black&decker 2007finalWeb

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black&decker 2007finalWeb

  1. 1. 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, 2007 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 Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes X No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No X 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 require- ments for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (check one): Large accelerated filer X Accelerated filer Non-accelerated filer Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No X The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 29, 2007, was $5.51 billion. The number of shares of Common Stock outstanding as of January 25, 2008, was 60,923,815. The exhibit index as required by Item 601(a) of Regulation S-K is included in Item 15 of Part IV of this report. Documents Incorporated by Reference: Portions of the registrant’s definitive Proxy Statement for the 2008 Annual Meeting of Stockholders are incorporated by reference in Part III of this report.
  2. 2. Part I ITEM 1. BUSINESS (c) Narrative Description of the Business (a) General Development The following is a brief description of each of the of Business Corporation’s reportable business segments. The Black & Decker Corporation (collectively with its subsidiaries, the Corporation), incorporated in POWER TOOLS AND ACCESSORIES Maryland in 1910, is a leading global manufac- The Power Tools and Accessories segment has turer and marketer of power tools and accessories, worldwide responsibility for the manufacture and hardware and home improvement products, and sale of consumer (home use) and industrial corded technology-based fastening systems. With products and cordless electric power tools and equipment, and services marketed in over 100 countries, the lawn and garden products, consumer portable Corporation enjoys worldwide recognition of its power products, home products, accessories and strong brand names and a superior reputation for attachments for power tools, and product service. quality, design, innovation, and value. In addition, the Power Tools and Accessories The Corporation is one of the world’s leading segment has responsibility for the sale of security producers of power tools, power tool accessories, and hardware to customers in Mexico, Central America, residential security hardware, and the Corporation’s the Caribbean, and South America; for the sale product lines hold leading market share positions of plumbing products to customers outside of the in these industries. The Corporation is also a major United States and Canada; and for sales of household global supplier of engineered fastening and assem- products, principally in Europe and Brazil. bly systems. The Corporation is one of the leading Power tools and equipment include drills, screw- producers of faucets in North America. These asser- drivers, impact wrenches and drivers, hammers, tions are based on total volume of sales of products wet/dry vacuums, lights, radio/chargers, saws, compared to the total market for those products and grinders, band saws, plate joiners, jointers, lathes, are supported by market research studies sponsored dust management systems, routers, planers, sand- by the Corporation as well as independent industry ers, benchtop and stationary machinery, air tools, statistics available through various trade organiza- building instruments, air compressors, generators, tions and periodicals, internally generated market laser products, jobsite security systems, and WORK- data, and other sources. MATE® project centers and related products. Lawn During the first quarter of 2006, the Corporation and garden products include hedge trimmers, string acquired Vector Products, Inc. (Vector). The addition trimmers, lawn mowers, edgers, pruners, shears, of Vector to the Corporation’s Power Tools and Ac- shrubbers, blower/vacuums, power sprayers, pres- cessories segment allows the Corporation to offer sure washers, and related accessories. Consumer customers a broader range of products. portable power products include inverters, jump- starters, vehicle battery chargers, rechargeable spotlights, and other related products. Home prod- (b) Financial Information About ucts include stick, canister and hand-held vacuums; Business Segments flexible flashlights; and wet scrubbers. Power tool The Corporation operates in three reportable accessories include drill bits, hammer bits, router business segments: Power Tools and Accessories, bits, hacksaws and blades, circular saw blades, jig including consumer and industrial power tools and reciprocating saw blades, screwdriver bits and and accessories, lawn and garden products, electric quick-change systems, bonded and other abrasives, cleaning, automotive, lighting, and household prod- and worksite tool belts and bags. Product service ucts, and product service; Hardware and Home provides replacement parts and repair and main- Improvement, including security hardware and tenance of power tools, equipment, and lawn and plumbing products; and Fastening and Assembly garden products. Systems. For additional information about these segments, see Note 16 of Notes to Consolidated Power tools, lawn and garden products, portable Financial Statements included in Item 8 of Part power products, home products, and accesso- II, and Management’s Discussion and Analysis ries are marketed around the world under the of Financial Condition and Results of Operations BLACK & DECKER name as well as other trade- included in Item 7 of Part II of this report. marks, and trade names, including, without limita- tion, BLACK & DECKER; ORANGE AND BLACK COLOR SCHEME; POWERFUL SOLUTIONS; 1 BLACK & DECKER
  3. 3. FIRESTORM; GELMAX COMFORT GRIP; MOUSE; reconditioned and then re-sold through numer- BULLSEYE; PIVOT DRIVER; STORMSTATION; ous company-operated factory outlets and service WORKMATE; BLACK & DECKER XT; VERSA- centers and various independent distributors. PAK; VPX; SMART SELECT; AUTO SELECT; Most of the Corporation’s consumer power tools, SMARTDRIVER; QUANTUM PRO; CYCLONE; lawn and garden products, and electric cleaning, NAVIGAT OR; DRAGSTER; SANDST ORM; automotive, lighting, and household products PROJECTMATE; PIVOTPLUS; QUICK CLAMP; sold in the United States carry a two-year war- SIGHT LINE; CROSSFIRE; CROSSHAIR; 360°; ranty, pursuant to which the consumer can return QUATTRO; DECORMATE; LASERCROSS; AUTO- defective products during the two years following WRENCH; SHOPMASTER BY DELTA; DEWALT; the purchase in exchange for a replacement prod- YELLOW AND BLACK COLOR SCHEME; GUAR- uct or repair at no cost to the consumer. Most of ANTEED TOUGH; XRP; NANO; EHP; SITELOCK; the Corporation’s industrial power tools sold in PORTER-CABLE; GRAY AND BLACK COLOR the United States carry a one-year service war- SCHEME; TIGER SAW; PORTA-BAND; POWER- ranty and a three-year warranty for manufacturing BACK; EASY AIR; JOB BOSS; DELTA; THE DEL- defects. Products sold outside of the United States TA TRIANGLE LOGO; UNISAW; BIESEMEYER; generally have varying warranty arrangements, BLACK AND WHITE COLOR SCHEME; DAPC; depending upon local market conditions and laws EMGLO; AFS AUTOMATIC FEED SPOOL; GROOM and regulations. ‘N’ EDGE; HEDGE HOG; GRASS HOG; EDGE HOG; LEAF HOG; LAWN HOG; STRIMMER; REFLEX; The Corporation’s product offerings in the Power VAC ‘N’ MULCH; EXCELL; ALLIGATOR; TRIM Tools and Accessories segment are sold primarily ‘N’ EDGE; HDL; TOUGH TRUCK; FLEX TUBE; to retailers, wholesalers, distributors, and jobbers, VECTOR; ELECTROMATE; SIMPLE START; although some discontinued or reconditioned power DUSTBUSTER; SNAKELIGHT; SCUMBUSTER; tools, lawn and garden products, consumer portable STEAMBUSTER; CYCLOPRO; SWEEP & COL- power products, and electric cleaning and light- LECT; CLICK & GO; B&D; BULLET; QUANTUM ing products are sold through company-operated PRO; PIRANHA; SCORPION; QUICK CONNECT; service centers and factory outlets directly to end PILOT POINT; RAPID LOAD; ROCK CARBIDE; users. Sales to two of the segment’s customers, TOUGH CASE; MAX LIFE; RAZOR; OLDHAM; The Home Depot and Lowe’s Home Improvement DEWALT SERVICENET; DROP BOX