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, 2009
1-01553
 
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)
 
       
 
(410) 716-3900
 
 
(Registrant’s telephone number, including area code)
 

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 whether if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES x     NO o
 
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 o    NO
 
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 o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o     No o
 
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. o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.  (check one):
 
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o
 Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES o     NO x
 
The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 26, 2009, was $1.62 billion.
 
The number of shares of Common Stock outstanding as of January 22, 2010, was 61,654,405.
 
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 2010 Annual Meeting of Stockholders are incorporated by reference in Part III of this report or will be contained in an amendment to this Form 10-K.
 
 
 

 
 
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 leading global manufacturer and marketer of power tools and accessories, hardware and home improvement products, and technology-based fastening systems. With products and services marketed in over 100 countries, the Corporation enjoys worldwide recognition of its strong brand names and a superior reputation for quality, design, innovation, and value.
 
The Corporation is one of the world’s leading producers of power tools, power tool accessories, and residential security hardware, and the Corporation’s product lines hold leading market share positions in these industries. The Corporation is also a major global supplier of engineered fastening and assembly systems. The Corporation is one of the leading producers of faucets in North America. These assertions are based on total volume of sales of products compared to the total market for those products and are supported by market research studies sponsored by the Corporation as well as independent industry statistics available through various trade organizations and periodicals, internally generated market data, and other sources.
 
On November 2, 2009, the Corporation announced that it had entered into a definitive merger agreement to create Stanley Black & Decker,  Inc. in an all-stock transaction. Under the terms of the transaction, which has been approved by the Boards of Directors of both the Corporation and The Stanley Works, the Corporation’s shareholders will receive a fixed ratio of 1.275 shares of The Stanley Works common stock for each share of the Corporation’s common stock that they own. Consummation of the transaction, which is subject to customary closing conditions, including obtaining certain regulatory approvals outside of the United States, as well as shareholder approval from the shareholders of both the Corporation and The Stanley Works, is expected to occur on March 12, 2010.
 
(b)  Financial Information about Business Segments
 
The Corporation operates in three reportable business segments: Power Tools and Accessories, including consumer and industrial power tools and accessories, lawn and garden products, electric cleaning, automotive, lighting, and household products, and product service; Hardware and Home Improvement, including security hardware and plumbing products; and Fastening and Assembly Systems. For additional information about these segments, see Note 17 of Notes to Consolidated Financial Statements included in Item 8 of Part II, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Item 7 of Part II of this report.
 
(c)  Narrative Description of the Business
 
The following is a brief description of each of the Corporation’s reportable business segments.
 
POWER TOOLS AND ACCESSORIES
 
The Power Tools and Accessories segment has worldwide responsibility for the manufacture and sale of consumer (home use) and industrial corded and cordless electric power tools and equipment, lawn and garden products, consumer portable power products, home products, accessories and attachments for power tools, and product service. In addition, the Power Tools and Accessories segment has responsibility for the sale of security hardware to customers in Mexico, Central America, the Caribbean, and South America; for the sale of plumbing products to customers outside of the United States and Canada; and for sales of household products, principally in Europe and Brazil.
 
Power tools and equipment include drills, screwdrivers, impact wrenches and drivers, hammers, wet/dry vacuums, lights, radio/chargers, saws, grinders, band saws, polishers, plate joiners, jointers, lathes, dust management systems, routers, planers, tile saws, sanders, benchtop and stationary machinery, air tools, building instruments, air compressors, generators, laser products, and WORKMATE® project centers and related products. Lawn and garden products include hedge trimmers, string trimmers, lawn mowers, edgers, pruners, shears, shrubbers, blower/vacuums, power sprayers, chain saws, pressure washers, and related accessories. Consumer portable power products include inverters, jump-starters, vehicle battery chargers, rechargeable spotlights, and other related products. Home products include stick, canister and hand-held vacuums; flexible flashlights; and wet scrubbers. Power tool accessories include drill bits, hammer bits, router bits, hacksaws and blades, circular saw blades, jig and reciprocating saw blades, diamond blades, screwdriver bits and quick-change systems, bonded and other abrasives, and worksite tool belts and bags. Product service provides replacement parts and repair and maintenance of power tools, equipment, and lawn and garden products.
 
Power tools, lawn and garden products, portable power products, home products, and accessories are marketed around the world under the BLACK & DECKER name as well as other trademarks, and trade names, including, without limitation, ORANGE AND BLACK COLOR SCHEME; POWERFUL SOLUTIONS; FIRESTORM; GELMAX COMFORT GRIP; MOUSE; BULLSEYE; PIVOT DRIVER; STORMSTATION; WORKMATE; BLACK & DECKER XT;
 
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SMART SELECT; AUTO SELECT; LITHIUM BATTERY-TECH; SMARTDRIVER; READY-WRENCH; CYCLONE; NAVIGATOR; DRAGSTER; SANDSTORM; PROJECTMATE; PIVOTPLUS; QUICK CLAMP; SIGHT LINE; ACCU-MARK; ACCU-BEVEL; CROSSFIRE; CROSSHAIR; 360°; QUATTRO; DECORMATE; LASERCROSS; AUTO-WRENCH; AUTO-TAPE; AIRSTATION; SHOPMASTER BY DELTA; DEWALT; YELLOW AND BLACK COLOR SCHEME; GUARANTEED TOUGH; XRP; XLR; XPS; NANO; EHP; PORTER-CABLE; TRADESMAN; GRAY AND BLACK COLOR SCHEME; IMPACT READY; PORTA-BAND; POWERBACK; MOLLY; JOB BOSS; DELTA; THE DELTA TRIANGLE LOGO; UNISAW; OMNIJIG; TIGER SAW; TIGER CLAW; CONTRACTOR’S SAW; UNIFENCE; T-SQUARE;MAG SAW; ENDURATECH; BIESEMEYER; BLACK AND WHITE COLOR SCHEME; DAPC; EMGLO; AFS AUTOMATIC FEED SPOOL; GROOM ‘N’ EDGE; HEDGE HOG; GRASS HOG; EDGE HOG; LEAF HOG; LAWN HOG; STRIMMER; REFLEX; VAC ‘N’ MULCH; ALLIGATOR; TRIM ‘N’ EDGE; HDL; TOUGH TRUCK; FLEX TUBE; VECTOR; ELECTROMATE; SIMPLE START; DUSTBUSTER; DUSTBUSTER FLEXI; SNAKELIGHT; SCUMBUSTER; STEAMBUSTER; CYCLOPRO; SWEEP & COLLECT; PIVOT VAC; CLICK & GO; B&D; BULLET; QUANTUM PRO; PIRANHA; SCORPION; QUICK CONNECT; PILOT POINT; RAPID LOAD; ROCK CARBIDE; TOUGH CASE; MAX LIFE; RAZOR; OLDHAM; DEWALT SERVICENET; DROP BOX EXPRESS; and GUARANTEED REPAIR COST (GRC).
 
The composition of the Corporation’s sales by product groups for 2009, 2008, and 2007 is included in Note 17 of Notes to Consolidated Financial Statements included in Item 8 of Part II of this report. Within each product group shown, there existed no individual product that accounted for greater than 10% of the Corporation’s consolidated sales for 2009, 2008, or 2007.
 
The Corporation’s product offerings in the Power Tools and Accessories segment are sold primarily to retailers, wholesalers, distributors, and jobbers, although some discontinued or reconditioned power tools, lawn and garden products, consumer portable power products, and electric cleaning and lighting products are sold through company-operated service centers and factory outlets directly to end users. Sales to two of the segment’s customers, The Home Depot and Lowe’s Companies, Inc., accounted for greater than 10% of the Corporation’s consolidated sales for 2009, 2008, and 2007. For additional information regarding sales to The Home Depot and Lowe’s Companies, Inc., see Note 17 of Notes to Consolidated Financial Statements included in Item 8 of Part II of this report.
 
The Corporation’s product service program supports its power tools and lawn and garden products. Replacement parts and product repair services are available through a network of company-operated service centers, which are identified and listed in product information material generally included in product packaging. At December 31, 2009, there were approximately 120 such service centers, of which roughly three-quarters were located in the United States. The remainder was located around the world, primarily in Canada and Asia. These company-operated service centers are supplemented by several hundred authorized service centers operated by independent local owners. The Corporation also operates reconditioning centers in which power tools, lawn and garden products, and electric cleaning and lighting products are reconditioned and then re-sold through numerous company-operated factory outlets and service centers and various independent distributors.
 
Most of the Corporation’s consumer power tools, lawn and garden products, and electric cleaning, automotive, lighting, and household products sold in the United States carry a two-year warranty, pursuant to which the consumer can return defective products during the two years following the purchase in exchange for a replacement product or repair at no cost to the consumer. Most of the Corporation’s industrial power tools sold in the United States carry a one-year service warranty and a three-year warranty for manufacturing defects. Products sold outside of the United States generally have varying warranty arrangements, depending upon local market conditions and laws and regulations.
 
The principal materials used in the manufacturing of products in the Power Tools and Accessories segment are batteries, copper, aluminum, steel, certain electronic components, motors, and plastics. These materials are used in various forms. For example, aluminum or steel may be used in the form of wire, sheet, bar, and strip stock.
 
The materials used in the various manufacturing processes are purchased on the open market, and the majority are available through multiple sources and are in adequate supply. The Corporation has experienced no significant work stoppages to date as a result of shortages of materials.
 
The Corporation has certain long-term commitments for the purchase of various finished goods, component parts, and raw materials. Since the onset of the global economic crisis in 2008, certain of the Corporation’s suppliers have experienced financial difficulties and the Corporation believes it is possible that a limited number of suppliers may either cease operations or require additional financial assistance from the Corporation in order to fulfill their obligations. However, alternate sources of supply at competitive prices are available for most items for which long-term commitments exist. Because the Corporation is a leading producer of power tools and accessories, in a limited number of instances, the magnitude of the Corporation’s purchases of certain items is of such significance that a change in the Corporation’s established supply relationship may cause disruption in the marketplace and/or a temporary price imbalance. While the Corporation believes that the termination of any of these commitments would not have a material adverse effect on the operating results of the Power Tools and Accessories segment over the long term, the termination of
 
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a limited number of these commitments would have an adverse effect over the short term. In this regard, the Corporation defines long term as a period of time in excess of 12 months and short term as a period of time under 12 months.
 
Principal manufacturing and assembly facilities of the power tools, lawn and garden products, electric cleaning and lighting products, and accessories businesses in the United States are located in Jackson, Tennessee; Shelbyville, Kentucky; and Tampa, Florida. The principal distribution facilities in the United States, other than those located at the manufacturing and assembly facilities listed above, are located in Fort Mill, South Carolina, and Rialto, California.
 
Principal manufacturing and assembly facilities of the power tools, lawn and garden products, electric cleaning, lighting, and household products, and accessories businesses outside of the United States are located in Suzhou, China; Usti nad Labem, Czech Republic; Buchlberg, Germany; Perugia, Italy; Reynosa, Mexico; and Uberaba, Brazil. In addition to the principal facilities described above, the manufacture and assembly of products for the Power Tools and Accessories segment also occurs at the facility of its 50%-owned joint venture located in Shen Zhen, China. The principal distribution facilities outside of the United States, other than those located at the manufacturing facilities listed above, consist of a central-European distribution center in Tongeren, Belgium, and facilities in Aarschot, Belgium; Brockville, Canada; Northampton, England; Gliwice, Poland; and Dubai, United Arab Emirates.
 
For additional information with respect to these and other properties owned or leased by the Corporation, see Item 2, Properties.
 
The Corporation holds various patents and licenses on many of its products and processes in the Power Tools and Accessories segment. Although these patents and licenses are important, the Corporation is not materially dependent on such patents or licenses with respect to its operations.
 
The Corporation holds various trademarks that are employed in its businesses and operates under various trade names, some of which are stated previously. The Corporation believes that these trademarks and trade names are important to the marketing and distribution of its products.
 
A significant portion of the Corporation’s sales in the Power Tools and Accessories segment is derived from the do-it-yourself and home modernization markets, which generally are not seasonal in nature. However, sales of certain consumer and industrial power tools tend to be higher during the period immediately preceding the Christmas gift-giving season, while the sales of most lawn and garden products are at their peak during the late winter and early spring period. Most of the Corporation’s other product lines within this segment generally are not seasonal in nature, but are influenced by other general economic trends.
 
The Corporation is one of the world’s leaders in the manufacturing and marketing of portable power tools, electric lawn and garden 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.
 
HARDWARE AND HOME IMPROVEMENT
 
The Hardware and Home Improvement segment has worldwide responsibility for the manufacture and sale of security hardware products (except for the sale of security hardware in Mexico, Central America, the Caribbean, and South America). It also has responsibility for the manufacture of plumbing products and for the sale of plumbing products to customers in the United States and Canada. Security hardware products consist of residential and light commercial door locksets, electronic keyless entry systems, exit devices, keying systems, tubular and mortise door locksets, general hardware, decorative hardware, and lamps. General hardware includes door hinges, cabinet hinges, door stops, kick plates, and house numbers. Decorative hardware includes cabinet hardware, switchplates, door pulls, and push plates. Plumbing products consist of a variety of conventional and decorative lavatory, kitchen, and tub and shower faucets, bath and kitchen accessories, and replacement parts.
 
Security hardware products are marketed under a variety of trademarks and trade names, including, without limitation, KWIKSET; KWIKSET SIGNATURE SERIES; BLACK & DECKER; TYLO; POLO; AVALON; ASHFIELD; ARLINGTON; SMARTSCAN; SMARTKEY; SMARTCODE; POWERBOLT; ABBEY; AMHERST; KWIK INSTALL; GEO; SAFELOCK BY BLACK & DECKER; LIDO; PEMBROKE; TUSTIN; VALIANT; BALBOA; KEY CONTROL; BALDWIN; THE ESTATE COLLECTION; THE IMAGES COLLECTION; ARCHETYPES; BEDFORD; BEL AIR; BROOKLANE; COMMONWEALTH; SONOMA; WELLINGTON; CHELSEA; SHERIDAN; DELTA; CIRCA; LAUREL; HANCOCK; HAWTHORNE; GIBSON; FARMINGTON; CAMERON; LIFETIME FINISH; ROMAN; REGAL; COPA; CORTEZ; DAKOTA; DORIAN; SHELBURNE; LOGAN; SPRINGFIELD; HAMILTON; BLAKELY; MANCHESTER; CANTERBURY; MADISON; STONEGATE; EDINBURGH; KENSINGTON; BRISTOL; TREMONT; PEYTON; PASADENA; RICHLAND; WEISER; WEISER LOCK; COLLECTIONS; WELCOME HOME; ELEMENTS; BASICS BY WEISER LOCK; BRILLIANCE LIFETIME ANTI-TARNISH FINISH; POWERBOLT;
 
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POWERBOLT KEYLESS ACCESS SYSTEM; WEISERBOLT; ENTRYSETS; BEVERLY; FAIRFAX; CORSAIR; DANE; GALIANO; KIM COLUMBIA; FASHION; HERITAGE; COVE; and HOME CONNECT TECHNOLOGY. Plumbing products are marketed under a variety of trademarks and trade names, including, without limitation, PRICE PFISTER; PFIRST SERIES BY PRICE PFISTER; PRICE PFISTER PROFESSIONAL SERIES; AMHERST; AVALON; ASHFIELD; BEDFORD; BIXBY; BRISTOL; BROOKWOOD; CARMEL; CATALINA; CLAIRMONT; CONTEMPRA; FALSETTO; GENESIS; GEORGETOWN; HANOVER; HARBOR; KENZO; LANGSTON; MARIELLE; PASADENA; PARISA; PICARDY; PORTLAND; PORTOLA; REMBRANDT; SANTIAGO; SAVANNAH; SAXTON; SEDONA; SHELDON; SKYE; TREVISO; UNISON; VEGA; and VIRTUE.
 
The composition of the Corporation’s sales by product groups for 2009, 2008, and 2007 is included in Note 17 of Notes to Consolidated Financial Statements included in Item 8 of Part II of this report. Within each product group shown, there existed no individual product that accounted for greater than 10% of the Corporation’s consolidated sales for 2009, 2008, or 2007.
 
The Corporation’s product offerings in the Hardware and Home Improvement segment are sold primarily to retailers, wholesalers, distributors, and jobbers. Certain security hardware products are sold to commercial, institutional, and industrial customers. Sales to two of the segment’s customers, The Home Depot and Lowe’s Companies, Inc., accounted for greater than 10% of the Corporation’s consolidated sales for 2009, 2008, and 2007. For additional information regarding sales to The Home Depot and Lowe’s Companies, Inc., see Note 17 of Notes to Consolidated Financial Statements included in Item 8 of Part II of this report.
 
Most of the Corporation’s security hardware products sold in the United States carry a warranty, pursuant to which the consumer can return defective product during the warranty term in exchange for a replacement product at no cost to the consumer. Warranty terms vary by product and carry a lifetime warranty with respect to mechanical operations and range from a 5-year to a lifetime warranty with respect to finish. Products sold outside of the United States for residential use generally have similar warranty arrangements. Such arrangements vary, however, depending upon local market conditions and laws and regulations. Most of the Corporation’s plumbing products sold in the United States carry a lifetime warranty with respect to function and finish, pursuant to which the consumer can return defective product in exchange for a replacement product or repair at no cost to the consumer.
 
