporation and approximately 13 of its key employees, included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1996, is incorporated herein by reference. Exhibit 10(x) Amendment and Restatement of Severance Benefits Agreement, dated January 1, 1997, by and between the Corporation and Nolan D. Archibald, included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1996, is incorporated herein by reference. Exhibit 10(y) Severance Benefits Agreement, dated April 27, 1999, by and between the Corporation and Paul F. McBride, included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended July 4, 1999, is incorporated herein by reference. Exhibit 10(z) Amendment and Restatement of Severance Benefits Agreement, dated January 1, 1997, by and between the Corporation and Charles E. Fenton, included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1996, is incorporated herein by reference. Exhibit 10(aa) Letter Agreement dated April 19, 1999, by and between the Corporation and Paul F. McBride, included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended July 4, 1999, is incorporated herein by reference. Exhibit 10(bb) Amendment and Restatement of Severance Benefits Agreement, dated January 1, 1997, by and between the Corporation and Thomas M. Schoewe, included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1996, is incorporated herein by reference. Exhibit 10(cc)(1) Amendment and Restatement of Severance Benefits Agreement, dated January 1, 1997, by and between the Corporation and Paul A. Gustafson. Exhibit 10(cc)(2) Special Deferral Agreement, dated February 7, 2000, by and between the Corporation and Paul A. Gustafson. Exhibit 10(dd) Distribution Agreement dated September 9, 1994, by and between the Corporation, Lehman Brothers Inc., Citicorp Securities, Inc., Goldman, Sachs & Co., Morgan Stanley & Co. Incorporated, NationsBanc Capital Markets, Inc. and Salomon Brothers Inc., included in the Corporation's Current Report on Form 8-K filed with the Commission on September 9, 1994, is incorporated herein by reference. Exhibit 10(ee)(1) The Black & Decker 1996 Employee Stock Purchase Plan, included in the definitive Proxy Statement for the 1996 Annual Meeting of Stockholders of the Corporation dated March 1, 1996, is incorporated herein by reference. Exhibit 10(ee)(2) Amendment to The Black & Decker 1996 Employee Stock Purchase Plan, as adopted on February 12, 1997, included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1996, is incorporated herein by reference. Exhibit 12 Computation of Ratios. Exhibit 21 List of Subsidiaries. Exhibit 23 Consent of Independent Auditors. Exhibit 24 Powers of Attorney. Exhibit 27 Financial Data Schedule. Exhibit 99(a) Amendment No. 1 dated as of September 29, 1999, to the Securities Purchase Agreement dated as of September 30, 1998, between True Temper Corporation and Emhart, Inc., the Debt Registration Rights Agreement dated as of September 30, 1998, among True Temper Corporation and Emhart, Inc. and the Escrow Agreement dated as of September 30, 1998, among True Temper Corporation, Emhart, Inc. and Snoga, Inc. Exhibit 99(b) Amendment No. 2 dated as of October 19, 1999, to the Securities Purchase Agreement dated as of September 30, 1998, between True Temper Corporation and Emhart, Inc., the Debt Registration Rights Agreement dated as of September 30, 1998, among True Temper Corporation and Emhart, Inc. and the Escrow Agreement dated as of September 30, 1998, among True Temper Corporation, Emhart, Inc. and Snoga, Inc. All other items are "not applicable" or "none". 43 (b) Reports on Form 8-K The Corporation filed the following reports on Form 8-K during the three months ended December 31, 1999: On October 19, 1999, the Corporation filed a Current Report on Form 8-K with the Securities and Exchange Commission. This Current Report on Form 8-K, filed pursuant to Item 5 of that Form, stated that the Corporation had reported its earnings for the three and nine months ended October 3, 1999. All other items are "not applicable" or "none". (c) Exhibits The exhibits required by Item 601 of Regulation S-K are filed herewith. (d) Financial Statement Schedules and Other Financial Statements The Financial Statement Schedule required by Regulation S-X is filed herewith. SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
The Black & Decker Corporation and Subsidiaries (Millions of Dollars) - --------------------------------------------------------------------------------------------------------------------------- Balance Additions Other at Charged to Changes Balance Beginning Costs and Add at End Description of Period Expenses Deductions (Deduct) of Period - --------------------------------------------------------------------------------------------------------------------------- Year Ended December 31, 1999 Reserve for doubtful accounts and cash discounts $44.3 $66.3 $55.6 (a) $(1.7)(b) $53.3 - --------------------------------------------------------------------------------------------------------------------------- Year Ended December 31, 1998 Reserve for doubtful accounts and cash discounts $47.8 $66.8 $65.8 (a) $(4.5)(b) $44.3 - --------------------------------------------------------------------------------------------------------------------------- Year Ended December 31, 1997 Reserve for doubtful accounts and cash discounts $44.0 $70.0 $63.8 (a) $(2.4)(b) $47.8 - --------------------------------------------------------------------------------------------------------------------------- (a) Accounts written off during the year and cash discounts taken by customers. (b) Primarily includes currency translation adjustments and, for 1998, the write-off of $4.3 million of reserves associated with divested businesses.
44 Pursuant to the requirements of Section 13 or 15(d) 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 Date: February 14, 2000 By /s/ NOLAN D. ARCHIBALD ----------------- ---------------------- Nolan D. Archibald Chairman, President, and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on February 14, 2000, by the following persons on behalf of the registrant and in the capacities indicated. Signature Title Date - -------------------------------------------------------------------------------- Principal Executive Officer /s/ NOLAN D. ARCHIBALD February 14, 2000 - ---------------------- ----------------- Nolan D. Archibald Chairman, President, and Chief Executive Officer Principal Financial Officer /s/ MICHAEL D. MANGAN February 14, 2000 - --------------------- ----------------- Michael D. Mangan Senior Vice President and Chief Financial Officer Principal Accounting Officer /s/ STEPHEN F. REEVES February 14, 2000 - --------------------- ----------------- Stephen F. Reeves Vice President - Finance and Strategic Planning - -------------------------------------------------------------------------------- This report has been signed by the following directors, constituting a majority of the Board of Directors, by Nolan D. Archibald, Attorney-in-Fact. Nolan D. Archibald Alonzo G. Decker, Jr. Norman R. Augustine Manuel A. Fernandez Barbara L. Bowles Anthony Luiso Malcolm Candlish Mark H. Willes By /s/ NOLAN D. ARCHIBALD Date: February 14, 2000 ---------------------- ----------------- Nolan D. Archibald Attorney-in-Fact EX-2 2 EX-2(B)(II) AMENDMENT NO. 4 Dated as of January 6, 2000 to TRANSACTION AGREEMENT Dated as of July 12, 1998 By and Between THE BLACK & DECKER CORPORATION and BUCHER HOLDING AG AMENDMENT NO. 4 TO TRANSACTION AGREEMENT This Amendment No. 4 to Transaction Agreement ("Amendment No. 4") is made as of the 6th day of January, 2000, by and between The Black & Decker Corporation, a Maryland corporation ("Black & Decker"), and Bucher Holding AG, a Swiss corporation ("Buyer"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, Black & Decker, through certain of its direct and indirect Subsidiaries, was engaged in the Glass Machinery Business; WHEREAS, Black & Decker and Buyer entered into a Transaction Agreement dated as of July 12, 1998 (the "Agreement") pursuant to which Black & Decker agreed to sell and Buyer agreed to purchase the Glass Machinery Business upon the terms and subject to the conditions set forth therein; WHEREAS, Black & Decker and Buyer entered into an Amendment No. 1 to Transaction Agreement dated as of September 21, 1998 amending the Agreement (the "First Amendment"); WHEREAS, Black & Decker and Buyer entered into an Amendment No. 2 to Transaction Agreement dated as of November 20, 1999 amending the Agreement (the "Second Amendment"); WHEREAS, Black & Decker and Buyer entered into an Amendment No. 3 to Transaction Agreement dated as of May 4, 1999 amending the Agreement (the "Third Amendment"); WHEREAS, Black & Decker and Buyer desire to amend certain terms of the Agreement in accordance with the terms of this Amendment No. 4; NOW, THEREFORE, in consideration of the mutual covenants and agreements of the parties contained herein, the parties agree as follows: Section 1. DEFINITIONS. Capitalized terms used but not defined herein have the meanings given to them in the Agreement. Section 2. AMENDMENTS. The Agreement, the First Amendment, the Second Amendment and the Third Amendment are hereby amended by (i) deleting the third sentence of subsection (d) of Section D.09, (ii) adding the words "and after" to the first sentence of subsection (e) of Section D.09 after the words "prior to", and (iii) adding the following new subsection (f) immediately at the end of Section D.09: (f) As of the Closing Date, the hourly employees of the Windsor Facility of the Emhart Glass Machinery Business were represented by the International Union of United Automobile, Aerospace and Agricultural Implement Workers of America, Amalgamated Local Union 376 (the "UAW") and their pension benefits were provided under the Hourly Employees Retirement Plan of Hartford Division, Emhart Industries, Inc. ("Seller's U.S. Hourly Pension Plan"). Since the Closing, the Buyer has decided to close the Windsor Facility and the employment of the US Transferred Employees of the Windsor Facility who are represented by the UAW (the "Transferred Union Employees") has been terminated. In connection with the termination of the employment of the Transferred Union Employees, the Buyer agreed to provide certain enhanced pension benefits to the Transferred Union Employees as set forth in a TERMINATION (PLANT CLOSING) AGREEMENT, dated June 30,1999, (the "Enhanced Pension Benefits"). Black & Decker shall cause the Seller's U.S. Hourly Pension Plan to be amended to provide for the continuing participation of the Transferred Union Employees in such plan and for the recognition of benefit accruals with respect to such Transferred Union Employees for service after the Closing Date and for the Enhanced Pension Benefits and, pending completion of the asset transfers contemplated by this Section D.09, any benefits that are payable to US Transferred Employees under the Seller's U.S. Hourly Pension Plan as so amended shall be paid or continue to be paid out of the Seller's U.S. Hourly Pension Plan and the amount of the assets to be transferred pursuant to subsection (d) of Section D.09 shall be adjusted, as provided in that subsection, to reflect all of such benefit payments in full. IN WITNESS WHEREOF, the parties hereto caused this Amendment No. 4 to be duly executed by their respective authorized officers on the day and year first above written. THE BLACK & DECKER CORPORATION By: /s/CHARLES E. FENTON Name: Charles E. Fenton Title: Senior Vice President BUCHER HOLDING AG By: /s/RUDOLPH HAUSER Name: Rudolph Hauser Title: Chief Executive Officer EX-3.B 3 EX-3(B) BY LAWS Adopted 10/17/96 Amended 07/16/98 Amended 12/10/98 Amended 02/11/99 BYLAWS OF THE BLACK & DECKER CORPORATION ARTICLE I Stockholders SECTION 1. Annual Meeting. -------------- The annual meeting of stockholders shall be held on the last Tuesday in April of each year or on such day within 15 days thereof and at such time and at such place as the Board of Directors may by resolution provide for the purpose of electing directors and for the transaction of only such other business as is properly brought before the meeting in accordance with these Bylaws. To be properly brought before the meeting, business must be either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board, (b) otherwise properly brought before the meeting by or at the direction of the Board, or (c) otherwise properly brought before the meeting by a stockholder. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, the stockholder must have given written notice thereof that is received by the Secretary of the Corporation at the principal executive offices of the Corporation not less than 90 days nor more than 110 days prior to the meeting; provided, however, that in the event that less than 100 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder must be so received not later than the close of business on the 10th day following the day on which the notice of the date of the annual meeting was mailed or the public disclosure was made, whichever first occurred. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of the stockholder proposing such business, (iii) the class and number of shares of the Corporation which are beneficially owned by the stockholder, and (iv) any material interest of the stockholder in such business. