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, 2004                               1-1553
      -------------------------                  -----------------------


                         THE BLACK & DECKER CORPORATION
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


              Maryland                                  52-0248090
      -------------------------                  -----------------------
      (State of Incorporation)                   (I.R.S. Employer
                                                  Identification Number)


          Towson, Maryland                                21286
      -------------------------                  -----------------------
       (Address of principal                            (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, par value                    New York Stock Exchange
      $.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 25, 2004, was $4.82 billion.

The number of shares of Common Stock  outstanding  as of January 28,  2005,  was
82,107,971.

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 2005 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
its  strong  brand  names  and  a  superior  reputation  for  quality,   design,
innovation, and value.
     The  Corporation  is one of the world's  leading  producers of power tools,
power tool accessories, and residential security hardware, and the Corporation's
product  lines hold leading  market share  positions  in these  industries.  The
Corporation is also a major global supplier of engineered fastening and assembly
systems.  The  Corporation  is one of the leading  producers of faucets in North
America.  These  assertions  are  based on  total  volume  of sales of  products
compared to the total  market for those  products  and are  supported  by market
research  studies  sponsored by the Corporation as well as independent  industry
statistics  available  through  various  trade  organizations  and  periodicals,
internally generated market data, and other sources.
     During  the  fourth   quarter  of  2004,  the   Corporation   acquired  the
Porter-Cable and Delta Tools Group from Pentair, Inc. The Porter-Cable and Delta
Tools  Group  (also  referred  to  herein as the  "Tools  Group")  includes  the
Porter-Cable,   Delta,  DeVilbiss  Air  Power  Company,  Oldham  Saw,  and  FLEX
businesses.
     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.  For additional  information about
the acquisitions of the Tools Group and 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,
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 and  equipment,  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 and equipment include drills, screwdrivers, impact wrenches and
drivers, hammers, wet/dry vacuums, lights, radio/chargers,  saws, grinders, band
saws,  plate  joiners,  jointers,  lathes,  dust  management  systems,  routers,
planers,  sanders,  benchtop  and  stationary  machinery,  air  tools,  building
instruments,  air  compressors,  generators,  laser products,  jobsite  security
systems,  and WORKMATE(R) project centers and related products.  Lawn and garden
tools  include  hedge   trimmers,   string   trimmers,   lawn  mowers,   edgers,
blower/vacuums,  power sprayers, 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, equipment, and lawn and garden tools.

                                       -1-
<PAGE>

     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,  BLACK & DECKER;
ORANGE  AND  BLACK  COLOR  SCHEME;  BULLET;  BULLS  EYE;  CROSSFIRE;  CROSSHAIR;
360(degree);  MARKSMAN;  AUTOTAPE;  FIRESTORM;  GELMAX COMFORT GRIP; MEGA MOUSE;
MOUSE;  NAVIGATOR;  PIVOT  DRIVER;  PIVOTPLUS;   QUANTUM  PRO;  RTX;  SANDSTORM;
DRAGSTER;  SCORPION; SWIVEL; VERSAPAK;  QUATTRO; WORKMATE;  ALLIGATOR;  EX-CELL;
DEWALT; YELLOW AND BLACK COLOR SCHEME;  PORTER-CABLE;  DELTA; THE DELTA TRIANGLE
LOGO; BIESEMEYER;  FLEX; DAPC; EMGLO;  GUARANTEED TOUGH; XRP; SITELOCK;  UNISAW;
TIGER SAW; PORTA-BAND;  POWERBACK; EASY AIR; JOB BOSS; SHOPMASTER; AFS AUTOMATIC
FEED SPOOL; 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;  TOUGH CASE; MAX LIFE;  RAZOR;  VIPER;  SUPER DUTY;  OLDHAM;
DEWALT SERVICENET; DROP BOX EXPRESS; and GUARANTEED REPAIR COST (GRC).
     The  composition  of the  Corporation's  sales by product  groups for 2004,
2003,  and  2002 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 2004, 2003, or 2002.
     The Corporation's product service program supports its power tools and 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, 2004,  there were  approximately  160 such service  centers,  of
which roughly  three-quarters  were located in the United States.  The remainder
was   located   around  the  world,   primarily   in  Canada  and  Asia.   These
company-operated  service centers are supplemented by several hundred authorized
service  centers  operated by independent  local owners.  The  Corporation  also
operates reconditioning centers in which power tools, lawn and garden 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, 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, 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 two of the
segment's  customers,  The Home Depot and  Lowe's  Home  Improvement  Warehouse,
accounted for greater than 10% of the Corporation's consolidated sales for 2004,
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 batteries,  copper,  aluminum,  steel, certain
electronic  components,  engines,  and  plastics.  These  materials  are used in
various forms.  For example,  aluminum or steel may be used in the form of wire,
sheet, bar, and strip stock.
     The materials used in the various manufacturing  processes are purchased on
the open market, and the majority are available through multiple sources and are
in  adequate  supply.  The  Corporation  has  experienced  no  significant  work
stoppages to date as a result of shortages of  materials.  The  Corporation  has
certain  long-term  commitments for the purchase of various  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, lawn
and garden  tools,  electric  cleaning and lighting  products,  and  accessories
businesses in the United  States are located in  Fayetteville,  North  Carolina;
Jackson,  Tennessee;  Decatur,  Arkansas;  and  Tampa,  Florida.  The  principal
distribution  facilities in the United  States,  other than those located at the
manufacturing  and assembly  facilities  listed above, are located in Fort Mill,
South Carolina, and Rialto, California.
     Principal  manufacturing  and assembly  facilities of the power tools, lawn
and garden  tools,  electric  cleaning and lighting  products,  and  accessories
businesses  outside of the  United  States  are  located in Suzhou and  Qingdao,
China;  Taichung,  Taiwan; Usti nad Labem, Czech Republic;  Buchlberg,  Germany;
Perugia, Italy; Spennymoor and Maltby, England;

                                      -2-
<PAGE>

Reynosa,  Mexico; and Uberaba,  Brazil. In addition to the principal  facilities
described  above,  the  manufacture and assembly of products for the Power Tools
and  Accessories  segment  also occurs at the  facility of its  50%-owned  joint
venture  located in Shen Zhen,  China.  The  principal  distribution  facilities
outside of the United  States,  other  than those  located at the  manufacturing
facilities listed above,  consist of a central-European  distribution  center in
Tongeren,  Belgium, and facilities in Aarschot, Belgium;  Northampton,  England;
and Brockville, Canada.
   For additional information with respect to these and other properties owned
or leased by the Corporation, see Item 2, "Properties."
     The Corporation  holds various patents and licenses on many of its products
and processes in the Power Tools and Accessories segment. Although these patents
and licenses are important,  the Corporation is not materially dependent on such
patents or licenses with respect to its operations.
     The  Corporation  holds  various   trademarks  that  are  employed  in  its
businesses  and operates  under  various  trade names,  some of which are stated
previously.  The Corporation  believes that these trademarks and trade names are
important to the marketing and distribution of its products.
     A  significant  portion of the  Corporation's  sales in the Power Tools and
Accessories  segment is derived from the  do-it-yourself  and home modernization
markets,  which generally are not seasonal in nature.  However, sales of certain
consumer  and  professional  power  tools  tend to be higher  during  the period
immediately  preceding the Christmas gift-giving season, while the sales of most
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, and house numbers.  Decorative
hardware includes cabinet hardware,  switchplates,  door pulls, and push plates.
Plumbing products consist of a variety of conventional and decorative  lavatory,
kitchen,  and  tub  and  shower  faucets,  bath  and  kitchen  accessories,  and
replacement parts.
     Security  hardware  products are marketed under a variety of trademarks and
trade names, including,  without limitation,  KWIKSET SECURITY;  KWIKSET MAXIMUM
SECURITY; KWIKSET ULTRAMAX SECURITY; SOCIETY BRASS COLLECTION;  KWIKSET; BLACK &
DECKER; PROTECTO LOCK; TYLO; POLO; VENETIAN BRONZE;  POWERBOLT; KWIK INSTALL; EZ
INSTALL; GEO; SAFE-LOCK BY BLACK & DECKER;  BALDWIN; THE ESTATE COLLECTION;  THE
IMAGES  COLLECTION;  ARCHETYPES;  VILLA;  CHATEAU;  LIFETIME FINISH;  CRAFTSMAN;
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 KEYLESS ACCESS SYSTEM; FASHION DOORWARE; DECORATOR FINISH; WEISERBOLT;
and  ENTRYSETS.  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 2004,
2003,  and  2002 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 2004, 2003, or 2002.
     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