The principal materials used in the manufacturing of products in the Hardware and Home Improvement segment are zamak, brass, zinc, steel, and copper. 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 finished goods, component parts, and raw materials. Since the onset of the global economic crisis in 2008, certain of the Corporation’s suppliers have experienced financial difficulties and the Corporation believes it is possible that a limited number of suppliers may either cease operations or require additional financial assistance from the Corporation in order to fulfill their obligations. However, alternate sources of supply at competitive prices are available for most items for which long-term commitments exist. Because the Corporation is a leading producer of residential security hardware and faucets, in a limited number of instances, the magnitude of the Corporation’s purchases of certain items is of such significance that a change in the Corporation’s established supply relationship may cause disruption in the marketplace and/or a temporary price imbalance. While the Corporation believes that the termination of any of these commitments would not have a material adverse effect on the operating results of the Hardware and Home Improvement segment over the long term, the termination of a limited number of these commitments would have an adverse effect over the short term. In this regard, the Corporation defines long term as a period of time in excess of 12 months and short term as a period of time under 12 months.
 
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. Additional information with respect to the Corporation’s commodity hedge program, utilizing derivative financial instruments, is included in Notes 1 and 10 of Notes to Consolidated Financial Statements included in Item 8 of Part II of this report.
 
Principal manufacturing and assembly facilities of the Hardware and Home Improvement segment in the United States are located in Denison, Texas; and Reading, Pennsylvania. The principal distribution facilities in the United States, other than those located at the manufacturing and assembly facilities listed above, are located in Mira Loma, California; and Charlotte, North Carolina.
 
Principal manufacturing and assembly facilities of the Hardware and Home Improvement segment outside of the United States are located in Mexicali and Nogales, Mexico; and Xiamen, China.
 
For additional information with respect to these and other properties owned or leased by the Corporation, see Item 2, Properties.
 
The Corporation holds various patents and licenses on many of its products and processes in the Hardware and Home Improvement segment. Although these patents and licenses are important, the Corporation is not materially dependent on such patents or licenses with respect to its operations.
 
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The Corporation holds various trademarks that are employed in its businesses and operates under various trade names, some of which are stated above. The Corporation believes that these trademarks and trade names are important to the marketing and distribution of its products.
 
A significant portion of the Corporation’s sales in the Hardware and Home Improvement segment is derived from the do-it-yourself and home modernization markets, which generally are not seasonal in nature, but are influenced by trends in the residential and commercial construction markets and other general economic trends.
 
The Corporation is one of the world’s leading producers of residential security hardware and is one of the leading producers of faucets in North America. Worldwide, the markets in which the Corporation sells these products are highly competitive on the basis of price, quality, and after-sale service. A number of competing domestic and foreign companies are strong, well-established manufacturers that compete on a global basis. Some of these companies manufacture products that are competitive with a number of the Corporation’s product lines. Other competitors restrict their operations to fewer categories, and some offer only a narrow range of competitive products. Competition from certain of these manufacturers has been intense in recent years and is expected to continue.
 
FASTENING AND ASSEMBLY SYSTEMS
 
The Corporation’s Fastening and Assembly Systems segment has worldwide responsibility for the development, manufacture and sale of an extensive line of metal and plastic fasteners and engineered fastening systems for commercial applications, including blind riveting, stud welding, specialty screws, prevailing torque nuts and assemblies, insert systems, metal and plastic fasteners, and self-piercing riveting systems. The Fastening and Assembly Systems segment focuses on engineering solutions for end users’ fastening requirements. The fastening and assembly systems products are marketed under a variety of trademarks and trade names, including, without limitation, EMHART TEKNOLOGIES; EMHART FASTENING TEK-NOLOGIES; EMHART; AUTOSET; DODGE; DRIL-KWICK; F-SERIES; GRIPCO; GRIPCO ASSEMBLIES; HELI-COIL; JACK NUT; KALEI; MASTERFIX; NPR; NUT-FAST; PARKER-KALON; PLASTIFAST; PLASTIKWICK; POINT & SET; PRIMER FREE; POP; POP-LOK; POPMATIC; POPNUT; POPSET; POP-SERT; POWERLINK; PROSET; SMARTSET; SPIRALOCK; SWS; TUCKER; ULTRA-GRIP; ULTRASERT; WARREN; WELDFAST; and WELL-NUT.
 
The composition of the Corporation’s sales by product groups for 2009, 2008, and 2007 is included in Note 17 of Notes to Consolidated Financial Statements included in Item 8 of Part II of this report. Within each product group shown, there existed no individual product that accounted for greater than 10% of the Corporation’s consolidated sales for 2009, 2008, or 2007.
 
The principal markets for these products include the automotive, transportation, electronics, aerospace, machine tool, and appliance industries. Substantial sales are made to automotive manufacturers worldwide.
 
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. There is little seasonal variation in sales.
 
The raw materials used in the fastening and assembly systems business consist primarily of ferrous and nonferrous metals (in the form of wire, bar stock, and strip and sheet metals) and plastics. These materials are readily available from a number of suppliers.
 
Principal manufacturing facilities of the Fastening and Assembly Systems segment in the United States are located in Danbury, Connecticut; Montpelier, Indiana; Campbellsville and Hopkinsville, Kentucky; and Chesterfield, Michigan. Principal manufacturing and assembly facilities outside of the United States are located in Birmingham, England; Giessen, Germany; and Toyohashi, Japan. For additional information with respect to these and other properties owned or leased by the Corporation, see Item 2, Properties.
 
The Corporation owns a number of United States and foreign patents, trademarks, and license rights relating to the fastening and assembly systems business. While the Corporation considers those patents, trademarks, and license rights to be valuable, it is not materially dependent upon such patents or license rights with respect to its operations.
 
OTHER INFORMATION
 
The Corporation’s product development program for the Power Tools and Accessories segment is coordinated from the Corporation’s headquarters in Towson, Maryland. Additionally, product development activities are performed at facilities within the United States in Hampstead, Maryland, and Jackson, Tennessee; and at facilities in Spennymoor, England; Brockville, Canada; Perugia, Italy; Suzhou, China; Buchlberg and Idstein, Germany; Mooroolbark, Australia; Uberaba, Brazil; and Reynosa, Mexico.
 
Product development activities for the Hardware and Home Improvement segment are performed at facilities within the United States in Lake Forest, California, and Reading, Pennsylvania; and at a facility in Xiamen, China.
 
Product development activities for the Fastening and Assembly Systems segment are performed at facilities within the United States in Danbury and Shelton, Connecticut; Montpelier, Indiana; Campbellsville, Kentucky; Chesterfield and Madison
 
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Heights, Michigan; and at facilities in Birmingham, England; Maastricht, Netherlands; Giessen, Germany; and Toyohashi, Japan.
 
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, 2009, the Corporation employed approximately 19,900 persons in its operations worldwide. Approximately 260 employees in the United States are covered by collective bargaining agreements. During 2009, two collective bargaining agreements in the United States were negotiated without material disruption to operations. One agreement is scheduled for negotiation during 2010. 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. As more fully described under the caption Restructuring Actions in Management’s Discussion and Analysis of Financial Condition and Results of Operations, the Corporation is committed to continuous productivity improvement and continues to evaluate opportunities to reduce fixed costs, simplify or improve processes, and eliminate excess capacity. As a consequence, the Corporation may, from time to time, transfer production from one manufacturing facility to another, outsource certain production, close certain manufacturing facilities, or eliminate selling and administrative positions. Such production transfers, outsourcing, facility closures, and/or eliminations of positions may result in a deterioration of employee relations at the impacted locations or elsewhere in the Corporation. As more fully described under Item 1A, Risk Factors, consummation of the proposed merger with The Stanley Works is subject to customary closing conditions, including obtaining certain regulatory approvals as well as shareholder approval from both the Corporation’s shareholders and those of The Stanley Works. Expected synergies associated with the merger will require the assimilation of certain of the Corporation’s operations into those of The Stanley Works, resulting in the likely termination of a number of the Corporation’s employees and restructuring of certain of the Corporation’s operations. The pending nature of the proposed merger could have an adverse effect on the Corporation’s relationship with its employees.
 
The Corporation’s operations are subject to foreign, federal, state, and local environmental laws and regulations. Many foreign, federal, state, and local governments also have enacted laws and regulations that govern the labeling and packaging of products and limit the sale of products containing certain materials deemed to be environmentally sensitive. These laws and regulations not only limit the acceptable methods for the discharge of pollutants and the 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, 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.
 
Pursuant to authority granted under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA), the United States Environmental Protection Agency (EPA) has issued a National Priority List (NPL) of sites at which action is to be taken to mitigate the risk of release of hazardous substances into the environment. The Corporation is engaged in continuing activities with regard to various sites on the NPL and other sites covered under analogous state environmental laws. As of December 31, 2009, the Corporation had been identified as a potentially responsible party (PRP) in connection with approximately 23 sites being investigated by federal or state agencies under CERCLA or analogous state environmental laws. The Corporation also is engaged in site investigations and remedial activities to address environmental contamination from past operations at current and former manufacturing facilities in the United States and abroad.
 
To minimize the Corporation’s potential liability with respect to these sites, management has undertaken, when appropriate, active participation in steering committees established at the sites and has agreed to remediation through consent orders with the appropriate government agencies. Due to uncertainty as to the Corporation’s involvement in some of the sites, uncertainty over the remedial measures to be adopted, and the fact that imposition of joint and several liability with the right of contribution is possible under CERCLA and other laws and regulations, the liability of the Corporation with respect to any site at which remedial measures have not been completed cannot be established with certainty. On the basis of periodic reviews conducted with respect to these sites, however, the Corporation has established appropriate liability accruals. The Corporation’s estimate of the costs associated with environmental exposures is accrued if, in management’s judgment, the likelihood of a loss is probable and the amount of the loss can be reasonably estimated. As of December 31, 2009, the Corporation’s aggregate probable exposure with respect to environmental liabilities, for which accruals have been established in the consolidated financial statements, was $102.1 million. In the opinion of management, the amount accrued for probable exposure for aggregate environmental liabilities is adequate and, accordingly, the ultimate resolution of these matters
 
6

 
is not expected to have a material adverse effect on the Corporation’s consolidated financial statements. As of December 31, 2009, the Corporation had no known probable but inestimable exposures relating to environmental matters that are expected to have a material adverse effect on the Corporation. There can be no assurance, however, that unanticipated events will not require the Corporation to increase the amount it has accrued for any environmental matter or accrue for an environmental matter that has not been previously accrued because it was not considered probable. While it is possible that the increase or establishment of an accrual could have a material adverse effect on the financial results for any particular fiscal quarter or year, in the opinion of management there exists no known potential exposures that would have a material adverse effect on the financial condition or on the financial results of the Corporation beyond any such fiscal quarter or year.
 
(d)  Financial Information about Geographic Areas
 
Reference is made to Note 17 of Notes to Consolidated Financial Statements, entitled Business Segments and Geographic Information, included in Item 8 of Part II of this report.
 
(e)  Available Information
 
The Corporation files annual, quarterly, and current reports, proxy statements, and other documents with the Securities and Exchange Commission (SEC) under the Securities Exchange Act of 1934 (the Exchange Act). The public may read and copy any materials that the Corporation files with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Also, the SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers, including the Corporation, that file electronically with the SEC. The public can obtain any documents that the Corporation files with the SEC at http://www.sec.gov.
 
The Corporation also makes available free of charge on or through its Internet website (http://www.bdk.com) the Corporation’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and, if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) of the Exchange Act as soon as reasonably practicable after the Corporation electronically files such material with, or furnishes it to, the SEC.
 
Black & Decker’s Corporate Governance Policies and Procedures Statement is available free of charge on or through its Internet website (http://www.bdk.com) or in print by calling (800) 992-3042 or (410) 716-2914. The Statement contains charters of the standing committees of the Board of Directors, the Code of Ethics and Standards of Conduct, and the Code of Ethics for Senior Financial Officers.
 
In May 2009, the Corporation submitted to the New York Stock Exchange the CEO certification required by Section 303A.12(a) of the New York Stock Exchange Listed Company Manual. The Corporation has also filed, as exhibits to this report, the CEO and CFO certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act.
 
(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 are set forth below.
 
NOLAN D. ARCHIBALD – 66
 
Chairman, President, and Chief Executive Officer,
 
January 1990 – present.
 
 
BRUCE W. BROOKS – 45
 
Group Vice President of the Corporation and
 
President – Consumer Products Group,
 
Power Tools and Accessories,
 
January 2009 – present;
 
 
Group Vice President of the Corporation and
 
President – Consumer Products Group
 
for North America,
 
Power Tools and Accessories,
 
September 2008 – January 2009;
 
 
Group Vice President of the Corporation and
 
President – Consumer Products Group,
 
Power Tools and Accessories,
 
March 2007 – September 2008;
 
 
Vice President of the Corporation and President –
Construction Tools, Industrial Products Group,
 
Power Tools and Accessories,
 
May 2005 – March 2007;
 
 
Vice President and General Manager –
 
Construction Tools, Industrial Products Group,
 
Power Tools and Accessories,
 
October 2004 – May 2005.
 
 
JAMES T. CAUDILL – 42
 
Group Vice President of the Corporation and
 
President – Hardware and Home Improvement,
 
July 2006 – present;
 
 
Vice President of the Corporation and President –
Hardware and Home Improvement,
 
May 2005 – July 2006;
 
 
Vice President and General Manager –
 
Accessories, Industrial Products Group,
 
Power Tools and Accessories Group,
 
October 2004 – May 2005.
 
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CHARLES E. FENTON – 61
 
Senior Vice President and General Counsel,
 
December 1996 – present.
 
 
• 
LES H. IRELAND – 45
 
Vice President of the Corporation and
 
President – North America,
 
Power Tools and Accessories,
 
January 2009 – present;
 
 
Vice President of the Corporation and
 
President – Commercial Operations –
 
Industrial Products Group,
 
Power Tools and Accessories,
 
April 2008 – January 2009;
 
 
Vice President of the Corporation and
 
President – Europe, Middle East, Africa,
 
Power Tools and Accessories,
 
January 2005 – April 2008;
 
 
Vice President of the Corporation and
 
Managing Director – Commercial Operations,
 
Europe, Black & Decker Consumer Group,
 
Power Tools and Accessories Group,
 
November 2001 – January 2005.
 
 
MICHAEL D. MANGAN – 53
 
Senior Vice President of the Corporation and
 
President – Worldwide Power Tools and Accessories,
 
September 2008 – present;
 
 
Senior Vice President and Chief Financial Officer,
January 2000 – September 2008.
 
 
PAUL F. McBRIDE – 54
 
Senior Vice President – Human Resources
 
and Corporate Initiatives,
 
March 2004 – present.
 
 
• 
CHRISTINA M. McMULLEN – 54
 
Vice President and Controller,
 
April 2000 – present.
 
 
ANTHONY V. MILANDO – 47
 
Vice President of the Corporation and
 
Vice President Global Operations,
 
Power Tools and Accessories,
 
January 2009 – present;
 
 
Vice President of the Corporation and
 
Vice President – Industrial Products Group
 
Global Operations,
 
Power Tools and Accessories,
 
July 2008 – January 2009;
 
 
Vice President – Industrial Products Group
 
Global Operations,
 
Power Tools and Accessories,
 
November 2005 – July 2008;
 
 
Vice President – Global Sourcing,
 
Power Tools and Accessories,
 
March 2001 – November 2005.
 
 
• 
AMY K. O’KEEFE – 39
 
Vice President of the Corporation and
 
Vice President – Worldwide Power Tools
 
and Accessories Finance,
 
September 2008 – present;
 
 
Vice President of Finance,
 
Hardware and Home Improvement Group,
 
August 2004 – September 2008.
 
 
JAIME A. RAMIREZ – 42
 
Vice President of the Corporation and President –
Latin America, Power Tools and Accessories,
 
September 2008 – present;
 
 
Vice President and General Manager –
 
Latin America, Power Tools and Accessories,
 
May 2007 – September 2008;
 
 
Vice President and General Manager –
 
Andean Region, Power Tools and Accessories,
 
July 2000 – May 2007.
 
 
JAMES R. RASKIN – 49
 
Vice President of the Corporation and
 
Vice President – Business Development,
 
July 2006 – present;
 
 
Vice President – Business Development,
 
May 2002 – July 2006.
 
 
• 
STEPHEN F. REEVES – 50
 
Senior Vice President and Chief Financial Officer,
 
September 2008 – present;
 
 
Vice President of the Corporation and
 
Vice President – Global Finance,
 
Power Tools and Accessories,
 
March 2004 – September 2008.
 
 
MARK M. ROTHLEITNER – 51
 
Vice President – Investor Relations and Treasurer,
 
January 2000 – present.
 
 
• 
JOHN W. SCHIECH – 51
 
Group Vice President of the Corporation and
 
President – Industrial Products Group,
 
Power Tools and Accessories,
 
January 2009 – present;
 
 
Group Vice President of the Corporation
 
and President – Industrial Products Group
 
for North America, Power Tools and Accessories,
 
September 2008 – January 2009;
 
 
Group Vice President of the Corporation
 
and President – Industrial Products Group,
 
Power Tools and Accessories,
 
March 2004 – September 2008.
 
