UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2002
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 1-1553
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THE BLACK & DECKER CORPORATION
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(Exact name of registrant as specified in its charter)
Maryland 52-0248090
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
701 East Joppa Road Towson, Maryland 21286
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(Address of principal executive offices) (Zip Code)
(410) 716-3900
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address, and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. X YES NO
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The number of shares of Common Stock outstanding as of July 26, 2002: 80,540,506
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The exhibit index as required by item 601(a) of Regulation S-K is included in
this report.
-2-
THE BLACK & DECKER CORPORATION
INDEX - FORM 10-Q
June 30, 2002
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Earnings (Unaudited)
For the Three Months and Six Months Ended June 30, 2002
and July 1, 2001 3
Consolidated Balance Sheet
June 30, 2002 (Unaudited) and December 31, 2001 4
Consolidated Statement of Stockholders' Equity (Unaudited)
For the Six Months Ended June 30, 2002 and July 1, 2001 5
Consolidated Statement of Cash Flows (Unaudited)
For the Six Months Ended June 30, 2002 and July 1, 2001 6
Notes to Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk 22
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 25
-3-
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF EARNINGS (Unaudited)
The Black & Decker Corporation and Subsidiaries
(Dollars in Millions Except Per Share Amounts)
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Three Months Ended Six Months Ended
June 30, 2002 July 1, 2001 June 30, 2002 July 1, 2001
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Sales $1,125.3 $1,049.7 $2,077.0 $2,011.7
Cost of goods sold 746.8 710.2 1,391.6 1,346.6
Selling, general, and
administrative expenses 271.0 255.3 515.7 508.5
- ---------------------------------------------------------------------------------------------------------------
Operating Income 107.5 84.2 169.7 156.6
Interest expense (net of
interest income) 14.8 22.7 30.6 45.1
Other expense 2.2 1.9 3.4 4.6
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Earnings Before Income Taxes 90.5 59.6 135.7 106.9
Income taxes 24.4 17.9 36.6 32.1
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Net Earnings $ 66.1 $ 41.7 $ 99.1 $ 74.8
===============================================================================================================
Net Earnings Per Common
Share -- Basic $ .82 $ .52 $ 1.23 $ .92
===============================================================================================================
Shares Used in Computing Basic
Earnings Per Share (in Millions) 80.5 81.0 80.3 81.1
===============================================================================================================
Net Earnings Per Common
Share -- Assuming Dilution $ .81 $ .51 $ 1.23 $ .92
===============================================================================================================
Shares Used in Computing Diluted
Earnings Per Share (in Millions) 81.2 81.4 80.9 81.6
===============================================================================================================
Dividends Per Common Share $ .12 $ .12 $ .24 $ .24
===============================================================================================================
See Notes to Consolidated Financial Statements (Unaudited).
-4-
CONSOLIDATED BALANCE SHEET
The Black & Decker Corporation and Subsidiaries
(Dollars in Millions Except Per Share Amount)
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June 30, 2002
(Unaudited) December 31, 2001
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Assets
Cash and cash equivalents $ 329.9 $ 244.5
Trade receivables 814.3 708.6
Inventories 691.6 712.2
Other current assets 192.7 227.0
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Total Current Assets 2,028.5 1,892.3
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Property, Plant, and Equipment 672.1 687.5
Goodwill 715.2 710.4
Other Assets 735.5 724.0
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$4,151.3 $4,014.2
================================================================================
Liabilities and Stockholders' Equity
Short-term borrowings $ 8.1 $ 12.3
Current maturities of long-term debt 313.7 33.7
Trade accounts payable 376.7 312.7
Other accrued liabilities 708.1 711.9
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Total Current Liabilities 1,406.6 1,070.6
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Long-Term Debt 894.9 1,191.4
Deferred Income Taxes 261.7 261.1
Postretirement Benefits 229.9 238.0
Other Long-Term Liabilities 509.0 502.1
Stockholders' Equity
Common stock, par value $.50 per share 40.3 39.9
Capital in excess of par value 590.1 566.6
Retained earnings 413.0 333.2
Accumulated other comprehensive income (loss) (194.2) (188.7)
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Total Stockholders' Equity 849.2 751.0
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$4,151.3 $4,014.2
================================================================================
See Notes to Consolidated Financial Statements (Unaudited).
-5-
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)
The Black & Decker Corporation and Subsidiaries
(Dollars in Millions Except Per Share Data)
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Accumulated
Outstanding Capital in Other Com- Total
Common Par Excess of Retained prehensive Stockholders'
Shares Value Par Value Earnings Income (Loss) Equity
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Balance at December 31, 2000 80,343,094 $40.2 $560.0 $264.0 $(171.8) $692.4
Comprehensive income:
Net earnings -- -- -- 74.8 -- 74.8
Cumulative effect of accounting
change (net of tax) -- -- -- -- (.7) (.7)
Net gain on derivative
instruments (net of tax) -- -- -- -- 6.1 6.1
Foreign currency translation
adjustments, less effect of
hedging activities (net of tax) -- -- -- -- (26.6) (26.6)
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Comprehensive income -- -- -- 74.8 (21.2) 53.6
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Cash dividends ($.24 per share) -- -- -- (19.5) -- (19.5)
Common stock retired under
equity forwards (765,326) (.4) -- -- -- (.4)
Common stock issued under
employee benefit plans 1,191,227 .6 26.3 -- -- 26.9
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Balance at July 1, 2001 80,768,995 $40.4 $586.3 $319.3 $(193.0) $753.0
=====================================================================================================================
Balance at December 31, 2001 79,829,641 $39.9 $566.6 $333.2 $(188.7) $751.0
Comprehensive income:
Net earnings -- -- -- 99.1 -- 99.1
Net loss on derivative
instruments (net of tax) -- -- -- -- (9.2) (9.2)
Foreign currency translation
adjustments, less effect of
hedging activities (net of tax) -- -- -- -- 3.7 3.7
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Comprehensive income -- -- -- 99.1 (5.5) 93.6
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Cash dividends ($.24 per share) -- -- -- (19.3) -- (19.3)
Common stock issued under
employee benefit plans 709,840 .4 23.5 -- -- 23.9
- ---------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2002 80,539,481 $40.3 $590.1 $413.0 $(194.2) $849.2
=====================================================================================================================
See Notes to Consolidated Financial Statements (Unaudited).