EXPRESS; Warehouse, accounted for greater than 10% of the and GUARANTEED REPAIR COST (GRC). Corporation’s consolidated sales for 2007, 2006, and 2005. For additional information regarding The composition of the Corporation’s sales by prod- sales to The Home Depot and Lowe’s Home uct groups for 2007, 2006, and 2005 is included in Improvement Warehouse, see Note 16 of Notes to Note 16 of Notes to Consolidated Financial State- Consolidated Financial Statements included in ments included in Item 8 of Part II of this report. Item 8 of Part II of this report. Within each product group shown, there existed no individual product that accounted for greater The principal materials used in the manufacturing than 10% of the Corporation’s consolidated sales of products in the Power Tools and Accessories seg- for 2007, 2006, or 2005. ment are batteries, copper, aluminum, steel, certain electronic components, engines, and plastics. These The Corporation’s product service program sup- materials are used in various forms. For example, ports its power tools and lawn and garden products. aluminum or steel may be used in the form of wire, Replacement parts and product repair services are sheet, bar, and strip stock. available through a network of company-operated service centers, which are identified and listed in The materials used in the various manufacturing product information material generally included processes are purchased on the open market, and in product packaging. At December 31, 2007, there the majority are available through multiple sources were approximately 120 such service centers, of and are in adequate supply. The Corporation has which roughly three-quarters were located in the experienced no significant work stoppages to date United States. The remainder was located around as a result of shortages of materials. the world, primarily in Canada and Asia. These The Corporation has certain long-term commit- company-operated service centers are supple- ments for the purchase of various finished goods, mented by several hundred authorized service component parts, and raw materials and believes centers operated by independent local owners. The that it is unlikely that any of these agreements Corporation also operates reconditioning centers would be terminated prematurely. Alternate sources in which power tools, lawn and garden products, of supply at competitive prices are available for and electric cleaning and lighting products are most items for which long-term commitments exist. 2 BLACK & DECKER
  4. 4. Because the Corporation is a leading producer of The Corporation holds various trademarks that power tools and accessories, in a limited number are employed in its businesses and operates under of instances, the magnitude of the Corporation’s various trade names, some of which are stated purchases of certain items is of such significance previously. The Corporation believes that these that a change in the Corporation’s established trademarks and trade names are important to the supply relationship may cause disruption in the marketing and distribution of its products. marketplace and/or a temporary price imbalance. A significant portion of the Corporation’s sales in While the Corporation believes that the termina- the Power Tools and Accessories segment is derived tion of any of these commitments would not have a from the do-it-yourself and home modernization material adverse effect on the operating results of markets, which generally are not seasonal in nature. the Power Tools and Accessories segment over the However, sales of certain consumer and industrial long term, the termination of a limited number of power tools tend to be higher during the period these commitments would have an adverse effect immediately preceding the Christmas gift-giving over the short term. In this regard, the Corpora- season, while the sales of most lawn and garden tion defines long term as a period of time in excess products are at their peak during the late winter of 12 months and short term as a period of time and early spring period. Most of the Corporation’s under 12 months. other product lines within this segment generally Principal manufacturing and assembly facilities of are not seasonal in nature, but are influenced by the power tools, lawn and garden products, electric other general economic trends. cleaning and lighting products, and accessories The Corporation is one of the world’s leaders in the businesses in the United States are located in manufacturing and marketing of portable power Jackson, Tennessee; Decatur, Arkansas; Shelbyville, tools, electric lawn and garden products, and acces- Kentucky; and Tampa, Florida. The principal dis- sories. Worldwide, the markets in which the Corpo- tribution facilities in the United States, other than ration sells these products are highly competitive those located at the manufacturing and assembly on the basis of price, quality, and after-sale service. facilities listed above, are located in Fort Mill, A number of competing domestic and foreign com- South Carolina, and Rialto, California. panies are strong, well-established manufacturers Principal manufacturing and assembly facilities of that compete on a global basis. Some of these com- the power tools, lawn and garden products, electric panies manufacture products that are competitive cleaning, lighting, and household products, and ac- with a number of the Corporation’s product lines. cessories businesses outside of the United States Other competitors restrict their operations to fewer are located in Suzhou, China; Usti nad Labem, categories, and some offer only a narrow range of Czech Republic; Buchlberg, Germany; Perugia, competitive products. Competition from certain of Italy; Spennymoor, England; Reynosa, Mexico; these manufacturers has been intense in recent and Uberaba, Brazil. In addition to the principal years and is expected to continue. facilities described above, the manufacture and HARDWARE AND HOME IMPROvEMENT assembly of products for the Power Tools and Accessories segment also occurs at the facility of The Hardware and Home Improvement segment its 50%-owned joint venture located in Shen Zhen, has worldwide responsibility for the manufacture China. The principal distribution facilities outside and sale of security hardware products (except for of the United States, other than those located at the sale of security hardware in Mexico, Central the manufacturing facilities listed above, con- America, the Caribbean, and South America). It also sist of a central-European distribution center in has responsibility for the manufacture of plumbing Tongeren, Belgium, and facilities in Aarschot, products and for the sale of plumbing products to Belgium; Northampton, England; Dubai, United customers in the United States and Canada. Security Arab Emirates; and Brockville, Canada. hardware products consist of residential and light commercial door locksets, electronic keyless entry For additional information with respect to these and systems, exit devices, keying systems, tubular and other properties owned or leased by the Corporation, mortise door locksets, general hardware, decorative see Item 2, “Properties.” hardware, lamps, and brass ornaments. General The Corporation holds various patents and licenses hardware includes door hinges, cabinet hinges, door on many of its products and processes in the Power stops, kick plates, and house numbers. Decorative Tools and Accessories segment. Although these hardware includes cabinet hardware, switchplates, patents and licenses are important, the Corpora- door pulls, and push plates. Plumbing products tion is not materially dependent on such patents consist of a variety of conventional and decorative or licenses with respect to its operations. lavatory, kitchen, and tub and shower faucets, bath and kitchen accessories, and replacement parts. 3 BLACK & DECKER
