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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER
December 31, 1996 1-1553
THE BLACK & DECKER CORPORATION
(Exact name of registrant as specified in its charter)
Maryland 52-0248090
(State of Incorporation) (I.R.S. Employer Identification Number)
Towson, Maryland 21286
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 410-716-3900
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
registered
Common Stock, par value $.50 per share New York Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of January 31, 1997, was $3,169,660,087.
The number of shares of Common Stock outstanding as of January 31, 1997, was
94,264,984.
The exhibit index as required by Item 601(a) of Regulation S-K is included in
Item 14 of Part IV of this report.
Documents Incorporated by Reference: Portions of the registrant's definitive
Proxy Statement for the 1997 Annual Meeting of Stockholders are incorporated by
reference in Part III of this Report.
PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
The Black & Decker Corporation (collectively with its subsidiaries, the
Corporation), incorporated in Maryland in 1910, is a global marketer and
manufacturer of quality products used in and around the home and for
commercial applications. With products and services marketed in over 100
countries, the Corporation enjoys worldwide recognition of strong brand
names and a superior reputation for quality, design, innovation, and
value.
The Corporation is the world's leading producer of power tools,
power tool accessories and residential security hardware, and the
Corporation's product lines hold leading market share positions in these
industries. The household products business is the North American leader
and is among the major global competitors in the small electric household
appliance industry. The Corporation is the worldwide leader in the
manufacturing of steel golf club shafts and glass container-forming and
inspection equipment and is the largest global supplier of engineered
fastening and assembly systems to the markets it serves. These assertions
are based on total volume of sales of products compared to the total
market for those products and are supported by market research studies
sponsored by the Corporation as well as independent industry statistics
available through various trade organizations and periodicals, internally
generated market data, and other sources.
During 1995, the Corporation sold PRC Realty Systems, Inc. (RSI),
and PRC Environmental Management, Inc. (EMI), for aggregate proceeds of
approximately $100 million. In late 1995, the Corporation announced that
it had signed a definitive agreement to sell PRC Inc. to Litton
Industries, Inc., for approximately $425 million. Together, PRC Inc., RSI
and EMI composed the Corporation's former information technology and
services (PRC) segment. On February 16, 1996, the Corporation completed
the sale of PRC Inc. For additional information about the discontinued
PRC segment, see the discussion under the caption "Discontinued
Operations" and Note 2 of Notes to Consolidated Financial Statements
included in Item 8 of Part II of this report.
In April 1996, the Corporation replaced its former unsecured
revolving credit facility, which was scheduled to expire in 1997, with a
new unsecured revolving credit facility (the Credit Facility), which will
expire in 2001. Under the Credit Facility, which consists of two
individual facilities, the Corporation may borrow up to $1.0 billion. For
additional information about the Credit Facility, see Note 10 of Notes to
Consolidated Financial Statements included in Item 8 of Part II of this
report.
Under terms established upon the original sale of its Series B
Cumulative Convertible Preferred Stock (Series B), the Corporation had
the option, after September 1996, to require the conversion of the Series
B stock into shares of Common Stock under certain circumstances. On
October 14, 1996, the Corporation exercised its conversion option,
issuing 6,350,000 shares of Common Stock in exchange for all previously
outstanding shares of Series B stock. For additional information about
the conversion of the Series B stock and certain related matters, see
Note 15 of Notes to Consolidated Financial Statements included in Item 8
of Part II of this report.
During 1996, the Corporation commenced a restructuring of certain of
its operations and recorded a restructuring charge of $91.3 million
($74.8 million after tax). The major component of the restructuring
charge relates to the Corporation's elimination of approximately 1,500
positions. As a result, an accrual of $74.6 million for severance,
principally associated with the European businesses in the Consumer and
Home Improvement Products segment, is included in the restructuring
charge. For additional information about the restructuring charge, see
Notes 3 and 17 of Notes to Consolidated Financial Statements included in
Item 8 of Part II, and Management's Discussion and Analysis of Financial
Condition and Results of Operations included in Item 7 of Part II of this
report.
(b) DISCONTINUED OPERATIONS
On February 16, 1996, the Corporation announced that it had completed the
previously announced sale of PRC Inc., the remaining business in the
discontinued PRC segment, for $425.0 million. Earnings from discontinued
operations of $70.4 million for the year ended December 31, 1996,
consisted primarily of the gain on the sale of PRC Inc., net of
applicable income taxes of $55.6 million and related selling expenses.
Revenues and operating income of PRC Inc. for the period from January 1,
1996, through February 15, 1996, were not significant. The terms of the
sale of PRC Inc. provide for an adjustment to the sales price, expected
to be finalized in 1997, based upon the changes in the net assets of PRC
Inc. through February 15, 1996.
The Corporation acquired the former PRC segment through its
acquisition of Emhart Corporation in April 1989. The sale of the PRC
segment has allowed the Corporation to reduce its debt level and
concentrate on its more strategic businesses.
Operating results, net assets, and cash flows of the discontinued PRC
segment have been reported separately from the continuing operations of
the Corporation in the Consolidated Financial Statements included in Item
8 of Part II of this report.
Net earnings of the discontinued PRC segment were $70.4 million ($.73
per share on a fully diluted basis) in 1996, $38.4 million ($.41 per
share on a fully diluted basis) in 1995, and $37.5 million ($.44 per
share on a fully diluted basis), in 1994. The results of the discontinued
PRC segment do not reflect any expense for interest allocated by or
management fees charged by the Corporation.
(c) FINANCIAL INFORMATION ABOUT BUSINESS SEGMENTS
Unless otherwise indicated, the following discussion pertains to the
continuing operations of the Corporation and excludes any matters with
respect to the discontinued PRC segment.
The Corporation operates in two business segments: Consumer and Home
Improvement Products, including consumer and professional power tools and
accessories, household products, security hardware, outdoor products
(composed of electric lawn and garden tools and recreational products),
plumbing products, and product service; and Commercial and Industrial
Products, including fastening and assembly systems and glass
container-forming and inspection equipment. See Note 17 of Notes to
Consolidated Financial Statements included in Item 8 of Part II, and
Management's Discussion and Analysis of Financial Condition and Results
of Operations included in Item 7 of Part II of this report.
.
Sales from continuing operations by product group within business
segments are presented in the following table.
1996 SALES BY PRODUCT GROUP WITHIN BUSINESS SEGMENTS
(Millions of Dollars)
Year Ended
December 31, 1996
-----------------
Amount %
------ ---
Consumer and Home Improvement Products
Power Tools and Product Service .............. $1,948 40%
Household Products ........................... 788 16
Security Hardware ............................ 567 11
Accessories .................................. 337 7
Outdoor Products ............................. 333 7
Plumbing Products ............................ 239 5
------ ---
Total Consumer and Home Improvement Products.. 4,212 86%
Commercial and Industrial Products .............. 702 14%
------ ---
Total Sales ..................................... $4,914 100%
====== ===
There is no single class of product within the product groups listed
in the above table that represents more than 10% of the Corporation's
consolidated sales from continuing operations.
(d) NARRATIVE DESCRIPTION OF THE BUSINESS
Unless otherwise indicated, the following discussion pertains to the
continuing operations of the Corporation and excludes any matters with
respect to the discontinued PRC segment.
The following is a brief description of each of the business
segments.
Consumer and Home Improvement Products Segment
----------------------------------------------
The Consumer and Home Improvement Products segment is composed of
consumer (home use) and professional power tools and accessories,
household products, security hardware, outdoor products (composed of
electric lawn and garden tools and recreational products), plumbing
products, and product service. Power tools include both corded and
cordless electric portable power tools, such as drills, screwdrivers,
saws, sanders, and grinders; car care products; Workmate(R) workcenters
and related products; bench and stationary tools; and cordless lighting
products. Accessories include accessories and attachments for power
tools, and a variety of consumer-use fastening products, including
stapling products. Household products include a variety of both corded
and cordless small electric household appliances, including hand-held
vacuums; irons; lighting products; food mixers, processors and choppers;
can openers; blenders; coffeemakers; kettles; toasters and toaster ovens;
wafflebakers; knives; breadmakers; and wet scrubbers. Security hardware
includes both residential and commercial door hardware, including
locksets, high-security and electronic locks and locking devices; door
closers, hinges and exit devices, and master keying systems. Outdoor
products include a variety of both corded and cordless electric lawn and
garden products, such as hedge and yard (string) trimmers, lawn mowers,
edgers, blower/vacuums, and related lawn and garden accessories. Outdoor
products also include recreational products, which consist of a variety
of steel and composite golf club shafts and bicycle and specialty tubing.
Plumbing products include a variety of conventional and decorative
faucets, shower heads, and bath accessories.
Power tools, household products, electric lawn and garden tools, and
related accessories are marketed around the world under the Black &
Decker name as well as other trademarks and trade names, including,
without limitation, DeWALT, Black & Decker Industry & Construction, Elu,
VersaPak, Proline, Macho, TimberWolf, Cyclone, Trimcat, Scrugun, Wildcat,
Versa-Clutch, Workmate, ShopBox, Alligator, Air Station, Dustbuster,
SnakeLight, Toast-R-Oven, Handy Steamer, FloorBuster, ScumBuster, Quick
`N' Easy, Groom `N' Edge, Hedge Hog, Vac `N' Mulch, Reflex, MasterVac,
B&D, Piranha, Piranha Pro, Bullet, Pilot-Point, Scorpion Anti-Slip,
Master Series, PowerShot, EasyShot, Build-a-Set, and POP. Security
hardware products are marketed under a variety of trademarks and trade
names, including, without limitation, Kwikset, TITAN, TITAN Commercial
Series, Black & Decker, Geo, Lane, NEMEF, DOM, and Corbin Co.
Recreational products are marketed under the trademarks and trade names
True Temper, Dynamic, Dynamic Gold, Dynalite, EI-70, Comet, Rocket, True
Lite, SensiCore, TT Lite, Release, Assailant, Endurance, and others.
Plumbing products are marketed under the trademarks and trade names Price
Pfister, Black & Decker, The Pfabulous Pfaucet With The Pfunny Name,
Pforever Pfaucet, Genesis, Society Brass Collection, Verve, Windsor,
Georgetown, Jet Setter, Society Finishes, and others.
The Corporation's product service program supports its power tools,
electric lawn and garden products, and household products businesses.
Replacement parts and product repair services are available through a
network of company-operated service centers, which are identified and
listed in product information material generally included in product
packaging. At December 31, 1996, there were approximately 170 such
service centers, of which roughly one-half were located in the United
States. The remainder were located around the world, primarily in Europe,
Mexico, Australia, Canada, and Latin America. These company-operated
service centers are supplemented by several hundred authorized service
centers operated by independent local owners. The Corporation also
operates a reconditioning center in which power tools and household
appliances are reconditioned and then re-sold through numerous
company-operated factory outlets and service centers.
Most of the Corporation's consumer products sold in the United States
carry a two-year warranty, pursuant to which the consumer can return
defective products during the two years following the purchase in
exchange for a replacement product or repair at no cost to the consumer.
Consumer products sold outside the United States generally have similar
warranty arrangements. Such arrangements vary, however, depending upon
local market conditions and laws and regulations.
The Corporation's product offerings in the Consumer and Home
Improvement Products segment are sold primarily to retailers,
wholesalers, distributors, and jobbers, although some reconditioned power
tools and household products are sold through company-operated service
centers and factory outlets directly to end users. Certain security
hardware products are sold to commercial, institutional, and industrial
customers.
The principal materials used in the manufacturing of products in the
Consumer and Home Improvement Products segment are plastics, aluminum,
copper, steel, bronze, zinc, brass, certain electronic components, and
batteries. These materials are used in various forms. For example,
aluminum or steel may be used in wire, sheet, bar, and strip stock form.
The materials used in the various manufacturing processes are
purchased on the open market, and the majority are available through
multiple sources and are in adequate supply. The Corporation has
experienced no significant work stoppages to date as a result of
shortages of materials. The Corporation has certain long-term commitments
for the purchase of various component parts and raw materials and
believes that it is unlikely that any of these agreements would be
terminated prematurely. Alternate sources of supply at competitive prices
are available for most, if not all, materials for which long-term
commitments exist. The Corporation believes that the termination of any
of these commitments would not have a material adverse effect on
operations. From time to time, the Corporation enters into commodity
hedges on certain raw materials used in the manufacturing process to
reduce the risk of market price fluctuations. As of December 31, 1996,
the amount of product under commodity hedges was not material to the
Corporation.
As a global marketer and manufacturer, the Corporation purchases
materials and supplies from suppliers in many different countries around
the world. Certain of the finished products and component parts are
purchased from suppliers that have manufacturing operations in mainland
China. In addition, through an affiliate in mainland China, the
Corporation carries on manufacturing operations in that country. China
has been granted Most Favored Nation (MFN) status through July 3, 1997,
and currently there are no significant trade restrictions or tariffs
imposed on such products. The Corporation has investigated alternate
sources of supply and production arrangements in case the MFN status is
not extended. Alternative sources of supply are available, or can be
developed, for many of these products; and alternative production
arrangements can be made available at certain of the Corporation's other
manufacturing facilities. The Corporation believes that, although there
could be some disruption in the supply of certain of these finished
products and component parts if China's MFN status is not extended or if
significant trade restrictions or tariffs are imposed, the impact would
not have a material adverse effect on the operating results of the
Corporation over the long term. However, the Corporation believes that,
in the event that China's MFN status is not extended or significant trade
restrictions or tariffs are imposed, the impact would likely have
significant negative effect on the operating results of the Corporation
over the short term.
Principal manufacturing and assembly facilities in the United States
are located in Fayetteville and Asheboro, North Carolina; Easton and
Hampstead, Maryland; Anaheim and Pacoima, California; Denison, Texas;
Amory and Olive Branch, Mississippi; and Bristow, Oklahoma. Principal
distribution facilities in the United States, other than those located at
the manufacturing facilities listed above, are located in Fort Mill,
South Carolina, and Rancho Cucamonga, California.
Principal manufacturing and assembly facilities outside the United
States are located in Buchlberg and Bruhl, Germany; Molteno and Perugia,
Italy; Spennymoor and Rotherham, England; Brockville, Canada; Queretaro
and Mexicali, Mexico; Jurong Town, Singapore; Kuantan, Malaysia;
Newcastle, Australia; Uberaba, Brazil; and Apeldoorn, Netherlands.
Principal distribution facilities outside the United States, other than
those located at the manufacturing facilities listed above, are located
in Dardilly, France, and Idstein, Germany.
For additional information with respect to these and other
properties owned or leased by the Corporation, see Item 2, "Properties."
In 1996, the Corporation commenced a restructuring of certain of its
operations and recorded a restructuring charge of $91.3 million, of which
$87.7 million relates to the Consumer and Home Improvement Products
segment. For additional information about the restructuring charge, see
Notes 3 and 17 of Notes to Consolidated Financial Statements included in
Item 8 of Part II, and Management's Discussion and Analysis of Financial
Condition and Results of Operations included in Item 7 of Part II of this
report.
The Corporation holds various patents and licenses on many of its
products and processes in the Consumer and Home Improvement Products
segment. Although these patents and licenses are important, the
Corporation is not materially dependent on such patents or licenses with
respect to its operations.
The Corporation holds various trademarks that are employed in its
businesses and operates under various trade names, some of which are
stated above. The Corporation believes that these trademarks and trade
names are important to the marketing and distribution of its products.
A significant portion of the Corporation's sales in the Consumer and
Home Improvement Products segment is derived from the do-it-yourself and
home modernization markets, which generally are not seasonal in nature.
However, sales of household products and certain consumer power tools
tend to be higher during the period immediately preceding the Christmas
gift-giving season, while the sales of most electric lawn and garden
tools are at their peak during the winter and early spring period. Most
of the Corporation's other product lines within this segment are not
generally seasonal in nature but may be influenced by trends in the
residential and commercial construction markets and other general
economic trends.
The Corporation is one of the world's leaders in the manufacturing
and marketing of portable power tools, small electric household
appliances, electric lawn and garden tools, security hardware, plumbing
products, and accessories. Worldwide, the markets in which the
Corporation sells these products are highly competitive on the basis of
price, quality, and after-sale service. A number of competing domestic
and foreign companies are strong, well-established manufacturers that
compete on a global basis. Some of these companies manufacture products
that are competitive with a number of the Corporation's product lines.
Other competitors restrict their operations to fewer categories, and some
offer only a narrow range of competitive products. Competition from
certain of these manufacturers has been intense in recent years and is
expected to continue.
Commercial and Industrial Products Segment
------------------------------------------
The Corporation's fastening and assembly systems business manufactures an
extensive line of metal and plastic fasteners and engineered fastening
systems for commercial applications, including blind riveting, stud
welding, and assembly systems; specialty screws; prevailing torque nuts
and assemblies; and insert systems. The fastening and assembly systems
products are marketed under the trademarks and trade names Emhart
Fastening Teknologies, Dodge, Gripco, Gripco Assemblies, HeliCoil, NPR,
POP, Tucker, Warren, Dril-Kwik, Jack Nut, KALEI, Plastifast,
PLASTI-KWICK, POP-matic, POP NUT, WELL-NUT, Parker-Kalon, and others.
The principal markets for these products include the automotive,
transportation, construction, electronics, aerospace, machine tool, and
appliance industries. Substantial sales are made to automotive
manufacturers worldwide. Some of these products are also sold through the
Corporation's Consumer and Home Improvement Products segment.
Products are marketed directly to customers and also through
distributors and representatives. These products face competition from
many manufacturers in several countries. Product quality, performance,
reliability, price, delivery, and technical and application engineering
services are the primary competitive factors. Except for sales to
automotive manufacturers, which historically schedule plant shutdowns
during July and August of each year, there is little seasonal variation.
The Corporation owns a number of United States and foreign patents,
trademarks, and license rights relating to the fastening and assembly
systems business. While the Corporation considers those patents,
trademarks, and license rights to be valuable, the Corporation is not
materially dependent upon such patents or license rights with respect to
its operations.
Principal manufacturing facilities for the fastening and assembly
systems business in the United States are located in Danbury and Shelton,
Connecticut; Montpelier, Indiana; Campbellsville and Hopkinsville,
Kentucky; and Mt. Clemens, Michigan. Principal facilities outside the
United States are located in Birmingham, England; Giessen, Germany; and
Toyohashi, Japan. For additional information with respect to these and
other properties owned or leased by the Corporation, see Item 2,
"Properties."
The raw materials used in the fastening and assembly systems business
consist primarily of ferrous and nonferrous metals in the form of wire,
bar stock, strip and sheet metals, and chemical compounds, plastics, and
rubber. These materials are readily available from a number of suppliers.
The Corporation manufactures a variety of automatic, high-speed
machines for the glass container-forming industry, including machines for
supplying molten glass for the feeding and forming processes and
electronic inspection equipment for monitoring quality levels. These
machines are used in producing bottles, jars, tumblers, and other glass
containers primarily for food, beverage, pharmaceutical, and household
products packaging. The Corporation also provides replacement parts and a
variety of engineering, repairing, rebuilding, and other services to the
glass container-making industry throughout the world, and these
activities generate nearly two-thirds of the sales in this business.
These products and services are marketed principally under the trademarks
and trade names Emhart, Emhart Glass, Powers, FLEX-LINE, T-600 Forming
Control System, Verti-Flow Cooling Systems, PowerNET, QualiTrac, TIM, and
Total Inspection Machine.
The Corporation sells glass container-forming and inspection
equipment and replacement parts primarily through its own sales force
directly to glass container manufacturers throughout the world. The
business is not dependent on one or a few customers, the loss of which
would have a material adverse effect on operating results of the
business.
Some domestic manufacturers and a number of foreign manufacturers
compete with the Corporation in the manufacture and sale of various types
of glass container-forming and inspection equipment. However, the
Corporation believes that it is the leading supplier and offers the most
complete line of glass container-forming and inspection machinery, parts,
and service. In recent years, the glass container-forming and inspection
equipment business has experienced the effects of increased competition
with packaging applications of plastic and other non-glass containers.
Important competitive factors are price, technological and machine
performance features, product reliability, and technical and application
engineering services. There is little seasonal variation in this
business.
In 1996, the Corporation commenced a restructuring of certain of its
operations and recorded a restructuring charge of $91.3 million, of which
$3.6 million relates to the Commercial and Industrial segment. For
additional information about the restructuring charge, see Notes 3 and 17
of Notes to Consolidated Financial Statements included in Item 8 of Part
II, and Management's Discussion and Analysis of Financial Condition and
Results of Operations included in Item 7 of Part II of this report.
The Corporation owns a number of United States and foreign patents,
trademarks, and license rights relating to the glass container-forming
and inspection equipment business. While the Corporation considers those
patents, trademarks, and license rights to be valuable, this business is
not materially dependent upon such patents or license rights with respect
to its operations.
The principal glass container-forming and inspection equipment
manufacturing facility in the United States is located in Windsor,
Connecticut. Principal manufacturing facilities outside the United States
are located in Orebro and Sundsvall, Sweden. For additional information
with respect to these and other properties owned or leased by the
Corporation, see Item 2, "Properties."