-6-
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
The Black & Decker Corporation and Subsidiaries
(Dollars in Millions)
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Six Months Ended
June 30, 2002 July 1, 2001
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Operating Activities
Net earnings $ 99.1 $ 74.8
Adjustments to reconcile net earnings to cash
flow from operating activities:
Non-cash charges and credits:
Depreciation and amortization 64.8 84.4
Other 1.6 (.9)
Changes in selected working capital items:
Trade receivables (95.3) 4.2
Inventories 28.5 37.7
Trade accounts payable 61.9 (23.2)
Restructuring spending (14.5) (12.1)
Other assets and liabilities 16.5 (171.5)
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Cash Flow From Operating Activities 162.6 (6.6)
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Investing Activities
Purchase of business -- (30.5)
Proceeds from disposal of assets 3.7 7.9
Capital expenditures (48.9) (69.4)
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Cash Flow From Investing Activities (45.2) (92.0)
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Cash Flow Before Financing Activities 117.4 (98.6)
Financing Activities
Net decrease in short-term borrowings (4.1) (224.1)
Proceeds from long-term debt (net of
debt issue costs of $2.7) -- 394.2
Payments on long-term debt (30.5) (40.2)
Purchase of common stock -- (25.5)
Issuance of common stock 18.6 23.5
Cash dividends (19.3) (19.5)
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Cash Flow From Financing Activities (35.3) 108.4
Effect of exchange rate changes on cash 3.3 (1.9)
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Increase In Cash And Cash Equivalents 85.4 7.9
Cash and cash equivalents at beginning of period 244.5 135.0
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Cash And Cash Equivalents At End Of Period $329.9 $ 142.9
================================================================================
See Notes to Consolidated Financial Statements (Unaudited).
-7-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The Black & Decker Corporation and Subsidiaries
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of The Black &
Decker Corporation (collectively with its subsidiaries, the Corporation) have
been prepared in accordance with the instructions to Form 10-Q and do not
include all the information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, the
unaudited consolidated financial statements include all adjustments, consisting
only of normal recurring accruals, considered necessary for a fair presentation
of the financial position and the results of operations.
Operating results for the three- and six-month periods ended June 30, 2002,
are not necessarily indicative of the results that may be expected for a full
fiscal year. For further information, refer to the consolidated financial
statements and notes included in the Corporation's Annual Report on Form 10-K
for the year ended December 31, 2001.
Certain amounts presented for the three and six months ended July 1, 2001,
have been reclassified to conform to the 2002 presentation.
Statement of Financial Accounting Standards (SFAS) No. 130, Reporting
Comprehensive Income, requires that, as part of a full set of financial
statements, entities must present comprehensive income, which is the sum of net
income and other comprehensive income. Other comprehensive income represents
total non-stockholder changes in equity. For the six months ended June 30, 2002,
and July 1, 2001, the Corporation has presented comprehensive income in the
accompanying Consolidated Statement of Stockholders' Equity. Comprehensive
income for the three months ended June 30, 2002, and July 1, 2001, was $80.3
million and $20.1 million, respectively.
In July 2002, the Financial Accounting Standards Board issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146
addresses the financial accounting and reporting for certain costs associated
with exit or disposal activities, including restructuring actions. SFAS No. 146
excludes from its scope severance benefits that are subject to an on-going
benefit arrangement governed by SFAS No. 112, Employer's Accounting for
Postemployment Benefits, and asset impairments governed by SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 146 is
effective for exit or disposal activities initiated after December 31, 2002.
The Corporation has not determined the effect that the adoption of SFAS No.
146, effective January 1, 2003, will have on its earnings or financial position.
However, the impact of SFAS No. 146 on the Corporation will likely be mitigated
as prior restructuring charges recognized by the Corporation have principally
consisted of severance benefits that are subject to an on-going benefit
arrangement and asset impairments.
-8-
NOTE 2: CHANGES IN ACCOUNTING PRINCIPLE
Effective January 1, 2002, the Corporation adopted Emerging Issues Task Force
Issue No. 01-9, Accounting for Consideration Given by a Vendor to a Customer or
a Reseller of the Vendor's Products (EITF 01-9). Upon adoption of EITF 01-9, the
Corporation was required to classify certain payments to its customers as a
reduction of sales. The Corporation previously classified certain of these
payments as selling expenses in its Consolidated Statement of Earnings. Upon the
adoption of EITF 01-9, prior period amounts were restated and resulted in a
reduction of sales (and an offsetting reduction of selling expenses) of $20.7
million and $37.7 million for the three- and six-month periods ended July 1,
2001, respectively.
Effective January 1, 2002, the Corporation adopted Statement of Financial
Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. SFAS
No. 142 requires that its provisions be applied on a prospective basis. Under
SFAS No. 142, goodwill and intangible assets deemed to have indefinite lives are
no longer amortized, but are subject to an annual impairment test. Other
intangible assets continue to be amortized over their useful lives. As of
January 1, 2002, the Corporation performed the first of the required impairment
tests of goodwill. At that date, goodwill associated with the Corporation's
reportable business segments was $29.4 million for Power Tools and Accessories,
$423.2 million for Hardware and Home Improvement, and $257.8 million for
Fastening and Assembly Systems. No impairment was present upon adoption of SFAS
No. 142. The Corporation cannot predict the occurrence of certain events that
might adversely affect the reported value of goodwill. Such events may include,
but are not limited to, strategic decisions made in response to economic and
competitive conditions, the impact of the economic environment on the
Corporation's customer base, or a material negative change in its relationships
with significant customers.
The Corporation recognized goodwill amortization of $6.6 million and $13.2
million during the three- and six-month periods ended July 1, 2001,
respectively. Net earnings for the three and six months ended July 1, 2001,
excluding goodwill amortization, would have been $48.3 million and $88.0
million, respectively. Basic earnings per share for the three and six months
ended July 1, 2001, would have been $.60 and $1.09, respectively, excluding
goodwill amortization. Diluted earnings per share for the three and six months
ended July 1, 2001, would have been $.59 and $1.08, respectively, excluding
goodwill amortization.
NOTE 3: INVENTORIES
The classification of inventories at the end of each period, in millions of
dollars, was as follows:
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June 30, 2002 December 31, 2001
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FIFO cost
Raw materials and work-in-process $187.3 $192.9
Finished products 510.0 527.0
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697.3 719.9
Excess of FIFO cost over LIFO inventory value (5.7) (7.7)
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$691.6 $712.2
================================================================================
Inventories are stated at the lower of cost or market. The cost of United
States inventories is based primarily on the last-in, first-out (LIFO) method;
all other inventories are based on the first-in, first-out (FIFO) method.
-9-
NOTE 4: SHORT-TERM BORROWINGS
In April 2002, the Corporation entered into a $250 million 364-day unsecured
revolving credit facility (the Credit Facility) replacing its expiring $400
million 364-day unsecured revolving credit facility. The Corporation reduced the
borrowing availability under the Credit Facility based upon its anticipated
short-term financing needs. The Credit Facility provides for annual renewals
upon request by the Corporation and approval by the lending banks. The terms of
the Credit Facility remained unchanged from the expiring 364-day unsecured
revolving credit facility. The terms of that facility and the Corporation's $1.0
billion unsecured revolving credit facility that expires in April 2006 are more
fully disclosed in Note 6 of Notes to Consolidated Financial Statements included
in Item 8 of the Corporation's Annual Report on Form 10-K for the year ended
December 31, 2001.