 
• 
NATALIE A. SHIELDS – 53
 
Vice President and Corporate Secretary,
 
April 2006 – present;
 
 
International Tax and Trade Counsel,
 
June 1993 – April 2006.
 
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• 
BEN S. SIHOTA – 51
 
Vice President of the Corporation and President –
 
Asia Pacific, Power Tools and Accessories,
 
February 2006 – present;
 
 
President – Asia, Power Tools and Accessories,
 
September 2000 – February 2006.
 
 
• 
WILLIAM S. TAYLOR – 54
 
Vice President of the Corporation and
 
Vice President – Global Product Development
 
Industrial Products Group,
 
Power Tools and Accessories,
 
January 2009 – present;
 
 
Vice President of the Corporation and
 
Vice President – Industrial Products
 
Group Product Development,
 
Power Tools and Accessories,
 
July 2008 – January 2009;
 
 
Vice President – Industrial Products Group
 
Product Development,
 
Power Tools and Accessories,
 
April 2008 – July 2008;
 
 
Vice President/General Manager –
 
Industrial Accessories Business,
 
Power Tools and Accessories,
 
June 2005 – April 2008;
 
 
Vice President and General Manager –
 
Woodworking Tools, Power Tools and Accessories,
 
October 2004 – June 2005.
 
 
• 
MICHAEL A. TYLL – 53
 
Group Vice President of the Corporation and
 
President – Fastening and Assembly Systems,
 
April 2006 – present;
 
 
President – Automotive Division,
 
Fastening and Assembly Systems,
 
January 2001 – April 2006.
 
 
• 
JOHN H. A. WYATT – 51
 
Vice President of the Corporation and
 
President – Europe, Middle East, and Africa,
 
Power Tools and Accessories,
 
September 2008 – present;
 
 
Vice President – Consumer Products –
 
Europe, Middle East, and Africa,
 
Power Tools and Accessories,
 
October 2006 – September 2008.
 
(g)  Forward-Looking Statements
 
The Private Securities Litigation Reform Act of 1995 (the Reform Act) provides a safe harbor for forward-looking statements made by or on behalf of the Corporation. The Corporation and its representatives may, from time to time, make written or verbal forward-looking statements, including statements contained in the Corporation’s filings with the Securities and Exchange Commission and in its reports to stockholders. Generally, the inclusion of the words believe, “expect,” “intend,” “estimate,” “anticipate,” “will,” and similar expressions identify statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and that are intended to come within the safe harbor protection provided by those sections. All statements addressing operating performance, events, or developments that the Corporation expects or anticipates will occur in the future, including statements relating to sales growth, earnings or earnings per share growth, and market share, as well as statements expressing optimism or pessimism about future operating results, are forward-looking statements within the meaning of the Reform Act. The forward-looking statements are and will be based upon management’s then-current views and assumptions regarding future events and operating performance, and are applicable only as of the dates of such statements. The Corporation undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
 
By their nature, all forward-looking statements involve risks and uncertainties, including without limitations the risks described under the caption 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.
 
ITEM 1A. RISK FACTORS
 
Many of the factors that affect our business and operations involve risk and uncertainty. The factors described below are some of the risks that could materially harm our business, financial condition, and results of operations.
 
Our announcement that we had entered into a definitive merger agreement with The Stanley Works to create Stanley Black & Decker in an all-stock transaction could adversely affect our business. On November 2, 2009, we announced that we had entered into a definitive merger agreement to create Stanley Black & Decker in an all stock transaction. As a result of the merger, each of our shareholders will receive a fixed ratio of 1.275 shares of The Stanley Works common stock for each share of our common stock that they own. Consummation of the transaction, which is subject to customary closing conditions, including obtaining certain regulatory approvals outside of the United States as well as shareholder approval from both our shareholders and the shareholders of The Stanley Works, is expected to occur on March 12, 2010. Expected synergies associated with the transaction will require the merger of certain of our operations into those of The Stanley Works, resulting in the likely termination of a number of our employees and restructuring of certain of our operations. The announcement and pending nature of the transaction could cause disruptions in our business and have an adverse effect on our relationship with our customers, vendors, and employees, which 
 
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could, in turn, have an adverse effect on our business, financial results, and operations.
 
The consummation of the transaction to create Stanley Black & Decker is not certain, and its delay or failure could adversely affect our business. There is no assurance that the transaction will occur. If the transaction is consummated, it is currently anticipated to be completed on March 12, 2010. However, we cannot predict the exact timing of the consummation of the transaction. Consummation of the transaction is subject to the satisfaction of various conditions, including obtaining certain regulatory approvals outside of the United States and the approval of both our shareholders and the shareholders of The Stanley Works. A number of the conditions are not within our control. We cannot assure you that all closing conditions will be satisfied, that we will receive the required governmental approvals outside of the United States, or that the transaction will be successfully consummated. If the transaction is not completed, the share price of our common stock may change to the extent that the current market price of our common stock reflects the assumption that the transaction will be completed. In addition, a failed transaction may result in negative publicity and a negative impression of us in the investment community. Under certain circumstances, upon termination of the merger agreement, we could be required to pay a termination fee of $125 million to The Stanley Works.
 
Our business depends on the strength of the economies in various parts of the world, particularly in the United States and Europe. We conduct business in various parts of the world, primarily in the United States and Europe and, to a lesser extent, in Mexico, Central America, the Caribbean, South America, Canada, Asia and Australia. As a result of this worldwide exposure, our net revenue and profitability could be harmed as a result of economic conditions in our major markets, including, but not limited to, recession, inflation and deflation, general weakness in retail, automotive and construction markets, and changes in consumer purchasing power.
 
Changes in customer preferences, the inability to maintain mutually beneficial relationships with large customers, and the inability to penetrate new channels of distribution could adversely affect our business. We have a number of major customers, including two large customers that, in the aggregate, constituted approximately 32% of our consolidated sales in 2009. The loss of either of these large customers, a material negative change in our relationship with these large customers or other major customers, or changes in consumer preferences or loyalties could have an adverse effect on our business. Our major customers are volume purchasers, a few of which are much larger than us and have strong bargaining power with suppliers. This limits our ability to recover cost increases through higher selling prices. Changes in purchasing patterns by major customers could negatively impact manufacturing volumes and inventory levels. Further, our inability to continue to penetrate new channels of distribution may have a negative impact on our future results.
 
The inability to obtain raw materials, component parts, and/or finished goods in a timely and cost-effective manner from suppliers would adversely affect our ability to manufacture and market our products. We purchase raw materials and component parts from suppliers to be used in the manufacturing of our products. In addition, we purchase certain finished goods from suppliers. Since the onset of the global economic crisis in 2008, certain of our suppliers have experienced financial difficulties and we believe it is possible that a limited number of suppliers may either cease operations or require additional financial assistance from us in order to fulfill their obligations. In a limited number of circumstances, the magnitude of our purchases of certain items is of such significance that a change in our established supply relationships may cause disruption in the marketplace, a temporary price imbalance, or both. Changes in our relationships with suppliers or increases in the costs of purchased raw materials, component parts or finished goods could result in manufacturing interruptions, delays, inefficiencies or our inability to market products. An increase in value-added taxes by various foreign jurisdictions, or a reduction in value-added tax rebates currently available to us or to our suppliers, could also increase the costs of our manufactured products as well as purchased products and components and could adversely affect our results of operations. In addition, our profit margins would decrease if prices of purchased raw materials, component parts, or finished goods increase and we are unable to pass on those increases to our customers.
 
We face significant global competition. The markets in which we sell 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 globally with us. Some of our major customers sell their own private label brands that compete directly with our products. Price reductions taken by us in response to customer and competitive pressures, as well as price reductions and promotional actions taken to drive demand that may not result in anticipated sales levels, could also negatively impact our business. Competition has been intense in recent years and is expected to continue. If we are unable to maintain a competitive advantage, loss of market share, revenue, or profitability may result.
 
Low demand for new products and the inability to develop and introduce new products at favorable margins could adversely impact our performance and prospects for future growth. Our competitive advantage is due in part to our ability to develop and introduce new products in a timely manner at favorable
 
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margins. The uncertainties associated with developing and introducing new products, such as market demand and costs of development and production, may impede the successful development and introduction of new products on a consistent basis. Introduction of new technology may result in higher costs to us than that of the technology replaced. That increase in costs, which may continue indefinitely or until and if increased demand and greater availability in the sources of the new technology drive down its cost, could adversely affect our results of operations. Market acceptance of the new products introduced in recent years and scheduled for introduction in 2010 may not meet sales expectations due to various factors, such as our failure to accurately predict market demand, end-user preferences, and evolving industry standards, to resolve technical and technological challenges in a timely and cost-effective manner, and to achieve manufacturing efficiencies. Our investments in productive capacity and commitments to fund advertising and product promotions in connection with these new products could be excessive if those expectations are not met.
 
Price increases could impact the demand for our products from customers and end-users. We may periodically increase the prices of our products. An adverse reaction by our customers or end-users to price increases could negatively impact our anticipated sales, profitability, manufacturing volumes, and/or inventory levels.
 
The inability to generate sufficient cash flows to support operations and other activities could prevent future growth and success. Our inability to generate sufficient cash flows to support capital expansion, business acquisition plans, share repurchases and general operating activities could negatively affect our operations and prevent our expansion into existing and new markets. Our ability to generate cash flows is dependent in part upon obtaining necessary financing at favorable interest rates. Interest rate fluctuations and other capital market conditions may prevent us from doing so.
 
The global credit crisis may impact the availability and cost of credit. The turmoil in the credit markets has resulted in higher borrowing costs and, for some companies, has limited access to credit, particularly through the commercial paper markets. Our ability to maintain our commercial paper program is principally a function of our short-term debt credit rating. During the first quarter of 2009, Fitch Ratings affirmed our short-term debt rating of F2, Moody’s Investors Service downgraded our short-term debt rating from P2 to P3, and Standard & Poor’s downgraded our short-term debt rating from A2 to A3. As a result of the reduction in our short-term credit ratings that occurred during the first quarter of 2009, our ability to access commercial paper borrowings was substantially reduced during portions of 2009. As a result, we utilized our $1.0 billion unsecured credit facility during 2009. Although we believe that the lenders participating in our revolving credit facility will be able to provide financing in accordance with their contractual obligations, the current economic environment may adversely impact our ability to borrow additional funds on comparable terms in a timely manner. Continued disruption in the credit markets also may negatively affect the ability of our customers and suppliers to conduct business on a normal basis. The deterioration of our future business performance, beyond our current expectations, could result in our non-compliance with debt covenants.
 
Our success depends on our ability to improve productivity and streamline operations to control or reduce costs. We are committed to continuous productivity improvement and continue to evaluate opportunities to reduce fixed costs, simplify or improve processes, and eliminate excess capacity. We have also undertaken restructuring actions as described in Note 19 of Notes to Consolidated Financial Statements and in Management’s Discussion and Analysis of Financial Condition and Results of Operations. The ultimate savings realized from restructuring actions may be mitigated by many factors, including economic weakness, competitive pressures, and decisions to increase costs in areas such as promotion or research and development above levels that were otherwise assumed. Our failure to achieve projected levels of efficiencies and cost reduction measures and to avoid delays in or unanticipated inefficiencies resulting from manufacturing and administrative reorganization actions in progress or contemplated would adversely affect our results of operations.
 
The inability to realize new acquisition opportunities or to successfully integrate the operations of acquired businesses could negatively impact our prospect for future growth and profitability. We expend significant resources on identifying opportunities to acquire new lines of business and companies that could contribute to our success and expansion into existing and new markets. Our inability to successfully identify or realize acquisition opportunities, integrate the operations of acquired businesses, or realize the anticipated cost savings, synergies and other benefits related to the acquisition of those businesses could have a material adverse effect on our business, financial condition and future growth. Acquisitions may also have a material adverse effect on our operating results due to large write-offs, contingent liabilities, substantial depreciation, or other adverse tax or audit consequences.
 
Failures of our infrastructure could have a material adverse effect on our business. We are heavily dependent on our infrastructure. Significant problems with our infrastructure, such as manufacturing failures, telephone or information technology (IT) system failure, computer viruses or other third-party tampering with IT systems, could halt or delay manufacturing and hinder our ability to ship in a timely manner or otherwise routinely conduct business. Any of these events could result in the loss of customers, a decrease in revenue, or the incurrence of significant costs to eliminate the problem or failure.
 
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Our products could be subject to product liability claims and litigation. We manufacture products that create exposure to product liability claims and litigation. If our products are not properly manufactured or designed, personal injuries or property damage could result, which could subject us to claims for damages. The costs associated with defending product liability claims and payment of damages could be substantial. Our reputation could also be adversely affected by such claims, whether or not successful.
 
Our products could be recalled. The Consumer Product Safety Commission or other applicable regulatory bodies may require the recall, repair or replacement of our products if those products are found not to be in compliance with applicable standards or regulations. A recall could increase costs and adversely impact our reputation.
 
We may have additional tax liabilities. We are subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. We are regularly under audit by tax authorities. Although we believe our tax estimates are reasonable, the final outcome of tax audits and any related litigation could be materially different than that which is reflected in historical income tax provisions and accruals. Based on the status of a given tax audit or related litigation, a material effect on our income tax provision or net income may result in the period or periods from initial recognition in our reported financial results to the final closure of that tax audit or settlement of related litigation when the ultimate tax and related cash flow is known with certainty.
 
We are subject to current environmental and other laws and regulations. We are subject to environmental laws in each jurisdiction in which we conduct business. Some of our products incorporate substances that are regulated in some jurisdictions in which we conduct manufacturing operations. We could be subject to liability if we do not comply with these regulations. In addition, we are currently and may, in the future, be held responsible for remedial investigations and clean-up costs resulting from the discharge of hazardous substances into the environment, including sites that have never been owned or operated by us but at which we have been identified as a potentially responsible party under federal and state environmental laws and regulations. Changes in environmental and other laws and regulations in both domestic and foreign jurisdictions could adversely affect our operations due to increased costs of compliance and potential liability for non-compliance.
 
If our goodwill or indefinite-lived intangible assets become impaired, we may be required to record a significant charge to earnings. Under United States generally accepted accounting principles, goodwill and indefinite-lived intangible assets are not amortized but are reviewed for impairment on an annual basis or more frequently whenever events or changes in circumstances indicate that their carrying value may not be recoverable. A deterioration in the future performance of certain of our businesses, beyond our current expectations, may result in the impairment of certain amounts of our goodwill and indefinite-lived intangible assets. We may be required to record a significant charge to earnings in our financial statements during the period in which any impairment of our goodwill or indefinite-lived intangible assets is determined, resulting in an impact on our results of operations.
 
Changes in accounting may affect our reported earnings. For many aspects of our business, United States generally accepted accounting principles, including pronouncements, implementation guidelines, and interpretations, are highly complex and require subjective judgments. Changes in these accounting principles, including their interpretation and application, could significantly change our reported earnings, adding significant volatility to our reported results without a comparable underlying change in our cash flows. If the U.S. Securities and Exchange Commission were to mandate the adoption of International Financial Reporting Standards, significant changes to our reported earnings and balance sheet could result without a comparable underlying change in our cash flows.
 
We are exposed to adverse changes in currency exchange rates, raw material commodity prices or interest rates, both in absolute terms and relative to competitors’ risk profiles. We have a number of manufacturing sites throughout the world and sell our products in more than 100 countries. As a result, we are exposed to movements in the exchange rates of various currencies against the United States dollar and against the currencies of countries in which we have manufacturing facilities. We believe our most significant foreign currency exposures are the euro, pound sterling, and Chinese renminbi. A decrease in the value of the euro and pound sterling relative to the U.S. dollar could adversely affect our results of operations. An increase in the value of the Chinese renminbi relative to the U.S. dollar could adversely affect our results of operations. We utilize materials in the manufacturing of our products that include certain components and raw materials that are subject to commodity price volatility. We believe our most significant commodity-related exposures are to nickel, steel, resins, copper, aluminum, and zinc. An increase in the market prices of these items could adversely affect our results of operations. We have outstanding variable-rate and fixed-rate borrowings. To meet our cash requirements, we may incur additional borrowings in the future under our existing or future borrowing facilities. An increase in interest rates could adversely affect our results of operations.
 
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We are exposed to counterparty risk in our hedging arrangements. From time to time we enter into arrangements with financial institutions to hedge our exposure to fluctuations in currency and interest rates, including forward contracts and swap agreements. Recently, a number of financial institutions similar to those that serve as counterparties to our hedging arrangements have been adversely affected by the global credit crisis. The failure of one or more counterparties to our hedging arrangements to fulfill their obligations to us could adversely affect our results of operations.
 
We operate a global business that exposes us to additional risks. Our sales outside of the United States accounted for approximately 43% of our consolidated sales in 2009. We continue to expand into foreign markets. The future growth and profitability of our foreign operations are subject to a variety of risks and uncertainties, such as tariffs, nationalization, exchange controls, interest rate fluctuations, civil unrest, governmental changes, limitations on foreign investment in local business and other political, economic and regulatory risks inherent in conducting business internationally. Over the past several years, such factors have become increasingly important as a result of our higher percentage of manufacturing in China, Mexico, and the Czech Republic and purchases of products and components from foreign countries.
 