The principal raw materials required for the glass container-forming
and inspection equipment business are steel, iron, copper and
copper-based materials, aluminum and refractory materials, and electronic
components. Manufactured parts are purchased from a number of suppliers.
All such materials and components are generally available in adequate
quantities.
Backlog
-------
The following is a summary of total backlog by business segment as of
the referenced dates.
(Millions of Dollars) December 31,
1996 1995
---- ----
Consumer and Home Improvement Products ......... $ 71 $ 96
Commercial and Industrial Products ............. 145 134
---- ----
Total Backlog ....................... $216 $230
==== ====
None of the backlog at December 31, 1996, or at December 31, 1995,
included unfunded amounts. At December 31, 1996, approximately 84% of the
backlog of the Commercial and Industrial segment is expected to be filled
in 1997, with the balance expected to be filled in 1998.
Other Information
-----------------
The Corporation's product development program in the United States for
the Consumer and Home Improvement Products segment is coordinated from
the Corporation's headquarters in Towson, Maryland, for power tools and
accessories; from Shelton, Connecticut, for household products; from
Anaheim, California, for residential security hardware; and from Pacoima,
California, for plumbing products. Outside the United States, product
development activities for power tools and accessories and household
products are coordinated from Slough, England, and are carried on at
facilities in Spennymoor, England; Brockville, Canada; Civate, Italy; and
Idstein, Germany.
Product development activities for the Commercial and Industrial
Products segment are currently carried on at various product or business
group headquarters or at principal manufacturing locations as previously
noted.
Costs associated with development of new products and changes to
existing products are charged to operations as incurred. See Note 1 of
Notes to Consolidated Financial Statements included in Item 8 of Part II
of this report for amounts of expenditures for product development
activities.
As of December 31, 1996, the Corporation employed approximately
29,200 persons in its operations worldwide. Approximately 2,000 employees
in the United States are covered by collective bargaining agreements.
During 1996, several collective bargaining agreements in the United
States were negotiated without material disruption to operations. A
number of other agreements are scheduled for negotiation during 1997.
Also, the Corporation has government-mandated collective bargaining
arrangements or union contracts with employees in other countries. The
Corporation's operations have not been affected significantly by work
stoppages and, in the opinion of management, employee relations are good.
The Corporation's operations worldwide are subject to certain
foreign, federal, state, and local environmental laws and regulations. In
recent years, many state and local governments have enacted laws and
regulations that govern the labeling and packaging of products and limit
the sale of products containing certain materials deemed to be
environmentally sensitive. These laws and regulations not only limit the
acceptable methods for disposal of products and components that contain
certain substances, but also require that products be designed in a
manner to permit easy recycling or proper disposal of environmentally
sensitive components such as nickel cadmium batteries. The Corporation
seeks to comply fully with these laws and regulations. Although
compliance involves continuing costs, it has not materially increased
capital expenditures and has not had a material adverse effect on the
Corporation.
Pursuant to authority granted under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (CERCLA), the United
States Environmental Protection Agency (EPA) has issued a National
Priority List (NPL) of sites at which action is to be taken by the EPA or
state authorities to mitigate the risk of release of hazardous substances
into the environment. The Corporation is engaged in continuing activities
with regard to various sites on the NPL and other sites covered under
CERCLA. As of December 31, 1996, the Corporation had been identified as a
potentially responsible party (PRP) in connection with approximately 22
sites being investigated by federal or state agencies under CERCLA. The
Corporation also is engaged in site investigations and remedial
activities to address environmental contamination from past operations at
current and former manufacturing facilities in the United States and
abroad.
To minimize the Corporation's potential liability, when appropriate,
management has undertaken, among other things, active participation in
steering committees established at the sites and has agreed to
remediation through consent orders with the appropriate government
agencies. Due to uncertainty over the Corporation's involvement in some
of the sites, uncertainty over the remedial measures to be adopted at
various sites and facilities, and the fact that imposition of joint and
several liability with the right of contribution is possible under
CERCLA, 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, appropriate liability accruals have been
established by the Corporation. As of December 31, 1996, the
Corporation's aggregate probable exposure with respect of environmental
liabilities, for which accruals have been established in the Consolidated
Financial Statements, was $51.5 million. With respect to environmental
liabilities, unless otherwise noted below, the Corporation does not
believe that its liability with respect to any individual site will
exceed $10.0 million.
Pursuant to the terms of the Corporation's agreement to sell the
Bostik chemical adhesives business to Orkem S.A., the Corporation agreed
to indemnify Orkem against costs incurred or claims made with respect to
environmental matters at Bostik facilities within four years from the
date of sale to the extent that the aggregate costs and claims exceeded
$5.0 million; provided, however, that the Corporation's total liability
to Orkem for all environmental matters with respect to Bostik facilities
shall not exceed $10.0 million. By letter dated November 22, 1993,
Orkem's successor in interest ("Total, S.A.") notified the Corporation
that within the four-year period following the closing it had incurred
costs of approximately $5.4 million and demanded payment of the amount in
excess of $5.0 million. Total, S.A. also demanded indemnification for a
number of environmental conditions identified in its letter, the cost of
which it estimated would exceed the $10.0 million limitation of the
Corporation's indemnification obligation. The Corporation and Total, S.A.
continue to review the indemnification claims and, as of December 31,
1996, the Corporation had paid $3.6 million of the claims.
In 1985, as a consequence of investigations stemming from an
underground storage tank leak from a nearby gas station, the Corporation
discovered certain groundwater contamination at its facility located in
Hampstead, Maryland. Upon discovery of the groundwater contamination, the
Corporation, in cooperation with the Department of Environment of the
State of Maryland (MDE), embarked on a program to remediate groundwater
contamination and to prevent the migration of contaminants, including
installation of an air stripping system designed to remove contaminants
from groundwater. The Corporation, in cooperation with MDE, conducted
extensive investigations as to potential sources of the groundwater
contamination. Following submission of the results of its investigations
to MDE, the Corporation proposed to expand its groundwater remediation
system and also proposed to excavate and remediate soils in the vicinity
of the plant that appear to be a source area for certain contamination.
The Corporation has received all permits necessary to operate its
expanded groundwater treatment facility at the Hampstead facility, and
the system is fully operational.
In October 1994, suit was filed in the United States District Court
for the District of Maryland against the Corporation by the owners of a
farm that is adjacent to the Hampstead facility (Leister et al. v. The
Black & Decker Corporation (No. JFM 94-2809)). Plaintiffs claim that
contamination, allegedly emanating from the facility, has migrated in
groundwater and has adversely affected plaintiffs' property. Plaintiffs
have alleged various claims for relief, including causes of action under
the Federal Resource Conservation and Recovery Act, CERCLA, and the Clean
Water Act, as well as various state tort claims, including claims for
negligence, nuisance, intentional misrepresentation, and negligent
misrepresentation. Plaintiffs seek various forms of relief, including
compensatory damages of $20.0 million and punitive damages of $100.0
million.
The Corporation filed various motions to, among other things, dismiss
plaintiffs' claims, and the Court granted the Corporation's motion to
dismiss all but one claim. Following that ruling, both the Corporation
and plaintiffs filed motions for summary judgment on the remaining claim,
and the Corporation's motion was granted. Plaintiffs have filed an
appeal, which is pending before the United States Court of Appeals for
the Fourth Circuit.
Pending plaintiffs' appeal before the United States Court of Appeals
for the Fourth Circuit, plaintiffs filed a state action in the Circuit
Court for Baltimore County, Maryland (Leister et al. v. Black & Decker
(U.S.) Inc. (03-C-96-005347)) alleging common law claims for strict
liability, negligence, trespass, nuisance, intentional misrepresentation
and negligent misrepresentation arising from the same facts as alleged in
the federal court action. The Corporation filed a motion for dismissal
and/or summary judgment of the state court claims, and summary judgment
was granted on December 23, 1996. Plaintiffs have filed an appeal of this
decision.
The Corporation believes that plaintiffs' claims in both the federal
and state court actions involving the Hampstead facility are without
merit and intends to defend vigorously against the allegations made in
those actions. Management is of the opinion that the ultimate resolution
of those actions will not have a material adverse effect on the
Corporation.
In December 1992, Price Pfister and numerous other plumbing
manufacturers were sued by the State of California in the Superior Court
for the City and County of San Francisco. On the same day, a separate
suit was filed by the Natural Resources Defense Council (NRDC) and the
Environmental Law Foundation (ELF). The suits filed by the State of
California and the NRDC and the ELF included substantially the same
allegations, namely that lead leaches from brass faucets into tap water
in violation of California's lead discharge prohibitions of Proposition
65, that the manufacture and sale of brass faucets exposes individuals to
lead without a proper "clear and reasonable warning," and that such
violations of Proposition 65 also constitute unfair business practices
under California law. The NRDC and the ELF suit also alleged breach of
warranty and breach of contract claims against Price Pfister and the
other plumbing manufacturers. The State of California and the NRDC and
the ELF generally sought the following relief: (a) elimination of lead
from brass faucets; (b) improved public disclosure programs regarding
lead in brass faucets; (c) commencement of a public information campaign
regarding alleged health risks arising from lead exposure; (d)
restitution to purchasers of faucets; (e) statutory penalties and
punitive damages in unstated amounts; and (f) attorneys' fees and other
costs.
Subsequent to the filing of their complaints and the filing by
plaintiffs and the Corporation of numerous motions, in May 1994, Judge
Bea of the California Superior Court for the City and County of San
Francisco issued an order rejecting the Attorney General's claims that
lead which leaches from faucets constitutes a prohibited discharge of
lead into water or onto or into land where lead will pass or is at least
likely to pass into a source of drinking water. Judge Bea's order granted
the Attorney General 20 days to amend his complaint to state a cause of
action under Proposition 65. In the companion case involving similar
claims by the NRDC and the ELF, Judge Cahill of the California Superior
Court for the City and County of San Francisco denied defendants'
challenges to the standing of the NRDC and the ELF to bring these claims
and refused to stay the proceedings pending resolution of the claims by
the Attorney General.
Subsequent to Judge Bea's order rejecting the Attorney General's
claims and granting the Attorney General 20 days to amend his complaint
to state a cause of action under Proposition 65, the Attorney General
filed an appeal of Judge Bea's order. Prior to a final ruling on the
appeal in the case involving the Attorney General's claims, the
Corporation entered into a settlement agreement pursuant to which the
Corporation agreed to take certain actions with respect to the future
sale of its products in California and agreed to the payment of specified
amounts to the State of California and the attorneys for the NRDC and the
ELF.
Following the settlement of these cases the Court of Appeal of the
State of California affirmed the decision of the trial court in rejecting
the Attorney General's claim and in concluding that lead which leaches
from faucets is not a prohibited discharge of lead into a "source of
drinking water." Subsequent to this decision, the NRDC and the ELF as
well as a number of other environmental interest groups filed motions
requesting leave to intervene in the case for purposes of appealing the
decision of the Court of Appeal to the California Supreme Court. In
December 1996, the California Supreme Court reversed the decisions of the
trial court and the Court of Appeal and concluded that a faucet was a
source of drinking water within the meaning of Proposition 65.
Notwithstanding this decision, in light of the previous settlements with
the Attorney General and the NRDC and ELF, management is of the opinion
that the resolution of this matter will not have a material adverse
effect on the Corporation.
In 1988, J.C. Rhodes, a former subsidiary of Emhart Industries, Inc.,
was notified by both the EPA and the State of Massachusetts that it was
considered a PRP with regard to the Sullivan's Ledge site in New Bedford,
Massachusetts. Emhart and 11 other companies formed a PRP group to
respond to the EPA's and Massachusetts' demands, and, in September 1990,
executed a Consent Order to perform the remedial action recommended by
the EPA in its Record of Decision. The remedial action is now underway.
A second area of the Sullivan's Ledge site, known as Middle Marsh,
was investigated by the EPA, and a Record of Decision was issued in
September 1991. In September 1992, Emhart, 11 other companies, and the
City of New Bedford, Massachusetts, executed a Consent Order to perform
the remediation required in the Middle Marsh section of the site. At this
time, Emhart's estimated liability for remediation cost at the Sullivan's
Ledge site is estimated at $2.0 million.
The Corporation has been investigating certain environmental matters
at its NEMEF security hardware facility in the Netherlands. The NEMEF
facility has been a manufacturing operation since 1921. During building
construction in 1990, soil and groundwater contamination was discovered
on the property. Investigations to understand the full extent of the
contamination were undertaken at that time, and those investigations are
continuing. The Corporation is continuing to work with consultants and
local authorities to develop a comprehensive remediation plan in
conjunction with neighboring property owners.
In the opinion of management, the costs of compliance with respect to
the matters set forth above and other remedial costs have been adequately
accrued, and the ultimate resolution of these matters will not have a
material adverse effect on the Corporation. The ongoing costs of
compliance with existing environmental laws and regulations have not had,
nor are they expected to have, a material adverse effect upon the
Corporation's capital expenditures or financial position.
(e) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC
OPERATIONS
Reference is made to Note 17 of Notes to Consolidated Financial
Statements, entitled "Business Segments and Geographic Areas", included
in Item 8 of Part II and to the section entitled "Business Segments" in
Management's Discussion and Analysis of Financial Condition and Results
of Operations included in Item 7 of Part II of this report.
(f) EXECUTIVE OFFICERS AND OTHER SENIOR OFFICERS OF THE
CORPORATION
The current Executive Officers and Other Senior Officers of the
Corporation, their ages, current offices or positions, and their business
experience during the past five years is set forth below.
Nolan D. Archibald - 53
Chairman, President, and Chief Executive Officer,
January 1990 - present.
Joseph Galli - 38
Executive Vice President and President - Power Tools and Accessories,
December 1996 - present;
Group Vice President and President - Power Tools and Accessories,
March 1996 - December 1996;
Group Vice President and President - Power Tools,
October 1995 - March 1996;
Vice President and President - North American Power Tools,
October 1993 - October 1995;
President - U.S. Power Tools,
February 1993 - October 1993;
Vice President Sales and Marketing - U.S. Power Tools,
May 1991 - February 1993.
Paul A. Gustafson - 54
Executive Vice President and President - Fastening and
Assembly Systems Group,
December 1996 - present;
Group Vice President and President - Emhart Fastening Teknologies,
July 1996 - December 1996;
President - Emhart Fastening Teknologies,
April 1990 - July 1996.
Dennis G. Heiner - 53
Executive Vice President and President - Security Hardware Group,
January 1992 - present.
Michael P. Hoopis - 45
Executive Vice President and President - Household Products Group,
December 1996 - present;
Group Vice President and President - Worldwide Household Products Group,
July 1996 - December 1996;
President - Price Pfister,
May 1992 - July 1996;
President - Kwikset,
July 1991 - May 1992.
Charles E. Fenton - 48
Senior Vice President and General Counsel,
December 1996 - present;
Vice President and General Counsel,
May 1989 - December 1996.
Barbara B. Lucas - 51
Senior Vice President - Public Affairs and Corporate Secretary,
December 1996 - present;
Vice President - Public Affairs and Corporate Secretary,
July 1985 - December 1996.
Thomas M. Schoewe - 44
Senior Vice President and Chief Financial Officer,
December 1996 - present;
Vice President and Chief Financial Officer,
October 1993 - December 1996;
Vice President - Finance,
January 1990 - October 1993.
Leonard A. Strom - 51
Senior Vice President - Human Resources,
December 1996 - present;
Vice President - Human Resources,
May 1986 - December 1996.
T. Tracy Bilbrough - 40
Vice President and President - Eastern Hemisphere Group,
Power Tools and Accessories,
December 1996 - present;
President - Eastern Hemisphere,
October 1995 - December 1996;
Vice President Marketing and Sales, Professional Products - North
American Power Tools,
September 1992 - October 1995;
Director of Marketing, Professional Products - North American
Power Tools,
August 1990 - September 1992.
Ronald B. Cooper - 42
Vice President and President - Plumbing Products,
December 1996 - present;
President - Price Pfister,
August 1996 - December 1996;
President - Accessories,
March 1996 - August 1996;
President and Chief Executive Officer - Interrealty Company,
March 1995 - September 1995;
President, Commercial Systems Group - PRC,
August 1992 - March 1995;
President and Chief Executive Officer - GE Consulting Services Division,
October 1990 - August 1992.
Scott C. Hennessy - 37
Vice President and President - Recreational Products,
December 1996 - present;
General Manager and President - True Temper Sports,
January 1996 - December 1996;
Vice President Sales and Marketing - True Temper Sports,
August 1994 - January 1996;
Vice President Sales and Marketing - North American Accessories,
October 1990 - August 1994.
Kathleen W. Hyle - 38
Vice President and Treasurer,
May 1994 - present;
Assistant Treasurer, Domestic,
December 1992 - May 1994;
Director, Domestic Finance,
February 1990 - December 1992.
Effective as of February 28, 1997, Mrs. Hyle will be leaving the
Corporation.
Stephen F. Reeves - 37
Vice President and Controller,
September 1996 - present;
Corporate Controller,
May 1994 - September 1996;
Senior Manager - Ernst & Young LLP,
October 1988 - April 1994.
James J. Roberts - 38
Vice President, Vice President/General Manager - U.S. Accessories,
December 1996 - present;
Vice President and General Manager - U.S. Accessories,
August 1996 - December 1996;
Vice President and General Manager - Professional Power Tools, Europe,
April 1994 - August 1996;
Vice President Sales and Marketing - U.S. Consumer Power Tools,
April 1993 - April 1994;
Vice President Marketing - U.S. Power Tools,
June 1991 - April 1993.
Kurt E. Siegenthaler - 54
Vice President and President - Glass Container-Forming and
Inspection Equipment,
December 1996 - present;
President - Emhart Glass,
July 1993 - December 1996;
President - Packaging Technology Division SIG, Schweizerische
Industrie-Gesellschaft,
April 1989 - June 1993.
Ian Stuart - 46
Vice President and President - Latin American Group, Power Tools
and Accessories,
December 1996 - present;
President - Latin American Group,
March 1995 - December 1996;
Vice President and General Manager - Latin American Caribbean Area,
July 1992 - March 1995;
Vice President Marketing - International Group,
January 1991 - July 1992.
ITEM 2. PROPERTIES
The Corporation and its subsidiaries operate 48 manufacturing facilities around
the world, including 25 located outside the United States in 13 foreign
countries. The major properties associated with each business segment are listed
in Narrative Description of the Business in Item 1(d) of Part I of this report.
The Corporation owns most of its facilities with the exception of the
following major leased facilities.
In the United States: Mt. Clemens, Michigan; Amory, Mississippi; Shelton,
Connecticut; and Towson, Maryland.
Outside the United States: Rotherham, England; Kuantan, Malaysia; and
Mexicali, Mexico.
Additional property both owned and leased by the Corporation in Towson,
Maryland, is used for administrative offices. Subsidiaries of the Corporation
lease certain locations primarily for smaller manufacturing and/or assembly
operations, service operations, sales and administrative offices, and for
warehousing and distribution centers. The Corporation also owns a manufacturing
plant which is located on leased land in Jurong Town, Singapore.
The Corporation's average utilization rate for its manufacturing facilities
for 1996 was in the range of 75% to 85%. The Corporation continues to evaluate
its worldwide manufacturing cost structure to identify opportunities to improve
capacity utilization and will take appropriate action as deemed necessary.
Management believes that its owned and leased facilities are suitable and
adequate to meet the Corporation's anticipated needs.
ITEM 3. LEGAL PROCEEDINGS
The Corporation is involved in various lawsuits in the ordinary course of
business. These lawsuits primarily involve claims for damages arising out of the
use of the Corporation's products and allegations of patent and trademark
infringement. The Corporation also is involved in litigation and administrative
proceedings involving employment matters and commercial disputes. Some of these
lawsuits include claims for punitive as well as compensatory damages. The
Corporation, using current product sales data and historical trends, actuarially
calculates the estimate of its exposure for product liability. The Corporation
is insured for product liability claims for amounts in excess of established
deductibles and accrues for the estimated liability as described above up to the
limits of the deductibles. All other claims and lawsuits are handled on a
case-by-case basis.
As previously noted under Item 1 of Part I of this report, the Corporation
also is party to litigation and administrative proceedings with respect to
claims involving the discharge of hazardous substances into the environment.
Certain of these matters assert damages and liability for remedial
investigations and clean-up costs with respect to sites at which the Corporation
has been identified as a PRP under federal and state environmental laws and
regulations. Other matters involve sites that the Corporation owns and operates
or previously sold.
On or about March 31, 1989, a purported class action complaint, titled
Cooperman et al. v. The Black & Decker Corporation et al., No. 89Civ 2177 (the
Cooperman Complaint), was filed in the United States District Court for the
Southern District of New York alleging that the Corporation's settlement
agreement with Topper Acquisition Corp. and Topper L.P., bidders for Emhart
Corporation, and the payments by the Corporation thereunder violated the federal
securities laws, particularly sections 10(b) and 14(d) of the Securities
Exchange Act of 1934, as amended, and the rules and regulations, including rules
10b-13 and 14d-10, thereunder. Plaintiffs initially sought injunctive relief
prohibiting the Corporation from consummating its tender offer for Emhart and
later sought rescissory damages as well as costs, disbursements, and reasonable
attorneys' and other fees. The Corporation's request for leave to move for
summary judgment was denied by the District Court, and the District Court issued
an order directing that discovery be completed by June 1, 1991. The parties
subsequently entered into a number of stipulations and orders amending the date
for the completion of discovery and the date before which the Corporation could
again apply for leave to move for summary judgment. In January 1997, plaintiffs
voluntarily withdrew the Cooperman Complaint.