NOTE 5: LONG-TERM DEBT
Indebtedness of subsidiaries of the Corporation in the aggregate principal
amounts of $311.2 million and $314.4 million was included in the Consolidated
Balance Sheet at June 30, 2002, and December 31, 2001, respectively, in
short-term borrowings, current maturities of long-term debt, and long-term debt.
NOTE 6: INTEREST EXPENSE (NET OF INTEREST INCOME)
Interest expense (net of interest income) for each period, in millions of
dollars, was as follows:
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Three Months Ended Six Months Ended
June 30, 2002 July 1, 2001 June 30, 2002 July 1, 2001
- --------------------------------------------------------------------------------
Interest expense $21.3 $31.5 $43.0 $66.1
Interest (income) (6.5) (8.8) (12.4) (21.0)
- --------------------------------------------------------------------------------
$14.8 $22.7 $30.6 $45.1
================================================================================
-10-
NOTE 7: BUSINESS SEGMENTS
The following table provides selected financial data for the Corporation's
business segments (in millions of dollars):
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Reportable Business Segments
------------------------------------------------
Power Hardware Fastening Currency Corporate,
Tools & & Home & Assembly Translation Adjustments,
Three Months Ended June 30, 2002 Accessories Improvement Systems Total Adjustments & Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 802.5 $194.6 $129.8 $1,126.9 $ (1.6) $ - $1,125.3
Segment profit (loss) (for
Consolidated, operating income) 93.9 6.7 18.5 119.1 .1 (11.7) 107.5
Depreciation and amortization 18.2 8.2 3.5 29.9 - .7 30.6
Capital expenditures 20.1 2.7 3.7 26.5 .2 .1 26.8
Three Months Ended July 1, 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 745.8 $187.6 $124.0 $1,057.4 $ (7.7) $ - $1,049.7
Segment profit (loss) (for
Consolidated, operating income) 54.5 8.4 20.3 83.2 (.1) 1.1 84.2
Depreciation and amortization 22.0 8.8 3.8 34.6 (.1) 6.6 41.1
Capital expenditures 19.2 8.2 3.1 30.5 (.1) .2 30.6
Six Months Ended June 30, 2002
- ------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $1,442.3 $393.4 $252.8 $2,088.5 $(11.5) $ - $2,077.0
Segment profit (loss) (for
Consolidated, operating income) 132.3 22.1 34.3 188.7 (.6) (18.4) 169.7
Depreciation and amortization 39.5 17.4 7.0 63.9 (.1) 1.0 64.8
Capital expenditures 35.1 6.1 7.3 48.5 .1 .3 48.9
Six Months Ended July 1, 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $1,380.3 $384.7 $244.0 $2,009.0 $ 2.7 $ - $2,011.7
Segment profit (loss) (for
Consolidated, operating income) 89.6 25.9 39.3 154.8 .6 1.2 156.6
Depreciation and amortization 44.6 18.8 7.4 70.8 .5 13.1 84.4
Capital expenditures 44.5 17.6 6.1 68.2 .5 .7 69.4
The Corporation operates in three reportable business segments: Power Tools
and Accessories, Hardware and Home Improvement, and Fastening and Assembly
Systems. The Power Tools and Accessories segment has worldwide responsibility
for the manufacture and sale of consumer and professional power tools and
accessories, electric cleaning and lighting products, and electric lawn and
garden tools, as well as for product service. In addition, the Power Tools and
Accessories segment has responsibility for the sale of security hardware to
customers in Mexico, Central America, the Caribbean, and South America; for the
sale of plumbing products to customers outside the United States and Canada; and
for sales of household products. The Hardware and Home Improvement segment has
worldwide responsibility for the manufacture and sale of security hardware
(except for the sale of security hardware in Mexico, Central America, the
Caribbean, and South America). It also has responsibility for the manufacture of
plumbing products and for the sale of plumbing products to customers in the
United States and Canada. The Fastening and Assembly Systems segment has
worldwide responsibility for the manufacture and sale of fastening and assembly
systems.
-11-
The Corporation assesses the performance of its reportable business
segments based upon a number of factors, including segment profit. In general,
segments follow the same accounting policies as those described in Note 1 of
Notes to Consolidated Financial Statements included in Item 8 of the
Corporation's Annual Report on Form 10-K for the year ended December 31, 2001,
except with respect to foreign currency translation and except as further
indicated below. The financial statements of a segment's operating units located
outside of the United States, except those units operating in highly
inflationary economies, are generally measured using the local currency as the
functional currency. For these units located outside of the United States,
segment assets and elements of segment profit are translated using budgeted
rates of exchange. Budgeted rates of exchange are established annually and, once
established, all prior period segment data is restated to reflect the current
year's budgeted rates of exchange. The amounts included in the preceding table
under the captions "Reportable Business Segments" and "Corporate, Adjustments, &
Eliminations" are reflected at the Corporation's budgeted rates of exchange for
2002. The amounts included in the preceding table under the caption "Currency
Translation Adjustments" represent the difference between consolidated amounts
determined using those budgeted rates of exchange and those determined based
upon the rates of exchange applicable under accounting principles generally
accepted in the United States.
Segment profit excludes interest income and expense, non-operating income
and expense, adjustments to eliminate intercompany profit in inventory, income
tax expense, and, for 2001, goodwill amortization (except for the amortization
of goodwill associated with certain acquisitions made by the Power Tools and
Accessories and Fastening and Assembly Systems segments). In addition, segment
profit excludes restructuring and exit costs. In determining segment profit,
expenses relating to pension and other postretirement benefits are based solely
upon estimated service costs. Corporate expenses, as well as certain centrally
managed expenses, are allocated to each reportable segment based upon budgeted
amounts. While sales and transfers between segments are accounted for at cost
plus a reasonable profit, the effects of intersegment sales are excluded from
the computation of segment profit. Intercompany profit in inventory is excluded
from segment assets and is recognized as a reduction of cost of goods sold by
the selling segment when the related inventory is sold to an unaffiliated
customer. Because the Corporation compensates the management of its various
businesses on, among other factors, segment profit, the Corporation may elect to
record certain segment-related expense items of an unusual or non-recurring
nature in consolidation rather than reflect such items in segment profit. In
addition, certain segment-related items of income or expense may be recorded in
consolidation in one period and transferred to the various segments in a later
period.