  5. 5. Security hardware products are marketed under a sold outside of the United States for residential use variety of trademarks and trade names, including, generally have similar warranty arrangements. without limitation, KWIKSET SECURITY; Such arrangements vary, however, depending upon KWIKSET MAXIMUM SECURITY; KWIKSET local market conditions and laws and regulations. ULTRAMAX; SIGNATURES; KWIKSET; BEAUTY Most of the Corporation’s plumbing products sold OF STRENGTH; BLACK & DECKER; TYLO; in the United States carry a lifetime warranty with POLO; AVALON; ASHFIELD; ARLINGTON; respect to function and finish, pursuant to which the SMARTSCAN; SMARTKEY; SMARTCODE; consumer can return defective product in exchange POWERBOLT; ABBEY; AMHERST; KWIK for a replacement product or repair at no cost to INSTALL; GEO; SAFELOCK BY BLACK & the consumer. DECKER; BALDWIN; THE ESTATE COL- The Corporation’s product offerings in the Hard- L E C T I O N ; THE IMAGES COLLECTION; ware and Home Improvement segment are sold ARCHETYPES; BEDFORD; BEL AIR; primarily to retailers, wholesalers, distributors, BROOKLANE; COMMONWEALTH; SONO- and jobbers. Certain security hardware products MA; WELLINGTON; CHELSEA; SHERI- are sold to commercial, institutional, and industrial DAN; DELTA; CIRCA; LAUREL; HANCOCK; customers. Sales to two of the segment’s customers, H AW T H O R N E ; G I B S O N ; FA R M I N G T O N ; The Home Depot and Lowe’s Home Improvement CAMERON; LIFETIME FINISH; TIMELESS Warehouse, accounted for greater than 10% of the CRAFTSMANSHIP; ROMAN; REGAL; COPA; Corporation’s consolidated sales for 2007, 2006, and CORTEZ; DAKOTA; DORIAN; SHELBURNE; 2005. For additional information regarding sales to L O G A N ; S P R I N G F I E L D ; H A M I LT O N ; The Home Depot and Lowe’s Home Improvement BLAKELY; MANCHESTER; CANTERBURY; Warehouse, see Note 16 of Notes to Consolidated M A D I S O N ; S T O N E G AT E ; E D I N B U R G H ; Financial Statements included in Item 8 of Part II K E N S I N G T O N ; B R I S T O L ; T R E M O N T; of this report. PEYTON; PASADENA; RICHLAND; WEISER; WEISER LOCK; COLLECTIONS BY WEISER The principal materials used in the manufactur- LOCK; WELCOME HOME SERIES; ELE- ing of products in the Hardware and Home Im- MENTS SERIES; BASICS BY WEISER LOCK; provement segment are zamak, brass, zinc, steel, BRILLIANCE LIFETIME ANTI- TARNISH copper, and ceramics. The materials used in the F I N I S H ; P O W E R B O LT ; P O W E R B O LT various manufacturing processes are purchased KEYLESS ACCESS SYSTEM; WEISERBOLT; on the open market, and the majority are available and ENTRYSETS. Plumbing products are marketed through multiple sources and are in adequate sup- under a variety of trademarks and trade names, ply. The Corporation has experienced no significant including, without limitation, PRICE PFISTER; work stoppages to date as a result of shortages of CLASSIC SERIES BY PRICE PFISTER; PRICE materials. PFISTER PROFESSIONAL SERIES; AMHERST; The Corporation has certain long-term commit- AVALON; ASHFIELD; PASADENA; BACH; SOLO ments for the purchase of various finished goods, BEDFORD; CARMEL; CATALINA; CONTEMPRA; component parts, and raw materials and believes GEORGETOWN; HANOVER; KENZO; MARI- that it is unlikely that any of these agreements ELLE; PARISA; PORTLAND; SAVANNAH; SEDO- would be terminated prematurely. Alternate sources NA; TREVISO; SOLO; SOLO MINUET; MODERN of supply at competitive prices are available for COLLECTION and ASHFIELD VIRTUE. most items for which long-term commitments ex- The composition of the Corporation’s sales by ist. Because the Corporation is a leading producer product groups for 2007, 2006, and 2005 is included of residential security hardware and faucets, in a in Note 16 of Notes to Consolidated Financial limited number of instances, the magnitude of the Statements included in Item 8 of Part II of this Corporation’s purchases of certain items is of such report. Within each product group shown, there significance that a change in the Corporation’s existed no individual product that accounted for established supply relationship may cause disrup- greater than 10% of the Corporation’s consolidated tion in the marketplace and/or a temporary price sales for 2007, 2006, or 2005. imbalance. While the Corporation believes that the termination of any of these commitments would Most of the Corporation’s security hardware not have a material adverse effect on the operating products sold in the United States carry a war- results of the Hardware and Home Improvement ranty, pursuant to which the consumer can return segment over the long term, the termination of a defective product during the warranty term in limited number of these commitments would have exchange for a replacement product at no cost to the consumer. Warranty terms vary by product an adverse effect over the short term. In this regard, and carry a lifetime warranty with respect to the Corporation defines long term as a period of mechanical operations and range from a 5-year to time in excess of 12 months and short term as a a lifetime warranty with respect to finish. Products period of time under 12 months. 4 BLACK & DECKER
  6. 6. From time to time, the Corporation enters into Competition from certain of these manufacturers commodity hedges on certain raw materials used has been intense in recent years and is expected in the manufacturing process to reduce the risk of to continue. market price fluctuations. As of December 31, 2007, FASTENING AND ASSEMBLY SYSTEMS the amount of commodity hedges outstanding was not material. The Corporation’s Fastening and Assembly Systems segment has worldwide responsibility for the develop- Principal manufacturing and assembly facilities of ment, manufacture and sale of an extensive line of the Hardware and Home Improvement segment in metal and plastic fasteners and engineered fastening the United States are located in Denison, Texas; systems for commercial applications, including blind and Reading, Pennsylvania. riveting, stud welding, specialty screws, prevailing Principal manufacturing and assembly facilities torque nuts and assemblies, insert systems, metal of the Hardware and Home Improvement segment and plastic fasteners, and self-piercing riveting outside of the United States are located in Mexi- systems. The Fastening and Assembly Systems cali and Nogales, Mexico; and Xiamen, China. The segment focuses on engineering solutions for end principal distribution facilities in the United States, users’ fastening requirements. The fastening and other than those located at the manufacturing and assembly systems products are marketed under a assembly facilities listed above, are located in Mira variety of trademarks and trade names, including, Loma, California; and Charlotte, North Carolina. without limitation, EMHART TEKNOLOGIES; E M H A R T FA S T E N I N G T E K N O L O G I E S ; For additional information with respect to these and EMHART; AUTOSET; DODGE; DRIL-KWICK; other properties owned or leased by the Corporation, F-SERIES; GRIPCO; GRIPCO ASSEMBLIES; see Item 2, “Properties.” HELI-COIL; JACK NUT; KALEI; MASTERFIX; The Corporation holds various patents and licenses NPR; NUT-FAST; PARKER-KALON; PLASTI- on many of its products and processes in the Hard- FAST; PLASTI-KWICK; POINT & SET; PRIMER ware and Home Improvement segment. Although FREE; POP; POP-LOK; POPMATIC; POPNUT; these patents and licenses are important, the Corpo- POPSET; POP-SERT; POWERLINK; PROSET; ration is not materially dependent on such patents SMARTSET; SWS; TUCKER; ULTRA-GRIP; or licenses with respect to its operations. ULTRASERT; WARREN; WELDFAST; and WELL-NUT. The Corporation holds various trademarks that are employed in its businesses and operates under The composition of the Corporation’s sales by various trade names, some of which are stated above. product groups for 2007, 2006, and 2005 is included The Corporation believes that these trademarks and in Note 16 of Notes to Consolidated Financial trade names are important to the marketing and Statements included in Item 8 of Part II of this distribution of its products. report. Within each product group shown, there existed no individual product that accounted for A significant portion of the Corporation’s sales in greater than 10% of the Corporation’s consolidated the Hardware and Home Improvement segment is sales for 2007, 2006, or 2005. derived from the do-it-yourself and home modern- ization markets, which generally are not seasonal The principal markets