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, 2003                                  1-1553
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                         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                              (Zip Code)
        executive offices)


Registrant's telephone number, including area code:         410-716-3900
                                                     ---------------------------


Securities registered pursuant to Section 12(b) of the Act:

                                                   Name of each exchange
      Title of each class                           on which registered
-----------------------------------          -----------------------------------
        Common Stock,                              New York Stock Exchange
   par value $.50 per share                         Pacific Stock Exchange


Securities registered pursuant to Section 12(g) of the Act:         None
                                                             -------------------


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding  twelve months (or for such shorter period that the registrant was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes  X   No
                                       ---     ---

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Act).
Yes  X   No
    ---     ---

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant as of June 27, 2003, was $3,320,303,326.

The number of shares of Common Stock  outstanding  as of February 20, 2004,  was
78,452,693.

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 2004 Annual Meeting of Stockholders  are incorporated by
reference in Part III of this Report.

<PAGE>

                                     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
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 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.
     During  the  fourth  quarter  of  2003,  the   Corporation   completed  the
acquisition  of the  Baldwin  Hardware  Corporation  (Baldwin)  and Weiser  Lock
Corporation (Weiser) from Masco Corporation. The acquisition of these businesses
expands the  Corporation's  presence in the security  hardware business in North
America. For additional information about the acquisition of Baldwin and Weiser,
see Note 2 of Notes to Consolidated  Financial  Statements included in Item 8 of
Part II of this report.
     In  January  2004,  the  Corporation  completed  the  sale of two  European
security  hardware  businesses,  Corbin and NEMEF.  Together  with DOM  security
hardware,  which is currently held for sale,  these  businesses are reflected as
discontinued  operations in the Consolidated  Financial  Statements  included in
Item 8 of Part II of this report,  and as such,  operating  results,  assets and
liabilities,  and cash  flows of the  discontinued  European  security  hardware
business have been reported  separately  from the  continuing  operations of the
Corporation. For additional information about the discontinued European security
hardware  business,  see the  discussion  in  Note 3 of  Notes  to  Consolidated
Financial Statements included in Item 8 of Part II of this report.

(b)   Financial Information About Business Segments
The Corporation operates in three reportable business segments:  Power Tools and
Accessories,  including  consumer and professional  power tools and accessories,
electric lawn and garden tools,  electric  cleaning and lighting  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 professional corded and cordless
electric  power tools,  lawn and garden tools,  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  include  drills,  screwdrivers,   impact  wrenches,  hammers,
routers,  wet/dry  vacuums,  planers,  lights,  radio/chargers,  saws,  sanders,
grinders,  pneumatic nailers,  bench and stationary machinery,  air compressors,
generators,   laser  products,  and  WORKMATE(R)  project  centers  and  related
products.  Lawn and garden tools include hedge trimmers,  string trimmers,  lawn
mowers, edgers,  blower/vacuums,  power sprayers, electric pressure washers, and
related accessories. Home products include stick 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,  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 and lawn and garden
tools.
     Power tools,  lawn and garden tools,  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;  DEWALT;  YELLOW  AND BLACK  COLOR  SCHEME;  BULLET;  BULLS  EYE;
CROSSHAIR;  FIRESTORM;  GELMAX COMFORT GRIP; MEGA MOUSE; MOUSE; NAVIGATOR; PIVOT
DRIVER;  PIVOTPLUS;  QUANTUM PRO; RTX; SANDSTORM;  SCORPION;  SWIVEL;  VERSAPAK;
WORKMATE; ZIPSAW MULTI PROJECT TOOL; 360(degree);  ALLIGATOR;  EMGLO; GUARANTEED
TOUGH; HOLGUN;  MOMENTUM;  QUATTRO;  SCRUGUN;  WILDCAT; XRP; AFS; AUTOMATIC FEED
SPOOL;

                                     - 1 -
<PAGE>

FLEX TUBE;  GROOM 'N' EDGE;  EDGE HOG; GRASS HOG; HEDGE HOG; LAWN HOG; LEAF HOG;
REFLEX; STRIMMER; VAC 'N' MULCH; DIRTBUSTER; DUSTBUSTER; SCUMBUSTER; SNAKELIGHT;
STEAMBUSTER;  ACCESSORIES  FINDER; B&D; PILOT POINT;  PIRANHA;  RAPID LOAD; ROCK
CARBIDE;  SERIES 20; SERIES 40; SERIES 60; TOUGH CASE; DEWALT  SERVICENET;  DROP
BOX EXPRESS; and GUARANTEED REPAIR COST (GRC).
     The  composition  of the  Corporation's  sales by product  groups for 2003,
2002,  and  2001 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 2003, 2002, or 2001.
     The  Corporation's  product  service  program  supports its power tools and
electric lawn and garden tools.  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,  2003,  there were  approximately  130 such
service centers,  of which roughly two-thirds 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, electric lawn and garden
tools, and electric  cleaning and lighting  products are  reconditioned and then
re-sold through numerous company-operated factory outlets and service centers.
     Most of the  Corporation's  consumer power tools,  electric lawn and garden
tools,  and electric  cleaning and lighting  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  professional  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  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,  electric lawn and
garden  tools,  and electric  cleaning  and  lighting  products are sold through
company-operated  service  centers  and factory  outlets  directly to end users.
Sales to The Home Depot, one of the segment's  customers,  accounted for greater
than 10% of the Corporation's consolidated sales for 2003, 2002, and 2001. Sales
to Lowe's Home Improvement Warehouse, one of the segment's customers,  accounted
for greater than 10% of the Corporation's  consolidated sales for 2003 and 2002.
For  additional  information  regarding  sales to The Home Depot and Lowe's Home
Improvement Warehouse, see Note 17 of Notes to Consolidated Financial Statements
included in Item 8 of Part II of this report.
     The principal  materials used in the manufacturing of products in the Power
Tools and Accessories segment are plastics,  aluminum,  copper,  steel,  certain
electronic components, and batteries. 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  component parts and
raw  materials  and believes  that it is unlikely  that any of these  agreements
would be  terminated  prematurely.  Alternate  sources of supply at  competitive
prices  are  available  for most,  if not all,  materials  for  which  long-term
commitments exist. The Corporation believes that the termination of any of these
commitments would not have a material adverse effect on operations.
     Principal  manufacturing  and  assembly  facilities  of  the  power  tools,
electric lawn and garden tools,  electric  cleaning and lighting  products,  and
accessories  businesses in the United States are located in Fayetteville,  North
Carolina 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 Rancho  Cucamonga,
California.
     Principal  manufacturing  and  assembly  facilities  of  the  power  tools,
electric lawn and garden tools,  electric  cleaning and lighting  products,  and
accessories  businesses  outside  of the United  States  are  located in Suzhou,
China;  Usti nad Labem,  Czech Republic;  Buchlberg,  Germany;  Perugia,  Italy;
Spennymoor  and Maltby,  England;  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 a facility in
Northampton, England.
     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.

                                     - 2 -
<PAGE>

     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  professional  power  tools  tend to be higher  during  the period
immediately  preceding the Christmas gift-giving season, while the sales of most
electric  lawn and garden  tools are at their  peak  during the winter and early
spring period. Most of the Corporation's other product lines within this segment
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  tools,  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, outdoor lighting,
indoor lighting, home accents, and collectibles.  General hardware includes door
hinges,   cabinet  hinges,   door  stops,  kick  plates,   house  numbers,   and
switchplates.  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 SECURITY;  KWIKSET MAXIMUM
SECURITY; KWIKSET ULTRAMAX SECURITY; SOCIETY BRASS COLLECTION;  KWIKSET; BLACK &
DECKER; PROTECTO LOCK; TYLO; POLO; KWIK INSTALL; EZ INSTALL;  DIAMANT; ELS; GEO;
SAFE-LOCK  BY  BLACK &  DECKER;  BALDWIN;  THE  ESTATE  COLLECTION;  THE  IMAGES
COLLECTION;   LIFETIME  FINISH;  TIMELESS  CRAFTSMANSHIP;   LOGAN;  SPRINGFIELD;
HAMILTON;  BLAKELY;  MANCHESTER;   CANTERBURY;  MADISON;  STONEGATE;  EDINBURGH;
KENSINGTON;  BRISTOL; TREMONT; PEYTON; PASADENA;  RICHLAND; WEISER; WEISER LOCK;
PRESTIGE SERIES;  WELCOME HOME SERIES;  ELEMENTS SERIES;  BASICS BY WEISER LOCK;
BRILLIANCE LIFETIME  ANTI-TARNISH  FINISH;  POWERBOLT;  POWERBOLT KEYLESS ACCESS
SYSTEM; FASHION DOORWARE; DECORATOR FINISH; WEISERBOLT;  ENTRYSETS; and VENETIAN
BRONZE.  Plumbing  products are marketed  under the  trademarks  and trade names
PRICE  PFISTER;  CLASSIC  SERIES BY PRICE  PFISTER;  PRICE PFISTER  PROFESSIONAL
SERIES; BACH; SOLO; CONTEMPRA; MARIELLE; TWISTPFIT; MATCHMAKERS; CARMEL; PARISA;
SAVANNAH;  ARIETTA;  ALLEMANDE;  GRAZIA;  MORCEAU;  CATALINA;   GEORGETOWN;  and
TREVISO.
     The  composition  of the  Corporation's  sales by product  groups for 2003,
2002,  and  2001 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 2003, 2002, or 2001.
     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 range from a 10-year to
a lifetime warranty with respect to mechanical operations and 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  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 The Home Depot, one of the segment's customers,
accounted for greater than 10% of the Corporation's consolidated sales for 2003,
2002, and 2001. Sales to Lowe's Home Improvement Warehouse, one of the segment's
customers,  accounted  for greater  than 10% of the  Corporation's  consolidated
sales for 2003 and 2002. For additional  information regarding sales to The Home
Depot  and  Lowe's  Home  Improvement  Warehouse,   see  Note  17  of  Notes  to
Consolidated Financial Statements included in Item 8 of Part II of this report.

                                     - 3 -
<PAGE>

     The  principal  materials  used in the  manufacturing  of  products  in the
Hardware and Home  Improvement  segment are plastics,  aluminum,  steel,  brass,
zamak, and ceramics.
     The materials used in the various manufacturing  processes are purchased on
the open market,  and the majority is available  through multiple sources and is
in  adequate  supply.  The  Corporation  has  experienced  no  significant  work
stoppages to date as a result of shortages of  materials.  The  Corporation  has
certain  long-term  commitments for the purchase of various  component parts and
raw  materials  and believes  that it is unlikely  that any of these  agreements
would be  terminated  prematurely.  Alternate  sources of supply at  competitive
prices  are  available  for most,  if not all,  materials  for  which  long-term
commitments exist. The Corporation believes that the termination of any of these
commitments would not have a material adverse effect on operations. From time to
time, the Corporation enters into commodity hedges on certain raw materials used
in the manufacturing process to reduce the risk of market price fluctuations. As
of December  31,  2003,  the amount of product  under  commodity  hedges was not
material to the Corporation.
     Principal  manufacturing  and assembly  facilities of the Hardware and Home
Improvement segment in the United States are located in Denison, Texas; Bristow,
Oklahoma; and Reading and Leesport, Pennsylvania.
     Principal  manufacturing  and assembly  facilities of the Hardware and Home
Improvement  segment  outside of the United  States are located in Mexicali  and
Nogales,  Mexico.  The principal  distribution  facilities in the United States,
other than those located at the  manufacturing  and assembly  facilities  listed
above, are located in Tucson,  Arizona; Mira Loma,  California;  and Northpoint,
Pennsylvania.
     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.
     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  manufacture  and sale of an extensive line of metal and
plastic fasteners and engineered fastening systems for commercial  applications,
including blind riveting,  stud welding,  assembly  systems,  specialty  screws,
prevailing  torque  nuts and  assemblies,  insert  systems,  metal  and  plastic
fasteners, self-piercing riveting systems, and platform-management services. The
fastening  and  assembly  systems  products  are  marketed  under a  variety  of
trademarks and trade names, including,  without limitation,  EMHART TEKNOLOGIES;
EMHART FASTENING TEKNOLOGIES;  EMHART;  AUTOSET;  DODGE;  DRIL-KWICK;  F-SERIES;
GRIPCO;  GRIPCO ASSEMBLIES;  HELI-COIL;  JACK NUT; KALEI; MENTOR; NPR; NUT-FAST;
PARKER-KALON;  PLASTIFAST;  PLASTI-KWICK;  POINT & SET; POP; POP-LOK;  POPMATIC;
POPNUT; POP-SERT; POWERLINK; PROSET; SPLITFAST; SWAGEFORM; SWS; T-RIVET; TUCKER;
ULTRA-GRIP;  ULTRASERT;  WARREN;  WELDFAST;  and  WELL-NUT.  The  Fastening  and
Assembly  Systems segment provides  platform-management  services in addition to
the manufacture and sale of the products previously described.
     The  composition  of the  Corporation's  sales by product  groups for 2003,
2002,  and  2001 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 2003, 2002, or 2001.
     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  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.

                                     - 4 -
<PAGE>

     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 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;  plastics;  and rubber.  These materials are
readily available from a number of suppliers.

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 in Hampstead,  Maryland, in the United States; Maltby and Spennymoor,
England;  Brockville,  Canada;  Perugia,  Italy;  Suzhou,  China;  Buchlberg and
Idstein, Germany; Mooroolbark, Australia; and Reynosa, Mexico.
     Product  development  activities  for the  Hardware  and  Home  Improvement
segment are  performed at facilities  in Lake Forest,  California,  and Reading,
Pennsylvania.
     Product  development  activities  for the  Fastening  and Assembly  Systems
segment  are   currently   performed  at  facilities  in  Danbury  and  Shelton,
Connecticut;  Montpelier,  Indiana;  Campbellsville,  Kentucky; Chesterfield and
Farmington Hill, Michigan; Birmingham, England; 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, 2003,  the  Corporation  employed  approximately  22,100
persons in its operations  worldwide,  excluding  approximately 900 employees of
its  discontinued   European  security  hardware  business.   Approximately  450
employees in the United States are covered by collective bargaining  agreements.
During  2003,  one  collective  bargaining  agreement  in the United  States was
negotiated without material disruption to operations. One agreement is scheduled
for  negotiation  during 2004.  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 included in Item 7, and in Note 19 of Notes to Consolidated Financial
Statements  included  in  Item  8 of  Part  II of  this  report,  in  2003,  the
Corporation  announced the closure of a security  hardware  facility in Bristow,
Oklahoma,  and the closure of an  administrative  and  distribution  facility in
Tucson,  Arizona.  On-going  restructuring actions taken by the Corporation will
also result in the  transfer of  production  from the United  States to low-cost
facilities in Mexico and China.  Such closures and/or  production  transfers may
result in a  deterioration  of employee  relations at the impacted  locations or
elsewhere in the Corporation.
     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, 2003, the
Corporation  had been  identified  as a potentially  responsible  party (PRP) in
connection with  approximately  26 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

                                     - 5 -
<PAGE>

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, 2003,  the
Corporation's   aggregate   probable  exposure  with  respect  to  environmental
liabilities,  for which  accruals  have  been  established  in the  consolidated
financial  statements,  was $51.7  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 is not
expected to have a material  adverse  effect on the  Corporation's  consolidated
financial  statements.  As of December 31, 2003,  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.

(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 450 Fifth Street,  NW,  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.

(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.

o  NOLAN D. ARCHIBALD - 60
   Chairman, President, and Chief Executive Officer,
      January 1990 - present.

o  IAN R. CARTER - 42
   Vice President of the Corporation and President -
      Europe and Asia, Black & Decker Consumer Group,
      March 2004 - present;

   Vice President of the Corporation and President -
      Europe, Power Tools and Accessories Group,
      July 2000 - March 2004;

   Vice President and General Manager -
      European Professional Power Tools,
      Power Tools and Accessories Group,
      December 1999 - June 2000;

   Director - Low & Bonar PLC,
      August 1998 - December 1999.

o  CHARLES E. FENTON - 55
   Senior Vice President and General Counsel,
      December 1996 - present.

o  PAUL A. GUSTAFSON - 61
   Executive Vice President of the Corporation and
      President - Fastening and Assembly Systems Group,
      December 1996 - present.

o  LES H. IRELAND - 39
   Vice President of the Corporation and
      Managing Director - Commercial Operations,
      Europe, Black & Decker Consumer Group,
      March 2004 - present;

   Vice President of the Corporation and
      Managing Director - Commercial Operations,
      Europe, Power Tools and Accessories Group,
      November 2001 - March 2004;

   Vice President of the Corporation and Vice President and
      General Manager - DEWALT Professional Power Tools,
      North America, Power Tools and Accessories Group,
      January 2001 - November 2001;

   Vice President of the Corporation and President -
      Accessories, Power Tools and Accessories Group,
      September 2000 - January 2001;

   President - Price Pfister,
      Hardware and Home Improvement Group,
      March 1999 - September 2000;

   Vice President - Sales, Price Pfister,
      Hardware and Home Improvement Group,
      November 1998 - March 1999.

                                     - 6 -
<PAGE>

o  THOMAS D. KOOS - 40
   Group Vice President of the Corporation and President -
      Black & Decker Consumer Group,
      March 2004 - present;

   Vice President of the Corporation and President -
      Black & Decker Consumer Products,
      Power Tools and Accessories Group,
      January 2001 - March 2004;

   Vice President of the Corporation and President -
      North American Consumer Power Tools,
      Power Tools and Accessories Group,
      December 2000 - January 2001;

   President - North American Consumer Power Tools,
      Power Tools and Accessories Group,
      April 2000 - December 2000;

   Vice President - Business Development,
      Power Tools and Accessories Group,
      August 1999 - April 2000;

   President - Goody Products, Division of
      Newell Rubbermaid Corporation,
      January 1998 - August 1999.

o  BARBARA B. LUCAS - 58
   Senior Vice President - Public Affairs and
      Corporate Secretary,
      December 1996 - present.

o  MICHAEL D. MANGAN - 47
   Senior Vice President and Chief Financial Officer,
      January 2000 - present;

   Vice President - Investor Relations,
      November 1999 - January 2000;

   Executive Vice President and Chief Financial Officer -
      The Ryland Group, Inc.,
      November 1994 - September 1999.

o  PAUL F. MCBRIDE - 48
   Senior Vice President - Human Resources
      and Corporate Initiatives,
      March 2004 - present;

   Executive Vice President of the Corporation and
      President - Power Tools and Accessories Group,
      April 1999 - March 2004;

   Vice President - General Electric Company,
      GE Silicones,
      January 1998 - April 1999.

o  CHRISTINA M. MCMULLEN - 48
   Vice President and Controller,
      April 2000 - present;

   Controller,
      January 2000 - April 2000;

   Assistant Controller,
      April 1993 - January 2000.

o  CHRISTOPHER T. METZ - 38
   Group Vice President of the Corporation and President -
      Hardware and Home Improvement Group,
      March 2004 - present;

   Vice President of the Corporation and President -
      Hardware and Home Improvement Group,
      January 2001 - March 2004;

   Vice President of the Corporation and President -
      Kwikset, Hardware and Home Improvement Group,
      July 1999 - January 2001;

   President - Kwikset, Hardware and
      Home Improvement Group,
      June 1999 - July 1999;

   Vice President and General Manager - European
      Professional Power Tools and Accessories,
      Power Tools and Accessories Group,
      August 1996 - May 1999.

o  STEPHEN F. REEVES - 44
   Vice President of the Corporation and Vice President -
      Global Finance, Black & Decker Consumer Group,
      March 2004 - present;

   Vice President of the Corporation and Vice President -
      Finance, Power Tools and Accessories Group,
      April 2000 - March 2004;

   Vice President - Finance and Strategic Planning,
      January 2000 - April 2000;

   Vice President and Controller,
      September 1996 - January 2000.

o  MARK M. ROTHLEITNER - 45
   Vice President - Investor Relations and Treasurer,
      January 2000 - present;

   Vice President and Treasurer,
      March 1997 - January 2000.

o  EDWARD J. SCANLON - 49
   Vice President of the Corporation and President -
      Commercial Operations, North and South America,
      DEWALT Professional Group,
      March 2004 - present;

   Vice President of the Corporation and President -
      Commercial Operations, North America,
      Power Tools and Accessories Group,
      May 1999 - March 2004;

   Vice President of the Corporation and Vice President
      and General Manager - The Home Depot Division,
      Power Tools and Accessories Group,
      December 1997 - May 1999.

                                     - 7 -
<PAGE>

o  JOHN W. SCHIECH - 45
   Group Vice President of the Corporation and President -
      DEWALT Professional Group,
      March 2004 - present;

   Vice President of the Corporation and President -
      DEWALT Professional Products, Power Tools
      and Accessories Group,
      January 2001 - March 2004;

   Vice President of the Corporation and President -
      North American Professional Power Tools,
      Power Tools and Accessories Group,
      May 1999 - January 2001;

   Vice President of the Corporation and Vice President
      and General Manager - North American Professional
      Power Tools, Power Tools and Accessories Group,
      December 1997 - May 1999.

o  ROBERT B. SCHWARZ - 55
   Vice President of the Corporation and Vice President -
      Manufacturing, DEWALT Professional Group,
      March 2004 - present;

   Vice President of the Corporation and Vice President -
      Manufacturing, DEWALT Professional Products,
      Power Tools and Accessories Group,
      October 2001 - March 2004;

   Vice President - Manufacturing, DEWALT Professional
      Products, Power Tools and Accessories Group,
      December 1995 - October 2001.

(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.  Actual results may differ materially from those  contemplated by
the  forward-looking  statements  for a number  of  reasons,  including  but not
limited to:

o The strength of the retail economies 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.  The
Corporation's  business is subject to economic  conditions in its major markets,
including  recession,   inflation,   deflation,   general  weakness  in  retail,
automotive, and housing markets, and changes in consumer purchasing power.

o The Corporation's  ability to maintain mutually beneficial  relationships with
key customers and to penetrate new channels of distribution. The Corporation has
a  number  of  significant  customers,  including  two  customers  that,  in the
aggregate, constituted approximately 30% of its consolidated sales for 2003. The
loss of either of these  significant  customers or a material negative change in
the Corporation's  relationships with these significant  customers could have an
adverse  effect  on  its  business.  The  Corporation's  inability  to  continue
penetrating  new  channels  of  distribution  may have a negative  impact on its
future sales and  business.

o Unforeseen  inventory  adjustments or changes in purchasing  patterns by major
customers  and the  resultant  impact on  manufacturing  volumes  and  inventory
levels.

o Market  acceptance  of the new products  introduced  in 2003 and scheduled for
introduction  in 2004,  as well as the level of sales  generated  from these new
products relative to expectations,  based on existing  investments in productive
capacity and  commitments  of the  Corporation to fund  advertising  and product
promotions in connection with the introduction of these new products.

o The  Corporation's  ability to develop and introduce new products at favorable
margins.  Numerous  uncertainties  are inherent in  successfully  developing and
introducing  new products on a consistent  basis.

o Adverse changes in currency  exchange rates or raw material  commodity prices,
both  in  absolute  terms  and  relative  to  competitors'  risk  profiles.  The
Corporation has a number of  manufacturing  sites throughout the world and sells
its products in more than 100 countries. As a result, the Corporation is exposed
to  movements  in the exchange  rates of various  currencies  against the United
States dollar and against the currencies of countries in which it  manufactures.
The Corporation believes its most significant foreign currency exposures are the
euro, pound sterling, and Chinese renminbi.

o Increased competition.  Worldwide,  the markets in which the Corporation sells
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.  Certain of the
Corporation's major customers sell their own "private label" brands that compete
directly with products sold by the Corporation.  Competition has been intense in
recent years and is expected to continue.

o Changes in consumer preference or loyalties.

                                     - 8 -
<PAGE>

o Price  reductions  taken  by the  Corporation  in  response  to  customer  and
competitive pressures,  as well as price reductions or promotional actions taken
in order to drive demand that may not result in anticipated sales levels.

o The Corporation's ability 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.

o  Foreign   operations   may  be   affected   by  factors   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 and difficulties.  Over the past
several years,  such factors have become  increasingly  important as a result of
the Corporation's  higher percentage of manufacturing in China,  Mexico, and the
Czech Republic and purchases of products and components from foreign countries.

o The effects of  litigation,  environmental  remediation  matters,  and product
liability exposures, as well as other risks and uncertainties detailed from time
to  time  in  the  Corporation's   filings  with  the  Securities  and  Exchange
Commission.

o The Corporation's ability to generate sufficient cash flows to support capital
expansion,  business  acquisition plans, share repurchase  program,  and general
operating  activities,   and  the  Corporation's  ability  to  obtain  necessary
financing at favorable interest rates.

o The ability of certain subsidiaries of the Corporation to generate future cash
flows  sufficient to support the recorded  amounts of goodwill  related to those
subsidiaries.

o Changes in laws and regulations,  including  changes in accounting  standards,
taxation requirements,  including tax rate changes, new tax laws and revised tax
law  interpretations,  and  environmental  laws,  in both  domestic  and foreign
jurisdictions.

o The impact of unforeseen  events,  including war or terrorist  activities,  on
economic  conditions and consumer  confidence.

o Interest rate fluctuations and other capital market conditions.

o Adverse  weather  conditions  which could reduce demand for the  Corporation's
products.

     The foregoing  list is not  exhaustive.  There can be no assurance that the
Corporation  has correctly  identified  and  appropriately  assessed all factors
affecting its 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 the  Corporation  or that it  currently
believes to be immaterial also may adversely impact the Corporation.  Should any
risks and uncertainties  develop into actual events,  these  developments  could
have  material  adverse  effects  on  the  Corporation's   business,   financial
condition,  and results of operations.  For these reasons, you are cautioned not
to place undue reliance on the Corporation's forward-looking statements.

ITEM 2. PROPERTIES

The Corporation operates 36 manufacturing facilities around the world, including
18  located  outside  of the  United  States in 9 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  and Mira  Loma,  California;  Tampa,
Florida; Chesterfield, Michigan; and Towson, Maryland.
     Outside of the United States: Maltby, England;  Tongeren,  Belgium; Reynosa
and Mexicali, Mexico; Usti nad Labem, Czech Republic; 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",  during  the  fourth  quarter  of  2001,  the
Corporation  commenced  actions on a restructuring  plan that will,  among other
matters,  reduce its  manufacturing  footprint.  Additional  actions  under that
restructuring  plan were initiated  during the second half of 2003. In addition,
during  the fourth  quarter  of 2003,  the  Corporation  commenced  actions on a
restructuring plan associated with the integration of the newly acquired Baldwin
and Weiser  businesses  into its security  hardware  business.  The  Corporation
continues 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 the  Corporation's  products  and  allegations  of patent  and  trademark
infringement.  The Corporation also is involved in litigation and administrative
proceedings involving employment matters and commercial disputes.  Some of these
lawsuits  include  claims for  punitive  as well as  compensatory  damages.  The
Corporation, using current product sales data and historical trends, actuarially
calculates the estimate of its exposure for product  liability.  The Corporation
is insured for  product  liability  claims for amounts in excess of  established
deductibles and accrues for the estimated liability as described above up to the
limits of the  deductibles.  All other  claims  and  lawsuits  are  handled on a
case-by-case basis.
     As  previously  noted  under  Item  1(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.