-12-
The reconciliation of segment profit to the Corporation's earnings before
income taxes, in millions of dollars, is as follows:
- -----------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, 2002 July 1, 2001 June 30, 2002 July 1, 2001
- -----------------------------------------------------------------------------------------------------------------------------
Segment profit for total reportable business segments $119.1 $83.2 $188.7 $154.8
Items excluded from segment profit:
Adjustment of budgeted foreign exchange rates
to actual rates .1 (.1) (.6) .6
Depreciation of Corporate property and, for 2001,
amortization of certain goodwill (.7) (6.6) (1.0) (13.1)
Adjustment to businesses' postretirement benefit
expenses booked in consolidation 8.7 9.9 19.0 20.9
Other adjustments booked in consolidation directly
related to reportable business segments 3.2 .7 (1.5) 5.3
Amounts allocated to businesses in arriving at segment
profit in excess of (less than) Corporate center operating
expenses, eliminations, and other amounts
identified above (22.9) (2.9) (34.9) (11.9)
- -----------------------------------------------------------------------------------------------------------------------------
Operating income 107.5 84.2 169.7 156.6
Interest expense, net of interest income 14.8 22.7 30.6 45.1
Other expense 2.2 1.9 3.4 4.6
- -----------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes $ 90.5 $59.6 $135.7 $106.9
=============================================================================================================================
NOTE 8: EARNINGS PER SHARE
The computations of basic and diluted earnings per share for each period are as
follows:
- -------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
(Amounts in Millions Except Per Share Data) June 30, 2002 July 1, 2001 June 30, 2002 July 1, 2001
- -------------------------------------------------------------------------------------------------------------
Numerator:
Net earnings $66.1 $41.7 $99.1 $74.8
=============================================================================================================
Denominator:
Denominator for basic earnings per share
- weighted-average shares 80.5 81.0 80.3 81.1
Employee stock options and stock issuable
under employee benefit plans .7 .4 .6 .5
- -------------------------------------------------------------------------------------------------------------
Denominator for diluted earnings per share
- adjusted weighted-average shares and
assumed conversions 81.2 81.4 80.9 81.6
=============================================================================================================
Basic earnings per share $ .82 $ .52 $1.23 $ .92
=============================================================================================================
Diluted earnings per share $ .81 $ .51 $1.23 $ .92
=============================================================================================================
As of June 30, 2002, approximately 3.9 million options to purchase shares
of common stock, with a weighted-average exercise price of $50.77, were
outstanding, but were not included in the computation of diluted earnings per
share because the effect would be anti-dilutive. These options were
anti-dilutive because the related exercise price was greater than the average
market price of the common shares during the quarter.
-13-
NOTE 9: RESTRUCTURING ACTIVITY
As more fully disclosed in Note 18 of Notes to Consolidated Financial Statements
included in Item 8 of the Corporation's Annual Report on Form 10-K for the year
ended December 31, 2001, the Corporation recorded a restructuring charge of
$99.8 million during 2001. A summary of restructuring activity during the
six-month period ended June 30, 2002, is as follows (in millions of dollars):
- -----------------------------------------------------------------------------------------------------------------------
Reserves at Reserves Utilization of Reserves Foreign Reserves at
December 31, Established Reversal of ----------------------- Currency June 30,
2001 In 2002 Reserves Cash Non-Cash Translation 2002
- -----------------------------------------------------------------------------------------------------------------------
Severance benefits $53.7 $1.6 $ (.5) $(12.1) $ - $.8 $43.5
Write-down to net
realizable value of
certain equipment - - (1.4) - 1.4 - -
Other charges 13.7 1.0 (.7) (2.4) - - 11.6
- -----------------------------------------------------------------------------------------------------------------------
Total $67.4 $2.6 $(2.6) $(14.5) $1.4 $.8 $55.1
=======================================================================================================================
During the six months ended June 30, 2002, the Corporation recognized $2.6
million of additional pre-tax restructuring and exit costs associated with the
restructuring of its Power Tools and Accessories and its Hardware and Home
Improvement segments in Europe. The restructuring actions taken in 2002
principally reflect the reduction of approximately 60 manufacturing and
administrative positions and lease termination costs. The $2.6 million charge
was offset, however, by the reversal of $2.6 million of asset impairment
charges, severance accruals and other exit costs established as part of the 2001
restructuring charge, which will no longer be required.
NOTE 10: LITIGATION AND CONTINGENT LIABILITIES
As more fully disclosed in Note 19 of Notes to Consolidated Financial Statements
included in Item 8 of the Corporation's Annual Report on Form 10-K for the year
ended December 31, 2001, the Corporation is involved in various lawsuits in the
ordinary course of business. These lawsuits involve claims for damages arising
out of the use of the Corporation's products, allegations of patent and
trademark infringement, and litigation and administrative proceedings relating
to employment matters and commercial disputes. In addition, the Corporation is
involved in lawsuits and administrative proceedings with respect to claims
involving the discharge of hazardous substances into the environment.
The Corporation's estimate of the costs associated with legal, product
liability, and environmental exposures is accrued if, in management's judgment,
the likelihood of a loss is probable. These accrued liabilities are not
discounted.
As of June 30, 2002, the Corporation had no known probable but inestimable
exposures that are expected to have a material adverse effect on the
Corporation.
-14-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Corporation reported net earnings of $66.1 million, or $.81 per share on a
diluted basis, for the three-month period ended June 30, 2002, compared to net
earnings of $41.7 million, or $.51 per share on a diluted basis, for the
three-month period ended July 1, 2001. Net earnings for the three-month period
ended July 1, 2001, would have been $48.3 million, or $.59 per share on a
diluted basis, using the new accounting standard for goodwill.
For the six months ended June 30, 2002, the Corporation reported net
earnings of $99.1 million, or $1.23 per share on a diluted basis, compared to
net earnings of $74.8 million, or $.92 per share on a diluted basis, for the
six-month period ended July 1, 2001. Net earnings for the six-month period ended
July 1, 2001, would have been $88.0 million, or $1.08 per share on a diluted
basis, using the new accounting standard for goodwill.
In the discussion and analysis of financial condition and results of
operations that follows, the Corporation generally attempts to list contributing
factors in order of significance to the point being addressed.
RESULTS OF OPERATIONS
SALES
The following chart sets forth an analysis of the consolidated changes in sales
for the three- and six-month periods ended June 30, 2002, and July 1, 2001:
ANALYSIS OF CHANGES IN SALES
- ------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
(Dollars in Millions) June 30, 2002 July 1, 2001 June 30, 2002 July 1, 2001
- ------------------------------------------------------------------------------------------------------------
Total sales $1,125.3 $1,049.7 $2,077.0 $2,011.7
- ------------------------------------------------------------------------------------------------------------
Unit volume 8 % - % 5 % - %
Price (1)% (2)% (1)% (2)%
Currency - % (3)% (1)% (3)%
- ------------------------------------------------------------------------------------------------------------
Change in total sales 7 % (5)% 3 % (5)%
============================================================================================================
Total consolidated sales for the three and six months ended June 30, 2002,
increased by 7% and 3%, respectively, over the corresponding 2001 levels, as
unit volume growth more than offset negative pricing and, for the six-month
period, negative currency effects. Growth in unit volume during the three- and
six-month periods ended June 30, 2002, caused an 8% and 5% increase,
respectively, in sales as compared to the same periods in 2001. The increase in
both the three- and six-month periods was primarily attributable to higher sales
volumes in both the power tools and accessories and security hardware businesses
in North America and the incremental sales of a business acquired by the
Fastening and Assembly Systems segment in April 2001. Those increases were
partially offset by volume reductions in the plumbing products business and, for
the first half of 2002, by volume reductions in the European power tools and
accessories business. Volume reductions in the first half of 2002 in the
European power tools and accessories business resulted from declines in the
first quarter that exceeded a slight volume increase in the second quarter.