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this section, provided, however, that nothing in this section shall be deemed to preclude discussion by any stockholder of any business properly brought before the annual meeting. The Chairman of the annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Article, and if the Chairman should so determine, he or she shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. SECTION 2. Special Meetings. ---------------- Special meetings of the stockholders may be called at any time for any purpose or purposes by the Chief Executive Officer, by a majority of the Board of Directors, or by a majority of the Executive Committee. Special meetings of the stockholders shall be called forthwith by the Chairman of the Board, by the President, or by the Secretary of the Corporation upon the written request of stockholders entitled to cast a majority of all votes entitled to be cast at the special meeting. A written request that a special meeting be called shall state the purpose or purposes of the meeting and the matters proposed to be acted on at the meeting. However called, notice of the meeting shall be given to each stockholder and shall state the purpose or purposes of the meeting. No business other than that stated in the notice shall be transacted at any special meeting. SECTION 3. Place of Meetings. ----------------- All meetings of stockholders shall be held at the principal offices of the Corporation at Towson, Baltimore County, Maryland, or at such other location in the United States of America as the Board of Directors may provide in the notice of the meeting. SECTION 4. Notice of Meetings. ------------------ Written or printed notice of each meeting of the stockholders shall be delivered to each stockholder by leaving the notice with the stockholder at the stockholder's residence or usual place of business, or by mailing it, postage prepaid and addressed to the stockholder at the stockholder's address as it appears upon the records of the Corporation. The notice shall be delivered or mailed not more than 90 nor less than 20 days before the meeting, and shall state the place, day, and hour at which the meeting is to be held. No notice of any meeting of the stockholders need be given to any stockholder who attends the meeting in person or by proxy, or to any stockholder who, in writing executed and filed with the records of the meeting either before or after the holding thereof, waives notice. SECTION 5. Quorum. ------ At any meeting of stockholders the presence in person or by proxy of the holders of record of a majority of the shares of stock entitled to vote at the meeting shall constitute a quorum. In the absence of a quorum, the stockholders entitled to vote who shall be present in person or by proxy at any meeting (or adjournment thereof) may, by a majority vote and without further notice, adjourn the meeting from time to time, but not for a period of over thirty days at any one time, until a quorum shall attend. At any adjourned meeting at which a quorum shall be present, any business may be transacted that could have been transacted if the meeting had been held as originally scheduled. SECTION 6. Conduct of Meetings. ------------------- Meetings of stockholders shall be presided over by the Chairman of the Board of Directors of the Corporation or, in the Chairman's absence, by the Vice Chairman of the Board, or if both of such officers are absent, by the President of the Corporation. The Secretary of the Corporation shall act as secretary of meetings of the stockholders and in the Secretary's absence, the records of the proceedings shall be kept and authenticated by such other person as may be appointed for that purpose at the meeting by the presiding officer. To participate in a meeting, stockholders must be present in person or by proxy; stockholders may not participate by means of a conference telephone or other communications equipment. The rules contained in the current edition of Robert's Rules of Order Newly Revised shall govern in all cases to which they are applicable and in which they are not inconsistent with these Bylaws and any special rules of order that the meeting may adopt. SECTION 7. Approval of Minutes. ------------------- The minutes of all meetings of stockholders shall be corrected and approved by a committee of directors designated by the Board and if none is designated, by the Organization Committee. At a subsequent meeting of stockholders, a synopsis of the minutes shall be read for information at the request of the presiding officer or any stockholder. SECTION 8. Proxies. ------- Stockholders may vote either in person or by proxy, and if by proxy, in any manner authorized by the Maryland General Corporation Law. A proxy that is dated more than 11 months before the meeting at which it is offered shall not be accepted unless the proxy shall state a longer period for which it is to remain in force. A written proxy shall be dated and signed by the stockholder, or the stockholder's duly authorized agent but need not be sealed, witnessed or acknowledged. Proxies shall be filed with the Secretary of the Corporation at or before the meeting. SECTION 9. Voting. ------ Except as otherwise provided in the charter of the Corporation, at all meetings of stockholders, each holder of shares of Common Stock shall be entitled to one vote for each share of stock of the Corporation registered in the stockholder's name upon the books of the Corporation on the date fixed by the Board of Directors as the record date for the determination of stockholders entitled to vote at the meeting. Except as otherwise provided in the charter of the Corporation, all elections and matters submitted to a vote at meetings of stockholders shall be decided by a majority of all votes cast in person or by proxy, unless more than a majority of the votes cast is required by statute, by charter, or by these Bylaws. If the presiding officer shall so determine, a vote by ballot may be taken upon any election or matter, and the vote shall be so taken upon the request of the holders of ten percent of the stock present and entitled to vote on the election or matter. If the presiding officer shall so determine, the votes on all matters to be voted upon by ballot may be postponed to be voted on at the same time or on a single ballot. SECTION 10. Inspectors of Elections. ----------------------- One or more inspectors may be appointed by the presiding officer at any meeting. If so appointed, the inspector or inspectors shall open and close the polls, receive and take charge of the proxies and ballots, decide all questions as to the qualifications of voters and the validity of proxies, determine and report the results of elections and votes on matters before the meeting, and do such other acts as may be proper to conduct the election and the vote with fairness to all stockholders. SECTION 11. List of Stockholders. -------------------- Prior to each meeting of the stockholders, the Secretary of the Corporation shall prepare, as of the record date fixed by the Board of Directors with respect to the meeting, a full and accurate list of all stockholders entitled to vote at the meeting, indicating the number of shares and class of stock held by each. The Secretary shall be responsible for the production of that list at the meeting. ARTICLE II Board of Directors SECTION 1. Powers. ------ The property, business, and affairs of the Corporation shall be managed by the Board of Directors of the Corporation. The Board of Directors may exercise all the powers of the Corporation, except those conferred upon or reserved to the stockholders by statute, by charter or by these Bylaws. The Board of Directors shall keep minutes of each of its meetings and a full account of all of its transactions. SECTION 2. Number of Directors. ------------------- The number of directors of the Corporation shall be 14 or such lesser number not less than eight as may from time to time be determined by the vote of three-fourths of the entire Board of Directors. However, the tenure of Office of a director shall not be affected by any change in number. SECTION 3. Nomination of Directors. ----------------------- Only persons who are nominated in accordance with the following procedures shall be eligible for election as Directors at a meeting of stockholders. Nominations of persons for election as Directors may be made at a meeting of stockholders by or at the direction of the Board of Directors by any nominating committee or person appointed by the Board or by any stockholder of the Corporation entitled to vote for the election of Directors at the meeting who complies with the notice procedures set forth in this section. Nominations, other than those made by or at the direction of the Board, shall be made pursuant to written notice delivered to or mailed and received by the Secretary of the Corporation at the principal executive offices of the Corporation not less than 90 days nor more than 110 days prior to the meeting; provided, however, that in the event that less than 100 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder must be so received not later than the close of business on the 10th day following the day on which notice of the date of the meeting was mailed or public disclosure was made, whichever first occurred. The notice to the Secretary shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a Director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of capital stock of the Corporation which are beneficially owned by the person and (iv) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of Directors pursuant to Rule 14a under the Securities Exchange Act of 1934; and (b) as to the stockholder giving the notice (i) the name and record address of stockholder and (ii) the class and number of shares of capital stock of the Corporation which are beneficially owned by the stockholder. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of the proposed nominee to serve as Director of the Corporation. The presiding officer of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if the presiding officer shall so determine and shall so declare to the meeting, the defective nomination shall be disregarded. SECTION 4. Election. -------- Except as hereinafter provided, the members of the Board of Directors shall be elected each year at the annual meeting of stockholders by the vote of the holders of record of a majority of the shares of stock present in person or by proxy and entitled to vote at the meeting. Each director shall hold office until the next annual meeting of stockholders held after his or her election and until his or her successor shall have been duly elected and qualified, or until death, or until he or she shall have resigned, or shall have been removed as hereinafter provided. Each person elected as director of the Corporation shall qualify as such by written acceptance or by attendance at and participation as a director in a duly called meeting of the Board of Directors. SECTION 5. Removal. ------- At a duly called meeting of the stockholders at which a quorum is present, the stockholders may, by vote of the holders of a majority of the votes entitled to be cast at the meeting, remove with or without cause any director or directors from office, and may elect a successor or successors to fill any resulting vacancy for the remainder of the term of the director so removed. SECTION 6. Vacancies. --------- If any director shall die or resign, or if the stockholders shall remove any director without electing a successor to fill the remaining term, that vacancy may be filled by the vote of a majority of the remaining members of the Board of Directors, although a majority may be less than a quorum. Vacancies in the Board created by an increase in the number of directors may be filled by the vote of a majority of the entire Board as constituted prior to the increase. A director elected by the Board of Directors to fill any vacancy, however created, shall hold office until the next annual meeting of stockholders and until his or her successor shall have been duly elected and qualified. SECTION 7. Meetings. -------- Immediately after each annual meeting of stockholders at which a Board of Directors shall have been elected, the Board of Directors shall meet, without notice, for the election of an Executive Committee of the Board of Directors, for the election of officers of the Corporation, and for the transaction of other business. Other regular meetings of the Board of Directors shall be held in the months of February, July, October and December on the day and at the time designated by the Chief Executive Officer. Special meetings of the Board of Directors may be called at any time by the Chief Executive Officer or by any two directors. Regular and special meetings of the Board of Directors may be held at such place, in or out of the State of Maryland, as the Board may from time to time determine. SECTION 8. Notice of Meetings. ------------------ Except for the meeting immediately following the annual meeting of stockholders, notice of the place, day and hour of a regular meeting of the Board of Directors shall be given in writing to each director not less than three days prior to the meeting and delivered to the director or to the director's residence or usual place of business, or by mailing it, postage prepaid and addressed to the director at his or her address as it appears upon the records of the Corporation. Notice of special meetings may be given in the same way, or may be given personally, by telephone, or by telegraph or facsimile message sent to the director's home or business address as it appears upon the records of the Corporation, not less than one day prior to the meeting. Unless required by these Bylaws or by resolution of the Board of Directors, no notice of any meeting of the Board of Directors need state the business to be transacted at the meeting. No notice of any meeting of the Board of Directors need be given to any director who attends, or to any director who, in writing executed and filed with the records of the meeting either before or after the holding thereof, waives notice. SECTION 9. Quorum. ------ A majority of the Board of Directors shall constitute a quorum for the transaction of business at meetings of the Board of Directors. Except as otherwise provided by statute, by