                                     - 9 -
<PAGE>

     The  Corporation's  estimate of costs  associated  with  product  liability
claims,  environmental  matters,  and other legal  proceedings is accrued if, in
management's  judgment,  the  likelihood of a loss is probable and the amount of
the  loss  can be  reasonably  estimated.  These  accrued  liabilities  are  not
discounted.
     In the opinion of  management,  amounts  accrued for exposures  relating to
product liability claims, environmental matters, and other legal proceedings are
adequate  and,  accordingly,  the ultimate  resolution  of these  matters is not
expected to have a material  adverse  effect on the  Corporation's  consolidated
financial  statements.  As of December 31, 2003,  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.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

                                     Part II

ITEM 5. MARKET FOR THE COMPANY'S STOCK AND RELATED STOCKHOLDER MATTERS

(a)   Market Information
The Corporation's  Common Stock is listed on the New York Stock Exchange and the
Pacific Stock Exchange.
     The following table sets forth, for the periods indicated, the high and low
sale prices of the Common Stock as reported in the consolidated reporting system
for the New York Stock Exchange Composite Transactions:

QUARTER                                  2003                               2002
--------------------------------------------------------------------------------
January to
   March                   $44.240 to $33.200                 $49.950 to $35.000
April to June              $44.790 to $33.890                 $50.500 to $45.320
July to
   September               $45.640 to $38.380                 $49.060 to $35.660
October to
   December                $49.900 to $39.510                 $48.210 to $37.000
--------------------------------------------------------------------------------

(b)   Holders of the Corporation's Capital Stock
As  of  February  20,  2004,   there  were  13,497  holders  of  record  of  the
Corporation's Common Stock.

(c)   Dividends
The Corporation  has paid  consecutive  quarterly  dividends on its Common Stock
since  1937.  Future  dividends  will depend  upon the  Corporation's  earnings,
financial  condition,  and other  factors.  The Credit  Facility,  as more fully
described in Note 7 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.
     Quarterly  dividends  per common share for the most recent two years are as
follows:

QUARTER                                                           2003      2002
--------------------------------------------------------------------------------
January to March                                                  $.12      $.12
April to June                                                      .12       .12
July to September                                                  .12       .12
October to December                                                .21       .12
--------------------------------------------------------------------------------
                                                                  $.57      $.48
================================================================================

Common Stock:
150,000,000 shares authorized,  $.50 par value, 77,933,464 and 79,604,786 shares
outstanding as of December 31, 2003 and 2002, respectively.

Preferred Stock:
5,000,000  shares  authorized,  without par value,  no shares  outstanding as of
December 31, 2003 and 2002.

(d)   Annual Meeting of Stockholders
The 2004 Annual Meeting of  Stockholders  of the  Corporation is scheduled to be
held on April 27, 2004, at 9:00 a.m. at the Sheraton  Baltimore North Hotel, 903
Dulaney Valley Road, Towson, Maryland 21204.

                                     - 10 -
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

FIVE-YEAR SUMMARY

<TABLE>
<CAPTION>
(Millions of Dollars Except Per Share Data)                           2003 (c)      2002 (c)(e)      2001(c)      2000 (d)      1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>           <C>              <C>          <C>           <C>
Sales (a)                                                         $4,482.7      $4,291.8         $4,139.9     $4,365.7      $4,323.4
Net earnings from continuing operations                              287.2         228.5            101.5        273.7         294.2
Earnings from discontinued operations (b)                              5.8           1.2              6.5          8.3           6.1
Net earnings                                                         293.0         229.7            108.0        282.0         300.3
Basic earnings per share:
   Continuing operations                                              3.69          2.85             1.26         3.27          3.38
   Discontinued operations                                             .07           .01              .08          .10           .07
   Net earnings per common share - basic                              3.76          2.86             1.34         3.37          3.45
Diluted earnings per share:
   Continuing operations                                              3.68          2.83             1.25         3.24          3.33
   Discontinued operations                                             .07           .01              .08          .10           .07
   Net earnings per common share - assuming dilution                  3.75          2.84             1.33         3.34          3.40
Total assets                                                       4,222.5       4,130.5          4,014.2      4,089.7       4,012.7
Long-term debt                                                       915.6         927.6          1,191.4        798.5         847.1
Redeemable preferred stock of subsidiary (f)                         202.6         208.4            196.5        188.0            --
Cash dividends per common share                                        .57           .48              .48          .48           .48
------------------------------------------------------------------------------------------------------------------------------------
<FN>
(a)  As more  fully  disclosed  in Note 1 of  Notes  to  Consolidated  Financial
     Statements  included  in Item 8 of Part II of this  report,  sales  for the
     years ended  December 31, 1999 through 2001,  have been restated to reflect
     the  adoption,  effective  January 1, 2002,  of Emerging  Issues Task Force
     Issue  No.  01-9,  Accounting  for  Consideration  Given by a  Vendor  to a
     Customer or Reseller of the Vendor's Products.
(b)  Earnings  from  discontinued  operations  represent  the  earnings,  net of
     applicable  income  taxes,  of  the  Corporation's   discontinued  European
     security hardware business. The earnings of the discontinued  operations do
     not reflect  any  expense for  interest  allocated  by or  management  fees
     charged  by  the  Corporation.   For  additional   information   about  the
     discontinued  European security hardware  business,  see Note 3 of Notes to
     Consolidated  Financial  Statements  included  in Item 8 of Part II of this
     report.
(c)  As more  fully  disclosed  in Note 19 of  Notes to  Consolidated  Financial
     Statements  included  in  Item  8 of  Part  II  of  this  report,  under  a
     restructuring program developed by the Corporation in the fourth quarter of
     2001, earnings from continuing  operations for 2003, 2002, and 2001 include
     a restructuring  charge of $20.6 million,  $46.6 million, and $99.7 million
     before taxes, respectively ($14.9 million, $29.2 million, and $70.6 million
     after taxes, respectively). Those 2003, 2002, and 2001 pre-tax charges were
     net of  reversals  of $13.2  million,  $11.0  million,  and  $4.1  million,
     respectively,  representing  reversals of previously provided restructuring
     reserves  as  well  as the  excess  of  proceeds  received  on the  sale of
     long-lived  assets,  written down as part of  restructuring  actions,  over
     their  adjusted  carrying  values.  In addition,  earnings from  continuing
     operations for 2003 include a restructuring  charge of $11.0 million before
     taxes ($7.2 million after taxes)  associated  with the  integration  of the
     Baldwin and Weiser businesses into the security hardware business.
(d)  Earnings from continuing operations for 2000 include a restructuring charge
     of $39.9  million  before taxes ($28.1  million  after taxes) and a gain on
     sale of business of $20.1 million before taxes ($13.1 million after taxes).
(e)  As more  fully  disclosed  in Note 1 of  Notes  to  Consolidated  Financial
     Statements included in Item 8 of Part II of this report,  effective January
     1,  2002,  the  Corporation  adopted  Statement  of  Financial   Accounting
     Standards (SFAS) No. 142, Goodwill and Other Intangible  Assets.  Effective
     January 1, 2002, goodwill is no longer amortized by the Corporation.
(f)  Included in other long-term liabilities.
</FN>
</TABLE>

                                     - 11 -
<PAGE>

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  72%, 16%, and 12%,  respectively,  of the Corporation's  sales in
2003.  The  percentage  of the  Corporation's  total  sales  contributed  by its
Hardware and Home  Improvement  segment will increase in 2004 when a full year's
sales of the Baldwin and Weiser businesses,  acquired on September 30, 2003, are
included in that segment's results.
     The  Corporation  markets its products and services in over 100  countries.
During 2003, approximately 63%, 25%, and 12% of its sales were made to customers
in the United States,  in Europe  (including the United  Kingdom),  and in other
geographic regions,  respectively.  The Power Tools and Accessories and Hardware
and Home Improvement  segments are subject to general economic conditions in the
countries in which they operate as well as the strength of the retail economies.
The Fastening and Assembly  Systems segment is also subject to general  economic
conditions in the  countries in which it operates as well as to  automotive  and
industrial demand.
     The Corporation reported net earnings of $293.0 million, or $3.75 per share
on a diluted  basis,  for the year ended  December  31,  2003,  compared  to net
earnings of $229.7 million,  or $2.84 per share on a diluted basis, for the year
ended December 31, 2002.
     Net earnings from  continuing  operations  for the year ended  December 31,
2003,  included a pre-tax  restructuring  charge of $31.6 million ($22.1 million
net of tax).  That $31.6 million pre-tax  restructuring  charge was net of $13.2
million, representing reversals of previously provided restructuring reserves as
well as the  excess  of  proceeds  received  on the sale of  long-lived  assets,
written down as part of  restructuring  actions,  over their  adjusted  carrying
values. Net earnings from continuing  operations for the year ended December 31,
2002,  included a pre-tax  restructuring  charge of $46.6 million ($29.2 million
net of tax).  That $46.6 million pre-tax  restructuring  charge was net of $11.0
million, representing reversals of previously provided restructuring reserves as
well as the  excess  of  proceeds  received  on the sale of  long-lived  assets,
written down as part of  restructuring  actions,  over their  adjusted  carrying
values.  The increase in the  Corporation's  net earnings and earnings per share
for 2003, as compared to 2002, is partially  attributable  to the lower level of
restructuring and exit costs recognized in 2003.
     Total  consolidated  sales for the year ended  December 31, 2003,  of $4.48
billion  increased by 4% over the prior year level.  Of that 4% increase,  2% is
attributable  to an  increase in unit  volume,  with  approximately  half of the
increase  in unit volume  attributable  to the  incremental  sales in the fourth
quarter  of 2003 from the  acquired  Baldwin  and Weiser  businesses,  and 4% is
attributable to the favorable impact of foreign currency translation,  offset by
2% attributable to the negative effect of pricing actions.  Operating income for
the year ended  December  31,  2003,  increased  to $428.7  million  from $368.0
million   in  2002.   This   increase   was   principally   attributable   to  a
one-percentage-point  increase in gross margin as a percentage  of sales in 2003
as compared to 2002. This gross margin increase was driven by the  Corporation's
restructuring  actions.  Selling,  general,  and  administrative  expenses  as a
percentage  of sales in 2003  increased  slightly  from 2002.  The  increase  in
operating  income for the year ended  December  31, 2003 as compared to the 2002
level was also  aided by a $15.0  million  decrease  in  restructuring  and exit
costs.  Earnings  from  continuing  operations  before income taxes for the year
ended December 31, 2003 increased by $85.5 million over the 2002 level to $390.9
million.  In addition to the improvement in operating income  previously  noted,
earnings  from  continuing  operations  before  income taxes  increased due to a
reduction  in net interest  expense of $22.6  million in 2003 as compared to the
2002 level. That reduction in net interest expense was principally the result of
lower borrowing levels and, to a lesser extent, lower interest rates.
     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.

Sales
The following  chart provides an analysis of the  consolidated  changes in sales
for the years ended December 31, 2003, 2002, and 2001.

                                                      YEAR ENDED DECEMBER 31,
(Dollars in millions)                               2003       2002       2001
--------------------------------------------------------------------------------
Total sales                                     $4,482.7   $4,291.8   $4,139.9
--------------------------------------------------------------------------------
Unit volume                                            2%         5%        (1)%
Price                                                 (2)%       (2)%       (2)%
Currency                                               4%         1%        (2)%
--------------------------------------------------------------------------------
Change in total sales                                  4%         4%        (5)%
================================================================================
     Total  consolidated  sales  for the year  ended  December  31,  2003,  were
$4,482.7  million,  which  represented a 4% increase over 2002 sales of $4,291.8
million.  Total  unit  volume  had a 2%  positive  impact on sales  during  2003
compared  to  2002.  Approximately  half  of the  increase  in unit  volume  was
attributable  to the  incremental  sales in the fourth  quarter of 2003 from the
acquired  Baldwin and Weiser  businesses.  The remainder of the increase in unit
volume was due to higher sales of the power tools and  accessories  and security
hardware businesses,  particularly in North America,  partially offset by a unit
volume decline in the plumbing  products  business.  Pricing  actions,  taken in
response to customer  and  competitive  pressures,  had a 2% negative  effect on
sales for 2003 as compared to 2002. The effects of a weaker U.S. dollar

                                     - 12 -
<PAGE>

compared to other currencies, particularly the euro and, to a lesser degree, the
pound sterling and Canadian  dollar,  caused a 4% increase in the  Corporation's
consolidated sales during 2003 over the prior year level. These positive effects
were partially  offset by the  devaluation of several Latin American  currencies
during 2003 as compared to 2002.
     Total  consolidated  sales  for the year  ended  December  31,  2002,  were
$4,291.8  million,  which  represented a 4% increase over 2001 sales of $4,139.9
million.  Total  unit  volume  had a 5%  positive  impact on sales  during  2002
compared to 2001.  The  increase in unit volume was  primarily  attributable  to
higher unit volume in both the power tools and accessories and security hardware
businesses  in  North  America  as well as unit  volume  increases  in  sales to
automotive  customers by the  Fastening  and  Assembly  Systems  segment.  These
increases  were  partially  offset  by a unit  volume  decline  in the  plumbing
products  business.   Pricing  actions,  taken  as  a  result  of  customer  and
competitive pressure,  had a 2% negative effect on sales for 2002 as compared to
2001.  The effect of a weaker  U.S.  dollar  compared to certain  other  foreign
currencies,  particularly the euro and the pound sterling,  caused a 1% increase
in the Corporation's consolidated sales during 2002 over the prior year level.

Earnings
The  Corporation  reported  consolidated  operating  income of $428.7 million on
sales of  $4,482.7  million  in 2003,  compared  to  operating  income of $368.0
million on sales of $4,291.8  million in 2002 and to operating  income of $238.3
million on sales of $4,139.9 million in 2001.
     Consolidated  operating  income for 2003, 2002, and 2001 included a pre-tax
restructuring  charge  of $31.6  million,  $46.6  million,  and  $99.7  million,
respectively.  Those 2003,  2002, and 2001 pre-tax charges were net of reversals
of $13.2 million,  $11.0 million, and $4.1 million,  respectively,  representing
reversals of previously provided restructuring reserves as well as the excess of
proceeds  received on the sale of  long-lived  assets,  written  down as part of
restructuring actions, over their adjusted carrying values. Operating income for
the year ended  December  31,  2001,  included  goodwill  amortization  of $24.2
million. No goodwill amortization is included in the 2003 or 2002 results due to
a change in accounting standards.
     Consolidated  gross margin as a  percentage  of sales for 2003 was 35.6% as
compared  to  34.6%  for  2002.  The  increase  in  gross  margin  in  2003  was
attributable to several positive factors that included:  (i) the positive effect
of  restructuring  initiatives,  (ii) higher  productivity,  including Six Sigma
productivity  initiatives,  and (iii) favorable foreign currency exchange rates.
These  positive  factors were partially  offset by pricing  actions taken by the
Corporation  in response  to customer  and  competitive  pressures  and by lower
production levels in 2003 as compared to 2002.
     Consolidated  gross margin as a  percentage  of sales for 2002 was 34.6% as
compared  to  32.9%  for  2001.  The  increase  in  gross  margin  in  2002  was
attributable to several positive factors that included: (i) higher productivity,
including Six Sigma productivity  initiatives;  (ii) higher production levels as
the Corporation returned to more normal production levels in its power tools and
accessories business in 2002, after lowering production levels in 2001 to reduce
inventories;  (iii) more favorable product mix; and (iv) savings associated with
restructuring  actions.  These  positive  factors  more than  offset the cost of
end-user   promotional  programs  as  well  as  pricing  actions  taken  by  the
Corporation as a result of customer and competitive pressure.
     Consolidated selling,  general, and administrative expenses as a percentage
of  sales  were  25.3%  in 2003,  compared  to 25.0% in 2002 and  24.8% in 2001.
Selling, general, and administrative expenses increased by $63.7 million in 2003
over the 2002 level.  The effects of foreign  currency  translation and acquired
businesses  accounted  for $48.5  million and $13.3  million of the  increase in
selling,  general, and administrative  expenses,  respectively.  The Corporation
recognized goodwill amortization of $24.2 million in 2001. There was no goodwill
amortization  recorded in 2003 or 2002.  The increase in selling,  general,  and
administrative expenses as a percentage of sales from 2002 to 2003 was primarily
a result of higher  marketing and  promotional  expenses,  which were  partially
offset  by  lower  selling,  general,  and  administrative  expenses,  including
expenses associated with legal and environmental matters.  Selling, general, and
administrative  expenses for 2002 rose, as compared to 2001, as the  Corporation
increased  its  reserves  for  certain  environmental  remediation  matters  and
recognized greater employee-related  expenses. These items were partially offset
by the impact of goodwill amortization in 2001.
     Consolidated net interest expense  (interest  expense less interest income)
was $35.2  million in 2003,  compared to $57.8 million in 2002 and $84.3 million
in 2001.  The lower net interest  expense in 2003, as compared to 2002,  and for
2002  compared  to 2001  resulted  from both  lower  borrowing  levels and lower
interest rates.
     Other expense was $2.6 million in 2003 compared to $4.8 million in 2002 and
$8.2 million in 2001.
     Consolidated income tax expense of $103.7 million, $76.9 million, and $44.3
million was recognized on the Corporation's  earnings from continuing operations
before income taxes of $390.9 million,  $305.4 million,  and $145.8 million, for
2003, 2002, and 2001, respectively. The Corporation's effective tax rate was 27%
for 2003,  compared to an effective tax rate of 25% for 2002,  and 30% for 2001.
For 2003, tax benefits of $9.5 million were recognized on pre-tax  restructuring
and exit costs of $31.6 million, as compared to tax benefits of $17.4 million on
pre-tax  restructuring and exit costs of $46.6 million in the corresponding 2002
period,  and a $29.1 million benefit on pre-tax  restructuring and exit costs of
$99.7 million in the  corresponding  2001 period.  The higher effective tax rate
during the 2003 period,  as compared to the 2002 period,  reflects the effect of
the lower effective tax rate associated with the 2003 restructuring  charge. The
lower effective tax rate during the 2002 period, as compared to the 2001 period,
is primarily  attributable  to the  amortization of  non-deductible  goodwill in
2001, offset by

                                     - 13 -
<PAGE>

the effect of a higher effective tax rate associated with the 2001 restructuring
charge.  A further analysis of taxes on earnings is included in Note 11 of Notes
to Consolidated Financial Statements.
     The Corporation  reported net earnings of $293.0  million,  $229.7 million,
and $108.0 million, or $3.75, $2.84, and $1.33 per share on a diluted basis, for
the years ended December 31, 2003, 2002, and 2001, respectively. The increase in
the  Corporation's  net earnings and earnings per share for the 2003 period,  as
compared to 2002, was partially attributable to the lower level of restructuring
and exit costs  recognized  in the 2003 period.  Net earnings for the year ended
December 31, 2001,  included  $26.4 million of goodwill  amortization,  of which
$24.2  million  related to  continuing  operations  and $2.2 million  related to
discontinued  operations.  No goodwill  amortization  is included in the 2003 or
2002 results due to a change in accounting standards.  In addition to the impact
of the  operational  matters,  earnings per share for 2003,  also benefited from
lower shares outstanding.

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,                               2003       2002       2001
--------------------------------------------------------------------------------
Sales to unaffiliated
   customers                                      $3,114.9   $3,156.2   $3,059.5
Segment profit                                       350.9      354.7      250.9
--------------------------------------------------------------------------------
     Sales to unaffiliated  customers in the Power Tools and Accessories segment
during 2003 decreased 1% from the 2002 level.  In North America,  sales of power
tools and accessories  during 2003 decreased at a low single-digit rate from the
2002 level due  predominantly  to a low  single-digit  decrease  in sales of the
consumer power tools and  accessories  business.  Strength in the North American
professional power tools and accessories business in the second half of the year
nearly  offset  declines  during the first  sixth  months of 2003.  Sales of the
consumer power tools and accessories  business  decreased at a low  single-digit
rate from the 2002 level,  as a double-digit  rate of growth in sales of outdoor
products  was  more  than  offset  by a  double-digit  decline  in sales of home
products  and a low  single-digit  rate of  decrease of sales of power tools and
accessories as unfavorable  price more than offset  increased  volume.  Both the
professional and consumer power tools and accessories businesses were negatively
affected by customers' actions to manage inventory levels during 2003.
     Sales of power tools and  accessories  in Europe during 2003 decreased at a
mid-single-digit  rate from the 2002 level, as sales of professional power tools
and accessories decreased at a low single-digit rate and sales of consumer power
tools and  accessories  declined  at a  mid-single-digit  rate.  Sales were down
across Europe and in most product lines as weak  economic  conditions  persisted
during 2003.
     Sales in other  geographic areas increased at a high  single-digit  rate in
2003 over the 2002 level,  as higher sales were achieved in  professional  power
tools and accessories,  consumer power tools and accessories, and home products.
Increases in sales  occurred  throughout  South and Central  America,  Asia, and
Australia.
     Segment profit as a percentage of sales for the Power Tools and Accessories
segment  was 11.3% for 2003 as  compared  to 11.2% for 2002.  Gross  margin as a
percentage of sales improved  slightly as the positive  effects of  productivity
initiatives,  restructuring  actions,  and foreign currency rates were offset by
the  negative  effects of pricing  actions,  promotional  activities,  and lower
production levels.  During 2003, the Power Tools and Accessories segment reduced
its production levels by approximately 10% from the 2002 levels.  That reduction
in production  levels was primarily  attributable to the efforts by the business
to reduce its  inventory  levels.  As of December 31, 2003,  the Power Tools and
Accessories  segment decreased its total  inventories,  excluding the effects of
foreign  currency  translation,  by  approximately 9% from 2002 year-end levels.
That  decrease  was  in  comparison  to an  approximate  9%  increase  in  total
inventories,  excluding the effects of foreign currency  translation at December
31, 2002, over the 2001 year-end levels.  Selling,  general,  and administrative
expenses as a percentage of sales increased  slightly during 2003 as compared to
2002 as promotional and marketing expenses increased.
     Sales to unaffiliated  customers in the Power Tools and Accessories segment
during  2002  increased  3% over the 2001  level.  In  North  America,  sales of
consumer power tools and accessories  and sales of professional  power tools and
accessories grew at a mid-single-digit  rate. The consumer business  experienced
double-digit  rates of growth  in sales of both its  outdoor  and home  products
lines and a low  single-digit  rate of growth in sales of consumer  power tools.
Both the consumer and  professional  businesses in North America  benefited from
promotional activities during 2002.
     Sales of power tools and  accessories  in Europe during 2002 decreased at a
low  single-digit  rate  from  the  2001  level.  That  decrease  resulted  as a
mid-single-digit  rate of  increase  in sales of  professional  power  tools and
accessories  was  offset  by a  mid-single-digit  rate of  decline  in  sales of
consumer products.  Lower sales in Germany and the United Kingdom were partially
offset by higher sales in most other European  countries.  The sales declines in
Germany and the United  Kingdom  were  mainly  driven by lower sales of consumer
products,  due to the exit of the lawnmower  product line in the United  Kingdom
and to the high level of private label Asian-sourced inventory held by retailers
early in 2002.

                                     - 14 -
<PAGE>

     Sales in other  geographic  areas increased at a  mid-single-digit  rate in
2002 over the 2001 levels as sales of  professional  power tools and accessories
and consumer power tools and accessories increased at a mid-single-digit rate.
     Segment profit as a percentage of sales for the Power Tools and Accessories
segment  was 11.2% for 2002  compared to 8.2% in 2001.  The  increase in segment
profit as a percentage  of sales during 2002 was driven by higher gross  margins
and by  slightly  lower  selling,  general,  and  administrative  expenses  as a
percentage of sales. The higher gross margins  principally  resulted from higher
production  levels in 2002 as compared to the lower  levels  experienced  in the
corresponding  period in 2001 when the business took actions to reduce inventory
levels,  savings gained through Six Sigma initiatives and restructuring actions,
more favorable  product mix, and a decrease in warranty costs.  Gross margins in
2001 were also depressed by price  reductions  taken by the business in order to
reduce  inventory  levels.  Segment  profit as a percentage of sales during 2002
also  increased  due to the  leverage of selling,  general,  and  administrative
expenses  over the higher sales volume.  Selling,  general,  and  administrative
expenses  increased in 2002 over the 2001 levels due to increased  marketing and
promotional  expenses and higher  employee-related  costs,  which were partially
offset by restructuring and other cost reduction initiatives.

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,                                   2003     2002     2001
--------------------------------------------------------------------------------
Sales to unaffiliated customers                         $715.7   $659.3   $658.3
Segment profit                                            92.8     47.4     47.8
--------------------------------------------------------------------------------
     Sales to  unaffiliated  customers  in the  Hardware  and  Home  Improvement
segment in 2003  increased  9% over the 2002 level.  This  increase in sales was
almost entirely due to the acquisition of Baldwin Hardware Corporation (Baldwin)
and Weiser Lock Corporation  (Weiser) from Masco Corporation early in the fourth
quarter of 2003. A low  single-digit  increase in sales of the Kwikset  security
hardware  business in North America was partially  offset by a low  single-digit
decrease in sales of plumbing products.
     As a result of a line review in 2002, the  Corporation's  plumbing products
business  lost  significant  shelf space at The Home Depot stores in the central
and eastern United States. That loss of shelf space at The Home Depot negatively
impacted  plumbing product sales in 2002 by approximately  $22 million,  but was
partially  offset in 2003 by an expansion of listings at Lowe's Home Improvement
Warehouse (Lowe's) during the second quarter of 2003.
     Segment  profit  as a  percentage  of  sales  for  the  Hardware  and  Home
Improvement  segment was 13.0% for 2003 compared to 7.2% for 2002, mainly driven
by  improvements  in  gross  margin  as  a  percentage  of  sales.  Productivity
improvements and the results of  restructuring  actions were the primary factors
that contributed to the increase in segment profit as a percentage of sales. The
increase  in  segment  profit  as a  percentage  of sales  due to  gross  margin
improvements was slightly offset by a one-percentage-point  increase in selling,
general,  and  administrative  expenses  as a  percentage  of  sales  in 2003 as
compared  to the 2002  level due to  higher  sales-related  expenses,  including
promotion,  marketing, and salesmen's  compensation.  The acquisition of Baldwin
and Weiser did not have a significant effect on segment profit during 2003.
     Sales to  unaffiliated  customers  in the  Hardware  and  Home  Improvement
segment  for 2002  approximated  the 2001 level.  Sales of security  hardware in
North America grew at a high single-digit rate over the 2001 level due primarily
to the  success  of the  brand and  product  repositioning  introduced  in North
American home centers in late 2001 and to other customers in 2002. That increase
was offset by a double-digit rate of decline in sales of plumbing products,  due
primarily  to the  effects of a loss of shelf  space at The Home Depot and lower
sales in non-home center channels.
     Segment  profit  as a  percentage  of  sales  for  the  Hardware  and  Home
Improvement segment declined to 7.2% in 2002 from 7.3% in 2001. That decrease in
segment profit as a percentage of sales was principally due to declines in gross
margins  which  were  only  partially  offset  by lower  selling,  general,  and
administrative  expenses  as a  percentage  of sales.  Those  declines  in gross
margins  resulted  from  lower  production  levels  at North  American  security
hardware and plumbing product plants,  as those businesses took action to reduce
inventory levels. In addition,  gross margins were negatively  impacted by costs
related to restructuring  activities in the plumbing  products  business.  Lower
selling,  general, and administrative expenses as a percentage of sales for 2002
principally  resulted  from  restructuring  actions  that were  taken in 2001 to
reduce headcount and reduced promotional spending.

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,                                   2003     2002     2001
--------------------------------------------------------------------------------
Sales to unaffiliated customers                         $514.2   $513.3   $489.5
Segment profit                                            73.9     74.7     71.0
--------------------------------------------------------------------------------
     Sales to  unaffiliated  customers in the  Fastening  and  Assembly  Systems
segment during 2003 increased slightly over the 2002 level as a mid-single-digit
rate of  increase  in sales in  Europe  and Asia was  substantially  offset by a
mid-single-digit rate decrease in sales in North America.
     Segment  profit as a  percentage  of sales for the  Fastening  and Assembly
Systems  segment  was 14.4% for 2003 as  compared  to 14.6%  during  2002.  That
decline was due to lower  production  volumes,  resulting  from weak  industrial
demand  and  lower  automotive  production,  that were  substantially  offset by
productivity improvements.