We have pension plans that are exposed to adverse changes in the market values of equity securities, fixed income securities, and other investments. Our funded pension plans cover substantially all of our employees in the United States and Canada (if hired before 2007) and the United Kingdom (if hired before 2005). Our funding of pension obligations and our pension benefit costs are dependent on the assumptions used in calculating such amounts, as compared to the actual experience of the plans. A decrease in the market value of equity securities, fixed income securities, and other investments could result in an increase to those obligations and costs and could adversely affect our results of operations and our cash flow.
 
Catastrophic events may disrupt our business. Unforeseen events, including war, terrorism and other international conflicts, public health issues, and natural disasters such as earthquakes, hurricanes or other adverse weather and climate conditions, whether occurring in the United States or abroad, could disrupt our operations, disrupt the operations of our suppliers or customers, or result in political or economic instability. These events could reduce demand for our products and make it difficult or impossible for us to manufacture our products, deliver products to customers, or to receive products from suppliers.
 
The foregoing list is not exhaustive. There can be no assurance that we have correctly identified and appropriately assessed all factors affecting our business or that the publicly available and other information with respect to these matters is complete and correct. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial also may adversely impact our business. Should any risks or uncertainties develop into actual events, these developments could have material adverse effects on our business, financial condition, and results of operations.
 
ITEM 1B. UNRESOLVED STAFF COMMENTS
 
Not applicable.
 
ITEM 2. PROPERTIES
 
The Corporation operates 39 manufacturing facilities around the world, including 25 located outside of the United States in 11 foreign countries. The major properties associated with each business segment are listed in Narrative Description of the Business in Item 1(c) of Part I of this report.
 
The following are the Corporation’s major leased facilities:
 
In the United States: Lake Forest, Mira Loma, and Rialto, California; Charlotte, North Carolina; Tampa, Florida; Chesterfield, Michigan; and Towson, Maryland.
 
Outside of the United States: Tongeren and Aarschot, Belgium; Reynosa and Mexicali, Mexico; Brockville, Canada; Usti nad Labem, Czech Republic; Gliwice, Poland; and Xiamen and Suzhou, China.
 
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 located on leased land in Suzhou, China.
 
As more fully described in Item 7 of Part II of this report under the caption Restructuring Actions, the Corporation is committed to continuous productivity improvement and continues to evaluate opportunities to reduce fixed costs, simplify or improve processes, and eliminate excess capacity. The Corporation will continue to evaluate its worldwide manufacturing cost structure to identify opportunities to improve capacity utilization and lower product costs 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
 
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the Corporation’s products and allegations of patent and trademark infringement. The Corporation also is involved in litigation and administrative proceedings involving employment matters, commercial disputes, and income tax matters. 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. The Corporation’s estimate of costs associated with product liability claims, environmental matters, and other legal proceedings is accrued if, in management’s judgment, the likelihood of a loss is probable and the amount of the loss can be reasonably estimated. These accrued liabilities are not discounted.
 
As previously noted under Item 1(c) 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. Some of these assert claims for damages and liability for remedial investigations and clean-up costs with respect to sites that have never been owned or operated by the Corporation but at which the Corporation has been identified as a PRP. Others involve current and former manufacturing facilities.
 
The EPA and the Santa Ana Regional Water Quality Control Board have each initiated administrative proceedings against the Corporation and certain of the Corporation’s current or former affiliates alleging that the Corporation and numerous other defendants are responsible to investigate and remediate alleged groundwater contamination in and adjacent to a 160-acre property located in Rialto, California. The United States of America, the cities of Colton and Rialto, and certain other PRPs have also initiated lawsuits (and/or asserted cross and counter-claims against the Corporation and certain of the Corporation’s former or current affiliates) that are currently pending in the United States District Court for the Central District of California (collectively, the “Litigation”). In the Litigation, the various parties allege that the Corporation is liable under CERCLA, the Resource Conservation and Recovery Act, and various state laws for the discharge or release of hazardous substances into the environment and the contamination caused by those alleged releases. The Corporation, in turn, through certain of the aforementioned affiliates, has also initiated a lawsuit in the United States District Court for the Central District of California alleging that various other PRPs are liable for the alleged contamination at issue. The City of Colton also has a companion case in California State court, which is currently stayed for all purposes. Certain defendants in that case have cross-claims against other defendants and have asserted claims against the State of California. The administrative proceedings and the lawsuits generally allege that West Coast Loading Corporation (WCLC), a defunct company that operated in Rialto between 1952 and 1957, and an as yet undefined number of other defendants are responsible for the release of perchlorate and solvents into the groundwater basin, and that the Corporation and certain of the Corporation’s current or former affiliates are liable as a “successor” of WCLC. The Corporation believes that neither the facts nor the law support an allegation that the Corporation is responsible for the contamination and is vigorously contesting these claims.
 
The EPA has provided an affiliate of the Corporation a Notice of Potential Liability related to environmental contamination found at the Centredale Manor Restoration Project Superfund site, located in North Providence, Rhode Island. The EPA has discovered dioxin, polychlorinated biphenyls, and pesticide contamination at this site. The EPA alleged that an affiliate of the Corporation is liable for site cleanup costs under CERCLA as a successor to the liability of Metro-Atlantic, Inc., a former operator at the site, and demanded reimbursement of the EPA’s costs related to this site. The EPA, which considers the Corporation to be the primary potentially responsible party (PRP) at the site, is expected to release a draft Feasibility Study Report, which will identify and evaluate remedial alternatives for the site, in 2011. At December 31, 2009, the estimated remediation costs related to this site (including the EPA’s past costs as well as costs of additional investigation, remediation, and related costs, less escrowed funds contributed by PRPs who have reached settlement agreements with the EPA), which the Corporation considers to be probable and can be reasonably estimable, range from approximately $50.5 million to approximately $100 million, with no amount within that range representing a more likely outcome. At December 31, 2009, the Corporation maintains a reserve for this environmental remediation matter of $50.5 million, reflecting the probability that the Corporation will be identified as the principal financially viable PRP upon issuance of the EPA draft Feasibility Study Report in 2010. The Corporation has not yet determined the extent to which it will contest the EPA’s claims with respect to this site. Further, to the extent that the Corporation agrees to perform or finance remedial activities at this site, it will seek participation or contribution from additional potentially responsible parties and insurance carriers. As the specific nature of the environmental remediation activities that may be mandated by the EPA at this site have not yet been determined, the ultimate remedial costs associated with the site may vary from the amount accrued by the Corporation at December 31, 2009.
 
14

 
Total future costs for environmental remediation activities will depend upon, among other things, the identification of any additional sites, the determination of the extent of contamination at each site, the timing and nature of required remedial actions, the technology available, the nature and terms of cost sharing arrangements with other PRPs, the existing legal requirements and nature and extent of future environmental laws, and the determination of the Corporation’s liability at each site. The recognition of additional losses, if and when they may occur, cannot be reasonably predicted.
 
In the opinion of management, amounts accrued for exposures relating to product liability claims, environmental matters, and other legal proceedings are adequate and, accordingly, the ultimate resolution of these matters is not expected to have a material adverse effect on the Corporation’s consolidated financial statements. As of December 31, 2009, the Corporation had no known probable but inestimable exposures relating to product liability claims, environmental matters, or other legal proceedings that are expected to have a material adverse effect on the Corporation. There can be no assurance, however, that unanticipated events will not require the Corporation to increase the amount it has accrued for any matter or accrue for a matter that has not been previously accrued because it was not considered probable. While it is possible that the increase or establishment of an accrual could have a material adverse effect on the financial results for any particular fiscal quarter or year, in the opinion of management there exists no known potential exposures that would have a material adverse effect on the financial condition or on the financial results of the Corporation beyond any such fiscal quarter or year.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
Not applicable.
 
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PART II
 
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
(a)  Market Information
 
The Corporation’s Common Stock is listed on the New York Stock Exchange.
 
The following table sets forth, for the periods indicated, the high and low sale prices of the Common Stock as reported in the consolidated reporting system for the New York Stock Exchange Composite Transactions:
 
QUARTER
  2009    
2008
 
January to March
  $ 46.66  
to
  $ 20.10     $ 74.24  
to
  $ 61.71  
April to June
  $ 41.28  
to
  $ 27.10     $ 71.23  
to
  $ 57.50  
July to September
  $ 51.12  
to
  $ 26.44     $ 69.50  
to
  $ 51.56  
October to December
  $ 67.13  
to
  $ 42.51     $ 62.09  
to
  $ 32.31  
 
(b)  Holders of the Corporation’s Capital Stock
 
As of January 22, 2010, there were 10,257 holders of record of the Corporation’s Common Stock.
 
Common Stock:
 
150,000,000 shares authorized, $.50 par value, 61,645,196 and 60,092,726 outstanding as of December 31, 2009 and 2008, respectively.
 
Preferred Stock:
 
5,000,000 shares authorized, without par value, no shares outstanding as of December 31, 2009 and 2008.
 
(c)  Dividends
 
The Corporation has paid consecutive quarterly dividends on its Common Stock since 1937. Future dividends will depend upon the Corporation’s earnings, financial condition, and other factors. The Credit Facility, as more fully described in Note 8 of Notes to Consolidated Financial Statements included in Item 8 of Part II of this report, does not restrict the Corporation’s ability to pay regular dividends in the ordinary course of business on the Common Stock. Under the terms of the definitive merger agreement to create Stanley Black & Decker, absent the consent of The Stanley Works, the Corporation has agreed to limit its regular quarterly cash dividend to $.12 per share.
 
Quarterly dividends per common share for the most recent two years are as follows:
 
QUARTER
  2009     2008  
January to March
  $ .42     $ .42  
April to June
    .12       .42  
July to September
    .12       .42  
October to December
    .12       .42  
    $ .78     $ 1.68  
 
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(d)  Performance Graph
 
                COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
 
Performance Graph
 
(1) 
Assumes $100 invested at the close of business on December 31, 2004 in Black & Decker common stock, Standard & Poor’s (S&P) 500 Index, and the Peer Group.
 
(2) 
The cumulative total return assumes reinvestment of dividends.
 
(3) 
The Peer Group consists of the companies in the following indices within the Standard & Poor’s Super Composite 1,500: Household Appliances, Housewares & Specialties, Industrial Machinery, and Building Products. A list of the companies in the Peer Group will be furnished upon request addressed to the Corporate Secretary at 701 East Joppa Road, Towson, Maryland 21286.
 
(4) 
Total return is weighted according to market capitalization of each company at the beginning of each year.
 
(e)  Issuer Purchases of Equity Securities  
 
PERIOD (a)
TOTAL NUMBER
OF SHARES
PURCHASED
(b) 
AVERAGE
PRICE PAID
PER SHARE
TOTAL NUMBER
OF SHARES
 PURCHASED AS
PART OF PUBLICLY
ANNOUNCED PLANS
MAXIMUM NUMBER
OF SHARES
THAT MAY YET
BE PURCHASED
UNDER THE PLANS
(c)
September 28, 2009 through
October 25, 2009
2,816   $ 45.64   3,777,145  
October 26, 2009 through
November 29, 2009
186,326     59.76   3,777,145  
November 30, 2009 through
December 31, 2009
      3,777,145  
Total
189,142   $ 59.55   3,777,145  
 
(a) 
The periods represent the Corporation’s monthly fiscal calendar.
 
(b) 
Shares acquired from associates to satisfy withholding tax requirements upon the vesting of restricted stock.
 
(c) 
The maximum number of shares that may yet be purchased under the plans represent the remaining shares that are available pursuant to the Corporation’s publicly announced repurchase plans. The maximum number of shares that may yet be purchased under the plans noted above included 4,000,000 shares authorized by the Board of Directors on October 17, 2007, and 2,000,000 shares authorized by the Board of Directors on February 14, 2008. Under the terms of the definitive merger agreement to create Stanley Black & Decker, absent the consent of The Stanley Works, the Corporation has agreed not to repurchase shares of its common stock pending consummation of the merger.
 
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ITEM 6. SELECTED FINANCIAL DATA
 
FIVE-YEAR SUMMARY (a)(b)
 
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
  2009  
(c)
  2008  
(d)
  2007  (e)   2006  
 
  2005  (f)
Sales
  $ 4,775.1     $ 6,086.1     $ 6,563.2     $ 6,447.3     $ 6,523.7  
Net earnings from continuing operations
    132.5       293.6       518.1       486.1       532.2  
Loss from discontinued operations (g)
                            (.1 )
Net earnings
    132.5       293.6       518.1       486.1       532.1  
Net earnings per common share – basic
    2.18       4.83       7.96       6.67       6.68  
Net earnings per common share – assuming dilution
    2.17       4.77       7.78       6.51       6.51  
Total assets
    5,495.2       5,183.3       5,410.9       5,247.7       5,842.4  
Long-term debt
    1,715.0       1,444.7       1,179.1       1,170.3       1,030.3  
Cash dividends per common share
    .78       1.68       1.68       1.52       1.12  
 
(a) 
The Corporation adopted a new accounting standard effective January 1, 2009, that clarifies whether instruments granted in share-based payment transactions should be included in the computation of earnings per share using the two-class method prior to vesting, and, as required, retrospectively adjusted basic and diluted earnings per share for all prior periods to reflect the adoption of that standard.
 
(b) 
The Corporation adopted a new accounting standard effective January 1, 2006, for the recognition of stock-based compensation expense using the modified retrospective method of adoption whereby the Corporation restated all prior periods presented based on amounts previously recognized for purposes of pro forma disclosures. Amounts in this five-year summary for 2005 reflect such restated amounts.
 
(c) 
Earnings from continuing operations for 2009 includes a restructuring charge of $11.9 million before taxes ($8.4 million after taxes). In addition, earnings from continuing operations for 2009 includes merger-related expenses of $58.8 million ($42.6 million after taxes) relating to the Corporation’s proposed merger with The Stanley Works.
 
(d) 
Earnings from continuing operations for 2008 includes a restructuring charge of $54.7 million before taxes ($39.6 million after taxes).
 
(e) 
Earnings from continuing operations for 2007 includes a favorable $153.4 million settlement of tax litigation. In addition, earnings from continuing operations for 2007 includes a charge for an environmental remediation matter of $31.7 million before taxes ($20.6 million after taxes) and a restructuring charge of $19.0 million before taxes ($12.8 million after taxes).
 
(f) 
Earnings from continuing operations for 2005 includes a favorable $55.0 million before taxes ($35.8 million after taxes) settlement of environmental and product liability coverage litigation with an insurer. In addition, earnings from continuing operations for 2005 includes $51.2 million of incremental tax expense resulting from the repatriation of $888.3 million of foreign earnings under the American Jobs Creation Act of 2004.
 
(g) 
Loss from discontinued operations represents the loss, net of applicable income taxes, of the Corporation’s discontinued European security hardware business.
 
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Overview
 
The Corporation is a global manufacturer and marketer of power tools and accessories, hardware and home improvement products, and technology-based fastening systems. As more fully described in Note 17 of Notes to Consolidated Financial Statements, the Corporation operates in three reportable business segments – Power Tools and Accessories, Hardware and Home Improvement, and Fastening and Assembly Systems – with these business segments comprising approximately 73%, 16%, and 11%, respectively, of the Corporation’s sales in 2009.
 
The Corporation markets its products and services in over 100 countries. During 2009, approximately 57%, 23%, and 20% of its sales were made to customers in the United States, in Europe (including the United Kingdom and Middle East), and in other geographic regions, respectively. The Power Tools and Accessories and Hardware and Home Improvement segments are subject to general economic conditions in the countries in which they operate as well as the strength of the retail economies. The Fastening and Assembly Systems segment is also subject to general economic conditions in the countries in which it operates as well as to automotive and industrial demand.
 
As more fully described in Note 2 of Notes to Consolidated Financial Statements, on November 2, 2009, the Corporation announced that it had entered into a definitive merger agreement to create Stanley Black & Decker, Inc. in an all-stock transaction. Under the terms of the transaction, which has been approved by the Boards of Directors of both the Corporation and The Stanley Works, the Corporation’s shareholders will receive a fixed ratio of 1.275 shares of The Stanley Works common stock for each share of the Corporation’s common stock that they own. Consummation of the transaction is subject to customary closing conditions, including obtaining certain regulatory approvals outside of the United States as well as shareholder approval from the shareholders of both the Corporation and The Stanley Works. The Corporation and The Stanley Works will each hold special shareholder meetings on March 12, 2010, to vote on the proposed transaction and expect that closing of the transaction will occur on that date. Unless expressly noted to the contrary, all forward-looking statements in the discussion and analysis of financial condition and results of operations that follows relate to the Corporation on a stand-alone basis and are not reflective of the impact of the proposed merger with The Stanley Works.
 