charter, or by these Bylaws, the vote of a majority of the directors present at a duly constituted meeting shall be sufficient to pass any measure, and such decision shall be the decision of the Board of Directors. In the absence of a quorum, the directors present, by majority vote and without further notice, may adjourn the meeting from time to time until a quorum shall be present. The Board of Directors may also take action or make decisions by any other method which may be permitted by statute, by charter, or by these Bylaws. SECTION 10. Presumption of Assent. --------------------- A director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless the director announces his or her dissent at the meeting, and (a) the dissent is entered in the minutes of the meeting, (b) before the meeting adjourns the director files with the person acting as the secretary of the meeting a written dissent to the action, or (c) the director forwards a written dissent within 24 hours after the meeting is adjourned by registered or certified mail to the Secretary of the Corporation. The right to dissent does not apply to a director who voted in favor of the action or who failed to announce his or her dissent at the meeting. A director may abstain from voting on any matter before the meeting by so stating at the time the vote is taken and by causing the abstention to be recorded or stated in writing in the same manner as provided above for a dissent. SECTION 11. Compensation. ------------ Each director shall be entitled to receive such remuneration as may be fixed from time to time by the Board of Directors. However, no director who receives a salary as an officer or employee of the Corporation or of any subsidiary thereof shall receive any remuneration as a director or as a member of any committee of the Board of Directors. Each director may also receive reimbursement for the reasonable expenses incurred in attending the meetings of the Board of Directors, the meetings of any committee thereof, or otherwise in connection with attending to the affairs of the Corporation. ARTICLE III Committees SECTION 1. Executive Committee. ------------------- At its first meeting after the annual meeting of the stockholders, the Board of Directors shall elect an Executive Committee consisting of at least five members of the Board, of whom the Chairman of the Board, if any, shall be one. The Board shall designate a Chairman of the Committee who shall serve as Chairman of the Committee at the pleasure of the Board. During the intervals between the meetings of the Board of Directors, the Executive Committee shall possess and may exercise all powers in the management and direction of the business and affairs of the Corporation except as limited by the Maryland General Corporation Law or by resolution of the Board of Directors. All action taken by the Executive Committee shall be reported to the Board of Directors at its meeting next succeeding such action, and shall be subject to revision and alteration by the Board, provided that no rights of third parties may be adversely affected by any revision or alteration. Delegation of authority to the Executive Committee shall not relieve the Board of Directors or any director of any responsibility imposed by law or statute or by charter. SECTION 2. Other Committees. ---------------- From time to time the Board of Directors by resolution adopted by the affirmative vote of a majority of the members of the entire Board may provide for and appoint other committees to have the powers and perform the duties assigned to them by the Board of Directors. These committees may include, but are not limited to, an Organization Committee, a Finance Committee, and an Audit Committee. SECTION 3. Meetings of Committees. ---------------------- Each Committee of the Board of Directors shall fix its own rules of procedure, and shall meet as provided by those rules or by resolution of the Board, or at the call of the chairman or any two members of the committee. A majority of each committee shall constitute a quorum thereof, and in every case the affirmative vote of a majority of the entire committee shall be necessary to take any action. Each committee may also take action by any other method that may be permitted by statute, by charter, or by these Bylaws. In the event a member of a committee fails to attend any meeting of the committee, the other members of the committee present at the meeting, whether or not they constitute a quorum, may appoint a member of the Board of Directors to act in the place of the absent member. Regular minutes of the proceedings of each committee and a full account of all its transactions shall be kept in a book provided for the purpose, except that the Organization Committee shall not be required to keep minutes. Vacancies in any committee of the Board of Directors shall be filled by the Board of Directors. ARTICLE IV Officers SECTION 1. Election and Tenure. ------------------- The Board of Directors may elect a Chairman and a Vice Chairman from among the directors. The Board of Directors shall elect a President, a Treasurer and a Secretary, and one or more Vice Presidents, one or more Assistant Treasurers, one or more Assistant Secretaries, and such other officers with such powers and duties as the Board may designate, none of whom need be a director. Each officer shall hold office until the first meeting of the Board of Directors after the annual meeting of stockholders next succeeding his or her election and until a successor shall have been duly chosen and qualified or until he or she shall have resigned or been removed. All elections to office shall be by a majority vote of the entire Board of Directors. SECTION 2. Chairman of the Board. --------------------- The Chairman of the Board shall preside at all meetings of stockholders and of the Board of Directors at which he or she shall be present. The Chairman shall have such other powers and perform such other duties as from time to time may be assigned by the Board of Directors. SECTION 3. Vice Chairman of the Board. -------------------------- The Vice Chairman of the Board, in the absence of the Chairman of the Board, shall preside at all meetings of stockholders and the Board of Directors. (In the absence of the Chairman and the Vice Chairman, the Board of Directors shall elect a chairman of the meeting.) The Vice Chairman shall have such other powers and perform such other duties as from time to time may be assigned by the Board of Directors or by the Chairman of the Board. SECTION 4. President. --------- The President shall be the Chief Executive Officer of the Corporation and, subject to the control of the Board of Directors and the Executive Committee, shall have general charge and supervision of the Corporation's business, affairs, and properties. The President shall have authority to sign and execute, in the name of the Corporation, all authorized deeds, mortgages, bonds, contracts or other instruments. The President may sign, with the Secretary or the Treasurer, stock certificates of the Corporation. In the absence of the Chairman and the Vice Chairman of the Board, the President shall preside at meetings of stockholders. In general, the President shall perform all the duties ordinarily incident to the office of a president of a corporation, and such other duties as, from time to time, may be assigned by the Board of Directors or by the Executive Committee. SECTION 5. Vice Presidents. --------------- Each Vice President, which term shall include any Executive Vice President or Group Vice President, shall have the power to sign and execute, unless otherwise provided by resolution of the Board of Directors, all contracts or other obligations in the name of the Corporation in the ordinary course of business, and with the Secretary, or with the Treasurer, or with an Assistant Secretary, or with an Assistant Treasurer, may sign stock certificates of the Corporation. At the request of the President or in the President's absence or during the President's inability to act, the Vice President or Vice Presidents shall perform the duties and exercise the functions of the President, and when so acting shall have the powers of the President. If there is more than one Vice President, the Board of Directors may determine which one or more of the Vice Presidents shall perform any of such duties or exercise any of such functions, or if the determination is not made by the Board, the President may make the determination. The Vice President or Vice Presidents shall have such other powers and perform such other duties as may be assigned by the Board of Directors or by the President. For purposes of this Article IV, Section 5, the term Vice President does not include a Vice President appointed pursuant to Article IV, Section 9. SECTION 6. Secretary. --------- The Secretary shall keep the minutes of the meetings of the stockholders, of the Board of Directors, and of the Executive Committee, including all the votes taken at the meetings, and record them in books provided for that purpose. The Secretary shall see that all notices are duly given in accordance with the provisions of these Bylaws or as required by statute. The Secretary shall be the custodian of the records and of the corporate seal of the Corporation. The Secretary may affix the corporate seal to any document executed on behalf of the Corporation, and may attest the same. The Secretary may sign, with the President or a Vice President, stock certificates of the Corporation. In general, the Secretary shall perform all duties ordinarily incident to the office of a secretary of a corporation, and such other duties as, from time to time, may be assigned by the Board of Directors or by the President. SECTION 7. Treasurer. --------- The Treasurer shall have charge of and be responsible for all funds, securities, receipts and disbursements of the Corporation, and shall deposit or cause to be deposited, in the name of the Corporation, all moneys or other valuable effects in such banks, trust companies, or depositories as may be designated by the Board of Directors. The Treasurer shall maintain full and accurate accounts of all assets, liabilities and transactions of the Corporation, and shall render to the President and the Board of Directors, whenever they may require it, an account of all transactions as Treasurer and of the financial condition of the Corporation. In general, the Treasurer shall perform all the duties ordinarily incident to the office of a treasurer of a corporation, and such other duties as, from time to time, may be assigned to him or her by the Board of Directors or by the President. The Treasurer shall give the Corporation a bond, if required by the Board of Directors, in a sum, and with one or more sureties, satisfactory to the Board of Directors, for the faithful performance of the duties of the office and for the restoration to the Corporation in case of death, resignation, retirement or removal from office of all corporate books, papers, vouchers, moneys, and other properties of whatever kind in his or her possession or under his or her control. SECTION 8. Subordinate Officers. -------------------- The subordinate officers shall consist of such assistant officers and agents as may be deemed desirable and as may be elected by a majority of the members of the Board of Directors. Each such subordinate officer shall hold office for such period, have such authority and perform such duties as the Board of Directors may prescribe. SECTION 9. Appointed Vice Presidents. ------------------------- The Chief Executive Officer may from time to time appoint one or more Vice Presidents with such administrative powers and duties as may be designated or approved by the Chief Executive Officer. An appointed Vice President shall not be a corporate officer and may be removed by the Chief Executive Officer. SECTION 10. Officers Holding Two or More Offices. ------------------------------------ Any two or more of the above named offices, except those of Chairman and Vice Chairman of the Board and those of President and Vice President, may be held by the same person, but no officer shall execute, acknowledge or verify any instrument in more than one capacity, if the instrument is required by statute, by charter, by these Bylaws, or by resolution of the Board of Directors to be executed, acknowledged, or verified by two or more officers. SECTION 11. Compensation. ------------ The Board of Directors shall have power to fix the compensation of all officers of the Corporation. It may authorize any officer upon whom the power of appointing subordinate officers may have been conferred to fix the compensation of the subordinate officers. SECTION 12. Removal. ------- Any officer of the Corporation may be removed, with or without cause, by a vote of a majority of the entire Board of Directors, and any officer of the Corporation appointed by another officer may also be removed, with or without cause, by the appointing officer, by the Executive Committee, or by the Board of Directors. SECTION 13. Vacancies. --------- A vacancy in any office because of death, resignation, removal, or any other cause shall be filled for the unexpired portion of the term by election of the Board of Directors at any regular or special meeting. ARTICLE V Stock SECTION 1. Certificates. ------------ Each stockholder shall be entitled to a certificate or certificates which shall represent and certify the number and kind of shares of the Corporation's stock owned by the stockholder for which full payment has been made, or for which payment is being made by installments in conjunction with a stockholder-approved option plan. Each stock certificate shall be signed by the Chairman, the President or a Vice President and countersigned by the Secretary or Treasurer or Assistant Treasurer of the Corporation. A stock