                                      -3-
<PAGE>

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 two of the segment's customers,  The Home Depot
and Lowe's Home  Improvement  Warehouse,  accounted  for greater than 10% of the
Corporation's  consolidated  sales for 2004,  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
Hardware and Home  Improvement  segment are zamak,  brass,  plastics,  aluminum,
steel, 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,  2004,  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 Mira Loma,  California;  Charlotte,  North Carolina;  and
Northpointe, 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,  and  self-piercing  riveting  systems.  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;

                                      -4-
<PAGE>

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; SMARTSET; SWS;
T-RIVET;  TUCKER;  ULTRA-GRIP;   ULTRASERT;  SWAGEFORM;  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 2004,
2003,  and  2002 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 2004, 2003, or 2002.
     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.
     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;   Jackson,   Tennessee;  and  Pittsburgh,
Pennsylvania; in the United States; Maltby and Spennymoor,  England; Brockville,
Canada; Perugia, Italy; Suzhou, China; Taichung, Taiwan; Buchlberg,  Idstein and
Steinheim,  Germany;  Mooroolbark,  Australia;  Uberaba,  Brazil;  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  performed  at  facilities  in Danbury  and  Shelton,  Connecticut;
Montpelier,  Indiana;  Campbellsville,  Kentucky;  Chesterfield  and  Farmington
Hills, Michigan; Birmingham, England; Maastricht, Netherlands; Giessen, Germany;
and Toyohashi, Japan.
     Costs  associated with  development of new products and changes to existing
products  are  charged  to  operations  as  incurred.  See  Note 1 of  Notes  to
Consolidated  Financial  Statements included in Item 8 of Part II of this report
for amounts of expenditures for product development activities.
     As of December 31, 2004,  the  Corporation  employed  approximately  26,200
persons in its operations  worldwide,  excluding  approximately 500 employees of
its  discontinued   European  security  hardware  business.   Approximately  450
employees in the United States are covered by collective bargaining  agreements.
During  2004,  one  collective  bargaining  agreement  in the United  States was
negotiated  without  material  disruption  to  operations.  Two  agreements  are
scheduled   for   negotiation   during   2005.   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.  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

                                      -5-
<PAGE>

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, 2004, 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 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,  2004,  the  Corporation's  aggregate
probable exposure with respect to environmental liabilities,  for which accruals
have  been  established  in the  consolidated  financial  statements,  was $65.2
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,  2004,  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.
     In April 2004, the Corporation submitted to the New York Stock Exchange the
CEO certification  required by Section 303A.12(a) of the New York Stock Exchange
Listed Company Manual.

                                      -6-
<PAGE>

(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 - 61
   Chairman, President, and Chief Executive Officer,
   January 1990 - present.

o  CHARLES E. FENTON - 56
   Senior Vice President and General Counsel,
   December 1996 - present.

o  PAUL A. GUSTAFSON - 62
   Executive  Vice  President  of  the Corporation and
   President - Fastening and Assembly Systems,
   December 1996 - present.

o  LES H. IRELAND - 40
   Vice President  of the Corporation and
   President - Europe/Middle East/Africa,
   Power Tools and Accessories,
   January 2005 - present;

   Vice President of the Corporation and
   Managing Director - Commercial Operations,
   Europe, Black & Decker Consumer Group,
   Power Tools and Accessories Group,
   November 2001 - January 2005;

   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.

o  THOMAS D. KOOS - 41
   Group Vice President of the Corporation and
   President - Consumer Products Group,
   Power Tools and Accessories,
   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.

o  BARBARA B. LUCAS - 59
   Senior Vice President - Public Affairs and
   Corporate Secretary,
   December 1996 - present.

o  MICHAEL D. MANGAN - 48
   Senior Vice President and Chief Financial Officer,
   January 2000 - present;

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

o  PAUL F. MCBRIDE - 49
   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.

o  CHRISTINA M. McMULLEN - 49
   Vice President and Controller,
   April 2000 - present;

   Controller,
   January 2000 - April 2000;

   Assistant Controller,
   April 1993 - January 2000.

                                      -7-
<PAGE>

o  CHRISTOPHER T. METZ - 39
   Group Vice President of the Corporation and
   President - Hardware and Home Improvement,
   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.

o  STEPHEN F. REEVES - 45
   Vice President of the Corporation and
   Vice President - Global Finance,
   Power Tools and Accessories,
   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 - 46
   Vice President - Investor Relations and Treasurer,
   January 2000 - present;

   Vice President and Treasurer,
   March 1997 - January 2000.

o  EDWARD J. SCANLON - 50
   Vice President of the Corporation and President -
   Commercial Operations, North and South America,
   Power Tools and Accessories,
   March 2004 - present;

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

o  JOHN W. SCHIECH - 46
   Group Vice President of the Corporation
   and President - Industrial Products Group,
   Power Tools and Accessories,
   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.

o  ROBERT B. SCHWARZ - 56
   Vice President of the Corporation and Vice President
   - Manufacturing, Industrial Products Group,
   Power Tools and Accessories,
   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.

                                      -8-
<PAGE>

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 2004. 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 2004 and scheduled for
introduction  in 2005,  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.

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  successfully   integrate  the  operation  of
businesses or companies  acquired and to realize the  anticipated  cost savings,
synergies,  and other benefits  relating to the acquisition of such  businesses,
including,  without limitation,  the Porter-Cable and Delta Tools Group acquired
from Pentair Inc. in October 2004.

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.

                                      -9-
<PAGE>

ITEM 2. PROPERTIES

The Corporation operates 44 manufacturing facilities around the world, including
22  located  outside of the United  States in 10  foreign  countries.  The major
properties  associated  with each  business  segment  are  listed in  "Narrative
Description of the Business" in Item 1(c) of Part I of this report.
     The following are the Corporation's major leased facilities:
     In the United  States:  Lake  Forest,  Mira Loma,  and Rialto,  California;
Jackson,  Tennessee;  Tampa,  Florida;   Chesterfield,   Michigan;  and  Towson,
Maryland.
     Outside of the United  States:  Maltby,  England;  Tongeren  and  Aarschot,
Belgium; Reynosa and Mexicali, Mexico; Brockville, Canada; Usti nad Labem, Czech
Republic; Taichung, Taiwan; and Suzhou and Qingdao, 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. In the fourth quarter
of 2004, the Corporation  approved  certain  actions under a restructuring  plan
associated  with the  integration of the acquired  Porter-Cable  and Delta Tools
Group into its Power Tools and Accessories  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.
     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, 2004,  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.

                                      -10-
<PAGE>
                                    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                                        2004                        2003
--------------------------------------------------------------------------------
January to
   March                         $56.590 to $48.070          $44.240 to $33.200
April to June                    $61.500 to $54.440          $44.790 to $33.890
July to
   September                     $75.200 to $59.090          $45.640 to $38.380
October to
   December                      $89.640 to $72.090          $49.900 to $39.510
--------------------------------------------------------------------------------

(b)   Holders of the Corporation's Capital Stock
As of January 28, 2005, there were 12,493 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                                                      2004          2003
--------------------------------------------------------------------------------
January to March                                             $.21          $.12
April to June                                                 .21           .12
July to September                                             .21           .12
October to December                                           .21           .21
--------------------------------------------------------------------------------
                                                             $.84          $.57
================================================================================

Common Stock:
150,000,000  shares  authorized,  $.50  par  value,  82,095,161  and  77,933,464
outstanding as of December 31, 2004 and 2003, respectively.

