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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 27, 2004
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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
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). X YES NO
----- -----
The number of shares of Common Stock outstanding as of July 23, 2004:
80,146,763
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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 27, 2004
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Earnings (Unaudited)
For the Three Months and Six Months Ended June 27, 2004
and June 29, 2003 3
Consolidated Balance Sheet
June 27, 2004 (Unaudited) and December 31, 2003 4
Consolidated Statement of Stockholders' Equity (Unaudited)
For the Six Months Ended June 27, 2004 and June 29, 2003 5
Consolidated Statement of Cash Flows (Unaudited)
For the Six Months Ended June 27, 2004 and June 29, 2003 6
Notes to Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 17
Item 3. Quantitative and Qualitative Disclosures about Market Risk 27
Item 4. Controls and Procedures 27
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 28
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases
of Equity Securities 29
Item 6. Exhibits and Reports on Form 8-K 29
SIGNATURES 31
-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 27, 2004 June 29, 2003 June 27, 2004 June 29, 2003
- ------------------------------------------------------------------------------------------------------------------------------------
Sales $1,297.6 $1,090.1 $2,390.5 $2,029.3
Cost of goods sold 810.0 699.4 1,500.1 1,303.3
Selling, general, and administrative expenses 316.0 280.4 611.1 543.4
Restructuring and exit costs - .4 - .6
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Income 171.6 109.9 279.3 182.0
Interest expense (net of interest income) 4.5 7.7 9.7 19.8
Other expense .2 .6 1.0 2.3
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Earnings from Continuing Operations
Before Income Taxes 166.9 101.6 268.6 159.9
Income taxes 45.1 26.9 72.5 42.1
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Net Earnings from Continuing Operations 121.8 74.7 196.1 117.8
Discontinued Operations (Net of Income Taxes):
Earnings (loss) of discontinued operations (.2) 1.0 .4 1.3
Gain on sale of discontinued operations (net
of impairment charge of $24.4) - - 11.7 -
- ------------------------------------------------------------------------------------------------------------------------------------
Net Earnings (Loss) from Discontinued Operations (.2) 1.0 12.1 1.3
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Net Earnings $ 121.6 $ 75.7 $ 208.2 $ 119.1
====================================================================================================================================
Basic Earnings Per Common Share
Continuing Operations $ 1.53 $ .96 $ 2.49 $ 1.51
Discontinued Operations - .02 .15 .02
- ------------------------------------------------------------------------------------------------------------------------------------
Net Earnings Per Common Share - Basic $ 1.53 $ .98 $ 2.64 $ 1.53
====================================================================================================================================
Shares Used in Computing Basic Earnings Per
Share (in Millions) 79.4 77.6 78.9 78.0
====================================================================================================================================
Diluted Earnings Per Common Share
Continuing Operations $ 1.50 $ .96 $ 2.44 $ 1.51
Discontinued Operations - .01 .15 .01
- ------------------------------------------------------------------------------------------------------------------------------------
Net Earnings Per Common Share - Assuming
Dilution $ 1.50 $ .97 $ 2.59 $ 1.52
====================================================================================================================================
Shares Used in Computing Diluted Earnings Per
Share (in Millions) 80.9 77.9 80.2 78.2
====================================================================================================================================
Dividends Per Common Share $ .21 $ .12 $ .42 $ .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 27,
2004 December 31,
(Unaudited) 2003
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Assets
Cash and cash equivalents $ 526.1 $ 308.2
Trade receivables 929.7 808.6
Inventories 836.2 709.9
Current assets of discontinued operations 64.6 160.2
Other current assets 204.0 216.1
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Total Current Assets 2,560.6 2,203.0
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Property, Plant, and Equipment 615.4 660.2
Goodwill 777.5 771.7
Other Assets 563.6 587.6
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$4,517.1 $4,222.5
================================================================================
Liabilities and Stockholders' Equity
Short-term borrowings $ .1 $ .1
Current maturities of long-term debt .4 .4
Trade accounts payable 506.2 379.8
Current liabilities of discontinued operations 28.3 38.0
Other accrued liabilities 834.3 893.8
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Total Current Liabilities 1,369.3 1,312.1
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Long-Term Debt 900.1 915.6
Deferred Income Taxes 177.3 179.8
Postretirement Benefits 458.6 451.9
Other Long-Term Liabilities 516.9 516.6
Stockholders' Equity
Common stock, par value $.50 per share 40.0 39.0
Capital in excess of par value 580.1 486.7
Unearned restricted stock compensation (13.5) -
Retained earnings 947.8 773.0
Accumulated other comprehensive income (loss) (459.5) (452.2)
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Total Stockholders' Equity 1,094.9 846.5
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$4,517.1 $4,222.5
================================================================================
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 Total
Common Par Excess of Retained Comprehensive Stockholders'
Shares Value Par Value Earnings Income (Loss) Equity
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Balance at December 31, 2002 79,604,786 $39.8 $550.1 $524.3 $(514.6) $599.6
Comprehensive income:
Net earnings -- -- -- 119.1 -- 119.1
Net loss on derivative
instruments (net of tax) -- -- -- -- (6.1) (6.1)
Foreign currency translation
adjustments, less effect of
hedging activities (net of tax) -- -- -- -- 32.1 32.1
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income -- -- -- 119.1 26.0 145.1
- ------------------------------------------------------------------------------------------------------------------------------------
Cash dividends ($.24 per share) -- -- -- (18.6) -- (18.6)
Purchase and retirement of
common stock (2,011,570) (1.0) (76.5) -- -- (77.5)
Common stock issued under
employee benefit plans 66,160 -- 2.3 -- -- 2.3
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at June 29, 2003 77,659,376 $38.8 $475.9 $624.8 $(488.6) $650.9
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
Unearned Accumulated
Outstanding Capital in Restricted Other Total
Common Par Excess of Stock Retained Comprehensive Stockholders'
Shares Value Par Value Compensation Earnings Income (Loss) Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2003 77,933,464 $39.0 $486.7 $ -- $773.0 $(452.2) $ 846.5
Comprehensive income:
Net earnings -- -- -- -- 208.2 -- 208.2
Net gain on derivative
instruments (net of tax) -- -- -- -- -- 17.9 17.9
Foreign currency translation
adjustments, less effect of
hedging activities (net of tax) -- -- -- -- -- 3.5 3.5
Write-off of accumulated
foreign currency translation
adjustments due to sale
of businesses -- -- -- -- -- (28.7) (28.7)
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Comprehensive income -- -- -- -- 208.2 (7.3) 200.9
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Cash dividends ($.42 per share) -- -- -- -- (33.4) -- (33.4)
Restricted stock grants 255,096 .1 14.0 (14.1) -- -- --
Restricted stock amortization -- -- -- .6 -- -- .6
Purchase and retirement of
common stock (66,100) -- (3.6) -- -- -- (3.6)
Common stock issued under
employee benefit plans 1,807,757 .9 83.0 -- -- -- 83.9
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at June 27, 2004 79,930,217 $40.0 $580.1 $(13.5) $947.8 $(459.5) $1,094.9
====================================================================================================================================
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 27, 2004 June 29, 2003
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Operating Activities
Net earnings $ 208.2 $ 119.1
Adjustments to reconcile net earnings to cash
flow from operating activities of continuing
operations:
Earnings of discontinued operations (.4) (1.3)
Gain on sale of discontinued operations (net
of impairment charge) (11.7) -
Non-cash charges and credits:
Depreciation and amortization 69.2 69.9
Restructuring and exit costs - .6
Other 1.9 3.2
Changes in selected working capital items:
Trade receivables (125.8) (53.7)
Inventories (129.8) 13.0
Trade accounts payable 128.3 (34.9)
Restructuring spending (15.3) (21.9)
Other assets and liabilities 27.6 (91.9)
- --------------------------------------------------------------------------------
Cash flow from operating activities of
continuing operations 152.2 2.1
Cash flow from operating activities of
discontinued operations 2.0 (1.5)
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Cash Flow From Operating Activities 154.2 .6
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Investing Activities
Proceeds from disposal of assets 15.4 4.9
Proceeds from sale of discontinued operations,
net of cash transferred 74.6 -
Capital expenditures (45.7) (50.3)
Purchase of business, net of cash acquired (7.9) -
Capital expenditures of discontinued operations (.7) (1.3)
Other investing activities (1.6) (1.2)
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Cash Flow From Investing Activities 34.1 (47.9)
- --------------------------------------------------------------------------------
Financing Activities
Net (decrease) increase in short-term borrowings (4.3) 81.9
Payments on long-term debt (.3) (310.4)
Purchase of common stock (3.6) (77.5)
Issuance of common stock 74.3 1.8
Cash dividends (33.4) (18.6)
- --------------------------------------------------------------------------------
Cash Flow From Financing Activities 32.7 (322.8)
Effect of exchange rate changes on cash (3.1) 9.6
- --------------------------------------------------------------------------------
Increase (Decrease) In Cash And Cash Equivalents 217.9 (360.5)
Cash and cash equivalents at beginning of period 308.2 517.1
- --------------------------------------------------------------------------------
Cash And Cash Equivalents At End Of Period $526.1 $156.6
================================================================================
See Notes to Consolidated Financial Statements (Unaudited).