certificate shall be deemed to be so signed and sealed whether the required signatures are manual or facsimile signatures and whether the seal is a facsimile seal or any other form of seal. In case any officer of the Corporation who has signed a stock certificate ceases to be an officer of the Corporation, whether because of death, resignation or otherwise, before the stock certificate is issued, the certificate may nevertheless be issued and delivered by the Corporation as if the officer had not ceased to be such officer on the date of issue. SECTION 2. Transfer of Shares. ------------------ Shares of stock shall be transferable only on the books of the Corporation by the holder thereof, in person or by duly authorized agent, upon the surrender of the stock certificate representing the shares to be transferred, properly endorsed. The Board of Directors shall have power and authority to make other rules and regulations concerning the issue, transfer and registration of stock certificates as it may deem expedient. SECTION 3. Transfer Agents and Registrars. ------------------------------ The Corporation may have one or more transfer agents and one or more registrars of its stock, whose respective duties the Board of Directors may, from time to time, define. No stock certificate shall be valid until countersigned by a transfer agent, if the Corporation has a transfer agent in respect of that class or series of capital stock, or until registered by a registrar, if the Corporation has a registrar in respect of that class or series of capital stock. The duties of transfer agent and registrar may be combined. SECTION 4. New Certificates. ---------------- In case any stock certificate is alleged to have been lost, stolen, mutilated, or destroyed, the Board of Directors may authorize the issue of a new certificate in place thereof upon such terms and conditions as it may deem advisable. The Board of Directors may, in its discretion, further require the owner of the stock certificate or the owner's duly authorized agent to give bond with sufficient surety to the Corporation to indemnify it against any loss or claim which may arise by reason of the issue of a stock certificate in the place of one reportedly lost, stolen, or destroyed. SECTION 5. Record Dates. ------------ The Board of Directors may fix, in advance, a date as the record date for the purpose of determining those stockholders who shall be entitled to notice of, or to vote at, any meeting of stockholders, or for the purpose of determining those stockholders who shall be entitled to receive payment of any dividend or the allotment of any rights, or for the purpose of making any other proper determination with respect to stockholders. The date shall be not more than 90 days, and in the case of a meeting of stockholders, not less than 10 days, prior to the date on which the particular action, requiring such determination of stockholders, is to be taken. In lieu of fixing a record date, the Board of Directors may provide that the stock transfer books shall be closed for a stated period, not to exceed in any case 20 days. When the stock transfer books are closed for the purpose of determining stockholders entitled to notice of or to vote at a meeting of stockholders, the closing of the transfer books shall be at least 10 days before the date of the meeting. SECTION 6. Annual Report. ------------- The President of the Corporation shall annually prepare a full and correct statement of the affairs of the Corporation, including a balance sheet and a financial statement of operations for the preceding fiscal year. These statements shall be sent to the extent possible to each beneficial owner of the stock of the Corporation prior to or with the proxy statement and notice to stockholders of the annual meeting of stockholders. It will be submitted at the annual meeting, and within 20 days thereafter be placed on file at the Corporation's principal offices in Maryland. ARTICLE VI Dividends and Finance SECTION 1. Dividends. --------- Subject to any statutory or charter conditions and limitations, the Board of Directors may in its discretion declare what, if any, dividends shall be paid from the surplus or from the net profits of the Corporation, the date when the dividends shall be payable, and the date for the determination of holders of record to whom the dividends shall be paid. SECTION 2. Depositories. ------------ The Board of Directors from time to time shall designate one or more banks or trust companies as depositories of the Corporation and shall designate those officers and agents who shall have authority to deposit corporate funds in such depositories. It shall also designate those officers and agents who shall have authority to withdraw from time to time any or all of the funds of the Corporation so deposited upon checks, drafts, or orders for the payment of money, notes and other evidences of indebtedness, drawn against the account and issued in the name of the Corporation. The signatures of the officers or agents may be made manually or by facsimile. No check or order for the payment of money shall be invalidated because a person whose signature appears thereon has ceased to be an officer or agent of the Corporation prior to the time of payment of the check or order by any depository. SECTION 3. Corporate Obligations. --------------------- No loans shall be contracted on behalf of the Corporation and no evidences of indebtedness or guaranties of the obligations of others shall be issued in the name of the Corporation unless authorized by a resolution of the Board of Directors. Such authority may be either general or specific. When duly authorized, all loans, promissory notes, acceptances, other evidences of indebtedness and guaranties shall be signed by the President, a Vice President, the Treasurer, or an Assistant Treasurer. SECTION 4. Fiscal Year. ----------- The fiscal year of the Corporation shall begin on the first day of January and end on the last day of December of each year. ARTICLE VII Books and Records SECTION 1. Books and Records. ----------------- The Corporation shall maintain a stock ledger which shall contain the name and address of each stockholder and the number of shares of stock of the Corporation which the stockholder holds. The ledger shall be kept at the principal offices of the Corporation in Towson, Baltimore County, Maryland, or at the offices of the Corporation's stock transfer agent. All other books, accounts, and records of the Corporation, including the original or a certified copy of these Bylaws, the minutes of all stockholders meetings, a copy of the annual statement, and any voting trust agreements on file with the Corporation, shall be kept and maintained by the Secretary at the principal offices of the Corporation in Towson. SECTION 2. Inspection Rights. ----------------- Except as otherwise provided by statute or by charter, the Board of Directors shall determine whether and to what extent the books, accounts, and records of the Corporation, or any of them, shall be open to the inspection of stockholders. No stockholder shall have any right to inspect any book, account, document or record of the Corporation except as conferred by statute, by charter, or by resolution of the stockholders or the Board of Directors. ARTICLE VIII Seal SECTION 1. Seal. ---- The seal of the Corporation shall consist of a circular impression bearing the name of the Corporation and the word "Maryland" around the rim and in the center the word "Incorporated" and the year "1910." ARTICLE IX Indemnification SECTION 1. Indemnification. --------------- The Corporation to the full extent permitted by, and in the manner permissible under, the laws of the State of Maryland and other applicable laws and regulations may indemnify any person who is or was an officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation or entity and shall indemnify any director of the Corporation or any director who is or was serving at the request of the Corporation as a director of another corporation or entity, who by reason of his or her position was, is, or is threatened to be made a party to an action or proceeding, whether civil, criminal, administrative, or investigative, against any and all expenses (including, but not limited to, attorneys' fees, judgments, fines, penalties, and amounts paid in settlement) actually and reasonably incurred by the director, officer, employee, or agent in connection with the proceeding. Repeal or modification of this Section or the relevant law shall not affect adversely any rights or obligations then existing with respect to any state of facts then or theretofore existing or any action, suit or proceeding theretofore or thereafter brought or threatened based in whole or in part upon any such state of facts. ARTICLE X Amendments SECTION 1. Amendment of Bylaws. ------------------- These Bylaws may be amended at any meeting of the stockholders by a majority of all the votes cast, provided the text of the amendment is submitted with the notice of the meeting. The Board of Directors may also amend these Bylaws by a vote of a majority of the directors present at a meeting, provided that the Board of Directors shall not consider or act on any amendment to these Bylaws that, directly or indirectly, modifies the meaning or effect of any amendment to these Bylaws adopted by the stockholders within the preceding 12-month period, or any amendment to these Bylaws that, directly or indirectly, contains substantially similar provisions to those of an amendment rejected by the stockholders within the preceding 12-month period. EX-10.CC1 4 EX-10(CC)(1) Mr. Paul A. Gustafson January 1, 1997 January 1, 1997 Mr. Paul A. Gustafson 20 Rogers Road Hamden, Connecticut 06517 Dear Paul: The Black & Decker Corporation (the "Corporation") considers it essential to the best interests of its stockholders to foster the continuous employment of key management personnel. In this connection, the Board of Directors of the Corporation (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a change in control of the Corporation may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Corporation and its stockholders. The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Corporation's management, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control of the Corporation, although no such change is now contemplated. In order to induce you to remain in the employ of the Corporation, the Corporation agrees that you shall receive the severance benefits set forth in this letter agreement (the "Agreement") in the event your employment with the Corporation is terminated subsequent to a "change in control of the Corporation" (as defined in Section 2 hereof) under the circumstances described below. 1. TERM OF AGREEMENT. This Agreement shall commence on the date hereof and shall continue in effect through December 31, 2000; provided, however, that if a change in control of the Corporation shall have occurred prior to December 31, 2000, this Agreement shall continue in effect for a period of 36 months beyond the month in which such change in control occurred, at which time this Agreement shall terminate. Notwithstanding the foregoing, and provided no change in control of the Corporation shall have occurred, this Agreement shall automatically terminate upon the earlier to occur of (i) your termination of employment with the Corporation, or (ii) the Corporation's furnishing you with notice of termination, irrespective of the effective date of such termination. 2. CHANGE IN CONTROL. No benefits shall be payable hereunder unless there shall have been a change in control of the Corporation, as set forth below. For purposes of this Agreement, a "change in control of the Corporation" shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Corporation is in fact required to comply therewith, provided that, without limitation, such a change in control shall be deemed to have occurred if (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or any of its subsidiaries or a corporation owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities; (B) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with the Corporation to effect a transaction described in clauses (A) or (D) of this Section) whose election by the Board or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; (C) the Corporation enters into an agreement, the consummation of which would result in the occurrence of a change in control of the Corporation; or (D) the stockholders of the Corporation approve a merger, share exchange or consolidation of the Corporation with any other corporation, other than a merger, share exchange or consolidation which would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 60% of the combined voting power of the voting securities of the Corporation or such surviving entity outstanding immediately after such merger, share exchange or consolidation, or the stockholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of all or substantially all the Corporation's assets. 3. TERMINATION FOLLOWING CHANGE IN CONTROL OF THE CORPORATION. If any of the events described in Section 2 hereof constituting a change in control of the Corporation shall have occurred, you shall be entitled to the benefits provided in Subsection 4(iii) hereof upon the subsequent termination of your employment during the term of this Agreement unless such termination is (A) because of your death or Disability, (B) by the Corporation for Cause, or (C) by you other than for Good Reason. (i) DISABILITY. If, as a result of your incapacity due to physical or mental illness, you shall have been absent from the full-time performance of your duties with the Corporation for six consecutive months, and within 30 days after written notice of termination is given you shall not have returned to the full-time performance of your duties, your employment may be terminated for "Disability." (ii) CAUSE. Termination by the Corporation of your employment for "Cause" shall mean termination upon (A) the willful and continued failure by you to substantially perform your duties with the Corporation, other than any such failure resulting from your incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance by you of a Notice of Termination (as defined in Subsection 3(iv) hereof) for Good Reason (as defined in Subsection 3(iii) hereof), after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties, or (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the Corporation, monetarily or otherwise. For purposes of this Subsection, no act or failure to act on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Corporation. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of conduct set forth above in clauses (A) or (B) of the first sentence of this Subsection and specifying the particulars thereof in detail. (iii) GOOD REASON. You shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, the occurrence after a change in control of the Corporation of any of the following circumstances unless, in the case of paragraphs (A), (E), (F), (G) or (H), such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination, as such terms are defined in Subsections 3(v) and 3(iv) hereof, respectively, given in respect thereof: (A) the assignment to you of any duties inconsistent with your current status as an executive of the Corporation or a substantial adverse alteration in the nature or status of your responsibilities from those in effect immediately prior to the change in control of the Corporation; (B) a reduction by the Corporation in your annual base salary as in effect on the date hereof or as the same may be increased from time to time, except for across-theboard salary reductions similarly affecting all senior executives of the Corporation and all senior executives of any person in control of the Corporation; (C) your relocation to a location not within 25 miles of your present office or job location, except for required travel on the Corporation's business to an extent substantially consistent with your present business travel obligations; (D) the failure by the Corporation, without your consent, to pay to you any portion of your current compensation, or to pay to you any portion of an installment of deferred compensation under any deferred compensation program of the Corporation, within seven days of the date such compensation is due; (E) the failure by the Corporation to continue in effect any bonus to which you were entitled, or any compensation plan in which you participated immediately prior to the change in control of the Corporation which is material to your total compensation, including but not limited to the Corporation's (i) Executive Annual Incentive Plan or other annual incentive compensation plan ("AIP"); (ii) Performance Equity Plan or other long-term incentive compensation plan ("PEP"); (iii) stock option plans; (iv) retirement and savings plans; (v) Supplemental Executive Retirement Plan ("SERP"); (vi) Supplemental Pension Plan; (vii) Supplemental Retirement Savings Plan; and (viii) Executive Deferred Compensation Plan; or any substitute plan or plans adopted prior to the change in control of the Corporation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan and such equitable arrangement provides substantially equivalent benefits not materially less favorable to you (both in terms of the amount of benefits provided and the level of your participation relative to other participants), or the failure by the Corporation to continue your participation therein (or in such substitute or alternative plan) on a basis not materially less favorable (both in terms of the amount of benefits provided and the level of your participation relative to other participants) as existed at the time of the change in control of the Corporation; (F) the failure by the Corporation to continue to provide you with benefits substantially similar to those enjoyed by you under any of the Corporation's life insurance, medical, dental, health and accident, or disability plans in which you were participating at the time of the change in control of the Corporation, the failure to continue to provide you with a Corporation automobile or allowance in lieu thereof, if you were provided with such an automobile or allowance in lieu thereof at the time of the change in control of the Corporation, the taking of any action by the Corporation which would directly or indirectly materially reduce any of such benefits or deprive you of any material fringe benefit enjoyed by you at the time of the change in control of the Corporation, or the failure by the Corporation to provide you with the number of paid vacation days to which you are entitled on the basis of years of service with the Corporation in accordance with the Corporation's normal vacation policy in effect at the time of the change in control of the Corporation; (G) the failure of the Corporation to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 5 hereof; or (H) any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Subsection 3(iv) hereof (and, if applicable, the requirements of Subsection 3(ii) hereof); for purposes of this Agreement, no such purported termination shall be effective. Your rights to terminate your employment pursuant to this Subsection shall not be affected by your incapacity due to physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. (iv) NOTICE OF TERMINATION. Any purported termination of your employment by the Corporation or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 6 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (v) DATE OF TERMINATION, ETC. "Date of Termination" shall mean (A) if your employment is terminated for Disability, 30 days after Notice of Termination is given (provided that you shall not have returned to the full-time performance of your duties during such 30-day period), and (B) if your employment is terminated pursuant to Subsections 3(ii) or 3(iii) hereof or for any other reason (other than Disability), the date specified in the Notice of Termination (which, in the case of a termination pursuant to Subsection 3(ii) hereof shall not be less than 30 days, and in the case of a termination pursuant to Subsection 3(iii) hereof shall not be less than 15 nor more than 60 days, respectively, from the date such Notice of Termination is given); provided that if within 15 days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this proviso), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Corporation will continue to pay you your full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue you as a participant in all compensation, benefit and insurance plans in which you were participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this Subsection. Amounts paid under this Subsection are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 4. COMPENSATION UPON TERMINATION OR DURING DISABILITY. Following a change in control of the Corporation, as defined by Section 2 hereof, upon termination of your employment or during a period of Disability you shall be entitled to the following benefits: (i) During any period that you fail to perform your full-time duties with the Corporation as a result of incapacity due to physical or mental illness, you shall continue to receive your base salary at the rate in effect at the commencement of any such period, together with all amounts payable to you under any compensation plan of the Corporation during such period, until this Agreement is terminated pursuant to Subsection 3(i) hereof. Thereafter, or in the event your employment shall be terminated by you other than for Good Reason or by reason of your death, your benefits shall be determined under the Corporation's retirement, insurance and other compensation programs then in effect in accordance with the terms of such programs. (ii) If your employment shall be terminated by the Corporation for Cause, Disability or death, or by you other than for Good Reason, the Corporation shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any retirement, insurance and other compensation programs of the Corporation at the time such payments are due, and the Corporation shall have no further obligations to you under this Agreement. (iii) If your employment by the Corporation shall be terminated (a) by the Corporation other than for Cause, Disability or death or (b) by you for Good Reason, then you shall be entitled to the benefits provided below: (A) The Corporation shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation plan of the Corporation, at the time such payments are due, except as otherwise provided below. (B) In lieu of any further salary payments to you for periods subsequent to the Date of Termination, the Corporation shall pay as severance pay to you a lump sum severance payment (together with the payments provided in paragraphs (C) and (D) of this Subsection 4(iii), the "Severance Payments") equal to three times the sum of your (a) annual base salary in effect immediately prior to the occurrence of the circumstance giving rise to the Notice of Termination given in respect thereof, and (b) AIP Maximum Payment for the year in which the Date of Termination occurs. AIP Maximum Payment shall mean the higher of (1) the award you would be entitled to receive for 1995 based on the maximum payout factor for the AIP or (2) any greater award you would be entitled to receive for any subsequent year (including the year in which your employment is terminated) based on the maximum payout factor for the AIP for such subsequent year. The provisions of this Section 4(iii)(B) shall not in any way affect your rights under the Corporation's stock option plans or the PEP. (C) In lieu of shares of common stock of the Corporation (the "Shares") issuable upon exercise of outstanding options, if any, granted to you under the Corporation's stock option plans ("Options"), which Options (and any related limited stock appreciation rights) shall be cancelled upon the making of the payment referred to below, you shall receive an amount in cash equal to the product of (i) the excess of the higher of the closing price of the Shares as reported on the NYSE on or nearest to the Date of Termination (or, if not listed on the NYSE, on a nationally recognized exchange or quotation system on which trading volume in the Shares is highest), and the highest per share price for the Shares actually paid in connection with any change in control of the Corporation, over the per share exercise price of each Option held by you (whether or not then fully exercisable) plus the amount, if any, of any applicable cash appreciation rights, times (ii) the number of the Shares covered by each such Option. (D) The Corporation shall pay to you any deferred compensation, including but not limited to deferred bonuses and amounts deferred under the Executive Deferred Compensation Plan, allocated or credited to you or your account as of the Date of Termination. (E) The Corporation shall also pay to you all legal fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment or benefit provided hereunder). (F) If the payments provided under paragraphs (B), (C) and (D) above (the "Contract Payments") or any other portion of the Total Payments (as defined below) will be subject to the tax imposed by Section 4999 of the Code (the "Excise Tax"), the Corporation shall pay to you at the time specified in paragraph (G) below, an additional amount (the "Gross-Up Payment") such that the net amount retained by you, after deduction of any Excise Tax on the Contract Payments and such other Total Payments and any federal and state and local income tax and Excise Tax upon the payment provided for by this paragraph, shall be equal to the Contract Payments and such other Total Payments. For purposes of determining whether any of the payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) any other payments or benefits received or to be received by you in connection with a change in control of the Corporation or your termination of employment (whether payable pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Corporation, its successors, any person whose actions result in a change in control of the Corporation or any corporation affiliated (or which, as a result of the completion of a transaction causing a change in control of the Corporation, will become affiliated) with the Corporation within the meaning of Section 1504 of the Code) (together with the Contract Payments, the "Total Payments") shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Corporation's independent auditors and acceptable to you the Total Payments (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4)(B) of the Code either to the extent such reasonable compensation is in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax, (ii) the amount of the Total Payments that shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Total Payments or (B) the amount of excess parachute payments within the meaning of Section 280G(b)(1) (after applying clause (i), above), and (iii) the value of any non-cash benefits or any deferred payment or benefit shall be as determined by the Corporation's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, you shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of your residence on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of your employment, you shall repay to the Corporation at the time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by you if such repayment results in a reduction in Excise Tax and/or a federal and state and local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(d) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of your employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Corporation