Preferred Stock:
5,000,000  shares  authorized,  without par value,  no shares  outstanding as of
December 31, 2004 and 2003.

(d)  Annual Meeting of Stockholders
The 2005 Annual Meeting of  Stockholders  of the  Corporation is scheduled to be
held on April 26, 2005, at 9:00 a.m. at the Sheraton  Baltimore North Hotel, 903
Dulaney Valley Road, Towson, Maryland 21204.

                                      -11-
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

FIVE-YEAR SUMMARY

<TABLE>
<CAPTION>
(MILLIONS OF DOLLARS EXCEPT PER SHARE DATA)                              2004         2003(b)      2002(b)(d)   2001(b)      2000(c)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>          <C>          <C>          <C>          <C>
Sales                                                                $5,398.4     $4,482.7     $4,291.8     $4,139.9     $4,365.7
Net earnings from continuing operations                                 441.1        287.2        228.5        101.5        273.7
Earnings from discontinued operations (a)                                14.9          5.8          1.2          6.5          8.3
Net earnings                                                            456.0        293.0        229.7        108.0        282.0
Basic earnings per share:
   Continuing operations                                                 5.53         3.69         2.85         1.26         3.27
   Discontinued operations                                                .19          .07          .01          .08          .10
   Net earnings per common share - basic                                 5.72         3.76         2.86         1.34         3.37
Diluted earnings per share:
   Continuing operations                                                 5.40         3.68         2.83         1.25         3.24
   Discontinued operations                                                .19          .07          .01          .08          .10
   Net earnings per common share - assuming dilution                     5.59         3.75         2.84         1.33         3.34
Total assets                                                          5,530.8      4,222.5      4,130.5      4,014.2      4,089.7
Long-term debt                                                        1,200.6        915.6        927.6      1,191.4        798.5
Redeemable preferred stock of subsidiary (e)                            192.2        202.6        208.4        196.5        188.0
Cash dividends per common share                                           .84          .57          .48          .48          .48
------------------------------------------------------------------------------------------------------------------------------------
<FN>
(a)  Earnings  from  discontinued  operations  represent  the  earnings,  net of
     applicable  income  taxes,  of  the  Corporation's   discontinued  European
     security hardware business.  Earnings from discontinued  operations for the
     year ended  December 31, 2004,  include a gain on sale of  discontinued  of
     operations of $12.7 million.  That gain was net of a $24.4 million goodwill
     impairment charge associated with the remaining  European security hardware
     business,  DOM. 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.
(b)  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 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.
(c)  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).
(d)  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.
(e)  As of December 31,  2004,  redeemable  preferred  stock of  subsidiary  was
     included in other  current  liabilities.  As of December  31, 2000  through
     2003,  redeemable  preferred  stock of  subsidiary  was  included  in other
     long-term liabilities.
</FN>
</TABLE>

                                      -12-
<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 71%,
18% and 11%, respectively, of the Corporation's sales in 2004. The percentage of
the  Corporation's  total sales  contributed by its Power Tools and  Accessories
segment will increase in 2005 when a full year's sales of the  Porter-Cable  and
Delta Tools Group,  acquired on October 2, 2004,  are included in that segment's
results.  The  Porter-Cable  and Delta Tools Group  includes  the  Porter-Cable,
Delta, DeVilbiss Air Power Company, Oldham Saw, and FLEX businesses.
     The  Corporation  markets its products and services in over 100  countries.
During 2004, approximately 64%, 23%, and 13% 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 $456.0  million,  or $5.59 per
share, on a diluted basis, for the year ended December 31, 2004, compared to net
earnings of $293.0 million,  or $3.75 per share on a diluted basis, for the year
ended  December  31,  2003.  As  more  fully  described  in Note 3 of  Notes  to
Consolidated  Financial Statements included in Item 8 of Part II of this report,
net earnings for the year ended December 31, 2004,  included a $12.7 million net
gain on the sale of discontinued operations.
     The Corporation reported net earnings from continuing  operations of $441.1
million,  or $5.40 per share on a diluted basis, for the year ended December 31,
2004, as compared to net earnings from continuing  operations of $287.2 million,
or $3.68 per share on a diluted basis, for the year ended December 31, 2003. 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.  The
increase  in  the  Corporation's  net  earnings  and  earnings  per  share  from
continuing  operations for 2004, as compared to 2003, is partially  attributable
to restructuring and exit costs recognized in 2003.
     Total  consolidated  sales of $5.40 billion for the year ended December 31,
2004,  increased by 20% over the prior year's level.  Of that 20% increase,  10%
was  attributable to an increase in unit volume of existing  businesses,  9% was
attributable  to sales of acquired  businesses,  and 3% was  attributable to the
favorable impact of foreign currency  translation,  offset by 2% attributable to
the negative  effect of pricing  actions.  In this  Management's  Discussion and
Analysis,  the Corporation has attempted to  differentiate  between sales of its
"existing"  or  "legacy"  businesses  and  sales of  acquired  businesses.  That
differentiation  includes sales of businesses where  year-to-year  comparability
exists in the category of "existing"  or "legacy"  businesses.  For example,  in
2004, the sales of both the  Porter-Cable and Delta Tools Group business and the
MasterFix  business--each  acquired in  2004--are  included in sales of acquired
businesses. In addition, sales of the Baldwin and Weiser businesses, acquired in
the fourth  quarter of 2003,  are included in acquired  businesses for the first
nine months of 2004 but in "existing" or "legacy" businesses for the final three
months of 2004.
     Operating income for the year ended December 31, 2004,  increased to $629.2
million, or 11.7% of sales, from $428.7 million, or 9.6% of sales, in 2003. That
$428.7  million of operating  income for the year ended  December 31, 2003,  was
reduced by $31.6  million of  restructuring  and exit  costs.  The  increase  in
operating  income as a percentage  of sales  during the year ended  December 31,
2004,  primarily  resulted from improved  gross  margins,  the leverage of fixed
costs over a higher sales base, and the absence of charges for restructuring and
exit costs.  The  improvements in gross margin in 2004 were  attributable to the
positive effects of restructuring and other productivity  initiatives as well as
favorable  foreign  currency  exchange rates,  partially  offset by the negative
effects of pricing actions and higher raw material costs. Selling,  general, and
administrative  expenses  for the year ended  December  31,  2004,  increased in
dollar  terms  over the  prior  year's  level,  principally  due to  incremental
expenses of the businesses  acquired in the past year and the effects of foreign
currency  translation.  During 2004, the Corporation  also recognized  increased
promotional and marketing  expenses as well as higher  expenses  associated with
stock-based  compensation and compliance with Section 404 of the  Sarbanes-Oxley
Act.  Selling,  general,  and  administrative  expenses as a percentage of sales
declined  from 25.3% in 2003 to 24.8% in 2004  principally  due to the impact of
the Porter-Cable and Delta Tools Group acquisition.

                                      -13-
<PAGE>

     Earnings from continuing  operations before income taxes for the year ended
December  31, 2004,  increased  by $213.4  million over the 2003 level to $604.3
million.  In addition to the  improvements in operating  income described above,
pre-tax earnings from continuing  operations  during 2004 benefited from a $13.1
million  reduction in interest  expense  (net of interest  income) from the 2003
level.
     As  discussed  further  in  Note  2  of  Notes  to  Consolidated  Financial
Statements included in Item 8 of Part II of this report, on October 2, 2004, the
Corporation  acquired the Porter-Cable and Delta Tools Group from Pentair,  Inc.
for a purchase  price of  approximately  $792.0  million net of cash acquired of
$8.3 million and including transaction costs of $3.5 million. That cash purchase
price of $792.0 million  included a payment of $21.8  million,  on a preliminary
basis,  based upon the estimated  increase in the net assets of the Porter-Cable
and Delta  Tools  Group.  The  final  purchase  price is  subject  to  customary
adjustments  based upon changes in the net assets of the Tools Group through the
closing date.  The Tools Group  business has been included in the  Corporation's
Power  Tools  and  Accessories   segment.  The  Corporation  believes  that  its
acquisition  of  the  Tools  Group  was  both   strategically   and  financially
compelling.  The acquisition of the Tools Group has added well-respected  brands
to the Corporation's portfolio and expanded the offerings in product lines where
the  Corporation  had  relatively  low  market  share,   including   woodworking
equipment,   compressors,  pressure  washers,  and  nailers.  In  addition,  the
acquisition of the Tools Group provided the Corporation  with the opportunity to
achieve  cost  synergies  as it  integrates  the  acquired  businesses  into its
existing professional power tools business.
     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, 2004, 2003, and 2002.