                                     - 15 -
<PAGE>

     Sales to  unaffiliated  customers in the  Fastening  and  Assembly  Systems
segment  increased 5% in 2002 over 2001.  Incremental  sales  associated  with a
distribution  business  acquired in April 2001 accounted for 2 percentage points
of the 5% sales growth  realized.  A  double-digit  rate of increase in sales to
automotive  customers,  including  the effect of the business  acquired in April
2001,  was partially  offset by a  mid-single-digit  rate of decline in sales to
industrial customers, particularly in Europe.
     Segment  profit as a  percentage  of sales for the  Fastening  and Assembly
Systems segment of 14.6% in 2002 approximated the 2001 level.

OTHER SEGMENT-RELATED MATTERS
As  more  fully  described  in  Note  17  of  Notes  to  Consolidated  Financial
Statements,  in determining  segment  profit,  expenses  relating to pension and
other  postretirement  benefits are based solely upon  estimated  service costs.
Also, as more fully described in Item 7 under the caption "Financial Condition",
the  Corporation's   expense  recognized  relating  to  its  pension  and  other
postretirement  benefits  plans in 2003 increased by  approximately  $32 million
over the 2002 levels.  The  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  income  of $15.4
million  and $38.3  million  for the years  ended  December  31,  2003 and 2002,
respectively.  This decrease reflects the impact excluded from the Corporation's
reportable business segments.
     Expenses  directly  related  to  reportable  business  segments  booked  in
consolidation  and,  thus,  excluded  from  segment  profit  for the  reportable
business  segments were $15.0  million,  $8.4  million,  and $.7 million for the
years ended December 31, 2003, 2002, and 2001,  respectively.  The $15.0 million
of  segment-related  expenses  excluded from segment profit in 2003  principally
related to  restructuring-related  expenses  associated with the Power Tools and
Accessories  segment of  approximately  $9.1 million as well as certain reserves
established relating to the Power Tools and Accessories segment and the Hardware
and Home  Improvement  segment.  The $8.4  million of  segment-related  expenses
excluded  from  segment  profit in 2002  principally  related  to  reserves  for
employee-related  matters  associated  with the Power Tools and  Accessories and
Hardware and Home Improvement segments.
     Amounts  allocated to reportable  business  segments in arriving at segment
profit were less than Corporate center  operating  expenses,  eliminations,  and
other amounts, as identified in the second table included in Note 17 of Notes to
Consolidated  Financial Statements,  by $70.9 million,  $86.9 million, and $48.7
million for the years ended December 31, 2003, 2002, and 2001, respectively. The
decrease in these  unallocated  Corporate center operating  expenses for 2003 as
compared to 2002 was  primarily due to lower  medical-related  expenses in 2003,
reflecting  the  results  of changes  in plan  design as well as higher  expense
allocations  to the  Corporation's  business  segments,  and lower  reserves for
certain  legal and  environmental  remediation  matters  established  in 2003 as
compared to 2002. The increase in these  unallocated  Corporate center operating
expenses  for 2002 as  compared  to 2001 was  primarily  due to an  increase  in
reserves   for  certain   environmental   remediation   matters  and  to  higher
employee-related  expenses,  including  certain  centrally  managed expenses not
allocated directly to the Corporation's business segments.
     As  indicated  above  and in Note 17 of  Notes  to  Consolidated  Financial
Statements,  the determination of segment profit excludes restructuring and exit
costs. Of the $31.6 million  pre-tax  restructuring  charge  recognized in 2003,
$21.1  million  related to the  businesses  in the Power  Tools and  Accessories
segment,  and $10.5 million  related to the  businesses in the Hardware and Home
Improvement   segment.  Of  the  $46.6  million  pre-tax   restructuring  charge
recognized in 2002,  $26.3 million  related to the businesses in the Power Tools
and  Accessories  segment,  and $20.3 million  related to the  businesses in the
Hardware  and  Home   Improvement   segment.   Of  the  $99.7  million   pre-tax
restructuring charge recognized in 2001, $81.4 million related to the businesses
in the  Power  Tools and  Accessories  segment,  $17.4  million  related  to the
businesses in the Hardware and Home Improvement segment, and $.9 million related
to the businesses in the Fastening and Assembly Systems segment.

DISCONTINUED OPERATIONS
The European security hardware  business,  consisting of the NEMEF,  Corbin, and
DOM  businesses,  is reflected as  discontinued  operations in the  Consolidated
Financial  Statements included in Item 8 of Part II of this report. As such, the
operating  results,  assets and liabilities,  and cash flows of the discontinued
European  security  hardware  business  have been reported  separately  from the
Corporation's continuing operations.  In January 2004, the Corporation completed
the sale of two European security hardware businesses,  NEMEF and Corbin, for an
aggregate price of $80 million, subject to post-closing adjustments.
     Net earnings of the discontinued  European  security hardware business were
$5.8 million ($.07 per share on a diluted basis) for the year ended December 31,
2003,  $1.2  million  ($.01  per share on a diluted  basis)  for the year  ended
December 31, 2002,  and $6.5 million ($.08 per share on a diluted basis) for the
year ended  December 31, 2001.  Earnings from  discontinued  operations  include
pre-tax  restructuring  (reversals) charges of $(.6) million,  $4.1 million, and
$.1 million for the years ended December 31, 2003, 2002, and 2001, respectively.

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.  A tabular summary of restructuring
activity  during the three years ended December 31, 2003, is included in Note 19
of Notes to Consolidated Financial Statements.

                                     - 16 -
<PAGE>

     During  the  fourth   quarter  of  2001,  the   Corporation   formulated  a
restructuring  plan  designed to reduce its  manufacturing  footprint,  variable
production  costs,  and  selling,  general,  and  administrative  expenses.  The
Corporation  initially anticipated that the cost of the total restructuring plan
- expected  to be  completed  over a two- to  three-year  period - would be $190
million.  The $20.0 million  charge  recognized by the  Corporation  during 2003
represented the final pre-tax charge  associated with this  restructuring  plan.
That amount,  coupled with  restructuring  charges recognized in connection with
this plan in 2002 and 2001, brought the total pre-tax restructuring charge under
this plan to $170.5  million.  That $170.5 million charge  includes $3.6 million
relating  to the  Corporation's  European  security  hardware  business  that is
reflected as  discontinued  operations.  The following  discussion  excludes the
restructuring  actions  relating to the  European  security  hardware  business.
Earnings from discontinued operations include pre-tax restructuring  (reversals)
charges of $(.6)  million,  $4.1  million  and $.1  million  for the years ended
December 31, 2003, 2002, and 2001, respectively.
     During  2001,   the   Corporation   commenced   the  first  phase  of  that
restructuring plan and recorded a pre-tax restructuring charge of $99.7 million.
That $99.7  million  charge was net of $4.1 million of  reversals of  previously
provided restructuring  reserves that were no longer required.  During 2002, the
Corporation  continued to execute its restructuring plans and recorded a pre-tax
restructuring charge of $46.6 million. That $46.6 million charge was net of $8.3
million of reversals of previously provided  restructuring reserves that were no
longer required and $2.7 million,  representing the excess of proceeds  received
on the sale of long-lived assets, written down as part of restructuring actions,
over their adjusted carrying values.
     During 2003, the Corporation commenced the final phase of its restructuring
plan and recorded a pre-tax  restructuring  charge  associated with that plan of
$20.6 million. That $20.6 million charge was net of $9.6 million of reversals of
previously provided restructuring reserves that were no longer required and $3.6
million,  representing the excess of proceeds received on the sale of long-lived
assets,  written  down as part of  restructuring  actions,  over their  adjusted
carrying values. In addition,  during the fourth quarter of 2003 the Corporation
recorded a pre-tax  restructuring  charge of $11.0 million  associated  with the
closure of a manufacturing facility in its Hardware and Home Improvement segment
as a result of the acquisition of Baldwin and Weiser.
     The $20.6 million pre-tax  restructuring charge recognized in 2003 reflects
actions  relating  to the Power  Tools and  Accessories  segment  to reduce  its
manufacturing  cost base as well as  actions  to reduce  selling,  general,  and
administrative  expenses  through the elimination of  administrative  positions.
Actions to reduce the Corporation's  manufacturing  cost base in the Power Tools
and Accessories segment include the closure of one facility in the United States
and the transfer of certain  additional power tool production from a facility in
the United  States to a low-cost  facility  in  Mexico.  The 2003  restructuring
charge  provided  for actions to reduce  selling,  general,  and  administrative
expenses,  principally  in Europe,  and to a lesser extent in the United States,
principally reducing headcount.
     The $46.6 million pre-tax restructuring charge recognized in 2002 reflected
actions to reduce the Corporation's  manufacturing  cost base in its Power Tools
and Accessories and Hardware and Home Improvement  segments,  as well as actions
to reduce selling,  general, and administrative expenses through the elimination
of  administrative  positions,  principally  in  Europe.  Actions  to reduce the
Corporation's manufacturing cost base in the Power Tools and Accessories segment
include the  closure of one  facility  in the United  States,  the closure of an
accessories   packaging  facility  in  England,  and  the  transfer  of  certain
additional  power  tool  production  from a  facility  in  England to a low-cost
facility   in  the  Czech   Republic.   Actions  to  reduce  the   Corporation's
manufacturing cost base in the Hardware and Home Improvement segment include the
closure  of a  security  hardware  facility  in  the  United  States.  The  2002
restructuring  charge also includes  pension  curtailment  losses  stemming from
headcount reductions associated with the restructuring actions.
     The $99.7 million pre-tax restructuring charge recognized in 2001 reflected
actions to reduce the Corporation's  manufacturing  cost base in its Power Tools
and Accessories and Hardware and Home Improvement  segments,  as well as actions
to reduce selling,  general,  and administrative  expenses throughout all of its
businesses. Actions to reduce the Corporation's manufacturing cost base included
the closure of two facilities in the Power Tools and Accessories  segment in the
United  States  as well as the  closure  by the  Hardware  and Home  Improvement
segment of a plumbing  products  facility  in the United  States.  In  addition,
actions associated with the 2001  restructuring  charge included the transfer of
certain production and service operations in the Power Tools and Accessories and
Hardware and Home Improvement  segments from facilities in the United States and
England  to  low-cost  facilities  in Mexico  and  China  and to a new  low-cost
facility  in  the  Czech   Republic.   In  addition  to  these  changes  to  the
Corporation's manufacturing footprint, the 2001 restructuring plan also provided
for the outsourcing of certain manufactured items. The 2001 restructuring charge
provided for actions to reduce selling,  general,  and administrative  expenses,
principally in the United States and Europe,  including consolidation of certain
distribution locations and other administrative functions, as well as reductions
in selling and administrative headcount.
     As indicated in Note 19 of Notes to Consolidated Financial Statements,  the
severance benefits accrual,  included in the $31.6 million,  $46.6 million,  and
$99.7  million  pre-tax  restructuring  charges taken in 2003,  2002,  and 2001,
respectively,  related to the  elimination of  approximately  5,200 positions in
high-cost manufacturing locations and in certain administrative  positions.  The
Corporation  estimates that, as a result of increases in manufacturing  employee
headcount in low-cost locations,  approximately 4,500 replacement positions will
be filled,  yielding a net total of 700 positions  eliminated as a result of the
2003, 2002, and 2001 restructuring actions.

                                     - 17 -
<PAGE>

     The Corporation anticipates that the execution of the restructuring actions
associated with the restructuring plan that was formulated by the Corporation in
the fourth  quarter  of 2001 will be  completed  during  2004.  The  Corporation
anticipates that the closure of the  manufacturing  facility in its Hardware and
Home  Improvement  segment as a result of the  acquisition of Baldwin and Weiser
will be completed during 2005.
     Given the nature and duration of this restructuring plan, the timing of the
actions  is  subject  to  varying  degrees  of  estimation  associated  with key
assumptions,  such as actual timing of execution,  general economic  conditions,
and other variables.
     In  addition  to the  recognition  of  restructuring  and exit  costs,  the
Corporation  also recognizes  related  expenses,  incremental to the cost of the
underlying  restructuring  actions, that do not qualify as restructuring or exit
costs under  generally  accepted  accounting  principles  (restructuring-related
expenses). Those restructuring-related expenses include items - directly related
to the underlying restructuring actions - that benefit ongoing operations,  such
as costs  associated with the transfer of equipment.  Operating  results for the
year ended December 31, 2003 and 2002, included $25.0 million and $17.0 million,
respectively, of restructuring-related expenses.
     The  Corporation  realized  benefits of  approximately  $50 million and $25
million in 2003 and 2002, respectively,  net of restructuring-related  expenses.
Those  benefits  resulted in a reduction in cost of goods sold of  approximately
$39 million and $10 million in 2003 and 2002,  respectively,  and a reduction in
selling,  general, and administrative  expenses of approximately $11 million and
$15  million  in 2003 and  2002,  respectively.  The  Corporation  expects  that
incremental  pre-tax  savings  associated with the  restructuring  plan that was
formulated in the fourth quarter of 2001 will benefit 2004 and 2005 results,  by
$45  million  and  $10  million,   respectively,  net  of  restructuring-related
expenses. The Corporation expects that those incremental pre-tax savings in 2004
and  2005  will  benefit  cost  of  goods  sold  and   selling,   general,   and
administrative  expenses in approximately the same ratio as experienced in 2003.
The Corporation  expects that pre-tax savings  associated with the restructuring
actions  associated with the integration of Baldwin and Weiser into its existing
security  hardware  business will benefit 2005 and 2006 results by approximately
$10 million and $25 million respectively, net of restructuring-related expenses.
The  restructuring-related  expense associated with these integration plans will
have an adverse pre-tax impact of  approximately  $15 million in 2004.  Ultimate
savings realized from restructuring  actions may be mitigated by such factors as
continued 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.
     As previously  indicated,  the pre-tax  restructuring charges recognized in
2003,  2002,  and 2001 of $31.6  million,  $46.6  million,  and  $99.7  million,
respectively,  were net of  reversals  in  2003,  2002,  and 2001 of  previously
provided  restructuring  reserves  that were no  longer  required  and  proceeds
received in excess of the adjusted  carrying  value of long-lived  assets in the
aggregate of $13.2  million,  $11.0  million,  and $4.1  million,  respectively.
Adjustments  to the severance  component of  restructuring  reserves  previously
established  related to: (i) actual  attrition  factors that differed from those
initially  estimated;  (ii) more  cost-effective  methods of severing employment
that became probable, typically based on negotiations with trade unions or local
government  institutions;  and (iii)  amendments  to the initial  plan that were
approved by the appropriate  level of management,  based primarily on changes in
market conditions that dictated a modification to the intended course of action.
During  2003,  2002,  and  2001,  none  of  the  adjustments  to  the  severance
obligations  recorded in connection with restructuring  actions was individually
significant.  Adjustments  to the asset  write-down  component of  restructuring
reserves previously  established related to the receipt of proceeds in excess of
adjusted  carrying  values of fixed assets that were  disposed of in  connection
with the  restructuring  actions.  Adjustments to the other charge  component of
restructuring reserves previously established  principally related to settlement
of operating lease  commitments at amounts less than initially  estimated or the
Corporation's  ability  to  sublease  certain  facilities  exited as part of the
restructuring actions.
     Asset write-downs taken as part of the 2003 and 2002  restructuring  charge
included land, buildings, and manufacturing  equipment.  Asset write-downs taken
as part of the 2001 restructuring  charge  principally  related to manufacturing
equipment.  The  carrying  values of land and  buildings to be sold were written
down to their  estimated fair values,  generally  based upon third party offers,
less  disposal  costs.  The  carrying  values  of  manufacturing  equipment  and
furniture  and  fixtures  were  written  down to their  fair  value  based  upon
estimated salvage values, which generally were negligible, less disposal cost.
     In addition to the previously discussed restructuring actions, prior to the
date of the  acquisition  of Baldwin and Weiser and during the fourth quarter of
2003, the Corporation  identified  opportunities to restructure these businesses
as well as to integrate  these  businesses into the existing  security  hardware
business  included in the Corporation's  Hardware and Home Improvement  segment.
Subsequent to the acquisition,  the Corporation approved  restructuring  actions
relating to the acquired  businesses of $8.9 million.  These actions principally
reflect  severance  benefits  associated with  administrative  and manufacturing
actions related to the acquired businesses, including the closure of an acquired
administration and distribution facility. The Corporation anticipates that these
restructuring actions will be completed in 2004.

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, Swedish krona, Japanese

                                     - 18 -
<PAGE>

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.
     On January  1,  2002,  the twelve  participating  member  countries  of the
European  Monetary Union canceled their respective  legacy currencies which were
replaced  by the  euro as  legal  tender.  The  Corporation  believes  that  the
introduction  of the euro has  resulted in  increased  competitive  pressures in
continental Europe due to the heightened  transparency of intra-European pricing
structures.
     From time to time,  currency  devaluations  may occur in countries in which
the Corporation  sells or manufactures  its product.  While the Corporation will
take actions to mitigate the impacts of any future currency devaluations,  there
is  no  assurance  that  such   devaluations   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  2003,  translation
adjustments,  recorded in the  accumulated  other  comprehensive  income  (loss)
component  of  stockholders'  equity,  increased  stockholders'  equity by $98.4
million compared to an increase of $60.2 million in 2002.
     As more  fully  described  in Note 9 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 47% at December 31, 2003, compared to 52% at December 31, 2002, and
51% at December 31, 2001.  At December 31, 2003,  average debt  maturity was 8.8
years  compared to 7.2 years at December 31, 2002, and 7.9 years at December 31,
2001.

INTEREST RATE SENSITIVITY
The following  table  provides  information  as of December 31, 2003,  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, 2003.

<TABLE>
<CAPTION>
Principal Payments and Interest Rate Detail by Contractual Maturity Dates

                                                                                                                         FAIR VALUE
                                                                                                                          (ASSETS)/
(U.S. Dollars in Millions)                2004       2005       2006       2007       2008    THEREAFTER       TOTAL    LIABILITIES
------------------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>       <C>        <C>        <C>         <C>          <C>         <C>            <C>
LIABILITIES
Short-term borrowings
Variable rate (other currencies)         $  .1     $   --     $   --     $   --      $  --        $   --      $   .1         $   .1
   Average interest rate                  2.73%                                                                 2.73%
Long-term debt
Fixed rate (U.S. dollars)                $  .4     $   .4     $154.9     $150.0      $  --        $550.0      $855.7         $965.1
   Average interest rate                  7.00%      7.00%      7.00%      6.55%                    7.11%       6.99%
Other long-term liabilities
Fixed rate (U.S. dollars)                $  --     $188.0     $   --     $   --      $  --        $   --      $188.0         $202.6
   Average interest rate                             5.69%                                                      5.69%

INTEREST RATE DERIVATIVES
Fixed to Variable Rate Interest
Rate Swaps (U.S. dollars)                $  --     $188.0     $125.0     $ 75.0      $  --        $200.0      $588.0         $(54.3)
   Average pay rate (a)
   Average receive rate                              6.49%      6.03%      5.93%                    5.52%       5.99%
------------------------------------------------------------------------------------------------------------------------------------
<FN>
(a)  The average pay rate is based upon 6-month forward LIBOR, except for $275.0
     million in notional  principal  amount which matures in 2007 and thereafter
     and is based upon 3-month forward LIBOR.
</FN>
</TABLE>

                                     - 19 -
<PAGE>

FOREIGN CURRENCY EXCHANGE RATE SENSITIVITY
As discussed  above,  the  Corporation  is exposed to market risks  arising from
changes in foreign  exchange rates. As of December 31, 2003, the Corporation has
hedged a portion  of its 2004  estimated  foreign  currency  transactions  using
forward exchange contracts.  The Corporation  estimated the effect on 2004 gross
profits,  based upon a recent  estimate  of  foreign  exchange  exposures,  of a
uniform 10% strengthening in the value of the United States dollar and a uniform
10% weakening in the value of the United States dollar. The larger loss computed
was that under an assumed uniform 10% strengthening of the United States dollar,
which the Corporation  estimated would have the effect of reducing gross profits
for 2004 by approximately  $17 million.  A uniform 10% 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,  compared to those experienced  during 2003,  inherent in
the foreign exchange hedging portfolio at December 31, 2003.

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 generally accepted accounting  principles 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.
     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  $771.7  million at December 31, 2003.
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.
     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 long-term maturities  corresponding to the related benefit obligation.  The
Corporation  lowered its discount rate for United States defined benefit pension
plans from 6.75% in 2002 to 6.00% in 2003.  As  discussed  further in Note 12 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  lowered  its  expected  long-term  rate  of  return
assumption for United States defined  benefit pension plans from 9.0% in 2003 to
8.75% in 2004.
     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 $260 million as of the 2003 measurement date.  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 2004 will exceed the costs recognized in 2003 by
approximately  $25 million.  This increase is  principally  attributable  to two
factors--a  reduction in the  market-related  value of pension  plan assets,  as
compared to the prior year, and the effect of amortization of certain  actuarial
losses.

                                     - 20 -
<PAGE>

     As more  fully  described  in Note 19 of  Notes to  Consolidated  Financial
Statements,  the Corporation  recognized pre-tax  restructuring charges of $31.6
million,  $46.6  million,  and  $99.7  million  during  2003,  2002,  and  2001,
respectively.  Those pre-tax  restructuring charges in 2003, 2002, and 2001 were
net of reversals of previously  established pre-tax  restructuring  reserves and
proceeds  received in excess of the adjusted carrying value of long-lived assets
in  the  aggregate  of  $13.2  million,   $11.0   million,   and  $4.1  million,
respectively.  The related restructuring  reserves reflect estimates,  including
those pertaining to separation  costs,  settlements of contractual  obligations,
and asset  valuations.  The Corporation  reassesses the reserve  requirements to
complete each  individual  plan within the  restructuring  program at the end of
each  reporting  period.  Actual  experience  has  been and may  continue  to be
different from the estimates used to establish the  restructuring  reserves.  At
December 31, 2003, the Corporation  had  liabilities  established in conjunction
with its restructuring activities that totaled $43.7 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.  Selling,  general,
and  administrative  expenses in 2002 increased by  approximately  $23.8 million
over the prior  year level due to  increased  environmental  and legal  expenses
associated with changes in various factors related to matters for which reserves
had previously been established as well as to matters which arose during 2002.
     Further,  as  indicated  in  Note 20 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.
     The  Corporation  is also  subject  to income  tax laws in many  countries.
Judgment is required in  assessing  the future tax  consequences  of events that
have been recognized in the Corporation's  financial  statements or tax returns.
During 2004, the  Corporation  expects that taxing  authorities may complete tax
audits  currently  underway in two significant  countries.  The final outcome of
these future tax  consequences,  tax audits,  and changes in regulatory tax laws
and rates could materially impact the Corporation's financial statements.
     During 2003, the Corporation  received notices of proposed adjustments from
the United States Internal Revenue Service (I.R.S.) in connection with audits of
the tax years 1998 through 2000. The principal adjustment proposed by the I.R.S.
consists  of  the  disallowance  of  a  capital  loss  deduction  taken  in  the
Corporation's  tax returns.  The Corporation  intends to vigorously  dispute the
position  taken by the I.R.S.  in this  matter.  The  Corporation  has  provided
adequate  reserves in the event that the I.R.S.  prevails in its disallowance of
the previously  described  capital loss and the imposition of related  interest.
Should the I.R.S.  prevail in its disallowance of the capital loss deduction and
imposition  of  related  interest,  it would  result  in a cash  outflow  by the
Corporation of  approximately  $140 million.  The Corporation  believes that any
such cash outflow is unlikely to occur until some time after 2004.

Impact of New Accounting Standards
As more fully described in Note 1 of Notes to Consolidated Financial Statements,
the  Corporation  has not yet adopted the Financial  Accounting  Standards Board
Staff Position No. FAS 106-1,  Accounting and Disclosure Requirements Related to
the Medicare Prescription Drug, Improvement and Modernization Act of 2003.

Financial Condition
Operating  activities  generated  cash of  $570.6  million  for the  year  ended
December 31, 2003,  compared to $451.6  million of cash  generated  for the year
ended December 31, 2002. Cash flow from operating  activities included cash flow
from discontinued  operations of $8.7 million,  $13.3 million, and $10.7 million
for the years  ended  December  31,  2003,  2002,  and 2001,  respectively.  The
increase in cash  provided by operating  activities in 2003 over the 2002 levels
was  primarily the result of lower  inventory  levels and higher  earnings.  The
favorable factors were partially offset by higher trade  receivables  associated
with increased sales in 2003 as compared to 2002.
     As part of its capital management,  the Corporation reviews certain working
capital metrics. For example, the Corporation  evaluates its accounts receivable
and inventory  levels  through the  computation  of days sales  outstanding  and
inventory turnover ratio, respectively.  The number of days sales outstanding as
of December 31, 2003,  approximated  the number of days sales  outstanding as of
December 31, 2002.  Average  inventory turns during 2003  approximated  the 2002
level.

                                     - 21 -
<PAGE>

     Investing  activities  for the year ended  December 31, 2003,  used cash of
$368.1  million  compared to $90.6 million of cash used in 2002. The increase in
cash used in investing activities was primarily the result of the $275.0 million
payment to Masco  Corporation  for the  acquisition  of  Baldwin  and Weiser and
related transaction costs. The Corporation anticipates that its capital spending
in 2004 will approximate $125 million.
     In January 2004, the Corporation sold two of its European security hardware
businesses for approximately  $80 million.  The third and last European security
hardware  business is expected  to be sold  during  2004 for  approximately  $28
million.
     Investing  activities  for the year ended  December  31,  2001,  included a
payment of $30.5 million in connection  with the April 30, 2001,  acquisition of
the automotive division of Bamal Corporation.
     Financing  activities used cash of $425.7 million in 2003, compared to cash
used  of  $102.0  million  in  2002.  The  increase  in cash  used in  financing
activities  was  primarily  the result of higher  payments  on  long-term  debt,
including $309.5 million of debt that was repaid on April 1, 2003, and cash used
for stock repurchases during the 2003 period.
     During 2003 and 2002, the Corporation  repurchased  2,011,570 and 1,008,101
shares of its  common  stock at an  aggregate  cost of $77.5  million  and $43.1
million,  respectively.  During 2001, the Corporation repurchased 525,050 shares
of its common stock at an aggregate  cost of $25.5 million upon the  termination
of its equity forward purchase agreements, as more fully described in Note 14 of
Notes to  Consolidated  Financial  Statements,  and also  repurchased  1,085,000
shares  of  its  common  stock  at an  aggregate  cost  of  $33.5  million.  The
Corporation  implemented its share repurchase program based upon the belief that
its shares were  undervalued  and to manage share growth  resulting  from option
exercises.
     At December 31, 2003, the Corporation had remaining  authorization from its
Board of Directors to repurchase an  additional  2,911,595  shares of its common
stock.
     During the fourth quarter of 2003, the Corporation announced that its Board
of  Directors  declared  a  quarterly  cash  dividend  of $.21 per  share of the
Corporation's  outstanding  common stock  payable  during the fourth  quarter of
2003.  This amount  represents a 75% increase over the $.12  quarterly  dividend
paid  by the  Corporation  since  1996.  Future  dividends  will  depend  on the
Corporation's earnings, financial condition, and other factors.
     As  discussed  further  in  Note  12 of  Notes  to  Consolidated  Financial
Statements, in accordance with Statement of Financial Accounting Standard (SFAS)
No. 87,  Employer's  Accounting  for Pensions,  the  Corporation  has recorded a
minimum  pension  liability  adjustment  at  December  31,  2003 as a charge  to
stockholders' equity of $404.5 million, net of tax. That charge to stockholders'
equity did not impact the  Corporation's  compliance  with  covenants  under its
borrowing agreements or cash flow. The Corporation's expense recognized relating
to its pension and other postretirement benefit plans increased by approximately
$32 million in 2003 over the 2002 levels.  The Corporation  anticipates that the
expense  recognized  relating to its pension  and other  postretirement  benefit
plans in 2004 will increase by  approximately  $25 million over the 2003 levels.
That  increase is  partially  attributable  to the  amortization  of  previously
unrecognized   actuarial  losses  that  gave  rise  to  the  minimum   liability
adjustment.  As discussed further in Note 12 of Notes to Consolidated  Financial
Statements,  the Corporation  does not anticipate that the funding  requirements
relating to the pension benefit plans in 2004 will be material.
     During 2003, the Corporation  received notices of proposed adjustments from
the United States Internal Revenue Service (I.R.S.) in connection with audits of
the tax years 1998 through 2000. The principal adjustment proposed by the I.R.S.
consists  of  the  disallowance  of  a  capital  loss  deduction  taken  in  the
Corporation's  tax returns.  The Corporation  intends to vigorously  dispute the
position  taken by the I.R.S.  in this  matter.  The  Corporation  has  provided
adequate  reserves in the event that the I.R.S.  prevails in its disallowance of
the previously  described  capital loss and the imposition of related  interest.
Should the I.R.S.  prevail in its disallowance of the capital loss deduction and
imposition  of  related  interest,  it would  result  in a cash  outflow  by the
Corporation of  approximately  $140 million.  The Corporation  believes that any
such cash outflow is unlikely to occur until some time after 2004.
     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.
     The Corporation will continue to have cash requirements to support seasonal
working  capital needs and capital  expenditures,  to pay  interest,  to service
debt,  and to complete  the  restructuring  actions  previously  described.  For
amounts available at December 31, 2003, under the Corporation's revolving credit
facilities and under  short-term  borrowing  facilities,  see Note 7 of Notes to
Consolidated Financial Statements.  In order to meet its cash requirements,  the
Corporation  intends to use internally  generated  funds and to borrow under its
existing and future unsecured  revolving  credit  facilities or under short-term
borrowing  facilities.  The  Corporation  believes that cash provided from these
sources will be adequate to meet its cash requirements over the next 12 months.