-7-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The Black & Decker Corporation and Subsidiaries
NOTE 1: ACCOUNTING POLICIES
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 accounting principles
generally accepted in the United States 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 27, 2004,
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, 2003.
Certain amounts presented for the three and six months ended June 29, 2003,
have been reclassified to conform to the 2004 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 27, 2004,
and June 29, 2003, the Corporation has presented comprehensive income in the
accompanying Consolidated Statement of Stockholders' Equity. Comprehensive
income for the three months ended June 27, 2004, and June 29, 2003, was $76.3
million and $100.6 million, respectively.
Stock-Based Compensation
As more fully disclosed in Notes 1 and 16 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, 2003, the Corporation has elected to follow
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for its stock-based
compensation. In addition, the Corporation provides pro forma disclosure of
stock-based compensation expense, as measured under the fair value requirements
of SFAS No. 123, Accounting for Stock-Based Compensation. These pro forma
disclosures are provided as required under SFAS No. 148, Accounting for
Stock-Based Compensation--Transition and Disclosure. A reconciliation of the
Corporation's net earnings to pro forma net earnings, and the related pro forma
earnings per share amounts, for the three- and six-month periods ended June 27,
2004 and June 29, 2003, is provided below.
-8-
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Three Months Ended Six Months Ended
(Amounts in Millions Except Per Share Data) June 27, 2004 June 29, 2003 June 27, 2004 June 29, 2003
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings $121.6 $ 75.7 $208.2 $119.1
Adjustments to net earnings for:
Stock-based compensation expense
included in net earnings, net of tax 2.0 .7 4.3 1.2
Pro forma stock-based compensation
(expense), net of tax (5.0) (5.5) (10.8) (11.2)
- ------------------------------------------------------------------------------------------------------------------------------------
Pro forma net earnings $118.6 $ 70.9 $201.7 $109.1
====================================================================================================================================
Pro forma net earnings per common share - basic $ 1.49 $ .91 $ 2.56 $ 1.40
====================================================================================================================================
Pro forma net earnings per common share
- assuming dilution $ 1.47 $ .91 $ 2.53 $ 1.40
====================================================================================================================================
New Accounting Pronouncements
On December 8, 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the Act) was signed into law which introduced a
prescription drug benefit under Medicare (Medicare Part D) as well as a federal
subsidy to sponsors of retiree health care benefit plans that provide a benefit
that is at least actuarially equivalent to Medicare Part D. In January 2004, the
FASB issued FASB Staff Position (FSP) No. FAS 106-1, Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003. As provided under FSP No. FAS 106-1, the Corporation
elected to defer accounting for the effects of the Act until authoritative
guidance on the accounting for the federal subsidy is issued or until a
significant event occurs that ordinarily would call for the remeasurement of the
postretirement benefit plan's obligations. The accrued benefit obligation and
the net periodic postretirement benefit cost included in the consolidated
financial statements do not reflect the effects of the Act on the Corporation's
postretirement benefit plan.
In May 2004, the FASB issued FSP No. FAS 106-2, Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003. The provisions of FSP No. FAS 106-2 are effective for
the first interim or annual period beginning after June 15, 2004. As provided
under FSP No. FAS 106-2, the Corporation will prospectively account for the
effects of the Act as of the beginning of its third quarter of 2004. The
Corporation does not believe that the adoption will have a material impact on
its financial position or results of operations.
NOTE 2: DISCONTINUED OPERATIONS
As more fully described in Note 3 of Notes to Consolidated Financial Statements
included in Item 8 of its Annual Report on Form 10-K for the year ended December
31, 2003, the Corporation met the requirements to classify its European security
hardware business as discontinued operations at the end of 2003. The European
security hardware business, consisting of the NEMEF, Corbin, and DOM businesses,
was previously included in the Corporation's Hardware and Home Improvement
segment.
-9-
In January 2004, the Corporation completed the sale of the NEMEF and Corbin
businesses to Assa Abbloy and received cash proceeds, net of cash transferred,
of $74.6 million. Also, in January 2004, the Corporation signed an agreement
with Assa Abloy to sell its remaining European security hardware business, DOM,
for $28.0 million. That sale is subject to regulatory approval. During the six
months ended June 27, 2004, the Corporation recognized an $11.7 million net gain
on the sale of these discontinued operations (the "net gain on sale of
discontinued operations"). That net gain consisted of a $36.1 million gain on
the sale of the NEMEF and Corbin businesses, less a $24.4 million goodwill
impairment charge associated with the remaining European security hardware
business, DOM. That goodwill impairment charge was determined as the excess of
the carrying value of goodwill associated with the DOM business over its implied
fair value inherent in the contractual value of $28.0 million.
The European security hardware business discussed above is reported as
discontinued operations in the consolidated financial statements and prior
periods presented have been adjusted to reflect this presentation. Sales and
earnings before income taxes of the discontinued operations were $15.2 million
and $.0 million, respectively, and $31.3 million and $.8 million, respectively,
for the three and six months ended June 27, 2004, and $29.8 million and $2.1
million, respectively, and $58.7 million and $3.2 million, respectively, for the
three and six months ended June 29, 2003. The results of the discontinued
operations do not reflect any expense for interest allocated by or management
fees charged by the Corporation.
The major classes of assets and liabilities of discontinued operations in
the Consolidated Balance Sheet at the end of each period, in millions of
dollars, were as follows:
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June 27, 2004 December 31, 2003
- --------------------------------------------------------------------------------
Trade receivables $ 8.7 $ 16.1
Inventories 11.1 28.4
Property, plant, and equipment 15.9 27.9
Goodwill 25.0 82.7
Other assets 3.9 5.1
- --------------------------------------------------------------------------------
Total assets 64.6 160.2
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Trade accounts payable 3.6 8.5
Other accrued liabilities 8.4 11.5
Postretirement benefits and other long-term
liabilities 16.3 18.0
- --------------------------------------------------------------------------------
Total liabilities 28.3 38.0
- --------------------------------------------------------------------------------
Net assets $36.3 $122.2
================================================================================
-10-
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 27, 2004 December 31, 2003
- --------------------------------------------------------------------------------
FIFO cost
Raw materials and work-in-process $218.0 $186.3
Finished products 602.6 510.3
- --------------------------------------------------------------------------------
820.6 696.6
Adjustment to arrive at LIFO inventory value 15.6 13.3
- --------------------------------------------------------------------------------
$836.2 $709.9
================================================================================
Inventories are stated at the lower of cost or market. The cost of United
States inventories is based primarily on the last-in, first-out (LIFO) method;
all other inventories are based on the first-in, first-out (FIFO) method.
NOTE 4: SHORT-TERM BORROWINGS AND LONG-TERM DEBT
The terms of the Corporation's $500 million commercial paper program and $1.0
billion unsecured revolving credit facility are more fully disclosed in Note 7
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, 2003.
The Corporation's average borrowings outstanding under its unsecured revolving
credit facility and its commercial paper program were $301.1 million and $427.3
million for the six-month periods ended June 27, 2004 and June 29, 2003,
respectively.
Indebtedness of subsidiaries of the Corporation in the aggregate principal
amount $301.3 million was included in the Consolidated Balance Sheet at June 27,
2004 and December 31, 2003, in short-term borrowings, current maturities of
long-term debt, and long-term debt.