Sales
-15-
volume in the North American power tools and accessories business increased for
the three months ended June 30, 2002, over the corresponding 2001 period due
primarily to successful promotions for consumer and professional power tools,
including rebate programs, a shift in order patterns for lawn and garden
products from the first to the second quarter, and incremental sales of new
professional power tools categories which the business entered in 2001. North
American security hardware sales volume increased for the three- and six-month
periods ended June 30, 2002, as a result of the brand and product repositioning
that was introduced in home centers in late 2001 and in other retailers in 2002.
European power tools and accessories sales continued to be affected by weak
economic conditions, particularly in Germany. Pricing actions had a 1% negative
effect on sales for both the three- and six-month periods ended June 30, 2002,
as compared to the corresponding periods in 2001. Pricing actions had a 2%
negative effect on sales during the three- and six-month periods ended July 1,
2001, as the Corporation took actions to reduce its inventory levels as well as
in response to customer and competitive pressures. The effects of foreign
currency translation had no material impact on sales for the three months ended
June 30, 2002, as compared to the corresponding 2001 period. The negative
effects of a stronger dollar compared to other foreign currencies, particularly
the Brazilian real, the Japanese yen, and, during the first quarter of 2002, the
euro, caused a 1% decrease in the Corporation's consolidated sales during the
six-month period ended June 30, 2002, as compared to the corresponding period in
2001.
EARNINGS
Operating income for the three months ended June 30, 2002, was $107.5 million,
or 9.6% of sales, compared to operating income of $84.2 million, or 8.0% of
sales, for the corresponding period in 2001. Operating income for the six months
ended June 30, 2002, was $169.7 million, or 8.2% of sales, compared to operating
income of $156.6 million, or 7.8% of sales, for the corresponding period in
2001. Operating income for the three and six months ended July 1, 2001, would
have been $90.8 million, or 8.7% of sales, and $169.8 million, or 8.4% of sales,
respectively, excluding goodwill amortization.
Gross margin as a percentage of sales was 33.6% and 32.3% for the
three-month periods ended June 30, 2002, and July 1, 2001, respectively, and was
33.0% and 33.1% for the six-month periods ended June 30, 2002, and July 1, 2001,
respectively. The increase in gross margin as a percentage of sales for the
three-month period ended June 30, 2002, as compared to the corresponding period
in 2001, was principally the result of higher production levels in the Power
Tools and Accessories segment as that business returned to more normalized
production levels in 2002 compared to the lower levels experienced in 2001 as a
result of actions to reduce inventory levels. Those higher production levels in
the Power Tools and Accessories segment in the three- and six-month periods
ended June 30, 2002, compared to the corresponding periods in 2001, were
partially offset by lower production levels in the Hardware and Home Improvement
segment. The lower production levels in the Hardware and Home Improvement
segment in the three and six months ended June 30, 2002, were in order to reduce
inventory levels and in response to lower sales in the European security
hardware business.
Selling, general, and administrative expenses as a percentage of sales were
24.1% and 24.8% for the three and six months ended June 30, 2002, respectively.
Selling, general, and administrative expenses as a percentage of sales for the
three- and six-month periods ended July 1, 2001, would have been 23.7% and
24.6%, respectively, using the new accounting standard for goodwill. Excluding
goodwill amortization recognized in 2001, selling, general, and administrative
expenses increased by $22.3 million for the three months ended June 30, 2002,
-16-
and $20.4 million for the six months ended June 30, 2002, as compared to the
corresponding periods in 2001, as the Corporation increased its reserves for
certain environmental remediation matters, recognized greater employee-related
expenses, and incurred additional transportation and distribution costs as a
result of the higher sales levels in 2002.
As of June 30, 2002, the Corporation's aggregate probable exposure with
respect to environmental liabilities, for which accruals have been established
in the Consolidated Financial Statements, was $35.7 million.
Net interest expense (interest expense less interest income) for the three
months ended June 30, 2002, was $14.8 million compared to net interest expense
of $22.7 million for the three months ended July 1, 2001. Net interest expense
was $30.6 million for the six months ended June 30, 2002, compared to net
interest expense of $45.1 million for the corresponding period in 2001. The
decrease in net interest expense for the three- and six-month periods ended June
30, 2002, as compared to the corresponding periods in 2001, was primarily the
result of lower interest rates and lower borrowing levels.
Other expense was $2.2 million and $3.4 million for the three and six
months ended June 30, 2002, respectively, compared to $1.9 million and $4.6
million for the corresponding periods in 2001.
The Corporation's effective tax rate for the three- and six-month periods
ended June 30, 2002, was 27.0%, compared to an effective tax rate of 30.0% for
the three- and six-month periods ended July 1, 2001. The reduction in the
effective tax rates during 2002 is attributable to the amortization of
non-deductible goodwill in the 2001 periods.
The Corporation reported net earnings of $66.1 million, or $.81 per share
on a diluted basis, for the three-month period ended June 30, 2002, compared to
net earnings of $41.7 million, or $.51 per share on a diluted basis, for the
three-month period ended July 1, 2001. The Corporation reported net earnings of
$99.1 million, or $1.23 per share on a diluted basis, for the six months ended
June 30, 2002, compared to $74.8 million, or $.92 per share on a diluted basis,
for the corresponding period in 2001. Net earnings for the three- and six-month
periods ended July 1, 2001, would have been $48.3 million, or $.59 per share on
a diluted basis, and $88.0 million, or $1.08 per share on a diluted basis,
respectively, using the new accounting standard for goodwill.
BUSINESS SEGMENTS
As more fully described in Note 7 of Notes to Consolidated Financial Statements,
the Corporation operates in three reportable business segments: Power Tools and
Accessories, Hardware and Home Improvement, and Fastening and Assembly Systems.
Power Tools and Accessories
Segment sales and profit for the Power Tools and Accessories segment, determined
on the basis described in Note 7 of Notes to Consolidated Financial Statements,
were as follows (in millions of dollars):
- -----------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, 2002 July 1, 2001 June 30, 2002 July 1, 2001
- -----------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $802.5 $745.8 $1,442.3 $1,380.3
Segment profit 93.9 54.5 132.3 89.6
- -----------------------------------------------------------------------------------------------------------
-17-
Sales to unaffiliated customers in the Power Tools and Accessories segment
during the second quarter of 2002 increased 8% over the 2001 level.
Sales of power tools and accessories in North America increased at a
double-digit rate in the second quarter of 2002 over the corresponding period in
2001 reflecting a double-digit rate of growth in sales of consumer power tools
and accessories and a mid-single-digit rate of growth in sales of professional
power tools and accessories. Sales of consumer power tools and accessories
increased in most product categories during the quarter and benefited from
successful promotions for consumer tools, including cash rebates on selected
tools, and a shift in lawn and garden product orders from the first quarter to
the second quarter. Sales of professional power tools increased due to
incremental sales of product categories introduced in 2001 as well as to the
impact of certain promotional activity, including a product rebate program.