                                     - 22 -
<PAGE>

     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, other long-term obligations,  and lease commitments
are more fully  described in Notes 7, 8, 13, and 18,  respectively,  of Notes to
Consolidated Financial Statements.

                                                PAYMENTS DUE BY PERIOD
                                ------------------------------------------------
                                LESS THAN   1 to 3   3 to 5     AFTER
                                   1 YEAR    YEARS    YEARS   5 YEARS      TOTAL
--------------------------------------------------------------------------------
Short-term borrowings (a)(b)       $   .1   $   --   $   --    $   --   $     .1
Long-term debt                         .4    155.3    150.0     550.0      855.7
Operating leases                     59.0     84.7     40.0      26.2      209.9
Purchase obligations (c)            217.4     40.7      1.0        .3      259.4
Other long-term obligations            --    188.0       --        --      188.0
--------------------------------------------------------------------------------
Total contractual
   cash obligations (d)            $276.9   $468.7   $191.0    $576.5   $1,513.1
================================================================================
(a)  As more  fully  described  in Note 7 of  Notes  to  Consolidated  Financial
     Statements, the Corporation has a $1.0 billion credit facility that matures
     in April  2006 and a $500.0  million  commercial  paper  program.  While no
     borrowings were  outstanding  under these  facilities at December 31, 2003,
     the Corporation had borrowings  outstanding  under these facilities  during
     2003 and anticipates that borrowings will occur in 2004. The  Corporation's
     average borrowing outstanding under these facilities during 2003 was $414.8
     million.
(b)  As  described  in Note 7 of Notes  to  Consolidated  Financial  Statements,
     certain  subsidiaries of the Corporation  outside of the United States have
     uncommitted  lines of credit of $285.0 million at December 31, 2003.  These
     uncommitted  lines of credit do not have termination dates and are reviewed
     periodically.
(c)  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  material,  components,  and sourced
     products, sponsorship arrangements, and arrangements for other services.
(d)  The Corporation  anticipates that funding of its pension and postretirement
     benefit plans in 2004 will approximate $25 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.


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 9
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, 2003, 2002, and 2001.

Consolidated Balance Sheet
   - December 31, 2003 and 2002.

Consolidated Statement of Stockholders' Equity
   - years ended December 31, 2003, 2002, and 2001.

Consolidated Statement of Cash Flows
   - years ended December 31, 2003, 2002, and 2001.

Notes to Consolidated Financial Statements.

Report of Independent Auditors.

                                     - 23 -
<PAGE>

                       CONSOLIDATED STATEMENT OF EARNINGS
                 THE BLACK & DECKER CORPORATION AND SUBSIDIARIES
                   (Dollars in Millions Except Per Share Data)

<TABLE>
<CAPTION>
Year Ended December 31,                                                                     2003              2002             2001
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>               <C>              <C>
SALES                                                                                   $4,482.7          $4,291.8         $4,139.9
   Cost of goods sold                                                                    2,887.1           2,805.6          2,776.6
   Selling, general, and administrative expenses                                         1,135.3           1,071.6          1,025.3
   Restructuring and exit costs                                                             31.6              46.6             99.7
------------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME                                                                           428.7             368.0            238.3
   Interest expense (net of interest income of
      $25.5 for 2003, $26.5 for 2002, and $34.7 for 2001)                                   35.2              57.8             84.3
   Other expense                                                                             2.6               4.8              8.2
------------------------------------------------------------------------------------------------------------------------------------
EARNINGS FROM CONTINUING OPERATIONS
   BEFORE INCOME TAXES                                                                     390.9             305.4            145.8
   Income taxes                                                                            103.7              76.9             44.3
------------------------------------------------------------------------------------------------------------------------------------
NET EARNINGS FROM CONTINUING OPERATIONS                                                    287.2             228.5            101.5
   Earnings of discontinued operations (net of income taxes
      of $3.5 for 2003, $.8 for 2002, and $3.0 for 2001)                                     5.8               1.2              6.5
------------------------------------------------------------------------------------------------------------------------------------
NET EARNINGS                                                                            $  293.0          $  229.7         $  108.0
====================================================================================================================================


BASIC EARNINGS PER COMMON SHARE
   Continuing operations                                                                $   3.69          $   2.85         $   1.26
   Discontinued operations                                                                   .07               .01              .08
------------------------------------------------------------------------------------------------------------------------------------
NET EARNINGS PER COMMON SHARE -- BASIC                                                  $   3.76          $   2.86         $   1.34
====================================================================================================================================
DILUTED EARNINGS PER COMMON SHARE
   Continuing operations                                                                $   3.68          $   2.83         $   1.25
   Discontinued operations                                                                   .07               .01              .08
------------------------------------------------------------------------------------------------------------------------------------
NET EARNINGS PER COMMON SHARE --
   ASSUMING DILUTION                                                                    $   3.75          $   2.84         $   1.33
====================================================================================================================================
See Notes to Consolidated Financial Statements.
</TABLE>

                                     - 24 -
<PAGE>

                           CONSOLIDATED BALANCE SHEET
                 THE BLACK & DECKER CORPORATION AND SUBSIDIARIES
                              (Millions of Dollars)

<TABLE>
<CAPTION>
December 31,                                                                                2003              2002
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>               <C>
ASSETS
Cash and cash equivalents                                                               $  308.2          $  517.1
Trade receivables, less allowances of $47.4 for 2003 and $46.3 for 2002                    808.6             715.5
Inventories                                                                                709.9             725.7
Current assets of discontinued operations                                                  160.2              38.0
Other current assets                                                                       216.1             197.6
-------------------------------------------------------------------------------------------------------------------
   TOTAL CURRENT ASSETS                                                                  2,203.0           2,193.9
-------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT, AND EQUIPMENT                                                             660.2             629.6
GOODWILL                                                                                   771.7             658.4
LONG-TERM ASSETS OF DISCONTINUED OPERATIONS                                                   --              99.7
OTHER ASSETS                                                                               587.6             548.9
-------------------------------------------------------------------------------------------------------------------
                                                                                        $4,222.5          $4,130.5
===================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings                                                                   $     .1          $    4.6
Current maturities of long-term debt                                                          .4             312.0
Trade accounts payable                                                                     379.8             336.2
Current liabilities of discontinued operations                                              38.0              18.8
Other accrued liabilities                                                                  893.8             781.8
-------------------------------------------------------------------------------------------------------------------
   TOTAL CURRENT LIABILITIES                                                             1,312.1           1,453.4
-------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT                                                                             915.6             927.6
DEFERRED INCOME TAXES                                                                      179.8             211.3
POSTRETIREMENT BENEFITS                                                                    451.9             395.7
LONG-TERM LIABILITIES OF DISCONTINUED OPERATIONS                                              --              14.4
OTHER LONG-TERM LIABILITIES                                                                516.6             528.5
STOCKHOLDERS' EQUITY
Common stock (outstanding: December 31, 2003 -- 77,933,464 shares;
   December 31, 2002 -- 79,604,786 shares)                                                  39.0              39.8
Capital in excess of par value                                                             486.7             550.1
Retained earnings                                                                          773.0             524.3
Accumulated other comprehensive income (loss)                                             (452.2)           (514.6)
-------------------------------------------------------------------------------------------------------------------
   TOTAL STOCKHOLDERS' EQUITY                                                              846.5             599.6
-------------------------------------------------------------------------------------------------------------------
                                                                                        $4,222.5          $4,130.5
===================================================================================================================
See Notes to Consolidated Financial Statements.
</TABLE>

                                     - 25 -
<PAGE>

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                 THE BLACK & DECKER CORPORATION AND SUBSIDIARIES
                   (Dollars in Millions Except Per Share Data)

<TABLE>
<CAPTION>
                                                                                                         Accumulated
                                                         Outstanding           Capital in                      Other          Total
                                                              Common     Par    Excess of   Retained   Comprehensive  Stockholders'
                                                              Shares   Value    Par Value   Earnings   Income (Loss)         Equity
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>          <C>         <C>        <C>            <C>            <C>
BALANCE AT DECEMBER 31, 2000                              80,343,094   $40.2       $560.0     $264.0         $(171.8)       $ 692.4
Comprehensive income (loss):
   Net earnings                                                   --      --           --      108.0              --          108.0
   Cumulative effect of accounting change (net of tax)            --      --           --         --             (.7)           (.7)
   Net loss on derivative instruments (net of tax)                --      --           --         --             (.2)           (.2)
   Minimum pension liability adjustment (net of tax)              --      --           --         --             1.7            1.7
   Foreign currency translation adjustments,
      less effect of hedging activities (net of tax)              --      --           --         --           (17.7)         (17.7)
------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income                                              --      --           --      108.0           (16.9)          91.1
------------------------------------------------------------------------------------------------------------------------------------
Cash dividends on common stock ($.48 per share)                   --      --           --      (38.8)             --          (38.8)
Purchase and retirement of common stock                   (1,085,000)    (.6)       (32.9)        --              --          (33.5)
Common stock retired under equity forwards                  (765,326)    (.4)          --         --              --            (.4)
Common stock issued under employee benefit plans           1,336,873      .7         39.5         --              --           40.2
------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2001                              79,829,641    39.9        566.6      333.2          (188.7)         751.0
Comprehensive income (loss):
   Net earnings                                                   --      --           --      229.7              --          229.7
   Net loss on derivative instruments (net of tax)                --      --           --         --           (16.4)         (16.4)
   Minimum pension liability adjustment (net of tax)              --      --           --         --          (369.7)        (369.7)
   Foreign currency translation adjustments,
      less effect of hedging activities (net of tax)              --      --           --         --            60.2           60.2
------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss)                                       --      --           --      229.7          (325.9)         (96.2)
------------------------------------------------------------------------------------------------------------------------------------
Cash dividends on common stock ($.48 per share)                   --      --           --      (38.6)             --          (38.6)
Purchase and retirement of common stock                   (1,008,101)    (.5)       (42.6)        --              --          (43.1)
Common stock issued under employee benefit plans             783,246      .4         26.1         --              --           26.5
------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2002                              79,604,786    39.8        550.1      524.3          (514.6)         599.6
Comprehensive income (loss):
   Net earnings                                                   --      --           --      293.0              --          293.0
   Net loss on derivative instruments (net of tax)                --      --           --         --           (15.8)         (15.8)
   Minimum pension liability adjustment (net of tax)              --      --           --         --           (20.2)         (20.2)
   Foreign currency translation adjustments,
      less effect of hedging activities (net of tax)              --      --           --         --            98.4           98.4
------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income                                              --      --           --      293.0            62.4          355.4
------------------------------------------------------------------------------------------------------------------------------------
Cash dividends on common stock ($.57 per share)                   --      --           --      (44.3)             --          (44.3)
Purchase and retirement of common stock                   (2,011,570)   (1.0)       (76.5)        --              --          (77.5)
Common stock issued under employee benefit plans             340,248      .2         13.1         --              --           13.3
------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2003                              77,933,464   $39.0       $486.7     $773.0         $(452.2)       $ 846.5
====================================================================================================================================
See Notes to Consolidated Financial Statements.
</TABLE>

                                     - 26 -
<PAGE>

                      CONSOLIDATED STATEMENT OF CASH FLOWS
                 THE BLACK & DECKER CORPORATION AND SUBSIDIARIES
                              (Millions of Dollars)

<TABLE>
<CAPTION>
Year Ended December 31,                                                                     2003              2002             2001
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>               <C>               <C>
OPERATING ACTIVITIES
Net earnings                                                                            $  293.0          $  229.7          $ 108.0
Adjustments to reconcile net earnings to cash flow
   from operating activities:
   Non-cash charges and credits:
      Depreciation and amortization                                                        133.4             122.4            152.3
      Restructuring and exit costs                                                          31.6              46.6             99.7
      Other                                                                                 (8.1)             (8.6)            (4.4)
   Earnings of discontinued operations                                                      (5.8)             (1.2)            (6.5)
   Changes in selected working capital items
      (net of assets and liabilities of acquired businesses):
      Trade receivables                                                                     (6.4)             13.1             69.0
      Inventories                                                                           94.2             (10.0)           128.0
      Trade accounts payable                                                                21.0              18.9            (53.5)
   Restructuring spending                                                                  (40.4)            (36.9)           (24.9)
   Other assets and liabilities                                                             49.4              64.3            (98.8)
------------------------------------------------------------------------------------------------------------------------------------
   CASH FLOW FROM OPERATING ACTIVITIES
      OF CONTINUING OPERATIONS                                                             561.9             438.3            368.9
   CASH FLOW FROM OPERATING ACTIVITIES
      OF DISCONTINUED OPERATIONS                                                             8.7              13.3             10.7
------------------------------------------------------------------------------------------------------------------------------------
   CASH FLOW FROM OPERATING ACTIVITIES                                                     570.6             451.6            379.6
------------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from disposal of assets                                                            15.0               4.6             12.3
Capital expenditures                                                                      (102.5)            (94.3)          (131.4)
Purchase of businesses, including transaction costs                                       (277.6)               --            (30.5)
Investing activities of discontinued operations                                             (3.3)             (2.3)            (3.4)
Other investing activities                                                                    .3               1.4               --
------------------------------------------------------------------------------------------------------------------------------------
   CASH FLOW FROM INVESTING ACTIVITIES                                                    (368.1)            (90.6)          (153.0)
------------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net decrease in short-term borrowings                                                       (4.9)             (7.2)          (390.0)
Proceeds from long-term debt (net of debt issue cost of $3.1 in 2001)                         --                --            393.8
Payments on long-term debt                                                                (310.6)            (33.9)           (48.6)
Purchase of common stock                                                                   (77.5)            (43.1)           (59.0)
Issuance of common stock                                                                    11.6              20.8             27.9
Cash dividends                                                                             (44.3)            (38.6)           (38.8)
------------------------------------------------------------------------------------------------------------------------------------
   CASH FLOW FROM FINANCING ACTIVITIES                                                    (425.7)           (102.0)          (114.7)
Effect of exchange rate changes on cash                                                     14.3              13.6             (2.4)
------------------------------------------------------------------------------------------------------------------------------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                          (208.9)            272.6            109.5
Cash and cash equivalents at beginning of year                                             517.1             244.5            135.0
------------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR                                                $  308.2          $  517.1         $  244.5
====================================================================================================================================
See Notes to Consolidated Financial Statements.
</TABLE>

                                     - 27 -
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 THE BLACK & DECKER CORPORATION AND SUBSIDIARIES

NOTE 1: SUMMARY OF ACCOUNTING POLICIES
Principles of Consolidation:  The Consolidated  Financial Statements include the
accounts of the Corporation and its subsidiaries. Intercompany transactions have
been eliminated.

Reclassifications:  Certain prior years' amounts in the  Consolidated  Financial
Statements have been reclassified to conform to the presentation used in 2003.

Use of Estimates:  The  preparation of financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying  notes. Actual results inevitably will differ from those estimates,
and such differences may be material to the financial statements.

Revenue  Recognition:  Revenue from sales of products is  recognized  when title
passes,  which  principally  occurs upon shipment but also, to a lesser  extent,
occurs upon delivery.

Foreign Currency  Translation:  The financial statements of subsidiaries located
outside of the United  States,  except  those  subsidiaries  operating in highly
inflationary  economies,  generally are measured using the local currency as the
functional  currency.  Assets,  including  goodwill,  and  liabilities  of these
subsidiaries  are translated at the rates of exchange at the balance sheet date.
The  resultant  translation   adjustments  are  included  in  accumulated  other
comprehensive  income  (loss),  a separate  component of  stockholders'  equity.
Income and expense items are  translated  at average  monthly rates of exchange.
Gains and losses from foreign  currency  transactions of these  subsidiaries are
included in net  earnings.  For  subsidiaries  operating in highly  inflationary
economies,  gains and losses from  balance  sheet  translation  adjustments  are
included in net earnings.

Cash and Cash  Equivalents:  Cash and  cash  equivalents  include  cash on hand,
demand deposits,  and short-term  investments with maturities of three months or
less from the date of acquisition.

Concentration  of  Credit:  The  Corporation  sells  products  and  services  to
customers in diversified  industries and geographic regions and, therefore,  has
no  significant  concentrations  of  credit  risk  other  than  with  two  major
customers. As of December 31, 2003, approximately 25% of the Corporation's trade
receivables were due from two large home improvement retailers.
     The  Corporation   continuously   evaluates  the  creditworthiness  of  its
customers and generally does not require collateral.

Inventories:  Inventories are stated at the lower of cost or market. The cost of
United States  inventories is based primarily on the last-in,  first-out  (LIFO)
method;  all other  inventories  are  based on the  first-in,  first-out  (FIFO)
method.

Property and  Depreciation:  Property,  plant,  and equipment is stated at cost.
Depreciation  is computed  generally on the  straight-line  method for financial
reporting purposes.

Goodwill and Other Intangible Assets: Effective January 1, 2002, the Corporation
adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and
Other  Intangible  Assets.  Under SFAS No. 142,  goodwill and intangible  assets
deemed to have indefinite lives are no longer  amortized,  but are subject to an
annual  impairment test.  Other intangible  assets continue to be amortized over
their useful lives.
     The changes in the carrying  amount of goodwill for the year ended December
31, 2003, by segment in millions of dollars, are as follows:

                                               POWER      HARDWARE    FASTENING
                                             TOOLS &        & HOME   & ASSEMBLY
                                         ACCESSORIES   IMPROVEMENT      SYSTEMS
--------------------------------------------------------------------------------
Goodwill at January 1                          $25.8        $363.9       $268.7
Acquisitions                                      --          94.4           --
Currency translation
   adjustment                                     --            .3         18.6
--------------------------------------------------------------------------------
Goodwill at December 31                        $25.8        $458.6       $287.3
================================================================================
     The  Corporation  assesses  the fair value of its  reporting  units for its
goodwill  impairment tests based upon a discounted cash flow methodology.  Those
estimated  future  cash  flows - which are based  upon  historical  results  and
current projections - are discounted at a rate corresponding to a "market" rate.
If the carrying  amount of the reporting  unit exceeds the estimated  fair value
determined  through that discounted cash flow methodology,  goodwill  impairment
may be present. The Corporation would measure the goodwill impairment loss based
upon the fair value of the  underlying  assets and  liabilities of the 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.
     As of January 1, 2002, the Corporation  performed the first of the required
impairment tests of goodwill. Additionally, the Corporation performed its annual
impairment  test in the fourth  quarters  of 2003 and 2002.  No  impairment  was
present upon performing these impairment  tests. The Corporation  cannot predict
the occurrence of certain events that might adversely  affect the reported value
of  goodwill.  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  recognized goodwill amortization of $26.4 million in 2001,
of which $24.2 million related to continuing operations and $2.2 million related
to discontinued operations. Net earnings from continuing operations for the year
ended December 31, 2001, excluding goodwill amortization, would have been $125.7
million. Basic and diluted earnings per share from continuing operations for the
year ended December 31, 2001, excluding goodwill  amortization,  would have been
$1.56 and $1.55, respectively. Net earnings

                                     - 28 -
<PAGE>

for the year ended December 31, 2001,  excluding  goodwill  amortization,  would
have been  $134.4  million.  Basic and diluted  earnings  per share for the year
ended December 31, 2001, excluding goodwill amortization,  would have been $1.67
and $1.66, respectively.

Accounting Policy Prior to January 1, 2002: Goodwill and other intangible assets
were amortized on the straight-line  method.  Goodwill was amortized principally
over a 40-year period. On a periodic basis, the Corporation estimated the future
discounted  cash flows of the  businesses  to which  goodwill  related.  If such
estimates of the future discounted cash flows, net of the carrying amount of the
tangible  net  assets,  were less than the  carrying  amount  of  goodwill,  the
difference would have been charged to operations.  The projected discounted cash
flows were discounted at a rate  corresponding  to the  Corporation's  estimated
cost of  capital,  which also was the  hurdle  rate used by the  Corporation  in
making investment decisions.

Product Development Costs: Costs associated with the development of new products
and changes to existing products are charged to operations as incurred.  Product
development  costs were $100.4 million in 2003, $94.3 million in 2002, and $96.6
million in 2001.

Shipping  and  Handling  Costs:  Shipping and  handling  costs  represent  costs
associated  with  shipping  products to customers and handling  finished  goods.
Included in selling,  general,  and  administrative  expenses  are  shipping and
handling  costs of $229.4  million in 2003,  $218.1  million in 2002, and $209.4
million in 2001. Freight charged to customers is recorded as revenue.

Advertising and Promotion:  Effective  January 1, 2002, the Corporation  adopted
Emerging Issues Task Force Issue No. 01-9, Accounting for Consideration Given by
a Vendor to a Customer or a Reseller of the Vendor's  Products (EITF 01-9). Upon
adoption of EITF 01-9, the Corporation was required to classify certain payments
to its customers as a reduction of sales. The Corporation  previously classified
certain of these payments as promotion expense, a component of selling, general,
and administrative  expenses in the Consolidated Statement of Earnings. Upon the
adoption of EITF 01-9, prior period amounts were  reclassified and resulted in a
reduction of sales (and an  offsetting  reduction of selling  expenses) of $87.5
million in 2001.
     Advertising  and  promotion  expense,  which is expensed as  incurred,  was
$154.0 million in 2003, $134.6 million in 2002, and $132.9 million in 2001.

Product  Warranties:  Most of the Corporation's  products in the Power Tools and
Accessories  segment and Hardware and Home  Improvement  segment carry a product
warranty.  That product warranty, in the United States,  generally provides that
customers can return a defective  product during the specified  warranty  period
following purchase in exchange for a replacement product or repair at no cost to
the  consumer.  Product  warranty  arrangements  outside the United  States vary
depending upon local market conditions and laws and regulations. The Corporation
accrues an estimate of its  exposure to warranty  claims based upon both current
and historical product sales data and warranty costs incurred.

Postretirement  Benefits:  Pension plans,  which cover  substantially all of the
Corporation's  employees  in North  America,  Europe,  and the  United  Kingdom,
consist primarily of non-contributory defined benefit plans. The defined benefit
plans are funded in  conformity  with the  funding  requirements  of  applicable
government regulations.  Generally, benefits are based on age, years of service,
and the level of  compensation  during  the  final  years of  employment.  Prior
service  costs for  defined  benefit  plans  generally  are  amortized  over the
estimated remaining service periods of employees.
     Certain   employees  are  covered  by  defined   contribution   plans.  The
Corporation's contributions to these plans are based on a percentage of employee
compensation  or  employee  contributions.  These  plans are funded on a current
basis.
     In addition to pension benefits,  certain postretirement  medical,  dental,
and life  insurance  benefits are  provided,  principally  to most United States
employees.    Retirees   in   other   countries   generally   are   covered   by
government-sponsored programs.
     The  Corporation  uses the  corridor  approach in the  valuation of defined
benefit plans and other  postretirement  benefits.  The corridor approach defers
all actuarial gains and losses  resulting from variances  between actual results
and economic  estimates or actuarial  assumptions.  For defined  benefit pension
plans,  these unrecognized gains and losses are amortized when the net gains and
losses exceed 10% of the greater of the  market-related  value of plan assets or
the  projected  benefit  obligation  at the  beginning  of the  year.  For other
postretirement  benefits,  amortization  occurs  when the net gains  and  losses
exceed 10% of the accumulated postretirement benefit obligation at the beginning
of the year.  The amount in excess of the corridor is amortized over the average
remaining  service period to retirement date of active plan participants or, for
retired participants, the average remaining life expectancy.

Derivative  Financial  Instruments:  Effective  January 1, 2001, the Corporation
adopted  SFAS  No.  133,  Accounting  for  Derivative  Instruments  and  Hedging
Activities, as amended. SFAS No. 133 requires that the Corporation recognize all
derivatives  on the balance  sheet at fair value and  establishes  criteria  for
designation  and  effectiveness  of  hedging  relationships.  At the time of its
adoption  of SFAS No.  133 on January 1, 2001,  the  Corporation  recognized  an
after-tax  reduction  of $.7 million to other  comprehensive  income  (loss),  a
component of stockholders' equity, as a cumulative effect adjustment.
     The Corporation is exposed to market risks arising from changes in interest
rates.  With  products  and  services  marketed in over 100  countries  and with
manufacturing  sites in 10 countries,  the Corporation  also is exposed to risks
arising from changes in foreign currency rates. The Corporation uses derivatives
principally in the management of interest rate and foreign currency exposure. It
does not utilize  derivatives  that contain  leverage  features.  On the date on
which the Corporation enters into a derivative,  the derivative is designated as
a hedge of the  identified  exposure.  The  Corporation  formally  documents all
relationships between hedging instruments and

                                     - 29 -
<PAGE>

hedged  items,  as  well  as its  risk-management  objective  and  strategy  for
undertaking various hedge transactions.  In this documentation,  the Corporation
specifically  identifies  the  asset,  liability,  firm  commitment,  forecasted
transaction,  or net investment  that has been designated as the hedged item and
states how the hedging instrument is expected to reduce the risks related to the
hedged item. The Corporation measures effectiveness of its hedging relationships
both at hedge inception and on an ongoing basis.
     For each  derivative  instrument that is designated and qualifies as a fair
value  hedge,  the  gain  or loss on the  derivative  instrument  as well as the
offsetting  loss or gain on the hedged item  attributable to the hedged risk are
recognized in current  earnings  during the period of the change in fair values.
For each  derivative  instrument that is designated and qualifies as a cash flow
hedge, the effective portion of the gain or loss on the derivative instrument is
reported as a component of  accumulated  other  comprehensive  income (loss) and
reclassified into earnings in the same period or periods during which the hedged
transaction  affects  earnings.  The  remaining  gain or loss on the  derivative
instrument  in excess of the  cumulative  change in the present  value of future
cash flows of the hedged item, if any, is recognized in current  earnings during
the period of change.  For hedged forecasted  transactions,  hedge accounting is
discontinued  if the forecasted  transaction is no longer probable of occurring,
in which case previously  deferred  hedging gains or losses would be recorded to
earnings immediately.  For derivatives that are designated and qualify as hedges
of net investments in subsidiaries  located outside the United States,  the gain
or loss is reported in accumulated other comprehensive  income (loss) as part of
the cumulative translation adjustment to the extent the derivative is effective.
For derivative  instruments not designated as hedging  instruments,  the gain or
loss is recognized in current earnings during the period of change.