An overview of certain aspects of the Corporation’s performance during the year ended December 31, 2009, follows:
 
The Corporation continued to face a difficult demand environment during 2009 due to the impact of the global recession. Sales for 2009 were $4,775.1 million, which represented a 22% decrease from 2008 sales of $6,086.1 million. This reduction was the result of a 20% decline in unit volume and a 3% unfavorable impact from foreign currency translation attributable to the effects of a stronger U.S. dollar, partially offset by 1% of favorable price. That unit volume decline was experienced across all business segments and throughout all geographic regions. Entering 2010, the Corporation believes most of its key markets have stabilized – albeit at low levels – and anticipates a modest improvement in a number of those markets. For 2010, the Corporation is projecting a low-single-digit rate of sales growth over the 2009 levels as global consumer spending improves very gradually but commercial construction continues to weaken. On a stand-alone basis in 2010, the Corporation expects that its operating income as a percentage of sales will increase by 100 to 150 basis points over the 2009 level, excluding any expenses associated with the proposed merger with The Stanley Works and excluding the effect of $11.9 million of pre-tax restructuring and exit costs recognized in 2009.
 
Operating income as a percentage of sales for 2009 decreased by approximately 170 basis points from the 2008 level to 5.2%. Of that decline, an increase in selling, general, and administrative expenses contributed approximately 150 basis points and expenses of $58.8 million related to the proposed merger with The Stanley Works contributed approximately 120 basis points. Those declines were partially offset by a decrease of $42.8 million in restructuring and exit costs that contributed a favorable 60 basis points to operating income as a percentage of sales as well as an increase in gross margin of approximately 40 basis points. Gross margin as a percentage of sales increased in 2009 over the 2008 level as a result of the favorable effects of pricing, restructuring and cost reduction initiatives, productivity gains and commodity deflation, which were partially offset by the unfavorable effects of lower volumes, including the de-leveraging of fixed costs. Despite a $255.2 million reduction in selling, general, and administrative expenses in 2009, selling, general, and administrative expenses as a percentage of sales increased 150 basis points over the 2008 level due to the de-leveraging of expenses over a lower sales base.
 
Interest expense (net of interest income) increased by $21.4 million in 2009 over the 2008 level, primarily as a result of the April 2009 issuance of $350.0 million of 8.95% senior notes due 2014 and of the effects of lower interest rate spreads earned on the Corporation’s foreign currency hedging activities, partially offset by the effects of lower short-term borrowing levels and interest rates during 2009.
 
Net earnings were $132.5 million, or $2.17 per diluted share, for the year ended December 31, 2009, as compared to $293.6 million, or $4.77 per diluted share, for 2008. Net earnings for the year ended December 31, 2009, included the effect of after-tax merger-related
 
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expenses of $42.6 million ($58.8 million before taxes), or $.70 per diluted share, and an after-tax restructuring charge of $8.4 million ($11.9 million before taxes), or $.14 per diluted share. Net earnings for the year ended December 31, 2008, included the effects of an after-tax restructuring charge of $39.6 million ($54.7 million before taxes), or $.64 per diluted share. Excluding the aforementioned effects of merger-related expenses in 2009 and restructuring and exit costs in 2009 and 2008, earnings per share on a diluted basis were $3.01 for the year ended December 31, 2009, as compared to $5.41 for the year ended December 31, 2008.
 
Cash flow from operating activities increased by $60.2 million over the 2008 level to $485.6 million for the year ended December 31, 2009. The increase in cash provided by operating activities in 2009 was primarily due to significant reductions in inventory levels, which more than offset a decrease in net earnings from the 2008 level. Net cash generation, defined by the Corporation as cash flow from operating activities less capital expenditures, plus proceeds from the sale of assets and cash flow from net investment hedging activities, increased to $583.5 million in 2009 from $389.7 million in 2008 as higher cash provided from operating activities was augmented by an increase of $115.1 million in net cash inflow from net investment hedging activities.
 
The preceding information is an overview of certain aspects of the Corporation’s performance during 2009 and should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations in its entirety.
 
In the discussion and analysis of financial condition and results of operations that follows, the Corporation generally attempts to list contributing factors in order of significance to the point being addressed.
 
Results of Operations
 
SALES
 
The following chart provides an analysis of the consolidated changes in sales for the years ended December 31, 2009, 2008, and 2007.
 
(DOLLARS IN MILLIONS)
  2009     2008     2007  
Total sales
  $ 4,775.1     $ 6,086.1     $ 6,563.2  
Unit volume
    (20 ) %     (9 ) %     (1 ) %
Price
    1   %       %       %
Currency
    (3 ) %     2   %     3   %
Change in total sales
    (22 ) %     (7 ) %     2   %
 
The global economic recession, which began in late 2008, continued to adversely impact the Corporation’s sales during 2009. Total consolidated sales for the year ended December 31, 2009, were $4,775.1 million, which represented a decrease of 22% from 2008 sales of $6,086.1 million. As compared to the 2008 level, unit volume decreased 20% in 2009. The unit volume decline was experienced across all business segments and throughout all geographic regions. Pricing actions had a 1% favorable impact on sales. The effects of a stronger U.S. dollar, as compared to most other currencies, particularly the euro, British pound, Canadian dollar, Brazilian real, and Mexican peso, caused the Corporation’s consolidated sales for 2009 to decrease by 3% from the 2008 level.
 
Total consolidated sales for the year ended December 31, 2008, were $6,086.1 million, which represented a decrease of 7% from 2007 sales of $6,563.2 million. As compared to the 2007 level, unit volume decreased 9% in 2008. That unit volume decline was primarily driven by lower sales in the United States, due to general economic conditions in the U.S., including lower housing starts, and in Western Europe due to weakening economic conditions. The effects of pricing actions did not have a material effect on sales in 2008. The effects of a weaker U.S. dollar, as compared to most other currencies, particularly the euro, Japanese yen, Brazilian real, and Canadian dollar, caused the Corporation’s consolidated sales for 2008 to increase by 2% over the 2007 level.
 
EARNINGS
 
A summary of the Corporation’s consolidated gross margin, selling, general, and administrative expenses, merger-related expenses, restructuring and exit costs, and operating income – all expressed as a percentage of sales – follows:
 
   
YEAR ENDED DECEMBER 31,
 
(PERCENTAGE OF SALES)
 
2009
   
2008
   
2007
 
Gross margin
    33.2 %     32.8 %     33.9 %
Selling, general, and administrative expenses
    26.5 %     25.0 %     24.7 %
Merger-related expenses      1.2        
Restructuring and exit costs
    .3 %     .9 %     .3 %
Operating income
    5.2 %     6.9 %     8.9 %
 
The Corporation reported consolidated operating income of $249.4 million on sales of $4,775.1 million in 2009, as compared to operating income of $422.1 million on sales of $6,086.1 million in 2008 and to operating income of $582.2 million on sales of $6,563.2 million in 2007.
 
Consolidated gross margin as a percentage of sales increased by approximately 40 basis points over the 2008 level to 33.2% in 2009. That increase in gross margin was driven by the favorable effects of pricing actions, commodity deflation, and restructuring and cost reduction initiatives, which were partially offset by the unfavorable effects of lower volumes, including the de-leveraging of fixed costs.
 
Consolidated gross margin as a percentage of sales declined by approximately 110 basis points from the 2007 level to 32.8% in 2008. That decrease in gross margin was driven by the negative effects of commodity inflation – together with the change in China’s value added tax and appreciation of the Chinese renminbi – which, in the aggregate, increased cost of goods sold over the 2007 level by approximately $160 million in 2008. In addition, the comparison of gross margin as a
 
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percentage of sales for the year ended December 31, 2008, to the 2007 level was negatively impacted by the effects of unfavorable product mix as well as the de-leveraging of fixed costs over a lower sales base. Those negative factors were partially offset by the favorable effects of productivity and restructuring initiatives, foreign currency transaction gains, and lower customer consideration and cost of sales promotions.
 
Consolidated selling, general, and administrative expenses as a percentage of sales were approximately 26.5% in 2009 and 25.0% in 2008. Consolidated selling, general, and administrative expenses in 2009 decreased by $255.2 million from the 2008 level. That decline was due to several factors, including: (i) cost reduction initiatives and restructuring savings; (ii) decreases in variable selling expenses (such as transportation and distribution) due to lower sales volumes; and (iii) the favorable effects of foreign currency translation.
 
Consolidated selling, general, and administrative expenses as a percentage of sales were approximately 25.0% in 2008 and 24.7% in 2007. Consolidated selling, general, and administrative expenses in 2008 decreased by $104.2 million from the 2007 level. The favorable effects of cost control and restructuring initiatives, coupled with the effect of lower sales on certain volume-sensitive expenses (such as transportation and distribution), and lower environmental expense offset the unfavorable effects of foreign currency translation and additional selling, general, and administrative expenses to support increased sales in certain markets outside of the United States and Europe.
 
In 2009, the Corporation recognized $58.8 million of pre-tax merger-related expenses related to its proposed merger with The Stanley Works. As more fully described in Note 2 of Notes to Consolidated Financial Statements, those $58.8 million of merger-related expenses included employment-related change-in-control costs triggered by the signing of the merger agreement in 2009 together with legal and advisory fees associated with the transaction. In addition during 2009, the Corporation recognized $11.9 million of pre-tax restructuring and exit costs related to actions in its Power Tools and Accessories, Hardware and Home Improvement, and Fastening and Assembly Systems segments. As more fully described in Note 19 of Notes to Consolidated Financial Statements, these restructuring charges primarily reflected actions to reduce the Corporation’s selling, general, and administrative expenses and to improve its manufacturing cost base.
 
In 2008, the Corporation recognized $54.7 million of pre-tax restructuring and exit costs related to actions in each of its business segments as well as its corporate office. The 2008 restructuring charge reflected actions to reduce the Corporation’s manufacturing cost base as well as selling, general, and administrative expenses.
 
In 2007, the Corporation recognized $19.0 million of pre-tax restructuring and exit costs related to actions in its Power Tools and Accessories and Hardware and Home Improvement segments. The 2007 restructuring charge reflected actions to reduce the Corporation’s manufacturing cost base as well as selling, general, and administrative expenses in those segments.
 
Consolidated net interest expense (interest expense less interest income) was $83.8 million in 2009, as compared to $62.4 million in 2008 and $82.3 million in 2007. The increase in net interest expense in 2009, as compared to 2008, was primarily the result of the April 2009 issuance of $350.0 million of 8.95% senior notes due 2014 and of the effects of lower interest rate spreads earned on the Corporation’s foreign currency hedging activities, partially offset by the effects of lower short-term borrowing levels and interest rates during 2009. The decrease in net interest expense in 2008, as compared to 2007, was primarily the result of lower interest rates, including the impact on the Corporation’s foreign currency hedging activities.
 
Other (income) expense was $(4.8) million in 2009, as compared to $(5.0) million in 2008 and $2.3 million in 2007. Other (income) expense for the year ended December 31, 2009, benefited from a $6.0 million insurance settlement related to an environmental matter. Other (income) expense for the year ended December 31, 2008, benefited from a gain on the sale of a non-operating asset.
 
Consolidated income tax expense (benefit) of $37.9 million, $71.1 million, and $(20.5) million was recognized on the Corporation’s earnings before income taxes of $170.4 million, $364.7 million, and $497.6 million, for 2009, 2008, and 2007, respectively. The effective tax rate of 22.3% recognized for the year ended December 31, 2009, benefited from favorable adjustments associated with new facts regarding certain income tax matters and the favorable resolution of certain tax audits. The Corporation’s 2009 effective tax rate of 22.3% was higher than its 2008 effective tax rate of 19.5% primarily as a result of discrete items in 2008 discussed below and the de-leveraging effect of the interest component on reserves for uncertain tax positions, included as an element of tax expense, on lower earnings before income taxes in 2009. Income tax expense (benefit) in 2008 reflects: (i) the favorable resolution of certain tax audits in 2008; (ii) a $15.1 million tax benefit associated with a $54.7 million pre-tax restructuring charge; and (iii) favorability associated with the finalization of closing agreements of the settlement of income tax litigation between the Corporation and the U.S. government agreed to in late 2007. Income tax expense (benefit) in 2007 reflects: (i) the effect of a $153.4 million tax benefit associated with a settlement reached on an income tax litigation matter; (ii) an $11.1 million tax benefit associated with a $31.7 million pre-tax charge for an environmental remediation matter; and (iii) a $6.2 million tax benefit associated with a $19.0 million pre-tax restructuring charge. The previously described items had a significant impact on the Corporation’s effective income tax rates. A further analysis of taxes on earnings is included in Note 12 of Notes to Consolidated Financial Statements.
 
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The Corporation reported net earnings of $132.5 million, $293.6 million, and $518.1 million, or $2.17, $4.77 and $7.78 per share on a diluted basis, for the years ended December 31, 2009, 2008, and 2007, respectively. Net earnings for the year ended December 31, 2009, included the effect of after-tax merger-related expenses of $42.6 million ($58.8 million before taxes), or $.70 per share on a diluted basis, and an after-tax restructuring charge of $8.4 million ($11.9 million before taxes) or $.14 per share on a diluted basis. Net earnings for the year ended December 31, 2008, included the effect of an after-tax restructuring charge of $39.6 million ($54.7 million before taxes), or $.64 per share on a diluted basis. Excluding the aforementioned effects of merger-related expenses in 2009 and restructuring and exit costs in 2009 and 2008, earnings per share on a diluted basis were $3.01 for the year ended December 31, 2009, as compared to $5.41 for the year ended December 31, 2008.
 
Business Segments
 
As more fully described in Note 17 of Notes to Consolidated Financial Statements, the Corporation operates in three reportable business segments: Power Tools and Accessories, Hardware and Home Improvement, and Fastening and Assembly Systems.
 
POWER TOOLS AND ACCESSORIES
 
Segment sales and profit for the Power Tools and Accessories segment, determined on the basis described in Note 17 of Notes to Consolidated Financial Statements, were as follows (in millions of dollars):
 
YEAR ENDED DECEMBER 31,
  2009     2008     2007  
Sales to unaffiliated customers
  $ 3,471.5     $ 4,286.6     $ 4,754.8  
Segment profit
    257.3       317.4       482.2  
 
Sales to unaffiliated customers in the Power Tools and Accessories segment during 2009 decreased 19% from the 2008 level. That decline primarily resulted in the North American and European businesses as those businesses were adversely affected by the impact of the global recession, including lower residential and commercial construction activity, reduced consumer discretionary spending, and inventory de-stocking by retailers.
 
Sales in North America decreased 21% during 2009, as compared to the 2008 level, primarily due to continued weak demand in the United States in light of depressed housing activity and decelerating commercial construction. Sales declines were experienced across all channels and product lines. Sales of industrial power tools and accessories in the United States decreased 26%, with lower sales in the independent channel and at retail. Sales of consumer power tools and accessories in the United States decreased at a mid-single-digit rate from the 2008 level. In Canada, sales decreased 25%, with a 26% decline in sales of industrial power tools and accessories and a double-digit rate of decline in sales of consumer power tools and accessories.
 
Sales in Europe during 2009 decreased 23% from the level experienced in 2008 due to the impact of the global recession. Sales declined across all markets and in all key product lines. The sales decline was particularly severe in Eastern Europe, Scandinavia, and the United Kingdom. During 2009, European sales of industrial power tools and accessories declined by 26% and sales of consumer power tools and accessories declined by a double-digit rate from the 2008 levels.
 
Sales in other geographic areas decreased at a mid-single-digit rate during 2009 from the 2008 level. This decrease primarily resulted from a mid-single-digit rate of decline in Latin America, with double-digit rates of declines experienced in the Caribbean, Central America, and Mexico – areas more closely tied to the U.S. economy than others in the region. Sales in Asia/Pacific decreased at a mid-single-digit rate.
 
Segment profit as a percentage of sales for the Power Tools and Accessories segment was 7.4% for 2009 and 2008. As percentages of sales, a 110-basis-point improvement in gross margin during 2009 was offset by a 110-basis-point increase in selling, general, and administrative expenses. The increase in gross margin as a percentage of sales was principally due to favorable price, a positive comparison to inventory write-downs in 2008, and the benefit of restructuring and cost reduction initiatives. The increase in selling, general, and administrative expenses as a percentage of sales resulted from the de-leveraging of expenses over lower sales, which more than offset the favorable effects of restructuring and cost reduction initiatives and a reduction in variable selling expenses.
 
Sales to unaffiliated customers in the Power Tools and Accessories segment during 2008 decreased 10% from the 2007 level. That decline primarily resulted from the North American business, which faced weak housing and discretionary spending all year, and a slowdown in Europe which accelerated during the second half of the year.
 
Sales in North America decreased at a double-digit rate during 2008, as compared to the 2007 level, primarily as a result of weak demand in the United States as a result of depressed housing and decelerating commercial construction. Sales of the Corporation’s industrial power tools and accessories business in the United States decreased at a low-double-digit rate with declines in all major product categories and in most channels due primarily to broad market weakness. Sales of the consumer power tools and accessories business in the United States decreased by more than 20% primarily due to lost listings in the pressure washer category, weak demand, and the effects of a transition from the Firestorm® to the Porter-Cable® brand of power tools and accessories at a large customer. Most other product categories also declined in comparison to 2007, but those declines were partially offset by increased sales in outdoor products. In Canada, sales increased at a mid-single-digit rate over the 2007 level, primarily due to a double-digit rate of increase
 
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of sales of industrial power tools and accessories that partially offset a double-digit rate of decline of sales of consumer power tools and accessories.
 