Sales in Europe decreased slightly in the second quarter of 2002 from the
corresponding period in 2001, as a high single-digit rate of growth in sales of
professional power tools was more than offset by a decline in sales of consumer
products. Lower sales in the United Kingdom and Germany were partially offset by
higher sales in most other European countries. The sales declines in the United
Kingdom and Germany were mainly driven by lower sales of consumer products, due
to the exit of the lawnmower product line in the United Kingdom and to the high
level of private label Asian-sourced inventory held by retailers.
Sales in other geographic areas increased at a mid-single-digit rate for
the second quarter of 2002 over the prior year level. Sales of consumer power
tools and accessories increased at a high single-digit rate, while sales of
professional power tools increased slightly compared to the previous year's
second quarter.
Segment profit as a percentage of sales for the Power Tools and Accessories
segment was 11.7% for the three-month period ended June 30, 2002, compared to
7.3% for the corresponding 2001 period. The increase in segment profit as a
percentage of sales during the second quarter of 2002 was driven both by higher
gross margins and by lower selling, general, and administrative expenses as a
percentage of sales. The higher gross margins principally resulted from a return
to more normalized production levels in 2002 as compared to the lower levels
experienced in the corresponding period in 2001 as a result of actions to reduce
inventory levels. Gross margins in 2001 were also depressed by price reductions
taken by the business in order to reduce inventory levels. The higher gross
margins in the second quarter of 2002 were realized despite the business's
provision in that period for expected costs associated with an upcoming product
recall. Segment profit as a percentage of sales during the second quarter of
2002 also increased due to the leverage of selling, general, and administrative
expenses over the higher sales volume and to cost reduction initiatives.
Sales to unaffiliated customers in the Power Tools and Accessories segment
during the six months ended June 30, 2002, increased 4% over the 2001 level.
During the first six months of 2002, sales of power tools and accessories
in North America increased at a high single-digit rate over the same period in
2001 as sales of professional power tools and accessories grew at a high
single-digit rate and sales of consumer power tools and accessories rose at a
low double-digit rate. Consumer power tools experienced double-digit rates of
growth in sales of its power tools, outdoor products, and home products lines.
Sales in Europe during the first six months of 2002 decreased at a low
single-digit rate from the 2001 level as a mid-single-digit rate of increase in
professional power tools and accessories was offset by a high single-digit rate
of decrease in consumer power tools and accessories.
-18-
Decreases in sales in the United Kingdom and Germany were partially offset by
increases in sales in most other European countries.
Sales in other geographic areas increased at a low single-digit rate in the
first six months of 2002 over the 2001 level as sales of professional power
tools and accessories increased at a mid-single-digit rate and sales of consumer
power tools and accessories increased at a low single-digit rate.
Segment profit as a percentage of sales for the Power Tools and Accessories
segment was 9.2% for the first six months of 2002 as compared to 6.5% for the
corresponding period in 2001. The principal factors that contributed to this
improvement also were the primary factors for the improvement in segment profit
as a percentage of sales in the three months ended June 30, 2002, previously
described.
Hardware and Home Improvement
Segment sales and profit for the Hardware and Home Improvement segment,
determined on the basis described in Note 7 of Notes to Consolidated Financial
Statements, were as follows (in millions of dollars):
- -----------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, 2002 July 1, 2001 June 30, 2002 July 1, 2001
- -----------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $194.6 $187.6 $393.4 $384.7
Segment profit 6.7 8.4 22.1 25.9
- -----------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers in the Hardware and Home Improvement
segment increased 4% for the three months ended June 30, 2002, as compared to
the 2001 level. While sales of security hardware in North America increased at a
double-digit rate in the second quarter of 2002 over the corresponding period in
2001, that increase was partially offset by a mid-single-digit rate of decrease
in sales of plumbing products. Sales of security hardware in Europe decreased at
a high single-digit rate during the quarter due to weakness in the construction
industry in Europe. During the second quarter of 2002, sales of security
hardware in North America were favorably affected by the brand and product
repositioning that was introduced in home centers in late 2001 and in other
retailers in 2002.
Sales to unaffiliated customers in the Hardware and Home Improvement
segment increased 2% for the six months ended June 30, 2002, over the 2001
level. Sales of security hardware in North America grew at a high single-digit
rate over sales of the corresponding period in 2001 due to the brand and product
repositioning previously described. That increase was substantially offset by a
mid-single-digit rate of decline in sales of plumbing products, due primarily to
lower sales in non-home center channels, and a mid-single-digit rate of decline
in sales of European security hardware.
Segment profit as a percentage of sales for the Hardware and Home
Improvement segment was 3.4% and 5.6% for the three and six months ended June
30, 2002, respectively, compared to 4.5% and 6.7% for the three and six months
ended July 1, 2001, respectively. Segment profit as a percentage of sales for
the three- and six-month periods ended June 30, 2002, was negatively affected by
declines in gross margins. Those declines in gross margin resulted from lower
production levels at North American security hardware and plumbing product
plants, as those businesses took action to reduce inventory levels, and from
lower production volumes at European security hardware plants in response to
lower sales.
-19-
The Corporation anticipates that, upon completion of a plumbing aisle line
review at a major retailer, its plumbing products business will lose significant
shelf space at that retailer. As a result, the Corporation expects sales of its
plumbing products business to be negatively impacted during the remainder of
2002 and beyond. While the plumbing products business is expected to take action
to mitigate the impact of this sales loss, the Corporation believes that
profitability of its plumbing products business will be adversely affected
during the remainder of 2002 and beyond. Because the Corporation has goodwill
associated with the plumbing products business, a sustained reduction in the
future cash flows of that business beyond that currently anticipated could
result in a non-cash write-down of goodwill.
Fastening and Assembly Systems
Segment sales and profit for the Fastening and Assembly Systems segment,
determined on the basis described in Note 7 of Notes to Consolidated Financial
Statements, were as follows (in millions of dollars):
- -----------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, 2002 July 1, 2001 June 30, 2002 July 1, 2001
- -----------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $129.8 $124.0 $252.8 $244.0
Segment profit 18.5 20.3 34.3 39.3
- -----------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers in the Fastening and Assembly Systems
segment increased 5% for the three-month period ended June 30, 2002, as compared
to the corresponding 2001 level. Incremental sales associated with a business
acquired in April 2001 accounted for 2% of the 5% sales growth realized. A
double-digit rate of increase in sales to automotive customers in North America
and Europe, and a low single-digit rate of increase in sales to industrial
customers in North America were partially offset by a high single-digit rate of
decrease in sales to industrial customers in Europe and a low single-digit rate
of decrease in sales to customers in Asia.