shall make an additional Gross-Up Payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. (G) The payments provided for in paragraphs (B), (C), (D) and (F) above, shall be made not later than the fifth day following the Date of Termination, provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Corporation shall pay to you on such day an estimate, as determined in good faith by the Corporation, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at a rate equal to 120% of the rate provided in Section 1274(d) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Corporation to you payable on the fifth day after demand by the Corporation (together with interest at a rate equal to 120% of the rate provided in Section 1274(d) of the Code). The payments provided for in paragraph (E) above shall be made from time to time, in each instance not later than the fifth day following a written request for payment by you. (iv) If your employment shall be terminated (A) by the Corporation other than for Cause, Disability or death or (B) by you for Good Reason, then for a 36-month period after such termination, the Corporation shall arrange to provide you with life, disability, accident, medical, dental and health insurance benefits substantially similar to those that you are receiving immediately prior to the Notice of Termination. Benefits otherwise receivable by you pursuant to this Subsection 4(iv) shall be reduced to the extent comparable benefits are actually received by you from another employer during the 36-month period following your termination, and any such benefits actually received by you shall be reported to the Corporation. (v) You shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 4 be reduced by any compensation earned by you as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by you to the Corporation, or otherwise except as specifically provided in this Section 4. (vi) In addition to all other amounts payable to you under this Section 4, you shall be entitled to receive all benefits payable to you under The Black & Decker Executive Salary Continuance Plan, the SERP, The Black & Decker Supplemental Pension Plan, or any plan or agreement sponsored by the Corporation or any of its subsidiaries relating to retirement benefits. 5. SUCCESSORS; BINDING AGREEMENT. (i) The Corporation will require any successor (whether direct or indirect, by purchase, merger, share exchange, consolidation or otherwise) to all or substantially all of the business and/or assets of the Corporation to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession had taken place. Failure of the Corporation to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Corporation in the same amount and on the same terms as you would be entitled to hereunder if you terminate your employment for Good Reason following a change in control of the Corporation, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Corporation" shall mean the Corporation as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, heirs, distributees, and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your legatee or other designee or, if there is no such designee, to your estate. (iii) In the event that you are employed by a subsidiary of the Corporation, wherever in this Agreement reference is made to the "Corporation," unless the context otherwise requires, such reference shall also include such subsidiary. The Corporation shall cause such subsidiary to carry out the terms of this Agreement insofar as they relate to the employment relationship between you and such subsidiary, and the Corporation shall indemnify you and save you harmless from and against all liability and damage you may suffer as a consequence of such subsidiary's failure to perform and carry out such terms. Wherever reference is made to any benefit program of the Corporation, such reference shall include, where appropriate, the corresponding benefit program of such subsidiary if you were a participant in such benefit program on the date a change in control of the Corporation has occurred. 6. NOTICE. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Corporation shall be directed to the attention of the Board with a copy to the Secretary of the Corporation, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 7. MISCELLANEOUS. This Agreement amends and restates the agreement between the parties dated October 25, 1995. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Maryland. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Corporation under Section 4 hereof shall survive the expiration of the term of this Agreement. 8. VALIDITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 9. COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 10. ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in the State of Maryland, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the Corporation the enclosed copy of this letter which will then constitute our agreement on this subject. Sincerely, THE BLACK & DECKER CORPORATION By/s/NOLAN D. ARCHIBALD Nolan D. Archibald Chairman, President and Chief Executive Officer Agreed to as of the 1st day of January 1997 /s/PAUL A. GUSTAFSON - ----------------------- Paul A. Gustafson EX-10.CC2 5 EX-10(CC)(2) SPECIAL DEFERRAL AGREEMENT THIS AGREEMENT, made this 7th day of February, 2000, by and between Paul A. Gustafson ("Executive") and The Black & Decker Corporation ("Corporation"), on its own behalf and on behalf of its subsidiaries and affiliates. RECITALS The Executive is one of the Corporation's Executive Vice Presidents and is a participant in The Black & Decker Annual Incentive Plan (the "AIP"). The Executive may be awarded a bonus under the AIP, at the discretion of the Board of Directors of the Corporation when it meets later this month (the "February 2000 Bonus"). The Executive desires to defer his receipt of a portion or all of the February 2000 Bonus and the Corporation is willing to permit that bonus deferral. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. The foregoing recitals are incorporated into this Agreement by this reference. 2. The Executive hereby irrevocably elects to defer _25__% of the February 2000 Bonus which he may be awarded, but in no event more than 100% of the February 2000 Bonus reduced by the percentage of the February 2000 Bonus that the Executive has directed to be contributed to The Black & Decker Retirement Savings Plan pursuant to his election in effect under that plan at the execution of this Agreement. 3. The Corporation shall cause the amount of the February 2000 Bonus that the Executive has elected to defer under this Agreement to be deducted from the February 2000 Bonus payment and credited to a bookkeeping account on the Corporation's books in the name of the Executive, to which shall also be credited (a) amounts equal to any deemed earnings or losses and (b) expenses charged to the Account. 4. The amount deferred by the Executive pursuant to this Agreement shall be administered, deemed to be invested, adjusted for expenses and deemed gains and losses, paid and otherwise governed by the terms of The Black & Decker Supplemental Retirement Savings Plan, as in effect on the date of this Agreement and as amended from time to time thereafter (the "SRSP"), in the same manner and in all respects as those terms of the SRSP would apply to the amount deferred pursuant to this Agreement if that deferral constituted a "Participant Compensation Deferral" of the Executive's AIP Bonus under the SRSP. The terms of the SRSP are hereby incorporated into this Agreement by this reference. 5. The Executive's interest in the amount deferred pursuant to this Agreement, as adjusted, shall be 100% vested and shall be paid in the form checked below (check one): __X__ A Lump Sum Distribution _____ Substantially Equal Annual Installments Over _____ Years (not to exceed 10 years) and shall be paid (or commence to be paid) at the date designated below: __X__ At the Executive's termination of employment with The Black & Decker Corporation and all of its subsidiaries and affiliates _____ At _____________, 20____. (Date may not be earlier than January 1, 2002 and may not be accelerated, but may be extended, pursuant to the terms of the SRSP and subject to certain limitations.) _____ At the earlier of the Executive's termination of employment with The Black & Decker Corporation and all of its subsidiaries and affiliates or ____________, 20____. (Date may not be earlier than January 1, 2002 and may not be accelerated, but may be extended, pursuant to the terms of the SRSP and subject to certain limitations.) 6. In the event of the Executive's death, the undistributed balance of the Executive's account established pursuant to this Agreement shall be paid to the person or persons determined to be his "Beneficiary" under the terms of the SRSP and shall be payable to that Beneficiary at the time(s) and in the form determined under the SRSP. 7. No amount payable to the Executive or his Beneficiary under this Agreement will, except as otherwise specifically provided by law, be subject in any manner to anticipation, alienation, attachment, garnishment, sale, transfer, assignment (either at law or in equity), levy, execution, pledge, encumbrance, charge or any other legal or equitable process, and any attempt to do so will be void; nor will any benefit be in any manner liable for or subject to the debts, contract, liabilities, engagements or torts of the person entitled thereto. Further, (i) the withholding of taxes from payments, (ii) the recovery of overpayments of benefits previously made to the Executive or Beneficiary, or (iii) the direct deposit of benefit payments to an account in a banking institution (if not actually part of an arrangement constituting an assignment or alienation) shall not be construed as an assignment or alienation. In the event that the Executive's or Beneficiary's benefits hereunder are garnished or attached by order of any court, the Corporation or trustee may bring an action or a declaratory judgment in a court of competent jurisdiction to determine the proper recipient of the benefits to be paid under this Agreement. During the pendency of said action, any benefits that become payable shall be held as credits to the Executive's or Beneficiary's account or, if the Corporation prefers, paid into the court as they become payable, to be distributed by the court to the recipient as the court deems proper at the close of said action. IN WITNESS WHEREOF, each of the parties has executed this Agreement as of the day and year first above written. WITNESS: THE BLACK & DECKER CORPORATION By:/s/PETER T. SARANDOS ------------------------------ WITNESS: EXECUTIVE /s/P. A. GUSTAFSON ------------------------------ EX-12 6 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12 THE BLACK & DECKER CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Millions of Dollars Except Ratios) Three Months Ended Twelve Months Ended December 31, 1999 December 31, 1999 ------------------ ------------------- EARNINGS: Earnings before income taxes $ 169.0 $ 441.3 Interest expense 33.3 126.3 Portion of rent expense representative of an interest factor 6.9 27.7 -------- -------- Adjusted earnings before taxes and fixed charges $ 209.2 $ 595.3 ======== ======== FIXED CHARGES: Interest expense $ 33.3 $ 126.3 Portion of rent expense representative of an interest factor 6.9 27.7 -------- -------- Total fixed charges $ 40.2 $ 154.0 ======== ======== RATIO OF EARNINGS TO FIXED CHARGES 5.20 3.87 ======== ======== EX-21 7 LIST OF SUBSIDIARIES EXHIBIT 21 THE BLACK & DECKER CORPORATION AND SUBSIDIARIES LIST OF SUBSIDIARIES Listed below are the subsidiaries of The Black & Decker Corporation, all of which are either directly or indirectly 100% owned as of December 31, 1999, except as otherwise noted. Names of certain inactive, liquidated, or minor subsidiaries have been omitted. Black & Decker Abrasives Inc. UNITED STATES Black & Decker Inc. UNITED STATES Black & Decker (U.S.) Inc. UNITED STATES Black & Decker Funding Corporation UNITED STATES Black & Decker Group Inc. UNITED STATES Black & Decker HealthCare Management Inc. UNITED STATES Black & Decker Holdings Inc. UNITED STATES Black & Decker Investment Company UNITED STATES Black & Decker (Ireland) Inc. UNITED STATES Black & Decker India Inc. UNITED STATES Black & Decker Investments (Australia) Limited UNITED STATES Black & Decker Limited (LLC) UNITED STATES Black & Decker (Puerto Rico) LLC UNITED STATES B&D Distribution, Inc. UNITED STATES Corbin Co. UNITED STATES Emhart Corporation UNITED STATES Emhart Credit Corporation UNITED STATES Emhart Far East Corporation UNITED STATES Emhart Harttung Inc. UNITED STATES Emhart Inc. UNITED STATES Emhart Industries, Inc. UNITED STATES Kwikset Corporation UNITED STATES Price Pfister, Inc. UNITED STATES Shenandoah Insurance, Inc. UNITED STATES Black & Decker Argentina S.A. ARGENTINA Black & Decker Distribution Pty. Ltd. AUSTRALIA Black & Decker Finance (Australia) Ltd. AUSTRALIA Black & Decker Holdings (Australia) Pty. Ltd. AUSTRALIA Dewalt Industrial Powertool Company Pty. Ltd. AUSTRALIA Kwikset (Australasia) Pty. Ltd. AUSTRALIA Black & Decker Werkzeuge Vertriebs-Gesellschaft m.b.H AUSTRIA DOM Sicherheitstechnik G.m.b.H. AUSTRIA Black & Decker (Belgium) N.V. BELGIUM Black & Decker Do Brasil Ltda. BRAZIL Refal Industria e Comercio de Rebites e Rebitadeiras Ltda. BRAZIL Black & Decker Canada Inc. CANADA Black & Decker Holdings (Canada) Inc. CANADA Black & Decker Cono Sur, S.A. CHILE Maquinas y Herramientas Black & Decker de Chile S.A. CHILE Black & Decker (Suzhou) Power Tools Co., Ltd. CHINA Black & Decker de Colombia S.A. COLOMBIA B&D de Costa Rica, S.A. COSTA RICA Tucker S.R.O. CZECH REPUBLIC Emhart Harttung A/S DENMARK Black & Decker de El Salvador, S.A. de C.V. EL SALVADOR Black & Decker Oy FINLAND Black & Decker