for these products include in nature, but are influenced by trends in the resi- the automotive, transportation, electronics, aero- dential and commercial construction markets and space, machine tool, and appliance industries. other general economic trends. Substantial sales are made to automotive manu- facturers worldwide. The Corporation is one of the world’s leading producers of residential security hardware and Products are marketed directly to customers and is one of the leading producers of faucets in also through distributors and representatives. North America. Worldwide, the markets in which These products face competition from many manu- the Corporation sells these products are highly facturers in several countries. Product quality, competitive on the basis of price, quality, and performance, reliability, price, delivery, and tech- after-sale service. A number of competing nical and application engineering services are the domestic and foreign companies are strong, well- primary competitive factors. There is little seasonal established manufacturers that compete on a variation in sales. global basis. Some of these companies manufacture The Corporation owns a number of United States products that are competitive with a number of the and foreign patents, trademarks, and license Corporation’s product lines. Other competitors re- rights relating to the fastening and assembly strict their operations to fewer categories, and some systems business. While the Corporation considers offer only a narrow range of competitive products. 5 BLACK & DECKER
  7. 7. those patents, trademarks, and license rights to As of December 31, 2007, the Corporation employed be valuable, it is not materially dependent upon approximately 25,000 persons in its operations such patents or license rights with respect to worldwide. Approximately 375 employees in the its operations. United States are covered by collective bargaining agreements. During 2007, one collective bargaining Principal manufacturing facilities of the Fastening agreement in the United States was negotiated and Assembly Systems segment in the United without material disruption to operations. One States are located in Danbury, Connecticut; Mont- agreement is scheduled for negotiation during 2008. pelier, Indiana; Campbellsville and Hopkinsville, Also, the Corporation has government-mandated Kentucky; and Chesterfield, Michigan. Principal collective bargaining arrangements or union manufacturing and assembly facilities outside of the contracts with employees in other countries. The United States are located in Birmingham, England; Corporation’s operations have not been affected Giessen, Germany; and Toyohashi, Japan. For ad- significantly by work stoppages and, in the opinion ditional information with respect to these and other of management, employee relations are good. As properties owned or leased by the Corporation, see more fully described under the caption “Restruc- Item 2, “Properties.” turing and Integration Actions” in Management’s Discussion and Analysis of Financial Condition and The raw materials used in the fastening and Results of Operations, the Corporation is commit- assembly systems business consist primarily ted to continuous productivity improvement and of ferrous and nonferrous metals in the form of continues to evaluate opportunities to reduce fixed wire, bar stock, and strip and sheet metals; and costs, simplify or improve processes, and eliminate plastics. These materials are readily available from excess capacity. As a consequence, the Corporation a number of suppliers. may, from time to time, transfer production from OTHER INFORMATION one manufacturing facility to another, outsource certain production, or close certain manufacturing The Corporation’s product development program facilities. Such production transfers, outsourcing, for the Power Tools and Accessories segment is and/or facility closures may result in a deterioration coordinated from the Corporation’s headquarters of employee relations at the impacted locations or in Towson, Maryland. Additionally, product elsewhere in the Corporation. development activities are performed at facili- ties within the United States in Fort Lauderdale, The Corporation’s operations are subject to foreign, Florida; Hampstead, Maryland; and Jackson, federal, state, and local environmental laws and Tennessee; and at facilities in Spennymoor, England; regulations. Many foreign, federal, state, and local Brockville, Canada; Perugia, Italy; Suzhou, China; governments also have enacted laws and regula- Buchlberg and Idstein, Germany; Mooroolbark, tions that govern the labeling and packaging of Australia; Uberaba, Brazil; and Reynosa, Mexico. products and limit the sale of products containing certain materials deemed to be environmentally Product development activities for the Hardware sensitive. These laws and regulations not only limit and Home Improvement segment are performed at the acceptable methods for the discharge of pollut- facilities within the United States in Lake Forest, ants and the disposal of products and components California, and Reading, Pennsylvania; and at a that contain certain substances, but also require facility in Xiamen, China. that products be designed in a manner to permit Product development activities for the Fastening easy recycling or proper disposal of environmen- and Assembly Systems segment are performed tally sensitive components such as nickel cadmium at facilities within the United States in Danbury batteries. The Corporation seeks to comply fully and Shelton, Connecticut; Montpelier, Indiana; with these laws and regulations. Although compli- Campbellsville, Kentucky; Chesterfield and ance involves continuing costs, the ongoing costs of Farmington Hills, Michigan; and at facilities in compliance with existing environmental laws and Birmingham, England; Maastricht, Netherlands; regulations have not had, nor are they expected to Giessen, Germany; and Toyohashi, Japan. have, a material adverse effect upon the Corpora- tion’s capital expenditures or financial position. Costs associated with development of new prod- ucts and changes to existing products are charged Pursuant to authority granted under the Compre- to operations as incurred. See Note 1 of Notes to hensive Environmental Response, Compensation Consolidated Financial Statements included in Item and Liability Act of 1980 (CERCLA), the United 8 of Part II of this report for amounts of expendi- States Environmental Protection Agency (EPA) tures for product development activities. has issued a National Priority List (NPL) of sites at which action is to be taken to mitigate the risk 6 BLACK & DECKER
  8. 8. of release of hazardous substances into the envi- any particular fiscal quarter or year, in the opinion ronment. The Corporation is engaged in continuing of management there exists no known potential activities with regard to various sites on the NPL exposures that would have a material adverse ef- and other sites covered under analogous state fect on the financial condition or on the financial environmental laws. As of December 31, 2007, results of the Corporation beyond any such fiscal the Corporation had been identified as a poten- quarter or year. tially responsible party (PRP) in connection with approximately 25 sites being investigated by federal (d) Financial Information or state agencies under CERCLA or analogous state About Geographic Areas environmental laws. The Corporation also is en- Reference is made to Note 16 of Notes to Consolidated gaged in site investigations and remedial activities Financial Statements, entitled “Business Segments to address environmental contamination from past and Geographic Information”, included in Item 8 of operations at current and former manufacturing Part II of this report. facilities in the United States and abroad. To minimize the Corporation’s potential liability (e) Available Information with respect to these sites, management has under- The Corporation files annual, quarterly, and current taken, when appropriate, active participation in reports, proxy statements, and other documents steering committees established at the sites and has with the