In March 1990, the Corporation's former PRC subsidiary was served by the
Inspector General of the United States Department of Defense with a subpoena for
documents from the period 1986 to 1990 in connection with a criminal
investigation of bid and proposal cost charging practices of certain divisions
of PRC. Since that date, PRC has been served with two additional Inspector
General subpoenas for marketing and proposal-related documents. During 1992, PRC
and some former employees also received grand jury subpoenas issued by the
United States District Court for the Eastern District of Virginia. During 1993,
PRC received an additional subpoena from the grand jury directing PRC to provide
information concerning the procurement and government property management
functions of certain divisions of PRC. In January 1996, the United States
Attorney advised PRC that the criminal investigation has concluded without
further action and the matter was transferred to the Civil Division of the
Department of Justice. In connection with the Corporation's sale of PRC to
Litton Industries, Inc. in 1996, the Corporation agreed to indemnify Litton for
various liabilities, including liabilities relating to the matters subject to
the foregoing subpoenas. The Corporation cannot predict the eventual outcome of
these investigations, but, based on currently available information, management
believes that the investigations will not have a material adverse effect on the
Corporation.
In June 1996, Emerson Electric Company ("Emerson") filed suit against the
Corporation in the United States District Court for the Southern District of New
York (Emerson Electric Co. v. Black & Decker Inc. et al., No. 96Civ 4334)
alleging that the Corporation made false representations in connection with the
sale of the Mallory Controls business to Emerson in 1991. Emerson's suit
includes claims for negligent misrepresentation and fraud as well as breach of
contract, and asserts liability for contribution relating to the settlement by
Emerson of a suit arising out of the Mallory Controls business. Emerson seeks
damages in the amount of $15 million on the negligent misrepresentation, fraud
and breach of contract claims, and damages of not less than $8 million on the
contribution claim. The Corporation believes that Emerson's claims are without
merit and intends to defend vigorously against the allegations made in this
matter. In the opinion of management, the ultimate resolution of this matter
will not have a material adverse effect on the Corporation.
In January 1996, Liberty Mutual Insurance Company ("Liberty Mutual") filed
suit in the Superior Court in Massachusetts against the Corporation and certain
of its subsidiaries seeking a declaratory judgment that various insurance
policies issued by Liberty Mutual to the Corporation did not cover liability and
expenses relating to certain on-site and off-site environmental contamination.
The Corporation and subsidiary defendants removed the case to the United States
District Court for the Eastern District of Massachusetts (Liberty Mutual
Insurance Company v. The Black & Decker Corporation et al., No. 96-10804-DPW),
and filed a counterclaim asserting, among other things, bad faith, unlawful
business practices and breach of contract on the part of Liberty Mutual.
In April 1996, the Corporation filed a separate suit in the Circuit Court
for Baltimore County, Maryland against Liberty Mutual and certain other primary
and excess insurance carriers (Black & Decker (U.S.) Inc. et al. v. Liberty
Mutual Insurance Company et al. (03-C-96-003801)) asserting that various
insurance policies issued by Liberty Mutual and the other carriers cover
liability and expenses associated with groundwater and soil contamination claims
alleged to have occurred at the Corporation's Hampstead, Maryland facility. In
December 1996, Liberty Mutual filed a counterclaim with the Circuit Court
incorporating the allegations made in the suit pending in the United States
District Court for the Eastern District of Massachusetts and seeking, in effect,
to transfer the Massachusetts litigation to Baltimore County. The Corporation
has filed a motion to strike the counterclaim or, in the alternative, to dismiss
or stay the counterclaim.
In the opinion of management, amounts accrued for awards or assessments in
connection with the matters specified above and in Item 1 of Part I of this
report with respect to environmental matters and other litigation and
administrative proceedings to which the Corporation is a party are adequate and,
accordingly, ultimate resolution of these matters will not have a material
adverse effect on the Corporation.
As of December 31, 1996, the Corporation had no known probable but
inestimable exposures for awards and assessments in connection with the matters
specified above and in Item 1 of Part I of this report with respect to
environmental matters and other litigation and administrative proceedings that
could have a material effect on the Corporation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE COMPANY STOCK AND RELATED SECURITY
HOLDER MATTERS
(a) MARKET INFORMATION
The Corporation's Common Stock is listed on the New York Stock Exchange
and the Pacific Stock Exchange.
The following table sets forth, for the periods indicated, the high
and low sales prices of the Common Stock as reported in the consolidated
reporting system for the New York Stock Exchange Composite Transactions:
------------------------------------------------------------------------
Quarter 1996 1995
January to March $38-1/4 to $30-3/4 $29-5/8 to $22-7/8
April to June $44-1/4 to $35-1/8 $33 to $27-1/2
July to September $42-3/8 to $32-7/8 $34-5/8 to $30-1/4
October to December $42-1/2 to $29 $38-1/8 to $32-1/8
-------------------------------------------------------------------------
(b) HOLDERS OF THE CORPORATION'S CAPITAL STOCK
As of January 31, 1997, there were 18,581 holders of record of the
Corporation's Common Stock.
(c) DIVIDENDS
The Corporation has paid consecutive quarterly dividends on its Common
Stock since 1937. Future dividends necessarily will depend upon the
Corporation's earnings, financial condition, and other factors. The
Credit Facility does not restrict the Corporation's ability to pay
regular dividends in the ordinary course of business on the Common Stock.
Quarterly dividends per common share for the most recent two years
are as follows:
------------------------------------------------------------------------
Quarter 1996 1995
------- ---- ----
January to March ....................... $.12 $.10
April to June .......................... .12 .10
July to September ...................... .12 .10
October to December .................... .12 .10
---- ----
$.48 $.40
==== ====
--------------------------------------------------------------------------
For the first three quarters in 1996 and during each of the quarters
in 1995, the Corporation declared a dividend of approximately $2.9 million
on its shares of Series B Cumulative Convertible Preferred Stock (Series
B). On October 14, 1996, the Corporation exercised its conversion option,
issuing 6,350,000 shares of Common Stock in exchange for the 150,000 shares
of Series B stock previously outstanding. Dividends of approximately $.4
million relating to the period from September 29, 1996, through October 13,
1996, were paid to the holder of the Series B stock. During the most recent
two years, no other dividends were declared or paid in respect of shares of
preferred stock of the Corporation.
Common Stock: 150,000,000 authorized, $.50 par value; 94,248,807 shares
and 86,447,588 shares outstanding as of December 31, 1996
and 1995, respectively.
Preferred Stock: 5,000,000 authorized, without par value; no shares
outstanding as of December 31, 1996; 150,000 shares of
Series B Cumulative Convertible Preferred Stock
outstanding as of December 31, 1995.
ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR SUMMARY
(Millions of Dollars Except Per Share Data)
- ------------------------------------------------------------------------------------------------------
1996(a) 1995(b) 1994 1993(c) 1992(d)
- ------------------------------------------------------------------------------------------------------
Sales $4,914.4 $4,766.1 $4,365.2 $4,121.5 $4,045.7
Earnings (loss) from continuing operations 159.2 216.5 89.9 64.1 (95.3)
Earnings from discontinued operations (e) 70.4 38.4 37.5 31.1 22.0
Extraordinary items -- (30.9) -- -- (22.7)
Cumulative effects of changes in
accounting principle -- -- -- (29.2) (237.6)
Net earnings (loss) 229.6 224.0 127.4 66.0 (333.6)
Earnings (loss) per common and common
equivalent share:
Primary:
Continuing operations 1.64 2.33 .93 .63 (1.40)
Discontinued operations .77 .44 .44 .37 .29
Extraordinary items -- (.35) -- -- (.30)
Cumulative effects of
accounting changes -- -- -- (.35) (3.11)
Net earnings (loss) 2.41 2.42 1.37 .65 (4.52)
Assuming full dilution:
Continuing operations 1.65 2.29 .93 .63 (1.40)
Discontinued operations .73 .41 .44 .37 .29
Extraordinary items -- (.33) -- -- (.30)
Cumulative effects of
accounting changes -- -- -- (.35) (3.11)
Net earnings (loss) 2.38 2.37 1.37 .65 (4.52)
Total assets 5,153.5 5,545.3 5,264.3 5,166.8 5,295.0
Long-term debt 1,415.8 1,704.5 1,723.2 2,069.2 2,108.5
Cash dividends per common share .48 .40 .40 .40 .40
- ------------------------------------------------------------------------------------------------------
(a) Earnings from continuing operations for 1996 includes a restructuring charge
of $91.3 million before taxes ($74.8 million after taxes) and a $10.6
million reduction in income tax expense as a result of the reversal of a
portion of the Corporation's deferred tax asset valuation allowance.
(b) Earnings from continuing operations for 1995 include a $65.0 million
reduction in income tax expense as a result of the reversal of a portion of
the Corporation's deferred tax asset valuation allowance. In 1995, the
Corporation recognized a $30.9 million extraordinary loss from
extinguishment of debt, net of income tax benefit of $2.6 million.
(c) Effective January 1, 1993, the Corporation changed its method of accounting
for postemployment benefits. In addition, earnings from continuing
operations for 1993 include a restructuring credit of $6.3 million before
tax ($.2 million after tax).
(d) Effective January 1, 1992, the Corporation changed its methods of accounting
for income taxes and postretirement benefits other than pensions. In 1992,
the Corporation recognized a $22.7 million extraordinary loss from
extinguishment of debt. In addition, earnings from continuing operations for
1992 included a restructuring charge of $142.4 million before tax ($134.7
million after tax).
(e) Earnings from discontinued operations represent the earnings, net of
applicable income taxes, of the Corporation's discontinued PRC segment. The
earnings of the discontinued PRC segment do not reflect any charge for
interest allocated to that segment by the Corporation. For additional
information about the discontinued PRC segment, see the discussion under the
caption "Discontinued Operations" included in Item 1 of Part I of this
report and Note 2 of Notes to Consolidated Financial Statements included in
Item 8 of Part II of this report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Corporation reported net earnings of $229.6 million or $2.38 per share on a
fully diluted basis for the year ended December 31, 1996, compared to net
earnings of $224.0 million or $2.37 per share on a fully diluted basis in 1995.
During 1996, the Corporation commenced a restructuring of certain of its
operations and recorded a restructuring charge of $91.3 million ($74.8 million
after tax). Excluding the effects of the 1996 restructuring and of a $10.6
million and $65.0 million decrease in income tax expense in 1996 and 1995,
respectively, as a result of the Corporation's reduction in its deferred tax
asset valuation allowance, earnings from continuing operations increased from
$151.5 million ($1.60 per share on a fully diluted basis) in 1995 to $223.4
million ($2.32 per share on a fully diluted basis) in 1996. This growth in
earnings from continuing operations in 1996 was a function of a higher level of
sales and operating income, a lower effective tax rate, and lower interest
expense.
During 1996, the Corporation generated free cash flow (cash available for
debt reduction prior to the effects of cash proceeds received from sales of
businesses, issuances of equity, and sales of receivables) of $235.4 million,
compared to free cash flow of $34.7 million in 1995. The increase in free cash
flow in 1996 was primarily the result of improved working capital management.
The combination of strong operating results and free cash flow coupled with
the proceeds received from the sale of discontinued operations in 1996 enabled
the Corporation to reduce its ratio of debt to total capitalization from 62% at
December 31, 1995, to 51% at December 31, 1996.
CONTINUING OPERATIONS
SALES
The following chart sets forth an analysis of the consolidated changes in sales
for the years ended December 31, 1996, 1995, and 1994.
ANALYSIS OF CHANGES IN SALES OF CONTINUING OPERATIONS
For the Year Ended December 31,
(Dollars in Millions) 1996 1995 1994
------- ------- -------
Total sales $ 4,914 $ 4,766 $ 4,365
Unit volume - existing (1) 5% 6% 8%
- disposed (2) --% --% (3)%
Price (1)% 1% 1%
Currency (1)% 2% --%
------- ------- -------
Change in total sales 3% 9% 6%
======= ======= =======
In the above chart and throughout the remainder of this discussion, the
following definitions apply:
(1) Existing - Reflects the change in unit volume for businesses where period-
to-period comparability exists.
(2) Disposed - Reflects the change in total sales of continuing operations for
businesses that were included in the prior year's results, but subsequently
have been sold.
Total sales for the year ended December 31, 1996, were $4.9 billion, which
represented a 3% increase over 1995 sales of $4.8 billion. During 1996, existing
unit volume grew 5% over the sales level in 1995. The 1996 growth in unit volume
occurred both in the Consumer and Home Improvement Products (Consumer) segment
and in the Commercial and Industrial Products (Commercial) segment.
Total sales for the year ended December 31, 1995, were $4.8 billion, which
represented a 9% increase over 1994 sales of $4.4 billion, due to growth in both
the Consumer and Commercial segments.
RESTRUCTURING
The Corporation actively seeks to identify opportunities to improve its cost
structure. These opportunities may involve the closure of manufacturing
facilities or the reorganization of other operations.
The Corporation has undertaken restructuring actions in the past which
generated improvements in its cost structure. Those improvements, however, are
subject to erosion over time as competitive pressures intensify or commodity
prices increase. In order to preserve those improvements, the Corporation
continuously seeks opportunities to further enhance its cost structure. Based
upon a number of factors, including the weak retail environment in Europe which
had begun to soften in the latter part of 1995, the Corporation decided to
intensify its cost reduction efforts and recorded a restructuring charge in the
amount of $81.6 million ($67.0 million after tax) early in 1996. The Corporation
modified portions of the initial restructuring plan later in 1996 as a result of
changed business conditions and the insight of new management in certain
businesses. The net effect of these modifications was to increase the total
restructuring charge recognized in 1996 to $91.3 million ($74.8 million after
tax).
The major component of the $91.3 million restructuring charge relates to
the elimination of approximately 1,500 positions, of which approximately 1,400
are in the Consumer segment. As a result, severance benefits totaling $74.6
million, principally associated with the European Consumer businesses, were
accrued in the restructuring charge. The balance of the restructuring charge
primarily represented non-cash charges associated with the Corporation's
decision to rationalize certain manufacturing operations, principally in the
Consumer businesses in the United States. Such rationalization includes the
outsourcing of certain products currently manufactured by the Corporation and
the closure of several small manufacturing facilities. The principal non-cash
charge consisted of a $6.6 million write-down to fair value of certain land and
buildings affected by the rationalization. The remaining restructuring charge
primarily related to the write-down to fair value of equipment made obsolete or
redundant due to the decision to close certain facilities or outsource certain
production.
The Corporation's restructuring activity during 1996 is summarized below:
Reversal
of Previous
Reserve and Reserve
Reserve Accrual Utilization of Reserve at
(Dollars in as Initially of New Dec. 31,
Millions) Established Reserve Cash Non-Cash 1996
- ------------------ ------------ ----------- ------- -------- --------
Severance benefits $ 62.8 $ 11.8 $ (37.5) $ -- $ 37.1
Write-down of land
and buildings 8.9 (2.3) -- (6.6) --
Other charges 9.9 .2 (1.7) (7.8) .6
------- ------- ------- ------- -------
Total $ 81.6 $ 9.7 $ (39.2) $ (14.4) $ 37.7
======= ======= ======= ======= =======
The Corporation anticipates that the remaining restructuring reserve of
$37.7 million as of December 31, 1996, will be substantially spent in 1997 as
certain severance actions taken in the European Consumer businesses are subject
to scheduled payouts mandated by local custom or governmental regulations.
The Corporation estimates that the implementation of the restructuring plan
resulted in savings of approximately $10.0 million in 1996 and, based on current
market conditions, will result in savings of approximately $40.0 million in 1997
and $60.0 million annually thereafter.
The Corporation is committed to continuous productivity improvement and, as
part of its periodic strategic planning review, continues to evaluate additional
opportunities for cost reduction. As part of this commitment, the Corporation
has embarked on the specific actions included in the restructuring plan
described above. Many of these actions involve the relocation or consolidation
of production processes. Realization of the savings identified above depends on
the effectiveness and timing of these actions.
EARNINGS
Operating income from continuing operations as a percentage of sales was 7.3%
for 1996 compared to 8.9% and 8.1% for 1995 and 1994, respectively. Excluding
the effects of the $91.3 million restructuring charge recognized in 1996,
operating income from continuing operations as a percentage of sales was 9.1%
for 1996 compared to 8.9% and 8.1% for 1995 and 1994, respectively.
Gross margin as a percentage of sales in 1996 was 35.8% compared to 36.7%
for 1995 and 36.6% for 1994. The decrease in gross margin in 1996 from the prior
year's level was primarily attributable to several factors. First, actions taken
by the Corporation in 1996 to reduce inventories from the high level at the end
of 1995 resulted in lower production levels during 1996, and the associated
lower overhead absorption negatively affected gross margin. Second, competitive
pressures did not permit the Corporation's businesses to institute certain price
increases and, in some cases, caused the businesses to reduce prices from the
prior year's level. Gross margin also was negatively affected by manufacturing
inefficiencies, including those associated with new manufacturing facilities,
and changes in the mix of products sold in 1996.
Gross margin in 1995 was slightly higher than in 1994. The impact of
increased manufacturing productivity and cost reduction initiatives during 1995,
however, was substantially offset by rising commodity costs and by reduced gross
margin in the European operations. Gross margin in 1995 was adversely affected
by a softening European retail environment in the fourth quarter of 1995 and by
residual inefficiencies in European operations associated with the closure of
two manufacturing facilities in mid-1994.
Selling, general, and administrative expenses as a percentage of sales were
26.6% for 1996 compared to 27.8% for 1995 and 28.5% for 1994. The improvements
in 1996 compared to 1995 and in 1995 compared to 1994 were the result of cost
reduction initiatives and the leverage effects of higher sales volumes on fixed
and semi-fixed costs.
Net interest expense (interest expense less interest income) was $135.4
million in 1996 compared to $184.4 million in 1995 and $187.9 million in 1994.
Net interest expense for 1996 was significantly lower than for 1995, primarily
due to lower debt levels in 1996. Those lower debt levels resulted from debt
repayments, early in 1996, with the sales proceeds of the discontinued PRC
segment and from improved operating cash flow during 1996. Net interest expense
for 1995 was below the 1994 level as a result of reduced borrowing levels during
the year, partially offset by higher interest rates on variable rate debt.
Other expense for 1996, 1995, and 1994 primarily included costs associated
with the sale of receivables program.
As more fully described in Note 13 of Notes to Consolidated Financial
Statements, during 1996 and 1995, the Corporation reversed a portion of the
deferred tax asset valuation allowance based on its projection of future taxable
earnings in the United States, including, for 1995, the impact of the
then-pending sale of PRC Inc. The effect of this reduction in the deferred tax
asset valuation allowance was to decrease 1996 and 1995 income tax expense by
$10.6 million and $65.0 million, respectively.
Excluding the effect of the $16.5 million income tax benefit associated
with the restructuring charge in 1996 and the effects of the $10.6 million and
$65.0 million income tax benefits that resulted from the reductions of its
deferred tax asset valuation allowance in 1996 and 1995, respectively, the
Corporation's reported tax rate on continuing operations was 24% in 1996
compared to a rate of 33% in 1995 and 40% in 1994. Contributing to the lower tax
rate both for 1996 compared to 1995 and for 1995 compared to 1994 were higher
taxable earnings in the United States and a change in the mix of operating
income outside the United States from subsidiaries in higher-rate tax
jurisdictions to subsidiaries in lower-rate tax jurisdictions or subsidiaries
that profit from the utilization of net operating loss carryforwards. An
analysis of taxes on earnings is included in Note 13 of Notes to Consolidated
Financial Statements.
During 1996, the Corporation fully recognized the benefit of domestic
deferred tax assets, exclusive of foreign tax credits, for financial reporting
purposes. The benefit of the previously unrecognized deferred tax assets has
lowered the domestic portion of tax expense for the past several years. The
Corporation's effective tax rate will be significantly higher in future periods.
BUSINESS SEGMENTS
The Corporation operates in two business segments: Consumer and Home Improvement
Products, including consumer and professional power tools and accessories,
household products, security hardware, outdoor products (composed of electric
lawn and garden tools and recreational products), plumbing products, and product
service; and Commercial and Industrial Products, including fastening and
assembly systems and glass container-forming and inspection equipment.
SALES AND OPERATING INCOME BY BUSINESS SEGMENT
For the Year Ended December 31,
-------------------------------
(Millions of Dollars) 1996 1995 1994
------- ------- -------
Consumer and Home Improvement Products
Total sales ................................ $4,212 $4,076 $3,774
Operating income ........................... 273 348 294
Operating income excluding
restructuring costs
and goodwill amortization ............... 411 400 351
Commercial and Industrial Products
Total sales ................................ 702 690 591
Operating income ........................... 76 75 53
Operating income excluding
restructuring costs
and goodwill amortization ............... 96 92 69
Corporate and Eliminations
Operating income ........................... 8 3 5
------ ------ ------
Total sales ................................ $4,914 $4,766 $4,365
Total operating income ..................... $ 357 $ 426 $ 352
Total operating income
excluding restructuring costs
and goodwill amortization ............... $ 515 $ 495 $ 425
====== ====== =======
CONSUMER AND HOME IMPROVEMENT PRODUCTS
The following chart sets forth an analysis of the change in sales for the year
ended December 31, 1996, compared to the year ended December 31, 1995, by
geographic area within the Consumer segment.