                                                     YEAR ENDED DECEMBER 31,
(DOLLARS IN MILLIONS)                           2004         2003         2002
--------------------------------------------------------------------------------
Total sales                                 $5,398.4     $4,482.7     $4,291.8
--------------------------------------------------------------------------------
Unit volume - existing (a)                        10 %          1 %          5 %
Unit volume - acquired (b)                         9 %          1 %          -
Price                                             (2)%         (2)%         (2)%
Currency                                           3 %          4 %          1 %
--------------------------------------------------------------------------------
Change in total sales                             20 %          4 %          4 %
================================================================================
(a)  Represents  change  in  unit  volume  for  businesses  where   year-to-year
     comparability exists.
(b)  Represents change in unit volume for businesses that were acquired and were
     not included in prior period results.

     Total  consolidated  sales  for the year  ended  December  31,  2004,  were
$5,398.4  million,  which represented a 20% increase over 2003 sales of $4,482.7
million. Excluding the incremental effects of the MasterFix and Porter-Cable and
Delta Tools  Group  businesses  acquired in 2004,  and of the Baldwin and Weiser
businesses for the first nine months of 2004, total unit volume increased by 10%
during  the  year  ended  December  31,  2004.  The  improvement  was  primarily
attributable to the Corporation's North American businesses.  As compared to the
corresponding  period in 2003,  a  double-digit  increase  in sales  volume  was
experienced by the Corporation's legacy professional power tools and accessories
business as well as its plumbing products business in North America. Unit volume
of acquired businesses contributed 9% to the sales growth for 2004 over the 2003
levels.  Pricing actions had a 2% negative effect on sales for 2004, as compared
to 2003.  In  addition  to pricing  actions  taken in  response  to  competitive
conditions,  the impact of pricing in non-U.S.  markets during 2004--as a result
of  the  favorable  currency  effects  of  U.S.  dollar-sourced   products--also
negatively  impacted the comparison to 2003. The effects of a weaker U.S. dollar
compared to other currencies, particularly the euro, and to a lesser degree, the
pound sterling,  caused a 3% increase in the  Corporation's  consolidated  sales
during 2004, as compared to 2003.
     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. Excluding the incremental effects of the Baldwin and Weiser businesses,
acquired  in October  2003,  total unit volume  increased  by 1% during the year
ended  December  31,  2003.  Unit  volume of the  acquired  Baldwin  and  Weiser
businesses  contributed 1% to the sales growth for 2003 over the 2002 level. 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 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's level. These positive effects were partially offset by the devaluation of
several Latin American currencies during 2003 as compared to 2002.

                                      -14-
<PAGE>

Earnings
The  Corporation  reported  consolidated  operating  income of $629.2 million on
sales of  $5,398.4  million  in 2004,  compared  to  operating  income of $428.7
million on sales of $4,482.7  million in 2003 and to operating  income of $368.0
million on sales of $4,291.8 million in 2002.
     Consolidated   operating   income  for  2003  and  2002  included   pre-tax
restructuring  charges of $31.6 million and $46.6 million,  respectively.  Those
2003 and 2002 pre-tax  charges were net of reversals of $13.2  million and $11.0
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.
     Consolidated  gross  margin  as a  percentage  of sales  for 2004 was 36.4%
compared  to  35.6%  for  2003.  The  increase  in  gross  margin  in  2004  was
attributable to the positive  effects of  restructuring  and other  productivity
initiatives,  the  leverage  of fixed  costs over a higher  sales  base and,  in
Europe,  favorable foreign currency exchange rates.  These positive factors were
partially  offset  by the  negative  effect  of  pricing  actions  taken  by the
Corporation as previously  described,  by higher raw material and pension costs,
and by lower gross margins of the acquired Porter-Cable and Delta Tools Group.
     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 selling,  general and administrative  expenses as a percentage
of  sales  were  24.8%  in 2004,  compared  to 25.3% in 2003 and  25.0% in 2002.
Selling,  general,  and  administrative  expenses increased by $201.0 million in
2004, over the 2003 level. The incremental  expenses of the acquired  businesses
and the effects of foreign currency translation  accounted for approximately 40%
and 20% of that  increase,  respectively.  Higher  promotional,  marketing,  and
research and  development  expenses,  particularly  in the North  American power
tools and accessories business,  higher transportation and distribution expenses
to support the increased sales level, and higher Corporate  expenses--driven  by
expenses related to stock-based  compensation and compliance with Section 404 of
the Sarbanes-Oxley Act--accounted for much of the remaining increase in selling,
general, and administrative expenses during 2004.
     Consolidated  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 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.
     Consolidated net interest expense  (interest  expense less interest income)
was $22.1  million in 2004,  compared to $35.2 million in 2003 and $57.8 million
in 2002.  The lower net  interest  expense in 2004,  as  compared  to 2003,  was
primarily the result of higher interest income associated with the Corporation's
foreign cash investment activities in 2004, coupled with lower borrowing levels.
The lower net interest expense in 2003, as compared to 2002,  resulted from both
lower borrowing levels and lower interest rates.
     Other expense was $2.8 million in 2004 compared to $2.6 million in 2003 and
$4.8 million in 2002.
     Consolidated  income tax expense of $163.2  million,  $103.7  million,  and
$76.9 million was  recognized  on the  Corporation's  earnings  from  continuing
operations  before income taxes of $604.3 million,  $390.9  million,  and $305.4
million, for 2004, 2003 and 2002, respectively.  The Corporation's effective tax
rate was 27% for 2004, compared to an effective tax rate of 27% for 2003 and 25%
for 2002.  For 2003,  tax benefits of $9.5 million  were  recognized  on pre-tax
restructuring  and exit costs of $31.6  million,  as compared to a $17.4 million
benefit  on  pre-tax  restructuring  and  exit  costs of  $46.6  million  in the
corresponding 2002 period. The lower effective tax rate during 2002 reflects the
higher tax benefit associated with the 2002 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 from continuing  operations of $441.1
million,  or $5.40 per share on a diluted basis, for the year ended December 31,
2004, compared to net earnings from continuing  operations of $287.2 million, or
$3.68 per share on a diluted  basis for the year ended  December 31,  2003,  and
$228.5  million,  or $2.83  per  share on a diluted  basis,  for the year  ended
December 31, 2002.
     The Corporation reported net earnings from discontinued operations of $14.9
million in 2004,  as compared to $5.8  million in 2003 and $1.2 million in 2002.
As more fully described in Note 3 of Notes to Consolidated  Financial Statements
included in Item 8 of Part II of this  report,  net earnings  from  discontinued
operations for the year ended  December 31, 2004,

                                      -15-
<PAGE>

included a $12.7  million  gain on sale of  discontinued  operations.  The $12.7
million gain  recognized  during 2004  consisted of a $37.1  million gain on the
sale of two discontinued  businesses (NEMEF and Corbin) in early 2004, partially
offset  by a $24.4  million  goodwill  impairment  charge  associated  with  the
remaining  discontinued  business  (DOM).  During  2004,  the  discontinued  DOM
business  was  under  contract  for sale at $28.0  million,  pending  regulatory
approval.  The  Corporation  terminated  that  contract  in  January  2005  when
regulatory approval was not obtained and is currently marketing the DOM business
for sale.
     The Corporation  reported net earnings of $456.0  million,  $293.0 million,
and $229.7 million, or $5.59, $3.75, and $2.84 per share on a diluted basis, for
the years ended December 31, 2004, 2003, and 2002, respectively.  In addition to
the impact of  operational  matters,  earnings per share for 2003 also benefited
from lower shares outstanding than those outstanding in 2004 and 2002.

