Power tool maker The Black & Decker Corporation today announced that net earnings for the fourth quarter of 2002, excluding a U.S. $12.3-million pre-tax restructuring charge, were $85.1 million or $1.05 per diluted share. This represents a 31-percent increase over recurring diluted earnings per share of $0.80 in the fourth quarter of 2001 using the new accounting standard for goodwill.
Including the restructuring charge ($9.4 million after tax or $0.11 per diluted share), net earnings for the quarter were $75.7 million or $0.94 per diluted share. For the fourth quarter of 2001, the Corporation reported a net loss of $13.0 million, or $0.16 per diluted share, which included a restructuring charge of $0.88 per diluted share and goodwill amortization of $0.08 per diluted share.
For the full year 2002, the corporation announced recurring net earnings of $261.4 million or $3.23 per diluted share. This represents a 28-percent increase over recurring diluted earnings per share of $2.53 for the full year 2001 using the new accounting standard for goodwill. Reported net earnings for 2002, including restructuring charges, were $229.7 million or $2.84 per diluted share versus $108.0 million or $1.33 per diluted share in 2001, including restructuring charges and goodwill amortization.
Sales for the fourth quarter of 2002 were $1.23 billion, a 3-percent increase over $1.19 billion for the same period last year. Sales increased 1 percent excluding the effects of foreign currency translation. Sales for the full year were $4.39 billion, a 3-percent increase over $4.25 billion in 2001. Sales for the year increased 2 percent excluding the effects of foreign currency translation.
The corporation generated a record $360 million of free cash flow, up from $257 million in the prior year. Inventory was $749 million at the end of 2002, $38 million lower than at the end of the third quarter and $37 million above the 2001 year-end level. The increase versus year-end 2001 was caused by foreign currency translation and planned safety stock related to the restructuring plan.
The restructuring charge recorded in the fourth quarter is part of the comprehensive restructuring program that the Corporation announced in January 2002. The primary change in operations associated with this charge is the closure of a power tool facility in the U.S., which is expected to be completed in late 2003. Including charges in the fourth quarter of 2001 and the third quarter of 2002, $150.5 million of pre-tax charges have been recorded to date for this restructuring program. The Corporation expects that the total restructuring will cost approximately $170 million before taxes and generate annual savings in excess of $100 million upon completion in 2004.
Commenting on the results, Nolan D. Archibald, chairman and CEO, said: "Our progress on the restructuring program, along with higher manufacturing efficiency, resulted in significant operating margin improvements in all three of our business segments for the fourth quarter. Sales increased in most of our businesses, despite weak economic conditions, and we achieved record sales in our North American Power Tools and Accessories businesses for the year. Higher operating margins and solid sales enabled us to deliver earnings significantly higher than in the fourth quarter of 2001 and at the high end of the range that we had projected in October.
"We continued to generate excellent free cash flow in the fourth quarter, resulting in a record $360 million for the full year, due to higher earnings, lower capital expenditures, and lower cash taxes. We reduced capital spending by 28 percent, but continued to invest capital and to spend 2 percent of sales on product development. Working capital declined, as an increase in inventory for restructuring safety stock was more than offset by an increase in payables and accruals. We converted 138 percent of recurring net income to free cash flow in 2002, and our average conversion rate for the past five years is nearly 100 percent. We took advantage of our strong cash flow to repurchase two million shares of our stock from November 2002 through January 2003.
"With one year of restructuring behind us, we are pleased with our progress. We closed three plants in the U.S., began operations at our new low-cost plant in the Czech Republic, and transferred a significant amount of production to low-cost regions. This quarter, we announced that we will close an additional power tools facility in the U.S., which will keep our cost base competitive for professional tools. We now expect that the restructuring program will cost $170 million, slightly lower than our initial estimate, yet still generate $100 million in annual savings by 2004. The program generated approximately $25 million of net savings in 2002, as benefits materialized earlier than we projected. We anticipate incremental savings of approximately $35 million in 2003 and $40 million or more in 2004.
"Sales in the Power Tools and Accessories segment increased 1 percent over the fourth quarter last year, with a slight increase in North American sales outweighing a slight decrease in Europe. Operating profit for the segment increased 38 percent from the fourth quarter last year, with strong improvement in both the U.S. and Europe. Significant savings have been generated by the restructuring program as well as favorable manufacturing absorption and Six Sigma benefits. For the full year, Power Tools and Accessories sales and operating profit increased 3 percent and 41 percent, respectively.
"In the U.S., the success of our outstanding new product array helped offset a weak fourth-quarter retail sales environment. Sales of consumer products in the U.S. increased at a low single-digit rate, led by the popular Bulls Eye(TM) auto-leveling laser line and stud finder, the Navigator® powered hand saw, power tool combination kits, and new cleaning products. In the U.S. DEWALT® professional division, sales were flat, in part due to an acceleration of orders in the third quarter. For the full year, sales in both the consumer and professional businesses grew at mid single-digit rates.
"In Europe, sales decreased 1 percent during the quarter as economic conditions remained weak. This decrease was mitigated by a strong new-product launch of professional tools, which enabled our professional business to continue to grow. Full-year sales in Europe also decreased 1 percent, but operating profit was up dramatically, with improvement in both gross margin and selling, general, and administrative expenses. In the rest of the world, Power Tools and Accessories sales increased at a double-digit rate for the fourth quarter and at a mid single-digit rate for the full year.
"Sales in the Hardware and Home Improvement segment were down 5 percent for the quarter. Sales of Price Pfister® plumbing products decreased significantly as the result of previously announced shelf space losses. This was partly offset by a mid single-digit rate of sales growth in the Kwikset® security hardware business, which launched its successful brand and product repositioning initiative late in the fourth quarter of 2001. Operating profit for Hardware and Home Improvement increased 19 percent from the fourth quarter last year due to gains at Kwikset. For the full year, sales decreased slightly and operating profit decreased 10 percent due to lower volumes in the Price Pfister and European security hardware businesses that more than offset gains at Kwikset.
"Sales in the Fastening and Assembly Systems segment were up 9 percent for the quarter, driven by double-digit increases in the North American automotive sector and in Asia. Sales in the industrial sector increased slightly in North America, but remained weak in Europe. Operating profit in this segment increased 32 percent from the fourth quarter last year because of manufacturing absorption and lower material costs. For the full year, sales increased 5 percent, aided by the Bamal automotive division acquisition in 2001, and operating profit increased 5 percent.
"Black & Decker made excellent progress in 2002, both commercially and operationally. Looking forward, we continue to expect significant benefits from our restructuring plan, new products, and marketing initiatives. Further, we will implement our plan to improve sales and profitability at Price Pfister. We expect, however, that weak economic conditions will also continue in 2003, and therefore anticipate a low single-digit rate of sales growth. Restructuring and Six Sigma savings should yield a further increase in operating margin, resulting in diluted earnings per share of $3.45-to-$3.65 for the full year and $0.40-to-$0.45 for the first quarter. We expect to eliminate the safety stock related to restructuring in 2003 and thereby improve year-end inventory turns, and plan to convert at least 80 percent of net earnings to free cash flow.
"Black & Decker's strong financial performance in 2002 resulted from excellent execution of manufacturing and commercial initiatives. Our record free cash flow demonstrates our commitment to cash generation and also speaks to the quality of our earnings. We continued to invest in our brands, product development, and end-user relationships, while implementing our comprehensive restructuring program. In 2003, we will introduce many innovative products throughout our businesses, including new DEWALT cordless tools and high-end faucets. By combining market leadership with operating excellence, Black & Decker should continue to deliver outstanding value to shareholders."
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