United Total
States Europe Other Consumer
------ ------ ----- --------
Existing unit volume ............... 8% --% --% 5%
Price .............................. (1)% (1)% 3% (1)%
Currency ........................... --% (2)% (1)% (1)%
--- --- --- ---
Total Consumer ..................... 7% (3)% 2% 3%
=== === === ===
Total sales in the Consumer segment for 1996 were 3% higher than in 1995,
with existing unit volume up 5% over the 1995 level. Sales in the United States
increased by 7% over the prior year's level, reflecting an 8% increase in
existing unit volume, partially offset by a 1% decline in price. The 1% price
decline from the 1995 level was primarily due to price reductions taken in the
household products and the power tools and accessories businesses. A significant
component of the 1996 price reduction by the household products business related
to a substantial price reduction taken in the latter part of 1996 on the
SnakeLight(R) flexible flashlight, with the balance related to price reductions
taken on various other product lines, predominantly to reduce levels of excess
inventory or in connection with the exit of certain low-margin product lines.
The 1996 price reduction by the power tools and accessories business was
primarily in response to competitive pressures, but also to reduce levels of
excess inventories.
Unit volume in the United States increased by 8% in 1996 over the 1995
level principally as a result of strong unit volume growth in the power tools
and accessories, security hardware, and plumbing products businesses, partially
offset by unit volume declines in the household products business. The 1996 unit
volume growth in the domestic power tools and accessories business was primarily
the result of continued strong demand for DeWALT(R) professional power tools and
accessories as well as the successful expansion of the VersaPak(TM)
interchangeable battery system to outdoor lawn and garden tools. The 1996 unit
volume growth in the domestic security hardware business occurred in virtually
all product categories, and the 1996 unit volume growth in the plumbing products
business occurred in both retail and professional distribution channels. The
1996 unit volume decline in the household products business was in comparison to
a strong 1995, which benefited from pent-up demand for the SnakeLight flexible
flashlight at the end of 1994. While unit sales of the SnakeLight flexible
flashlight during 1996 declined from the 1995 level and unit volume declines
were experienced in other categories due to the exit of certain low-margin
product lines, those declines were substantially offset by unit volume increases
in 1996 resulting from refinements to existing products, such as the global line
of Quick 'N Easy(TM) irons, and from introductions of new products, including
the FloorBuster(TM) cordless room vacuum with full-length upright handle and the
ScumBuster(TM) cordless submersible tub and tile scrubber.
Excluding the negative effects of changes in foreign exchange rates, sales
in the Consumer businesses in Europe decreased by 1% in 1996 from the 1995
level. The 1% decline in sales in 1996 in the European Consumer businesses was
primarily the result of price reductions taken in response to competitive
pressures and to reduce levels of excess inventories. Unit volume in 1996 was
essentially equal to the 1995 level as increased sales of power tools, spurred
by the success of the DeWALT and Elu(R) professional product lines, were offset
by unit volume declines in security hardware, accessories, outdoor products, and
household products. Excluding the negative effects of changes in foreign
exchange rates, some European countries achieved good sales growth in 1996 over
1995 levels; however, this growth was offset by declines in other countries,
most notably Germany and the United Kingdom.
Excluding the negative effects of changes in foreign exchange rates, sales
in the Consumer businesses in other geographic regions increased by 3% in 1996
over the 1995 level due largely to price increases in certain countries,
primarily in Latin America to keep pace with inflation, partially offset by
price reductions in other countries. The 1996 sales growth, exclusive of the
negative effects of changes in foreign exchange rates, was experienced in a
number of countries, most notably in Latin American countries such as Mexico,
Colombia, and Brazil, offset by sales declines in the Far East and certain other
countries, most notably Canada and Australia.
Operating income as a percentage of sales for the Consumer segment was 6.5%
in 1996 compared to 8.6% in 1995. Excluding the effects of goodwill amortization
and the 1996 restructuring charge, operating income as a percentage of sales
would have been 9.7% in 1996 compared to 9.8% in 1995. Operating income as a
percentage of sales, excluding the effects of goodwill amortization and the 1996
restructuring charge, improved in 1996 over the 1995 level in the domestic
security hardware and plumbing products businesses; however, those improvements
were offset by declines in the household products business, the worldwide power
tools and accessories business, and the European security hardware operations.
Excluding the effects of goodwill amortization and the 1996 restructuring
charge, operating income as a percentage of sales for the worldwide power tools
and accessories business in 1996 was below the 1995 level as declines
experienced in the power tools and accessories businesses in the United States,
Latin America, Canada, Australia, and the Far East in 1996 more than offset an
improvement in the power tools and accessories business in Europe. That
profitability improvement in the power tools and accessories business in Europe,
however, was in comparison to an extremely weak 1995, and the European
profitability level in 1996 did not rebound to the 1994 level. The declines in
operating income as a percentage of sales, excluding the effects of goodwill
amortization and the 1996 restructuring charge, in 1996 from 1995 levels in the
power tools and accessories businesses in the United States, Latin America,
Canada, Australia, and the Far East primarily resulted from manufacturing
inefficiencies, including those associated with new manufacturing facilities and
the businesses' efforts to reduce inventory levels in 1996, competitive
pressures which adversely affected pricing, and higher transportation costs,
partially offset by tight controls over selling, general, and administrative
expenses.
While sales of other existing products and new product introductions during
1997 may mitigate the effect, the Corporation believes that comparisons of sales
and profitability in 1997 to 1996 levels will be difficult for the household
products business, particularly in the first half of 1997, based upon the
significance of SnakeLight to sales and profitability of the business in 1996;
reduced demand, which is no longer expected to exceed capacity, as the product
matures; and the price reductions on SnakeLight taken by the business in the
latter part of 1996.
Total sales in the Consumer segment for 1995 were 8% higher than in 1994,
with existing unit volume up 5% over the 1994 level. Unit volume in the United
States increased by 7% in 1995 over the 1994 level as a result of strong unit
volume growth in the power tools and accessories and household products
businesses, partially offset by unit volume declines in the security hardware
and plumbing products businesses. The 1995 growth in the domestic power tools
and accessories business was the result of continued strong demand for DeWALT
professional power tools and accessories and the successful expansion in the
latter half of 1995 of a line of consumer products that use the VersaPak
interchangeable battery system. During 1995, the household products business
achieved a double-digit rate of growth in unit volume driven by the continued
success of the SnakeLight flexible flashlight, which was introduced late in
1994. The domestic security hardware and plumbing products businesses each
experienced modest unit volume declines from 1994 levels during 1995.
Excluding the substantial positive effects of changes in foreign exchange
rates, sales in the Consumer businesses in Europe increased by 4% in 1995 over
the 1994 level despite a weak fourth quarter in 1995. This 4% increase was
composed of increased sales of power tools and accessories, household products,
and security hardware, partially offset by decreased sales of outdoor products.
Exclusive of positive effects of changes in foreign exchange rates during 1995,
some European countries achieved results substantially higher than the prior
year's level, and other countries, most notably Germany, the United Kingdom, and
France, reported results essentially equal to or below the prior year's level.
Excluding the negative effects of changes in foreign exchange rates
principally due to the Mexican peso devaluation, sales in the Consumer
businesses in other geographic regions increased by 8% in 1995 over the 1994
level. Sales growth occurred in a number of countries, including Canada, and
most strongly, in Brazil, while sales in other countries were essentially equal
to or below the prior year's level.
Operating income as a percentage of sales for the Consumer segment was 8.6%
in 1995 compared to 7.8% in 1994. Excluding the effect of goodwill amortization,
operating income as a percentage of sales would have been 9.8% in 1995 compared
to 9.3% in 1994. The household products business achieved strong improvement in
operating income in 1995 as a result of increased sales volume, higher
manufacturing productivity, and actions taken either to improve profitability or
to drop certain lower-margin products from its product lines. Improved operating
income levels in 1995 over 1994 in the worldwide power tools and accessories
business principally resulted from substantial improvements in the domestic
power tools and accessories business as a result of increased sales volume,
higher manufacturing productivity, and the impact of cost reduction initiatives,
partially offset by reduced profitability in the European operations. A
softening retail environment in the fourth quarter of 1995, expenses incurred in
connection with the reorganization of certain European operations, and residual
inefficiencies associated with the closure of two manufacturing facilities in
mid-1994 contributed to markedly lower profitability in the Consumer businesses
in Europe in 1995 than in 1994. Cost reduction initiatives and manufacturing
productivity improvements resulted in increased operating income as a percentage
of sales during 1995 compared to 1994 in the security hardware business, despite
year-to-year sales declines in its domestic operations due to inventory
reductions made by its customers in the latter part of 1995. A decline in
operating income in the plumbing products business in 1995 compared to 1994
resulted from reduced sales and rising material costs.
COMMERCIAL AND INDUSTRIAL PRODUCTS
The following chart sets forth an analysis of the change in sales for the year
ended December 31, 1996, compared to the year ended December 31, 1995, by
geographic area within the Commercial segment.
United Total
States Europe Other Commercial
------ ------ ----- ----------
Existing unit volume ............ 4% 2% 10% 4%
Price ........................... 1% 1% --% 1%
Currency ........................ --% (3)% (11)% (3)%
--- --- --- ---
Total Commercial ................ 5% --% (1)% 2%
=== === === ===
Total sales in the Commercial segment for 1996 were 2% higher than the 1995
level. Excluding the negative effects of changes in foreign exchange rates,
sales in the Commercial segment were 5% higher in 1996 than in 1995. The
fastening systems and assembly (Fastening) business achieved good growth in unit
volume in 1996 as a result of strong sales in the Far East and the continued
strength of sales to the automotive industry in the United States, partially
offset by protracted softness in the domestic industrial market and in Europe.
The glass container-forming and inspection equipment (Glass) business also
experienced solid growth in unit volume in 1996 over 1995. The backlog of orders
in the Glass business at December 31, 1996, was approximately 13% higher than
the 1995 level. Approximately 75% of the Glass backlog at December 31, 1996,
represents orders scheduled for delivery in 1997, with the balance scheduled for
delivery in 1998.
Operating income as a percentage of sales for the Commercial segment was
10.8% for both 1996 and 1995. Excluding the effects of goodwill amortization and
the 1996 restructuring charge, operating income as a percentage of sales would
have been 13.6% in 1996 compared to 13.3% in 1995. Improvements in operating
income as a percentage of sales during 1996 were experienced in both the
Fastening and Glass businesses.
Total sales in the Commercial segment for 1995 were 17% higher than the
1994 level. Excluding the substantial positive effects of changes in foreign
exchange rates, sales in the Commercial segment were 11% higher in 1995 than in
the preceding year. The Fastening business achieved solid unit volume growth in
1995 over the prior year's level, as softening sales to general industry in the
United States and Europe were more than offset by increased automotive sales in
those regions. The Glass business experienced a double-digit rate of growth in
unit volume in 1995 compared to a weak 1994 despite volume declines in the
United States.
Operating income as a percentage of sales for the Commercial segment was
10.8% in 1995 compared to 8.9% in 1994. Excluding the effects of goodwill
amortization, operating income as a percentage of sales would have been 13.3% in
1995 compared to 11.6% in 1994. The Fastening and Glass businesses each
experienced improvements in operating income percentages in 1995.
DISCONTINUED OPERATIONS
Discontinued operations consist of the results of PRC Inc., PRC Realty Systems,
Inc. (RSI), and PRC Environmental Management, Inc. (EMI). Together, PRC Inc.,
RSI, and EMI composed the Corporation's former Information Technology and
Services (PRC) segment. Operating results, net assets, and cash flows of the
discontinued PRC segment have been segregated in the accompanying Consolidated
Financial Statements. The results of the discontinued PRC segment do not reflect
any expense for interest expense allocated by or management fees charged by the
Corporation.
On February 16, 1996, the Corporation completed the sale of PRC Inc., the
remaining business in the discontinued PRC segment. Proceeds of $425.0 million
from the sale of PRC Inc., less cash selling expenses of $11.4 million paid
during 1996, were used to reduce indebtedness. Earnings from discontinued
operations of $70.4 million ($.73 per share on a fully diluted basis) in 1996
primarily consist of the gain on the sale of PRC Inc., net of applicable income
taxes of $55.6 million. The gain is net of provisions for adjustment to the
sales price and retained liabilities. Revenues and operating income of PRC Inc.
for the period from January 1, 1996, through the date of sale were not
significant.
Net earnings of the discontinued PRC segment were $38.4 million ($.41 per
share on a fully diluted basis) in 1995 and $37.5 million ($.44 per share on a
fully diluted basis) in 1994. The Corporation sold RSI on March 31, 1995, and
EMI on September 15, 1995, for aggregate proceeds of $95.5 million.
FINANCIAL CONDITION
Operating activities of continuing operations before the sale of receivables
generated cash of $463.4 million for the year ended December 31, 1996, compared
to $316.9 million for the year ended December 31, 1995. This increase in cash
generation during 1996 was primarily the result of improved working capital
management, principally resulting from actions taken during 1996 to reduce
inventories from the high level that existed at the end of 1995.
In addition to measuring cash flow generation and usage based upon the
operating, investing, and financing classifications included in the Consolidated
Statement of Cash Flows, the Corporation monitors free cash flow, a measure
commonly employed by bond rating agencies and banks. The Corporation defines
free cash flow as cash available for debt reduction (including short-term
borrowings), prior to the effects of cash proceeds received from sales of
divested businesses, issuances of equity, and sales of receivables. Free cash
flow, a more inclusive measure of cash flow generation than cash flows from
operating activities included in the Consolidated Statement of Cash Flows,
considers items such as cash used for capital expenditures and dividends, as
well as net cash inflows or outflows from hedging activities. During the year
ended December 31, 1996, the Corporation generated free cash flow of $235.4
million compared to $34.7 million in 1995. The increase in free cash flow in
1996 from the 1995 level was primarily the result of improved working capital
management.
The total amount of receivables sold under the sale of receivables program
at December 31, 1996, was $212.0 million compared to $230.0 million at December
31, 1995. The sale of receivables program provides for a seasonal expansion of
the amount of receivables that may be sold, from $200.0 million to $275.0
million during the period from October 1 through January 31. The liquidity
facility that supports the sale of receivables program expires in March 1997.
The Corporation expects to be able to extend this facility beyond December 1997.
However, due to its improved leverage, the Corporation expects to reduce the
amount available under the facility to less than $200.0 million and to eliminate
the seasonal expansion feature.
Excluding amounts related to discontinued operations, investing activities
for 1996 used cash of $170.2 million compared to $195.5 million in 1995. Capital
expenditures of $196.3 million during 1996 approximated the 1995 level of $203.1
million. During 1996, approximately 90% of the capital expenditures were in the
Consumer segment, primarily in support of new product initiatives and
productivity enhancements. The Corporation expects capital spending in 1997 to
moderately exceed the 1996 level.
The ongoing costs of compliance with existing environmental laws and
regulations have not had, nor are they expected to have, a material adverse
effect on the Corporation's capital expenditures or financial position.
The Corporation has a number of manufacturing sites throughout the world
and sells its products in more than 100 countries. As a result, the Corporation
is exposed to movements in the exchange rates of various currencies against the
United States dollar. The major foreign currencies in which foreign currency
risks exist are the pound sterling, deutsche mark, Dutch guilder, Canadian
dollar, Swedish krona, Japanese yen, Chinese renminbi, French franc, Italian
lira, Australian dollar, Mexican peso, and Brazilian real.
Assets and liabilities of the Corporation's subsidiaries located outside
the United States are translated at rates of exchange at the balance sheet date,
as more fully explained in Note 1 of Notes to Consolidated Financial Statements.
The resulting translation adjustments are included in equity adjustment from
translation, a separate component of stockholders' equity. During 1996,
translation adjustments, recorded in the equity adjustment from translation
component of stockholders' equity, decreased stockholders' equity by $13.6
million compared to an increase of $44.9 million in 1995.
As more fully explained in Note 11 of Notes to Consolidated Financial
Statements, the Corporation historically had hedged a portion of its net
investment in foreign subsidiaries. Beginning in 1995, the Corporation decided
to limit the future hedging of its net investment in foreign subsidiaries. While
this decision may increase the volatility of reported equity, it is expected to
result in more predictable cash flows from hedging activities.
In hedging the exposure to foreign currency fluctuations on its net
investments in subsidiaries located outside the United States, the Corporation
has entered into various currency forward contracts and options. These hedging
activities generate cash inflows and outflows that offset the translation
adjustment. During 1996, these activities netted to a cash outflow of $5.4
million compared to a cash outflow of $4.7 million in 1995. The corresponding
gains and losses on these hedging activities were recorded in the equity
adjustment from translation component of stockholders' equity. Also included in
the equity adjustment from translation component were the costs of maintaining
the hedge portfolio of foreign exchange contracts. These hedge costs, which were
not significant in 1996, decreased stockholders' equity by $8.7 million in 1995.
In late 1994, the Mexican peso was severely devalued. Because the
Corporation's Mexican peso exposure was hedged, this devaluation did not have a
significant effect on earnings in 1994. While the currency situation in Mexico
had an adverse effect on the Corporation's Mexican sales in both 1996 and 1995,
the effect on operating income was substantially offset by pricing actions and
changes in cost structures and by the lower relative costs of Mexican production
during those years. While the Corporation will take actions to mitigate the
impacts of any future currency devaluations in Mexico or elsewhere, there is no
assurance that such devaluations will not adversely affect the Corporation.
Financing activities for 1996 used cash of $667.3 million compared to
$127.0 million of cash used in 1995. As more fully described in Note 10 of Notes
to Consolidated Financial Statements, the Corporation, during 1996, replaced its
former unsecured revolving credit facility, which was scheduled to expire in
1997, with a new unsecured revolving credit facility, expiring in 2001. Also
during 1996, the Corporation reduced its outstanding borrowings by $635.0
million. This reduction was funded through the proceeds from the sale of
discontinued operations and through improved operating cash flows. During 1995,
the Corporation recognized a $30.9 million extraordinary loss, $26.5 million of
which was a non-cash charge, as a result of the early redemption in the
aggregate amount of $150.0 million of the 9.25% sinking fund debentures of its
Emhart Corporation subsidiary. This extraordinary loss consisted of the
write-off of the associated debt discount, plus premiums and costs associated
with the redemption, net of related income tax benefits.
As more fully described in Note 15 of Notes to Consolidated Financial
Statements, on October 14, 1996, the Corporation, pursuant to its conversion
option, issued 6,350,000 shares of common stock in exchange for the 150,000
shares of Series B cumulative convertible preferred stock previously
outstanding. Because the dividend rate on the common stock is lower than that
which was paid on the preferred stock, the conversion will result in annualized
cash savings to the Corporation, at the current dividend rate, of approximately
$8.6 million. As more fully described in Note 1 of Notes to Consolidated
Financial Statements, the 6,350,000 shares of common stock issued upon
conversion have been considered in the computation of primary earnings per share
through the inclusion of those shares, from their date of issuance, in the
determination of the weighted average shares outstanding. Those 6,350,000 shares
of common stock have been treated as outstanding in the computation of fully
diluted earnings per share for the years ended December 31, 1996 and 1995.
As more fully explained in Note 11 of Notes to Consolidated Financial
Statements, the Corporation seeks to issue debt opportunistically, whether at
fixed or variable rates, at the lowest possible costs. Based upon its assessment
of the future interest rate environment and its desired variable rate debt to
total debt ratio, the Corporation may later convert such debt from fixed to
variable or from variable to fixed interest rates, or from United States
dollar-based rates to rates based upon another currency, through the use of
interest rate swap agreements. In addition, the Corporation may enter into
interest rate cap agreements in order to limit the effects of increasing
interest rates on a portion of its variable rate debt.
In order to meet its goal of fixing or limiting interest costs, the
Corporation maintains a portfolio of interest rate hedge instruments. These
interest rate hedges could change the mix of fixed and variable rate debt as
actual interest rates move outside the ranges covered by these instruments. The
variable rate debt to total debt ratio, after taking interest rate hedges into
account, was 35% at December 31, 1996, compared to 43% at December 31, 1995, and
34% at December 31, 1994. At December 31, 1996, average debt maturity was 4.5
years compared to 4.0 years at December 31, 1995, and 4.9 years at December 31,
1994.
The Corporation will continue to have cash requirements to support seasonal
working capital needs and capital expenditures, to pay interest, and to service
debt. In order to meet these cash requirements, the Corporation intends to use
internally generated funds and to borrow under its unsecured revolving credit
facility or under short-term borrowing facilities. Management believes that cash
generated from these sources will be adequate to meet the Corporation's cash
requirements over the next 12 months.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Corporation and its
subsidiaries are included herein as indicated below:
Consolidated Financial Statements
Consolidated Statement of Earnings
- years ended December 31, 1996, 1995, and 1994.