Sales of the European power tools and accessories business during 2008 decreased at a low-double-digit rate from the level experienced in 2007 as a result of deteriorating economic conditions in Western Europe, which were partially offset by growth in the Eastern Europe and Middle East/Africa regions due to growth in the first nine months of 2008 which offset declines in the fourth quarter. The decline in sales of the European power tools and accessories business reflected a rapid deterioration in the second half of 2008, following a mid-single-digit rate of decline in the first half of the year. Sales of both the Corporation’s industrial and consumer power tools and accessories businesses in Europe decreased at a double-digit rate during 2008 from the 2007 level.
 
Sales in other geographic areas increased at a double-digit rate in 2008 over the 2007 level. That growth primarily resulted from a double-digit rate of increase in Latin America and a low-single-digit rate of increase in the Asia/Pacific region, where sales growth in Asia offset declines in Australia and New Zealand.
 
Segment profit as a percentage of sales for the Power Tools and Accessories segment was 7.4% for 2008, as compared to 10.1% for 2007. Gross margin as a percentage of sales for 2008 declined in comparison to 2007 primarily as a result of commodity inflation (together with the change in China’s value added tax and appreciation of the Chinese renminbi), unfavorable product mix, and the de-leveraging of fixed costs, partially offset by the favorable effects of productivity and restructuring initiatives and the absence of a significant product recall that occurred in 2007. Selling, general, and administrative expenses as a percentage of sales for 2008 increased over the 2007 level due primarily to the de-leveraging of expenses over lower sales volumes.
 
HARDWARE AND HOME IMPROVEMENT
 
Segment sales and profit for the Hardware and Home Improvement segment, determined on the basis described in Note 17 of Notes to Consolidated Financial Statements, were as follows (in millions of dollars):
 
YEAR ENDED DECEMBER 31,
  2009     2008     2007  
Sales to unaffiliated customers
  $ 755.4     $ 891.6     $ 1,001.7  
Segment profit
    76.9       75.8       113.6  
 
Sales to unaffiliated customers in the Hardware and Home Improvement segment during 2009 decreased 15% from the 2008 level. Sales of security hardware in the United States declined at a double-digit rate due to continued weakness in residential construction, which was partially offset by the continued success of the SmartKey product line. Sales of plumbing products in the United States declined 21% in 2009 across all channels. Sales of the Hardware and Home Improvement segment outside of the United States declined at a double-digit rate in 2009 from the 2008 level, principally due to weakness in Canada.
 
Segment profit as a percentage of sales in the Hardware and Home Improvement segment increased from 8.5% in 2008 to 10.2% in 2009. Gross margin as a percentage of sales increased in 2009, as compared to 2008, due to product cost deflation as well as to the favorable effect of restructuring and productivity initiatives. Despite cost reduction initiatives implemented throughout 2009, selling, general, and administrative expenses as a percentage of sales increased in 2009, as compared to 2008, as a result of de-leveraging of fixed and semi-fixed costs over a lower sales base.
 
Sales to unaffiliated customers in the Hardware and Home Improvement segment during 2008 decreased 11% from the 2007 level. Sales of security hardware in the United States declined at a double-digit rate due, in part, to the negative effects of the U.S. housing slowdown. Sales of plumbing products in the United States declined at a high-single-digit rate in 2008, driven by the U.S. housing slowdown. Sales of the Hardware and Home Improvement segment outside of the United States declined at a low-single-digit rate in 2008 from the 2007 level, principally due to weakness in Canada.
 
Segment profit as a percentage of sales in the Hardware and Home Improvement segment decreased from 11.3% in 2007 to 8.5% in 2008. Gross margin as a percentage of sales declined slightly in 2008, as compared to 2007, as the negative effects of commodity inflation and lower volumes were only partially offset by productivity and restructuring initiatives. Selling, general, and administrative expenses as a percentage of sales increased in 2008, as compared to 2007, as a result of de-leveraging of fixed and semi-fixed costs over a lower sales base.
 
FASTENING AND ASSEMBLY SYSTEMS
 
Segment sales and profit for the Fastening and Assembly Systems segment, determined on the basis described in Note 17 of Notes to Consolidated Financial Statements, were as follows (in millions of dollars):
 
YEAR ENDED DECEMBER 31,
  2009     2008     2007  
Sales to unaffiliated customers
  $ 536.6     $ 703.2     $ 720.7  
Segment profit
    39.5       106.0       113.9  
 
Sales to unaffiliated customers in the Fastening and Assembly Systems segment decreased 24% in 2009 from the 2008 level. Incremental sales of the Spiralock business, acquired in September 2008, contributed 1.6% to the segment’s sales during 2009. Sales of the North American and European automotive businesses declined 35% and 20%, respectively, due to the collapse of the automotive industry in the first half of 2009. Sales in the North American and European industrial businesses declined 30% and 24%, respectively, due to reductions in industrial production levels as a result of the global recession. In Asia, sales declined by 24%  from the 2008 level.
 
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Segment profit as a percentage of sales for the Fastening and Assembly Systems segment decreased from 15.1% in 2008 to 7.4% in 2009. Despite significant restructuring and cost reduction initiatives undertaken by the segment in 2009, the decrease in segment profit as a percentage of sales was primarily due to de-leveraging of costs over lower volumes.
 
Sales to unaffiliated customers in the Fastening and Assembly Systems segment decreased 2% in 2008 from the 2007 level. The September acquisition of Spiralock resulted in a 1% increase in the segment’s sales during 2008. Sales of the North American businesses declined at a double-digit rate, reflecting weakness in the automotive businesses due to a drop in automotive production. Sales in the European industrial business fell at a low-single-digit rate while sales in the European automotive business rose at a low-single-digit rate. In Asia, sales grew at a high-single-digit rate, reflecting sales growth across all markets.
 
Segment profit as a percentage of sales for the Fastening and Assembly Systems segment decreased from 15.8% in 2007 to 15.1% in 2008. The decrease in segment profit as a percentage of sales was principally attributable to commodity inflation as well as de-leveraging of fixed costs over a lower sales base.
 
OTHER SEGMENT-RELATED MATTERS
 
As indicated in the first table of Note 17 of Notes to Consolidated Financial Statements, segment profit (loss), associated with Corporate, Adjustments, and Eliminations (Corporate) was $(67.1) million, $(51.8) million, and $(106.2) million for the years ended December 31, 2009, 2008, and 2007, respectively. Corporate expenses for 2009 increased over the 2008 level primarily due to higher expenses associated with benefits and risk management, as well as higher pension expense.
 
Corporate expenses for 2008 decreased from the 2007 level primarily due to the effects of lower pension, legal, and environmental expenses, lower expenses associated with intercompany eliminations (due, in part, to foreign currency effects), and a foreign currency loss by a Corporate subsidiary in 2007 that did not recur in 2008, which were partially offset by expense directly related to reportable business segments booked in consolidation in 2008 (as compared to income in 2007 as described below).
 
Expense recognized by the Corporation in 2009, on a consolidated basis, relating to its pension and other postretirement benefits plans increased by approximately $4 million over the 2008 level. Expense recognized by the Corporation in 2008, on a consolidated basis, relating to its pension and other postretirement benefits plans decreased by approximately $24 million from the 2007 level. The Corporate adjustment to businesses’ postretirement benefit expense booked in consolidation, as identified in the second table included in Note 17 of Notes to Consolidated Financial Statements, was expense in 2009, 2008, and 2007 of $12.0 million, $3.6 million, and $19.9 million, respectively. The $8.4 million increase in that Corporate adjustment in 2009, as compared to 2008, resulted from the higher level of pension and other postretirement benefit expenses (excluding service costs allocated to the reportable business segments). The $16.3 million decrease in that Corporate adjustment in 2008, as compared to 2007, resulted from the lower level of pension and other postretirement benefit expenses (excluding service costs allocated to the reportable business segments). As more fully described in Note 17 of Notes to Consolidated Financial Statements, the only element of pension and other postretirement benefits expense included in the determination of segment profit of the Corporation’s reportable business segments is service costs.
 
Income (expenses) directly related to reportable business segments booked in consolidation, and, thus, excluded from segment profit for the reportable business segments, were $(.3) million, $(4.9) million, and $8.3 million for the years ended December 31, 2009, 2008, and 2007, respectively. The $(.3) million of segment-related expenses excluded from segment profit in 2009 principally related to the Power Tools and Accessories and Hardware and Home Improvement segments. The $4.9 million of segment-related expenses excluded from segment profit in 2008 principally related to the Power Tools and Accessories segment, partially offset by the reversal of certain performance-based incentive expenses included in the allocation of Corporate expenses to each of the reportable business segments. The $8.3 million of segment-related income excluded from segment profit in 2007 principally related to the Power Tools and Accessories segment as well as to the reversal of certain performance-based incentive expenses included in the allocation of Corporate expenses to each of the reportable business segments.
 
As indicated in Note 17 of Notes to Consolidated Financial Statements, the determination of segment profit excludes restructuring and exit costs and, in 2009, pre-tax merger-related expenses of $58.8 million. Of the $11.9 million pre-tax restructuring charge recognized in 2009, $7.1 million, $1.7 million, and $3.1 million related to the Power Tools and Accessories, Hardware and Home Improvement and Fastening and Assembly Systems segments, respectively. Of the $54.7 million pre-tax restructuring charge recognized in 2008, $42.1 million, $6.1 million, and $6.0 million related to the Power Tools and Accessories, Hardware and Home Improvement and Fastening and Assembly Systems segments, respectively, and $.5 million related to corporate functions. Of the $19.0 million pre-tax restructuring charge recognized in 2007, $9.0 million and $10.0 million related to the Power Tools and Accessories and Hardware and Home Improvement segments, respectively.
 
Restructuring Actions
 
The Corporation is committed to continuous productivity improvement and continues to evaluate opportunities to reduce fixed costs, simplify or improve processes,
 
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and eliminate excess capacity. A tabular summary of restructuring activity during the three years ended December 31, 2009, is included in Note 19 of Notes to Consolidated Financial Statements.
 
In 2009, the Corporation recognized $14.2 million of pre-tax restructuring and exit costs related to actions taken in its Power Tools and Accessories, Hardware and Home Improvement, and Fastening and Assembly segments. The $14.2 million charge recognized in 2009 was offset, however, by the reversal of $1.8 million and $.5 million of severance and other accruals, respectively, established as part of previously provided restructuring reserves that were no longer required. The 2009 restructuring charge related to the elimination of direct and indirect manufacturing positions as well as selling, general, and administrative positions. A severance benefits accrual of $12.6 million was included in the restructuring charge, of which $8.9 million related to the Power Tools and Accessories segment, $2.3 million related to the Fastening and Assembly Systems segment, and $1.4 million related to the Hardware and Home Improvement segment. The severance benefits accrual included the elimination of approximately 1,500 positions, including approximately 1,200 manufacturing related positions. The restructuring charge also included a $.4 million write-down to fair value of certain long-lived assets for the Hardware and Home Improvement segment. In addition, the restructuring charge included charges of $.3 million and $.9 million related to the early termination of lease agreements by the Power Tools and Accessories segment and Fastening and Assembly Systems segment, respectively, necessitated by the restructuring actions.
 
In 2008, the Corporation recognized $54.7 million of pre-tax restructuring and exit costs related to actions taken in its Power Tools and Accessories, Hardware and Home Improvement, and Fastening and Assembly segments as well as in its corporate offices. The 2008 restructuring charge reflected actions to reduce the Corporation’s manufacturing cost base as well as selling, general, and administrative expenses. The principal component of the 2008 restructuring charge related to the elimination of manufacturing and selling, general, and administrative positions. A severance benefits accrual of $48.3 million was recognized associated with the elimination of approximately 2,300 positions. The Corporation estimates that, as a result of increases in manufacturing employee headcount in other facilities, approximately 200 replacement positions will be filled, yielding a net total of approximately 2,100 positions eliminated as a result of the 2008 restructuring actions. The restructuring charge also included a $3.7 million write-down to fair value of certain long-lived assets for the Power Tools and Accessories segment ($3.0 million) and Hardware and Home Improvement segment ($.7 million), which were either held for sale or idled in preparation for disposal. As part of these restructuring actions, the Power Tools and Accessories segment closed its manufacturing facility in Decatur, Arkansas, and transferred production to another facility. The restructuring charge also reflected $1.8 million related to the early termination of a lease agreement by the Power Tools and Accessories segment necessitated by restructuring actions. The restructuring charge also included a $.9 million non-cash pension curtailment charge associated with positions eliminated as part of the restructuring actions.
 
In 2007, the Corporation recognized $19.0 million of pre-tax restructuring and exit costs related to actions taken in its Power Tools and Accessories and Hardware and Home Improvement segments. The 2007 restructuring charge reflected actions to reduce the Corporation’s manufacturing cost base as well as selling, general, and administrative expenses. The restructuring actions to reduce the Corporation’s manufacturing cost base in the Power Tools and Accessories segment included the closure of a manufacturing facility, with production from that facility either transferred to other facilities or outsourced from third-party suppliers. Actions to reduce the Corporation’s manufacturing cost base in the Hardware and Home Improvement segment primarily related to optimization of its North American finishing operations, including the transfer of most finishing operations to a single facility. The principal component of the 2007 restructuring charge related to the elimination of manufacturing and selling, general, and administrative positions. A severance benefits accrual of $14.8 million was recognized associated with the elimination of approximately 650 positions. The Corporation estimates that, as a result of increases in manufacturing employee headcount in other facilities, approximately 100 replacement positions were filled, yielding a net total of approximately 550 positions eliminated as a result of the 2007 restructuring actions. The restructuring and exit costs also include a $7.4 million write-down to fair value of certain long-lived assets of the Hardware and Home Improvement segment that had been idled and either sold or scrapped. The $19.0 million restructuring charge taken in 2007 was net of a $3.4 million gain, representing the excess of proceeds received on the sale of the manufacturing facility to be closed under the restructuring plan over its carrying value.
 
In addition to the recognition of restructuring and exit costs, the Corporation also recognized related expenses, incremental to the cost of the underlying restructuring actions, that do not qualify as restructuring or exit costs under accounting principles generally accepted in the United States (restructuring-related expenses). Those restructuring-related expenses included items – directly related to the underlying restructuring actions – that benefited on-going operations, such as costs associated with the transfer of equipment. Operating results included restructuring-related expenses of approximately $4 million for the years ended December 31, 2009 and December 31, 2008, respectively, and $5 million for the year ended December 31, 2007.
 
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The Corporation realized benefits of approximately $76 million, $23 million, and $— million in 2009, 2008, and 2007, respectively, net of restructuring-related expenses. Those benefits resulted in a reduction in cost of goods sold of approximately $25 million and $5 million in 2009 and 2008, respectively, and a reduction in selling, general, and administrative expenses of approximately $51 million and $18 million in 2009 and 2008, respectively. The Corporation expects that pre-tax savings associated with the 2009, 2008, and 2007 restructuring actions will benefit 2010 results by approximately $37 million, net of restructuring-related expenses.
 
Ultimate savings realized from restructuring actions may be mitigated by such factors as economic weakness and competitive pressures, as well as decisions to increase costs in areas such as promotion or research and development above levels that were otherwise assumed.
 
Hedging Activities
 
The Corporation has a number of manufacturing sites throughout the world and sells its products in more than 100 countries. As a result, it is exposed to movements in the exchange rates of various currencies against the United States dollar and against the currencies of countries in which it manufactures. The major foreign currencies in which foreign currency risks exist are the euro, pound sterling, Canadian dollar, Japanese yen, Chinese renminbi, Australian dollar, Mexican peso, Czech koruna, and Brazilian real. Through its foreign currency activities, the Corporation seeks to reduce 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.
 
From time to time, currencies may strengthen or weaken in countries in which the Corporation sells or manufactures its product. While the Corporation will take actions to mitigate the impact of any future currency movements, there is no assurance that such movements will not adversely affect the Corporation.
 
Assets and liabilities of subsidiaries located outside of the United States are translated at rates of exchange at the balance sheet date as more fully explained in Note 1 of Notes to Consolidated Financial Statements. The resulting translation adjustments are included in the accumulated other comprehensive income (loss) component of stockholders’ equity. During 2009 and 2008, translation adjustments, recorded in the accumulated other comprehensive income (loss) component of stockholders’ equity, increased (decreased) stockholders’ equity by $88.4 million and $(172.1) million, respectively.
 
The materials used in the manufacturing of the Corporation’s products, which include certain components and raw materials, are subject to price volatility. These component parts and raw materials are principally subject to market risk associated with changes in the price of nickel, steel, resins, copper, aluminum, and zinc. The materials used in the various manufacturing processes are purchased on the open market, and the majority is available through multiple sources. While future movements in prices of raw materials and component parts are uncertain, the Corporation uses a variety of methods, including established supply arrangements, purchase of component parts and raw materials for future delivery, and supplier price commitments, to address this risk. In addition, the Corporation utilizes derivatives to manage its risk to changes in the prices of certain commodities. As of December 31, 2009, the amount outstanding under commodity hedges was not material.
 
As more fully described in Note 1 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 elect to manage its interest rate risk associated with changes in the fair value of its indebtedness, or the cash flows of its indebtedness, through the use of interest rate swap agreements.
 