NOTE 5: INTEREST EXPENSE (NET OF INTEREST INCOME)
Interest expense (net of interest income) for each period, in millions of
dollars, was as follows:
- --------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 27, 2004 June 29, 2003 June 27, 2004 June 29, 2003
- --------------------------------------------------------------------------------
Interest expense $12.8 $13.8 $ 26.5 $ 32.3
Interest (income) (8.3) (6.1) (16.8) (12.5)
- --------------------------------------------------------------------------------
$ 4.5 $ 7.7 $ 9.7 $ 19.8
================================================================================
-11-
NOTE 6: BUSINESS SEGMENTS
The following table provides selected financial data for the Corporation's
reportable 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 27, 2004 Accessories Improvement Systems Total Adjustments & Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 876.3 $235.9 $152.0 $1,264.2 $33.4 $ - $1,297.6
Segment profit (loss) (for Consoli-
dated, operating income) 124.9 41.6 21.9 188.4 3.3 (20.1) 171.6
Depreciation and amortization 19.4 7.6 4.1 31.1 .8 2.2 34.1
Capital expenditures 16.8 5.4 2.2 24.4 .5 .4 25.3
Three Months Ended June 29, 2003
- ------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 786.2 $166.0 $132.0 $1,084.2 $ 5.9 $ - $1,090.1
Segment profit (loss) (for Consoli-
dated, operating income before
restructuring and exit costs) 87.3 16.9 19.3 123.5 1.0 (14.2) 110.3
Depreciation and amortization 20.2 6.7 4.0 30.9 .1 3.8 34.8
Capital expenditures 15.7 5.1 3.1 23.9 .1 .3 24.3
Six Months Ended June 27, 2004
- ------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $1,565.9 $456.3 $290.4 $2,312.6 $77.9 $ - $2,390.5
Segment profit (loss) (for Consoli-
dated, operating income) 199.0 73.3 40.3 312.6 6.8 (40.1) 279.3
Depreciation and amortization 38.7 15.2 8.3 62.2 2.0 5.0 69.2
Capital expenditures 31.1 8.3 4.5 43.9 1.2 .6 45.7
Six Months Ended June 29, 2003
- ------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $1,452.6 $312.2 $265.2 $2,030.0 $ (.7) $ - $2,029.3
Segment profit (loss) (for Consoli-
dated, operating income before
restructuring and exit costs) 146.8 29.9 38.6 215.3 .8 (33.5) 182.6
Depreciation and amortization 40.3 13.5 7.8 61.6 .1 8.2 69.9
Capital expenditures 30.9 12.4 6.6 49.9 (.1) .5 50.3
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). On September 30, 2003, the Corporation acquired
Baldwin Hardware Corporation and Weiser Lock Corporation (Baldwin and Weiser).
These acquired businesses are included in the Hardware and Home Improvement
segment. The Hardware and Home Improvement segment 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.
-12-
As more fully described in Note 2, the Corporation's European security
hardware business has been classified as discontinued operations. Sales, segment
profit, depreciation and amortization, and capital expenditures set forth in the
preceding table exclude the results of discontinued operations.
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, 2003,
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
2004. 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, and
income tax expense. In addition, segment profit excludes restructuring and exit
costs. In determining segment profit, expenses relating to pension and other
postretirement benefits are based solely upon estimated service costs. Corporate
expenses, as well as certain centrally managed expenses, are allocated to each
reportable segment based upon budgeted amounts. While sales and transfers
between segments are accounted for at cost plus a reasonable profit, the effects
of intersegment sales are excluded from the computation of segment profit.
Intercompany profit in inventory is excluded from segment assets and is
recognized as a reduction of cost of goods sold by the selling segment when the
related inventory is sold to an unaffiliated customer. Because the Corporation
compensates the management of its various businesses on, among other factors,
segment profit, the Corporation may elect to record certain segment-related
expense items of an unusual or non-recurring nature in consolidation rather than
reflect such items in segment profit. In addition, certain segment-related items
of income or expense may be recorded in consolidation in one period and
transferred to the various segments in a later period.
-13-
The reconciliation of segment profit to the Corporation's earnings from
continuing operations before income taxes for each period, in millions of
dollars, is as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 27, 2004 June 29, 2003 June 27, 2004 June 29, 2003
- ------------------------------------------------------------------------------------------------------------------------------------
Segment profit for total reportable business segments $188.4 $123.5 $312.6 $215.3
Items excluded from segment profit:
Adjustment of budgeted foreign exchange rates
to actual rates 3.3 1.0 6.8 .8
Depreciation of Corporate property (.3) (.2) (.7) (.5)
Adjustment to businesses' postretirement benefit
expenses booked in consolidation .2 3.9 .3 7.7
Other adjustments booked in consolidation directly
related to reportable business segments (3.4) (1.2) (5.5) (10.0)
Amounts allocated to businesses in arriving at segment profit
in excess of (less than) Corporate center operating expenses,
eliminations, and other amounts identified above (16.6) (16.7) (34.2) (30.7)
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income before restructuring and exit costs 171.6 110.3 279.3 182.6
Restructuring and exit costs - .4 - .6
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income 171.6 109.9 279.3 182.0
Interest expense, net of interest income 4.5 7.7 9.7 19.8
Other expense .2 .6 1.0 2.3
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations before income taxes $166.9 $101.6 $268.6 $159.9
====================================================================================================================================
NOTE 7: 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 27, 2004 June 29, 2003 June 27, 2004 June 29, 2003
- ------------------------------------------------------------------------------------------------------------------------------------
Numerator:
Net earnings from continuing operations $121.8 $74.7 $196.1 $117.8
Net earnings (loss) of discontinued operations (.2) 1.0 12.1 1.3
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings $121.6 $75.7 $208.2 $119.1
- ------------------------------------------------------------------------------------------------------------------------------------
Denominator:
Denominator for basic earnings per share -
weighted-average shares 79.4 77.6 78.9 78.0
Employee stock options 1.5 .3 1.3 .2
- ------------------------------------------------------------------------------------------------------------------------------------
Denominator for diluted earnings per share
- adjusted weighted-average shares and
assumed conversions 80.9 77.9 80.2 78.2
====================================================================================================================================
Basic earnings per share
Continuing operations $ 1.53 $ .96 $ 2.49 $ 1.51
Discontinued operations - .02 .15 .02
- ------------------------------------------------------------------------------------------------------------------------------------
Basic earnings per share $ 1.53 $ .98 $ 2.64 $ 1.53
====================================================================================================================================
Diluted earnings per share
Continuing operations $ 1.50 $ .96 $ 2.44 $ 1.51
Discontinued operations - .01 .15 .01
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share $ 1.50 $ .97 $ 2.59 $ 1.52
====================================================================================================================================
-14-
As of June 27, 2004, options to purchase approximately .6 million shares of
common stock, with a weighted-average exercise price of $60.20, were
outstanding, but were not included in the computation of diluted earnings per
share because the effect would be anti-dilutive. These options were
anti-dilutive because the related exercise price was greater than the average
market price of the common shares during the quarter.
NOTE 8: RESTRUCTURING ACTIVITY
The Corporation's restructuring activities are 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, 2003. A
summary of restructuring activity during the six-month period ended June 27,
2004, is set forth below (in millions of dollars):
- --------------------------------------------------------------------------------
Write-down to
Fair Value
Less Costs to
Sell of Certain
Severance Long-lived Other
Benefits Assets Charges Total
- --------------------------------------------------------------------------------
Restructuring reserve at
December 31, 2003 $ 42.6 $ - $1.1 $ 43.7
Reserves established in 2004 5.2 - .2 5.4
Reversal of reserves (4.0) - - (4.0)
Proceeds received in excess
of the adjusted carrying
value of long-lived assets - (1.4) - (1.4)
Utilization of reserves:
Cash (15.2) - (.1) (15.3)
Non-cash - 1.4 - 1.4
Foreign currency translation (.2) - - (.2)
- --------------------------------------------------------------------------------
Total $ 28.4 $ - $1.2 $ 29.6
================================================================================
During the three- and six-month periods ended June 27, 2004, the
Corporation recognized $5.4 million of pre-tax restructuring and exit costs
related to actions taken in its Power Tools and Accessories segment. The
restructuring actions taken in 2004 principally reflect severance benefits. The
$5.4 million charge recognized during the three- and six-month periods ended
June 27, 2004 was offset, however, by the reversal of $4.0 million of severance
accruals established as part of previously provided restructuring reserves that
were no longer required and $1.4 million representing the excess of proceeds
received on the sale of long-lived assets, written down as part of restructuring
actions, over their adjusted carrying values.
Of the $29.6 million restructuring accrual as of June 27, 2004, $15.2
million -- principally associated with actions by the Corporation's Power Tools
and Accessories segment -- relates to the restructuring plan that was formulated
by the Corporation in the fourth quarter of 2001. The Corporation anticipates
that these restructuring actions will be completed during 2004. Also, $9.1
million relates to restructuring actions associated with the closure of a
manufacturing facility in the Corporation's Hardware and Home Improvement
segment as a result of the acquisition of the Baldwin and Weiser businesses. The
Corporation anticipates that these restructuring actions will be completed
during 2005. The remaining $5.3 million relates to restructuring actions that
were recognized in the second quarter of 2004 and are associated with the
Corporation's Power Tools and Accessories segment. The Corporation anticipates
that these restructuring actions will be completed during 2005.