Consolidated Balance Sheet
- December 31, 1996 and 1995.
Consolidated Statement of Cash Flows
- years ended December 31, 1996, 1995, and 1994.
Notes to Consolidated Financial Statements.
Report of Independent Auditors.
CONSOLIDATED STATEMENT OF EARNINGS
The Black & Decker Corporation and Subsidiaries
(Dollars in Millions Except Per Share Data)
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Sales ..................................................................... $4,914.4 $ 4,766.1 $4,365.2
Cost of goods sold ..................................................... 3,156.6 3,016.7 2,769.7
Selling, general, and administrative expenses .......................... 1,309.6 1,323.3 1,243.6
Restructuring costs .................................................... 91.3 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Income .......................................................... 356.9 426.1 351.9
Interest expense (net of interest income of $4.7
for 1996, $8.6 for 1995, and $6.9 for 1994) .......................... 135.4 184.4 187.9
Other expense .......................................................... 18.8 16.2 15.4
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings From Continuing Operations Before Income Taxes ................... 202.7 225.5 148.6
Income taxes ........................................................... 43.5 9.0 58.7
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings From Continuing Operations ....................................... 159.2 216.5 89.9
Earnings from discontinued operations (net of income taxes of
$55.6 for 1996, $8.7 for 1995, and $4.0 for 1994) ...................... 70.4 38.4 37.5
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings Before Extraordinary Item ........................................ 229.6 254.9 127.4
Extraordinary loss from early extinguishment of debt
(net of income tax benefit of $2.6) .................................... -- (30.9) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Earnings .............................................................. $ 229.6 $ 224.0 $ 127.4
====================================================================================================================================
Net Earnings Applicable To Common Shares .................................. $ 220.5 $ 212.4 $ 115.8
====================================================================================================================================
Net Earnings Per Common and Common Equivalent Share:
- ------------------------------------------------------------------------------------------------------------------------------------
Primary:
Earnings from continuing operations .................................... $ 1.64 $ 2.33 $ .93
Earnings from discontinued operations .................................. .77 .44 .44
Extraordinary loss from early extinguishment of debt ................... -- (.35) --
- ------------------------------------------------------------------------------------------------------------------------------------
Primary Earnings Per Share ................................................ $ 2.41 $ 2.42 $ 1.37
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Used In Computing Primary Earnings Per Share
(in Millions) ......................................................... 91.3 87.9 84.3
====================================================================================================================================
Assuming Full Dilution:
Earnings from continuing operations .................................... $ 1.65 $ 2.29 $ .93
Earnings from discontinued operations .................................. .73 .41 .44
Extraordinary loss from early extinguishment of debt ................... -- (.33) --
- ------------------------------------------------------------------------------------------------------------------------------------
Fully Diluted Earnings Per Share .......................................... $ 2.38 $ 2.37 $ 1.37
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Used In Computing Fully Diluted
Earnings Per Share (in Millions) ....................................... 96.3 94.7 84.3
====================================================================================================================================
See Notes to Consolidated Financial Statements
CONSOLIDATED BALANCE SHEET
The Black & Decker Corporation and Subsidiaries
(Millions of Dollars)
December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Assets
Cash and cash equivalents .................................................................. $ 141.8 $ 131.6
Trade receivables, less allowances of $44.0 for 1996 and $43.1 for 1995 .................... 672.4 651.3
Inventories ................................................................................ 747.8 855.7
Net assets of discontinued operations ...................................................... -- 302.4
Other current assets ....................................................................... 242.2 165.6
- ------------------------------------------------------------------------------------------------------------------------------------
Total Current Assets .................................................................... 1,804.2 2,106.6
- ------------------------------------------------------------------------------------------------------------------------------------
Property, Plant, and Equipment ............................................................. 905.8 866.8
Goodwill ................................................................................... 2,012.2 2,142.0
Other Assets ............................................................................... 431.3 429.9
- ------------------------------------------------------------------------------------------------------------------------------------
$ 5,153.5 $ 5,545.3
====================================================================================================================================
Liabilities and Stockholders' Equity
Short-term borrowings ...................................................................... $ 235.9 $ 599.2
Current maturities of long-term debt ....................................................... 54.1 48.0
Trade accounts payable ..................................................................... 380.7 396.7
Other accrued liabilities .................................................................. 835.9 743.0
- ------------------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities ............................................................... 1,506.6 1,786.9
- ------------------------------------------------------------------------------------------------------------------------------------
Long-Term Debt ............................................................................. 1,415.8 1,704.5
Deferred Income Taxes ...................................................................... 67.5 52.8
Postretirement Benefits .................................................................... 310.3 307.8
Other Long-Term Liabilities ................................................................ 220.9 270.1
Stockholders' Equity
Convertible preferred stock (outstanding: December 31, 1995--
150,000 shares) ......................................................................... -- 150.0
Common stock (outstanding: December 31, 1996--94,248,807 shares;
December 31, 1995--86,447,588 shares) ................................................... 47.1 43.2
Capital in excess of par value ............................................................. 1,261.7 1,084.5
Retained earnings .......................................................................... 380.2 202.6
Equity adjustment from translation ......................................................... (56.6) (57.1)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity .............................................................. 1,632.4 1,423.2
- ------------------------------------------------------------------------------------------------------------------------------------
$ 5,153.5 $ 5,545.3
====================================================================================================================================
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENT OF CASH FLOWS
The Black & Decker Corporation and Subsidiaries
(Millions of Dollars)
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Activities
Net earnings ........................................................................... $ 229.6 $ 224.0 $ 127.4
Adjustments to reconcile net earnings to cash flow
from operating activities of continuing operations:
Non-cash charges and credits:
Depreciation and amortization ..................................................... 214.6 206.7 195.4
Restructuring charges ............................................................. 91.3 -- --
Deferred income taxes ............................................................. 2.9 (46.1) 8.9
Extraordinary item ................................................................ -- 26.5 --
Other ............................................................................. 1.2 19.5 1.9
Earnings of discontinued operations ................................................. (70.4) (38.4) (37.5)
Changes in selected working capital items:
Trade receivables ................................................................. (10.0) 14.8 (83.5)
Inventories ....................................................................... 107.5 (138.7) 31.9
Trade accounts payable ............................................................ (21.4) 108.1 58.3
Restructuring ....................................................................... (39.2) -- --
Other assets and liabilities ........................................................ (42.7) (59.5) 1.6
Net (decrease) increase in receivables sold ......................................... (18.0) (14.0) 26.0
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flow from operating activities of
continuing operations .............................................................. 445.4 302.9 330.4
Cash flow from operating activities of
discontinued operations ............................................................ (12.4) 1.5 79.3
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flow From Operating Activities ................................................. 433.0 304.4 409.7
- ------------------------------------------------------------------------------------------------------------------------------------
Investing Activities
Proceeds from sale of discontinued operations .......................................... 413.6 95.5 --
Investing activities of discontinued operations ........................................ -- (12.9) (15.5)
Proceeds from disposal of assets and businesses ........................................ 31.5 12.3 12.0
Capital expenditures ................................................................... (196.3) (203.1) (181.5)
Cash inflow from hedging activities .................................................... 392.9 485.6 1,070.4
Cash outflow from hedging activities ................................................... (398.3) (490.3) (1,105.9)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flow From Investing Activities ................................................. 243.4 (112.9) (220.5)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flow Before Financing Activities ............................................... 676.4 191.5 189.2
Financing Activities
Net (decrease) increase in short-term borrowings ....................................... (360.9) 47.2 217.4
Proceeds from long-term debt (including revolving
credit facility) ...................................................................... 461.1 274.0 1,226.7
Payments on long-term debt (including revolving
credit facility) ...................................................................... (735.2) (425.2) (1,622.8)
Issuance of equity interest in a subsidiary ............................................ -- -- 4.3
Issuance of common stock ............................................................... 22.3 23.0 8.8
Cash dividends ......................................................................... (54.6) (46.0) (45.3)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flow From Financing Activities .................................................... (667.3) (127.0) (210.9)
Effect of exchange rate changes on cash ................................................ 1.1 2.1 5.4
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents ....................................... 10.2 66.6 (16.3)
Cash and cash equivalents at beginning of year ......................................... 131.6 65.0 81.3
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year ............................................... $ 141.8 $ 131.6 $ 65.0
====================================================================================================================================
See Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Black & Decker Corporation and Subsidiaries
NOTE 1: SUMMARY OF ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The Consolidated Financial Statements include the
accounts of the Corporation and its subsidiaries. Intercompany transactions have
been eliminated.
RECLASSIFICATIONS: Certain prior years' amounts in the Consolidated Financial
Statements have been reclassified to conform to the presentation used in 1996.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results inevitably will differ from those estimates,
and such differences may be material to the financial statements.
FOREIGN CURRENCY TRANSLATION: The financial statements of subsidiaries located
outside the United States, except those subsidiaries operating in highly
inflationary economies, generally are measured using the local currency as the
functional currency. Assets, including goodwill, and liabilities of these
subsidiaries are translated at the rates of exchange at the balance sheet date.
The resultant translation adjustments are included in equity adjustment from
translation, a separate component of stockholders' equity. Income and expense
items are translated at average monthly rates of exchange. Gains and losses from
foreign currency transactions of these subsidiaries are included in net
earnings. For subsidiaries operating in highly inflationary economies, gains and
losses from balance sheet translation adjustments are included in net earnings.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents include cash on hand,
demand deposits, and short-term investments with original maturities of three
months or less.
INVENTORIES: Inventories are stated at the lower of cost or market. The cost of
United States inventories is based primarily on the last-in, first-out (LIFO)
method; all other inventories are based on the first-in, first-out (FIFO)
method.
PROPERTY AND DEPRECIATION: Property, plant, and equipment is stated at cost.
Depreciation is computed generally on the straight-line method for financial
reporting purposes.
GOODWILL AND OTHER INTANGIBLES: Goodwill and other intangibles are amortized on
the straight-line method over periods of up to 40 years. On a periodic basis,
the Corporation estimates the future undiscounted cash flows of the businesses
to which goodwill relates in order to ensure that the carrying value of goodwill
has not been impaired.
PRODUCT DEVELOPMENT COSTS: Costs associated with the development of new products
and changes to existing products are charged to operations as incurred. Product
development costs were $101.3 million in 1996, $96.1 million in 1995, and $89.2
million in 1994.
ADVERTISING AND PROMOTION: All costs associated with advertising and promoting
products are expensed in the year incurred. Advertising and promotion expense,
including expense of consumer rebates, was $258.5 million in 1996, $265.1
million in 1995, and $249.9 million in 1994.
POSTRETIREMENT BENEFITS: The Corporation's pension plans, which cover
substantially all of its employees, consist primarily of non-contributory
defined benefit plans. The defined benefit plans are funded in conformity with
the funding requirements of applicable government regulations. Generally,
benefits are based on age, years of service, and the level of compensation
during the final years of employment. Prior service costs for defined benefit
plans generally are amortized over the estimated remaining service periods of
employees.
Certain employees are covered by defined contribution plans. The
Corporation's contributions to the plans are based on a percentage of employee
compensation or employee contributions. The plans are funded on a current basis.
In addition to pension benefits, the Corporation provides certain
postretirement medical, dental, and life insurance benefits, principally to
certain United States employees. Retirees in other countries generally are
covered by government-sponsored programs.
The Corporation uses the corridor approach in the valuation of defined
benefit plans and other postretirement benefits. The corridor approach defers
all actuarial gains and losses resulting from variances between actual results
and economic estimates or actuarial assumptions. For defined benefit pension
plans, these unrecognized gains and losses are amortized when the net gains and
losses exceed 10% of the greater of the market-related value of plan assets or
the projected benefit obligation at the beginning of the year. For other
postretirement benefits, amortization occurs when the net gains and losses
exceed 10% of the accumulated postretirement benefit obligation at the beginning
of the year. The amount in excess of the corridor is amortized over the average
remaining service period to retirement date of active plan participants or, for
retired participants, the average remaining life expectancy.
DERIVATIVE FINANCIAL INSTRUMENTS: Derivative financial instruments are used by
the Corporation principally in the management of its interest rate and foreign
currency exposures.
Amounts to be paid or received under interest rate swap agreements are
accrued as interest rates change and are recognized over the life of the swap
agreements as an adjustment to interest expense. The related amounts due to or
from the counterparties are included in other accrued liabilities. Since they
are accounted for as hedges, the fair value of the swap agreements is not
recognized in the Consolidated Financial Statements.
The costs of interest rate cap agreements are included in interest expense
ratably over the lives of the agreements. Payments to be received as a result of
the cap agreements are accrued as a reduction of interest expense. The
unamortized costs of the cap agreements are included in other assets.
Gains or losses resulting from the early termination of interest rate swaps
or caps are deferred and amortized as an adjustment to the yield of the related
debt instrument over the remaining period originally covered by the terminated
swaps or caps.
Gains and losses on hedges of net investments are reflected in the
Consolidated Balance Sheet in the equity adjustment from translation component
of stockholders' equity, with the related amounts due to or from the
counterparties included in other liabilities or other assets.
Gains and losses on foreign currency transaction hedges are recognized in
income and offset the foreign exchange gains and losses on the underlying
transactions. Gains and losses on foreign currency firm commitment hedges and
gains on hedges of forecasted transactions are deferred and included in the
basis of the transactions underlying the commitments.
STOCK-BASED COMPENSATION: As described in Note 16, the Corporation has elected
to follow the accounting provisions of Accounting Principles Board Opinion
(APBO) No. 25 for stock-based compensation and to furnish the pro forma
disclosures required under Statement of Financial Accounting Standards (SFAS)
No. 123.
NET EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE: Primary earnings per share
are computed by dividing net earnings, after deducting preferred stock
dividends, by the weighted average number of common shares outstanding during
each year plus, for 1996 and 1995, the incremental shares that would have been
outstanding under certain employee benefit plans and upon the assumed exercise
of dilutive stock options. For 1994, these incremental shares were immaterial
and, accordingly, were not considered in the calculation of primary earnings per
share.
In 1996 and 1995, fully diluted earnings per share were computed by
dividing net earnings by the weighted average number of common shares
outstanding during the year plus the incremental shares that would have been
outstanding under certain employee benefit plans, upon the assumed exercise of
dilutive stock options, and, prior to October 1996, upon the assumed conversion
of the preferred shares. In 1994, conversion of the preferred shares would have
been anti-dilutive and, therefore, was not considered in the computation of
fully diluted earnings per share. Also, in 1994, the incremental shares that
would have been outstanding under certain employee benefit plans and upon the
assumed exercise of dilutive stock options were immaterial and, accordingly,
were not considered in the calculation of fully diluted earnings per share. As a
result, fully diluted earnings per share for 1994 are not materially different
from primary earnings per share.
As described in Note 15, a total of 6,350,000 shares of common stock were
issued upon conversion of the Corporation's Series B Cumulative Convertible
Preferred Stock (Series B) in October 1996. Those 6,350,000 shares of common
stock were reflected in the computation of primary earnings per share through
the inclusion of such shares, from their date of issuance, in the determination
of the weighted average number of common shares outstanding. On a pro forma
basis, assuming that the 6,350,000 shares of common stock had been issued upon
conversion of the shares of Series B stock as of January 1, 1996, primary
earnings per share for the year ended December 31, 1996, would have been $2.38.
NOTE 2: DISCONTINUED OPERATIONS
Earnings from the discontinued Information Technology and Services (PRC) segment
amounted to $70.4 million in 1996, $38.4 million in 1995, and $37.5 million in
1994, net of applicable income taxes of $55.6 million, $8.7 million, and $4.0
million, respectively. The results of the discontinued PRC segment do not
reflect any expense for interest allocated by or management fees charged by the
Corporation.
On February 16, 1996, the Corporation completed the sale of PRC Inc., the
remaining business in the discontinued PRC segment, for $425.0 million. Earnings
from discontinued operations in 1996 consisted primarily of the gain on the sale
of PRC Inc., net of selling expenses and applicable income taxes. Revenues and
operating income of PRC Inc. for the period from January 1, 1996, through the
date of sale were not significant. The terms of the sale of PRC Inc. provide for
an adjustment to the sales price, expected to be finalized in 1997, based upon
the changes in the net assets of PRC Inc. through February 15, 1996.
The Corporation sold PRC Realty Systems, Inc. (RSI), on March 31, 1995, and
sold PRC Environmental Management, Inc. (EMI), on September 15, 1995, for
proceeds of $60.0 million and $35.5 million, respectively. The aggregate gain on
the sale of RSI and EMI of $2.5 million, net of applicable income taxes of $5.5
million, is included in earnings from discontinued operations for 1995.
Together, PRC Inc., RSI, and EMI composed the Corporation's discontinued PRC
segment.
Revenues of the discontinued PRC segment were $800.1 million in 1995 and
$883.1 million in 1994. These revenues are not included in sales as reported in
the Consolidated Statement of Earnings.
Net assets of the discontinued PRC segment as of December 31, 1995,
consisted principally of accounts receivable, goodwill, and other assets less
accounts payable and other liabilities.
NOTE 3: RESTRUCTURING
In 1996, the Corporation commenced a restructuring of certain of its operations
and recorded a restructuring charge of $91.3 million.
The major component of the restructuring charge relates to the
Corporation's elimination of approximately 1,500 positions. As a result, an
accrual of $74.6 million for severance, principally associated with the European
businesses in the Consumer and Home Improvement Products (Consumer) segment, was
included in the restructuring charge.
In connection with the restructuring plan, the Corporation also will take
actions to rationalize certain manufacturing and service operations. Such
rationalization, principally associated with the Consumer businesses in the
United States, will include the outsourcing of certain products currently
manufactured by the Corporation and the closure of several small manufacturing
facilities. As a result, the restructuring charge also included a $6.6 million
write-down to fair value of certain land and buildings. The remaining
restructuring charge primarily related to the write-down to fair value of
equipment made obsolete or redundant due to the decision to close certain
facilities or outsource certain production.
NOTE 4: TRADE RECEIVABLES
CONCENTRATION OF CREDIT: The Corporation sells products and services to
customers in diversified industries and geographic regions and, therefore, has
no significant concentrations of credit risk. The Corporation continuously
evaluates the creditworthiness of its customers and generally does not require
collateral.
SALE OF RECEIVABLES PROGRAM: The Corporation's sale of receivables program
provides for a seasonal expansion of capacity from $200.0 million to $275.0
million during the period from October 1 through January 31. Receivables under
this program are sold on a revolving basis and are not subject to any
significant recourse provisions. At December 31, 1996, the Corporation had sold
$212.0 million of receivables under this program compared to $230.0 million at
December 31, 1995. The discount on the sale of receivables is included in other
expense.
NOTE 5: INVENTORIES
The classification of inventories at the end of each year, in millions of
dollars, was as follows:
1996 1995
-------- --------
FIFO cost
Raw materials and work-in-process ................. $ 211.1 $ 231.6
Finished products ................................. 567.7 665.0
-------- --------
778.8 896.6
Excess of FIFO cost over LIFO inventory value ........ (31.0) (40.9)
-------- --------
$ 747.8 $ 855.7
======== ========
The cost of United States inventories stated under the LIFO method was
approximately 42% and 44% of the value of total inventories at December 31, 1996
and 1995, respectively.
NOTE 6: PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment at the end of each year, in millions of dollars,
consisted of the following:
1996 1995
-------- --------
Property, plant, and equipment at cost:
Land and improvements ........................ $ 67.2 $ 69.4
Buildings .................................... 341.6 360.7
Machinery and equipment ...................... 1,473.3 1,342.1
-------- --------
1,882.1 1,772.2
Less accumulated depreciation ................ 976.3 905.4
-------- --------
$ 905.8 $ 866.8
======== ========
NOTE 7: GOODWILL
Goodwill at the end of each year, in millions of dollars, was as follows:
1996 1995
-------- --------
Goodwill ..................................... $2,571.5 $2,635.0
Less accumulated amortization ................ 559.3 493.0
-------- --------
$2,012.2 $2,142.0
======== ========
NOTE 8: OTHER ACCRUED LIABILITIES
Other accrued liabilities at the end of each year, in millions of dollars,
included the following:
1996 1995
-------- -------
Salaries and wages ............................... $ 77.6 $ 91.8
Employee benefits ................................ 54.8 66.2
Trade discounts and allowances ................... 98.3 79.8
Restructuring costs .............................. 37.7 --
All other ........................................ 567.5 505.2
-------- -------
$ 835.9 $ 743.0
======== ========
All other at December 31, 1996 and 1995, consisted primarily of accruals
for insurance, warranty costs, advertising, interest, and income and other
taxes.
NOTE 9: SHORT-TERM BORROWINGS
Short-term borrowings in the amounts of $120.9 million and $242.7 million at
December 31, 1996 and 1995, respectively, primarily consisted of borrowings by
subsidiaries located outside the United States under the terms of uncommitted
lines of credit or other short-term borrowing arrangements. Short-term
borrowings at December 31, 1996, also included $115.0 million of borrowings
under the Corporation's unsecured revolving credit facility, as more fully
described in Note 10. Short-term borrowings at December 31, 1995, also included
$150.0 million of competitive-bid rate loans under the Corporation's former
unsecured revolving credit facility, as more fully described in Note 10, and
$206.5 million of unsecured money market loans. The weighted average interest
rate on short-term borrowings outstanding at December 31, 1996 and 1995, was
6.9% and 6.2%, respectively.