Securities and Exchange Commission agreed to remediation through consent orders with (SEC) under the Securities Exchange Act of 1934 the appropriate government agencies. Due to uncer- (the Exchange Act). The public may read and copy tainty as to the Corporation’s involvement in some any materials that the Corporation files with of the sites, uncertainty over the remedial measures the SEC at the SEC’s Public Reference Room at to be adopted, and the fact that imposition of joint 100 F Street, NE, Washington, DC 20549. The and several liability with the right of contribution is public may obtain information on the operation possible under CERCLA and other laws and regula- of the Public Reference Room by calling the SEC tions, the liability of the Corporation with respect to at 1-800-SEC-0330. Also, the SEC maintains an any site at which remedial measures have not been Internet website that contains reports, proxy and completed cannot be established with certainty. information statements, and other information On the basis of periodic reviews conducted with regarding issuers, including the Corporation, that respect to these sites, however, the Corporation has file electronically with the SEC. The public can established appropriate liability accruals. The Cor- obtain any documents that the Corporation files poration’s estimate of the costs associated with envi- with the SEC at http://www.sec.gov. ronmental exposures is accrued if, in management’s judgment, the likelihood of a loss is probable and the The Corporation also makes available free of charge on amount of the loss can be reasonably estimated. As or through its Internet website (http://www.bdk.com) of December 31, 2007, the Corporation’s aggregate the Corporation’s Annual Report on Form 10-K, probable exposure with respect to environmental Quarterly Reports on Form 10-Q, Current Reports liabilities, for which accruals have been established on Form 8-K, and, if applicable, amendments to in the consolidated financial statements, was $107.3 those reports filed or furnished pursuant to Section million. In the opinion of management, the amount 13(a) of the Exchange Act as soon as reasonably accrued for probable exposure for aggregate envi- practicable after the Corporation electronically files ronmental liabilities is adequate and, accordingly, such material with, or furnishes it to, the SEC. the ultimate resolution of these matters is not Black & Decker’s Corporate Governance Poli- expected to have a material adverse effect on the cies and Procedures Statement is available free Corporation’s consolidated financial statements. of charge on or through its Internet website As of December 31, 2007, the Corporation had no (http://www.bdk.com) or in print by calling (800) known probable but inestimable exposures relating 992-3042 or (410) 716-2914. The Statement contains to environmental matters that are expected to have charters of the standing committees of the Board a material adverse effect on the Corporation. There of Directors, the Code of Ethics and Standards of can be no assurance, however, that unanticipated Conduct, and the Code of Ethics for Senior Finan- events will not require the Corporation to increase cial Officers. the amount it has accrued for any environmental matter or accrue for an environmental matter that In May 2007, the Corporation submitted to the has not been previously accrued because it was not New York Stock Exchange the CEO certification considered probable. While it is possible that the required by Section 303A.12(a) of the New York increase or establishment of an accrual could have Stock Exchange Listed Company Manual. a material adverse effect on the financial results for 7 BLACK & DECKER
  9. 9. (f) Executive Officers and • charles e. FeNtoN – 59 Senior Vice President and General Counsel, Other Senior Officers December 1996 – present. of the Corporation The current Executive Officers and Other Senior • les h. irelaND – 43 Officers of the Corporation, their ages, current offices Vice President of the Corporation and or positions, and their business experience during President – Europe/Middle East/Africa, the past five years are set forth below. Power Tools and Accessories, January 2005 – present; • NolaN D. archibalD – 64 Vice President of the Corporation and Chairman, President, and Managing Director – Commercial Operations, Chief Executive Officer, Europe, Black & Decker Consumer Group, January 1990 – present. Power Tools and Accessories Group, November 2001 – January 2005. • bruce w. brooks – 43 Group Vice President of the Corporation and • michael D. maNgaN – 51 President – Consumer Products Group, Senior Vice President and Chief Financial Officer, Power Tools and Accessories, January 2000 – present. March 2007 – present; Vice President of the Corporation and President – • Paul F. mcbriDe – 52 Construction Tools, Industrial Products Group, Senior Vice President – Human Resources Power Tools and Accessories, and Corporate Initiatives, May 2005 – March 2007; March 2004 – present; Executive Vice President of the Corporation Vice President and General Manager – and President – Power Tools and Construction Tools, Industrial Products Group, Accessories Group, Power Tools and Accessories, April 1999 – March 2004. October 2004 – May 2005; Vice President Marketing – DeWALT Professional • christiNa m. mcmulleN – 52 Products, Power Tools and Accessories Group, Vice President and Controller, July 2003 – October 2004; April 2000 – present. Vice President Marketing – Black & Decker Consumer Products, • james r. raskiN – 47 Power Tools and Accessories Group, Vice President of the Corporation and July 2000 – July 2003. Vice President – Business Development, July 2006 – present; • james t. cauDill – 40 Vice President – Business Development, Group Vice President of the Corporation and May 2002 – July 2006. President – Hardware and Home Improvement, July 2006 – present; • stePheN F. reeves – 48 Vice President of the Corporation and Vice President of the Corporation and President – Vice President – Global Finance, Hardware and Home Improvement, Power Tools and Accessories, May 2005 – July 2006; March 2004 – present; Vice President and General Manager – Vice President of the Corporation and Accessories, Industrial Products Group, Vice President – Finance, Power Tools Power Tools and Accessories Group, and Accessories Group, October 2004 – May 2005; April 2000 – March 2004. Vice President – Accessories, DeWALT Professional Products, • mark m. rothleitNer – 49 Power Tools and Accessories Group, Vice President – Investor Relations and Treasurer, November 2001 – October 2004. January 2000 – present. 8 BLACK & DECKER
  10. 10. • robert i. rowaN – 47 • beN s. sihota – 49 Vice President of the Corporation and President – Vice President of the Corporation and President – Construction & Woodworking, Industrial Asia Pacific, Power Tools and Accessories, Products Group, Power Tools and Accessories, February 2006 – present; January 2008 – present; President – Asia, Power Tools and Accessories, Vice President of the Corporation and President – September 2000 – February 2006. Construction, Industrial Product Group, Power Tools and Accessories, • michael a. tyll – 51 March 2007 – January 2008; Group Vice President of the Corporation and President – Fastening and Assembly Systems, Vice President of the Corporation and President – April 2006 – present; Power Tools and Accessories, Consumer Products Group, Power Tools and Accessories, President – Automotive Division, February 2006 – March 2007; Fastening and Assembly Systems, January 2001 – April 2006. Vice President and General Manager, Consumer Power Tools and Accessories, Power Tools and Accessories, (g) Forward-Looking Statements July 2003 – February 2006; The Private Securities Litigation Reform Act of 1995 Vice President – Outdoor Products, (the Reform Act) provides a safe harbor for forward- Consumer Products Group, Power Tools looking statements made by or on behalf of the and Accessories Group, Corporation. The Corporation and its representatives September 2001 – July 2003. may, from time to time, make written or verbal forward-looking statements, including statements • eDwarD