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,                          2004         2003         2002
--------------------------------------------------------------------------------
Sales to unaffiliated
   customers                                 $3,667.2     $3,198.4     $3,242.5
Segment profit                                  478.2        361.2        361.5
--------------------------------------------------------------------------------
     Sales to unaffiliated  customers in the Power Tools and Accessories segment
during 2004  increased 15% over the 2003 level.  Sales of the  Porter-Cable  and
Delta  Tools  Group  businesses  acquired  early in the fourth  quarter of 2004,
accounted  for 8 percentage  points of the 15% increase in 2004,  while sales of
the legacy Power Tools and Accessories  businesses accounted for the remaining 7
percentage points of growth.
     Sales in North America  increased at a  double-digit  rate during 2004 over
the prior  year's  level.  Approximately  half of this  increase  was due to the
incremental sales of the acquired Porter-Cable and Delta Tools Group businesses.
Sales of the  Corporation's  legacy  professional  power  tools and  accessories
business in North America  increased at a double-digit rate as sales grew in all
major  channels and product  lines.  Sales of the  Corporation's  consumer power
tools and  accessories  business  grew at a  mid-single-digit  rate during 2004,
compared  to 2003,  as  increased  sales of  consumer  power  tools and  outdoor
products were partially  offset by lower sales of  accessories  and cleaning and
lighting products.
     Sales in Europe during 2004 increased at a low single-digit rate due to the
incremental  sales of FLEX, a component of the acquired  Porter-Cable  and Delta
Tools Group business,  and a high  single-digit rate of increase in sales of the
Corporation's legacy European professional power tools and accessories business.
These increases were partially offset by a low single-digit  rate of decrease in
sales of  consumer  power  tools and  accessories,  largely as a result of lower
sales of outdoor products.
     Sales in other  geographic  areas  increased at a double-digit  rate during
2004 over the 2003  levels.  Sales of the  Corporation's  legacy power tools and
accessories businesses in other geographic areas during 2004 increased at a high
single-digit  rate  over the prior  year's  level as sales  increased  at a high
single-digit  rate in Central and South  America and at a  double-digit  rate in
Asia.
     Segment profit as a percentage of sales for the Power Tools and Accessories
segment improved from 11.3% in 2003 to 13.0% in 2004. That improvement  resulted
from an  increase  in gross  margin and a reduction  in  selling,  general,  and
administrative  expenses,  both as a percentage of sales.  Improvements in gross
margin  as  a  percentage  of  sales  were  due  to  the  positive   effects  of
restructuring  and other  productivity  initiatives,  favorable product mix, and
foreign  currency  effects,  partially offset by the negative effects of pricing
actions and, to a lesser extent,  rising raw material costs. While the impact of
rising  material costs was mitigated in 2004 by fixed-price  supply  agreements,
the  business  anticipates  additional  cost  pressures  in 2005 as those supply
agreements   are   renegotiated.   The  reduction  in  selling,   general,   and
administrative  expenses as a  percentage  of sales was  principally  due to the
impact of the Porter-Cable and Delta Tools Group acquisition. The acquisition of
the lower-margin  Porter-Cable and Delta Tools Group early in the fourth quarter
of 2004 had a  40-basis-point  negative impact on segment profit as a percentage
of sales for the year ended  December 31,  2004,  and is expected to continue to
depress segment profit as a percentage of sales in 2005.
     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

                                      -16-
<PAGE>

2002 level,  as a double-digit  rate of growth in sales of outdoor  products was
more than offset by a double-digit rate of 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 11.1% 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.

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,                              2004       2003       2002
--------------------------------------------------------------------------------
Sales to unaffiliated customers                    $959.4     $718.1     $660.7
Segment profit                                      145.2       93.2       47.4
--------------------------------------------------------------------------------
     Sales to  unaffiliated  customers  in the  Hardware  and  Home  Improvement
segment  increased 34% during 2004 over the 2003 level.  During 2004, the impact
of the Baldwin and Weiser acquisition  accounted for 23 percentage points of the
34% increase,  while higher sales of the Price  Pfister and Kwikset  businesses,
coupled  with  sales  growth in the  Baldwin  and  Weiser  businesses  after the
anniversary  of the  acquisition,  accounted  for the  remaining  11  percentage
points. Sales of plumbing products increased at a double-digit rate during 2004,
reflecting the expansion of listings at a key retailer that occurred  during the
third  quarter  of 2003 as well as  higher  sales at other  retailers.  Sales of
Kwikset  security  hardware  products   increased  over  the  2003  level  at  a
mid-single-digit rate due to strong retail sales.
     Segment  profit  as a  percentage  of  sales  for  the  Hardware  and  Home
Improvement  segment rose to 15.1% for 2004 from 13.0% for 2003.  Segment profit
as a  percentage  of sales for 2004  benefited  from  significant  gross  margin
improvement.  That  gross  margin  improvement  was  primarily  driven by volume
leverage and productivity improvements, partially offset by the impact of higher
raw   material   costs  as  well  as   costs   associated   with   manufacturing
rationalization  in the security hardware  business.  The acquisition of Baldwin
and Weiser did not have a significant  effect on segment  profit as a percentage
of sales during 2004.
     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 and Weiser early in the fourth
quarter of 2003.  A low  single-digit  rate of  increase in sales of the Kwikset
security  hardware  business  in North  America  was  partially  offset by a low
single-digit rate of 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 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

                                      -17-
<PAGE>

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.

FASTENING AND ASSEMBLY SYSTEMS
Segment  sales and  profit  for the  Fastening  and  Assembly  Systems  segment,
determined on the basis described in Note 17of Notes to  Consolidated  Financial
Statements, were as follows (in millions of dollars):

YEAR ENDED DECEMBER 31,                              2004       2003       2002
--------------------------------------------------------------------------------
Sales to unaffiliated customers                    $586.3     $530.1     $528.6
Segment profit                                       79.8       77.6       77.9
--------------------------------------------------------------------------------
     Sales to  unaffiliated  customers in the  Fastening  and  Assembly  Systems
segment  increased by 11% in 2004 over the 2003 level.  During  March 2004,  the
Corporation  completed the  acquisition  of MasterFix,  an industrial  fastening
company with operations in Europe and Asia.  Incremental  sales of the MasterFix
business accounted for 3 percentage points of the 11% increase in 2004. Sales in
North America  during 2004 increased at a high  single-digit  rate over the 2003
level, with increases in both the industrial and automotive  channels.  Sales in
Europe during 2004  increased  over the 2003 level at a  double-digit  rate, due
largely to the incremental  sales of the MasterFix  business.  The Fastening and
Assembly System  segment's  legacy European  industrial  business  experienced a
mid-single-digit  rate of growth during 2004 as compared to 2003, while sales in
its legacy European  automotive  business  approximated the 2003 level. Sales in
the segment's  legacy  businesses in Asia  increased at a  double-digit  rate in
2004, as compared to 2003.
     Segment  profit as a  percentage  of sales for the  Fastening  and Assembly
Systems segment  declined from 14.6% in 2003 to 13.6% in 2004,  primarily due to
significant  costs  increases in steel and other raw materials.  The incremental
impact of the MasterFix  business did not have a  significant  effect on segment
profit as a percentage of sales of the Fastening  and Assembly  Systems  segment
during 2004.
     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 14.6% for 2003 as  compared  to 14.7%  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.

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",
expense  recognized by the Corporation in 2004 relating to its pension and other
postretirement  benefits plans increased by  approximately  $19 million over the
2003 level. 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 $.8 million and $15.4 million
for the years ended December 31, 2004 and 2003, respectively.  That lower income
level in 2004  resulted  from higher  pension  expense--exclusive  of  estimated
service costs--not allocated to 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 $10.0 million,  $15.0 million,  and $8.4 million for the
years ended December 31, 2004, 2003, and 2002,  respectively.  The $10.0 million
of  segment-related  expenses  excluded from segment profit in 2004  principally
related to restructuring-related  expenses associated with the Hardware and Home
Improvement  and Power  Tools and  Accessories  segments.  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 $83.1 million,  $73.6 million, and $89.1
million for the years ended December 31, 2004, 2003, and 2002, respectively. The
increase in these  unallocated  Corporate center operating  expenses for 2004 as
compared to 2003 was primarily due to higher  stock-based  compensation  expense
not allocated  directly to the Corporation's  business segments as well as costs
associated with compliance with Section 404 of the Sarbanes-Oxley Act, partially
offset by lower  medical-

                                      -18-
<PAGE>

related expenses.  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.
     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.