In order to meet its goal of fixing or limiting interest costs, the Corporation maintains a portfolio of interest rate hedge instruments. The variable-rate-debt to total-debt ratio, after taking interest rate hedges into account, was 30% at December 31, 2009, as compared to 44% at December 31, 2008 and 2007. The reduction in the variable rate percentage in 2009 resulted from the Corporation’s issuance of $350.0 million of fixed rate debt in April 2009. At December 31, 2009, average debt maturity was 5.2 years, as compared to 6.0 years at December 31, 2008, and 6.2 years at December 31, 2007. At December 31, 2009 the average long-term debt maturity was 5.2 years, as compared to 6.3 years at December 31, 2008, and 8.0 years at December 31, 2007.
 
INTEREST RATE SENSITIVITY
 
The following table provides information as of December 31, 2009, about the Corporation’s derivative financial instruments and other financial instruments that are sensitive to changes in interest rates, including interest rate swaps and debt obligations. For debt obligations, the table presents principal cash flows and related average interest rates by contractual maturity dates. For interest rate swaps, the table presents notional principal amounts and weighted-average interest rates by contractual maturity dates. Notional amounts are used to calculate the contractual payments to be exchanged under the interest rate swaps. Weighted-average variable rates are generally based on the London Interbank Offered Rate (LIBOR) as of the reset dates. The cash flows of these instruments are denominated in a variety of currencies. Unless otherwise indicated, the information is presented in U.S. dollar equivalents, which is the Corporation’s reporting currency, as of December 31, 2009.
 
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Principal Payments and Interest Rate Detail by Contractual Maturity Dates
 
(U.S. DOLLARS IN MILLIONS)
  2010
    2011     2012     2013     2014     THEREAFTER     TOTAL  
  FAIR VALUE
 (ASSETS)/
 LIABILITIES
 
LIABILITIES
                                               
Short-term borrowings
                                               
Variable rate (U.S. dollars and
other currencies)
  $     $     $     $     $     $     $     $  
Average interest rate
                                                               
Long-term debt
                                                               
Variable rate (U.S. dollars)
  $     $ 75.0     $ 100.0     $     $     $     $ 175.0     $ 175.0  
Average interest rate
            1.37     1.44 %                             1.41 %        
Fixed rate (U.S. dollars)
  $     $ 400.0     $     $     $ 650.0     $ 450.0     $ 1,500.0     $ 1,611.7  
Average interest rate
            7.13                     7.01     6.18 %     6.79 %        
INTEREST RATE DERIVATIVES
                                                         
Fixed to Variable Rate Interest
                                                               
Rate Swaps (U.S. dollars)
  $     $ 100.0     $     $     $ 200.0     $ 25.0     $ 325.0     $ (26.6 )
Average pay rate (a)
                                                               
Average receive rate
             4.87                     4.64     5.97 %     4.81 %        
 
(a) 
The average pay rate for swaps in the notional principal amount of $125.0 million is based upon 3-month forward LIBOR (with swaps in the notional principal amounts of $100.0 million maturing in 2011 and $25.0 million maturing thereafter). The average pay rate for the remaining swap is based upon 6-month forward LIBOR.
 
FOREIGN CURRENCY EXCHANGE RATE SENSITIVITY
 
As discussed previously, the Corporation is exposed to market risks arising from changes in foreign exchange rates. As of December 31, 2009, the Corporation has hedged a portion of its 2010 estimated foreign currency transactions using forward exchange contracts. The Corporation estimated the effect on 2010 gross profits, based upon a recent estimate of foreign exchange exposures, of a uniform 15% strengthening in the value of the United States dollar. The Corporation estimated that this would have the effects of reducing gross profits for 2010 by approximately $42 million. The Corporation also estimated the effects on 2010 gross profits, based upon a recent estimate of foreign exchange exposures, of a uniform 15% weakening in the value of the United States dollar. A uniform 15% weakening in the value of the United States dollar would have the effect of increasing gross profits.
 
In addition to their direct effects, changes in exchange rates also affect sales volumes and foreign currency sales prices as competitors’ products become more or less attractive. The sensitivity analysis of the effects of changes in foreign currency exchange rates previously described does not reflect a potential change in sales levels or local currency prices nor does it reflect higher exchange rates, as compared to those experienced during 2009, inherent in the foreign exchange hedging portfolio at December 31, 2009.
 
Critical Accounting Policies
 
The Corporation’s accounting policies are more fully described in Note 1 of Notes to Consolidated Financial Statements. As disclosed in Note 1 of Notes to Consolidated Financial Statements, the preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements.
 
The Corporation believes that, of its significant accounting policies, the following may involve a higher degree of judgment, estimation, or complexity than other accounting policies. The discussions of the Corporation’s critical accounting policies that follow relate to the Corporation on a stand-alone basis and are not reflective of the impact of the proposed merger with The Stanley Works.
 
As more fully described in Note 1 of Notes to Consolidated Financial Statements, the Corporation performs goodwill impairment tests on at least an annual basis and more frequently in certain circumstances. The Corporation cannot predict the occurrence of certain events that might adversely affect the reported value of goodwill that totaled $1,230.0 million at December 31, 2009. Such events may include, but are not limited to, strategic decisions made in response to economic and competitive conditions, the impact of the economic environment on the Corporation’s customer base, or a material negative change in its relationships with significant customers.
 
The Corporation assesses the fair value of its reporting units for its goodwill impairment tests based upon a discounted cash flow methodology. The identification of reporting units begins at the operating segment level – in the Corporation’s case, the Power Tools and Accessories segment, the Hardware and Home Improvement segment, and the Fastening and Assembly Systems segment – and considers whether operating
 
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components one level below the segment level should be identified as reporting units for purposes of goodwill impairment tests if certain conditions exists. These conditions include, among other factors, (i) the extent to which an operating component represents a business (that is, the operating component contains all of the inputs and processes necessary for it to continue to conduct normal operations if transferred from the segment) and (ii) the disaggregation of economically dissimilar operating components within a segment. The Corporation has determined that its reporting units, for purposes of its goodwill impairment tests, represent its operating segments, except with respect to its Hardware and Home Improvement segment for which its reporting units are the plumbing products and security hardware businesses. Goodwill is allocated to each reporting unit at the time of a business acquisition and is adjusted upon finalization of the purchase price of an acquisition. The Corporation did not make any material change in the accounting methodology used to evaluate goodwill impairment during 2009.
 
The discounted cash flow methodology utilized by the Corporation in estimating the fair value of its reporting units for purposes of its goodwill impairment testing requires various judgmental assumptions about sales, operating margins, growth rates, discount rates, and working capital requirements. In determining those judgmental assumptions, the Corporation considers a variety of data, including – for each reporting unit – its annual budget for the upcoming year (which forms the basis of certain annual incentive targets for reporting unit management), its longer-term business plan, economic projections, anticipated future cash flows, and market data. Assumptions are also made for varying perpetual growth rates for periods beyond the longer-term business plan period. When estimating the fair value of its reporting units in the fourth quarter of 2009, the Corporation assumed operating margins in years 2010 and beyond in excess of the margins realized in 2009 based upon its belief that recovery from the global economic crisis will permit a return to more normalized sales levels and operating margins for its reporting units. The key assumptions used to estimate the fair value of the Corporation’s reporting units at the time of its fourth quarter 2009 goodwill impairment test included: (i) an average sales growth assumption of approximately 3% per annum; (ii) annual operating margins ranging from approximately 8% to 15%; and (iii) a discount rate of 9.7%, which was determined based upon a market-based weighted average cost of capital.
 
The Corporation’s goodwill impairment analysis is subject to uncertainties due to uncontrollable events, including the strategic decisions made in response to economic or competitive conditions, the general economic environment, or material changes in its relationships with significant customers that could positively or negatively impact anticipated future operating conditions and cash flows. In addition, the Corporation’s goodwill impairment analysis is subject to uncertainties due to the current global economic crisis, including the severity of that crisis and the time period before which the global economy recovers.
 
If the carrying amounts of the Corporation’s reporting units (including recorded goodwill) exceed their respective fair values, determined through the discounted cash flow methodology described above, goodwill impairment may be present. In such an instance, the Corporation would measure the goodwill impairment loss, if any, based upon the fair value of the underlying assets and liabilities of the impacted reporting unit, including any unrecognized intangible assets, and estimate the implied fair value of goodwill. An impairment loss would be recognized to the extent that a reporting unit’s recorded goodwill exceeded the implied fair value of goodwill.
 
The Corporation could be required to evaluate the recoverability of goodwill prior to the next annual assessment if it experiences unexpected significant declines in operating results (including those associated with a more severe or prolonged global economic crisis or other business disruptions than currently assumed), a material negative change in its relationships with significant customers, or divestitures of significant components of the Corporation’s businesses. However, based upon the Corporation’s goodwill impairment analysis conducted in the fourth quarter of 2009, a hypothetical reduction in the fair value of its reporting units by a specified percentage, ranging from approximately 12% for one reporting unit to between approximately 30% to 70% for the Corporation’s other reporting units, would not have resulted in a situation in which the carrying value of the respective reporting unit exceeded that reduced fair value.
 
Pension and other postretirement benefits costs and obligations are dependent on assumptions used in calculating such amounts. These assumptions include discount rates, expected return on plan assets, rates of salary increase, health care cost trend rates, mortality rates, and other factors. These assumptions are updated on an annual basis prior to the beginning of each year. The Corporation considers current market conditions, including interest rates, in making these assumptions. The Corporation develops the discount rates by considering the yields available on high-quality fixed income investments with maturities corresponding to the related benefit obligation. The Corporation’s discount rate for United States defined benefit pension plans was 5.75% and 6.75% at December 31, 2009 and 2008, respectively. As discussed further in Note 13 of Notes to Consolidated Financial Statements, the Corporation develops the expected return on plan assets by considering various factors, which include its targeted asset allocation percentages, historic returns, and expected future returns. The Corporation’s expected long-term rate of return assumption for United States defined benefit plans for 2009 and 2010 was 8.25%.
 
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The Corporation believes that the assumptions used are appropriate; however, differences in actual experience or changes in the assumptions may materially affect the Corporation’s financial position or results of operations. In accordance with accounting principles generally accepted in the United States, actual results that differ from the actuarial assumptions are accumulated and, if in excess of a specified corridor, amortized over future periods and, therefore, generally affect recognized expense and the recorded obligation in future periods. The expected return on plan assets is determined using the expected rate of return and a calculated value of assets referred to as the market-related value of assets. The Corporation’s aggregate market-related value of assets exceeded the fair value of plan assets by approximately $210 million as of December 31, 2009. Differences between assumed and actual returns are amortized to the market-related value on a straight-line basis over a five-year period. Also, gains and losses resulting from changes in assumptions and from differences between assumptions and actual experience (except those differences being amortized to the market-related value of assets) are amortized over the expected remaining service period of active plan participants or, for retired participants, the average remaining life expectancy, to the extent that such amounts exceed ten percent of the greater of the market-related value of plan assets or the projected benefit obligation at the beginning of the year. The Corporation expects that its pension and other postretirement benefit costs in 2010 will increase over the 2009 level by approximately $20 million.
 
As more fully described in Item 3 of this report, the Corporation is subject to various legal proceedings and claims, including those with respect to environmental matters, the outcomes of which are subject to significant uncertainty. The Corporation evaluates, among other factors, the degree of probability of an unfavorable outcome, the ability to make a reasonable estimate of the amount of loss, and in certain instances, the ability of other parties to share costs. Also, in accordance with accounting principles generally accepted in the United States, when a range of probable loss exists, the Corporation accrues at the low end of the range when no other more likely amount exists. Unanticipated events or changes in these factors may require the Corporation to increase the amount it has accrued for any matter or accrue for a matter that has not been previously accrued because it was not probable.
 
Further, as indicated in Note 21 of Notes to Consolidated Financial Statements, insurance recoveries for environmental and certain general liability claims have not been recognized until realized. Any insurance recoveries, if realized in future periods, could have a favorable impact on the Corporation’s financial condition or results of operations in the periods realized.
 
Note 21 of Notes to Consolidation Financial Statements further discusses significant environmental matters which may affect the Corporation.
 
As more fully disclosed in Notes 1 and 12 of Notes to Consolidated Financial Statements, on January 1, 2007, the Corporation adopted a new accounting standard for uncertainty in income taxes. The Corporation considers many factors when evaluating and estimating income tax uncertainties. These factors include an evaluation of the technical merits of the tax position as well as the amounts and probabilities of the outcomes that could be realized upon ultimate settlement. The actual resolution of those uncertainties will inevitably differ from those estimates, and such differences may be material to the financial statements.
 
Impact of New Accounting Standards

As more fully disclosed in Notes 1 and 11 of Notes to Consolidated Financial Statements, effective January 1, 2008, the Corporation adopted a new accounting standard for measuring the fair value of financial assets and financial liabilities. The Corporation adopted the fair value measurement and disclosure requirements for non-financial assets and liabilities as of January 1, 2009. That adoption did not have a material impact on the Corporation’s financial position or results of operations.
 
Effective January 1, 2009, the Corporation adopted a new accounting standard that requires enhanced disclosures about an entity’s derivative and hedging activities, without a change to existing standards relative to measurement and recognition. That adoption did not have any effect on the Corporation’s financial position or results of operations. The Corporation’s disclosure about its derivative and hedging activities are included in Note 1 and 10 of Notes to Consolidated Financial Statements.
 
Effective January 1, 2009, the Corporation adopted a new accounting standard that clarifies whether instruments granted in share-based payment transactions should be included in the computation of earnings per share using the two-class method prior to vesting. See Note 15 of Notes to Consolidated Financial Statements for application of the two-class method to the Corporation’s stock-based plans. The new accounting standard required that all prior-period earnings per share presented be adjusted retrospectively. Accordingly, basic earnings per share for the year ended December 31, 2008 and 2007, have been adjusted to $4.83 and $7.96, respectively, from $4.91 and $8.06, respectively. Diluted earnings per share for the year ended December 31, 2008 and 2007, have been adjusted to $4.77 and $7.78, respectively, from $4.82 and $7.85, respectively.
 
Effective December 31, 2009, the Corporation adopted a new accounting standard that provides enhanced disclosures about plan assets of a defined benefit pension and other postretirement plan including (i) investment policies and strategies, (ii) major categories of plan assets, (iii) the valuation techniques used to measure the fair value of plan assets, including the effect of significant unobservable inputs on changes in
 
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plan assets, and (iv) significant concentrations within plan assets. The Corporation’s disclosure about postretirement benefits is included in Note 13 of Notes to Consolidated Financial Statements.
 
Financial Condition

Introduction: The following summarizes the Corporation’s cash flows for each of the three years ended December 31, 2009 (in millions of dollars).
 
    2009     2008     2007  
Cash flow from operating activities
  $ 485.6     $ 425.4     $ 725.9  
Cash flow from investing activities
    96.5       (61.4 )     (149.8 )
Cash flow from financing activities
    210.6       (317.0 )     (568.2 )
Effect of exchange rate changes on cash
    12.7       (23.9 )     13.5  
Increase in cash and cash equivalents
  805.4     23.1     21.4  
Cash and cash equivalents at end of year
  $ 1,083.2     $ 277.8     $ 254.7  
 
The Corporation’s operating cash flows provide the primary source of funds to finance operating needs and capital expenditures. Operating cash flow is first used to fund capital expenditures and dividends to the Corporation’s stockholders. Other significant uses of operating cash flow may include share repurchases, acquisitions of businesses, and debt reduction. As necessary, the Corporation supplements its operating cash flow with debt. The Corporation’s operating cash flow is significantly impacted by its net earnings and working capital management.
 
The Corporation will continue to have cash requirements to support seasonal working capital needs, capital expenditures, and dividends to stockholders, to pay interest, and to service debt. At December 31, 2009, the Corporation had $1,083.2 million of cash and cash equivalents. Most of the Corporation’s cash is held by its subsidiaries. The Corporation’s overall cash position reflects its business results and a global cash management strategy that takes into account liquidity management, economic factors, the statutes, regulations and practices in jurisdictions where the Corporation has operations, and tax considerations. At December 31, 2009, the Corporation had approximately $1.0 billion of borrowings available under its $1.0 billion unsecured revolving credit facility that expires in December 2012. If necessary, that facility serves as a backstop to the Corporation’s uncommitted commercial paper borrowings. In order to meet its cash requirements, the Corporation intends to use its existing cash, cash equivalents, and internally generated funds, and to borrow under its commercial paper program, existing unsecured revolving credit facility or under short-term borrowing facilities. The Corporation believes that – absent events or payments which would only be triggered upon consummation of the proposed merger with The Stanley Works – cash provided from these sources will be adequate to meet its cash requirements over the next 12 months.
 
Cash inflows and outflows related to the Corporation’s currency hedging activities are classified in the cash flow statement under operating activities or investing activities based upon the nature of the hedge. Cash flows related to hedges of the Corporation’s foreign currency denominated assets, liabilities, and forecasted transactions are classified as operating activities, and cash flows related to hedges of the Corporation’s net investment in foreign subsidiaries are classified as investing activities. Due to the rapid strengthening of the U.S. dollar in late 2008, the Corporation experienced much larger gains and losses on these hedges in 2009 than in 2008 or 2007. The cash outflows associated with currency hedges whose cash flows are classified within operating activities reduced cash flows from operating activities by approximately $30 million over the 2008 level to approximately $95 million for the year ended December 31, 2009. However, that $30 million reduction was more than offset by an increase of approximately $115 million over the 2008 level in net cash inflows associated with hedges of the Corporation’s net investment in foreign subsidiaries, which are classified within cash flows from investing activities, to $157.8 million for the year ended December 31, 2009.
 