-15-
NOTE 9: POSTRETIREMENT BENEFITS
The Corporation's pension and other postretirement benefit plans are more fully
disclosed in Notes 1 and 12 of Notes to Consolidated Financial Statements
included in Item 8 of the Corporation's Annual Report on Form 10-K for the year
ended December 31, 2003. The following tables present the components of the
Corporation's net periodic cost (benefit) related to its defined benefit pension
plans for the three and six months ended June 27, 2004 and June 29, 2003 (in
millions of dollars):
- ---------------------------------------------------------------------------------------------------------
Pension Benefits Plans Pension Benefits Plans
In the United States Outside of the United States
-------------------------------- --------------------------------
Three Months Ended Three Months Ended
June 27, 2004 June 29, 2003 June 27, 2004 June 29, 2003
- ---------------------------------------------------------------------------------------------------------
Service cost $ 4.7 $ 4.1 $ 3.6 $ 3.4
Interest cost 13.7 14.6 8.7 6.8
Expected return on plan assets (20.6) (21.7) (8.6) (7.7)
Amortization of prior service cost .3 .3 .3 .3
Amortization of net actuarial loss 4.0 1.9 2.5 1.1
- ---------------------------------------------------------------------------------------------------------
Net periodic cost (benefit) $ 2.1 $ (.8) $ 6.5 $ 3.9
=========================================================================================================
- ---------------------------------------------------------------------------------------------------------
Pension Benefits Plans Pension Benefits Plans
In the United States Outside of the United States
-------------------------------- --------------------------------
Six Months Ended Six Months Ended
June 27, 2004 June 29, 2003 June 27, 2004 June 29, 2003
- ---------------------------------------------------------------------------------------------------------
Service cost $ 9.4 $ 8.2 $ 7.0 $ 6.8
Interest cost 27.4 29.2 17.6 13.6
Expected return on plan assets (41.2) (43.4) (17.3) (15.6)
Amortization of prior service cost .6 .6 .7 .6
Amortization of net actuarial loss 8.0 3.8 5.0 2.3
- ---------------------------------------------------------------------------------------------------------
Net periodic cost (benefit) $ 4.2 $ (1.6) $ 13.0 $ 7.7
=========================================================================================================
The Corporation's 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.
The following table presents the components of the Corporation's net
periodic cost related to its defined benefit postretirement plans for the three
and six months ended June 27, 2004 and June 29, 2003 (in millions of dollars):
- ---------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 27, 2004 June 29, 2003 June 27, 2004 June 29, 2003
- ---------------------------------------------------------------------------------------------------------
Service cost $ .2 $ .2 $ .4 $ .4
Interest cost 2.3 2.7 4.6 5.4
Amortization of prior service cost (.5) (.6) (1.0) (1.2)
Amortization of net actuarial loss .4 .5 .8 1.0
- ---------------------------------------------------------------------------------------------------------
Net periodic cost $2.4 $ 2.8 $ 4.8 $ 5.6
- ---------------------------------------------------------------------------------------------------------
-16-
NOTE 10: LITIGATION AND CONTINGENT LIABILITIES
As more fully disclosed in Note 20 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, 2003, 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, allegations of patent and
trademark infringement, and litigation and administrative proceedings relating
to employment matters and commercial disputes. In addition, the Corporation is
party to litigation 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 product liability
claims, environmental exposures, and other legal proceedings is accrued if, in
management's judgment, the likelihood of a loss is probable and the amount of
the loss can be reasonably estimated. These accrued liabilities are not
discounted.
During 2003, the Corporation received notices of proposed adjustments from
the United States Internal Revenue Service (I.R.S.) in connection with audits of
the tax years 1998 through 2000. The principal adjustment proposed by the I.R.S.
consists of the disallowance of a capital loss deduction taken in the
Corporation's tax returns. The Corporation intends to vigorously dispute the
position taken by the I.R.S. in this matter. The Corporation has provided
adequate reserves in the event that the I.R.S. prevails in its disallowance of
the previously described capital loss and the imposition of related interest.
Should the I.R.S. prevail in its disallowance of the capital loss deduction and
imposition of related interest, it would result in a cash outflow by the
Corporation of approximately $140 million. The Corporation believes that any
such cash outflow is unlikely to occur until some time after 2004.
In the opinion of management, amounts accrued for exposures relating to
product liability claims, environmental matters, and other legal proceedings are
adequate and, accordingly, the ultimate resolution of these matters is not
expected to have a material adverse effect on the Corporation's consolidated
financial statements. As of June 27, 2004, the Corporation had no known probable
but inestimable exposures relating to product liability claims, environmental
matters, or other legal proceedings that are expected to have a material adverse
effect on the Corporation. There can be no assurance, however, that
unanticipated events will not require the Corporation to increase the amount it
has accrued for any matter or accrue for a matter that has not been previously
accrued because it was not considered probable.
NOTE 11: SUBSEQUENT EVENT
On July 19, 2004, the Corporation announced that it has signed an agreement to
purchase the Tools Group from Pentair, Inc. for approximately $775 million in
cash. The transaction, which is subject to regulatory clearances and customary
closing conditions, is expected to close later in 2004.
-17-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
The Corporation is a global manufacturer and marketer of power tools and
accessories, hardware and home improvement products, and technology-based
fastening systems. As more fully described in Note 6 of Notes to Consolidated
Financial Statements, the Corporation operates in three reportable business
segments -- Power Tools and Accessories, Hardware and Home Improvement, and
Fastening and Assembly Systems -- with these business segments comprising
approximately 68%, 19% and 13%, respectively, of the Corporation's sales for the
six-month period ended June 27, 2004.
The Corporation markets its products and services in over 100 countries.
During 2003, approximately 63%, 25% and 12% of its sales were made to customers
in the United States, in Europe (including the United Kingdom), and in other
geographic regions, respectively. The Power Tools and Accessories and Hardware
and Home Improvement segments are subject to general economic conditions in the
countries in which they operate as well as the strength of the retail economies.
The Fastening and Assembly Systems segment is also subject to general economic
conditions in the countries in which it operates as well as to automotive and
industrial demand.
The Corporation reported net earnings from continuing operations of $121.8
million, or $1.50 per share on a diluted basis, for the three-month period ended
June 27, 2004, compared to net earnings from continuing operations of $74.7
million, or $.96 per share on a diluted basis, for the three-month period ended
June 29, 2003.
The Corporation reported net earnings from continuing operations of $196.1
million, or $2.44 per share on a diluted basis, for the six-month period ended
June 27, 2004, compared to net earnings from continuing operations of $117.8
million, or $1.51 per share on a diluted basis, for the six-month period ended
June 29, 2003. The Corporation reported net earnings of $208.2 million, or $2.59
per share on a diluted basis, for the six-month period ended June 27, 2004,
compared to net earnings of $119.1 million, or $1.52 per share on a diluted
basis, for the six-month period ended June 29, 2003. As more fully described in
Note 2 of Notes to Consolidated Financial Statements, net earnings for the six
months ended June 27, 2004, included a net gain on sale of discontinued
operations of $11.7 million.