Interest  Rate Risk  Management:  The  Corporation  has  designated  each of its
outstanding interest rate swap agreements as fair value hedges of the underlying
fixed rate  obligation.  The fair value of the interest rate swap  agreements is
recorded in other assets or other  long-term  liabilities  with a  corresponding
increase or decrease in the fixed rate obligation. The changes in the fair value
of the interest rate swap agreements and the underlying  fixed rate  obligations
are  recorded as equal and  offsetting  unrealized  gains and losses in interest
expense and other expense  (income) in the  Consolidated  Statement of Earnings.
The Corporation has structured all existing  interest rate swap agreements to be
100% effective.  As a result,  there is no current impact to earnings  resulting
from hedge ineffectiveness. Gains or losses resulting from the early termination
of interest  rate swaps are  deferred as an increase or decrease to the carrying
value of the related  debt and  amortized as an  adjustment  to the yield of the
related debt  instrument  over the remaining  period  originally  covered by the
swap.

Foreign  Currency  Management:   The  fair  value  of  foreign  currency-related
derivatives are generally  included in the  Consolidated  Balance Sheet in other
current assets and other accrued  liabilities.  The earnings impact of cash flow
hedges  relating to forecasted  purchases of inventory is generally  reported in
cost of goods sold to match the underlying  transaction  being hedged.  Realized
and unrealized gains and losses on these instruments are deferred in accumulated
other comprehensive income (loss) until the underlying transaction is recognized
in earnings.
     The earnings impact of cash flow hedges relating to the variability in cash
flows  associated  with foreign  currency-denominated  assets and liabilities is
reported in cost of goods sold, selling,  general, and administrative  expenses,
or other expense (income),  depending on the nature of the assets or liabilities
being hedged.  The amounts deferred in accumulated  other  comprehensive  income
(loss)  associated with these  instruments  generally relate to foreign currency
spot-rate to forward-rate  differentials and are recognized in earnings over the
term of the  hedge.  The  discount  or  premium  relating  to cash  flow  hedges
associated   with  foreign   currency-denominated   assets  and  liabilities  is
recognized in net interest expense over the life of the hedge.

Stock-Based  Compensation:  As described in Note 16, the Corporation has elected
to follow the  accounting  provisions  of  Accounting  Principles  Board Opinion
(APBO)  No.  25,  Accounting  for Stock  Issued to  Employees,  for  stock-based
compensation  and to furnish the pro forma  disclosures  required under SFAS No.
148, Accounting for Stock-Based Compensation - Transition and Disclosure.
     A  reconciliation  of the  Corporation's  net  earnings  to pro  forma  net
earnings,  and the related pro forma earnings per share  amounts,  for the years
ended December 31, 2003,  2002, and 2001, is provided below. For purposes of pro
forma disclosure,  stock-based  compensation expense is recognized in accordance
with the provisions of SFAS No. 123,  Accounting for  Stock-Based  Compensation.
Further, pro forma stock-based compensation expense is amortized to expense on a
straight-line basis over the vesting period.

(Dollars in Millions
Except Per Share Data)                               2003       2002       2001
--------------------------------------------------------------------------------
Net earnings                                       $293.0     $229.7     $108.0
Adjustment to net earnings for:
   Stock-based compensation
     expense (income) included
     in net earnings, net of tax                      2.6         --       (2.3)
   Pro forma stock-based
     compensation (expense),
     net of tax                                     (19.3)     (18.5)     (13.8)
--------------------------------------------------------------------------------
Pro forma net earnings                             $276.3     $211.2     $ 91.9
================================================================================
Pro forma net earnings
   per common share -- basic                       $ 3.55     $ 2.63     $ 1.14
================================================================================
Pro forma net earnings
   per common share --
   assuming dilution                               $ 3.55     $ 2.62     $ 1.13
================================================================================

New Accounting  Pronouncements:  On December 8, 2003, the Medicare  Prescription
Drug,  Improvement and Modernization Act of 2003 (the "Act") was signed into law
which introduced a prescription drug benefit under Medicare (Medicare Part D) as
well as a federal  subsidy to sponsors of retiree health care benefit plans that
provide a benefit that is at least actuarially equivalent to Medicare Part D. In
January 2004,

                                     - 30 -
<PAGE>

the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP)
No. FAS 106-1,  Accounting and Disclosure  Requirements  Related to the Medicare
Prescription Drug,  Improvement and Modernization Act of 2003. As provided under
FSP No. FAS 106-1,  the Corporation  elected to defer accounting for the effects
of the Act  until  authoritative  guidance  on the  accounting  for the  federal
subsidy is issued or until a significant event occurs that ordinarily would call
for the  remeasurement of the  postretirement  benefit plan's  obligations.  The
accrued  benefit  obligation  and the net periodic  postretirement  benefit cost
included in the consolidated  financial statements do not reflect the effects of
the Act on the Corporation's postretirement benefit plan.

NOTE 2: ACQUISITIONS
On September 30, 2003, the Corporation  acquired  Baldwin  Hardware  Corporation
(Baldwin) and Weiser Lock Corporation (Weiser) from Masco Corporation for $277.6
million  in cash,  including  transaction  costs of $2.6  million.  Baldwin is a
leading provider of architectural  and decorative  products for the home. Weiser
is a manufacturer of locksets and decorative  exterior hardware and accessories.
These additions to the Corporation's  security hardware business, a component of
its Hardware and Home Improvement segment,  will be integrated into the existing
security hardware business and will allow the Corporation to offer its customers
a broader range of styles and price points.
     This  transaction  has been accounted for in accordance  with SFAS No. 141,
Business  Combinations,  and accordingly,  the financial position and results of
operations have been included in the Corporation's  operations since the date of
acquisition.
     The Corporation has not yet obtained all  information,  including,  but not
limited to,  environmental  studies and finalization of independent  appraisals,
required to complete the purchase price  allocation  related to the acquisition.
The final  allocation  will be  completed  in 2004 and is not expected to have a
material  impact  on  the  Corporation's   financial   position  or  results  of
operations.  The initial  purchase price  allocation of the acquired  businesses
based  on  independent  appraisals  and  management's  estimates  at the date of
acquisition, in millions of dollars, is as follows:

--------------------------------------------------------------------------------
Accounts receivable                                                      $ 38.3
Inventories                                                                38.6
Property and equipment                                                     63.1
Goodwill                                                                   94.4
Intangible assets                                                          76.3
Other current and long-term assets                                         10.5
--------------------------------------------------------------------------------
   Total assets acquired                                                  321.2
--------------------------------------------------------------------------------
Accounts payable and accrued liabilities                                   41.0
Other liabilities                                                           2.6
--------------------------------------------------------------------------------
   Total liabilities                                                       43.6
--------------------------------------------------------------------------------
Fair value of net assets acquired                                        $277.6
================================================================================
     The   preliminary   allocation  of  the  purchase  price  resulted  in  the
recognition of $94.4 million of goodwill  primarily  related to the  anticipated
future  earnings and cash flows of Baldwin and Weiser,  including  the estimated
effects of the integration of these businesses into the  Corporation's  existing
security hardware business.  The transaction also generated  approximately $76.3
million  in  intangible  assets of which  $71.9  million  were  indefinite-lived
intangible  assets related to trademarks and tradenames and $4.4 million related
to  finite-lived  intangible  assets that will be amortized  over a period of 10
years. The Corporation  believes that the entire amount of intangible assets and
goodwill recognized will be deductible for income tax purposes.
     Prior to the date of the  acquisition  of Baldwin and Weiser and during the
fourth quarter of 2003, the Corporation identified  opportunities to restructure
these  businesses  as well as to integrate  these  businesses  into its existing
security  hardware  business.  Subsequent to the  acquisition,  the  Corporation
approved  restructuring  actions  relating to the  acquired  businesses  of $8.9
million.  These actions  principally  reflect severance benefits associated with
administrative  and  manufacturing  actions related to the acquired  businesses,
including the closure of an acquired  administration and distribution  facility.
These  restructuring  actions will commence in 2004, and the Corporation expects
the  actions to be  completed  by the end of 2004.  In  addition,  as more fully
described  in Note 19,  during  the  fourth  quarter  of 2003,  the  Corporation
recorded a pre-tax restructuring charge of $11.0 million relating to the closure
of a manufacturing facility in its Kwikset business, a pre-existing component of
its Hardware and Home Improvement segment.

NOTE 3: DISCONTINUED OPERATIONS
As of December 31, 2003, the  Corporation  met the  requirements to classify its
European  security hardware  business as discontinued  operations.  The European
security hardware business, consisting of the NEMEF, Corbin, and DOM businesses,
was  previously  included in the  Corporation's  Hardware  and Home  Improvement
segment.  In January 2004, the  Corporation  completed the sale of the NEMEF and
Corbin  businesses to Assa Abloy for an aggregate  sales price of $80.0 million,
subject to  post-closing  adjustments.  Also, in January 2004,  the  Corporation
signed an  agreement  with Assa Abloy to sell its  remaining  European  security
hardware  business,  DOM, for $28.0 million.  That sale is subject to regulatory
approval.  The Corporation's  sale of its European security hardware business in
2004 is expected to result in a net gain.
     The European  security  hardware  business  discussed  above is reported as
discontinued  operations in the consolidated  financial statements and all prior
periods  presented  have been adjusted to reflect this  presentation.  Sales and
earnings  before income taxes of the  discontinued  operations for each year, in
millions of dollars, were as follows:

                                                       2003      2002      2001
--------------------------------------------------------------------------------
Sales                                                $119.3    $102.2    $105.7
Earnings before income taxes                            9.3       2.0       9.5
--------------------------------------------------------------------------------
     The results of the  discontinued  operations do not reflect any expense for
interest allocated by or management fees charged by the Corporation.

                                     - 31 -
<PAGE>

     The major classes of assets and liabilities of  discontinued  operations in
the Consolidated  Balance Sheet at the end of each year, in millions of dollars,
were as follows:

                                                                 2003      2002
--------------------------------------------------------------------------------
Trade receivables, less allowances                             $ 16.1    $ 13.5
Inventories                                                      28.4      23.2
Property, plant, and equipment                                   27.9      26.3
Goodwill                                                         82.7      70.7
Other assets                                                      5.1       4.0
--------------------------------------------------------------------------------
   Total assets                                                 160.2     137.7
--------------------------------------------------------------------------------
Trade accounts payable                                            8.5       7.0
Other accrued liabilities                                        11.5      11.8
Postretirement benefits and
    other long-term liabilities                                  18.0      14.4
--------------------------------------------------------------------------------
Total liabilities                                                38.0      33.2
--------------------------------------------------------------------------------
Net assets                                                     $122.2    $104.5
================================================================================

NOTE 4: INVENTORIES
The  classification  of  inventories  at the end of each year,  in  millions  of
dollars, was as follows:

                                                                 2003      2002
--------------------------------------------------------------------------------
FIFO cost
Raw materials and work-in-process                              $186.3    $170.3
Finished products                                               510.3     546.5
--------------------------------------------------------------------------------
                                                                696.6     716.8
Adjustment to arrive at
   LIFO inventory value                                          13.3       8.9
--------------------------------------------------------------------------------
                                                               $709.9    $725.7
================================================================================
     The cost of United  States  inventories  stated  under the LIFO  method was
approximately 43% and 52% of the value of total inventories at December 31, 2003
and 2002, respectively.

NOTE 5: PROPERTY, PLANT, AND EQUIPMENT
Property,  plant, and equipment at the end of each year, in millions of dollars,
consisted of the following:

                                                                 2003      2002
--------------------------------------------------------------------------------
Property, plant, and equipment at cost:
Land and improvements                                        $   50.0  $   46.4
Buildings                                                       268.8     260.5
Machinery and equipment                                       1,234.6   1,185.3
--------------------------------------------------------------------------------
                                                              1,553.4   1,492.2
Less accumulated depreciation                                   893.2     862.6
--------------------------------------------------------------------------------
                                                             $  660.2  $  629.6
================================================================================

NOTE 6: OTHER ACCRUED LIABILITIES
Other  accrued  liabilities  at the end of each year,  in  millions  of dollars,
included the following:

                                                                 2003      2002
--------------------------------------------------------------------------------
Salaries and wages                                             $103.4    $ 82.5
Employee benefits                                               130.3     107.2
Trade discounts and allowances                                  149.8     121.6
Advertising and promotion                                        74.7      62.9
Income taxes, including deferred taxes                           39.4      21.7
Accruals related to restructuring actions                        43.7      56.0
Warranty                                                         40.4      41.8
All other                                                       312.1     288.1
--------------------------------------------------------------------------------
                                                               $893.8    $781.8
================================================================================
     All other at December  31, 2003 and 2002,  consisted  primarily of accruals
for foreign  currency  derivatives,  interest,  insurance,  and taxes other than
income taxes.
     The  following  provides  information  with  respect  to the  Corporation's
warranty accrual, in millions of dollars:

                                                                 2003      2002
--------------------------------------------------------------------------------
Warranty reserve at January 1                                  $ 41.8    $ 38.6
Accruals for warranties issued during
   the period and changes in estimates
   related to pre-existing warranties                            80.4      94.9
Settlements made                                                (85.5)    (94.0)
Additions due to acquisitions                                      .8        --
Currency translation adjustments                                  2.9       2.3
--------------------------------------------------------------------------------
Warranty reserve at December 31                                $ 40.4    $ 41.8
================================================================================

NOTE 7: SHORT-TERM BORROWINGS
Short-term borrowings in the amounts of $.1 million and $4.6 million at December
31, 2003 and 2002,  respectively,  consisted  primarily of borrowings  under the
terms of uncommitted lines of credit or other short-term borrowing arrangements.
The weighted-average interest rate on short-term borrowings outstanding was 2.7%
and 3.4% at December 31, 2003 and 2002, respectively.
   In November 2002, the Corporation entered into a $500 million agreement under
which it may issue commercial paper at market rates with maturities of up to 365
days from the date of issue.
     In April 2001,  the  Corporation  replaced an expiring $1.0 billion  former
unsecured   revolving  credit  facility,   which  consisted  of  two  individual
facilities, with a $1.0 billion unsecured revolving credit facility that expires
in April 2006 and a $400.0 million 364-day  unsecured  revolving credit facility
(collectively,  the Credit  Facilities).  In April 2002, the Corporation entered
into a $250 million  364-day  unsecured  revolving  credit facility (the 364-day
Credit Facility) replacing its expiring $400 million 364-day unsecured revolving
credit facility.  The Corporation  reduced the borrowing  availability under the
364-day Credit Facility based upon its anticipated  short-term  financing needs.
In April 2003, the Corporation elected not to renew the 364-day Credit Facility,
again,  based  upon its  anticipated  short-term  financing  needs.  The  amount
available  for  borrowing  under the $1.0  billion  unsecured  revolving  credit
facility (the Credit Facility) at December 31, 2003, was $1.0 billion.
     While  no  amounts  were  outstanding  under  the  Corporation's  unsecured
revolving credit  facilities or commercial paper program at December 31, 2003 or
2002, average borrowings outstanding under these facilities during 2003 and 2002
were $414.8 million and $429.9 million, respectively.
     Under the Credit Facilities, the Corporation has the option of borrowing at
the London  Interbank  Offered Rate (LIBOR) plus a specified  percentage,  or at
other variable rates set forth therein.  The Credit Facilities  provide that the
interest rate margin over LIBOR, initially set at .475% and .500%, respectively,
for each of the two individual facilities,  will increase or decrease based upon
changes in the ratings of the Corporation's long-term senior unsecured debt. The
Credit

                                     - 32 -
<PAGE>

Facilities provided for an interest rate margin over LIBOR of .475% during 2003,
2002, and 2001.  That interest rate margin will increase (by a maximum amount of
..525%) or  decrease  (by a maximum  amount of .220%)  based upon  changes in the
ratings of the Corporation's long-term senior unsecured debt. In addition to the
interest payable on the principal  amount of indebtedness  outstanding from time
to time under the Credit  Facilities,  the  Corporation  is  required  to pay an
annual facility fee to each bank, equal to .150% and .125%, respectively, of the
amount of each bank's  commitment,  whether used or unused.  The  Corporation is
also  required to pay a  utilization  fee under the Credit  Facilities  equal to
..125%,  applied to the outstanding  balance when borrowings under the respective
facility exceeds 50% of the facility.  The Credit  Facilities  provide that both
the facility fee and the  utilization  fee will increase or decrease  based upon
changes in the ratings of the Corporation's senior unsecured debt.
     The Credit  Facility  includes  various  customary  covenants.  Some of the
covenants  limit the ability of the  Corporation or its  subsidiaries  to pledge
assets or incur liens on assets.  Other  covenants  require the  Corporation  to
maintain a specified  interest  coverage  ratio and  certain  cash flow to fixed
expense  coverage  ratios.  As of December  31,  2003,  the  Corporation  was in
compliance with all terms and conditions of the Credit Facility.
     Under  the terms of  uncommitted  lines of credit  at  December  31,  2003,
certain subsidiaries outside of the United States may borrow up to an additional
$285.0 million on such terms as may be mutually  agreed.  These  arrangements do
not  have  termination  dates  and  are  reviewed   periodically.   No  material
compensating balances are required or maintained.

NOTE 8: LONG-TERM DEBT
The  composition  of  long-term  debt at the end of each year,  in  millions  of
dollars, was as follows:

                                                                 2003      2002
--------------------------------------------------------------------------------
7.50% notes due 2003                                          $    --   $ 309.5
7.0% notes due 2006                                             154.6     154.6
6.55% notes due 2007                                            150.0     150.0
7.125% notes due 2011
   (including discount of
   $2.3 in 2003 and $2.6 in 2002)                               397.7     397.4
7.05% notes due 2028                                            150.0     150.0
Other loans due through 2007                                      1.1       2.2
Fair value hedging adjustment                                    62.6      75.9
Less current maturities of long-term debt                         (.4)   (312.0)
--------------------------------------------------------------------------------
                                                              $ 915.6   $ 927.6
================================================================================
     As more fully  described  in Note 9, at  December  31,  2003 and 2002,  the
carrying amount of long-term debt and current  maturities thereof includes $62.6
million and $75.9 million,  respectively,  relating to outstanding or terminated
fixed-to-variable rate interest rate swaps agreements.
     Indebtedness of subsidiaries in the aggregate  principal  amounts of $301.3
million and $306.9  million were included in the  Consolidated  Balance Sheet at
December 31, 2003 and 2002,  respectively,  in  short-term  borrowings,  current
maturities of long-term debt, and long-term debt.
     Principal  payments on long-term  debt  obligations  due over the next four
years are as follows:  $.4 million in 2004, $.4 million in 2005,  $154.9 million
in 2006,  and $150.0  million in 2007.  There are no  principal  payments due in
2008.  Interest  payments on all indebtedness were $80.3 million in 2003, $100.8
million in 2002, and $122.2 million in 2001.

NOTE 9: DERIVATIVE FINANCIAL INSTRUMENTS
The  Corporation  is exposed to market  risks  arising  from changes in interest
rates.  With  products  and  services  marketed in over 100  countries  and with
manufacturing  sites in 10 countries,  the Corporation  also is exposed to risks
arising from changes in foreign exchange rates.

Credit  Exposure:  The  Corporation is exposed to  credit-related  losses in the
event of  non-performance  by  counterparties  to certain  derivative  financial
instruments. The Corporation monitors the creditworthiness of the counterparties
and  presently  does  not  expect  default  by any of  the  counterparties.  The
Corporation  does not  obtain  collateral  in  connection  with  its  derivative
financial instruments.
     The credit  exposure that results from  interest rate and foreign  exchange
contracts  is the fair value of contracts  with a positive  fair value as of the
reporting date. Some derivatives are not subject to credit  exposures.  The fair
value of all financial instruments is summarized in Note 10.

Interest Rate Risk Management:  The Corporation  manages its interest rate risk,
primarily through the use of interest rate swap agreements,  in order to achieve
a cost-effective mix of fixed and variable rate indebtedness.  It seeks to issue
debt  opportunistically,  whether  at fixed or  variable  rates,  at the  lowest
possible  costs.  The  Corporation  may, based upon its assessment of the future
interest rate  environment,  elect to manage its interest  rate risk  associated
with  changes in the fair value of its  indebtedness,  or the future  cash flows
associated with its indebtedness, through the use of interest rate swaps.
     The  amounts  exchanged  by  the   counterparties  to  interest  rate  swap
agreements  normally  are based  upon the  notional  amounts  and  other  terms,
generally related to interest rates, of the derivatives.  While notional amounts
of interest  rate swaps form part of the basis for the amounts  exchanged by the
counterparties,   the  notional  amounts  are  not  themselves   exchanged  and,
therefore,  do not represent a measure of the  Corporation's  exposure as an end
user of derivative financial instruments.
     The  Corporation's  portfolio of interest rate swap instruments at December
31, 2003 and 2002,  consisted  of $588.0  million  notional  and $788.0  million
notional amounts of fixed-to-variable  rate swaps with a weighted-average  fixed
rate receipt of 5.99% and 6.01%,  respectively.  The basis of the variable  rate
paid is LIBOR.
     Credit exposure on the Corporation's  interest rate derivatives at December
31, 2003 and 2002, was $54.3 million and $85.0 million,  respectively.  Deferred
gains on the early  termination  of interest  rate swaps were $30.2  million and
$19.2 million at December 31, 2003 and 2002.

                                     - 33 -
<PAGE>

Foreign  Currency  Management:  The  Corporation  enters  into  various  foreign
currency  contracts in managing its foreign currency  exchange risk.  Generally,
the foreign  currency  contracts  have maturity  dates of less than  twenty-four
months.  The contractual  amounts of foreign currency  derivatives,  principally
forward exchange contracts and purchased options, generally are exchanged by the
counterparties.  The Corporation's  foreign currency  derivatives are designated
to,  and  generally  are  denominated  in  the  currencies  of,  the  underlying
exposures.  To minimize the volatility of reported  equity,  the Corporation may
hedge,  on a limited  basis,  a portion of its net  investment  in  subsidiaries
located  outside the United States through the use of foreign  currency  forward
contracts and purchased foreign currency options.
     The Corporation  seeks to minimize its foreign  currency cash flow risk and
hedges its foreign currency  transaction  exposures (that is, currency exposures
related  to  assets  and  liabilities)  as well as  certain  forecasted  foreign
currency exposures.  Hedges of forecasted foreign currency exposures principally
relate to the cash flow risk relating to the sales of products  manufactured  or
purchased  in a currency  different  from that of the  selling  subsidiary.  The
Corporation  hedges  its  foreign  currency  cash flow risk  through  the use of
forward exchange contracts and, to a small extent,  options. Some of the forward
exchange contracts involve the exchange of two foreign  currencies  according to
the  local  needs of the  subsidiaries.  Some  natural  hedges  also are used to
mitigate transaction and forecasted exposures.  The Corporation also responds to
foreign  exchange  movements  through  various means,  such as pricing  actions,
changes in cost structure, and changes in hedging strategies.
     The following table summarizes the contractual  amounts of forward exchange
contracts  as of December 31, 2003 and 2002,  in millions of dollars,  including
details by major currency as of December 31, 2003. Foreign currency amounts were
translated  at  current  rates  as of the  reporting  date.  The  "Buy"  amounts
represent  the United  States  dollar  equivalent  of  commitments  to  purchase
currencies, and the "Sell" amounts represent the United States dollar equivalent
of commitments to sell currencies.

As of December 31, 2003                                         BUY        SELL
--------------------------------------------------------------------------------
United States dollar                                       $1,090.8   $(1,106.0)
Pound sterling                                                883.3      (202.1)
Euro                                                          512.4      (952.4)
Canadian dollar                                                30.0      (100.3)
Australian dollar                                              41.9       (75.2)
Czech koruna                                                   64.2       (13.1)
Japanese yen                                                     --       (54.4)
Swedish krona                                                  41.2       (83.0)
Danish krone                                                     .4       (46.2)
Other                                                          18.4       (77.6)
--------------------------------------------------------------------------------
Total                                                      $2,682.6   $(2,710.3)
================================================================================

As of December 31, 2002
--------------------------------------------------------------------------------
Total                                                      $2,128.4   $(2,144.9)
================================================================================
     No purchased options to buy or sell currencies were outstanding at December
31, 2003.
     Credit exposure on foreign currency derivatives as of December 31, 2003 and
2002, was $10.9 million and $6.6 million, respectively.
     Hedge  ineffectiveness  and the  portion  of  derivative  gains and  losses
excluded from the assessment of hedge effectiveness related to the Corporation's
cash flow  hedges that were  recorded to earnings  during 2003 and 2002 were not
significant.
     Amounts  deferred  in  accumulated  other  comprehensive  income  (loss) at
December 31, 2003,  that are expected to be  reclassified  into earnings  during
2004  represent an after-tax loss of $24.5  million.  The amount  expected to be
reclassified  into earnings in the next twelve months includes  unrealized gains
and losses related to open foreign currency contracts.  Accordingly,  the amount
that is ultimately reclassified into earnings may differ materially.

NOTE 10: FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair  value of a  financial  instrument  represents  the amount at which the
instrument could be exchanged in a current  transaction between willing parties,
other than in a forced sale or  liquidation.  Significant  differences can arise
between the fair value and  carrying  amount of financial  instruments  that are
recognized at historical cost amounts.
     The  following  methods and  assumptions  were used by the  Corporation  in
estimating fair value disclosures for financial instruments:

o Cash and cash equivalents,  trade  receivables,  certain other current assets,
short-term  borrowings,  and current  maturities of long-term  debt: The amounts
reported in the Consolidated Balance Sheet approximate fair value.

o Long-term debt:  Publicly traded debt is valued based on quoted market values.
The fair  value of other  long-term  debt is  estimated  based on quoted  market
prices for the same or similar  issues or on the  current  rates  offered to the
Corporation for debt of the same remaining maturities.

o Other  long-term  liabilities:  The fair  value of a  subsidiary's  redeemable
preferred shares is based on the present value of the cash flows associated with
these preferred shares, discounted at current market yields.

o Interest  rate  hedges:  The fair value of interest  rate hedges  reflects the
estimated  amounts that the  Corporation  would  receive or pay to terminate the
contracts at the reporting date.

o Foreign currency  contracts:  The fair value of forward exchange contracts and
options is estimated  using prices  established  by financial  institutions  for
comparable instruments.