j. scaNloN – 53 contained in the Corporation’s filings with the Vice President of the Corporation and Securities and Exchange Commission and in its President – Commercial Operations – reports to stockholders. Generally, the inclusion of North America, Power Tools and Accessories, the words “believe,” “expect,” “intend,” “estimate,” January 2008 – present; “anticipate,” “will,” and similar expressions iden- Vice President of the Corporation and tify statements that constitute “forward-looking President – Commercial Operations, North and statements” within the meaning of Section 27A South America, Power Tools and Accessories, of the Securities Act of 1933 and Section 21E of March 2004 – January 2008; the Securities Exchange Act of 1934 and that are intended to come within the safe harbor protection Vice President of the Corporation and provided by those sections. All statements addressing President – Commercial Operations, operating performance, events, or developments that North America, Power Tools and the Corporation expects or anticipates will occur in Accessories Group, the future, including statements relating to sales May 1999 – March 2004. growth, earnings or earnings per share growth, and market share, as well as statements express- • johN w. schiech – 49 ing optimism or pessimism about future operating Group Vice President of the Corporation results, are forward-looking statements within the and President – Industrial Products Group, meaning of the Reform Act. The forward-looking Power Tools and Accessories, statements are and will be based upon management’s March 2004 – present; then-current views and assumptions regarding Vice President of the Corporation and President – future events and operating performance, and are DeWALT Professional Products, Power Tools applicable only as of the dates of such statements. and Accessories Group, The Corporation undertakes no obligation to update January 2001 – March 2004. or revise any forward-looking statements, whether as a result of new information, future events, or • Natalie a. shielDs – 51 otherwise. Vice President and Corporate Secretary, By their nature, all forward-looking statements April 2006 – present; involve risks and uncertainties, including without International Tax and Trade Counsel, limitations the risks described under the caption June 1993 – April 2006. “Risk Factors” that could materially harm the Corporation’s business, financial condition, and results of operations. You are cautioned not to place undue reliance on the Corporation’s forward-looking statements. 9 BLACK & DECKER
  11. 11. ITEM 1A. RISK FACTORS inefficiencies or our inability to market products. An increase in value-added taxes by various foreign Many of the factors that affect our business and jurisdictions, or a reduction in value-added tax re- operations involve risk and uncertainty. The factors bates currently available to us or to our suppliers, described below are some of the risks that could could also increase the costs of our manufactured materially harm our business, financial condition, products as well as purchased products and com- and results of operations. ponents and could adversely affect our results of operations. In addition, our profit margins would • Our business depends on the strength of the decrease if prices of purchased raw materials, economies in various parts of the world, particularly component parts, or finished goods increase and in the United States and Europe. We conduct busi- we are unable to pass on those increases to our ness in various parts of the world, primarily in the customers. United States and Europe and, to a lesser extent, in Mexico, Central America, the Caribbean, South • We face significant global competition. The America, Canada, Asia and Australia. As a result markets in which we sell products are highly com- of this worldwide exposure, our net revenue and petitive on the basis of price, quality, and after-sale profitability could be harmed as a result of economic service. A number of competing domestic and foreign conditions in our major markets, including, but not companies are strong, well-established manufactur- limited to, recession, inflation and deflation, general ers that compete globally with us. Some of our major weakness in retail, automotive and construction customers sell their own “private label” brands markets, and changes in consumer purchasing that compete directly with our products. Price re- power. ductions taken by us in response to customer and competitive pressures, as well as price reductions • Changes in customer preferences, the inability to and promotional actions taken to drive demand that maintain mutually beneficial relationships with large may not result in anticipated sales levels, could customers, and the inability to penetrate new channels also negatively impact our business. Competition of distribution could adversely affect our business. has been intense in recent years and is expected to We have a number of major customers, including continue. If we are unable to maintain a competi- two large customers that, in the aggregate, consti- tive advantage, loss of market share, revenue, or tuted approximately 33% of our consolidated sales profitability may result. in 2007. The loss of either of these large customers, a material negative change in our relationship with • Low demand for new products and the inability these large customers or other major customers, or to develop and introduce new products at favorable changes in consumer preferences or loyalties could margins could adversely impact our performance have an adverse effect on our business. Our major and prospects for future growth. Our competitive customers are volume purchasers, a few of which advantage is due in part to our ability to develop are much larger than us and have strong bargain- and introduce new products in a timely manner at ing power with suppliers. This limits our ability to favorable margins. The uncertainties associated recover cost increases through higher selling prices. with developing and introducing new products, such Changes in purchasing patterns by major customers as market demand and costs of development and could negatively impact manufacturing volumes and production, may impede the successful development inventory levels. Further, our inability to continue and introduction of new products on a consistent to penetrate new channels of distribution may have basis. Introduction of new technology may result a negative impact on our future results. in higher costs to us than that of the technology replaced. That increase in costs, which may con- • The inability to obtain raw materials, component tinue indefinitely or until and if increased demand parts, and/or finished goods in a timely and cost- and greater availability in the sources of the new effective manner from suppliers would adversely affect technology drive down its cost, could adversely affect our ability to manufacture and market our products. our results of operations. Market acceptance of the We purchase raw materials and component parts new products introduced in 2007 and scheduled for from suppliers to be used in the manufacturing of introduction in 2008 may not meet sales expecta- our products. In addition, we purchase certain fin- tions due to various factors, such as our failure to ished goods from suppliers. In a limited number of accurately predict market demand and evolving circumstances, the magnitude of our purchases of industry standards, to resolve technical challenges certain items is of such significance that a change in a timely and cost-effective manner, and to achieve in our established supply relationships may cause manufacturing efficiencies. Our investments in disruption in the marketplace, a temporary price productive capacity and commitments to fund imbalance, or both. Changes in our relationships advertising and product promotions in connection with suppliers or increases in the costs of purchased with these new products could be excessive if those raw materials, component parts or finished goods expectations are not met. could result in manufacturing interruptions, delays, 10 BLACK & DECKER