Total consolidated sales of $1,297.6 million for the three months ended
June 27, 2004, increased by 19% over the corresponding period in 2003. Of that
19% increase, 13% was attributable to an increase in unit volume of existing
businesses (that is, the Corporation's businesses excluding the newly acquired
Baldwin, Weiser and MasterFix businesses), 6% was attributable to the
incremental sales of those newly acquired businesses, and 2% was attributable to
the favorable impact of foreign currency translation, offset by 2% attributable
to the negative effect of pricing actions. During the six months ended June 27,
2004, total consolidated sales increased by 18% over the corresponding period in
the prior year to $2,390.5 million. Of that 18% increase, 11% was attributable
to an increase in unit volume of existing businesses (that is, the Corporation's
businesses excluding the newly acquired Baldwin, Weiser, and MasterFix
businesses), 6% was attributable to the incremental sales of those newly
acquired businesses, and 4% was attributable to the favorable impact of foreign
currency translation, offset by 3% attributable to the negative effect of
pricing actions. Operating income for the three months ended June 27, 2004,
increased to $171.6 million, or 13.2 % of sales, from $109.9 million, or 10.1%
of sales, in the corresponding period of 2003. Operating income for the six
months ended
-18-
June 27, 2004, increased to $279.3 million, or 11.7% of sales, from $182.0
million, or 9.0% of sales, in the corresponding period of 2003. The increases in
operating income as a percentage of sales during both the second quarter and the
first six months of 2004, as compared to the corresponding periods in the prior
year, resulted from percentage improvements in both gross margin and selling,
general, and administrative expenses. The improvements in gross margin - which
increased from 35.8% in both the second quarter and the first six months of 2003
to 37.6% in the second quarter of 2004 and 37.2% in the first six months of 2004
- - were mainly attributable to the positive effects of restructuring and other
productivity initiatives and favorable foreign currency exchange rates,
partially offset by the negative effect of pricing actions. Although selling,
general, and administrative expenses for both the second quarter of 2004 and the
first six months of 2004 increased over the prior year level, those increases
were principally due to incremental expenses of newly acquired businesses and
the effects of foreign currency translation. Earnings from continuing operations
before income taxes increased by $65.3 million and $108.7 million over the 2003
levels to $166.9 million and $268.6 million for the three months and the six
months ended June 27, 2004, respectively. In addition to the improvements in
operating income described above, pre-tax earnings from continuing operations
benefited from a $3.2 million and $10.1 million reduction in net interest
expense during the second quarter of 2004 and the first six months of 2004 from
the prior year levels.
On July 19, 2004, the Corporation announced that it has signed an agreement
to purchase the Tools Group from Pentair, Inc. for approximately $775 million in
cash. The transaction, which is subject to regulatory clearances and customary
closing conditions, is expected to close later in 2004.
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 27, 2004 and June 29, 2003:
ANALYSIS OF CHANGES IN SALES
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
(Dollars in Millions) June 27, 2004 June 29, 2003 June 27, 2004 June 29, 2003
- ------------------------------------------------------------------------------------------------------------------------------------
Total sales $1,297.6 $1,090.1 $2,390.5 $2,029.3
- ------------------------------------------------------------------------------------------------------------------------------------
Unit volume - existing (a) 13 % (3)% 11 % (3)%
Unit volume - acquired (b) 6 % - % 6 % - %
Price (2)% (2)% (3)% (1)%
Currency 2 % 4 % 4 % 4 %
- ------------------------------------------------------------------------------------------------------------------------------------
Change in total sales 19 % (1)% 18 % - %
====================================================================================================================================
(a) Represents change in unit volume for businesses where year-to-year
comparability exists.
(b) Represents change in unit volume for businesses that were acquired and
were not included in prior period results.
-19-
Total consolidated sales for the three and six months ended June 27, 2004
increased by 19% and 18%, respectively, over sales in the corresponding 2003
periods. Excluding the newly acquired Baldwin, Weiser, and MasterFix businesses,
total unit volume increased by 13% and 11%, respectively, during the three and
six months ended June 27, 2004, over the corresponding period in 2003. The
improvement in both periods was primarily attributable to the Corporation's
North American businesses, which benefited from an improving economy. As
compared to the corresponding period in 2003, a double-digit increase in sales
volume was experienced by the power tools and accessories and plumbing products
businesses in North America during both the quarter and the six months ended
June 27, 2004. Unit volume of the newly acquired Baldwin, Weiser, and MasterFix
businesses contributed 6% to the sales growth for both the three and six months
ended June 27, 2004, respectively, as compared to the 2003 period. Pricing
actions in response to competitive conditions had a 2% and 3% negative effect on
sales for the three-month and six-month periods ended June 27, 2004,
respectively, as compared to the corresponding periods in 2003. In addition to
pricing actions taken during the first six months of 2004 in response to
competitive conditions, the impact of pricing in non-U.S. markets as a result of
the favorable currency effects of U.S. dollar sourced products also negatively
impacted the comparison to the first six months of 2003. The effects of a weaker
U.S. dollar compared to other currencies, particularly the euro and, to a lesser
degree, the pound sterling and Canadian dollar, caused a 2% and 4% increase in
the Corporation's consolidated sales during the three- and six-month periods
ended June 27, 2004, respectively, as compared to the corresponding periods in
2003.
EARNINGS
The Corporation reported consolidated operating income of $171.6 million, or
13.2% of sales, during the three months ended June 27, 2004, as compared to
operating income of $109.9 million, or 10.1% of sales, for the corresponding
period in 2003. Operating income for the six months ended June 27, 2004 was
$279.3 million, or 11.7% of sales, compared to operating income of $182.0
million, or 9.0% of sales, for the corresponding period in 2003. While the
Corporation anticipates that it will continue to experience improvement in
operating income as a percentage of sales over the remainder of 2004 as compared
to 2003, it expects that the rate of improvement will moderate from the
percentage point improvement experienced in the second quarter of 2004 and
year-to-date 2004 periods given the increases in operating income as a
percentage of sales in each of the successive quarterly periods in 2003.
Consolidated gross margin as a percentage of sales was 37.6% and 35.8% for
the three-month periods ended June 27, 2004 and June 29, 2003, respectively, and
was 37.2% and 35.8% for the six-month periods ended June 27, 2004 and June 29,
2003, respectively. The results of restructuring and other productivity
initiatives, and, in Europe, foreign currency effects favorably impacted gross
margin as a percentage of sales. These positive factors were partially offset by
negative pricing actions taken by the Corporation as previously described.
Consolidated selling, general, and administrative expenses as a percentage
of sales were 24.4% and 25.6% for the three- and six-month periods ended June
27, 2004, respectively, compared to 25.7% and 26.8% for the three- and six-month
periods in the previous year, respectively. Selling, general, and administrative
expenses increased by $35.6 million and $67.7 million for the three and six
months ended June 27, 2004, respectively, over the corresponding periods in
2003. The incremental expenses of the newly acquired Baldwin, Weiser, and
MasterFix businesses accounted for approximately forty percent of the increase
during both periods, while approximately one-quarter and one-third of the
remaining increases during the
-20-
three and six months ended June 27, 2004, respectively, resulted from effects of
foreign currency translation.
Consolidated net interest expense (interest expense less interest income)
for the three months ended June 27, 2004, was $4.5 million compared to net
interest expense of $7.7 million for the three months ended June 29, 2003. Net
interest expense was $9.7 million for the six months ended June 27, 2004,
compared to net interest expense of $19.8 million for the corresponding period
in 2003. The decrease in net interest expense for the three months ended June
27, 2004 as compared to the 2003 period was primarily the result of higher
interest income associated with the Corporation's foreign cash investment
activities in the 2004 period coupled with lower borrowing levels. The decrease
in net interest expense for the six months ended June 27, 2004 as compared to
the 2003 period was primarily the result of lower borrowing levels, including
the effects of a bond repayment in April 2003, coupled with higher interest
income associated with the Corporation's foreign cash investment activities in
the 2004 period.
Other expense was $.2 million and $1.0 million for the three and six months
ended June 27, 2004, respectively, compared to $.6 million and $2.3 million for
the corresponding periods in 2003.
Consolidated income tax expense of $45.1 million and $72.5 million was
recognized on the Corporation's earnings from continuing operations before
income taxes of $166.9 million and $268.6 million for the three- and six-month
periods ended June 27, 2004, respectively. Consolidated income tax expense of
$26.9 million and $42.1 million was recognized on the Corporation's earnings
from continuing operations before income taxes of $101.6 million and $159.9
million for the three- and six-month periods ended June 29, 2003, respectively.
The Corporation's effective tax rate of 27% for the three and six months ended
June 27, 2004, approximated the 26% effective tax rates for the corresponding
periods in 2003. The Corporation's income tax expense and resultant effective
tax rate, for both the three- and six-month periods ended June 27, 2004 and June
29, 2003, were based upon the estimated effective tax rates applicable for the
full years, after giving effect to any significant items related specifically to
interim periods.
The Corporation reported net earnings from continuing operations of $121.8
million, or $1.50 per share on a diluted basis, for the three-month period ended
June 27, 2004, compared to net earnings from continuing operations of $74.7
million, or $.96 per share on a diluted basis, for the three-month period ended
June 29, 2003. The Corporation reported net earnings from continuing operations
of $196.1 million, or $2.44 per share on a diluted basis, for the six-month
period ended June 27, 2004, compared to $117.8 million, or $1.51 per share on a
diluted basis, for the corresponding period in 2003.