Finance S.C.A. FRANCE Black & Decker (France) S.A.S. FRANCE DOM S.A.R.L. FRANCE Emhart Fastening & Assembly SNC FRANCE Emhart S.A.R.L. FRANCE BAND Aussenhandel G.m.b.H. GERMANY B.B.W. Bayrische Bohrerwerke G.m.b.H. GERMANY Black & Decker G.m.b.H. GERMANY DOM Sicherheitstechnik G.m.b.H. GERMANY DOM Sicherheitstechnik G.m.b.H. & Co. KG GERMANY Emhart Deutschland G.m.b.H. GERMANY Tucker G.m.b.H. GERMANY Black & Decker (Hellas) S.A. GREECE Black & Decker Hong Kong Limited HONG KONG Emhart Asia Limited HONG KONG Baltimore Financial Services Company IRELAND Baltimore Insurance Limited IRELAND Belco Investments Company IRELAND Black & Decker (Ireland) IRELAND Gamrie Limited IRELAND Black & Decker Italia S.P.A. ITALY Tatry Officina Meccanica S.r.l. ITALY Fasteners & Tools, Ltd. JAPAN Nippon Pop Rivets & Fasteners Ltd. JAPAN Black & Decker (Overseas) A.G. LIECHTENSTEIN Black & Decker Luxembourg S.A. LUXEMBOURG Black & Decker Asia Pacific (Malaysia) Sdn. Bhd. MALAYSIA Black & Decker (Malaysia) Sdn. Bhd. MALAYSIA DeWalt Industrial Tools, S.A. de C.V. MEXICO Black & Decker, S.A. de C.V. MEXICO Price-Pfister de Mexico, S. de R.L. de C.V. MEXICO BD Power Tools Mexicana, S. de R.L. de C.V. MEXICO Technolock, S. de R.L. de C.V. MEXICO Nemef B.V. NETHERLANDS Black & Decker (Nederland) B.V. NETHERLANDS Black & Decker International Holdings B.V. NETHERLANDS Black & Decker Overseas Holdings B.V. NETHERLANDS Black & Decker (New Zealand) Limited NEW ZEALAND Black & Decker (Norge) A/S NORWAY Sjong Fasteners A/S NORWAY Black & Decker de Panama, S.A. PANAMA Black & Decker International Corporation PANAMA Emhart Panama S.A. PANAMA Black & Decker Del Peru S.A. PERU Black & Decker Asia Pacific Pte. Ltd. SINGAPORE Black & Decker (South Africa) Pty. Ltd. SOUTH AFRICA Emhart Fastening Teknologies Korea, Inc. SOUTH KOREA Black & Decker Iberica S.Com por A. SPAIN Black & Decker Aktiebolag SWEDEN Emhart Teknik Akteibolag SWEDEN DOM AG Sicherheitstechnik SWITZERLAND Black & Decker (Switzerland) S.A. SWITZERLAND Black & Decker (Thailand) Limited THAILAND Black & Decker Ithalat Limited Sirketi TURKEY Aven Tools Limited UNITED KINGDOM Bandhart UNITED KINGDOM Bandhart Overseas UNITED KINGDOM Black & Decker Finance UNITED KINGDOM Black & Decker International UNITED KINGDOM Black & Decker UNITED KINGDOM Black & Decker Europe UNITED KINGDOM Emhart (Colchester) Limited UNITED KINGDOM Emhart International Limited UNITED KINGDOM Tucker Fasteners Limited UNITED KINGDOM United Marketing (Leicester) UNITED KINGDOM Black & Decker Rio de la Plata S.A. URUGUAY Black & Decker de Venezuela, C.A. VENEZUELA Black & Decker Holdings de Venezuela, C.A. VENEZUELA Emhart Foreign Sales Corporation VIRGIN ISLANDS (US) EX-23 8 CONSENT OF INDEPENDENT AUDITORS Exhibit 23 CONSENT of Independent Auditors We consent to the incorporation by reference in the following Registration Statements of The Black & Decker Corporation of our report dated January 27, 2000, with respect to the consolidated financial statements and schedule of The Black & Decker Corporation included in the Annual Report (Form 10-K) for the year ended December 31, 1999. Registration Statement Number Description 33-6610 Form S-8 33-6612 Form S-8 33-26917 Form S-8 33-26918 Form S-8 33-33251 Form S-8 33-39608 Form S-3 33-47651 Form S-8 33-47652 Form S-8 33-53807 Form S-3 33-58795 Form S-8 33-65013 Form S-8 333-03593 Form S-8 333-03595 Form S-8 333-51155 Form S-8 333-51157 Form S-8 /s/ERNST & YOUNG LLP Baltimore, Maryland February 8, 2000 EX-24 9 POWER OF ATTORNEY EXHIBIT 24 POWER OF ATTORNEY We, the undersigned Directors and Officers of The Black & Decker Corporation (the "Corporation"), hereby constitute and appoint Nolan D. Archibald, Michael D. Mangan and Charles E. Fenton, and each of them, with power of substitution, our true and lawful attorneys-in-fact with full power to sign for us, in our names and in the capacities indicated below, the Corporation's Annual Report on Form 10-K for the year ended December 31, 1999, and any and all amendments thereto. /s/NOLAN D. ARCHIBALD Director, Chairman, February 10, 2000 - ------------------------ President and Chief Nolan D. Archibald Executive Officer (Principal Executive Officer) /s/NORMAN R. AUGUSTINE Director February 10, 2000 - ------------------------ Norman R. Augustine /s/BARBARA L. BOWLES Director February 10, 2000 - ------------------------ Barbara L. Bowles /s/MALCOLM CANDLISH Director February 10, 2000 - ------------------------ Malcolm Candlish /s/ALONZO G. DECKER, JR. Director February 10, 2000 - ------------------------ Alonzo G. Decker, Jr. /s/MANUEL A. FERNANDEZ Director February 10, 2000 - ------------------------ Manuel A. Fernadez /s/ANTHONY LUISO Director February 10, 2000 - ------------------------ Anthony Luiso /s/MARK H. WILLES Director February 10, 2000 - ------------------------ Mark H. Willes /s/MICHAEL D. MANGAN Senior Vice President February 10, 2000 - ------------------------ and Chief Financial Michael D. Mangan Officer (Principal Financial Officer) /s/STEPHEN F. REEVES Vice President - Finance February 10, 2000 - ------------------------ and Strategic Planning Stephen F. Reeves (Principal Accounting Officer) EX-27 10 EXHIBIT 27
5 This schedule contains summary financial information extracted from the Corporation's Consolidated Financial Statements as of and for the twelve months ended December 31, 1999, and the accompanying footnotes and is qualified in its entirety by the reference to such Consolidated Financial Statements. 0000012355 THE BLACK & DECKER CORPORATION 1,000 12-MOS DEC-31-1999 DEC-31-1999 147,300 0 876,500 53,300 751,000 1,911,400 1,559,200 819,600 4,012,700 1,572,700 847,100 0 0 43,600 757,500 4,012,700 4,520,500 4,520,500 2,834,400 3,984,200 0 0 126,300 441,300 141,000 300,300 0 0 0 300,300 3.45 3.40
EX-99.A 11 EX-99(A) AMENDMENT 1 AMENDMENT NUMBER 1 This AMENDMENT NUMBER 1(this "Amendment") to the SECURITIES PURCHASE AGREEMENT dated as of September 30, 1998 among between True Temper Corporation and the Purchaser (the "Securities Purchase Agreement"), the Debt Registration Rights Agreement dated as of September 30, 1998 among True Temper Corporation and the Purchaser (the "Debt Registration Rights Agreement") and the Escrow Agreement dated as of September 30, 1998 among True Temper Corporation, the Purchaser and Snoga, Inc. (the "Escrow Agreement") is dated as of September 29, 1999. Capitalized terms used herein and not otherwise defined have the meanings ascribed to such terms in the Securities Purchase Agreement. The parties wish to amend the Securities Purchase Agreement, the Debt Registration Rights Agreement and the Escrow Agreement and hereto agree as follows: 1. FEES. Section 2.03(b) of the Securities Purchase Agreement is hereby amended by deleting therein the words "the first anniversary of the Issuance Date" in their entirety and replacing them with "October 31, 1999" so that Section 2.03(b) of the Securities Purchase Agreement is restated as follows: "(b) On October 31, 1999, the Company shall pay the Purchaser the Extension Fee." 2. INTEREST. (a) Section 2.05(c) of the Securities Purchase Agreement is hereby amended by deleting therein each occurrence of the words "the first anniversary of the Issuance Date" in their entirety and replacing them with "October 31, 1999" so that Section 2.05(c) of the Securities Purchase Agreement is restated as follows: "(c) The interest rate applicable to each Note commencing on October 31, 1999 shall be a floating rate per annum equal to greatest of (i) the sum of (A) the Prime Rate in effect from time to time plus (B) 4.00%, (ii) the sum of (A) the Treasury Rate plus (B) 7.00%, (iii) the sum of (A) the DLJ High Yield Composite Index plus (B) 3.00%, and (iv) the sum of (A) the interest rate applicable to such Note on the day immediately preceding October 31, 1999 plus (B) .50%, in each case, increasing by .50% on each Interest Payment Date thereafter until the date the principal amount of, and accrued and unpaid interest on, if any, such Note is paid in full." (b) Section 2.05(d) of the Securities Purchase Agreement is hereby amended by deleting therein each occurrence of the words "the first anniversary of the Issuance Date" in their entirety and replacing them with "October 31, 1999" so that Section 2.05(d) of the Securities Purchase Agreement is restated as follows: "(d) In addition to any adjustments to the Interest Rate set forth in subsections (b) and (c) of this Section 2.05, if, pursuant to the terms of the Debt Registration Rights Agreement, a Shelf Registration with respect to the Notes either (i) has not been filed with the Commission on or prior to the 90th day following October 31, 1999 or (ii) has not been declared effective by the Commission on or prior to the 180th day following October 31, 1999, then the Company shall pay liquidated damages thereafter of $.192 per week per $1,000 principal amount of Notes outstanding until the date on which the Shelf Registration is declared effective by the Commission. Following the effectiveness of the Shelf Registration, the Company shall also pay such liquidated damages beginning on the first date on which such Shelf Registration ceases to remain effective and shall continue at such increased interest rate until such Shelf Registration is again declared effective by the Commission." (c) Section 2.05(e) of the Securities Purchase Agreement is hereby amended by deleting therein the words "the first anniversary of the Issuance Date" in their entirety and replacing them with "October 31, 1999" so that Section 2.05(e) of the Securities Purchase Agreement is restated as follows: "(e) The Purchaser may, on October 31, 1999, fix the interest rate on the Notes at a rate to be determined by the Purchaser in its sole discretion provided that such rate shall not exceed seventeen percent (17.00%)." 3. SHELF REGISTRATION. Section 3 of the Debt Registration Rights Agreement is hereby amended by deleting therein the words "September 30, 1999" in their entirety and replacing them with "October 31, 1999" so that Section 3 of the Debt Registration Rights Agreement is restated as follows: "3. SHELF REGISTRATION. The Registrants shall file, and shall use their best efforts to cause to become effective a "shelf" registration statement on any appropriate form pursuant to Rule 415 (or similar rule that may be adopted by the SEC) under the Securities Act (a "Shelf Registration") on or as soon as practicable after October 31, 1999 in order to permit registered resales of all of the Registrable Securities. Subject to the last paragraph of Section 6, the Registrants agree to use their best efforts thereafter to keep such Shelf Registration continuously effective, and to prevent the happening of any event of the kind described in Section 6(c) hereof that requires the Registrants to give notice pursuant to the last paragraph of Section 6 hereof, until such time as all the Registrable Securities covered by the Shelf Registration have been sold pursuant to such Shelf Registration or have been otherwise redeemed in full by the Company." 4. RELEASE OF WARRANTS. Section 2 of the Escrow Agreement is hereby amended by deleting therein each occurrence of the words "the first anniversary of the Closing Date" in their entirety and replacing them with "October 31, 1999" so that Section 2 of the Escrow Agreement is restated as follows (with the defined term "First Anniversary Date" now being used to refer to October 31, 1999): "2. RELEASE OF WARRANTS. (a) If Notes remain outstanding on October 31, 1999 (the "FIRST ANNIVERSARY DATE") and, so long as Notes remain outstanding, and if the Escrow Agent shall have received written notice in the form of Exhibit A hereto from the Majority Holders (as such term is defined in the Securities Purchase Agreement), then the Escrow Agent shall release Warrants on any one or more occasions in an aggregate amount not to exceed the Eligible Percentage (as defined below) (as of the date of any such notice) as shall be specified in the notice to the Escrow Agent of the amount of Warrants originally placed into escrow pursuant to this Escrow Agreement. Upon the redemption in full of the Notes, and the receipt by the Escrow Agent of written notice in the form of Exhibit B hereto from the Majority Holders, the Escrow Agent shall release Warrants remaining in escrow, to the extent that such Warrants have not been "earned" as set forth in Section 2(b) below, upon such sale or redemption to Holdings. If, upon such redemption, Warrants that have been "earned" but not released shall be released to the holders of the Notes in accordance with Section 2(b) below. (b) The "ELIGIBLE PERCENTAGE" with respect to any Warrants to be released from escrow pursuant to this Escrow Agreement on October 31, 1999 (the "FIRST ANNIVERSARY DATE") and on each date after the First Anniversary Date (each such date, including the First Anniversary Date, a "RELEASE DATE") set forth under Column A below, until the Notes have been redeemed or repurchased in full, shall be the sum of (1) the percentage set forth in Column B below and (2) the cumulative percentage of all Warrants previously "earned" pursuant to clause (1) above on each of the prior dates under Column A that have occurred and that have not been previously released pursuant to this Escrow Agreement. Each holder of Notes shall be entitled to a pro rata share of Warrants equal to the product of (a) the ratio of the aggregate principal amount of all Notes held by such holder at the time of such "earn-in" release to the aggregate principal amount of all Notes then outstanding and (b) the amount of Warrants "earned" pursuant to clauses (1) and (2) above. Once "earned," Warrants remain "earned" and the fully-vested property of the holder of Notes, as the case may be, despite any future payments or redemptions of the Notes. A B Release Date Percentage First Anniversary Date 5.0% 91 5.0% 181 10.0% 271 10.0% 361 12.5% 451 12.5% 541 15.0% 631 15.0% 721 15.0% (c) Holdings will provide, or cause to be provided, to the Escrow Agent all such information as the Escrow Agent may from time to time reasonably request." 