  12. 12. • Price increases could impact the demand for our • Failures of our infrastructure could have a mate- products from customers and end-users. We may rial adverse effect on our business. We are heavily periodically increase the prices of our products. An dependent on our infrastructure. Significant prob- adverse reaction by our customers or end-users to lems with our infrastructure, such as manufactur- price increases could negatively impact our antici- ing failures, telephone or information technology pated sales, profitability, manufacturing volumes, (IT) system failure, computer viruses or other and/or inventory levels. third-party tampering with IT systems, could halt or delay manufacturing and hinder our ability to • The inability to generate sufficient cash flows to ship in a timely manner or otherwise routinely support operations and other activities could prevent conduct business. Any of these events could result future growth and success. Our inability to generate in the loss of customers, a decrease in revenue, or sufficient cash flows to support capital expansion, the incurrence of significant costs to eliminate the business acquisition plans, share repurchases and problem or failure. general operating activities could negatively affect our operations and prevent our expansion into exist- • Our products could be subject to product liability ing and new markets. Our ability to generate cash claims and litigation. We manufacture products flows is dependent in part upon obtaining necessary that create exposure to product liability claims and financing at favorable interest rates. Interest rate litigation. If our products are not properly manu- fluctuations and other capital market conditions factured or designed, personal injuries or property may prevent us from doing so. damage could result, which could subject us to claims for damages. The costs associated with defending • Our success depends on our ability to improve product liability claims and payment of damages productivity and streamline operations to control could be substantial. Our reputation could also be or reduce costs. We are committed to continuous adversely affected by such claims, whether or not productivity improvement and continue to evalu- successful. ate opportunities to reduce fixed costs, simplify or improve processes, and eliminate excess capacity. We • Our products could be recalled. The Consumer have also undertaken restructuring and integration Product Safety Commission or other applicable actions as described in Note 18 of Notes to Consoli- regulatory bodies may require the recall, repair dated Financial Statements and in “Management’s or replacement of our products if those products Discussion and Analysis of Financial Condition and are found not to be in compliance with applicable Results of Operations”. The ultimate savings real- standards or regulations. A recall could increase ized from restructuring and integration actions may costs and adversely impact our reputation. be mitigated by many factors, including economic • We may have additional tax liabilities. We are weakness, competitive pressures, and decisions to increase costs in areas such as promotion or research subject to income taxes in the United States and and development above levels that were otherwise numerous foreign jurisdictions. Significant judg- assumed. Our failure to achieve projected levels ment is required in determining our worldwide of efficiencies and cost reduction measures and provision for income taxes. In the ordinary course to avoid delays in or unanticipated inefficiencies of our business, there are many transactions and resulting from manufacturing and administrative calculations where the ultimate tax determination reorganization actions in progress or contemplated is uncertain. We are regularly under audit by tax would adversely affect our results of operations. authorities. Although we believe our tax estimates are reasonable, the final outcome of tax audits and • The inability to identify new acquisition oppor- any related litigation could be materially different tunities or to successfully integrate the operations than that which is reflected in historical income tax of acquired businesses could negatively impact our provisions and accruals. Based on the status of a prospect for future growth and profitability. We expend given tax audit or related litigation, a material ef- significant resources on identifying opportunities fect on our income tax provision or net income may to acquire new lines of business and companies result in the period or periods from initial recogni- that could contribute to our success and expan- tion in our reported financial results to the final sion into existing and new markets. Our inability closure of that tax audit or settlement of related to successfully identify acquisition opportunities, litigation when the ultimate tax and related cash integrate the operations of acquired businesses, or flow is known with certainty. realize the anticipated cost savings, synergies and other benefits related to the acquisition of those • We are subject to current environmental and businesses could have a material adverse effect on other laws and regulations. We are subject to en- our business, financial condition and future growth. vironmental laws in each jurisdiction in which we Acquisitions may also have a material adverse ef- conduct business. Some of our products incorporate fect on our operating results due to large write-offs, substances that are regulated in some jurisdictions contingent liabilities, substantial depreciation, or in which we conduct manufacturing operations. We other adverse tax or audit consequences. 11 BLACK & DECKER
  13. 13. could be subject to liability if we do not comply with in the manufacturing of our products that include these regulations. In addition, we are currently and certain components and raw materials that are may, in the future, be held responsible for remedial subject to commodity price volatility. We believe investigations and clean-up costs resulting from our most significant commodity-related exposures the discharge of hazardous substances into the are to nickel, steel, resins, copper, aluminum, and environment, including sites that have never been zinc. An increase in the market prices of these items owned or operated by us but at which we have could adversely affect our results of operations. We been identified as a potentially responsible party have outstanding variable-rate and fixed-rate bor- under federal and state environmental laws and rowings. To meet our cash requirements, we may regulations. Changes in environmental and other incur additional borrowings in the future under our laws and regulations in both domestic and foreign existing or future borrowing facilities. An increase jurisdictions could adversely affect our operations in interest rates could adversely affect our results due to increased costs of compliance and potential of operations. liability for non-compliance. • We operate a global business that exposes us to additional risks. Our sales outside of the • If our goodwill or indefinite-lived intangible assets United States accounted for approximately 40% of become impaired, we may be required to record a significant charge to earnings. Under United States our consolidated net revenue in 2007. We continue generally accepted accounting principles, good- to expand into foreign markets. The future growth will and indefinite-lived intangible assets are not and profitability of our foreign operations are sub- amortized but are reviewed for impairment on an ject to a variety of risks and uncertainties, such as annual basis or more frequently whenever events tariffs, nationalization, exchange controls, interest or changes in circumstances indicate that their rate fluctuations, civil unrest, governmental changes, carrying value may not be recoverable. We may be limitations on foreign investment in local business required to record a significant charge to earnings and other political, economic and regulatory risks in our financial statements during the period in inherent in conducting business internationally. Over which any