                                     - 34 -
<PAGE>

     The  following  table sets forth,  in millions  of  dollars,  the  carrying
amounts and fair values of the Corporation's  financial instruments,  except for
those noted above for which carrying amounts approximate fair values:

Assets (Liabilities)                                       CARRYING        FAIR
As of December 31, 2003                                      AMOUNT       VALUE
--------------------------------------------------------------------------------
Non-derivatives:
   Long-term debt                                           $(915.6)    $(964.7)
   Other long-term liabilities                               (202.6)     (202.6)
--------------------------------------------------------------------------------
Derivatives relating to:
   Debt
     Assets                                                    38.4        38.4
   Other long-term liabilities
     Assets                                                    15.9        15.9
   Foreign Currency
     Assets                                                    10.9        10.9
     Liabilities                                              (43.0)      (43.0)
--------------------------------------------------------------------------------

Assets (Liabilities)                                       CARRYING        FAIR
As of December 31, 2002                                      AMOUNT       VALUE
--------------------------------------------------------------------------------
Non-derivatives:
   Long-term debt                                           $(927.6)    $(965.8)
   Other long-term liabilities                               (208.4)     (208.4)
--------------------------------------------------------------------------------
Derivatives relating to:
   Debt
     Assets                                                    63.8        63.8
   Other long-term liabilities
     Assets                                                    21.2        21.2
   Foreign Currency
     Assets                                                     6.6         6.6
     Liabilities                                              (21.1)      (21.1)
--------------------------------------------------------------------------------

NOTE 11: INCOME TAXES
Earnings  from  continuing  operations  before  income  taxes for each year,  in
millions of dollars, were as follows:

                                                     2003       2002       2001
--------------------------------------------------------------------------------
United States                                      $189.5     $186.2     $ 93.0
Other countries                                     201.4      119.2       52.8
--------------------------------------------------------------------------------
                                                   $390.9     $305.4     $145.8
================================================================================
     Significant   components  of  income  taxes   (benefits)   from  continuing
operations for each year, in millions of dollars, were as follows:

                                                     2003       2002       2001
--------------------------------------------------------------------------------
Current:
   United States                                   $ 69.0     $ 58.7     $ 26.8
   Other countries                                   23.6       13.7       15.6
--------------------------------------------------------------------------------
                                                     92.6       72.4       42.4
--------------------------------------------------------------------------------
Deferred:
   United States                                     (6.5)       3.8       16.1
   Other countries                                   17.6         .7      (14.2)
--------------------------------------------------------------------------------
                                                     11.1        4.5        1.9
--------------------------------------------------------------------------------
                                                   $103.7     $ 76.9     $ 44.3
================================================================================
     Income tax expense recorded directly as an adjustment to equity as a result
of hedging  activities was not significant in 2003,  2002, and 2001.  Income tax
benefits  recorded  directly as an  adjustment to equity as a result of employee
stock options were $1.3 million,  $5.4 million,  and $8.8 million in 2003, 2002,
and 2001, respectively.
     Income tax payments were $82.0 million in 2003,  $47.0 million in 2002, and
$74.3  million in 2001.
     Deferred tax  (liabilities)  assets at the end of each year, in millions of
dollars, were composed of the following:

                                                                2003       2002
--------------------------------------------------------------------------------
Deferred tax liabilities:
   Fixed assets                                              $ (15.4)   $  (8.1)
   Employee and postretirement benefits                       (164.8)    (189.8)
   Other                                                        (5.6)     (18.2)
--------------------------------------------------------------------------------
Gross deferred tax liabilities                                (185.8)    (216.1)
--------------------------------------------------------------------------------
Deferred tax assets:
   Tax loss carryforwards                                      109.2      110.2
   Tax credit and capital loss
     carryforwards                                              57.8       82.4
   Postretirement benefits                                     135.9      123.8
   Other                                                       113.6      109.1
--------------------------------------------------------------------------------
Gross deferred tax assets                                      416.5      425.5
--------------------------------------------------------------------------------
Deferred tax asset valuation allowance                         (99.9)     (86.8)
--------------------------------------------------------------------------------
Net deferred tax assets                                      $ 130.8    $ 122.6
================================================================================
     Deferred  income taxes are included in the  Consolidated  Balance  Sheet in
other current  assets,  other assets,  other accrued  liabilities,  and deferred
income taxes.
     During the year ended December 31, 2003,  the deferred tax asset  valuation
allowance increased by $13.1 million. The increase was principally the result of
tax losses generated by a subsidiary that cannot be utilized in the consolidated
United States tax return.
     Tax basis  carryforwards  at December 31, 2003,  consisted of net operating
losses expiring from 2004 to 2009.
     At December 31, 2003,  unremitted  earnings of subsidiaries  outside of the
United States were approximately  $1.4 billion,  on which no United States taxes
had been  provided.  The  Corporation's  intention is to reinvest these earnings
permanently or to repatriate the earnings only when possible to do so at minimal
additional tax cost. It is not  practicable to estimate the amount of additional
taxes that might be payable upon repatriation of foreign earnings.
     A  reconciliation  of income  taxes at the  federal  statutory  rate to the
Corporation's  income taxes for each year, both from continuing  operations,  in
millions of dollars, is as follows:

                                                     2003       2002       2001
--------------------------------------------------------------------------------
Income taxes at federal
   statutory rate                                  $136.8     $106.9     $ 51.0
Lower effective taxes on
   earnings in other countries                      (40.4)     (31.9)     (16.0)
Amortization of goodwill                               --         --        8.1
Other -- net                                          7.3        1.9        1.2
--------------------------------------------------------------------------------
Income taxes                                       $103.7     $ 76.9     $ 44.3
================================================================================

                                     - 35 -
<PAGE>

Note 12: POSTRETIREMENT BENEFITS
The following  table sets forth the funded status of the defined benefit pension
and  postretirement  plans, and amounts  recognized in the Consolidated  Balance
Sheet,  in millions of  dollars.  The  Corporation  uses a  measurement  date of
September 30 for the majority of its defined benefit pension and  postretirement
plans. Defined  postretirement  benefits consist of several unfunded health care
plans that provide certain  postretirement  medical,  dental, and life insurance
benefits for most United States employees.  The postretirement  medical benefits
are contributory and include certain cost-sharing features,  such as deductibles
and co-payments.

<TABLE>
<CAPTION>
                                                                                                                     OTHER
                                                         PENSION BENEFITS           PENSION BENEFITS             POSTRETIREMENT
                                                            PLANS IN THE           PLANS OUTSIDE OF THE             BENEFITS
                                                           UNITED STATES               UNITED STATES               ALL PLANS
                                                      ------------------------------------------------------------------------------
                                                         2003          2002          2003          2002          2003          2002
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>           <C>           <C>           <C>           <C>           <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year               $ 895.5       $ 810.7       $ 500.7       $ 399.7       $ 162.1       $ 158.2
Service cost                                             15.5          15.0          10.9          11.0            .9           1.2
Interest cost                                            58.4          56.7          27.6          24.2          10.7          10.8
Plan participants' contributions                           --            --           1.9           1.9           7.8           4.3
Actuarial (gains) losses                                 40.4          72.1          58.5          33.8          (3.7)         10.1
Foreign currency exchange rate changes                     --            --          54.2          50.8            .8            .1
Benefits paid                                           (60.5)        (60.3)        (25.0)        (22.1)        (20.9)        (22.6)
Plan amendments                                            .6           1.3           3.8           1.4            --            --
Curtailments                                             (7.1)           --            --            --            --            --
------------------------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year                       942.8         895.5         632.6         500.7         157.7         162.1
------------------------------------------------------------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year          717.8         836.7         319.1         340.5            --            --
Actual return on plan assets                            131.9         (54.1)         43.8         (36.6)           --            --
Expenses                                                 (6.9)         (7.4)          (.7)          (.7)           --            --
Benefits paid                                           (60.5)        (60.3)        (24.3)        (21.4)        (20.9)        (22.6)
Employer contributions                                    3.1           2.9           6.1           2.9          13.1          18.3
Contributions by plan participants                         --            --           1.9           1.9           7.8           4.3
Effects of currency exchange rates                         --            --          29.4          32.5            --            --
------------------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year                785.4         717.8         375.3         319.1            --            --
------------------------------------------------------------------------------------------------------------------------------------
Funded status                                          (157.4)       (177.7)       (257.3)       (181.6)       (157.7)       (162.1)
Unrecognized net actuarial loss                         442.4         456.2         269.8         207.3          37.0          43.1
Unrecognized prior service cost                           5.3           6.0          10.6           9.7          (7.0)         (9.2)
Unrecognized net obligation (asset)
   at date of adoption                                     --            --            --            .3            --            --
Contributions subsequent to measurement date               --            --           2.0            .7            --            --
------------------------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost                        $ 290.3       $ 284.5       $  25.1       $  36.4       $(127.7)      $(128.2)
====================================================================================================================================
AMOUNTS RECOGNIZED IN THE
   CONSOLIDATED BALANCE SHEET
Prepaid benefit cost                                  $  42.2       $  36.7       $    --       $    --       $    --       $    --
Accrued benefit cost                                   (132.9)       (140.9)       (214.8)       (152.0)       (127.7)       (128.2)
Intangible asset                                          5.1           5.8          10.8          10.0            --            --
Accumulated other comprehensive income                  375.9         382.9         229.1         178.4            --            --
------------------------------------------------------------------------------------------------------------------------------------
Net amount recognized                                 $ 290.3       $ 284.5       $  25.1       $  36.4       $(127.7)      $(128.2)
====================================================================================================================================
WEIGHTED-AVERAGE ASSUMPTIONS
   USED TO DETERMINE
   BENEFIT OBLIGATIONS
   AS OF MEASUREMENT DATE
Discount rate                                            6.00%         6.75%         5.40%         5.60%         6.25%         7.00%
Rate of compensation increase                            4.00%         4.50%         3.40%         3.90%           --            --
====================================================================================================================================
</TABLE>

                                     - 36 -
<PAGE>

     The  allocation,  by asset  category,  of assets of defined benefit pension
plans in the United  States at December  31, 2003 and 2002,  respectively,  were
equity  securities  - 69% and 59%;  fixed  income  securities - 28% and 38%; and
alternative  investments  - 3% and 3%. At December 31, 2003,  the  Corporation's
targeted  allocation,  by asset  category,  of assets of defined benefit pension
plans in the United States is equity securities - 65% (comprised of 50% U.S. and
15%  non-U.S.   equities);  fixed  income  securities  -  30%;  and  alternative
investments  - 5%. To the  extent  that the  actual  allocation  of plan  assets
differs  from the targeted  allocation  by more than 5% for any  category,  plan
assets are  re-balanced  within three months.  Assets of defined benefit pension
plans outside of the United States consist  principally of investments in equity
securities,   fixed  income  securities,   and  alternative   investments.   The
Corporation   establishes  its  estimated   long-term   return  on  plan  assets
considering  various  factors,  which  include  the  targeted  asset  allocation
percentages,  historic returns, and expected future returns.  Specifically,  the
factors are  considered in the fourth quarter of the year preceding the year for
which those assumptions are applied.
     The funded status of the  Corporation's  defined  benefit  pension plans at
December 31, 2003,  reflects the effects of negative returns  experienced in the
global capital markets over the past several years and a decline in the discount
rate used to  estimate  the  pension  liability.  As a result,  the  accumulated
benefit  obligation  of certain  plans in the United  States and  outside of the
United States exceeded the fair value of plan assets.  As required by accounting
principles generally accepted in the United States, the Corporation  reflected a
minimum pension  liability of  approximately  $605.0 million in the Consolidated
Balance Sheet at December 31, 2003.
     The accumulated  benefit  obligation related to all defined benefit pension
plans and  information  related to  unfunded  and  underfunded  defined  benefit
pension plans at the end of each year, in millions of dollars, follows:

<TABLE>
<CAPTION>
                                                                  PENSION BENEFITS                  PENSION BENEFITS
                                                                    PLANS IN THE                  PLANS OUTSIDE OF THE
                                                                    UNITED STATES                     UNITED STATES
                                                              ----------------------------------------------------------------------
                                                                2003            2002               2003            2002
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>             <C>                <C>             <C>
All defined benefit plans:
   Accumulated benefit obligation                             $895.0          $841.2             $590.9          $468.2
Unfunded defined benefit plans:
   Projected benefit obligation                                 66.2            56.3               89.7            72.9
   Accumulated benefit obligation                               62.7            52.0               83.5            65.8
Defined benefit plans with an accumulated benefit obligation
   in excess of the fair value of plan assets:
   Projected benefit obligation                                899.4           858.6              632.6           500.7
   Accumulated benefit obligation                              851.7           806.6              590.9           468.2
   Fair value of plan assets                                   719.5           665.9              375.3           319.1
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

   The net periodic (benefit) cost related to the defined benefit pension plans
included the following components, in millions of dollars:

<TABLE>
<CAPTION>
                                                                PENSION BENEFITS                          PENSION BENEFITS
                                                           PLANS IN THE UNITED STATES            PLANS OUTSIDE OF THE UNITED STATES
                                                       -----------------------------------------------------------------------------
                                                         2003          2002          2001          2003          2002          2001
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>          <C>            <C>           <C>           <C>           <C>
Service cost                                           $ 16.5       $  15.8        $ 15.3        $ 13.8        $ 11.0        $ 10.7
Interest cost                                            58.4          56.7          54.4          27.5          24.2          22.8
Expected return on plan assets                          (87.1)        (94.3)        (91.1)        (31.8)        (30.8)        (29.0)
Amortization of the unrecognized
   transition obligation or asset                          --            --            .3            .1          (1.2)         (1.5)
Amortization of prior service cost                        1.2           1.1           1.1           1.4           2.3           2.2
Curtailment/settlement loss                                .9           1.1            --            .1           7.6           1.6
Amortization of net actuarial loss                        7.6            .8            .9           4.7            .7           1.2
------------------------------------------------------------------------------------------------------------------------------------
Net periodic (benefit) cost                            $ (2.5)       $(18.8)       $(19.1)       $ 15.8        $ 13.8         $ 8.0
====================================================================================================================================
WEIGHTED-AVERAGE ASSUMPTIONS
   USED IN DETERMINING NET
   PERIODIC (BENEFIT) COST FOR YEAR:
Discount rate                                            6.75%         7.25%         7.50%         5.50%         6.10%         6.00%
Expected return on plan assets                           9.00%         9.50%         9.50%         7.75%         8.00%         8.00%
Rate of compensation increase                            4.00%         4.50%         5.00%         3.90%         3.90%         3.90%
====================================================================================================================================
</TABLE>

                                     - 37 -
<PAGE>

     The net periodic cost related to the defined benefit  postretirement  plans
included the following components, in millions of dollars:

                                                     2003       2002       2001
--------------------------------------------------------------------------------
Service cost                                        $  .9      $ 1.2      $ 1.1
Interest cost                                        10.7       10.8       10.5
Amortization of
   prior service cost                                (2.2)      (8.3)      (8.3)
Amortization of
   net actuarial gain                                 2.0        1.4         --
--------------------------------------------------------------------------------
Net periodic cost                                   $11.4      $ 5.1      $ 3.3
================================================================================
Weighted-average discount rate
   used in determining net
   periodic cost for year                            7.00%      7.25%      7.50%
================================================================================
     The  health  care cost  trend  rate used to  determine  the  postretirement
benefit  obligation  was 11.0% for 2003.  This rate  decreases  gradually  to an
ultimate rate of 5.0% in 2009, and remains at that level  thereafter.  The trend
rate  is  a  significant   factor  in  determining  the  amounts   reported.   A
one-percentage-point  change in these assumed health care cost trend rates would
have the following effects, in millions of dollars:

One-Percentage-Point                                     INCREASE     (DECREASE)
--------------------------------------------------------------------------------
Effect on total of service and
   interest cost components                                  $ .6         $ (.6)
Effect on postretirement
   benefit obligation                                         9.1          (9.0)
--------------------------------------------------------------------------------
     In  2004,  the   Corporation   expects  to  make  cash   contributions   of
approximately $12 million to its defined benefit pension plans. In addition, the
Corporation expects to continue to make contributions in 2004 sufficient to fund
benefits paid under its other postretirement benefit plans during that year, net
of contributions by plan participants.  Such contributions totaled $13.1 million
in 2003. The amounts  principally  represent  contributions  required by funding
regulations or laws or those related to unfunded plans necessary to fund current
benefits.
     Expense for defined  contribution  plans  amounted to $10.4  million,  $9.2
million, and $8.9 million in 2003, 2002, and 2001, respectively.

NOTE 13: OTHER LONG-TERM LIABILITIES
In December 2000, a subsidiary of the  Corporation  issued  preferred  shares to
private investors.  The preferred shares are redeemable in five years,  although
redemption may be accelerated under certain  conditions,  principally related to
changes in tax laws.  Holders of the subsidiary's  preferred shares are entitled
to  annual  cash  dividends  of  $10.7  million.  Included  in  other  long-term
liabilities in the Consolidated  Balance Sheet at December 31, 2003 and 2002, is
$202.6  million and $208.4  million,  respectively,  related to those  preferred
shares. The carrying value of the subsidiary's  preferred shares at December 31,
2003 and 2002  includes the effect of the fair value of the  interest  rate swap
agreement related to this obligation.
     Upon  adoption  of FASB  Interpretation  No. 46  (revised  December  2003),
Consolidation of Variable Interest  Entities,  effective  December 31, 2003, the
Corporation determined that the subsidiary identified in the preceding paragraph
represented  a variable  interest  entity and that the  Corporation  was not the
primary  beneficiary.  That  subsidiary  was  formed in 2000 in order to provide
financing to the  Corporation  through the issuance of the redeemable  preferred
shares previously described.  The Corporation's  obligation for the subsidiary's
redeemable  preferred shares is fully reflected in other long-term  liabilities.
The Corporation does not believe that it has any additional  exposure to loss as
a result of its involvement with the subsidiary.
     Other expense in the Consolidated Statement of Earnings for the years ended
December  31,  2003  and  2002,   included  $5.4  million  and  $10.7   million,
respectively,   of  dividends  related  to  those  preferred  shares.  Upon  the
Corporation's  adoption  of SFAS  No.  150,  Accounting  for  Certain  Financial
Instruments with  Characteristics  of both Liabilities and Equity, in July 2003,
$5.3 million of dividends on those preferred  shares were classified as interest
expense.
     At  December  31, 2003 and 2002,  other  long-term  liabilities  included a
reserve of $224.4  million and $235.9  million,  respectively,  associated  with
various tax matters in a number of jurisdictions.

NOTE 14: STOCKHOLDERS' EQUITY
The Corporation  repurchased 2,011,570,  1,008,101,  and 1,085,000 shares of its
common stock during 2003,  2002, and 2001 at an aggregate cost of $77.5 million,
$43.1 million, and $33.5 million, respectively.
     During 1999, the Corporation executed two agreements (the Agreements) under
which the Corporation could enter into forward purchase  contracts on its common
stock. The Agreements provided the Corporation with two purchase alternatives: a
standard forward purchase  contract and a forward purchase contract subject to a
cap (a capped forward  contract).  The settlement  methods  generally  available
under the Agreements,  at the Corporation's option, were net settlement,  either
in cash or in shares, or physical settlement.
     During 2001, the  Corporation  terminated the capped forward  contracts and
standard forward purchase  contracts,  electing full physical settlement through
its purchase of the final 525,050  shares  subject to the  Agreements  for $25.5
million.  Previously during 2001, the Corporation had received 240,276 shares of
its common stock through net share settlements under the Agreements.

                                     - 38 -
<PAGE>

   SFAS No. 130, Reporting Comprehensive Income, defines comprehensive income as
non-stockholder changes in equity. Accumulated other comprehensive income (loss)
at the end of each year, in millions of dollars, included the following:

                                                                 2003      2002
--------------------------------------------------------------------------------
Foreign currency translation adjustment                       $ (14.6)  $(123.7)
Net loss on derivative instruments,
   net of tax                                                   (33.1)    (17.3)
Minimum pension liability adjustment,
   net of tax                                                  (404.5)   (373.6)
--------------------------------------------------------------------------------
                                                              $(452.2)  $(514.6)
================================================================================
     The  Corporation  has designated  certain  intercompany  loans as long-term
investments in certain foreign  subsidiaries.  Net translation  gains associated
with these designated intercompany loans in the amount of $25.9 million and $1.5
million were recorded in the foreign currency  translation  adjustment,  in 2003
and 2002, respectively.
     Foreign  currency  translation  adjustments are not generally  adjusted for
income taxes as they relate to indefinite  investments in foreign  subsidiaries.
The minimum pension liability  adjustments as of December 31, 2003 and 2002, are
net of taxes of $200.5 million and $187.7 million, respectively.

NOTE 15: EARNINGS PER SHARE
The  computations of basic and diluted  earnings per share for each year were as
follows:

(Amounts in Millions
Except Per Share Data)                               2003       2002       2001
--------------------------------------------------------------------------------
Numerator:
   Net earnings from
     continuing operations                         $287.2     $228.5     $101.5
   Net earnings of
     discontinued operations                          5.8        1.2        6.5
--------------------------------------------------------------------------------
   Net earnings                                    $293.0     $229.7     $108.0
================================================================================
Denominator:
   Denominator for basic
     earnings per share --
     weighted-average shares                         77.9       80.4       80.7
   Employee stock options and
     stock issuable under
     employee benefit plans                            .3         .5         .4
--------------------------------------------------------------------------------
   Denominator for diluted
     earnings per share --
     adjusted weighted-
     average shares and
     assumed conversions                             78.2       80.9       81.1
================================================================================
Basic earnings per share
   Continuing operations                           $ 3.69     $ 2.85     $ 1.26
   Discontinued operations                            .07        .01        .08
--------------------------------------------------------------------------------
Basic earnings per share                           $ 3.76     $ 2.86     $ 1.34
================================================================================
Diluted earnings per share
   Continuing operations                           $ 3.68     $ 2.83     $ 1.25
   Discontinued operations                            .07        .01        .08
--------------------------------------------------------------------------------
Diluted earnings per share                         $ 3.75     $ 2.84     $ 1.33
================================================================================
     The following  options to purchase shares of common stock were  outstanding
during each year, but were not included in the  computation of diluted  earnings
per share because the effect would be anti-dilutive. The options indicated below
were  anti-dilutive  because the  related  exercise  price was greater  than the
average market price of the common shares for the year.

                                                     2003       2002       2001
--------------------------------------------------------------------------------
Number of options
   (in millions)                                      6.5        4.4        6.9
Weighted-average
   exercise price                                  $47.36     $49.47     $46.15
--------------------------------------------------------------------------------

NOTE 16: STOCK-BASED COMPENSATION
The Corporation  has elected to follow APBO No. 25,  Accounting for Stock Issued
to Employees,  and related  interpretations  in accounting  for its  stock-based
compensation.  In addition,  the  Corporation  provides pro forma  disclosure of
stock-based compensation,  as measured under the fair value requirements of SFAS
No. 123,  Accounting for Stock-Based  Compensation.  These pro forma disclosures
are  provided  in  Note  1 as  required  under  SFAS  No.  148,  Accounting  for
Stock-Based Compensation - Transition and Disclosure.
     APBO No. 25 requires no recognition of compensation expense for most of the
stock-based  compensation  arrangements  provided  by the  Corporation,  namely,
broad-based  employee  stock purchase plans and option grants where the exercise
price is equal to the market  value at the date of grant.  However,  APBO No. 25
requires  recognition of compensation  expense for variable award plans over the
vesting periods of such plans, based upon the then-current  market values of the
underlying stock. In contrast, SFAS No. 123 requires recognition of compensation
expense for grants of stock,  stock options,  and other equity  instruments over
the vesting  periods of such  grants,  based on the  estimated  grant-date  fair
values of those grants.
     Under various stock option plans,  options to purchase  common stock may be
granted  until 2013.  Options  generally are granted at fair market value at the
date of grant, are exercisable in installments  beginning one year from the date
of grant,  and  expire 10 years  after the date of grant.  The plans  permit the
issuance of either  incentive  stock  options or  non-qualified  stock  options,
which,  for  certain  of  the  plans,  may  be  accompanied  by  stock  or  cash
appreciation rights or limited stock appreciation rights. Additionally,  certain
plans  allow for the  granting  of stock  appreciation  rights on a  stand-alone
basis.
     As of December  31,  2003,  10,353,413  non-qualified  stock  options  were
outstanding  under domestic  plans.  There were 4,500 stock options  outstanding
under the United Kingdom plan.

                                     - 39 -
<PAGE>

     Under all plans,  there were 4,613,902  shares of common stock reserved for
future grants as of December 31, 2003. Transactions are summarized as follows:

                                                                      WEIGHTED-
                                                                        AVERAGE
                                                            STOCK      EXERCISE
                                                          OPTIONS         PRICE
--------------------------------------------------------------------------------
Outstanding at December 31, 2000                        9,557,125        $40.42
Granted                                                 1,276,450         34.01
Exercised                                               1,263,275         21.57
Forfeited                                                 482,814         44.71
--------------------------------------------------------------------------------
Outstanding at December 31, 2001                        9,087,486         41.91
Granted                                                 1,279,300         48.13
Exercised                                                 773,297         26.91
Forfeited                                                 213,075         45.17
--------------------------------------------------------------------------------
Outstanding at December 31, 2002                        9,380,414         43.92
Granted                                                 1,417,850         39.73
Exercised                                                 321,938         35.08
Forfeited                                                 118,413         45.77
--------------------------------------------------------------------------------
Outstanding at December 31, 2003                       10,357,913        $43.60
================================================================================
Shares exercisable at
   December 31, 2001                                    3,201,321        $39.85
================================================================================
Shares exercisable at
   December 31, 2002                                    3,780,183        $44.35
================================================================================
Shares exercisable at
   December 31, 2003                                    6,406,323        $44.83
================================================================================

     Exercise  prices for options  outstanding  as of December 31, 2003,  ranged
from $23.00 to $61.00.  The following table provides  certain  information  with
respect to stock options outstanding at December 31, 2003:
                                                                      WEIGHTED-
                                                        WEIGHTED-       AVERAGE
                                              STOCK       AVERAGE     REMAINING
Range of                                    OPTIONS      EXERCISE   CONTRACTUAL
Exercise Prices                         OUTSTANDING         PRICE          LIFE
--------------------------------------------------------------------------------
Under $34.50                              1,066,675        $30.20           6.2
$34.50-$51.75                             7,759,276         43.40           6.9
Over $51.75                               1,531,962         53.95           5.1
--------------------------------------------------------------------------------
                                         10,357,913        $43.60           6.6
================================================================================
     The following  table  provides  certain  information  with respect to stock
options exercisable at December 31, 2003:
                                              STOCK                   WEIGHTED-
Range of                                    OPTIONS                     AVERAGE
Exercise Prices                         EXERCISABLE              EXERCISE PRICE
--------------------------------------------------------------------------------
Under $34.50                                667,675                      $30.26
$34.50-$51.75                             4,206,686                       43.82
Over $51.75                               1,531,962                       53.95
--------------------------------------------------------------------------------
                                          6,406,323                      $44.83
================================================================================
     In electing  to  continue  to follow  APBO No. 25 for  expense  recognition
purposes,  the  Corporation  is  obliged  to provide  the  expanded  disclosures
required under SFAS No. 148 for stock-based compensation granted,  including, if
materially different from reported results, disclosure of pro forma net earnings
and earnings per share had compensation expense relating to grants been measured
under the fair value  recognition  provisions  of SFAS No. 123.  Those pro forma
disclosures   are   included   in  Note  1  under  the   caption,   "Stock-Based
Compensation."
     The  weighted-average  fair  values  at date of grant for  options  granted
during 2003, 2002, and 2001 were $13.31, $18.17, and $11.96,  respectively,  and
were estimated using the Black-Scholes option valuation model with the following
weighted-average assumptions:

                                                 2003         2002         2001
--------------------------------------------------------------------------------
Expected life in years                            6.3          6.3          6.2
Interest rate                                    3.38%        4.91%        4.70%
Volatility                                       32.3%        33.0%        32.4%
Dividend yield                                   1.21%         .99%        1.44%
--------------------------------------------------------------------------------

NOTE 17: BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION
The Corporation has elected to organize its businesses  based  principally  upon
products and  services.  In certain  instances  where a business does not have a
local  presence in a  particular  country or  geographic  region,  however,  the
Corporation has assigned responsibility for sales of that business's products to
one of its other businesses with a presence in that country or region.
     The Corporation operates in three reportable business segments: Power Tools
and  Accessories,  Hardware and Home  Improvement,  and  Fastening  and Assembly
Systems.  The Power Tools and Accessories  segment has worldwide  responsibility
for the  manufacture  and sale of  consumer  and  professional  power  tools and
accessories,  electric  cleaning and lighting  products,  and electric  lawn and
garden tools, as well as for product service.  In addition,  the Power Tools and
Accessories  segment has  responsibility  for the sale of  security  hardware to
customers in Mexico, Central America, the Caribbean,  and South America; for the
sale of plumbing products to customers outside the United States and Canada; and
for sales of household  products.  The Hardware and Home Improvement segment has
worldwide  responsibility  for the  manufacture  and sale of  security  hardware
(except  for the sale of  security  hardware  in Mexico,  Central  America,  the
Caribbean,  and South America).  On September 30, 2003, the Corporation acquired
Baldwin  Hardware  Corporation  and  Weiser  Lock  Corporation.  These  acquired
businesses  are  included in the  Hardware  and Home  Improvement  segment.  The
Hardware  and  Home  Improvement   segment  also  has   responsibility  for  the
manufacture  of  plumbing  products  and for the sale of  plumbing  products  to
customers in the United States and Canada.  The  Fastening and Assembly  Systems
segment has worldwide  responsibility  for the manufacture and sale of fastening
and assembly systems.
     Sales,   segment  profit,   depreciation  and  amortization,   and  capital
expenditures  set forth in the  following  tables  exclude  the  results  of the
discontinued  European  security hardware  business,  as more fully described in
Note 3.