Under the terms of uncommitted lines of credit at December 31, 1996,
certain subsidiaries outside the United States may borrow up to an additional
$427.2 million on such terms as may be mutually agreed. These arrangements do
not have termination dates and are reviewed periodically. No material
compensating balances are required or maintained.
NOTE 10: LONG-TERM DEBT
The composition of long-term debt at the end of each year, in millions of
dollars, was as follows:
1996 1995
-------- --------
Revolving credit facility expiring 2001 .......... $ 285.9 $ --
Revolving credit facility expiring 1997 .......... -- 436.8
7.50% notes due 2003 ............................. 440.7 500.0
6.625% notes due 2000 ............................ 250.0 250.0
7.0% notes due 2006 .............................. 207.6 250.0
Medium Term Notes due through 2002 ............... 221.5 236.8
Other loans due through 2006 ..................... 64.2 78.9
Less current maturities of long-term debt ........ (54.1) (48.0)
-------- --------
$ 1,415.8 $ 1,704.5
========= =========
In 1996, the Corporation replaced its former unsecured revolving credit
facility (the Former Credit Facility), which was scheduled to expire in 1997,
with a new unsecured revolving credit facility (the Credit Facility). Under the
Credit Facility, which consists of two individual facilities, the Corporation
may borrow up to $1.0 billion. The amount available for borrowing under the
Credit Facility at December 31, 1996, was $599.1 million.
Borrowing options under the Credit Facility are at the London Interbank
Offered Rate (LIBOR) plus a specified percentage, or at other variable rates set
forth therein. The Credit Facility provides that the interest rate margin over
LIBOR, initially set at .15% and .25%, respectively, for each of the two
individual facilities, will increase or decrease based upon changes in the
ratings of the Corporation's long-term senior unsecured debt. The Corporation
also is able to borrow by means of competitive-bid rate loans under the Credit
Facility. Competitive-bid rate loans are made through an auction process at
then-current market rates. In addition to interest payable on the principal
amount of indebtedness outstanding from time to time under the Credit Facility,
the Corporation is required to pay an annual facility fee to each bank,
initially equal to .125% of the amount of each bank's commitment, whether used
or unused. The Credit Facility provides that the facility fee also will increase
or decrease based upon changes in the ratings of the Corporation's long-term
senior unsecured debt.
The Credit Facility includes various customary covenants, including
covenants limiting the ability of the Corporation and its subsidiaries to pledge
assets or incur liens on assets, and financial covenants requiring the
Corporation to maintain a specified leverage ratio and to achieve certain cash
flow to fixed expense coverage ratios. As of December 31, 1996, the Corporation
was in compliance with all terms and conditions of the Credit Facility. The
Corporation expects to continue to meet the covenants imposed by the Credit
Facility over the next 12 months. Meeting the cash flow coverage ratio is
dependent upon the level of future earnings and interest rates, each of which
can have a significant impact on the ratio.
Under the Former Credit Facility, the interest rate margin over LIBOR
declined as the Corporation's leverage ratio improved. At December 31, 1994,
borrowings under the Former Credit Facility were at LIBOR plus .4375%, declined
to LIBOR plus .325% effective January 1, 1995, and declined to LIBOR plus .25%
effective January 1, 1996. In addition to interest payable on the principal
amount of indebtedness outstanding under the Former Credit Facility, the
Corporation was required to pay an annual facility fee to each bank equal to
.175% of the amount of the bank's commitment as of December 31, 1994 and 1995.
In 1995, the Corporation recognized a $30.9 million extraordinary loss as a
result of the early redemption of the 9.25% sinking fund debentures of its
subsidiary Emhart Corporation. The extraordinary loss consisted primarily of the
write-off of the associated debt discount plus premiums and costs associated
with the redemption, net of income tax benefits of $2.6 million. The Corporation
financed Emhart's redemption of the sinking fund debentures through internally
generated cash and proceeds from the sale during 1995 of portions of the
discontinued PRC segment.
During 1994, the Corporation filed a shelf registration statement to issue
up to $500.0 million of debt securities, which may consist of debentures, notes,
or other unsecured evidences of indebtedness (the Medium Term Notes). As of
December 31, 1996, $221.5 million aggregate principal amount of the Medium Term
Notes, issued under this shelf registration statement, were outstanding. Of that
amount, $179.5 million bear interest at fixed rates ranging from 7.22% to 8.95%,
while the remainder bear interest at variable rates. At December 31, 1996, those
variable rates ranged from 6.00% to 6.33%.
Indebtedness of subsidiaries in the aggregate principal amounts of $586.5
million and $759.1 million were included in the Consolidated Balance Sheet at
December 31, 1996 and 1995, respectively, in short-term borrowings, current
maturities of long-term debt, and long-term debt.
Principal payments on long-term debt obligations due over the next five
years are as follows: $54.1 million in 1997, $61.9 million in 1998, $59.3
million in 1999, $253.9 million in 2000, and $342.4 million in 2001. Interest
payments on all indebtedness were $170.7 million in 1996, $209.0 million in
1995, and $184.9 million in 1994.
NOTE 11: DERIVATIVE FINANCIAL INSTRUMENTS
The Corporation is exposed to market risks arising from changes in interest
rates. With products and services marketed in over 100 countries and with
manufacturing sites in 14 countries, the Corporation also is exposed to risks
arising from changes in foreign exchange rates.
CREDIT EXPOSURE: The Corporation is exposed to credit-related losses in the
event of non-performance by counterparties to certain derivative financial
instruments. The Corporation monitors the creditworthiness of the counterparties
and presently does not expect default by any of the counterparties. The
Corporation does not obtain collateral in connection with its derivative
financial instruments.
The credit exposure that results from interest rate and foreign exchange
contracts is represented by the fair value of contracts with a positive fair
value as of the reporting date, as indicated below. Some derivatives are not
subject to credit exposures. The fair value of all financial instruments is
summarized in Note 12.
INTEREST RATE RISK MANAGEMENT: The Corporation manages its interest rate risk,
primarily through the use of interest rate swap and cap agreements, in order to
achieve a cost-effective mix of fixed and variable rate indebtedness. The
Corporation seeks to issue debt opportunistically, whether at fixed or variable
rates, at the lowest possible costs and then, based upon its assessment of the
future interest rate environment, may convert such debt from fixed to variable
or from variable to fixed interest rates through the use of interest rate
derivatives. Similarly, the Corporation may, at times, seek to limit the effects
of rising interest rates on its variable rate debt through the use of interest
rate caps.
The amounts exchanged by the counterparties to interest rate swap and cap
agreements normally are based upon the notional amounts and other terms,
generally related to interest rates, of the derivatives. While notional amounts
of interest rate swaps and caps form part of the basis for the amounts exchanged
by the counterparties, the notional amounts are not themselves exchanged and,
therefore, do not represent a measure of the Corporation's exposure as an end
user of derivative financial instruments. The notional amounts of interest rate
derivatives at the end of each year, in millions of dollars, were as follows:
1996 1995
- --------------------------------------------------------------------------------
Interest rate swaps:
Fixed to variable rates ....................... $ 700.0 $ 700.0
Variable to fixed rates ....................... 400.0 450.0
Rate basis swaps .............................. 100.0 150.0
U.S. rates to foreign rates ................... 325.0 175.0
Interest rate caps purchased ..................... 150.0 150.0
- --------------------------------------------------------------------------------
The Corporation's portfolio of interest rate swap instruments as of
December 31, 1996, included $700.0 million notional amounts of fixed to variable
rate swaps with a weighted average fixed rate receipt of 6.04%. The basis of the
variable rates paid is LIBOR. The maturities of these swaps, by notional
amounts, are as follows: $100.0 million in 1998, $150.0 million in 2000, $50.0
million in 2001, and the balance in the years 2003 through 2004. A total of
$300.0 million of these swaps, maturing in 2003, contain provisions that permit
the counterparties to terminate the swaps, without penalty, beginning in 1998.
As of December 31, 1996, the portfolio also included $400.0 million
notional amounts of variable to fixed rate swaps with a weighted average fixed
rate payment of 6.72%. The basis of the variable rates received is LIBOR. Of
these swaps to fixed rates, $150.0 million mature in 1997 and the balance mature
in 1998.
As of December 31, 1996, the portfolio also contained $100.0 million
notional amounts of rate basis swaps, which swap to the higher of a specified
weighted average fixed rate payment of 6.26% or a weighted average variable rate
payment of LIBOR minus 1.55%. The basis of the variable rates received is LIBOR.
Rates received under these rate basis swaps are generally reset every three
months. Of these rate basis swaps, $50.0 million mature in 1997, and the balance
mature in 1998. At December 31, 1996, payments under these swaps were based on
the weighted average fixed rate payment provisions of the swap agreements.
The remainder of the interest rate swap portfolio as of December 31, 1996,
consisted of $325.0 million notional amounts of interest rate swaps that swap
from United States dollars into foreign currencies. Of that amount, $150.0
million had been swapped from fixed rate United States dollars (with a weighted
average fixed rate of 6.77%) into fixed rate Japanese yen (with a weighted
average fixed rate of 2.92%). Of the $150.0 million notional amounts swapped
into Japanese yen, $50.0 million mature in 1997, and the balance mature in 1999.
A total of $25.0 million notional amounts of interest rate swaps maturing in
1997 had been swapped from variable rate United States dollars (with the
variable rate based on LIBOR) into fixed rate Swiss francs (with a weighted
average fixed rate of 5.17%). A total of $100.0 million notional amounts of
interest rate swaps maturing in 1999 had been swapped from fixed rate United
States dollars (with a weighted average fixed rate of 6.64%) into fixed rate
deutsche marks (with a weighted average fixed rate of 4.73%). Interest rate
swaps totaling $50.0 million notional amount swapped from fixed rate United
States dollars (with a weighted average fixed rate of 6.77%) into fixed rate
Dutch guilders (with a weighted average fixed rate of 4.58%); these swaps mature
in 1999.
As of December 31, 1996, the Corporation also had $150.0 million notional
amounts of interest rate caps that mature in 1997 and have cap rates of 7.0%.
For a total of $100.0 million notional amounts of the interest rate caps, the
cap rates increase from 7.0% to 9.0% for any period in which LIBOR exceeds 9.0%.
The Corporation's credit exposure on its interest rate derivatives as of
December 31, 1996 and 1995, was $.1 million and $3.5 million, respectively.
Gross deferred gains and losses on the early termination of interest rate swaps
as of December 31, 1996 and 1995, were not significant.
FOREIGN CURRENCY MANAGEMENT: The Corporation enters into various foreign
currency contracts in managing its foreign exchange risks. The contractual
amounts of foreign currency derivative financial instruments (principally,
forward exchange contracts and options) generally are exchanged by the
counterparties.
In order to limit the volatility of reported equity, the Corporation
historically has hedged a portion of its net investment in subsidiaries located
outside the United States, where practicable, except for those subsidiaries
operating in highly inflationary economies. This has been accomplished through
the use of foreign currency forward contracts, foreign currency swaps, and
purchased foreign currency options with little or no intrinsic value at the
inception of the options. Beginning in 1995, the Corporation decided to limit
the future hedging of its net investment in foreign subsidiaries.
Through its foreign currency hedging activities, the Corporation seeks to
minimize the risk that cash flows resulting from the sales of products
manufactured in a currency different from that of the selling subsidiary will be
affected by changes in exchange rates. Management responds to foreign exchange
movements through various means, such as pricing actions, changes in cost
structure, and changes in hedging strategies.
The Corporation hedges its foreign currency transaction and firm sales
commitment exposures, as well as certain forecasted transactions, based on
management's judgment, generally through purchased options with little or no
intrinsic value at the inception of the options and, for transaction and firm
sales commitment exposures, the use of forward exchange contracts. Some of the
contracts involve the exchange of two foreign currencies according to the local
needs of the subsidiaries. The Corporation utilizes some natural hedges to
mitigate its transaction and commitment exposures. Deferred gains and losses on
hedged firm sales commitments are recognized when the related sales occur.
Deferred gains on options that hedge forecasted transactions, generally related
to inventory purchases, are recognized in cost of sales when the related
inventory is sold or when a hedged purchase is no longer expected to occur.
The following table summarizes the contractual amounts of the Corporation's
forward exchange contracts as of December 31, 1996 and 1995, in millions of
dollars, including details by major currency as of December 31, 1996. Foreign
currency amounts were translated at current rates as of the reporting date. The
"Buy" amounts represent the United States dollar equivalent of commitments to
purchase currencies, and the "Sell" amounts represent the United States dollar
equivalent of commitments to sell currencies.
As of December 31, 1996 Buy Sell
- --------------------------------------------------------------------------------
United States dollar .................... $ 962.3 $ (561.4)
Pound sterling .......................... 251.7 (65.3)
Deutsche mark ........................... 54.3 (266.7)
Dutch guilder ........................... 22.3 (85.1)
Japanese yen ............................ 34.1 (165.1)
French franc ............................ 60.2 (76.1)
Canadian dollar ......................... 204.8 (204.0)
Italian lira ............................ 21.8 (101.4)
Swiss franc ............................. 47.1 (64.2)
Other ................................... 95.4 (157.9)
- --------------------------------------------------------------------------------
Total ................................... $1,754.0 $(1,747.2)
================================================================================
As of December 31, 1995
- --------------------------------------------------------------------------------
Total ................................... $2,305.8 $(2,322.2)
================================================================================
The contractual amounts of the Corporation's purchased currency options to
buy currencies, predominantly the pound sterling, and to sell various currencies
were $328.5 million and $309.1 million, respectively, at December 31, 1996. The
contractual amounts of purchased currency options to buy currencies,
predominantly the United States dollar, and to sell various currencies were
$25.1 million and $25.6 million, respectively, at December 31, 1995.
The Corporation's credit exposure on its foreign currency derivatives as of
December 31, 1996 and 1995, was $62.4 million and $28.9 million, respectively.
Gross deferred realized gains and losses on hedges of firm commitments and
forecasted transactions were not significant at December 31, 1996 and 1995.
Substantially all of the amounts deferred at December 31, 1996, are expected to
be recognized in earnings during 1997, when the gains or losses on the
underlying transactions also will be recognized.
NOTE 12: FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument represents the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced sale or liquidation. Significant differences can arise
between the fair value and carrying amount of financial instruments that are
recognized at historical cost amounts.
The following methods and assumptions were used by the Corporation in
estimating fair value disclosures for financial instruments:
o Cash and cash equivalents, trade receivables, certain other current assets,
short-term borrowings, and current maturities of long-term debt: The amounts
reported in the Consolidated Balance Sheet approximate fair value.
o Long-term debt: Publicly traded debt is valued based on quoted market values.
The amount reported in the Consolidated Balance Sheet for other long-term debt
approximates fair value, since such debt was primarily variable rate debt.
o Interest rate hedges: The fair value of interest rate hedges, including
interest rate swaps and caps, reflects the estimated amounts that the
Corporation would receive or pay to terminate the contracts at the reporting
date, thereby taking into account unrealized gains and losses of open contracts
as of the reporting date.
o Foreign currency contracts: The fair value of forward exchange contracts and
options is estimated using prices established by financial institutions for
comparable instruments.
The following table sets forth the carrying amounts and fair values of the
Corporation's financial instruments, except for those noted above for which
carrying amounts approximate fair values, in millions of dollars:
Assets (Liabilities) Carrying Fair
As of December 31, 1996 Amount Value
- --------------------------------------------------------------------------------
Non-derivatives:
Long-term debt .............................. $(1,415.8) $(1,437.5)
- --------------------------------------------------------------------------------
Derivatives relating to:
Debt
Assets .................................... -- .1
Liabilities ............................... -- (21.8)
Foreign currency
Assets .................................... 39.7 62.4
Liabilities ............................... (21.1) (19.6)
- --------------------------------------------------------------------------------
As of December 31, 1995
- --------------------------------------------------------------------------------
Non-derivatives:
Long-term debt .............................. $(1,704.5) $(1,779.9)
- --------------------------------------------------------------------------------
Derivatives relating to:
Debt
Assets .................................... 2.6 3.5
Liabilities ............................... (.5) (16.4)
Foreign currency
Assets .................................... 12.6 28.9
Liabilities ............................... (32.6) (46.3)
- --------------------------------------------------------------------------------
The carrying amounts of debt-related derivatives are included in the
Consolidated Balance Sheet in other accrued liabilities. The carrying amounts of
foreign currency-related derivatives related to net investment and commitment
hedges are included in the Consolidated Balance Sheet in other current assets
and other accrued liabilities. The carrying amounts of foreign currency-related
derivatives related to transaction hedges are included in the same balance sheet
line item as the hedged transaction.
NOTE 13: INCOME TAXES
Earnings (losses) from continuing operations before income taxes and
extraordinary item, for each year, in millions of dollars, were as follows:
1996 1995 1994
-------- -------- --------
United States .................... $ 121.0 $ 83.5 $ (16.6)
Other countries .................. 81.7 142.0 165.2
-------- -------- --------
$ 202.7 $ 225.5 $ 148.6
======== ======== ========
Significant components of income taxes (benefits) for each year, in
millions of dollars, were as follows:
1996 1995 1994
------- ------- -------
Current:
United States ........................ $ 4.0 $ 20.2 $ 4.7
Other countries ...................... 34.5 33.5 43.7
Withholding on remittances
from other countries ............... 2.1 1.4 1.4
------- ------- -------
40.6 55.1 49.8
------- ------- -------
Deferred:
United States ........................ (10.6) (50.2) 12.0
Other countries ...................... 13.5 4.1 (3.1)
------- ------- -------
2.9 (46.1) 8.9
------- ------- -------
$ 43.5 $ 9.0 $ 58.7
======= ======= =======
During 1996, 1995, and 1994, the Corporation utilized United States tax
loss carryforwards and capital loss carryforwards obtained in a prior business
combination. The effect of utilizing these carryforwards was to recognize
deferred income tax expense and to reduce goodwill by $19.0 million in 1996,
$21.0 million in 1995, and $15.5 million in 1994.
In 1995, income tax benefits of $2.6 million were recorded in connection
with the extraordinary loss on extinguishment of debt. Income tax expense
recorded directly as an adjustment to equity as a result of hedging activities
in 1996, 1995, and 1994 was not significant.
Income tax payments were $40.8 million in 1996, $56.3 million in 1995, and
$44.5 million in 1994.
Deferred tax assets (liabilities) at the end of each year, in millions of
dollars, were composed of the following:
1996 1995
-------- --------
Deferred tax liabilities:
Fixed assets .................................... $ (47.0) $ (45.8)
Postretirement benefits ......................... (39.1) (32.5)
Other ........................................... (27.7) (8.8)
-------- --------
Gross deferred tax liabilities ..................... (113.8) (87.1)
-------- --------
Deferred tax assets:
Tax loss carryforwards .......................... 98.5 115.9
Tax credit and capital loss
carryforwards ................................. 72.2 58.0
Net assets of discontinued operations ........... -- 40.0
Other ........................................... 124.2 128.0
-------- --------
Gross deferred tax assets .......................... 294.9 341.9
-------- --------
Deferred tax asset valuation allowance ............. (111.5) (187.7)
-------- --------
Net deferred tax assets ............................ $ 69.6 $ 67.1
======== ========
Deferred income taxes are included in the Consolidated Balance Sheet in
other current assets, other accrued liabilities, deferred income taxes, and, for
1995, net assets of discontinued operations.
During the year ended December 31, 1996, the deferred tax asset valuation
allowance decreased by $76.2 million. Included in the decrease was $10.6 million
that resulted from the reversal of a portion of the deferred tax asset valuation
allowance based on the projections of estimable taxable earnings in the United
States. The remaining decrease was due to the utilization of domestic tax loss
carryforwards, offset by increased tax losses generated by foreign operations.
During the year ended December 31, 1995, the deferred tax asset valuation
allowance decreased by $113.5 million. Included in the decrease was $109.0
million that resulted from the reversal of a portion of the deferred tax asset
valuation allowance based on the projection of estimable taxable earnings in the
United States, including the effect of the then-pending sale of PRC Inc. The
remaining decrease was due to the utilization of domestic tax loss
carryforwards, offset by increased tax losses generated by foreign operations.
Tax basis carryforwards at December 31, 1996, consisted of net operating
losses expiring from 1997 to 2012 and other tax credits expiring from 1998 to
2009.
At December 31, 1996, unremitted earnings of subsidiaries outside the
United States were approximately $1.4 billion, on which no United States taxes
have been provided, except that deferred withholding taxes have been provided on
approximately $300.0 million of such unremitted earnings. The Corporation's
intention is to reinvest these earnings permanently or to repatriate the
earnings only when tax effective to do so. It is not practicable to estimate the
amount of additional taxes that might be payable upon repatriation of foreign
earnings; however, the Corporation believes that United States foreign tax
credits would largely eliminate any United States taxes and offset any foreign
withholding taxes not previously provided.