The Corporation reported net earnings (loss) from discontinued operations
of $(.2) million and $12.1 million during the three- and six-month periods ended
June 27, 2004, as compared to $1.0 million and $1.3 million during the
corresponding periods of 2003. The discontinued European security hardware
business consists of the NEMEF, Corbin, and DOM businesses. As more fully
described in Note 2 of Notes to Consolidated Financial Statements, net earnings
from discontinued operations for the six-month period ended June 27, 2004
included an $11.7 million net gain on sale of discontinued operations. That net
gain consisted of a $36.1 million gain on the sale during the first quarter of
2004 of two discontinued businesses (NEMEF and Corbin) partially offset by a
$24.4 million goodwill impairment charge associated with the remaining
discontinued business (DOM). The sale of the DOM business, currently under
contract for $28.0 million, is subject to regulatory approval.
-21-
The Corporation reported net earnings of $121.6 million, or $1.50 per share
on a diluted basis, for the three-month period ended June 27, 2004, as compared
to net earnings of $75.7 million, or $.97 per share on a diluted basis, for the
three-month period ended June 29, 2003. The Corporation reported net earnings of
$208.2 million, or $2.59 per share on a diluted basis, for the six-month period
ended June 27, 2004, compared to $119.1 million, or $1.52 per share on a diluted
basis, for the corresponding period in 2003.
BUSINESS SEGMENTS
As more fully described in Note 6 of Notes to Consolidated Financial Statements,
the Corporation operates in three reportable business segments: Power Tools and
Accessories, Hardware and Home Improvement, and Fastening and Assembly Systems.
Power Tools and Accessories
Segment sales and profit for the Power Tools and Accessories segment, determined
on the basis described in Note 6 of Notes to Consolidated Financial Statements,
were as follows (in millions of dollars):
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 27, 2004 June 29, 2003 June 27, 2004 June 29, 2003
- ------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $876.3 $786.2 $1,565.9 $1,452.6
Segment profit 124.9 87.3 199.0 146.8
- ------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers in the Power Tools and Accessories segment
during the second quarter of 2004 increased 11% over the 2003 level.
Sales in North America during the second quarter of 2004 increased at a
double-digit rate over the prior year level. Sales of professional power tools
and accessories increased at a double-digit rate as sales increases were
experienced in all major channels and product lines. In addition, some of the
favorable comparative sales performance for professional power tools and
accessories in 2004 relates to the retail inventory reductions that were
experienced in the 2003 period. Consumer power tools and accessories sales also
grew at a double-digit rate as sales of consumer power tools increased
significantly over the prior-year level due, in part, to a product line reset at
a large retailer. Sales of outdoor products benefited from a shift in the timing
of orders -- with outdoor product orders received in the first quarter in 2003
but received during the second quarter in 2004.
Sales in Europe increased at a mid-single-digit rate during the second
quarter of 2004 over 2003 led by a double-digit increase in sales of
professional power tools and accessories. In comparison to the second quarter of
2003, sales of European consumer power tools and accessories decreased at a low
single-digit rate during the three months ended June 27, 2004 as increases in
sales of consumer power tools were more than offset by decreases in sales of
outdoor products.
Sales in other geographic areas increased at a high single-digit rate in
the second quarter of 2004, as compared to the prior year level, as sales
increased at a double-digit rate in Asia and Australia and sales in Latin and
South America increased at a mid-single-digit rate.
Segment profit as a percentage of sales for the Power Tools and Accessories
segment was 14.3% for the three months ended June 27, 2004, as compared to 11.1%
for the corresponding 2003 period. That increase in segment profit as a
percentage of sales resulted from both an increase in gross margin as a
percentage of sales and a reduction in selling, general, and administrative
expenses as a percentage of sales. The gross margin improvement was
predominantly attributable to the positive results of restructuring and other
productivity initiatives and foreign currency effects,
-22-
partially offset by the negative effects of pricing actions. Selling, general
and administrative expenses as a percentage of sales decreased primarily from
the leverage of expense over higher sales volume.
Sales to unaffiliated customers in the Power Tools and Accessories segment
during the six months ended June 27, 2004 increased 8% over the 2003 level.
Sales in North America increased at a double-digit rate during the first
six months of 2004 over the prior year level. Sales of professional power tools
and accessories increased at a double-digit rate as sales increases were
experienced in all major channels and product lines. Consumer power tools and
accessories sales also grew at a double-digit rate during the six-month period,
led by a significant increase in sales of consumer power tools and a mid-single-
digit rate increase in sales of outdoor products during the first six months in
2004 over the corresponding period in the prior year.
Sales in Europe during the six months ended June 27, 2004 decreased at a
low single-digit rate from the prior year level. A low single-digit rate of
increase in sales of professional power tools and accessories during the first
six months of 2004 was more than offset by a high single-digit rate of decrease
in sales of consumer power tools and accessories. Weak economic conditions
continued to depress sales throughout most of Europe during the six-month
period.
Sales in other geographic areas increased at a high single-digit rate
during the first six months of 2004, as compared to the prior year level, as
sales increased throughout most of Latin America as well as in Australia and
Asia.
Segment profit as a percentage of sales for the Power Tools and Accessories
segment improved from 10.1% for the six months ended June 29, 2003 to 12.7% for
the corresponding period in 2004. That increase in segment profit as a
percentage of sales primarily resulted from a reduction in selling, general, and
administrative expenses as a percentage of sales due to the leverage of expenses
over higher sales volume. Gross margin as a percentage of sales also increased
slightly during the first six months of 2004 as compared to the corresponding
period in 2003 as the positive results of restructuring and other productivity
initiatives and foreign currency effects were partially offset by the negative
effects of pricing actions.
Hardware and Home Improvement
Segment sales and profit for the Hardware and Home Improvement segment,
determined on the basis described in Note 6 of Notes to Consolidated Financial
Statements, were as follows (in millions of dollars):
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 27, 2004 June 29, 2003 June 27, 2004 June 29, 2003
- ------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $235.9 $166.0 $456.3 $312.2
Segment profit 41.6 16.9 73.3 29.9
- ------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers in the Hardware and Home Improvement
segment increased 42% and 46% during the three months and the six months ended
June 27, 2004, respectively, over the corresponding periods in 2003. During the
three months ended June 27, 2004, incremental sales of the newly acquired
Baldwin and Weiser businesses accounted for 32 percentage points of the 42%
increase, while higher sales of the Price Pfister plumbing products and Kwikset
security hardware businesses accounted for the remaining 10 percentage points.
During the six months ended June 27, 2004, incremental sales of the Baldwin and
Weiser businesses accounted for 34 percentage points of the 46% increase, while
higher sales of the
-23-
Price Pfister and Kwikset businesses accounted for the remaining 12 percentage
points. Sales of plumbing products increased at a double-digit rate during both
periods, reflecting the expansion of listings at Lowe's Home Improvement
Warehouse (Lowe's) that occurred during the third quarter of 2003, as well as
growth at other retailers. Sales of Kwikset security hardware products increased
at a mid-single-digit rate in the second quarter of 2004 and a high single-digit
rate during the first six months of 2004 over the corresponding periods in 2003
due to strong retail sales.
Segment profit as a percentage of sales for the Hardware and Home
Improvement segment was 17.6% and 16.1% for the three and six months ended June
27, 2004, respectively, as compared to 10.2% and 9.6% for the three and six
months ended June 29, 2003, respectively. Segment profit as a percentage of
sales for the three- and six-month periods ended June 27, 2004, benefited from
significant gross margin improvement. That gross margin improvement was
primarily driven by the positive effects of restructuring initiatives and
productivity improvements. The newly acquired Baldwin and Weiser businesses
reduced segment profit as a percentage of sales for the Hardware and Home
Improvement segment during both the second quarter and first six months of 2004
by approximately one percentage point. While the Corporation anticipates that
the Hardware and Home Improvement segment will continue to experience increases
in segment profit as a percentage of sales over the remainder of 2004 as
compared to 2003, it expects that the rate of improvement will moderate from the
significant improvements experienced in the second quarter and first six months
of 2004 given the increases in the comparable segment profit as a percentage of
sales in each of the successive quarterly periods in 2003. In addition,
restructuring-related expenses -- associated with the integration of the Baldwin
and Weiser businesses into the Kwikset security hardware business --are
anticipated to increase during the remainder of 2004 as integration actions
intensify.