DISCONTINUED OPERATIONS
The European security hardware  business,  consisting of the NEMEF,  Corbin, and
DOM  businesses,   has  been  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 $77.5 million net of cash transferred.
     The Corporation's  remaining European security hardware business,  DOM, was
under contract for sale at $28.0 million in 2004, pending  regulatory  approval.
The  Corporation  terminated  that  contract  in  January  2005 when  regulatory
approval was not obtained and is currently marketing the DOM business for sale.
     Net earnings of the discontinued  European  security hardware business were
$14.9  million ($.19 per share on a diluted  basis) for the year ended  December
31, 2004;  $5.8 million  ($.07 per share on a diluted  basis) for the year ended
December 31, 2003;  and $1.2 million ($.01 per share on a diluted basis) for the
year ended  December 31, 2002.  Earnings from  discontinued  operations  include
pre-tax restructuring  (reversals) charges of $(.6) million and $4.1 million for
the years ended December 31, 2003 and 2002, 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, 2004, is included in Note 19
of Notes to Consolidated Financial Statements.
     In 2004, the Corporation  recognized $5.4 million of pre-tax  restructuring
and exit  costs  related  to actions  taken in its Power  Tools and  Accessories
segment.  The restructuring  actions taken in 2004 principally reflect severance
benefits. The $5.4 million charge recognized during 2004 was offset, however, by
the  reversal  of $4.0  million of  severance  accruals  established  as part of
previously provided restructuring reserves that were no longer required and $1.4
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  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 and $4.1 million for the years ended  December 31, 2003
and 2002, respectively.
     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

                                      -19-
<PAGE>

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
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.  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.
     As indicated in Note 19 of Notes to Consolidated Financial Statements,  the
severance  benefits  accrual,  included in  the $31.6 million  and $46.6 million
pre-tax restructuring charges taken in 2003 and 2002,  respectively,  related to
the  elimination of  approximately  2,700  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 2,600 replacement positions will be filled, yielding a
net  total  of 100  positions  eliminated  as a  result  of the  2003  and  2002
restructuring actions.
     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  2005.  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  accounting  principles  generally  accepted  in the United  States
(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,  2004 and 2003,  included
approximately    $15    million    and    $25    million,    respectively,    of
restructuring-related expenses.
     The  Corporation  realized  benefits of  approximately  $70 million and $50
million in 2004 and 2003, respectively,  net of restructuring-related  expenses.
Those  benefits  resulted in a reduction in cost of goods sold of  approximately
$58 million and $39 million in 2004 and 2003,  respectively,  and a reduction in
selling,  general, and administrative  expenses of approximately $12 million and
$11  million  in 2004 and  2003,  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  2005  results by $10
million,  net of  restructuring-related  expenses.  The Corporation expects that
those  incremental  pre-tax  savings in 2005 will benefit cost of goods sold and
selling, general, and administrative expenses in approximately the same ratio as
experienced in 2004. The  Corporation  expects that pre-tax  savings  associated
with the restructuring  actions related to the integration of Baldwin and Weiser
into its existing  security hardware business will benefit 2005 and 2006 results
by  approximately  $20  million,   respectively,  net  of  restructuring-related
expenses,  resulting  in  annual  savings  of  approximately  $25  million.  The
restructuring-related  expense  associated with these  integration  plans had an
adverse pre-tax impact of  approximately  $15 million in 2004.  Ultimate savings
realized from restructuring actions may be mitigated by such factors as economic
weakness and  competitive  pressures,  as well as decisions to increase costs in
areas such as  promotion  or research  and  development  above  levels that were
otherwise assumed.

                                      -20-
<PAGE>

    As previously  indicated,  the pre-tax  restructuring charges recognized in
2004,  2003, and 2002 of $--, $31.6  million,  and $46.6 million,  respectively,
were  net  of  reversals  in  2004,  2003,  and  2002  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
$5.4 million, $13.2 million, and $11.0 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 2004,
2003, and 2002, 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.  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 $3.7 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 2005.
     Also,  prior to the date of the acquisition of the  Porter-Cable  and Delta
Tools Group and during the fourth  quarter of 2004, the  Corporation  identified
opportunities  to  restructure  these  businesses as well as to integrate  these
businesses into its existing Power Tools and Accessories segment.  Subsequent to
the acquisition,  the Corporation approved restructuring actions relating to the
acquired business of $16.2 million.  These actions principally reflect severance
costs associated with  administrative  and manufacturing  actions related to the
acquired businesses,  including the closure of two manufacturing facilities, and
lease and other  contractual  obligations  for which no future  benefit  will be
realized.  Certain of these  restructuring  actions  commenced  in 2004 with the
remainder   commencing  in  early  2005.  The  Corporation  expects  that  these
restructuring  actions  will be completed  by the end of 2006.  The  Corporation
continues its evaluation of the identified  opportunities  to restructure  these
businesses  as well as to integrate  these  businesses  into its existing  Power
Tools and Accessories segment. The Corporation  anticipates that finalization of
its planned integration actions will not occur until 2005.

Hedging Activities
The Corporation  has a number of  manufacturing  sites  throughout the world and
sells its  products in more than 100  countries.  As a result,  it is exposed to
movements in the exchange rates of various  currencies against the United States
dollar and against the  currencies  of countries in which it  manufactures.  The
major foreign  currencies in which  foreign  currency  risks exist are the euro,
pound sterling,  Canadian  dollar,  Japanese yen, Chinese  renminbi,  Australian
dollar,  Mexican peso,  Czech koruna,  and Brazilian  real.  Through its foreign
currency  activities,  the Corporation  seeks to reduce the risk that cash flows
resulting from the sales of products  manufactured in a currency  different from
that of the selling subsidiary will be affected by changes in exchange rates.
     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.

                                      -21-
<PAGE>

     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  2004,  translation
adjustments,  recorded in the  accumulated  other  comprehensive  income  (loss)
component  of  stockholders'  equity,  increased  stockholders'  equity by $95.8
million compared to an increase of $98.4 million in 2003.
     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 52% at December 31, 2004, compared to 47% at December 31, 2003, and
52% at December 31, 2002.  At December 31, 2004,  average debt  maturity was 8.3
years  compared to 8.8 years at December 31, 2003, and 7.2 years at December 31,
2002.

INTEREST RATE SENSITIVITY
The following  table  provides  information  as of December 31, 2004,  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, 2004.

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

                                                                                                                         Fair Value
                                                                                                                          (Assets)/
(U.S. DOLLARS IN MILLIONS)              2005       2006       2007      2008       2009     Thereafter        Total     Liabilities
------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Short-term borrowings
<S>                                    <C>        <C>        <C>        <C>       <C>            <C>        <C>            <C>
Variable rate (other currencies)       $  1.1     $   --     $   --     $  --     $   --         $   --     $    1.1       $    1.1
  Average interest rate                 10.23%                                                                 10.23%
Long-term debt
Fixed rate (U.S. dollars)              $   .5     $155.1     $150.2     $  .2     $   .1         $850.0     $1,156.1       $1,248.1
  Average interest rate                  7.00%      7.00%      6.55%     7.00%      7.00%          6.27%        6.41%
Other current liabilities
Fixed rate (U.S. dollars)              $188.0     $   --     $   --     $  --     $   --         $   --     $  188.0       $  192.2
  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     $  --     $   --         $400.0     $  788.0       $  (32.5)
  Average pay rate (a)
  Average receive rate                   6.49%      6.03%      5.22%                               5.11%        5.59%
------------------------------------------------------------------------------------------------------------------------------------
<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>

                                      -22-
<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, 2004, the Corporation has
hedged a portion  of its 2005  estimated  foreign  currency  transactions  using
forward exchange contracts.  The Corporation  estimated the effect on 2005 gross
profits,  based upon a recent  estimate  of  foreign  exchange  exposures,  of a
uniform  10%  strengthening  in the  value  of the  United  States  dollar.  The
Corporation estimated that this would have the effects of reducing gross profits
for 2005 by  approximately  $18 million.  The  Corporation  also  estimated  the
effects on 2005 gross profits,  based upon a recent estimate of foreign exchange
exposures,  of a uniform 10% weakening in the value of the United States dollar.
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 2004,  inherent in
the foreign exchange hedging portfolio at December 31, 2004.