A reconciliation of income taxes at the federal statutory rate to the
Corporation's income taxes for each year, in millions of dollars, is as follows:
1996 1995 1994
------- ------- -------
Income taxes at federal statutory rate ........... $ 70.9 $ 78.9 $ 52.0
Lower effective taxes on earnings
in other countries ............................ (10.3) (16.5) (18.7)
Effect of net operating loss carryforwards ....... (52.3) (19.4) (2.7)
Effect of reduction in deferred tax asset
valuation allowance due to projection
of estimable earnings in the United
States, including, for 1995, the
effect of the then-pending sale of
PRC Inc. ...................................... (10.6) (65.0) --
Withholding on remittances from other
countries ..................................... 21.1 1.4 1.4
Amortization and write-off of goodwill ........... 23.6 24.6 24.5
Other-net ........................................ 1.1 5.0 2.2
------- ------- -------
Income taxes ..................................... $ 43.5 $ 9.0 $ 58.7
======= ======= =======
NOTE 14: POSTRETIREMENT BENEFITS
Net pension cost (credit) for all domestic defined benefit plans included the
following components for each year, in millions of dollars:
1996 1995 1994
------- ------- -------
Service cost .............................. $ 16.5 $ 11.3 $ 14.0
Interest cost on projected
benefit obligation ..................... 48.8 47.9 45.6
Actual return on assets ................... (62.0) (108.2) (20.8)
Net amortization and deferral ............. (5.8) 39.3 (38.2)
------- ------- -------
Net pension cost (credit) ................. $ (2.5) $ (9.7) $ .6
======= ======= =======
The funded status of the domestic defined benefit plans at the end of each
year, in millions of dollars, was as follows:
1996 1995
-------- --------
Actuarial present value of benefit obligations:
Vested benefit ................................... $ 569.8 $ 585.2
======== ========
Accumulated benefit .............................. $ 589.4 $ 611.5
======== ========
Projected benefit ................................ $ 631.0 $ 653.0
Plan assets at fair value ........................... 796.2 750.6
-------- --------
Plan assets in excess of projected benefit
obligation ........................................ 165.2 97.6
Unrecognized net loss ............................... 66.2 129.3
Unrecognized prior service cost ..................... 5.3 5.6
Unrecognized net asset at date of adoption,
net of amortization ............................... (3.1) (4.2)
-------- --------
Net pension asset recognized in the
Consolidated Balance Sheet ........................ $ 233.6 $ 228.3
======== ========
Discount rates ...................................... 8.0% 7.75%
Salary scales ....................................... 5.0-6.0% 5.0-6.0%
Expected return on plan assets ...................... 10.5% 10.5%
-------- --------
Net pension expense (credit) for defined benefit pension plans outside the
United States was $.9 million in 1996, $.8 million in 1995, and $(2.0) million
in 1994. The net pension asset recognized in the Consolidated Balance Sheet for
those plans outside the United States where assets exceeded accumulated benefits
was $119.3 million and $102.0 million at December 31, 1996 and 1995,
respectively. Liabilities of these plans were discounted at rates ranging from
4.0% to 8.5% in 1996 and from 4.5% to 9.0% in 1995, and expected returns on
assets of these plans ranged from 5.5% to 10.0% in 1996 and from 5.5% to 10.5%
in 1995. The net pension liability recognized in the Consolidated Balance Sheet
for those plans outside the United States where accumulated benefits exceeded
assets was $71.0 million and $71.7 million at December 31, 1996 and 1995,
respectively. Liabilities of these predominantly unfunded plans were discounted
at rates ranging from 7.0% to 8.0% in 1996 and from 7.0% to 7.75% in 1995.
Assets of domestic plans and plans outside the United States consist
principally of investments in equity securities, debt securities, and cash
equivalents.
The expected returns on plan assets during 1994 for defined benefit plans
were 10.5% for plans in the United States and ranged from 5.5% to 12.0% for
funded plans outside the United States.
Expense for defined contribution plans amounted to $11.3 million, $11.6
million, and $8.3 million in 1996, 1995, and 1994, respectively.
The Corporation has several unfunded health care plans that provide certain
postretirement medical, dental, and life insurance benefits for most United
States employees. The postretirement medical and dental plans are contributory
and include certain cost-sharing features, such as deductibles and co-payments.
Net periodic postretirement benefit expense included the following
components, in millions of dollars:
1996 1995 1994
------- ------- -------
Service expense ......................... $ 1.2 $ 1.6 $ 1.8
Interest expense ........................ 11.6 14.0 12.9
Net amortization ........................ (8.8) (7.0) (8.0)
------- ------- -------
Net periodic postretirement
benefit expense ...................... $ 4.0 $ 8.6 $ 6.7
======= ======= =======
The reconciliation of the accumulated postretirement benefit obligation to
the liability recognized in the Consolidated Balance Sheet at the end of each
year, in millions of dollars, was as follows:
1996 1995
------- -------
Accumulated postretirement
benefit obligation:
Retirees ...................................... $ 114.0 $ 129.0
Fully eligible active
participants ................................ 14.9 15.7
Other active participants ..................... 13.5 13.5
------- -------
Total ......................................... 142.4 158.2
------- -------
Unrecognized prior service cost .................... 53.9 59.7
Unrecognized net loss .............................. 36.5 22.3
------- -------
Net postretirement benefit liability
recognized in the Consolidated
Balance Sheet ................................... $ 232.8 $ 240.2
======= =======
The health care cost trend rate used to determine the postretirement
benefit obligation was 9.77% for 1996 and 9.72% for 1997, decreases gradually to
an ultimate rate of 5.25% in 2001, and remains at that level thereafter. The
trend rate is a significant factor in determining the amounts reported. The
effect of a 1% annual increase in these assumed health care cost trend rates
would increase the accumulated postretirement benefit obligation at December 31,
1996, by approximately $10.4 million. The effect of a 1% increase on the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost is immaterial. An assumed discount rate of 8.0% was
used to measure the accumulated postretirement benefit obligation in 1996
compared to 7.75% used in 1995.
NOTE 15: STOCKHOLDERS' EQUITY
(Dollars in Millions Except Per Share Amounts)
Equity
Outstanding Outstanding Capital in Retained Adjustment
Preferred Common Par Excess of Earnings From
Shares Amount Shares Value Par Value (Deficit) Translation
------------ ------- ----------- ------ ---------- -------- -----------
Balance at December 31, 1993 150,000 $ 150.0 83,845,194 $ 41.9 $ 1,034.8 $ (57.5) $ (120.3)
Net earnings -- -- -- -- -- 127.4 --
Cash dividends:
Common ($.40 per share) -- -- -- -- -- (33.7) --
Preferred -- -- -- -- -- (11.6) --
Common stock issued under
employee benefit plans -- -- 843,609 .4 14.3 -- --
Valuation changes, less net
effect of hedging activities -- -- -- -- -- -- 23.7
------- ------- ---------- ------ --------- -------- --------
Balance at December 31, 1994 150,000 150.0 84,688,803 42.3 1,049.1 24.6 (96.6)
Net earnings -- -- -- -- -- 224.0 --
Cash dividends:
Common ($.40 per share) -- -- -- -- -- (34.4) --
Preferred -- -- -- -- -- (11.6) --
Common stock issued under
employee benefit plans -- -- 1,758,785 .9 35.4 -- --
Valuation changes, less net
effect of hedging activities -- -- -- -- -- -- 39.5
------- ------- ---------- ------ --------- ------- --------
Balance at December 31, 1995 150,000 150.0 86,447,588 43.2 1,084.5 202.6 (57.1)
Net earnings -- -- -- -- -- 229.6 --
Cash dividends:
Common ($.48 per share) -- -- -- -- -- (42.9) --
Preferred -- -- -- -- -- (9.1) --
Conversion of preferred shares
into common shares (150,000) (150.0) 6,350,000 3.2 146.8 -- --
Common stock issued under
employee benefit plans -- -- 1,451,219 .7 30.4 -- --
Valuation changes, less net
effect of hedging activities -- -- -- -- -- -- .5
------- ------- ---------- ------ --------- -------- --------
Balance at December 31, 1996 -- $ -- 94,248,807 $ 47.1 $ 1,261.7 $ 380.2 $ (56.6)
======= ======= ========== ====== ========= ======== ========
The Corporation has one class of $.50 par value common stock with
150,000,000 authorized shares. The Corporation has authorized 5,000,000 shares
of preferred stock without par value, of which 1,500,000 shares have been
designated as Series A Junior Participating Preferred Stock (Series A) and
150,000 shares have been designated as Series B Cumulative Convertible Preferred
Stock (Series B).
Under terms established upon the original sale of the Series B stock, the
Corporation had the option, after September 1996, to require the conversion of
the shares of Series B stock into shares of common stock under certain
circumstances. In accordance with the terms of the Series B stock, each share of
Series B stock was convertible into 42-1/3 shares of common stock and was
entitled to 42-1/3 votes on matters submitted generally to the stockholders of
the Corporation. The conversion rate and the number of votes per share were
subject to adjustment under certain circumstances pursuant to anti-dilution
provisions. On October 14, 1996, the Corporation exercised its conversion
option, issuing 6,350,000 shares of common stock in exchange for all previously
outstanding shares of Series B stock.
In connection with the original sale of the Series B stock, the Corporation
and the purchaser of Series B stock entered into a standstill agreement that
included, among other things, provisions limiting the purchaser's ownership and
voting of shares of the Corporation's capital stock, provisions limiting actions
by the purchaser with respect to the Corporation, and provisions generally
restricting the purchaser's equity interest to 15%. The standstill agreement,
which expires in September 2001, continues to apply to the shares of common
stock issued upon conversion of the Series B stock.
Prior to the conversion in 1996, holders of Series B stock were entitled to
dividends, payable quarterly, at an annual rate of $77.50 per share.
NOTE 16: STOCK-BASED COMPENSATION
The Corporation has elected to follow APBO No. 25, "Accounting for Stock Issued
to Employees," and related interpretations in accounting for its stock-based
compensation because, as discussed below, the alternative fair value accounting
provided for under SFAS No. 123, "Accounting for Stock-Based Compensation,"
requires use of option valuation models that are not appropriate for the
valuation of stock-based compensation arrangements provided to employees.
Further, the dilutive effects of stock-based compensation arrangements are
reflected in the Corporation's computation of earnings per share.
APBO No. 25 requires no recognition of compensation expense for most of the
stock-based compensation arrangements provided by the Corporation, namely,
broad-based employee stock purchase plans and option grants where the exercise
price is equal to the market value at the date of grant. However, APBO No. 25
requires recognition of compensation expense for variable award plans over the
vesting periods of such plans, based upon the then-current market values of the
underlying stock. In contrast, SFAS No. 123 would require recognition of
compensation expense for grants of stock, stock options, and other equity
instruments, over the vesting periods of such grants, based on the estimated
grant-date fair values of those grants.
Under the Corporation's various stock option plans, options to purchase
common stock may be granted until 2006. Options generally are granted at fair
market value at the date of grant, are exercisable in installments beginning one
year from the date of grant, and expire 10 years after the date of grant. The
plans permit the issuance of either incentive stock options or non-qualified
stock options, which, for certain of the plans, may be accompanied by stock or
cash appreciation rights or limited stock appreciation rights. Additionally,
certain plans allow for the granting of stock appreciation rights on a
stand-alone basis.
As of December 31, 1996, 5,520,518 non-qualified stock options were
outstanding under domestic plans. There were 131,961 stock options outstanding
under the United Kingdom plan.
Under all plans, there were 1,680,335 shares of common stock reserved for
future grants as of December 31, 1996. Transactions are summarized as follows:
Weighted
Average
Stock Options Exercise
Outstanding Price
------------- ----------
December 31, 1995 ................................. 5,788,688 $ 24.18
Granted ........................................... 1,410,050 33.92
Exercised ......................................... 1,115,328 18.01
Forfeited ......................................... 430,931 26.26
--------- ---------
December 31, 1996 ................................. 5,652,479 $ 24.12
========= =========
Shares exercisable at December 31, 1996 ........... 3,424,497 $ 19.05
--------- ---------
Stock Options Price Range
------------- -----------
Shares exercised during the year
ended December 31, 1995........................ 1,165,152 $9.88-25.25
--------- -----------
Shares exercised during the year
ended December 31, 1994........................ 343,702 9.88-21.63
--------- -----------
Exercise prices for options outstanding as of December 31, 1996, ranged
from $9.88 to $41.00. The following table sets forth certain information with
respect to those stock options outstanding at December 31, 1996:
Weighted
Weighted Average
Stock Average Remaining
Range of Options Exercise Contractual
Exercise Prices Outstanding Price Life
- --------------- ----------- --------- -----------
Under $15.00 ................... 853,527 $ 12.46 4.1
$15.00-$22.49 .................. 2,348,269 20.21 4.6
$22.50-$33.74 .................. 1,483,283 28.11 9.2
Over $33.75 .................... 967,400 37.76 9.3
--------- --------- ---
5,652,479 $ 24.12 6.5
========= ========= ===
The following table sets forth certain information with respect to those
stock options exercisable at December 31, 1996:
Stock Weighted
Range of Options Average
Exercise Prices Exercisable Exercise Price
- --------------- ------------- --------------
Under $15.00 .......................... 853,527 $ 12.46
$15.00-$22.49 ......................... 2,222,898 20.20
$22.50-$33.74 ......................... 230,847 24.06
Over $33.75 ........................... 117,225 35.40
--------- ---------
3,424,497 $ 19.05
========= =========
In electing to continue to follow APBO No. 25 for expense recognition
purposes, the Corporation is obliged to provide the expanded disclosures
required under SFAS No. 123 for stock-based compensation granted in 1995 and
thereafter, including, if materially different from reported results, disclosure
of the Corporation's pro forma net income and earnings per share had
compensation expense relating to 1996 and 1995 grants been measured under the
fair value recognition provisions of SFAS No. 123.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including expected stock price
volatility. The Corporation's stock-based compensation arrangements have
characteristics significantly different from those of traded options, and
changes in the subjective input assumptions used in valuation models can
materially affect the fair value estimate. Therefore, the Corporation is of the
opinion that the existing models do not necessarily provide a reliable single
measure of the fair value of its stock-based compensation.
The weighted-average fair value at date of grant for options granted during
1996 and 1995 was $10.30 and $9.85, respectively, and was estimated using the
Black-Scholes option valuation model with the following weighted-average
assumptions:
1996 1995
- --------------------------------------------------------------------------------
Expected life in years ....................... 5.9 5.7
Interest rate ................................ 6.25% 5.79%
Volatility ................................... 22.2% 22.3%
Dividend yield ............................... 1.43% 1.41%
- --------------------------------------------------------------------------------
The Corporation's pro forma information for 1996 and 1995, prepared in
accordance with the provisions of SFAS No. 123, is set forth below. For purposes
of pro forma disclosures, stock-based compensation is amortized to expense on a
straight-line basis over the vesting period. The following pro forma information
is not representative of the pro forma effect of the fair value provisions of
SFAS No. 123 on the Corporation's net income in future years because pro forma
compensation expense related to grants made prior to 1995 may not be taken into
consideration:
(Dollars in Millions Except Per Share Amounts) 1996 1995
- --------------------------------------------------------------------------------
Pro forma net income ............................. $ 227.5 $ 223.2
Pro forma earnings per share:
Primary ........................................ $ 2.39 $ 2.41
Assuming full dilution ......................... $ 2.36 $ 2.36
- --------------------------------------------------------------------------------
NOTE 17: BUSINESS SEGMENTS AND GEOGRAPHIC AREAS
The Corporation operates in two business segments: Consumer and Home Improvement
Products, including consumer and professional power tools and accessories,
household products, security hardware, outdoor products (composed of electric
lawn and garden tools and recreational products), plumbing products, and product
service; and Commercial and Industrial Products, including fastening and
assembly systems and glass container-forming and inspection equipment.
Sales, operating income, capital expenditures, and depreciation set forth
in the following table exclude the results of the discontinued PRC segment.
Corporate assets included in corporate and eliminations were $366.0 million at
December 31, 1996, $688.1 million at December 31, 1995, and $575.4 million at
December 31, 1994, and principally consist of cash and cash equivalents, other
current assets, property, other sundry assets, and, for 1995 and 1994, net
assets of the discontinued PRC segment. The remainder of corporate and
eliminations includes certain pension credits and amounts to eliminate
intercompany items, including accounts receivable and payable and intercompany
profit in inventory.
BUSINESS SEGMENTS
(Millions of Dollars)
Consumer & Commercial &
Home Improvement Industrial Corporate &
1996 Products Products Eliminations Consolidated
- -----------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 4,212.0 $ 702.4 $ -- $4,914.4
Operating income 273.0 75.7 8.2 356.9
Operating income excluding restructuring costs
and goodwill amortization 410.6 95.7 8.2 514.5
Identifiable assets 5,002.5 1,382.0 (1,231.0) 5,153.5
Capital expenditures 177.5 17.3 1.5 196.3
Depreciation 128.6 16.0 2.8 147.4
1995
- -----------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 4,075.6 $ 690.5 $ -- $4,766.1
Operating income 348.5 74.8 2.8 426.1
Operating income excluding goodwill amortization 399.8 91.9 2.8 494.5
Identifiable assets 4,929.2 1,382.8 (766.7) 5,545.3
Capital expenditures 184.1 15.7 3.3 203.1
Depreciation 115.9 15.4 4.6 135.9
1994
- -----------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 3,773.8 $ 591.4 $ -- $4,365.2
Operating income 293.7 52.6 5.6 351.9
Operating income excluding goodwill amortization 350.6 68.7 5.6 424.9
Identifiable assets 4,686.2 1,390.0 (811.9) 5,264.3
Capital expenditures 166.5 12.4 2.6 181.5
Depreciation 101.5 13.9 4.0 119.4
- -----------------------------------------------------------------------------------------------------------------
GEOGRAPHIC AREAS
(Millions of Dollars)
United Corporate &
1996 States Europe Other Eliminations Consolidated
- ----------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 2,726.1 $ 1,466.8 $ 721.5 $ -- $4,914.4
Sales and transfers between geographic areas 246.6 176.4 256.0 (679.0) --
- ----------------------------------------------------------------------------------------------------------------------
Total sales $ 2,972.7 $ 1,643.2 $ 977.5 $ (679.0) $4,914.4
======================================================================================================================
Operating income $ 282.3 $ 67.5 $ (1.1) $ 8.2 $ 356.9
Operating income excluding restructuring costs $ 317.4 $ 117.2 $ 5.4 $ 8.2 $ 448.2
Identifiable assets $ 3,258.5 $ 2,375.9 $ 783.6 $ (1,264.5) $5,153.5
- ----------------------------------------------------------------------------------------------------------------------
1995
- ----------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 2,551.2 $ 1,503.6 $ 711.3 $ -- $4,766.1
Sales and transfers between geographic areas 287.8 165.0 206.0 (658.8) --
- ----------------------------------------------------------------------------------------------------------------------
Total sales $ 2,839.0 $ 1,668.6 $ 917.3 $ (658.8) $4,766.1
======================================================================================================================
Operating income $ 300.2 $ 96.0 $ 27.1 $ 2.8 $ 426.1
Identifiable assets $ 3,216.6 $ 2,488.4 $ 763.9 $ (923.6) $5,545.3
- ----------------------------------------------------------------------------------------------------------------------
1994
- ----------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 2,409.3 $ 1,279.3 $ 676.6 $ -- $4,365.2
Sales and transfers between geographic areas 234.9 147.6 213.7 (596.2) --
- ----------------------------------------------------------------------------------------------------------------------
Total sales $ 2,644.2 $ 1,426.9 $ 890.3 $ (596.2) $4,365.2
======================================================================================================================
Operating income $ 217.0 $ 114.6 $ 14.7 $ 5.6 $ 351.9
Identifiable assets $ 3,200.0 $ 2,305.9 $ 670.8 $ (912.4) $5,264.3
- ----------------------------------------------------------------------------------------------------------------------
In 1996, restructuring costs in the amount of $87.7 million were charged to
the Consumer and Home Improvement Products segment and $3.6 million were charged
to the Commercial and Industrial Products segment.
In the Geographic Areas table, United States includes all domestic
operations and several intercompany manufacturing facilities outside the United
States that manufacture products predominantly for sale in the United States.
Other includes subsidiaries located in Canada, Latin America, Australia, and the
Far East.
Transfers between geographic areas are accounted for at cost plus a
reasonable profit. Transfers between business segments are not significant.
Identifiable assets are those assets identified with the operations in each area
or segment, including goodwill.
NOTE 18: OTHER EXPENSE
Other expense for 1996, 1995, and 1994 primarily included the costs associated
with the sale of receivables program.
NOTE 19: LEASES
The Corporation leases certain service centers, offices, warehouses,
manufacturing facilities, and equipment. Generally, the leases carry renewal
provisions and require the Corporation to pay maintenance costs. Rental payments
may be adjusted for increases in taxes and insurance above specified amounts.