Fastening and Assembly Systems
Segment sales and profit for the Fastening and Assembly Systems segment,
determined on the basis described in Note 6 of Notes to Consolidated Financial
Statements, were as follows (in millions of dollars):
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 27, 2004 June 29, 2003 June 27, 2004 June 29, 2003
- ------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $152.0 $132.0 $290.4 $265.2
Segment profit 21.9 19.3 40.3 38.6
- ------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers in the Fastening and Assembly Systems
segment increased by 15% in the second quarter of 2004 and 10% in the first six
months of 2004 over the corresponding 2003 periods. During March 2004, the
Corporation completed the acquisition of the MasterFix B.V. (MasterFix), an
industrial fastening company with operations in Europe and Asia, which is
expected to generate annualized sales of approximately $20 million. Incremental
sales of the MasterFix business accounted for 4 percentage points of the 15%
sales increase during the second quarter of 2004 and 2 percentage points of the
10% sales increase during the first six months of 2004. Sales in Asia increased
at a double-digit rate during both the three- and six-month periods ended June
27, 2004 as compared to the corresponding periods in 2003. Sales of industrial
fasteners in the rest of the world grew at a double-digit rate during both the
second quarter and the first half of 2004 as well, but approximately half of the
rate of increase in sales in both periods was due to the acquisition of the
MasterFix business. Sales of automotive fasteners in the rest of the
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world grew at a mid-single-digit rate during both the three- and six-month
periods ended June 27, 2004, over the corresponding periods in 2003.
Segment profit as a percentage of sales for the Fastening and Assembly
Systems segment of 14.4% in the second quarter of 2004 decreased from 14.6% in
the prior year and from 14.6% in the first half of 2003 to 13.9% for the
corresponding period in 2004. Segment profit as a percentage of sales during the
second quarter approximated the prior year level as increased materials costs
were nearly offset by other productivity improvements. The decline during the
six-month period was attributable to unfavorable product mix as well as costs
associated with the transfer of production from a small manufacturing facility.
The acquisition of MasterFix did not have a significant effect on segment profit
of the Fastening and Assembly Systems segment during either the second quarter
or the first half of 2004.
Other Segment-Related Matters
As more fully described in Note 6 of Notes to Consolidated Financial Statements,
in determining segment profit, expenses relating to pension and other
postretirement benefits are based solely upon estimated service costs. Also, as
more fully described in the Corporation's Annual Report on Form 10-K for the
year ended December 31, 2003, in Item 7 under the caption "Financial Condition",
the Corporation anticipates that the expense recognized relating to its pension
and other postretirement benefits plans in 2004 will increase over the 2003
levels. The Corporation anticipates that its expense recognized relating to its
pension and other postretirement benefit plans will increase by approximately
$20 million over the 2003 levels. The adjustment to businesses' postretirement
benefit expense booked in consolidation as identified in the final table
included in Note 6 of Notes to Consolidated Financial Statements was $.2 million
and $3.9 million for the three-month periods ended June 27, 2004 and June 29,
2003, respectively. The adjustment to businesses' postretirement benefit expense
booked in consolidation as identified in the final table included in Note 6 of
Notes to Consolidated Financial Statements was $.3 million and $7.7 million for
the six-month periods ended June 27, 2004 and June 29, 2003, respectively. These
decreases reflect the impact excluded from the Corporation's reportable business
segments of that increase in pension and other postretirement benefits expense.
Expenses directly related to reportable business segments booked in
consolidation and, thus, excluded from segment profit for the reportable
business segments were $3.4 million and $5.5 million for the three- and
six-month periods ended June 27, 2004, respectively, and $1.2 million and $10.0
million for the three- and six-month periods ended June 29, 2003, respectively.
The principal item that contributed to the increase in expenses between the
three-month periods was certain expenses recorded in the 2004 quarter relating
to the Hardware and Home Improvement segment. The principal items that
contributed to the decrease in expenses between the six-month periods were a
higher level of restructuring-related expenses (associated with the Power Tools
and Accessories segment) that was recognized in the 2003 period.
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 6 of Notes to Consolidated
financial statements were $(16.6) million and $(34.2) million for the three- and
six-month periods ended June 27, 2004, respectively, and $(16.7) million and
$(30.7) million for the three- and six-month periods ended June 29, 2003,
respectively. The slight decrease in these unallocated Corporate center
operating expenses for the three months ended June 27, 2004, as compared to the
prior year level, was primarily due to lower employee-related expenses not
allocated directly to the Corporation's business segments, offset in large part
by higher reserves for
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certain environmental remediation matters established during the second quarter.
The increase in unallocated Corporate center operating expenses for the six
months ended June 27, 2004 was also due to the establishment of higher reserves
for certain environmental remediation matters, but was also due to higher
employee-related expenses not allocated directly to the Corporation's business
segments.
RESTRUCTURING ACTIVITY
The Corporation's restructuring activities are more fully discussed in Note 8 of
Notes to Consolidated Financial Statements and in the Corporation's Annual
Report on Form 10-K for the year ended December 31, 2003 in both Item 7 under
the caption "Restructuring Actions" and Item 8 in Note 19 of Notes to
Consolidated Financial Statements.
The Corporation realized incremental benefits of approximately $22 million
and $42 million during the three and six months ended June 27, 2004,
respectively, net of restructuring-related expenses. Of those restructuring
savings, approximately 85% benefited gross margin, with the remainder realized
through a reduction of selling, general, and administrative expenses.
The Corporation expects that incremental pre-tax savings associated with
the restructuring plan that was formulated in the fourth quarter of 2001 will
benefit results by approximately $60 million in 2004 and $10 million in 2005,
net of restructuring-related expenses. The Corporation expects that, of those
incremental pre-tax savings in 2004 and 2005, approximately 80-85% will benefit
gross margin, with the remainder realized through a reduction of selling,
general, and administrative expenses.
The Corporation expects that pre-tax savings associated with the
restructuring actions associated with the integration of Baldwin and Weiser into
its Kwikset security hardware business will benefit 2005 and 2006 results by
approximately $5 million and $25 million, respectively, net of
restructuring-related expenses. The restructuring-related expenses associated
with these integration plans will have an adverse pre-tax impact of
approximately $15 million in 2004.
Ultimate savings realized from restructuring actions may be mitigated by
such factors as economic weakness and competitive pressures, as well as
decisions to increase costs in areas such as promotion or research and
development above levels that were otherwise assumed.
FINANCIAL CONDITION
Operating activities provided cash of $154.2 million for the six months ended
June 27, 2004, as compared to $.6 million of cash provided in the corresponding
period in 2003. Cash flow from operating activities included positive cash flow
from discontinued operations of $2.0 million for the six months ended June 27,
2004 and negative cash flow from discontinued operations of $1.5 million for the
six months ended June 29, 2003. The increase in cash provided by operating
activities during the six months ended June 27, 2004, as compared to the prior
year level, was primarily a result of increased earnings from continuing
operations and lower cash usage associated with current assets and liabilities.
Increases in accounts payable and accrued liabilities -- associated with higher
production levels as well as the timing of payments -- exceeded the increase in
accounts receivable and inventory -- associated with the higher level of sales,
and, for inventory, to achieve higher service levels -- in the first half of
2004 as compared to the corresponding 2003 period.
As part of its capital management, the Corporation reviews certain working
capital metrics. For example, the Corporation evaluates its accounts receivable
and inventory levels through the
-26-
computation of days sales outstanding and inventory turnover ratio,
respectively. The number of days sales outstanding at June 27, 2004, decreased
slightly from the number of days sales outstanding at June 29, 2003. Average
inventory turns at June 27, 2004, increased modestly in comparison to the same
period in 2003. Average inventory turns as of June 29, 2003 were affected by
safety stock that the Corporation maintained during 2003 related to the
Corporation's restructuring program as well as to lower-than-expected sales in
the first half of 2003.
Investing activities for the six months ended June 27, 2004, provided cash
of $34.1 million as compared to $47.9 million of cash used during the
corresponding period in 2003. The increase in cash provided was primarily due to
$74.6 million of net proceeds from the sale of two of the discontinued European
security hardware businesses and proceeds from the sale of a former
manufacturing site. Investing activities for the six months ended June 27, 2004
included a payment of $7.9 million, net of cash acquired, related to the
purchase of MasterFix. The results of MasterFix, included in the consolidated
financial statements from the date of acquisition, were not material. While
there was a reduction in capital expenditures during the first six months of
2004 as compared to 2003, the Corporation anticipates that its capital spending
in 2004 will approximate $120 million -- an increase from the $102.5 million of
capital expenditures incurred in 2003.
In January 2004, the Corporation signed an agreement to sell its remaining
discontinued business, DOM, for $28.0 million. The sale of DOM is subject to
regulatory approval.