5. COUNTERPARTS. This Amendment be executed in any number of counterparts, each of which shall be an original with the same effect as if the signatures thereto and hereto were upon the same instrument. 6. ENTIRE AGREEMENT. This Amendment, together with the Securities Purchase Agreement, the Debt Registration Rights Agreement and the Escrow Agreement, and the exhibits and schedules thereto, is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein or therein. This Amendment, together with the Securities Purchase Agreement, the Debt Registration Rights Agreement and the Escrow Agreement, and the exhibits and schedules thereto, supersede all prior agreements and understandings between the parties with respect to such subject matter. Except to the extent specifically set forth herein, the Securities Purchase Agreement, the Debt Registration Rights Agreement and the Escrow Agreement, shall remain in full force and effect and shall not be deemed amended or superseded in any respect. 7. INCORPORATION BY REFERENCE. Sections 9.01, 9.02, 9.07, 9.09 and 9.10 of the Securities Purchase Agreement are incorporated herein by reference as if included herein. [Signature Pages Follow] IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers, as of the date first above written. TRUE TEMPER CORPORATION By:/s/FRED H. GEYER Name:Fred H. Geyer Title: EMHART, INC. By:/s/CHARLES E. FENTON Name: Charles E. Fenton Title: Vice President SNOGA, INC., as Escrow Agent By:/s/CAMERAN FLEMING Name:Cameran Fleming Title: EX-99.B 12 EX-99(B) AMENDMENT 2 AMENDMENT NUMBER 2 This AMENDMENT NUMBER 2 (this "Amendment") to the SECURITIES PURCHASE AGREEMENT dated as of September 30, 1998 among between True Temper Corporation and the Purchaser (the "Securities Purchase Agreement"), the Debt Registration Rights Agreement dated as of September 30, 1998 among True Temper Corporation and the Purchaser (the "Debt Registration Rights Agreement") and the Escrow Agreement dated as of September 30, 1998 among True Temper Corporation, the Purchaser and Snoga, Inc. (the "Escrow Agreement"), each as amended by Amendment Number 1 thereto, dated as of September 29, 1999 ("Amendment Number 1") is dated as of October 19, 1999. Capitalized terms used herein and not otherwise defined have the meanings ascribed to such terms in the Securities Purchase Agreement. The parties wish to amend the Securities Purchase Agreement, the Debt Registration Rights Agreement and the Escrow Agreement, each as amended by Amendment Number 1, and hereto agree as follows: 1. FEES. Section 2.03(b) of the Securities Purchase Agreement, as amended by Amendment Number 1, is hereby amended by deleting therein the words "October 31, 1999" in their entirety and replacing them with "June 30, 2000" so that Section 2.03(b) of the Securities Purchase Agreement is restated as follows: "(b) On June 30, 2000, the Company shall pay the Purchaser the Extension Fee." 2. INTEREST. (a) Section 2.05(c) of the Securities Purchase Agreement, as amended by Amendment Number 1, is hereby amended by deleting such Section in its entirety and replacing it with the following so that Section 2.05(c) of the Securities Purchase Agreement is restated as follows: "(c) (1) The interest rate applicable to each Note for the period commencing on October 1, 1999 and ending on December 31, 1999, shall be a floating rate per annum equal to the sum of (A) the Prime Rate in effect from time to time plus (B) 4.00%; PROVIDED, that if the principal amount of, and accrued and unpaid interest, if any, on such Note is not paid in full as of or prior to December 31, 1999, then the interest rate applicable to each Note for such period shall be a floating rate per annum equal to greatest of (i) the sum of (A) the Prime Rate in effect from time to time plus (B) 4.00%, (ii) the sum of (A) the Treasury Rate plus (B) 7.00% and (iii) the sum of (A) the DLJ High Yield Composite Index plus (B) 3.00%. (2) The interest rate applicable to each Note for the period commencing on January 1, 2000 and ending on March 31, 2000, shall be a floating rate per annum equal to the sum of (A) the Prime Rate in effect from time to time plus (B) 4.50%; PROVIDED, that if the principal amount of, and accrued and unpaid interest, if any, on such Note is not paid in full as of or prior to March 31, 2000, then the interest rate applicable to each Note for such period shall be 17.00%. (3) The interest rate applicable to each Note for the period commencing on April 1, 2000 and ending on June 30, 2000, shall be a floating rate per annum equal to the sum of (A) the Prime Rate in effect from time to time plus (B) 5.00%; PROVIDED, that if the principal amount of, and accrued and unpaid interest, if any, on such Note is not paid in full as of or prior to June 30, 2000, then the interest rate applicable to each Note for such period shall be 17.00%. (4) If the principal amount of, and accrued and unpaid interest, if any, on any Note is not paid in full as of or prior to June 30, 2000, then such Note shall accrete an additional amount of interest equal to the difference between (A) the amount of interest which would have accrued on such Note had the interest rate applicable to such Note for the period commencing on October 1, 1999 and ending on June 30, 2000 been equal to 17.00% and (B) the amount of interest actually accrued on such Note. (5) The interest rate applicable to each Note commencing on June 30, 2000 shall be a floating rate per annum equal to greatest of (i) the sum of (A) the Prime Rate in effect from time to time plus (B) 4.00%, (ii) the sum of (A) the Treasury Rate plus (B) 7.00%, (iii) the sum of (A) the DLJ High Yield Composite Index plus (B) 3.00%, and (iv) the sum of (A) the interest rate applicable to such Note on the day immediately preceding June 30, 2000 plus (B) .50%, in each case, increasing by .50% on each Interest Payment Date thereafter until the date the principal amount of, and accrued and unpaid interest on, if any, such Note is paid in full." (b) Section 2.05(d) of the Securities Purchase Agreement, as amended by Amendment Number 1, is hereby amended by deleting therein each occurrence of the words "Ocotber 31, 1999" in their entirety and replacing them with "June 30, 2000" so that Section 2.05(d) of the Securities Purchase Agreement is restated as follows: "(d) In addition to any adjustments to the Interest Rate set forth in subsections (b) and (c) of this Section 2.05, if, pursuant to the terms of the Debt Registration Rights Agreement, a Shelf Registration with respect to the Notes either (i) has not been filed with the Commission on or prior to the 90th day following June 30, 2000 or (ii) has not been declared effective by the Commission on or prior to the 180th day following June 30, 2000, then the Company shall pay liquidated damages thereafter of $.192 per week per $1,000 principal amount of Notes outstanding until the date on which the Shelf Registration is declared effective by the Commission. Following the effectiveness of the Shelf Registration, the Company shall also pay such liquidated damages beginning on the first date on which such Shelf Registration ceases to remain effective and shall continue at such increased interest rate until such Shelf Registration is again declared effective by the Commission." (c) Section 2.05(e) of the Securities Purchase Agreement, as amended by Amendment Number 1, is hereby amended by deleting therein the words October 31, 1999" in their entirety and replacing them with "June 30, 2000" so that Section 2.05(e) of the Securities Purchase Agreement is restated as follows: "(e) The Purchaser may, on June 30, 2000, fix the interest rate on the Notes at a rate to be determined by the Purchaser in its sole discretion provided that such rate shall not exceed seventeen percent (17.00%)." 3. Shelf Registration. Section 3 of the Debt Registration Rights Agreement, as amended by Amendment Number 1, is hereby amended by deleting therein the words "October 31, 1999" in their entirety and replacing them with "June 30, 2000" so that Section 3 of the Debt Registration Rights Agreement is restated as follows: "3. SHELF REGISTRATION. The Registrants shall file, and shall use their best efforts to cause to become effective a "shelf" registration statement on any appropriate form pursuant to Rule 415 (or similar rule that may be adopted by the SEC) under the Securities Act (a "Shelf Registration") on or as soon as practicable after June 30, 2000 in order to permit registered resales of all of the Registrable Securities. Subject to the last paragraph of Section 6, the Registrants agree to use their best efforts thereafter to keep such Shelf Registration continuously effective, and to prevent the happening of any event of the kind described in Section 6(c) hereof that requires the Registrants to give notice pursuant to the last paragraph of Section 6 hereof, until such time as all the Registrable Securities covered by the Shelf Registration have been sold pursuant to such Shelf Registration or have been otherwise redeemed in full by the Company." 4. RELEASE OF WARRANTS. Section 2 of the Escrow Agreement, as amended by Amendment Number 1, is hereby amended by deleting therein each occurrence of the words "October 31, 1999" in their entirety and replacing them with "June 30, 2000" so that Section 2 of the Escrow Agreement is restated as follows (with the defined term "First Anniversary Date" now being used to refer to June 30, 2000): "2. RELEASE OF WARRANTS. (a) If Notes remain outstanding on June 30, 2000 (the "FIRST ANNIVERSARY DATE") and, so long as Notes remain outstanding, and if the Escrow Agent shall have received written notice in the form of Exhibit A hereto from the Majority Holders (as such term is defined in the Securities Purchase Agreement), then the Escrow Agent shall release Warrants on any one or more occasions in an aggregate amount not to exceed the Eligible Percentage (as defined below) (as of the date of any such notice) as shall be specified in the notice to the Escrow Agent of the amount of Warrants originally placed into escrow pursuant to this Escrow Agreement. Upon the redemption in full of the Notes, and the receipt by the Escrow Agent of written notice in the form of Exhibit B hereto from the Majority Holders, the Escrow Agent shall release Warrants remaining in escrow, to the extent that such Warrants have not been "earned" as set forth in Section 2(b) below, upon such sale or redemption to Holdings. If, upon such redemption, Warrants that have been "earned" but not released shall be released to the holders of the Notes in accordance with Section 2(b) below. (b) The "ELIGIBLE PERCENTAGE" with respect to any Warrants to be released from escrow pursuant to this Escrow Agreement on June 30, 2000 (the "FIRST ANNIVERSARY DATE") and on each date after the First Anniversary Date (each such date, including the First Anniversary Date, a "RELEASE DATE") set forth under Column A below, until the Notes have been redeemed or repurchased in full, shall be the sum of (1) the percentage set forth in Column B below and (2) the cumulative percentage of all Warrants previously "earned" pursuant to clause (1) above on each of the prior dates under Column A that have occurred and that have not been previously released pursuant to this Escrow Agreement. Each holder of Notes shall be entitled to a pro rata share of Warrants equal to the product of (a) the ratio of the aggregate principal amount of all Notes held by such holder at the time of such "earn-in" release to the aggregate principal amount of all Notes then outstanding and (b) the amount of Warrants "earned" pursuant to clauses (1) and (2) above. Once "earned," Warrants remain "earned" and the fully-vested property of the holder of Notes, as the case may be, despite any future payments or redemptions of the Notes. A B Release Date Percentage First Anniversary Date 5.0% 91 5.0% 181 10.0% 271 10.0% 361 12.5% 451 12.5% 541 15.0% 631 15.0% 721 15.0% (c) Holdings will provide, or cause to be provided, to the Escrow Agent all such information as the Escrow Agent may from time to time reasonably request." 5. COUNTERPARTS. This Amendment be executed in any number of counterparts, each of which shall be an original with the same effect as if the signatures thereto and hereto were upon the same instrument. 6. ENTIRE AGREEMENT. This Amendment, together with the Securities Purchase Agreement, the Debt Registration Rights Agreement and the Escrow Agreement, and the exhibits and schedules thereto, is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein or therein. This Amendment, together with the Securities Purchase Agreement, the Debt Registration Rights Agreement and the Escrow Agreement, and the exhibits and schedules thereto, supersede all prior agreements and understandings between the parties with respect to such subject matter. Except to the extent specifically set forth herein, the Securities Purchase Agreement, the Debt Registration Rights Agreement and the Escrow Agreement, shall remain in full force and effect and shall not be deemed amended or superseded in any respect. 7. INCORPORATION BY REFERENCE. Sections 9.01, 9.02, 9.07, 9.09 and 9.10 of the Securities Purchase Agreement are incorporated herein by reference as if included herein. [Signature Pages Follow] IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers, as of the date first above written. TRUE TEMPER CORPORATION By:/s/FRED H. GEYER Name:Fred H. Geyer Title: EMHART, INC. By:/s/CHARLES E. FENTON Name: Charles E. Fenton Title: Vice President SNOGA, INC., as Escrow Agent By:/s/CAMERAN FLEMING Name:Cameran Fleming Title: -----END PRIVACY-ENHANCED MESSAGE-----