Sales to unaffiliated customers in the Fastening and Assembly Systems
segment increased 4% for the six months ended June 30, 2002, over the
corresponding 2001 period. A double-digit rate of increase in sales to
automotive customers was partially offset by a high single-digit rate of decline
in sales to industrial customers, particularly in Europe, and a low single-digit
rate of decrease in sales to customers in Asia. Incremental sales associated
with a business acquired in April 2001 were the principal factor for the sales
growth.
Segment profit as a percentage of sales for the Fastening and Assembly
Systems segment was 14.3% for the three months ended June 30, 2002, compared to
16.4% for the corresponding period in 2001. That decline in segment profit as a
percentage of sales for the three-month period was principally due to lower
gross margins, reflecting the inherently lower margins in the distribution
business acquired from Bamal, unfavorable product mix, increased foreign
currency losses, and higher selling, general, and administrative expenses.
Segment profit as a percentage of sales for the Fastening and Assembly
Systems segment decreased from 16.1% in the first half of 2001 to 13.6% for the
corresponding period in 2002. That decline in segment profit as a percentage of
sales for the six-month period was principally due to lower gross margins,
reflecting the inherently lower margins in the distribution business acquired
from Bamal, and unfavorable product mix.
-20-
Other Segment-Related Matters
Amounts allocated to businesses in arriving at segment profit in excess of (less
than) Corporate center operating expenses, eliminations, and other amounts
identified in the final table included in Note 7 of Notes to Consolidated
Financial Statements were $(22.9) million and $(34.9) million for the three- and
six-month periods ended June 30, 2002, respectively, compared to $(2.9) million
and $(11.9) million for the comparable periods in 2001. The increase in these
unallocated Corporate center operating expenses for the three and six months
ended June 30, 2002, as compared to the prior year levels, was primarily due to
an increase in reserves for certain environmental remediation matters and to
higher employee-related expenses, including certain centrally managed expenses
not allocated directly to the Corporation's business segments.
RESTRUCTURING ACTIVITY
As more fully discussed in Note 9 of Notes to Consolidated Financial Statements
and Item 7 of the Corporation's Annual Report on Form 10-K for the year ended
December 31, 2001, under the caption "Restructuring Actions", during the fourth
quarter of 2001, the Corporation formulated a restructuring plan--expected to be
completed over a two- to three-year period at a total cost of approximately $190
million. During the fourth quarter of 2001, the Corporation commenced the first
phase of that plan and recorded a $99.8 million pre-tax restructuring charge to
reduce the Corporation's manufacturing cost base in its Power Tools and
Accessories and Hardware and Home Improvement segments, as well as to reduce
selling, general, and administrative expenses throughout all of its businesses.
During the first six months of 2002, the Corporation spent approximately $14.5
million on that phase of the restructuring plan. A number of the severance
actions taken under the restructuring plan require payouts over time periods
mandated by local authorities or by the Corporation's existing severance plans.
As more fully described in Note 1 of Notes to Consolidated Financial
Statements, the Corporation is required to adopt SFAS No. 146, Accounting for
Costs Associated with Exit or Disposal Activities, for restructuring actions
initiated after December 31, 2002. As previously indicated, the overall
restructuring plan, formulated in the fourth quarter of 2001, is expected to be
completed over a two- to three-year period. The Corporation anticipates that
additional restructuring actions under this overall plan--resulting in a further
restructuring charge of approximately $90 million--will be undertaken both in
the second half of 2002 and during the 2003-2004 timeframe. After adoption of
SFAS No. 146 in 2003, the timing of recognition of certain costs--associated
with restructuring actions to be taken by the Corporation in the future--will be
affected. The Corporation believes that the impact of the adoption of SFAS No.
146 will be mitigated as the new standard excludes from its scope two
significant components of its overall restructuring plan--severance benefits
that are subject to an on-going benefit arrangement and asset impairments.
The Corporation is committed to continuous productivity improvement and
continues to evaluate opportunities to reduce fixed costs, simplify or improve
processes, and eliminate excess capacity.
FINANCIAL CONDITION
Operating activities provided cash of $162.6 million for the six months ended
June 30, 2002, compared to $6.6 million of cash used in the corresponding period
in 2001. The increase in cash provided by operating activities during the six
months ended June 30, 2002, was primarily a result
-21-
of the amount and timing of payments on certain accrued liabilities, including
the favorable timing of income tax payments, and higher net earnings.
The Corporation reviews certain working capital metrics. For example, the
Corporation evaluates its accounts receivable and inventory levels through the
computation of days sales outstanding and inventory turnover ratio,
respectively. The number of days sales outstanding at June 30, 2002,
approximated the number of days sales outstanding at July 1, 2001. Inventory
turns at June 30, 2002, increased in comparison to the corresponding period in
2001 as a result of the Corporation's focus on reducing inventory levels. While
the Corporation anticipates that inventory levels will rise during the next
quarter in support of seasonal sales activity and to provide safety stock
required to implement the restructuring program, the Corporation expects to end
2002 with inventories modestly below the prior year's level.
Investing activities for the six months ended June 30, 2002, used cash of
$45.2 million compared to $92.0 million of cash used for the corresponding
period in 2001. Cash flow from investing activities for the six-month period
ended July 1, 2001, included the use of $30.5 million associated with the
acquisition of the automotive division of Bamal Corporation. Cash flow from
investing activities benefited from lower capital expenditures during the first
half of 2002 compared to the corresponding period in 2001. The Corporation
anticipates that its capital spending in 2002 will approximate capital spending
in 2001.
Financing activities used cash of $35.3 million for the six-month period
ended June 30, 2002, compared to cash provided of $108.4 million during the
first six months of 2001. The decrease in cash provided from financing
activities is primarily the result of reduced cash proceeds from the issuance of
long-term debt, lower outstanding borrowings under the Corporation's short-term
credit facilities during the 2002 period as compared to the 2001 period when the
Corporation was reducing its borrowing levels, and stock repurchases that
occurred during the 2001 period.
As discussed further in Note 4 of Notes to Consolidated Financial
Statements, in April 2002, the Corporation entered into a $250 million 364-day
unsecured revolving credit facility. This facility replaced the Corporation's
former $400 million 364-day unsecured revolving credit facility. The Corporation
reduced the borrowing availability under the facility based upon its anticipated
short-term financing needs.
During the six months ended June 30, 2002, the Corporation did not
repurchase any shares of its common stock. At June 30, 2002, the Corporation had
remaining authorization from its Board of Directors to repurchase 1,911,595
shares of its common stock.
In addition to measuring its cash flow generation and usage based upon the
operating, investing, and financing classifications included in the Consolidated
Statement of Cash Flows, the Corporation also measures its free cash flow. Free
cash flow, a measure commonly employed by the financial community, is defined by
the Corporation as cash flow from operating activities, less capital
expenditures, plus proceeds from the disposal of assets (excluding proceeds from
business sales). During the six months ended June 30, 2002, the Corporation had
free cash flow of $117.4 million compared to negative free cash flow of $68.1
million for the corresponding period in 2001.