                                     - 40 -
<PAGE>

<TABLE>
<CAPTION>
Business Segments
(Millions of Dollars)

                                                 REPORTABLE BUSINESS SEGMENTS
                                     ----------------------------------------------------
                                           POWER      HARDWARE     FASTENING                  CURRENCY      CORPORATE,
                                         TOOLS &        & HOME    & ASSEMBLY               TRANSLATION    ADJUSTMENTS,
Year Ended December 31, 2003         ACCESSORIES   IMPROVEMENT       SYSTEMS        TOTAL  ADJUSTMENTS  & ELIMINATIONS  CONSOLIDATED
------------------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>             <C>         <C>          <C>            <C>           <C>          <C>
Sales to unaffiliated customers         $3,114.9        $715.7      $514.2       $4,344.8       $137.9        $     --     $4,482.7
Segment profit (loss)
   (for Consolidated, operating
   income before restructuring
   and exit costs)                         350.9          92.8        73.9          517.6         14.3           (71.6)       460.3
Depreciation and amortization               80.5          24.4        15.0          119.9          2.8            10.7        133.4
Income from equity method
   investees                                21.3            --          --           21.3           --            (2.1)        19.2
Capital expenditures                        68.2          17.1        13.4           98.7          3.0              .8        102.5
Segment assets
   (for Consolidated, total assets)      1,516.7         594.4       312.1        2,423.2        177.7         1,621.6      4,222.5
Investment in equity method investees       10.8            --          .1           10.9           --            (1.7)         9.2

Year Ended December 31, 2002
------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers         $3,156.2        $659.3      $513.3       $4,328.8       $(37.0)       $     --     $4,291.8
Segment profit (loss)
   (for Consolidated, operating
   income before restructuring
   and exit costs)                         354.7          47.4        74.7          476.8         (3.9)          (58.3)       414.6
Depreciation and amortization               80.1          25.5        14.2          119.8          (.7)            3.3        122.4
Income from equity method
   investees                                20.8            --          --           20.8           --             3.0         23.8
Capital expenditures                        70.8           9.0        13.9           93.7          (.2)             .8         94.3
Segment assets
   (for Consolidated, total assets)      1,595.8         357.6       317.0        2,270.4         35.7         1,824.4      4,130.5
Investment in equity method investees       25.4            --          .1           25.5           --            (1.7)        23.8

Year Ended December 31, 2001
------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers         $3,059.5        $658.3      $489.5       $4,207.3       $(67.4)       $     --     $4,139.9
Segment profit (loss)
   (for Consolidated, operating
   income before restructuring
   and exit costs)                         250.9          47.8        71.0          369.7         (1.3)          (30.4)       338.0
Depreciation and amortization               87.0          28.7        14.5          130.2         (1.5)           23.6        152.3
Income from equity method
   investees                                13.2            --          --           13.2           --             2.1         15.3
Capital expenditures                        86.0          29.7        15.7          131.4          (.8)             .8        131.4
Segment assets
   (for Consolidated, total assets)      1,605.0         452.1       302.7        2,359.8        (66.2)        1,720.6      4,014.2
Investment in equity method investees       36.7            --          .1           36.8          (.2)           (2.7)        33.9
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
     The  profitability  measure  employed  by the  Corporation  and  its  chief
operating  decision maker for making  decisions  about  allocating  resources to
segments  and  assessing   segment   performance  is  segment  profit  (for  the
Corporation on a consolidated basis,  operating income before  restructuring and
exit costs). In general,  segments follow the same accounting  policies as those
described in Note 1, except with  respect to foreign  currency  translation  and
except as further  indicated  below.  The  financial  statements  of a segment's
operating  units  located  outside  of the United  States,  except  those  units
operating in highly  inflationary  economies,  are generally  measured using the
local currency as the functional  currency.  For these units located  outside of
the United States,  segment assets and elements of segment profit are translated
using  budgeted rates of exchange.  Budgeted  rates of exchange are  established
annually and,  once  established,  all prior period  segment data is restated to
reflect the current year's budgeted rates of exchange.  The amounts  included in
the  preceding  table under the captions  "Reportable  Business  Segments",  and
"Corporate,  Adjustments,  &  Eliminations"  are reflected at the  Corporation's
budgeted rates of exchange for 2003. The amounts included in the preceding table
under the caption "Currency  Translation  Adjustments"  represent the difference
between  consolidated  amounts determined using those budgeted rates of exchange
and  those  determined  based  upon  the  rates  of  exchange  applicable  under
accounting principles generally accepted in the United States.

                                     - 41 -
<PAGE>

     Segment profit excludes interest income and expense,  non-operating  income
and expense,  adjustments to eliminate intercompany profit in inventory,  income
tax expense,  and, for 2001, goodwill  amortization (except for the amortization
of goodwill  associated  with certain  acquisitions  made by the Power Tools and
Accessories and Fastening and Assembly Systems segments).  In addition,  segment
profit excludes  restructuring  and exit costs.  In determining  segment profit,
expenses relating to pension and other postretirement  benefits are based solely
upon estimated service costs.  Corporate expenses,  as well as certain centrally
managed expenses,  are allocated to each reportable  segment based upon budgeted
amounts.  While sales and transfers  between  segments are accounted for at cost
plus a reasonable  profit,  the effects of intersegment  sales are excluded from
the computation of segment profit.  Intercompany profit in inventory is excluded
from segment  assets and is  recognized  as a reduction of cost of goods sold by
the  selling  segment  when the  related  inventory  is sold to an  unaffiliated
customer.  Because the  Corporation  compensates  the  management of its various
businesses on, among other factors, segment profit, the Corporation may elect to
record  certain  segment-related  expense  items of an unusual or  non-recurring
nature in  consolidation  rather than reflect such items in segment  profit.  In
addition,  certain segment-related items of income or expense may be recorded in
consolidation  in one period and transferred to the various  segments in a later
period.
     Segment assets exclude assets of discontinued  operations,  pension and tax
assets, intercompany profit in inventory, intercompany receivables, and goodwill
associated with the Corporation's acquisition of Emhart Corporation in 1989.
     Amounts in the preceding table under the caption "Corporate,  Adjustments &
Eliminations" on the lines entitled  "Depreciation and  amortization"  represent
depreciation of Corporate property and, for 2001, goodwill  amortization (except
for the amortization of goodwill  associated with certain  acquisitions  made by
the Power Tools and  Accessories and Fastening and Assembly  Systems  segments).
The  reconciliation  of segment profit to consolidated  earnings from continuing
operations  before  income  taxes for each year,  in millions of dollars,  is as
follows:

                                                 2003         2002         2001
--------------------------------------------------------------------------------
Segment profit for total
   reportable business segments                $517.6       $476.8       $369.7
Items excluded from
   segment profit:
   Adjustment of budgeted
     foreign exchange rates
     to actual rates                             14.3         (3.9)        (1.3)
   Depreciation of Corporate
     property and amortization
     of certain goodwill                         (1.1)        (1.3)       (23.6)
   Adjustment to businesses'
     postretirement benefit
     expenses booked
     in consolidation                            15.4         38.3         42.6
   Other adjustments booked
     in consolidation directly
     related to reportable
     business segments                          (15.0)        (8.4)         (.7)
Amounts allocated to businesses
   in arriving at segment profit
   in excess of (less than)
   Corporate center operating
   expenses, eliminations, and
   other amounts identified above               (70.9)       (86.9)       (48.7)
--------------------------------------------------------------------------------
Operating income before
   restructuring and exit costs                 460.3        414.6        338.0
Restructuring and exit costs                     31.6         46.6         99.7
--------------------------------------------------------------------------------
   Operating income                             428.7        368.0        238.3
--------------------------------------------------------------------------------
Interest expense,
   net of interest income                        35.2         57.8         84.3
Other expense                                     2.6          4.8          8.2
--------------------------------------------------------------------------------
Earnings from continuing
   operations before income taxes              $390.9       $305.4       $145.8
================================================================================
     The  reconciliation  of segment assets to consolidated  total assets at the
end of each year, in millions of dollars, is as follows:

                                                 2003         2002         2001
--------------------------------------------------------------------------------
Segment assets for total
   reportable business segments              $2,423.2     $2,270.4     $2,359.8
Items excluded from
   segment assets:
   Adjustment of budgeted
     foreign exchange rates
     to actual rates                            177.7         35.7        (66.2)
   Goodwill                                     633.3        604.2        598.0
   Pension assets                                42.2         36.9        406.1
Other Corporate assets                          946.1      1,183.3        716.5
--------------------------------------------------------------------------------
                                             $4,222.5     $4,130.5     $4,014.2
================================================================================
     Other Corporate assets  principally  consist of cash and cash  equivalents,
tax assets, property, assets of discontinued operations, and other assets.

                                     - 42 -
<PAGE>

     Sales to The Home Depot, a customer of the Power Tools and  Accessories and
Hardware and Home  Improvement  segments,  accounted for $779.4 million,  $857.9
million,  and $841.6  million of the  Corporation's  consolidated  sales for the
years ended  December 31, 2003,  2002, and 2001,  respectively.  Sales to Lowe's
Home  Improvement  Warehouse  (Lowe's),  a  customer  of  the  Power  Tools  and
Accessories  and Hardware and Home  Improvement  segments,  accounted for $545.3
million and $467.5 million of the Corporation's consolidated sales for the years
ended  December  31, 2003 and 2002,  respectively.  Sales to Lowe's for the year
ended  December 31, 2001, did not exceed 10% of the  Corporation's  consolidated
sales.
   The composition of the Corporation's sales by product group for each year, in
millions of dollars, is set forth below:

                                                 2003         2002         2001
--------------------------------------------------------------------------------
Consumer and professional
   power tools and
   product service                           $2,360.1     $2,308.4     $2,227.2
Consumer and professional
   accessories                                  348.6        317.8        311.1
Electric lawn and
   garden products                              313.8        285.4        279.3
Electric cleaning and
   lighting products                            138.6        157.6        122.8
Household products                               40.5         36.8         45.1
Security hardware                               526.0        461.0        425.6
Plumbing products                               218.7        221.6        252.3
Fastening and assembly systems                  536.4        503.2        476.5
--------------------------------------------------------------------------------
                                             $4,482.7     $4,291.8     $4,139.9
================================================================================
     The Corporation markets its products and services in over 100 countries and
has manufacturing  sites in 10 countries.  Other than in the United States,  the
Corporation  does not conduct business in any country in which its sales in that
country  exceed 10% of  consolidated  sales.  Sales are  attributed to countries
based on the location of customers.  The composition of the Corporation's  sales
to unaffiliated  customers between those in the United States and those in other
locations for each year, in millions of dollars, is set forth below:

                                                 2003         2002         2001
--------------------------------------------------------------------------------
United States                                $2,836.9     $2,824.0     $2,715.6
Canada                                          162.6        138.6        136.5
--------------------------------------------------------------------------------
   North America                              2,999.5      2,962.6      2,852.1
Europe                                        1,107.2        986.8        950.2
Other                                           376.0        342.4        337.6
--------------------------------------------------------------------------------
                                             $4,482.7     $4,291.8     $4,139.9
================================================================================
     The composition of the Corporation's property, plant, and equipment between
those in the United  States and those in other  countries  as of the end of each
year, in millions of dollars, is set forth below:

                                                 2003         2002         2001
--------------------------------------------------------------------------------
United States                                  $340.0       $362.0       $406.3
Mexico                                          109.0         78.6         74.4
United Kingdom                                   47.3         72.1         72.0
Other countries                                 163.9        116.9        109.8
--------------------------------------------------------------------------------
                                               $660.2       $629.6       $662.5
================================================================================

NOTE 18: LEASES
The  Corporation   leases  certain   service   centers,   offices,   warehouses,
manufacturing  facilities,  and equipment.  Generally,  the leases carry renewal
provisions and require the Corporation to pay maintenance costs. Rental payments
may be adjusted for increases in taxes and insurance  above  specified  amounts.
Rental  expense  for 2003,  2002,  and 2001  amounted  to $85.6  million,  $82.6
million,  and $84.0 million,  respectively.  Capital  leases were  immaterial in
amount.  Future minimum  payments  under  non-cancelable  operating  leases with
initial or remaining  terms of more than one year as of December  31,  2003,  in
millions of dollars, were as follows:
--------------------------------------------------------------------------------
2004                                                                     $ 59.0
2005                                                                       48.3
2006                                                                       36.4
2007                                                                       23.8
2008                                                                       16.2
Thereafter                                                                 26.2
--------------------------------------------------------------------------------
                                                                         $209.9
================================================================================

                                     - 43 -
<PAGE>

NOTE 19: RESTRUCTURING ACTIONS
A summary of  restructuring  activity  during the three years ended December 31,
2003, is set forth below (in millions of dollars).

                                               WRITE-DOWN
                                            TO FAIR VALUE
                                               LESS COSTS
                                                  TO SELL
                                               OF CERTAIN
                                SEVERANCE      LONG-LIVED       OTHER
                                 BENEFITS          ASSETS     CHARGES     TOTAL
--------------------------------------------------------------------------------
Restructuring reserve at
   December 31, 2000               $ 29.4          $   --       $ 4.4    $ 33.8
Reserves established
   in 2001                           49.1            38.9        15.8     103.8
Reversal of reserves                 (3.7)             --         (.4)     (4.1)
Utilization of reserves:
   Cash                             (21.5)             --        (3.4)    (24.9)
   Non-cash                            --           (38.9)       (2.7)    (41.6)
--------------------------------------------------------------------------------
Restructuring reserve at
   December 31, 2001                 53.3              --        13.7      67.0
Reserves established
   in 2002                           19.6            18.5        19.5      57.6
Reversal of reserves                 (5.7)             --        (2.6)     (8.3)
Proceeds received in excess
   of the adjusted carrying
   value of long-lived assets          --            (2.7)         --      (2.7)
Utilization of reserves:
   Cash                             (29.7)             --        (7.2)    (36.9)
   Non-cash                            --           (15.8)       (8.7)    (24.5)
Foreign currency translation          3.7              --          .1       3.8
--------------------------------------------------------------------------------
Restructuring reserve at
   December 31, 2002                 41.2              --        14.8      56.0
Reserves established
   in 2003                           34.3             9.3         1.2      44.8
Reversal of reserves                 (7.4)             --        (2.2)     (9.6)
Proceeds received in excess
   of the adjusted carrying
   value of long-lived assets          --            (3.6)         --      (3.6)
Utilization of reserves:
   Cash                             (27.1)             --       (13.3)    (40.4)
   Non-cash                            --            (5.7)         .6      (5.1)
Foreign currency translation          1.6              --          --       1.6
--------------------------------------------------------------------------------
Restructuring reserve at
   December 31, 2003               $ 42.6          $   --       $ 1.1    $ 43.7
================================================================================
     During 2003, the Corporation commenced the final phase of its restructuring
plan that was  formulated  in the fourth  quarter of 2001 and recorded a pre-tax
restructuring charge of $20.6 million. That $20.6 million charge was net of $9.6
million of reversals of previously provided  restructuring reserves that were no
longer required and $3.6 million,  representing the excess of proceeds  received
on the sale of long-lived  assets written down as part of restructuring  actions
over their adjusted  carrying  values.  The $20.6 million pre-tax  restructuring
charge  recognized in 2003  principally  reflects  actions relating to the Power
Tools and Accessories  segment to reduce its manufacturing  cost base as well as
actions to reduce selling,  general,  and  administrative  expenses  through the
elimination of  administrative  positions,  principally in Europe.  In addition,
during  the  fourth  quarter  of  2003  the   Corporation   recorded  a  pre-tax
restructuring  charge  of  $11.0  million  associated  with  the  closure  of  a
manufacturing  facility in its Hardware and Home Improvement segment as a result
of the acquisition of Baldwin and Weiser.
     The principal  component of the 2003  restructuring  charge  related to the
elimination of manufacturing positions, primarily in high-cost locations, and of
certain  administrative  positions.  As a result, a severance benefit accrual of
$34.3 million, principally related to the Power Tools and Accessories segment in
North America and Europe ($23.0  million) and the Hardware and Home  Improvement
segment in North  America  ($11.3  million),  was included in the  restructuring
charge.  The 2003  restructuring  actions will also result in the closure of two
manufacturing  facilities,  transferring production to low-cost facilities,  and
outsourcing  certain  manufactured  items. As a result,  the 2003  restructuring
charge  also  included  a $9.3  million  write-down  to fair  value  - less,  if
applicable,  cost to sell - of certain long-lived assets. The write-down to fair
value was comprised of $6.7 million to the Power Tools and  Accessories  segment
in North  America and Europe and $2.6  million  related to the Hardware and Home
Improvement  segment in North  America.  The  balance of the 2003  restructuring
charge,  or  $1.2  million,  related  to the  accrual  of  future  expenditures,
principally  consisting of lease obligations,  for which no future benefit would
be realized.
     During  2002,  the  Corporation  recorded a  restructuring  charge of $46.6
million under the  restructuring  plan that was formulated in the fourth quarter
of 2001.  That $46.6  million  charge was net of $8.3  million of  reversals  of
previously provided restructuring reserves that were no longer required and $2.7
million,  representing the excess of proceeds received on the sale of long-lived
assets  written  down as part  of  restructuring  actions  over  their  adjusted
carrying values.  The $46.6 million pre-tax  restructuring  charge recognized in
2002 reflects actions to reduce the Corporation's manufacturing cost base in its
Power Tools and Accessories and Hardware and Home Improvement  segments, as well
as actions to reduce selling,  general, and administrative  expenses through the
elimination of administrative positions, principally in Europe. The 2002 actions
to reduce  the  Corporation's  manufacturing  cost  base in the Power  Tools and
Accessories  segment  include the closure of one facility in the United  States,
the closure of an accessories packaging facility in England, and the transfer of
certain  additional  power  tool  production  from a  facility  in  England to a
low-cost  facility in the Czech  Republic.  Actions to reduce the  Corporation's
manufacturing cost base in the Hardware and Home Improvement segment include the
closure of a security hardware facility in the United States.

                                     - 44 -
<PAGE>

     The principal  component of the 2002  restructuring  charge  related to the
elimination of manufacturing positions, primarily in high-cost locations, and of
certain administrative  positions.  As a result, a severance benefits accrual of
$19.6 million, principally related to the Power Tools and Accessories segment in
North America and Europe ($18.3  million) and the Hardware and Home  Improvement
segment in North  America  ($1.3  million),  was  included in the  restructuring
charge. The 2002 restructuring charge also included non-cash pension curtailment
losses of $8.9 million  stemming from headcount  reductions  associated with the
restructuring actions,  principally related to the Corporation's defined benefit
pension plan in the United  Kingdom.  The 2002  restructuring  actions will also
result in the  closure  of a number of  manufacturing  facilities,  transferring
production to low-cost  facilities,  and outsourcing certain manufactured items.
As a result,  the 2002  restructuring  charge  also  included  an $18.5  million
write-down  to fair  value  - less,  if  applicable,  cost to sell - of  certain
long-lived  assets.  The  write-down to fair value was comprised of $4.8 million
related to the Power Tools and  Accessories  segment in Europe and $13.7 million
related to the  Hardware  and Home  Improvement  segment in North  America.  The
balance  of the 2002  restructuring  charge,  or $10.6  million,  related to the
accrual  of  future  expenditures,  principally  consisting  of lease  and other
contractual obligations, for which no future benefit will be realized.
     During  2001,  the  Corporation  recorded a  restructuring  charge of $99.7
million. That restructuring charge reflected actions to reduce the Corporation's
manufacturing cost base in its Power Tools and Accessories and Hardware and Home
Improvement  segments,  as well as  actions  to  reduce  selling,  general,  and
administrative expenses throughout all of its businesses. The 2001 restructuring
plan  includes the transfer of  production  and service  operations in the Power
Tools and Accessories and Hardware and Home Improvement segments from facilities
in the United States and the United Kingdom to low-cost facilities in Mexico and
China and to a new low-cost facility in the Czech Republic.
     The principal  component of the 2001  restructuring  charge  related to the
elimination of manufacturing positions, primarily in high-cost locations, and of
certain administrative  positions.  As a result, a severance benefits accrual of
$45.7 million,  principally related to the Power Tool and Accessories segment in
North  America and Europe  ($36.3  million),  the Hardware and Home  Improvement
segment in the United  States ($8.5  million),  and the  Fastening  and Assembly
Systems  segment in Europe ($.9  million),  was  included  in the  restructuring
charge. The 2001 restructuring actions will result in the closure of a number of
manufacturing  and  service  facilities,  transferring  production  to  low-cost
facilities,  and outsourcing  certain  manufactured items. As a result, the 2001
restructuring  charge also included a $38.9  million  write-down to fair value -
less, if applicable, cost to sell - of certain equipment. The write-down to fair
value was comprised of $34.0 million  related to long-lived  assets in the Power
Tools and  Accessories  segment in Europe  and North  America  and $4.9  million
related to the Hardware and Home Improvement  segment in the United States.  The
2001 restructuring  charge also included $9.6 million,  primarily related to the
accrual  of  future  expenditures,  principally  consisting  of lease  and other
contractual  obligations,  for which no future  benefit  will be  realized.  The
balance of the 2001 restructuring charge, or $5.5 million,  primarily related to
non-cash charges  associated with the Corporation's exit from an operating joint
venture in a high-cost  region ($3.9 million) and non-cash pension expense ($1.6
million).
     During 2001, the Corporation  also recognized $4.1 million of restructuring
and exit costs  principally  related to severance  benefits  associated with its
Power  Tools and  Accessories  segment in Europe.  The $4.1  million  charge was
offset, however, by the reversal of $4.1 million of severance accruals and other
exit costs established as part of the 2000 restructuring  charge,  which were no
longer required.
     The  severance  benefits  accrual,  included  in the $31.6  million,  $46.6
million and $99.7 million pre-tax restructuring charges taken in 2003, 2002, and
2001, respectively,  related to the elimination of approximately 5,200 positions
in high-cost  manufacturing  locations and in certain administrative  positions.
The  Corporation  estimates  that,  as a result of  increases  in  manufacturing
employee  headcount  in  low-cost  locations,  approximately  4,500  replacement
positions will be filled,  yielding a net total of 700 positions eliminated as a
result of the 2003, 2002, and 2001 restructuring actions.
     During 2003,  2002, and 2001, the Corporation paid severance and other exit
costs of $40.4 million, $36.9 million, and $24.9 million, respectively.
     Of the remaining $43.7 million  restructuring accrual at December 31, 2003,
$32.7  million  relates to the  restructuring  plan that was  formulated  by the
Corporation  in  the  fourth  quarter  of  2001.  These  restructuring  accruals
primarily relate to the Corporation's Power Tools and Accessories  segment.  The
Corporation  anticipates  that these  restructuring  actions  will be  completed
during  2004.  The  remaining   $11.0  million  relates  to  the  closure  of  a
manufacturing  facility  in the  Corporation's  Hardware  and  Home  Improvement
segment that was recognized in conjunction  with the  integration of the Baldwin
and  Weiser  businesses  into  the  Corporation's   existing  security  hardware
business.  The Corporation  anticipates that these restructuring actions will be
completed during 2005.
     The amounts  reflected  in the column  titled  write-down  to fair value of
certain  long-lived  assets, as included within this Note,  relating to reserves
established   during  the  three  years  ended  December  31,  2003,   represent
adjustments to the carrying value of those long-lived assets.
     As of December 31, 2003,  the carrying  value of facilities to be exited as
part of the Corporation's restructuring actions was not significant.

                                     - 45 -
<PAGE>

NOTE 20: LITIGATION AND CONTINGENT LIABILITIES
The  Corporation  is involved  in various  lawsuits  in the  ordinary  course of
business. These lawsuits primarily involve claims for damages arising out of the
use of the  Corporation's  products  and  allegations  of patent  and  trademark
infringement.  The Corporation also is involved in litigation and administrative
proceedings  relating to employment  matters and  commercial  disputes.  Some of
these  lawsuits  include  claims for punitive as well as  compensatory  damages.
Using  current  product  sales  data  and  historical  trends,  the  Corporation
actuarially  calculates  the  estimate  of  its  current  exposure  for  product
liability.  The Corporation is insured for product  liability claims for amounts
in excess of established  deductibles and accrues for the estimated liability up
to the limits of the deductibles.  The Corporation  accrues for all other claims
and lawsuits on a case-by-case basis.
     The Corporation also is 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  potentially   responsible   party  under  federal  and  state
environmental  laws and  regulations.  Other matters  involve current and former
manufacturing facilities.
     For sites  never  operated by the  Corporation,  the  Corporation  makes an
assessment  of  the  costs  involved  based  on  environmental   studies,  prior
experience at similar  sites,  and the  experience of other named  parties.  The
Corporation  also  considers  the ability of other  parties to share costs,  the
percentage of the Corporation's  exposure relative to all other parties, and the
effects of inflation  on these  estimated  costs.  For matters  associated  with
properties  currently  operated by the  Corporation,  the  Corporation  makes an
assessment  as to whether an  investigation  and  remediation  would be required
under applicable  federal and state laws. For matters associated with properties
previously sold or operated by the  Corporation,  the Corporation  considers any
applicable  terms of sale and applicable  federal and state laws to determine if
it has any remaining  liability.  If it is determined  that the  Corporation has
potential  liability  for  properties  currently  owned or  previously  sold, an
estimate is made of the total costs of  investigation  and remediation and other
potential costs associated with the site.
     As of December 31, 2003, the Corporation's aggregate probable exposure with
respect to environmental  liabilities,  for which accruals have been established
in the consolidated financial statements,  was $51.7 million. These accruals are
reflected in other accrued  liabilities and other  long-term  liabilities in the
Consolidated Balance Sheet.
     On  October  27,  2003,  the  Corporation   received  notices  of  proposed
adjustments  from  the  United  States  Internal  Revenue  Service  (I.R.S.)  in
connection  with  audits of the tax  years  1998  through  2000.  The  principal
adjustment proposed by the I.R.S. consists of the disallowance of a capital loss
deduction taken in the  Corporation's  tax returns.  The Corporation  intends to
vigorously  dispute  the  position  taken  by the  I.R.S.  in this  matter.  The
Corporation has provided adequate reserves in the event that the I.R.S. prevails
in its disallowance of the previously  described capital loss and the imposition
of  related  interest.  Should the I.R.S.  prevail  in its  disallowance  of the
capital loss deduction and imposition of related interest,  it would result in a
cash outflow by the Corporation of approximately $140 million.
     The  Corporation's  estimate of the costs associated with product liability
claims, environmental exposures, income tax 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.  Insurance  recoveries for
environmental  and certain  general  liability  claims have not been  recognized
until realized.
     In the opinion of  management,  amounts  accrued for exposures  relating to
product liability claims,  environmental matters,  income tax 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, 2003, the
Corporation had no known probable but inestimable  exposures relating to product
liability  claims,  environmental  matters,  income tax 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  exposure  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.