In July 2004, the Corporation announced that it has signed an agreement to
purchase the Tools Group from Pentair, Inc. for approximately $775 million in
cash. The transaction, which is subject to regulatory clearances and customary
closing conditions, is expected to close later in 2004.
Financing activities provided cash of $32.7 million during the six-month
period ended June 27, 2004, as compared to cash used of $322.8 million during
the corresponding period in 2003. Cash provided by financing activities for the
2004 period was principally attributable to $74.3 million in proceeds received
on the issuance of common stock under employee benefit plans, which exceeded
cash dividends of $33.4 million. Cash provided by financing activities in the
2004 period were reduced by the Corporation's dividend payments, which increased
- -- on a per share basis -- from $.24 during the first six months of 2003 to $.42
during the first six months of 2004. Cash used by financing activities for the
2003 period was principally attributable to the repayment of $309.5 million of
debt that was repaid on April 1, 2003. During the six months ended June 27,
2004, the Corporation repurchased 66,100 shares of its common stock at an
aggregate cost of $3.6 million. During the corresponding period in 2003, the
Corporation repurchased 2,011,570 shares of its common stock at an aggregate
cost of $77.5 million. As of June 27, 2004, the Corporation had remaining
authorization from its Board of Directors to repurchase 2,845,495 shares of its
common stock.
The variable-rate debt to total debt ratio, after taking interest rate
hedges into account, was 47% at both June 27, 2004 and December 31, 2003.
Average debt maturity was 8.3 years at June 27, 2004, compared to 8.8 years at
December 31, 2003.
The Corporation will continue to have cash requirements to support seasonal
working capital needs and capital expenditures, to pay interest, to service
debt, to complete the restructuring actions previously described, and, subject
to regulatory approvals, to complete the acquisition of Pentair's Tool Group. In
order to meet its cash requirements, the Corporation intends to use its existing
cash, internally generated funds, to borrow under its existing and future
unsecured revolving credit facility or under short-term borrowing facilities,
and to seek term financing. The Corporation believes that cash provided from
these sources will be adequate to meet its cash requirements over
-27-
the next twelve months.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the Reform Act) provides a
safe harbor for forward-looking statements made by or on behalf of the
Corporation. The Corporation and its representatives may, from time to time,
make written or verbal forward-looking statements, including statements
contained in the Corporation's filings with the Securities and Exchange
Commission and in its reports to stockholders. Generally, the inclusion of the
words "believe," "expect," "intend," "estimate," "anticipate," "will," and
similar expressions identify statements that constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 and that are intended to come
within the safe harbor protection provided by those sections. All statements
addressing operating performance, events, or developments that the Corporation
expects or anticipates will occur in the future, including statements relating
to sales growth, earnings or earnings per share growth, and market share, as
well as statements expressing optimism or pessimism about future operating
results, are forward-looking statements within the meaning of the Reform Act.
The forward-looking statements are and will be based upon management's
then-current views and assumptions regarding future events and operating
performance, and are applicable only as of the dates of such statements. The
Corporation undertakes no obligation to update or revise any forward-looking
statements, whether as a result of new information, future events, or otherwise.
By their nature, all forward-looking statements involve risks and
uncertainties. Actual results may differ materially from those contemplated by
the forward-looking statements for a number of reasons, including but not
limited to those factors identified in Item 1(g) of Part I of the Corporation's
Annual Report on Form 10-K for the year ended December 31, 2003.
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, 2003, 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.
ITEM 4. CONTROLS AND PROCEDURES
(a) Under the supervision and with the participation of the Corporation's
management, including the Corporation's Chief Executive Officer and Chief
Financial Officer, the Corporation carried out an evaluation of the
effectiveness of the design and operation of the Corporation's disclosure
controls and procedures as of June 27, 2004, pursuant to Exchange Act Rule
13a-15. Based upon that evaluation, the Corporation's Chief Executive Officer
and Chief Financial Officer have concluded that the Corporation's disclosure
controls and procedures are effective.
(b) There have been no changes in the Corporation's internal controls over
financial reporting during the quarterly period ended June 27, 2004, that have
materially affected, or are reasonably likely to materially affect, the
Corporation's internal control over financial reporting.
-28-
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 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,
management has undertaken, when appropriate, 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, and the fact that imposition of joint and several liability
with the right of contribution is possible under CERCLA and other laws and
regulations, the liability of the Corporation with respect to any site at which
remedial measures have not been completed cannot be established with certainty.
On the basis of periodic reviews conducted with respect to these sites, however,
the Corporation has established appropriate liability accruals.
The Corporation's estimate of costs associated with product liability
claims, environmental matters, and other legal proceedings is accrued if, in
management's judgment, the likelihood of a loss is probable and the amount of
the loss can be reasonably estimated. These accrued liabilities are not
discounted.
In the opinion of management, amounts accrued for exposures relating to
product liability claims, environmental matters, and other legal proceedings are
adequate and, accordingly, the ultimate resolution of these matters is not
expected to have a material adverse effect on the Corporation's consolidated
financial statements. As of June 27, 2004, the Corporation had no known probable
but inestimable exposures relating to product liability claims, environmental
matters, or other legal proceedings that are expected to have a material adverse
effect on the Corporation. There can be no assurance, however, that
unanticipated events will not require the Corporation to increase the amount it
has accrued for any matter or accrue for a matter that has not been previously
accrued because it was not considered probable.
-29-
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES
(e) Issuer Purchases of Equity Securities
- ------------------------------------------------------------------------------------------------------------------------------------
Total Number of Maximum Number
Shares Purchased of Shares that May
Total Number of Average Price as Part of Publicly Yet be Purchased
Period (a) Shares Purchased Paid Per Share Announced Plans (b) Under the Plan
- ------------------------------------------------------------------------------------------------------------------------------------
March 29, 2004 through
April 25, 2004 - $ - - 2,911,595
April 26, 2004 through
May 23, 2004 66,100 $54.90 66,100 2,845,495
May 24, 2004 through
June 27, 2004 - $ - - 2,845,495
- ------------------------------------------------------------------------------------------------------------------------------------
Total 66,100 $54.90 66,100 2,845,495
====================================================================================================================================
(a) The periods represent the Corporation's monthly fiscal calendar.
(b) All purchases were made under the Corporation's publicly announced
repurchase plan. In February 2003, the Corporation announced that it
had authorization from its Board of Directors to repurchase 1,911,545
shares of its common stock, which authorization was subsequently
increased by an additional two million shares. There is no expiration
date or current intent to terminate the repurchase plan.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit No. Description
10 The Black & Decker Supplemental Executive Retirement
Plan, as amended and restated.
31.1 Chief Executive Officer's Certification Pursuant to
Rule 13a-14(a)/15d-14(a) and Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 Chief Financial Officer's Certification Pursuant to
Rule 13a-14(a)/15d-14(a) and Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1 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.
32.2 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.
99 Purchase Agreement between The Black & Decker
Corporation and Pentair, Inc. dated as of July 16,
2004. (Certain schedules and attachments have been
omitted. The Corporation agrees to provide a copy of
these schedules and attachments to the Securities and
Exchange Commission upon request.)
-30-
On April 6, 2004, the Corporation furnished a Current Report on Form 8-K with
the Commission. That Current Report on Form 8-K, furnished pursuant to Item 9
and Item 12 of that Form, stated that, on April 6, 2004, the Corporation
announced that it expected to report sales growth of 16% for the first quarter
of 2004, or mid-single-digit growth excluding currency translation and
acquisitions, and that its first quarter diluted earnings per share from
continuing operations would be in the $.90-to-$.93 range.
On April 15, 2004, 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
2004 and, accordingly, had updated segment data for prior periods to reflect the
translation of segment assets, elements of segment profit, and certain other
segment data at the budgeted rates of exchange for 2004.
On April 20, 2004, the Corporation furnished a Current Report on Form 8-K with
the Commission. That Current Report on Form 8-K, furnished pursuant to Item 9
and Item 12 of that Form, stated that, on April 20, 2004, the Corporation had
reported its earnings for the three months ended March 28, 2004.
On June 9, 2004, the Corporation furnished a Current Report on Form 8-K with the
Commission. That Current Report on Form 8-K, furnished pursuant to Item 9 of
that Form, stated that the Corporation expected to meet or exceed its forecast
of mid-single-digit sales growth, excluding currency translation and
acquisitions, and securities analysts' mean estimate of diluted earnings per
share from continuing operations of $1.24 for the second quarter of 2004.
The Corporation did not file nor furnish any other reports on Form 8-K during
the three-month period ended June 27, 2004.
All other items were not applicable.
-31-
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 5, 2004