Net cash generation, defined by the Corporation as cash flow from operating activities less capital expenditures, plus proceeds from the sale of assets and cash flow from net investment hedging activities, increased to $583.5 million in 2009 from $389.7 million in 2008 as higher cash provided from operating activities was augmented by an increase of $115.1 million in net cash inflow from net investment hedging activities. The computation of net cash generation for the years ended December 31, 2009 and 2008, follows (in millions of dollars):
 
   
2009
   
2008
 
Cash flow from operating activities
  $ 485.6     $ 425.4  
Capital expenditures
    (63.1 )     (98.8 )
Proceeds from disposals of assets
    3.2       20.4  
   Free cash flow
    425.7       347.0  
Cash inflow from net investment hedging activities
    196.0       72.4  
Cash outflow from net investment hedging activities
    (38.2 )     (29.7 )
  Net cash generation
  $ 583.5     $ 389.7  
 
Cash Flow from Operating Activities: Operating activities provided cash of $485.6 million for the year ended December 31, 2009, as compared to $425.4 million for the year ended December 31, 2008. The increase in cash provided by operating activities in 2009 was primarily due to higher cash provided by working capital partially offset by lower net earnings as well as an increase in cash outflows associated with foreign currency hedges. The higher level of cash generated from working capital in 2009, as compared to 2008, was primarily due to lower inventory levels.
 
As part of its capital management, the Corporation reviews certain working capital metrics. For example, the Corporation evaluates its trade receivables and
 
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inventory levels through the computation of days sales outstanding and inventory turnover ratio, respectively. The number of days sales outstanding as of December 31, 2009, decreased from the level as of December 31, 2008. Average inventory turns as of December 31, 2009, improved slightly, as compared to the inventory turns as of December 31, 2008.
 
The Corporation sponsors pension and postretirement benefit plans. The Corporation’s cash funding of these plans was approximately $31 million, $36 million, and $34 million for the years ended December 31, 2009, 2008, and 2007, respectively. Cash contribution requirements for these plans are either based upon the applicable regulation for each country (principally the U.S. and United Kingdom) or are funded on a pay-as-you-go basis. The Corporation expects that its cash funding of its pension and postretirement benefit plans will approximate $75 million to $80 million in 2010. The increase in cash funding is principally attributable to the Corporation’s qualified pension plans in the U.S. Cash contributions for the Corporation’s qualified pension plans in the U.S. are governed by the Pension Protection Act of 2006 (PPA). Contribution requirements under the PPA are generally based upon the funded status of the plan (determined by comparing plan assets to the actuarially determined plan obligations). These contribution requirements could also continue or increase in years subsequent to 2010 unless there is an improvement in the funded status of the Corporation’s qualified pension plans.
 
Cash Flow from Investing Activities: Investing activities provided cash of $96.5 million for the year ended December 31, 2009, as compared to a use a of cash of $61.4 million for the year ended December 31, 2008. Hedging activities – associated with the Corporation’s net investment hedging activities – resulted in a net cash inflow of $157.8 million in 2009, as compared to a net cash inflow of $42.7 million in 2008, due to the effects of the strengthening U.S. dollar during 2009 and 2008. Capital expenditures decreased by $35.7 million from the 2008 level to $63.1 million in 2009. The Corporation anticipates that its capital spending in 2010 will approximate $90 million. Cash used by investing activities in 2008 included the purchase of Spiralock for $24.1 million, net of cash acquired. The ongoing costs of compliance with existing environmental laws and regulations have not had, and are not expected to have, a material adverse effect on the Corporation’s capital expenditures or financial position.
 
Cash Flow from Financing Activities: Financing activities provided cash of $210.6 million for the year ended December 31, 2009, as compared to a use of cash of $317.0 million for the year ended December 31, 2008. In April 2009, the Corporation issued $350.0 million of 8.95% senior notes due 2014. The Corporation utilized the proceeds of $343.1 million (net of issuance costs of $2.7 million and debt discount) from the issuance of those senior notes to repay short-term borrowings that were outstanding at the time. Sources of cash from financing activities in 2009 also included $62.6 million of proceeds received upon the issuance of common stock, including certain related income tax benefits, under stock-based compensation plans. Cash used for financing activities in 2009 included a net decrease in short-term borrowings of $84.3 million, payments on long-term debt of $50.1 million, and dividend payments of $47.3 million. Cash used to pay dividends was $47.3 million for 2009, as compared to $101.8 million in 2008, a decrease of $54.5 million. Dividend payments, on a per share basis, for the year ended December 31, 2009 were $.78, as compared to $1.68 in 2008. In April 2009, the Corporation announced that its Board of Directors declared a quarterly cash dividend of $.12 per share on the Corporation’s outstanding stock payable during the second quarter of 2009, a 71% decrease from the $.42 quarterly dividend paid by the Corporation since the first quarter of 2007. Future dividends will depend on the Corporation’s earnings, financial condition, and other factors. Under the terms of the definitive merger agreement to create Stanley Black & Decker, absent the consent of The Stanley Works, the Corporation has agreed to limit its regular quarterly cash dividend to $.12 per share. During the year ended December 31, 2009, the Corporation purchased 247,198 shares of its common stock from employees to satisfy withholding tax requirements upon the vesting of restricted stock at an aggregate cost of $13.4 million.
 
Sources of cash from financing activities for 2008, primarily included proceeds from long-term debt of $224.7 million (net of issuance costs of $.3 million). Cash used for financing activities for 2008, included a net decrease in short-term borrowings of $246.0 million and dividend payments of $101.8 million. During the year ended December 31, 2008, the Corporation purchased 3,136,644 shares of its common stock at an aggregate cost of $202.3 million.
 
At December 31, 2009, the Corporation has remaining authorization from its Board of Directors to repurchase an additional 3,777,145 shares of its common stock. Under the terms of the definitive merger agreement to create Stanley Black & Decker, absent the consent of The Stanley Works, the Corporation has agreed not to repurchase any shares of its common stock pending consummation of the merger.
 
Credit Rating: The Corporation’s credit ratings are reviewed periodically by major debt rating agencies including Moody’s Investors Service, Standard & Poor’s, and Fitch Ratings. The Corporation’s credit ratings and outlook from each of the credit rating agencies as of December 31, 2009, follow:
 
 
LONG-TERM
 DEBT
SHORT-TERM
 DEBT
OUTLOOK
Moody’s Investors Service
Baa3
P3
Upgrade
Standard & Poor’s
BBB
A3
Upgrade
Fitch Ratings
BBB
F2
Upgrade
 
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The credit rating agencies consider many factors when assigning their ratings, such as the global economic environment and their possible impact on the Corporation’s financial performance, including certain financial metrics utilized by the credit rating agencies in determining the Corporation’s credit rating. Accordingly, it is possible that the credit rating agencies could reduce the Corporation’s credit ratings from their current level. This could significantly influence the interest rate of any of the Corporation’s future financing.
 
The Corporation’s ability to maintain its commercial paper program is principally a function of its short-term debt credit rating. As a result of the reduction in the Corporation’s short-term credit ratings that occurred during the first quarter of 2009, the Corporation’s ability to access commercial paper borrowings has been substantially reduced. As a result, the Corporation has utilized its $1.0 billion unsecured credit facility during 2009. No amounts were outstanding under this credit facility as of December 31, 2009. Borrowings under this credit facility are at interest rates that may vary based upon the rating of its long-term debt. The Corporation’s current borrowing rates under its credit facility may be set at either Citibank’s prime rate or at LIBOR plus .30%. The spread above LIBOR could increase by a maximum amount of .30% based upon reductions in the Corporation’s credit rating. The Corporation expects to utilize borrowings under its commercial paper program and $1.0 billion unsecured credit facility to fund its short-term borrowing requirements.
 
Contractual Obligations: The following table provides a summary of the Corporation’s contractual obligations by due date (in millions of dollars). The Corporation’s short-term borrowings, long-term debt, and lease commitments are more fully described in Notes 8, 9, and 18 of Notes to Consolidated Financial Statements.
 
   
PAYMENTS DUE BY PERIOD
 
  LESS THAN
 1 YEAR
  1 TO 3
 YEARS
  3 TO 5
 YEARS
  AFTER
 5 YEARS
  TOTAL
Short-term borrowings (a) (b) (c)
  $   $   $   $   $
Long-term debt (c)
    104.4     736.8     772.2     625.1     2,238.5
Operating leases
    65.6     83.6     34.6     12.1     195.9
Purchase obligations (d)
    319.1     3.5     .5     .2     323.3
Total contractual cash obligations (e) (f)
  $ 489.1   $ 823.9   $ 807.3   $ 637.4   $ 2,757.7
 
(a) 
As more fully described in Note 8 of Notes to Consolidated Financial Statements, the Corporation has a $1.0 billion commercial paper program as well as a supporting $1.0 billion credit facility that matures in December 2012. At December 31, 2009, there were no amounts outstanding under the commercial paper program or other short-term borrowing arrangements. The Corporation’s average borrowing outstanding under these facilities during 2009 was $167.0 million.
 
(b) 
As described in Note 8 of Notes to Consolidated Financial Statements, the Corporation has uncommitted lines of credit of approximately $250 million at December 31, 2009. These uncommitted lines of credit do not have termination dates and are reviewed periodically.
 
(c) 
Payments due by period include contractually required interest payments. Contractually required interest payments on variable rate long-term debt presented is based upon variable borrowing rates at December 31, 2009.
 
(d) 
The Corporation enters into contractual arrangements that result in its obligation to make future payments, including purchase obligations. The Corporation enters into these arrangements in the ordinary course of business in order to ensure adequate levels of inventories, machinery and equipment, or services. Purchase obligations primarily consist of inventory purchase commitments, including raw materials, components, and sourced products, and arrangements for other services.
 
(e) 
The Corporation anticipates that funding of its pension and postretirement benefit plans in 2010 will approximate $75 million to $80 million. That amount principally represents contributions either required by regulations or laws or, with respect to unfunded plans, necessary to fund current benefits. The Corporation has not presented estimated pension and postretirement funding in the table above as the funding can vary from year to year based upon changes in the fair value of the plan assets and actuarial assumptions.
 
(f) 
As more fully disclosed in Note 12 of Notes to the Consolidated Financial Statements, at December 31, 2009, the Corporation has recognized $291.8 million of liabilities for unrecognized tax benefits of which $31.5 million related to interest. The final outcome of these tax uncertainties is dependent upon various matters including tax examinations, legal proceedings, competent authority proceedings, changes in regulatory tax laws, or interpretation of those tax laws, or expiration of statutes of limitation. However, based on the number of jurisdictions, the uncertainties associated with litigation, and the status of examinations, including the protocols of finalizing audits by the relevant tax authorities, which could include formal legal proceedings, there is a high degree of uncertainty regarding the future cash outflows associated with these tax uncertainties. As of December 31, 2009, the Corporation classified $48.0 million of its liabilities for unrecognized tax benefits as a current liability. While the Corporation cannot reasonably predict the timing of the cash flows, if any, associated with its liabilities for unrecognized tax benefits, it believes that such cash flows would principally occur within the next five years.
 
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Information required under this Item is contained in Item 7 of this report under the caption Hedging Activities and in Item 8 of this report in Notes 1 and 10 of Notes to Consolidated Financial Statements, and is incorporated herein by reference.
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
The following consolidated financial statements of the Corporation and its subsidiaries are included herein as indicated below:
 
Consolidated Financial Statements
 
Consolidated Statement of Earnings
– years ended December 31, 2009, 2008,
and 2007.
 
Consolidated Balance Sheet
– December 31, 2009 and 2008.
 
Consolidated Statement of Stockholders’ Equity
– years ended December 31, 2009, 2008,
and 2007.
 
Consolidated Statement of Cash Flows
– years ended December 31, 2009, 2008,
and 2007.
 
Notes to Consolidated Financial Statements.
 
Report of Independent Registered Public
Accounting Firm on Consolidated
Financial Statements.
 
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CONSOLIDATED STATEMENT OF EARNINGS
THE BLACK & DECKER CORPORATION AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
 
 
YEAR ENDED DECEMBER 31,
  2009     2008     2007  
SALES
  $ 4,775.1     $ 6,086.1     $ 6,563.2  
Cost of goods sold
    3,188.6       4,087.7       4,336.2  
Selling, general, and administrative expenses
    1,266.4       1,521.6       1,625.8  
    Merger-related expenses     58.8        —        —  
Restructuring and exit costs
    11.9       54.7       19.0  
OPERATING INCOME
    249.4       422.1       582.2  
Interest expense (net of interest income of
$7.9 for 2009, $38.4 for 2008, and $19.8 for 2007)
    83.8       62.4       82.3  
Other (income) expense
    (4.8 )     (5.0     2.3  
EARNINGS BEFORE INCOME TAXES
    170.4       364.7       497.6  
Income taxes (benefit)
    37.9       71.1       (20.5 )
NET EARNINGS
  $ 132.5     $ 293.6     $ 518.1  
NET EARNINGS PER COMMON SHARE – BASIC
  $ 2.18     $ 4.83     $ 7.96  
NET EARNINGS PER COMMON SHARE – ASSUMING DILUTION
  $ 2.17     $ 4.77     $ 7.78  
 
See Notes to Consolidated Financial Statements.
 
 
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CONSOLIDATED BALANCE SHEET
THE BLACK & DECKER CORPORATION AND SUBSIDIARIES
(MILLIONS OF DOLLARS)
 
 
DECEMBER 31,
  2009     2008  
ASSETS
           
Cash and cash equivalents
  $ 1,083.2     $ 277.8  
Trade receivables, less allowances of $45.8 for 2009 and $39.1 for 2008
    832.8       924.6  
Inventories
    777.1       1,024.2  
Other current assets
    308.8       377.0  
TOTAL CURRENT ASSETS
    3,001.9       2,603.6  
PROPERTY, PLANT, AND EQUIPMENT
    473.4       527.9  
GOODWILL
    1,230.0       1,223.2  
OTHER ASSETS
    789.9       828.6  
    $ 5,495.2     $ 5,183.3  
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Short-term borrowings
  $     $ 83.3  
Current maturities of long-term debt
          .1  
Trade accounts payable
    403.2       453.1  
Other current liabilities
    792.7       947.4  
TOTAL CURRENT LIABILITIES
    1,195.9       1,483.9  
LONG-TERM DEBT
    1,715.0       1,444.7  
POSTRESTIREMENT BENEFITS
    760.4       669.4  
OTHER LONG-TERM LIABILITIES
    524.8       460.5  
STOCKHOLDERS’ EQUITY
               
Common stock (outstanding: December 31, 2009 – 61,645,196 shares;
December 31, 2008 – 60,092,726 shares)
    30.8       30.0  
Capital in excess of par value
    119.1       14.3  
Retained earnings
    1,622.0       1,536.8  
Accumulated other comprehensive income (loss)
    (472.8 )     (456.3 )
TOTAL STOCKHOLDERS’ EQUITY
    1,299.1       1,124.8  
    $ 5,495.2     $ 5,183.3  
 
See Notes to Consolidated Financial Statements.


 
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CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
THE BLACK & DECKER CORPORATION AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
 
 
 
  OUTSTANDING
 COMMON
 SHARES
 
  PAR
 VALUE
 
  CAPITAL IN
 EXCESS OF
 PAR VALUE
  RETAINED
 EARNINGS
 
  ACCUMULATED
 OTHER
 COMPREHENSIVE
 INCOME (LOSS)
 
  TOTAL
 STOCKHOLDERS’
 EQUITY
 
BALANCE AT DECEMBER 31, 2006
  66,734,843     $ 33.4     $   $ 1,473.0     $ (342.8 )   $ 1,163.6  
Comprehensive income (loss):
                                             
Net earnings
                    518.1             518.1  
Net loss on derivative instruments (net of tax)
                          (25.4 )     (25.4 )
Minimum pension liability adjustment (net of tax)
                          161.0       161.0  
Foreign currency translation adjustments, less effect of hedging activities (net of tax)
                          83.2       83.2  
    Amortization of actuarial losses and
prior service cost (net of tax)
           —        —      —       25.7       25.7  
Comprehensive income
                    518.1       244.5       762.6  
Cumulative effect of adopting the new accounting standard relating to uncertain tax positions
                    (7.3)             (7.3 )
Cash dividends on common stock ($1.68 per share)
                    (108.6 )           (108.6 )
Common stock issued under stock-based plans (net of forfeitures)
    1,666,123       .8       109.0                 109.8  
Purchase and retirement of common stock
    (5,477,243 )     (2.7 )     (82.0 )   (376.7 )           (461.4 )
BALANCE AT DECEMBER 31, 2007
  62,923,723       31.5       27.0     1,498.5       (98.3 )     1,458.7  
Comprehensive income (loss):
                                             
Net earnings
                    293.6             293.6  
Net gain on derivative instruments (net of tax)
                          83.5       83.5  
Minimum pension liability adjustment (net of tax)
                          (284.2     (284.2 )
Foreign currency translation adjustments, less effect of hedging activities (net of tax)
                          (172.1     (172.1 )
Amortization of actuarial losses and
prior service cost (net of tax)
                          14.8