Critical Accounting Policies
The  Corporation's  accounting  policies  are more fully  described in Note 1 of
Notes to Consolidated  Financial Statements.  As disclosed in Note 1 of Notes to
Consolidated  Financial  Statements,  the preparation of financial statements in
conformity with accounting  principles  generally  accepted in the United States
requires  management to make estimates and assumptions  about future events that
affect the amounts reported in the financial  statements and accompanying notes.
Future events and their effects  cannot be determined  with absolute  certainty.
Therefore,  the  determination  of estimates  requires the exercise of judgment.
Actual results inevitably will differ from those estimates, and such differences
may be material to the financial statements.
     The Corporation believes that, of its significant accounting policies,  the
following  may involve a higher  degree of judgment,  estimation,  or complexity
than other accounting policies.
     As more  fully  described  in Note 1 of  Notes  to  Consolidated  Financial
Statements,  the Corporation  performs goodwill  impairment tests on at least an
annual  basis and more  frequently  in certain  circumstances.  The  Corporation
cannot predict the occurrence of certain events that might adversely  affect the
reported value of goodwill that totaled  $1,184.0  million at December 31, 2004.
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's  discount rate for United States defined benefit pension plans was
6.00% at December 31, 2004 and 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's  expected  long-term  rate of return  assumption for United States
defined benefit plans was 8.75% in 2004 and 2005.
     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 $155 million as of the 2004 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

                                      -23-
<PAGE>

or  the  projected  benefit  obligation  at  the  beginning  of  the  year.  The
Corporation expects that its pension and other  postretirement  benefit costs in
2005 will exceed the costs recognized in 2004 by approximately $20 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.
     As more  fully  described  in Note 19 of  Notes to  Consolidated  Financial
Statements,  the Corporation  recognized pre-tax  restructuring  charges of $--,
$31.6  million,  and $46.6 million during 2004,  2003,  and 2002,  respectively.
Those  pre-tax  restructuring  charges  in  2004,  2003,  and  2002  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 $5.4 million, $13.2 million, and $11.0 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,  2004,  the
Corporation had liabilities  established in conjunction  with its  restructuring
activities that totaled $20.2 million.
     As more  fully  described  in Item 3 of this  report,  the  Corporation  is
subject to various legal proceedings and claims, including those with respect to
environmental  matters,  the  outcomes  of  which  are  subject  to  significant
uncertainty.  The  Corporation  evaluates,  among other  factors,  the degree of
probability of an unfavorable outcome, the ability to make a reasonable estimate
of the amount of loss, and in certain instances, the ability of other parties to
share costs. Also, in accordance with accounting  principles  generally accepted
in the United  States  when a range of probable  loss  exists,  the  Corporation
accrues  at the low end of the range when no other more  likely  amount  exists.
Unanticipated  events or changes in these factors may require the Corporation to
increase  the amount it has  accrued  for any matter or accrue for a matter that
has not been previously accrued because it was not probable.
     Further,  as  indicated  in  Note 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.
Additionally,  the  Corporation  is subject to periodic  examinations  by taxing
authorities  in  many   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 (IRS) in connection with audits of
the tax years 1998 through 2000.  The principal  adjustment  proposed by the IRS
consists  of  the  disallowance  of  a  capital  loss  deduction  taken  in  the
Corporation's tax returns and interest on the deficiency. Prior to receiving the
notices of proposed  adjustments from the IRS, the Corporation  filed a petition
against the IRS in the Federal  District  Court of Maryland (the Court)  seeking
refunds  for a  carryback  of a  portion  of  the  aforementioned  capital  loss
deduction.  The IRS  subsequently  filed  a  counterclaim  to the  Corporation's
petition.  In October  2004,  the Court  granted  the  Corporation's  motion for
summary  judgement  on its  complaint  against  the  IRS and  dismissed  the IRS
counterclaim.  In its opinion,  the Court ruled in the Corporation's  favor that
the capital  losses cannot be disallowed by the IRS. In December  2004,  the IRS
appealed the Court's  decision in favor of the  Corporation to the United States
Circuit Court of Appeals for the Fourth  Circuit.  That appeal is still pending.
The Corporation  intends to vigorously  dispute the position taken by the IRS in
this matter.  The Corporation has provided  adequate  reserves in the event that
the IRS prevails in its  disallowance of the previously  described  capital loss
and  the  impostion  of  related  interest.   Should  the  IRS  prevail  in  its
disallowance  of the  capital  loss  deduction  and the  imposition  of  related
interest,  it would result in a cash outflow of approximately  $160 million.  If
upheld, the Court's decision would result in the Corporation  receiving a refund
of taxes  previously  paid of  approximately  $50 million,  plus  interest.  The
Corporation  believes that any such outflow or inflow is unlikely to occur until
2006 or later.

Impact of New Accounting Standards
As more fully described in Note 1 of Notes to Consolidated Financial Statements,
the Corporation has not yet adopted Statement of Financial  Accounting Standards
No. 123 (revised 2004), Share-Based Payments, or No. 151, Inventory Costs.