impairment of our goodwill or indefinite- the past several years, such factors have become lived intangible assets is determined, resulting in increasingly important as a result of our higher an impact on our results of operations. percentage of manufacturing in China, Mexico and the Czech Republic and purchases of products and • Changes in accounting may affect our reported components from foreign countries. earnings. For many aspects of our business, United States generally accepted accounting • Catastrophic events may disrupt our business. principles, including pronouncements, implemen- Unforeseen events, including war, terrorism and tation guidelines, and interpretations, are highly other international conflicts, public health issues, and complex and require subjective judgments. Changes natural disasters such as earthquakes, hurricanes in these accounting principles, including their or other adverse weather and climate conditions, interpretation and application, could significantly whether occurring in the United States or abroad, change our reported earnings, adding significant could disrupt our operations, disrupt the operations volatility to our reported results without a compa- of our suppliers or customers, or result in political rable underlying change in our cash flows. or economic instability. These events could reduce demand for our products and make it difficult or • We are exposed to adverse changes in currency impossible for us to manufacture our products, de- exchange rates, raw material commodity prices or liver products to customers, or to receive products interest rates, both in absolute terms and relative from suppliers. to competitors’ risk profiles. We have a number of manufacturing sites throughout the world and sell The foregoing list is not exhaustive. There can be our products in more than 100 countries. As a result, no assurance that we have correctly identified and we are exposed to movements in the exchange rates appropriately assessed all factors affecting our busi- of various currencies against the United States dollar ness or that the publicly available and other infor- and against the currencies of countries in which we mation with respect to these matters is complete have manufacturing facilities. We believe our most and correct. Additional risks and uncertainties not significant foreign currency exposures are the euro, presently known to us or that we currently believe pound sterling and Chinese renminbi. A decrease in to be immaterial also may adversely impact our the value of the euro and pound sterling relative to business. Should any risks or uncertainties develop the U.S. dollar could adversely affect our results of into actual events, these developments could have operations. An increase in the value of the Chinese material adverse effects on our business, financial renminbi relative to the U.S. dollar could adversely condition, and results of operations. affect our results of operations. We utilize materials 12 BLACK & DECKER
  14. 14. ITEM 1B. UNRESOLvED disputes. Some of these lawsuits include claims for punitive as well as compensatory damages. STAFF COMMENTS The Corporation, using current product sales data Not applicable. and historical trends, actuarially calculates the ITEM 2. PROPERTIES estimate of its exposure for product liability. The Corporation is insured for product liability claims The Corporation operates 46 manufacturing facilities for amounts in excess of established deductibles around the world, including 30 located outside of and accrues for the estimated liability as described the United States in 10 foreign countries. The major above up to the limits of the deductibles. All other properties associated with each business segment claims and lawsuits are handled on a case-by-case are listed in “Narrative Description of the Business” basis. The Corporation’s estimate of costs associ- in Item 1(c) of Part I of this report. ated with product liability claims, environmental matters, and other legal proceedings is accrued if, The following are the Corporation’s major leased in management’s judgment, the likelihood of a loss facilities: is probable and the amount of the loss can be rea- In the United States: Lake Forest, Mira Loma, sonably estimated. These accrued liabilities are and Rialto, California; Charlotte, North Caro- not discounted. lina; Tampa, Florida; Chesterfield, Michigan; and As previously noted under Item 1(c) of Part I of this Towson, Maryland. report, the Corporation also is party to litigation and Outside of the United States: Spennymoor, administrative proceedings with respect to claims England; Tongeren and Aarschot, Belgium; involving the discharge of hazardous substances Reynosa and Mexicali, Mexico; Brockville, Canada; into the environment. Some of these assert claims for damages and liability for remedial investigations Usti nad Labem, Czech Republic; and Xiamen and and clean-up costs with respect to sites that have Suzhou, China. never been owned or operated by the Corporation Additional property both owned and leased by but at which the Corporation has been identified the Corporation in Towson, Maryland, is used for as a PRP. Others involve current and former manu- administrative offices. Subsidiaries of the Corpora- facturing facilities. tion lease certain locations primarily for smaller The EPA and the Santa Ana Regional Water Quality manufacturing and/or assembly operations, service Control Board (the Water Quality Board) have each operations, sales and administrative offices, and for initiated administrative proceedings against the warehousing and distribution centers. The Corpo- Corporation and certain of the Corporation’s current ration also owns a manufacturing plant located on or former affiliates alleging that the Corporation leased land in Suzhou, China. and numerous other defendants are responsible As more fully described in Item 7 of Part II of this to investigate and remediate alleged groundwa- report under the caption “Restructuring and Inte- ter contamination in and adjacent to a 160-acre gration Actions”, the Corporation is committed to property located in Rialto, California. The cities of continuous productivity improvement and contin- Colton and Rialto, as well as the West Valley Water ues to evaluate opportunities to reduce fixed costs, District and the Fontana Water Company, a private simplify or improve processes, and eliminate excess company, also have initiated lawsuits against the capacity. The Corporation will continue to evaluate Corporation and certain of the Corporation’s former its worldwide manufacturing cost structure to iden- or current affiliates in the Federal District Court for tify opportunities to improve capacity utilization California, Central District alleging similar claims and lower product costs and will take appropriate that the Corporation is liable under CERCLA, action as deemed necessary. the Resource Conservation and Recovery Act, and state law for the discharge or release of hazardous Management believes that its owned and leased substances into the environment and the contami- facilities are suitable and adequate to meet the nation caused by those alleged releases. All defen- Corporation’s anticipated needs. dants have crossclaims against one another in the federal litigation. The administrative proceedings ITEM 3. LEGAL PROCEEDINGS and the lawsuits generally allege that West Coast Loading Corporation (WCLC), a defunct company The Corporation is involved in various lawsuits in the that operated in Rialto between 1952 and 1957, and ordinary course of business. These lawsuits primarily an as yet undefined number of other defendants involve claims for damages arising out of the use of are responsible for the release of perchlorate and the Corporation’s products and allegations of patent solvents into the groundwater basin that supplies and trademark infringement. The Corporation also drinking water to the referenced three municipal is involved in litigation and administrative proceed- water suppliers and one private water company in ings involving employment matters and commercial 13 BLACK & DECKER

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