The variable rate debt to total debt ratio, after taking interest rate
hedges into account, was 52% at June 30, 2002, compared to 51% at December 31,
2001. Average debt maturity was 7.7 years at June 30, 2002, compared to 7.9
years at December 31, 2001.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the Reform Act) provides a
safe harbor for
-22-
forward-looking statements made by or on behalf of the Corporation. The
Corporation and its representatives may, from time to time, make written or
verbal forward-looking statements, including statements contained in the
Corporation's filings with the Securities and Exchange Commission and in its
reports to stockholders. Generally, the inclusion of the words "believe,"
"expect," "intend," "estimate," "anticipate," "will," and similar expressions
identify statements that constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 and that are intended to come within the safe
harbor protection provided by those sections. All statements addressing
operating performance, events, or developments that the Corporation expects or
anticipates will occur in the future, including statements relating to sales
growth, earnings or earnings per share growth, and market share, as well as
statements expressing optimism or pessimism about future operating results, are
forward-looking statements within the meaning of the Reform Act. The
forward-looking statements are and will be based upon management's then-current
views and assumptions regarding future events and operating performance, and are
applicable only as of the dates of such statements. The Corporation undertakes
no obligation to update or revise any forward-looking statements, whether as a
result of new information, future events, or otherwise.
By their nature, all forward-looking statements involve risks and
uncertainties. Actual results may differ materially from those contemplated by
the forward-looking statements for a number of reasons, including but not
limited to those factors identified in Item 1(f) of Part I of the Corporation's
Annual Report on Form 10-K for the year ended December 31, 2001.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required under this Item is contained under the caption "Hedging
Activities," included in Item 7, and in Notes 1 and 9 of Notes to Consolidated
Financial Statements included in Item 8 of the Corporation's Annual Report on
Form 10-K for the year ended December 31, 2001, and is incorporated by reference
herein. There have been no material changes in the reported market risks since
the end of the most recent fiscal year.
-23-
THE BLACK & DECKER CORPORATION
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Corporation is involved in various lawsuits in the ordinary course of
business. These lawsuits primarily involve claims for damages arising out of the
use of the Corporation's products and allegations of patent and trademark
infringement. The Corporation also is involved in litigation and administrative
proceedings involving employment matters and commercial disputes. Some of these
lawsuits include claims for punitive as well as compensatory damages. The
Corporation, using current product sales data and historical trends, actuarially
calculates the estimate of its exposure for product liability. The Corporation
is insured for product liability claims for amounts in excess of established
deductibles and accrues for the estimated liability as described above up to the
limits of the deductibles. All other claims and lawsuits are handled on a
case-by-case basis.
Pursuant to authority granted under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (CERCLA), the United States
Environmental Protection Agency (EPA) has issued a National Priority List (NPL)
of sites at which action is to be taken by the EPA or state authorities to
mitigate the risk of release of hazardous substances into the environment. The
Corporation is engaged in continuing activities with regard to various sites on
the NPL and other sites covered under CERCLA. The Corporation also is engaged in
site investigations and remedial activities to address environmental
contamination from past operations at current and former manufacturing
facilities in the United States and abroad. To minimize the Corporation's
potential liability with respect to these sites, when appropriate, management
has undertaken, among other things, active participation in steering committees
established at the sites and has agreed to remediation through consent orders
with the appropriate government agencies. Due to uncertainty over the
Corporation's involvement in some of the sites, uncertainty over the remedial
measures to be adopted at various sites and facilities, and the fact that
imposition of joint and several liability with the right of contribution is
possible under CERCLA and other laws and regulations, the liability of the
Corporation with respect to any site at which remedial measures have not been
completed cannot be established with certainty. On the basis of periodic reviews
conducted with respect to the sites, however, the Corporation has established
appropriate liability accruals.
The Corporation's estimate of the costs associated with legal, product
liability, and environmental exposures is accrued if, in management's judgment,
the likelihood of a loss is probable. These accrued liabilities are not
discounted.
As of June 30, 2002, the Corporation had no known probable but inestimable
exposures for awards and assessments in connection with environmental matters
and litigation and administrative proceedings that are expected to have a
material adverse effect on the Corporation. In the opinion of management,
amounts accrued for awards or assessments in connection with environmental
matters and litigation and administrative proceedings to which the Corporation
is a party are adequate and, accordingly, the ultimate resolution of these
matters will not have a material adverse effect on the Corporation.
-24-
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit No. Description
4 Credit Agreement, dated as of April 4, 2002, among the
Corporation, Black & Decker Holdings Inc., as Initial
Borrowers, the initial lenders named therein, as Initial
Lenders, Citibank, N.A., as Administrative Agent, JPMorgan
Chase Bank, as Syndication Agent, and Bank of America, N.A.,
Commerzbank AG, New York and Grand Cayman Branches, and HSBC
Bank USA, as Co-Syndication Agents.
99.0 Chief Executive Officer's Certification Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
The Sarbanes-Oxley Act of 2002.
99.1 Chief Financial Officer's Certification Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
The Sarbanes-Oxley Act of 2002.
On April 2, 2002, the Corporation filed a Current Report on Form 8-K with the
Commission. That Current Report on Form 8-K, filed pursuant to Item 5 of that
Form, stated that the Corporation had established budgeted rates of exchange for
2002 and, accordingly, had updated segment data for prior periods to reflect the
translation of segment assets and elements of segment profit at the budgeted
rates of exchange for 2002. That Current Report on Form 8-K, also reclassified
prior period amounts in accordance with Emerging Issues Task Force Issue No.
01-9, Accounting for Consideration Given by a Vendor to a Customer or a Reseller
of the Vendor's Products. In accordance with the required adoption of Statement
of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets,
effective January 1, 2002, that Current Report on Form 8-K also included
unaudited supplemental information about the Corporation's net earnings and its
basic and diluted earnings per share for each of the three years in the period
ended December 31, 2001, and for each of the quarters in the year ended December
31, 2001, to reflect the effect of excluding goodwill amortization recorded in
those periods.
On April 25, 2002, the Corporation filed a Current Report on Form 8-K with the
Commission. That Current Report on Form 8-K, filed pursuant to Item 5 of that
Form, stated that, on April 25, 2002, the Corporation had reported its earnings
for the three months ended March 31, 2002.
The Corporation did not file any other reports on Form 8-K during the
three-month period ended June 30, 2002.
All other items were not applicable.
-25-
THE BLACK & DECKER CORPORATION
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE BLACK & DECKER CORPORATION
By /s/ MICHAEL D. MANGAN
-----------------------------------------------------
Michael D. Mangan
Senior Vice President and Chief Financial Officer
Principal Accounting Officer
By /s/ CHRISTINA M. McMULLEN
-----------------------------------------------------
Christina M. McMullen
Vice President and Controller
Date: August 12, 2002