Rental expense charged to earnings from continuing operations for 1996, 1995,
and 1994 amounted to $71.2 million, $68.0 million, and $64.9 million,
respectively. Capital leases were immaterial in amount. Future minimum payments
under non-cancelable operating leases with initial or remaining terms of more
than one year as of December 31, 1996, in millions of dollars, were as follows:
1997 ........................................................... $ 48.7
1998 ........................................................... 41.1
1999 ........................................................... 30.6
2000 ........................................................... 22.0
2001 ........................................................... 17.5
Thereafter ..................................................... 50.2
--------
Total .......................................................... $ 210.1
========
NOTE 20: LITIGATION AND CONTINGENT LIABILITIES
The Corporation is involved in various lawsuits in the ordinary course of
business. These lawsuits primarily involve claims for damages arising out of the
use of the Corporation's products and allegations of patent and trademark
infringement. The Corporation also is involved in litigation and administrative
proceedings relating to employment matters and commercial disputes. Some of
these lawsuits include claims for punitive as well as compensatory damages.
Using current product sales data and historical trends, the Corporation
actuarially calculates the estimate of its current exposure for product
liability. The Corporation is insured for product liability claims for amounts
in excess of established deductibles and accrues for the estimated liability up
to the limits of the deductibles. The Corporation accrues for all other claims
and lawsuits on a case-by-case basis.
The Corporation also is involved in lawsuits and administrative proceedings
with respect to claims involving the discharge of hazardous substances into the
environment. Certain of these claims assert damages and liability for remedial
investigations and cleanup costs with respect to sites at which the Corporation
has been identified as a potentially responsible party under federal and state
environmental laws and regulations (off-site). Other matters involve sites that
the Corporation currently owns and operates or has previously sold (on-site).
For off-site claims, the Corporation makes an assessment of the costs involved
based on environmental studies, prior experience at similar sites, and the
experience of other named parties. The Corporation also considers the ability of
other parties to share costs, the percentage of the Corporation's exposure
relative to all other parties, and the effects of inflation on these estimated
costs. For on-site matters associated with properties currently owned, the
Corporation makes an assessment as to whether an investigation and remediation
would be required under applicable federal and state laws. For on-site matters
associated with properties previously sold, the Corporation considers the terms
of sale as well as applicable federal and state laws to determine if the
Corporation has any remaining liability. If the Corporation is determined to
have potential liability for properties currently owned or previously sold, an
estimate is made of the total costs of investigation and remediation and other
potential costs associated with the site.
The Corporation's estimate of the costs associated with legal, product
liability, and environmental exposures is accrued if, in management's judgment,
the likelihood of a loss is probable. These accrued liabilities are not
discounted.
Insurance recoveries for environmental and certain general liability claims
are not recognized until realized. In the opinion of management, amounts accrued
for awards or assessments in connection with these matters are adequate and,
accordingly, ultimate resolution of these matters will not have a material
effect on the Corporation.
As of December 31, 1996, the Corporation had no known probable but
inestimable exposures that could have a material effect on the Corporation.
NOTE 21: QUARTERLY RESULTS (UNAUDITED)
(Millions of Dollars Except Per Share Data)
Year Ended December 31, 1996 First Quarter Second Quarter Third Quarter Fourth Quarter
- ---------------------------------------------------------------------------------------------------------------------------
Sales $1,065.0 $1,207.9 $1,186.7 $1,454.8
Gross margin 394.9 426.0 429.2 507.7
Earnings (loss) from continuing operations (32.4) 45.3 55.7 90.6
Earnings from discontinued operations 70.4 -- -- --
Net earnings 38.0 45.3 55.7 90.6
- ---------------------------------------------------------------------------------------------------------------------------
Net earnings per common and common equivalent share:
Primary:
Earnings (loss) from continuing operations $ (.40) $ .47 $ .59 $ .94
Earnings from discontinued operations .79 -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Primary earnings per share $ .39 $ .47 $ .59 $ .94
- --------------------------------------------------------------------------------------------------------------------------
Assuming full dilution:
Earnings (loss) from continuing operations $ (.40) $ .47 $ .58 $ .94
Earnings from discontinued operations .79 -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Fully diluted earnings per share $ .39 $ .47 $ .58 $ .94
==========================================================================================================================
Year Ended December 31, 1995
- --------------------------------------------------------------------------------------------------------------------------
Sales $1,021.4 $1,135.4 $1,168.9 $1,440.4
Gross margin 378.9 419.2 424.1 527.2
Earnings from continuing operations 19.1 28.1 32.3 137.0
Earnings from discontinued operations 6.6 6.7 11.2 13.9
Earnings before extraordinary item 25.7 34.8 43.5 150.9
Extraordinary loss from extinguishment of debt -- -- -- (30.9)
Net earnings 25.7 34.8 43.5 120.0
- --------------------------------------------------------------------------------------------------------------------------
Net earnings per common and common equivalent share:
Primary:
Earnings from continuing operations $ .19 $ .29 $ .33 $ 1.51
Earnings from discontinued operations .08 .08 .13 .16
Extraordinary loss -- -- -- (.35)
- --------------------------------------------------------------------------------------------------------------------------
Primary earnings per share $ .27 $ .37 $ .46 $ 1.32
- --------------------------------------------------------------------------------------------------------------------------
Assuming full dilution:
Earnings from continuing operations $ .19 .29 $ .34 $ 1.43
Earnings from discontinued operations .08 .08 .12 .15
Extraordinary loss -- -- -- (.32)
- --------------------------------------------------------------------------------------------------------------------------
Fully diluted earnings per share $ .27 $ .37 $ .46 $ 1.26
==========================================================================================================================
Earnings from discontinued operations of $70.4 million, net of applicable
income taxes of $55.6 million, in the first quarter of 1996 primarily consisted
of the gain on the sale of PRC Inc., the remaining business in the discontinued
PRC segment.
Results for the first quarter of 1996 included a restructuring charge of
$81.6 million ($67.0 million net of tax). An additional restructuring charge of
$9.7 million ($7.8 million net of tax) was recognized in the fourth quarter of
1996.
Results for the quarter ended December 31, 1996, included a tax benefit of
$10.6 million ($.11 per share both on a primary and a fully diluted basis)
related to the reduction of the deferred tax asset valuation allowance. Due to a
change in the mix between foreign and domestic earnings during the fourth
quarter of 1996, the Corporation's effective tax rate, exclusive of the tax
benefits of the restructuring charge and the reduction of deferred tax asset
valuation allowance described above, was 24% for the year ended December 31,
1996, compared to 27% for each of the first three quarters in 1996.
Consequently, results for the quarter ended December 31, 1996, included a tax
benefit of $5.6 million ($.06 per share both on a primary and a fully diluted
basis) reflective of the cumulative year-to-date adjustment of the effective tax
rate.
The extraordinary loss recognized in the fourth quarter of 1995 resulted
from the early extinguishment of debt. Results for the quarter ended December
31, 1995, included a tax benefit of $65.0 million ($.73 per share on a primary
basis and $.68 per share on a fully diluted basis) related to the reduction of
the deferred tax asset valuation allowance.
Earnings per common and common equivalent share are computed independently
for each of the quarters presented. Therefore, the sum of the quarters may not
necessarily be equal to the full year earnings per share amounts due to stock
transactions which occurred during 1996 and 1995 and, with respect to fully
diluted earnings per share for periods prior to October 1996, whether the
assumed conversion of preferred shares was dilutive or anti-dilutive during each
quarter.
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors
of The Black & Decker Corporation:
We have audited the accompanying consolidated balance sheets of The Black &
Decker Corporation as of December 31, 1996 and 1995, and the related
consolidated statements of earnings and cash flows for each of the three years
in the period ended December 31, 1996. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and schedule are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
The Black & Decker Corporation at December 31, 1996 and 1995, and the
consolidated results of its operations and its cash flows for each of three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ ERNST & YOUNG LLP
Baltimore, Maryland
January 24, 1997
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Information required under this Item with respect to Directors is contained in
the Corporation's Proxy Statement for the Annual Meeting of Stockholders to be
held April 22, 1997, under the captions "Election of Directors" and "Board of
Directors - Section 16(a) Beneficial Ownership Reporting Compliance" and is
incorporated herein by reference.
Information required under this Item with respect to Executive Officers of
the Corporation is included in Item 1 of Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
Information required under this Item is contained in the Corporation's Proxy
Statement for the Annual Meeting of Stockholders to be held April 22, 1997,
under the captions "Board of Directors" and "Executive Compensation" and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Information required under this Item is contained in the Corporation's Proxy
Statement for the Annual Meeting of Stockholders to be held April 22, 1997,
under the captions "Voting Securities" and "Security Ownership of Management"
and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this Item is contained in the Corporation's Proxy
Statement for the Annual Meeting of Stockholders to be held April 22, 1997,
under the caption "Executive Compensation" and is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) LIST OF FINANCIAL STATEMENTS, FINANCIAL STATEMENTS SCHEDULES,
AND EXHIBITS
(1) List of Financial Statements
The following consolidated financial statements of the Corporation
and its subsidiaries are included in Item 8 of Part II:
Consolidated Statement of Earnings - years ended December 31,
1996, 1995, and 1994.
Consolidated Balance Sheet - December 31, 1996 and 1995.
Consolidated Statement of Cash Flows - years ended December 31,
1996, 1995, and 1994.
Notes to Consolidated Financial Statements.
Report of Independent Auditors.
(2) List of Financial Statement Schedules
The following financial statement schedules of the Corporation and
its subsidiaries are included herein.
Schedule II - Valuation and Qualifying Accounts and Reserves.
All other schedules for which provision is made in the applicable
accounting regulations of the Commission are not required under
the related instructions or are inapplicable and, therefore, have
been omitted.
(3) List of Exhibits
The following exhibits are either included in this report or
incorporated herein by reference as indicated below:
Exhibit No. Exhibit
3(a)(1) Charter of the Corporation, as amended,
included in the Corporation's Quarterly Report
on Form 10-Q for the quarter ended December
25, 1988, is incorporated herein by reference.
3(a)(2) Articles Supplementary of the Corporation, as
filed with the State Department of Assessments
and Taxation of the State of Maryland on
September 5, 1991, included in the
Corporation's Current Report on Form 8-K dated
September 25, 1991, is incorporated herein by
reference.
3(b) By-Laws of the Corporation, as amended,
included in the Corporation's Quarterly Report
on Form 10-Q for the quarter ended September
29, 1996, is incorporated herein by reference.
4(a) Indenture dated as of March 24, 1993, by and
between the Corporation and Security Trust
Company, National Association, included in the
Corporation's Current Report on Form 8-K filed
with the Commission on March 26, 1993, is
incorporated herein by reference.
4(b) Form of 7-1/2% Notes due April 1, 2003,
included in the Corporation's Current Report
on Form 8-K filed with the Commission on March
26, 1993, is incorporated herein by reference.
4(c) Form of 6-5/8% Notes due November 15, 2000,
included in the Corporation's Current Report
on Form 8-K filed with the Commission on
November 22, 1993, is incorporated herein by
reference.
4(d) Form of 7% Notes due February 1, 2006 included
in the Corporation's Current Report on Form
8-K filed with the Commission on January 20,
1994, is incorporated herein by reference.
4(e) Indenture dated as of September 9, 1994, by
and between the Corporation and Marine Midland
Bank, as Trustee, included in the
Corporation's Current Report on Form 8-K filed
with the Commission on September 9, 1994, is
incorporated herein by reference.
4(f) Credit Agreement dated as of April 23, 1996,
among the Corporation, Black & Decker Holdings
Inc. and Black & Decker, as Initial Borrowers,
and the initial Lenders named therein, as
Initial Lenders, and Citibank International
plc, as Facility Agent, and Citibank
International plc and Midland Bank plc, as
Co-Arrangers, included in the Corporation's
Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996, is incorporated herein
by reference.
4(g) Credit Agreement dated as of April 23, 1996,
among the Corporation, Black & Decker Holdings
Inc., Black & Decker, Black & Decker Inter-
national Holdings, B.V., Black & Decker
G.m.b.H, Black & Decker (France) S.A.S., Black
& Decker (Nederland) B.V. and Emhart Glass
S.A., as Initial Borrowers, and the initial
Lenders named therein, as Initial Lenders,
and Credit Suisse, as Administrative Agent,
and Citibank, N.A., as Documentation Agent,
and NationsBank, N.A., as Syndication Agent,
included in the Corporation's Quarterly Report
on Form 10-Q for the quarter ended March 31,
1996, is incorporated herein by reference.
The Corporation agrees to furnish a copy of any other documents
with respect to long-term debt instruments of the Corporation and
its subsidiaries upon request.
10(a) The Black & Decker Corporation Deferred Compen-
sation Plan For Non-Employee Directors, as
amended, included in the Corporation's Quar-
terly Report on Form 10-Q for the quarter
ended October 2, 1994, is incorporated herein
by reference.
10(b) The Black & Decker 1986 Stock Option Plan, as
amended.
10(c) The Black & Decker 1986 U.K. Approved Option
Scheme, as amended, included in the Corpora-
tion's Registration Statement on Form S-8
(Reg. No. 33-47651), filed with the Commis-
sion on May 5, 1992, is incorporated herein by
reference.
10(d) The Black & Decker 1989 Stock Option Plan, as
amended.
10(e) The Black & Decker 1992 Stock Option Plan, as
amended.
10(f) The Black & Decker 1995 Stock Option Plan for
Non-Employee Directors, as amended.
10(g) The Black & Decker 1996 Stock Option Plan, as
amended.
10(h) The Black & Decker Performance Equity Plan, as
amended.
10(i) The Black & Decker Executive Annual Incentive
Plan, included in the definitive Proxy
Statement for the 1996 Annual Meeting of
Stockholders of the Corporation dated March 1,
1996, is incorporated herein by reference.
10(j) The Black & Decker Management Annual Incentive
Plan, included in the Corporation's Annual
Report on Form 10-K for the year ended December
31, 1995, is incorporated herein by reference.
10(k) Amended and Restated Employment Agreement,
dated as of November 1, 1995, by and between
the Corporation and Nolan D. Archibald,
included in the Corporation's Annual Report on
Form 10-K for the year ended December 31,
1995, is incorporated herein by reference.
10(l) Letter Agreement, dated February 1, 1975, by
and between the Corporation and Alonzo G.
Decker, Jr., included in the Corporation's
Annual Report on Form 10-K for the year ended
December 31, 1990, is incorporated herein by
reference.
10(m) The Black & Decker Supplemental Pension Plan,
as amended, included in the Corporation's
Annual Report on Form 10-K for the year ended
December 31, 1991, is incorporated herein by
reference.
10(n)(1) The Black & Decker Executive Deferred Compensa-
tion Plan, included in the Corporation's
Quarterly Report on Form 10-Q for the quarter
ended October 3, 1993, is incorporated herein
by reference.
10(n)(2) Amendment to The Black & Decker Executive
Deferred Compensation Plan dated as of July 17,
1996, included in the Corporation's Quarterly
Report on Form 10-Q for the quarter ended June
30, 1996, is incorporated herein by reference.
10(o) The Black & Decker Supplemental Retirement
Savings Plan, included in the Corporation's
Registration Statement on Form S-8 (Reg. No.
33-65013), filed with the Commission on
December 14, 1995, is incorporated herein by
reference.
10(p) The Black & Decker Supplemental Executive
Retirement Plan, as amended, included in the
Corporation's Annual Report on Form 10-K for
the year ended December 31, 1995, is incor-
porated herein by reference.
10(q) The Black & Decker Executive Life Insurance
Program, as amended, included in the Corpo-
ration's Quarterly Report on Form 10-Q for the
quarter ended April 4, 1993, is incorporated
herein by reference.
10(r) The Black & Decker Executive Salary Continuance
Plan, included in the Corporation's Quarterly
Report on Form 10-Q for the quarter ended
April 12, 1995, is incorporated herein by
reference.
10(s) Description of the Corporation's policy and
procedure for relocation of existing employees
(individual transfers), included in the
Corporation's Annual Report on Form 10-K for
the year ended December 31, 1991, is
incorporated herein by reference.
10(t) Description of the Corporation's policy and
procedures for relocation of new employees,
included in the Corporation's Annual Report on
Form 10-K for the year ended December 31,
1991, is incorporated herein by reference.
10(u) Form of Amendment and Restatement of Severance
Benefits Agreement by and between the Corpora-
tion and approximately 18 of its key employees.
10(v) Amendment and Restatement of Severance Benefits
Agreement, dated January 1, 1997, by and
between the Corporation and Nolan D. Archibald.
10(w) Amendment and Restatement of Severance Benefits
Agreement, dated January 1, 1997, by and
between the Corporation and Joseph Galli.
10(x) Amendment and Restatement of Severance Benefits
Agreement, dated January 1, 1997, by and
between the Corporation and Charles E. Fenton.
10(y) Amendment and Restatement of Severance Benefits
Agreement, dated January 1, 1997, by and
between the Corporation and Dennis G. Heiner.
10(z) Amendment and Restatement of Severance Benefits
Agreement, dated January 1, 1997, by and
between the Corporation and Thomas M. Schoewe.
10(aa) Letter Agreement dated as of August 13, 1991,
by and between the Corporation and Newell Co.,
included in the Corporation's Quarterly Report
on Form 10-Q for the quarter ended June 30,
1991, is incorporated herein by reference.
10(bb) Standstill Agreement dated as of September 24,
1991, between the Corporation and Newell Co.,
included in the Corporation's Current Report
on Form 8-K dated September 25, 1991, is incor-
porated herein by reference.
10(cc) Distribution Agreement dated September 9,
1994, by and between the Corporation, Lehman
Brothers Inc., Citicorp Securities, Inc.,
Goldman, Sachs & Co., Morgan Stanley & Co.
Incorporated, NationsBanc Capital Markets,
Inc. and Salomon Brothers Inc., included in
the Corporation's Current Report on Form 8-K
filed with the Commission on September 9,
1994, is incorporated herein by reference.
10(dd) Stock Purchase Agreement dated as of December
13, 1995, by and among the Corporation,
PRC Investments Inc., PRC Inc. and Litton
Industries, Inc., included in the Corpora-
tion's Annual Report on Form 10-K for the year
ended December 31, 1995, is incorporated
herein by reference.
10(ee)(1) The Black & Decker 1996 Employee Stock Purchase
Plan, included in the definitive Proxy
Statement for the 1996 Annual Meeting of
Stockholders of the Corporation dated March 1,
1996, is incorporated herein by reference.
10(ee)(2) Amendment to The Black & Decker 1996 Employee
Stock Purchase Plan, as adopted on February 12,
1997.
11 Computation of Earnings Per Share.
12 Computation of Ratios.
21 List of Subsidiaries.
23 Consent of Independent Auditors.
24 Powers of Attorney.
27 Financial Data Schedule.
All other items are "not applicable" or "none"
(b) REPORTS ON FORM 8-K
The Corporation did not file any reports on Form 8-K during the twelve
month period ended December 31, 1996.
All other items are "not applicable" or "none".
(c) EXHIBITS
The exhibits required by Item 601 of Regulation S-K are filed herewith.
(d) FINANCIAL STATEMENT SCHEDULES
The Financial Statement Schedule required by Regulation S-X is filed
herewith.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
THE BLACK & DECKER CORPORATION AND SUBSIDIARIES
(Millions of Dollars)
Balance Additions Other
At Charged Changes Balance
Beginning to Costs Add At End
Description of Period and Expenses Deductions (Deduct) of Period
- ----------- --------- ------------ ---------- -------- ---------
Year Ended December 31, 1996
- ----------------------------
Reserve for doubtful accounts
and cash discounts.............. $ 43.1 $ 58.1 $ 56.7(A) $ (.5)(B) $ 44.0
====== ====== ====== ===== ======
Year Ended December 31, 1995
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Reserve for doubtful accounts
and cash discounts.............. $ 38.2 $ 56.6 $ 52.9(A) $ 1.2(B) $ 43.1
====== ====== ====== ===== ======
Year Ended December 31, 1994
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Reserve for doubtful accounts
and cash discounts............. $ 36.6 $ 41.8 $ 41.7(A) $ 1.5(B) $ 38.2
====== ====== ====== ===== ======
(A) Accounts written off during the year and cash discounts taken by customers.
(B) Primarily includes currency translation adjustments.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE BLACK & DECKER CORPORATION
Date: February 24, 1997 By /s/ NOLAN D. ARCHIBALD
-------------------------
Nolan D. Archibald
Chairman, President, and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on February 24, 1997, by the following persons on behalf
of the registrant and in the capacities indicated.
Signature Title Date
--------- ----- ----
Principal Executive Officer
/s/ NOLAN D. ARCHIBALD February 24, 1997
- ---------------------------- -----------------
Nolan D. Archibald Chairman, President, and
Chief Executive Officer
Principal Financial Officer
/s/ THOMAS M. SCHOEWE February 24, 1997
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Thomas M. Schoewe Senior Vice President and
Chief Financial Officer
Principal Accounting Officer
/s/ STEPHEN F. REEVES February 24, 1997
- --------------------------- -----------------
Stephen F. Reeves Vice President and
Controller
This report has been signed by the following directors, constituting a majority
of the Board of Directors, by Nolan D. Archibald, Attorney-in-Fact.
Nolan D. Archibald Anthony Luiso
Barbara L. Bowles Lawrence R. Pugh
Malcolm Candlish Mark H. Willes
Alonzo G. Decker, Jr. M. Cabell Woodward, Jr.
/s/ NOLAN D. ARCHIBALD Date: February 24, 1997
- ---------------------------
Nolan D. Archibald
Attorney-in-Fact