                                     - 46 -
<PAGE>

<TABLE>
<CAPTION>
NOTE 21: QUARTERLY RESULTS (UNAUDITED)

(Dollars in Millions Except Per Share Data)                                      FIRST         SECOND          THIRD         FOURTH
Year Ended December 31, 2003                                                   QUARTER        QUARTER        QUARTER        QUARTER
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>          <C>            <C>            <C>
Sales                                                                           $939.2       $1,090.1       $1,115.8       $1,337.6
   Gross margin                                                                  335.3          390.7          395.6          474.0
   Selling, general, and administrative expenses                                 263.0          280.4          266.9          325.0
   Restructuring and exit costs                                                     .2             .4           21.0           10.0
------------------------------------------------------------------------------------------------------------------------------------
Operating income                                                                  72.1          109.9          107.7          139.0
   Interest expense (net of interest income)                                      12.1            7.7            7.6            7.8
   Other expense                                                                   1.7             .6             .3             --
------------------------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations before income taxes                           58.3          101.6           99.8          131.2
   Income taxes                                                                   15.2           26.9           26.6           35.0
------------------------------------------------------------------------------------------------------------------------------------
Net earnings from continuing operations                                           43.1           74.7           73.2           96.2
Earnings of discontinued operations, net of tax                                     .3            1.0            1.2            3.3
------------------------------------------------------------------------------------------------------------------------------------
   Net earnings                                                                 $ 43.4       $   75.7       $   74.4       $   99.5
====================================================================================================================================

Basic earnings per common share:
   Continuing operations                                                        $  .55       $    .96       $    .94       $   1.24
   Discontinued operations                                                          --            .02            .02            .04
------------------------------------------------------------------------------------------------------------------------------------
Net earnings per common share--basic                                            $  .55       $    .98       $    .96       $   1.28
====================================================================================================================================

Diluted earnings per common share:
   Continuing operations                                                        $  .55       $    .96       $    .94       $   1.23
   Discontinued operations                                                          --            .01            .01            .04
------------------------------------------------------------------------------------------------------------------------------------
Net earnings per common share--diluted                                          $  .55       $    .97       $    .95       $   1.27
====================================================================================================================================



                                                                                 FIRST         SECOND          THIRD         FOURTH
Year Ended December 31, 2002                                                   QUARTER        QUARTER        QUARTER        QUARTER
------------------------------------------------------------------------------------------------------------------------------------
Sales                                                                           $927.1       $1,100.6       $1,059.6       $1,204.5
   Gross margin                                                                  298.6          371.3          373.1          443.2
   Selling, general, and administrative expenses                                 238.5          264.7          252.7          315.7
   Restructuring and exit costs                                                     --           (1.2)          35.5           12.3
------------------------------------------------------------------------------------------------------------------------------------
Operating income                                                                  60.1          107.8           84.9          115.2
   Interest expense (net of interest income)                                      15.8           14.8           14.2           13.0
   Other expense (income)                                                          1.2            2.1            1.8            (.3)
------------------------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations before income taxes                           43.1           90.9           68.9          102.5
   Income taxes                                                                   11.6           24.1           13.0           28.2
------------------------------------------------------------------------------------------------------------------------------------
Net earnings from continuing operations                                           31.5           66.8           55.9           74.3
Earnings (loss) of discontinued operations, net of tax                             1.5            (.7)          (1.0)           1.4
------------------------------------------------------------------------------------------------------------------------------------
   Net earnings                                                                 $ 33.0       $   66.1       $   54.9       $   75.7
====================================================================================================================================

Basic earnings (loss) per common share:
   Continuing operations                                                        $  .39       $    .83       $    .69       $    .92
   Discontinued operations                                                         .02           (.01)          (.01)           .02
------------------------------------------------------------------------------------------------------------------------------------
Net earnings per common share--basic                                            $  .41       $    .82       $    .68       $    .94
====================================================================================================================================

Diluted earnings (loss) per common share:
   Continuing operations                                                        $  .39       $    .82       $    .69       $    .92
   Discontinued operations                                                         .02           (.01)          (.01)           .02
------------------------------------------------------------------------------------------------------------------------------------
Net earnings per common share--diluted                                          $  .41       $    .81       $    .68       $    .94
====================================================================================================================================
</TABLE>

                                     - 47 -
<PAGE>

     As more fully described in Note 3, as of December 31, 2003, the Corporation
met the  requirements  to classify its European  security  hardware  business as
discontinued  operations.  Changes in previously reported results are due to the
reclassification  of  amounts  related  to the  discontinued  operations  of the
European security hardware business. The results of the discontinued  operations
do not reflect any expense for interest  allocated by or management fees charged
by the Corporation.
     Earnings from continuing  operations for the first quarter of 2003 included
a pre-tax restructuring charge of $.2 million ($.1 million net of tax). Earnings
from  continuing  operations  for the second  quarter of 2003 included a pre-tax
restructuring  charge of $.4 million  ($.2  million net of tax).  Earnings  from
continuing  operations  for  the  third  quarter  of  2003  included  a  pre-tax
restructuring  charge of $21.0 million ($15.3 million net of tax). Earnings from
continuing  operations  for the  fourth  quarter  of  2003  included  a  pre-tax
restructuring charge of $10.0 million ($6.5 million net of tax).
     Earnings from continuing operations for the second quarter of 2002 included
a pre-tax reversal of restructuring expenses of $1.2 million ($.8 million net of
tax). Earnings from continuing operations for the third quarter of 2003 included
a pre-tax  restructuring  charge of $35.5  million  ($20.6  million net of tax).
Earnings from  continuing  operations  for the fourth quarter of 2002 included a
pre-tax restructuring charge of $12.3 million ($9.4 million net of tax).
     Earnings  per  common  share  are  computed  independently  for each of the
quarters presented.  Therefore,  the sum of the quarters may not be equal to the
full year earnings per share.

                                     - 48 -
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS
                   TO THE STOCKHOLDERS AND BOARD OF DIRECTORS
                       OF THE BLACK & DECKER CORPORATION:

We have  audited  the  accompanying  consolidated  balance  sheet of The Black &
Decker  Corporation  and  Subsidiaries as of December 31, 2003 and 2002, and the
related  consolidated  statements of earnings,  stockholders'  equity,  and cash
flows for each of the three years in the period ended  December  31,  2003.  Our
audits also included the  financial  statement  schedule  listed in the Index at
Item 15(a).  These financial  statements and schedule are the  responsibility of
the  Corporation's  management.  Our  responsibility is to express an opinion on
these financial statements and schedule based on our audits.
     We conducted our audits in accordance  with  auditing  standards  generally
accepted in the United States.  Those standards require that we plan and perform
the audit to obtain reasonable  assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.
     In our opinion,  the consolidated  financial  statements  referred to above
present fairly, in all material respects, the consolidated financial position of
The Black & Decker  Corporation and  Subsidiaries at December 31, 2003 and 2002,
and the  consolidated  results of their operations and their cash flows for each
of the three years in the period ended  December 31, 2003,  in  conformity  with
accounting  principles  generally  accepted in the United  States.  Also, in our
opinion,  the related financial statement schedule,  when considered in relation
to the  basic  financial  statements  taken as a whole,  presents  fairly in all
material respects the information set forth therein.
     As discussed in Note 1 to the financial  statements,  effective  January 1,
2002,  the  Corporation  changed its method of accounting for goodwill and other
intangible assets and for certain sales incentives to its customers.




/s/ ERNST & YOUNG LLP
Baltimore, Maryland
February 6, 2004

                                     - 49 -
<PAGE>

ITEM 9. CHANGES IN AND  DISAGREEMENTS  WITH AUDITORS ON ACCOUNTING AND FINANCIAL
DISCLOSURES

Not applicable.

ITEM 9A.  CONTROLS AND PROCEDURES

Under  the  supervision  and  with  the   participation  of  the   Corporation's
management,  including  the  Corporation's  Chief  Executive  Officer  and Chief
Financial Officer, the Corporation evaluated the effectiveness of the design and
operation of the Corporation's disclosure controls and procedures as of December
31, 2003. Based upon that evaluation,  the Corporation's Chief Executive Officer
and Chief  Financial  Officer have concluded that the  Corporation's  disclosure
controls  and  procedures  are  effective.  There  have been no  changes  in the
Corporation's  internal  controls over financial  reporting during the quarterly
period ended December 31, 2003, that have materially affected, or are reasonably
likely to materially affect,  the Corporation's  internal control over financial
reporting.

                                    Part III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

Information  required  under this Item with respect to Directors is contained in
the  Corporation's  Proxy Statement for the Annual Meeting of Stockholders to be
held April 27, 2004,  under the  captions  "Election  of  Directors",  "Board of
Directors", and "Section 16(a) Beneficial Ownership Reporting Compliance" and is
incorporated herein by reference.
     Information  required under this Item with respect to Executive Officers of
the Corporation is included in Item 1 of Part I of this report.

ITEM 11. EXECUTIVE COMPENSATION

Information  required  under this Item is contained in the  Corporation's  Proxy
Statement  for the Annual  Meeting of  Stockholders  to be held April 27,  2004,
under the captions  "Board of Directors"  and  "Executive  Compensation"  and is
incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information  required  under this Item is contained in the  Corporation's  Proxy
Statement  for the Annual  Meeting of  Stockholders  to be held April 27,  2004,
under the captions "Voting Securities",  "Security Ownership of Management", and
"Equity Compensation Plan Information" and is incorporated herein by reference.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information  required  under this Item is contained in the  Corporation's  Proxy
Statement  for the Annual  Meeting of  Stockholders  to be held April 27,  2004,
under  the  caption  "Executive  Compensation"  and is  incorporated  herein  by
reference.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Information  required  under this Item is contained in the  Corporation's  Proxy
Statement of the Annual Meeting of Stockholders to be held April 27, 2004, under
the caption  "Ratification  of the Selection of the Independent  Auditor" and is
incorporated herein by reference.

                                     Part IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) List of Financial Statements, Financial Statement Schedules, and Exhibits

(1)  LIST OF FINANCIAL STATEMENTS
The  following  consolidated  financial  statements of the  Corporation  and its
subsidiaries are included in Item 8 of Part II of this report:

     Consolidated  Statement of Earnings - years ended December 31, 2003,  2002,
and 2001.

     Consolidated Balance Sheet - December 31, 2003 and 2002.

     Consolidated  Statement of Stockholders'  Equity - years ended December 31,
2003, 2002, and 2001.

     Consolidated Statement of Cash Flows - years ended December 31, 2003, 2002,
and 2001.

     Notes to Consolidated Financial Statements.

     Report of Independent Auditors.

                                     - 50 -
<PAGE>

(2)  LIST OF FINANCIAL STATEMENT SCHEDULES
The  following   financial  statement  schedules  of  the  Corporation  and  its
subsidiaries are included herein:

     Schedule II - Valuation and Qualifying Accounts and Reserves.

     All  other  schedules  for  which  provision  is  made  in  the  applicable
accounting  regulations  of the  Commission  are not required  under the related
instructions or are inapplicable and, therefore, have been omitted.

(3)  LIST OF EXHIBITS
The following exhibits are either included in this report or incorporated herein
by reference as indicated below:

Exhibit 3(a)
Articles  of  Restatement  of the  Charter of the  Corporation,  included in the
Corporation's Quarterly Report on Form 10-Q for the quarter ended June 29, 1997,
are incorporated herein by reference.

Exhibit 3(b)
Bylaws of the Corporation, as amended.

Exhibit 4(a)
Form of 7% Notes due  February 1, 2006,  included in the  Corporation's  Current
Report  on  Form  8-K  filed  with  the  Commission  on  January  20,  1994,  is
incorporated herein by reference.

Exhibit 4(b)
Indenture  dated as of March  24,  1993,  by and  between  the  Corporation  and
Security  Trust  Company,  National  Association,  as  Trustee,  included in the
Corporation's  Current Report on Form 8-K filed with the Commission on March 26,
1993, is incorporated herein by reference.

Exhibit 4(c)
Indenture  dated as of June 26, 1998, by and among Black & Decker Holdings Inc.,
as  Issuer,  the  Corporation,  as  Guarantor,  and The First  National  Bank of
Chicago, as Trustee, included in the Corporation's Quarterly Report on Form 10-Q
for the quarter ended June 28, 1998, is incorporated herein by reference.

Exhibit 4(d)
Credit  Agreement,  dated as of April 2, 2001,  among the  Corporation,  Black &
Decker Holdings,  Inc., as Initial Borrowers, the initial lenders named therein,
as Initial  Lenders,  Citibank,  N.A.,  as  Administrative  Agent,  JPMorgan,  a
division of Chase  Securities  Inc., as Syndication  Agent, and Bank of America,
N.A. and Commerzbank AG, as Co-Syndication Agents, included in the Corporation's
Quarterly  Report  on  Form  10-Q  for  the  quarter  ended  July  1,  2001,  is
incorporated herein by reference.

Exhibit 4(e)
Indenture between the Corporation and The Bank of New York, as Trustee, dated as
of June 5, 2001,  included in the Corporation's  Registration  Statement on Form
S-4 (Reg. No. 333-64790), is incorporated herein by reference.

Exhibit 4(f)
Form of 7.125% Senior Note Due 2011, included in the Corporation's  Registration
Statement on Form S-4 (Reg. No. 333-64790), is incorporated herein by reference.

The Corporation  agrees to furnish a copy of any other documents with respect to
long-term debt instruments of the Corporation and its subsidiaries upon request.

Exhibit 10(a)
The  Black & Decker  Corporation  Deferred  Compensation  Plan for  Non-Employee
Directors, as amended.

Exhibit 10(b)
The Black & Decker  Non-Employee  Directors Stock Plan, included as Exhibit A to
the  Proxy  Statement,  for the  1998  Annual  Meeting  of  Stockholders  of the
Corporation dated March 3, 1998, is incorporated herein by reference.

Exhibit 10(c)
The  Black &  Decker  1986  Stock  Option  Plan,  as  amended,  included  in the
Corporation's  Quarterly  Report on Form 10-Q for the  quarter  ended  March 30,
1997, is incorporated herein by reference.

Exhibit 10(d)
The Black & Decker 1986 U.K. Approved Option Scheme, as amended, included in the
Corporation's  Registration  Statement  on Form  S-8  (Reg.  No.  33-47651),  is
incorporated herein by reference.

Exhibit 10(e)
The  Black &  Decker  1989  Stock  Option  Plan,  as  amended,  included  in the
Corporation's  Quarterly  Report on Form 10-Q for the  quarter  ended  March 30,
1997, is incorporated herein by reference.

Exhibit 10(f)
The  Black &  Decker  1992  Stock  Option  Plan,  as  amended,  included  in the
Corporation's  Quarterly  Report on Form 10-Q for the  quarter  ended  March 30,
1997, is incorporated herein by reference.

Exhibit 10(g)
The  Black & Decker  1995  Stock  Option  Plan for  Non-Employee  Directors,  as
amended,  included in the Corporation's  Annual Report on Form 10-K for the year
ended December 31, 1998, is incorporated herein by reference.

                                     - 51 -
<PAGE>

Exhibit 10(h)
The  Black &  Decker  1996  Stock  Option  Plan,  as  amended,  included  in the
Corporation's  Registration  Statement  on Form S-8  (Reg.  No.  333-51155),  is
incorporated herein by reference.

Exhibit 10(i)
The Black & Decker 2003 Stock  Option  Plan,  included in the  definitive  Proxy
Statement for the 2003 Annual Meeting of Stockholders  of the Corporation  dated
March 11, 2003, is incorporated herein by reference.

Exhibit 10(j)
The  Black &  Decker  Performance  Equity  Plan,  as  amended,  included  in the
Corporation's  Quarterly Report on Form 10-Q for the quarter ended September 30,
2001, is incorporated herein by reference.

Exhibit 10(k)
The  Black & Decker  Executive  Annual  Incentive  Plan,  included  in the Proxy
Statement for the 1996 Annual Meeting of Stockholders  of the Corporation  dated
March 1, 1996, is incorporated herein by reference.

Exhibit 10(l)
The  Black  &  Decker  Management   Annual  Incentive  Plan,   included  in  the
Corporation's  Annual Report on Form 10-K for the year ended  December 31, 1995,
is incorporated herein by reference.

Exhibit 10(m)
The Black & Decker Executive Long-Term  Performance/Retention  Plan, included in
the  Corporation's  Annual  Report on Form 10-K for the year ended  December 31,
2001, is incorporated herein by reference.

Exhibit 10(n)(1)
The Black & Decker  Supplemental  Pension  Plan,  as  amended,  included  in the
Corporation's  Annual Report on Form 10-K for the year ended  December 31, 1991,
is incorporated herein by reference.

Exhibit 10(n)(2)
Amendment to The Black & Decker  Supplemental  Pension Plan, dated as of May 21,
1997,  included  in the  Corporation's  Annual  Report on Form 10-K for the year
ended December 31, 1997, is incorporated herein by reference.

Exhibit 10(o)(1)
The  Black &  Decker  Executive  Deferred  Compensation  Plan,  included  in the
Corporation's  Quarterly  Report on Form 10-Q for the quarter  ended  October 3,
1993, is incorporated herein by reference.

Exhibit 10(o)(2)
Amendment to The Black & Decker Executive Deferred Compensation Plan dated as of
July 17, 1996,  included in the Corporation's  Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996, is incorporated herein by reference.

Exhibit 10(p)(1)
The  Black &  Decker  Supplemental  Retirement  Savings  Plan,  included  in the
Corporation's  Registration  Statement  on Form  S-8  (Reg.  No.  33-65013),  is
incorporated herein by reference.

Exhibit 10(p)(2)
Amendment to The Black & Decker Supplemental Retirement Savings Plan dated as of
April 22, 1997, included in the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1997, is incorporated herein by reference.

Exhibit 10(p)(3)
Amendment No. 2 to The Black & Decker Supplemental Retirement Savings Plan dated
as of July 16, 1998,  included in the  Corporation's  Annual Report on Form 10-K
for the year ended December 31, 1998, is incorporated herein by reference.

Exhibit 10(p)(4)
Amendment No. 3 to The Black & Decker Supplemental Retirement Savings Plan dated
as of July 20, 2000, included in the Corporation's Quarterly Report on Form 10-Q
for the quarter ended October 1, 2000, is incorporated herein by reference.

Exhibit 10(p)(5)
Amendment No. 4 to The Black & Decker Supplemental Retirement Savings Plan dated
as of October 18, 2001,  included in the Corporation's  Quarterly Report on Form
10-Q for the  quarter  ended  September  30,  2001,  is  incorporated  herein by
reference.

Exhibit 10(p)(6)
Amendment No. 5 to The Black & Decker Supplemental Retirement Savings Plan dated
as of October 17, 2002, included in the Corporation's Annual Report on Form 10-K
for the year ended December 31, 2002, is incorporated herein by reference.

Exhibit 10(p)(7)
Amendment No. 6 to The Black & Decker Supplemental Retirement Savings Plan dated
as of December 12, 2002,  included in the  Corporation's  Annual  Report on Form
10-K for the year ended December 31, 2002, is incorporated herein by reference.

Exhibit 10(q)
The Black & Decker Supplemental Executive Retirement Plan, as amended,  included
in the Corporation's  Annual Report on Form 10-K for the year ended December 31,
1998, is incorporated herein by reference.

Exhibit 10(r)
The Black & Decker Executive Life Insurance Program, as amended, included in the
Corporation's Quarterly Report on Form 10-Q for the quarter ended April 4, 1993,
is incorporated herein by reference.

                                     - 52 -
<PAGE>

Exhibit 10(s)
The  Black  &  Decker  Executive  Salary  Continuance  Plan,   included  in  the
Corporation's Quarterly Report on Form 10-Q for the quarter ended April 2, 1995,
is incorporated herein by reference.

Exhibit 10(t)
Description  of the  Corporation's  policy  and  procedures  for  relocation  of
existing employees (individual transfers),  included in the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1991, is incorporated herein
by reference.

Exhibit 10(u)
Description  of the  Corporation's  policy and  procedures for relocation of new
employees, included in the Corporation's Annual Report on Form 10-K for the year
ended December 31, 1991, is incorporated herein by reference.

Exhibit 10(v)
Description of certain incidental benefits provided to executive officers of the
Corporation,  included in the  Corporation's  Annual Report on Form 10-K for the
year ended December 31, 1997, is incorporated herein by reference.

Exhibit 10(w)
Form  of  Severance  Benefits  Agreement  by and  between  the  Corporation  and
approximately  15 of its key  employees,  included in the  Corporation's  Annual
Report on Form 10-K for the year ended December 31, 2002, is incorporated herein
by reference.

Exhibit 10(x)(1)
Amended and Restated Employment Agreement,  dated as of November 1, 1995, by and
between the Corporation and Nolan D.  Archibald,  included in the  Corporation's
Annual Report on Form 10-K for the year ended December 31, 1995, is incorporated
herein by reference.

Exhibit 10(x)(2)
Severance  Benefits  Agreement,  dated  December  12,  2002,  by and between the
Corporation and Nolan D. Archibald,  included in the Corporation's Annual Report
on Form 10-K for the year ended  December 31, 2002,  is  incorporated  herein by
reference.

Exhibit 10(y)(1)
Letter Agreement,  dated April 19, 1999, by and between the Corporation and Paul
F. McBride,  included in the Corporation's Quarterly Report on Form 10-Q for the
quarter ended July 4, 1999, is incorporated herein by reference.

Exhibit 10(y)(2)
Severance  Benefits  Agreement,  dated  December  12,  2002,  by and between the
Corporation and Paul F. McBride,  included in the Corporation's Annual Report on
Form 10-K for the year  ended  December  31,  2002,  is  incorporated  herein by
reference.

Exhibit 10(z)
Severance  Benefits  Agreement,  dated  December  12,  2002,  by and between the
Corporation and Charles E. Fenton,  included in the Corporation's  Annual Report
on Form 10-K for the year ended  December 31, 2002,  is  incorporated  herein by
reference.

Exhibit 10(aa)
Severance  Benefits  Agreement,  dated  December  12,  2002,  by and between the
Corporation and Michael D. Mangan,  included in the Corporation's  Annual Report
on Form 10-K for the year ended  December 31, 2002,  is  incorporated  herein by
reference.

Exhibit 10(bb)(1)
Special  Deferral  Agreement,  dated  February  7,  2000,  by  and  between  the
Corporation and Paul A. Gustafson,  included in the Corporation's  Annual Report
for the year ended December 31, 1999, is incorporated herein by reference.

Exhibit 10(bb)(2)
Severance  Benefits  Agreement,  dated  December  12,  2002,  by and between the
Corporation and Paul A. Gustafson,  included in the Corporation's  Annual Report
on Form 10-K for the year ended  December 31, 2002,  is  incorporated  herein by
reference.

Exhibit 10(cc)(1)
The Black & Decker 1996  Employee  Stock  Purchase  Plan,  included in the Proxy
Statement for the 1996 Annual Meeting of Stockholders  of the Corporation  dated
March 1, 1996, is incorporated herein by reference.

Exhibit 10(cc)(2)
Amendment to The Black & Decker 1996 Employee Stock Purchase Plan, as adopted on
February 12, 1997, included in the Corporation's  Annual Report on Form 10-K for
the year ended December 31, 1996, is incorporated herein by reference.

Items 10(a) through 10(cc)(2)  constitute  management contracts and compensatory
plans and arrangements required to be filed as exhibits under Item 14(c) of this
report.

Exhibit 21
List of Subsidiaries.

Exhibit 23
Consent of Independent Auditors.

Exhibit 24
Powers of Attorney.

Exhibit 31.1
Chief Executive Officer's Certification Pursuant to Rule 13a-14(a)/15d-14(a) and
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

                                     - 53 -
<PAGE>

Exhibit 31.2
Chief Financial Officer's Certification Pursuant to Rule 13a-14(a)/15d-14(a) and
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.1
Chief Executive Officer's  Certification  Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.2
Chief Financial Officer's  Certification  Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

   All other items are "not applicable" or "none".

(b) Reports on Form 8-K
The Corporation  filed or furnished the following reports on Form 8-K during the
three months ended December 31, 2003:
     On October 1, 2003, the Corporation  furnished a Current Report on Form 8-K
with the  Securities and Exchange  Commission.  This Current Report on Form 8-K,
furnished pursuant to Item 9 of that Form, stated that the Corporation and Masco
Corporation  announced  that  they had  finalized  the sale of  Masco's  Baldwin
Hardware and Weiser Lock businesses to the Corporation.
     On October 17, 2003, the Corporation furnished a Current Report on Form 8-K
with the  Securities and Exchange  Commission.  This Current Report on Form 8-K,
furnished pursuant to Item 9 of that Form, stated that the Corporation announced
that its Board of  Directors  declared a  quarterly  cash  dividend of $0.21 per
share of the Corporation's  outstanding  common stock payable December 26, 2003,
to stockholders of record at the close of business on December 12, 2003.
     On October 22, 2003, the Corporation furnished a Current Report on Form 8-K
with the  Securities and Exchange  Commission.  This Current Report on Form 8-K,
furnished  pursuant to Items 9 and 12 of that Form,  stated that the Corporation
had reported its  earnings  for the three and nine months  ended  September  28,
2003.
     All other items are "not applicable" or "none".

(c)  Exhibits
The exhibits required by Item 601 of Regulation S-K are filed herewith.

(d) Financial Statement Schedules and Other Financial Statements
The Financial Statement Schedule required by Regulation S-X is filed herewith.

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
THE BLACK & DECKER CORPORATION AND SUBSIDIARIES
(Millions of Dollars)
<TABLE>
<CAPTION>

                                                               BALANCE       ADDITIONS                         OTHER
                                                                    AT      CHARGED TO                       CHANGES        BALANCE
                                                             BEGINNING       COSTS AND                           ADD         AT END
Description                                                  OF PERIOD        EXPENSES      DEDUCTIONS      (DEDUCT)      OF PERIOD
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>             <C>         <C>            <C>               <C>
Year Ended December 31, 2003
Reserve for doubtful accounts and cash discounts                 $46.3           $70.5       $74.3 (a)      $4.9 (b)          $47.4
------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2002
Reserve for doubtful accounts and cash discounts                 $50.5           $70.3       $76.7 (a)      $2.2 (b)          $46.3
------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2001
Reserve for doubtful accounts and cash discounts                 $50.4           $71.0       $70.4 (a)      $(.5)(b)          $50.5
------------------------------------------------------------------------------------------------------------------------------------
<FN>
(a)  Accounts written off during the year and cash discounts taken by customers.
(b)  Primarily includes currency translation  adjustments and, for 2003, amounts
     associated with acquired businesses.
</FN>
</TABLE>

                                     - 54 -
<PAGE>

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                                THE BLACK & DECKER CORPORATION

Date:  March 3, 2004                            By  /s/ NOLAN D. ARCHIBALD
       -------------                               -----------------------------
                                                        Nolan D. Archibald
                                                        Chairman, President, and
                                                        Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on March 3, 2004,  by the  following  persons on behalf of
the registrant and in the capacities indicated.

Signature                       Title                             Date
--------------------------------------------------------------------------------


Principal Executive Officer

/s/ NOLAN D. ARCHIBALD                                            March 3, 2004
----------------------                                            --------------
    Nolan D. Archibald          Chairman, President, and
                                Chief Executive Officer


Principal Financial Officer

/s/ MICHAEL D. MANGAN                                             March 3, 2004
---------------------                                             --------------
    Michael D. Mangan           Senior Vice President and
                                Chief Financial Officer


Principal Accounting Officer

/s/ CHRISTINA M. MCMULLEN                                         March 3, 2004
-------------------------                                         --------------
    Christina M. McMullen       Vice President and Controller
--------------------------------------------------------------------------------


This report has been signed by the following directors,  constituting a majority
of the Board of Directors, by Nolan D. Archibald, Attorney-in-Fact.

        Nolan D. Archibald                           Kim B. Clark
        Norman R. Augustine                          Manuel A. Fernandez
        Barbara L. Bowles                            Benjamin H. Griswold, IV
        M. Anthony Burns                             Anthony Luiso


By /s/ NOLAN D. ARCHIBALD                                   Date:  March 3, 2004
   -----------------------                                         -------------
       Nolan D. Archibald
       Attorney-in-Fact


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