                                      -24-
<PAGE>

Financial Condition
Operating  activities  generated  cash of  $619.1  million  for the  year  ended
December 31, 2004,  compared to $570.6  million of cash  generated  for the year
ended December 31, 2003. Cash flow from operating  activities included cash flow
from  discontinued  operations  of $3.1  million and $8.7  million for the years
ended December 31, 2004 and 2003, respectively. The increase in cash provided by
operating  activities  in 2004 over 2003 was  primarily  the result of increased
earnings from continuing  operations and increased cash provided by other assets
and liabilities  which was partially  offset by lower cash from working capital.
Increases  in  inventories  (associated  with the  higher  level of sales and to
achieve higher  service  levels) and decreases in accounts  payable  (associated
with the timing of  production  and  payments)  exceeded the increase in accrued
liabilities  (associated  with  higher  sales and  earnings  levels)  in 2004 as
compared to 2003.  The increase in 2004 over 2003 in cash  provided by operating
activities  associated  with other assets and liabilities was due to lower value
added tax  payments  and an increase in cash  proceeds  associated  with foreign
currency hedging activities.
     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,  2004,  increased  slightly  from  the  number  of days  sales
outstanding as of December 31, 2003.  Average  inventory  turns remained flat in
comparison to the average inventory turns as of December 31, 2003.
     Investing  activities  for the year ended  December  31,  2004 used cash of
$819.6 million  compared to $368.1  million of cash used in 2003.  Cash used for
investing  activities in 2004 included $804.6 million related to the purchase of
businesses as compared to $277.6 million in 2003.  Investing  activities for the
year ended  December 31, 2004  included a $788.5  million  payment,  net of cash
acquired,  to Pentair,  Inc. for the acquisition of the  Porter-Cable  and Delta
Tools Group and related  transaction costs. That payment included $21.8 million,
on a preliminary  basis,  based upon the estimated increase in the net assets of
the Tools Group.  Investing  activities for 2004 also included a payment of $7.9
million, net of cash acquired,  related to the purchase of MasterFix.  Investing
activities  for the year ended  December 31, 2003,  included a payment of $275.0
million to Masco  Corporation  for the  acquisition  of  Baldwin  and Weiser and
related  transaction  costs.  Investing  activities for 2004 also included $77.5
million  of net  proceeds  from  the  sale of two of the  discontinued  European
security  hardware  businesses  as more  fully  described  in Note 3 of Notes to
Consolidated Financial Statements.  Capital expenditures were $117.8 million and
$102.5 million in 2004 and 2003, respectively.  The Corporation anticipates that
its capital spending in 2005 will approximate $150 million.
     In January 2004,  the  Corporation  signed an agreement  with Assa Abloy to
sell its remaining European security hardware business,  DOM, for $28.0 million.
The DOM sales contract  provided the Corporation with the right to terminate the
sales  contract  in the event  that  regulatory  approval  was not  obtained  by
December  31,  2004.  The  Corporation  terminated  the contract in January 2005
because  regulatory  approval was not  obtained.  The  Corporation  is currently
marketing the DOM business for sale to other potential buyers.
     Financing  activities  provided cash of $391.9 million in 2004, compared to
cash used of $425.7  million in 2003.  Cash provided by financing  activities in
2004  included  $295.4  million of proceeds,  net of discounts and debt issuance
costs,  received in October  2004 upon the  issuance  of $300  million of 4 3/4%
Senior  Notes due 2014.  Cash  provided  by  financing  activities  in 2004 also
included  $171.6 million of proceeds  received upon the issuance of common stock
under employee benefit plans. Cash provided by financing activities in 2004 were
reduced by the Corporation's dividend payments, which increased - on a per share
basis - from $.57 during 2003 to $.84 during 2004.  Dividend payments were $67.5
million and $44.3 million in 2004 and 2003, respectively. Cash used by financing
activities in 2003 included the repayment of $309.5  million of debt on April 1,
2003. During 2004, the Corporation repurchased 66,100 shares of its common stock
at an aggregate cost of $3.6 million.  During the corresponding  period in 2003,
the Corporation repurchased 2,011,570 shares of its common stock at an aggregate
cost of $77.5 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, 2004, the Corporation had remaining  authorization from its
Board of Directors to repurchase an  additional  2,845,495  shares of its common
stock.  Subsequent to December 31, 2004, the Corporation  repurchased  2,000,000
shares of its common stock at an aggregate cost of $165.6  million.  In February
2005,  the Board of  Directors  authorized  the  Corporation  to  repurchase  an
additional  2,500,000 shares of its common stock.  After those share repurchases
and the additional  shares that were  authorized by the Board of Directors,  the
Corporation  had  remaining   authorization  from  its  Board  of  Directors  to
repurchase an additional 3,345,495 shares of its common stock.

                                      -25-
<PAGE>

     On February 10, 2005, the Corporation announced that its Board of Directors
declared  a  quarterly  cash  dividend  of $.28 per  share of the  Corporation's
outstanding  common stock  payable  during the first  quarter of 2005.  The $.28
dividend  represents a 33% increase over the $.21 quarterly dividend paid by the
Corporation   since  December  2003.   Future   dividends  will  depend  on  the
Corporation's earnings, financial condition, and other factors.
     As  discussed  further  in  Notes  7 of  Notes  to  Consolidated  Financial
Statements,  on October 29,  2004,  the  Corporation  replaced  its $1.0 billion
unsecured  revolving  credit  facility  that  expired  in April 2006 with a $1.0
billion unsecured revolving credit facility that expires in October 2009.
     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,  2004 as a charge  to
stockholders' equity of $368.5 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
$19 million in 2004 over the 2003 levels.  The Corporation  anticipates that the
expense  recognized  relating to its pension  and other  postretirement  benefit
plans in 2005 will increase by  approximately  $20 million over the 2004 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 2005 will be material.
     During 2003, the Corporation  received notices of proposed adjustments from
the United States  Internal  Revenue  Service (IRS) in connection with audits of
the tax years 1998 through 2000.  The principal  adjustment  proposed by the IRS
consists  of  the  disallowance  of  a  capital  loss  deduction  taken  in  the
Corporation's tax returns and interest on the deficiency. Prior to receiving the
notices of proposed  adjustments from the IRS, the Corporation  filed a petition
against the IRS in the Federal  District  Court of Maryland (the Court)  seeking
refunds  for a  carryback  of a  portion  of  the  aforementioned  capital  loss
deduction.  The IRS  subsequently  field  a  counterclaim  to the  Corporation's
petition.  In October  2004,  the Court  granted  the  Corporation's  motion for
summary  judgement  on its  complaint  against  the  IRS and  dismissed  the IRS
counterclaim.  In its opinion,  the Court ruled in the Corporation's  favor that
the capital  losses cannot be disallowed by the IRS. In December  2004,  the IRS
appealed the Court's  decision in favor of the  Corporation to the United States
Circuit Court of Appeals for the Fourth  Circuit.  That appeal is still pending.
The Corporation  intends to vigorously  dispute the position taken by the IRS in
this matter.  The Corporation has provided  adequate  reserves in the event that
the IRS prevails in its  disallowance of the previously  described  capital loss
and  the  imposition  of  related  interest.  Should  the  IRS  prevail  in  its
disallowance  of the  capital  loss  deduction  and the  imposition  of  related
interest,  it would result in a cash outflow by the Corporation of approximately
$160 million.  If upheld,  the Court's  decision would result in the Corporation
receiving a refund of taxes previously paid of approximately  $50 million,  plus
interest.  The Corporation  believes that any such outflow or inflow is unlikely
to occur until 2006 or later.
     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  and  integration  actions  previously
described.  For amounts  available at December 31, 2004, 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.
     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  obligations,  and lease commitments are more
fully  described  in  Notes  7,  8,  13,  and  18,  respectively,  of  Notes  to
Consolidated Financial Statements.

                                      -26-
<PAGE>

<TABLE>
<CAPTION>

                                                                                PAYMENTS DUE BY PERIOD
                                                  ----------------------------------------------------------------------------------
                                                  LESS THAN 1 YEAR     1 TO 3 YEARS     3 TO 5 YEARS     AFTER 5 YEARS        TOTAL
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>              <C>               <C>              <C>        <C>
Short-term borrowings (a) (b)                              $   1.1          $    --           $   --           $    --    $     1.1
Long-term debt                                                  .5            305.3               .3             850.0      1,156.1
Operating leases                                              67.4             87.0             47.5              19.8        221.7
Purchase obligations (c)                                     348.0             31.6              1.7               4.5        385.8
Redeemable preferred stock of subsidiary (d)                 188.0               --               --                --        188.0
------------------------------------------------------------------------------------------------------------------------------------
Total contractual cash obligations (e)                     $ 605.0          $ 423.9           $ 49.5           $ 874.3    $ 1,952.7
====================================================================================================================================
<FN>
(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 October  2009 and a $1.0  billion  commercial  paper  program.  While no
     borrowings were  outstanding  under these  facilities at December 31, 2004,
     the Corporation had borrowings  outstanding  under these facilities  during
     2004 and anticipates that borrowings will occur in 2005. The  Corporation's
     average borrowing outstanding under these facilities during 2004 was $274.5
     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 $388.3 million at December 31, 2004.  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)  Included in other current liabilities.
(e)  The Corporation  anticipates that funding of its pension and postretirement
     benefit plans in 2005 will approximate $36 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.
</FN>
</TABLE>

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, 2004, 2003, and 2002.

Consolidated Balance Sheet
   - December 31, 2004 and 2003.

Consolidated Statement of Stockholders' Equity
   - years ended December 31, 2004, 2003, and 2002.

Consolidated Statement of Cash Flows
   - years ended December 31, 2004, 2003, and 2002.

Notes to Consolidated Financial Statements.

Report  of  Independent   Registered  Public  Accounting  Firm  on  Consolidated
Financial Statements.

                                      -27-
<PAGE>

                       CONSOLIDATED STATEMENT OF EARNINGS
                 THE BLACK & DECKER CORPORATION AND SUBSIDIARIES
                   (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)

YEAR ENDED DECEMBER 31,                         2004         2003          2002
--------------------------------------------------------------------------------
SALES                                       $5,398.4     $4,482.7      $4,291.8
  Cost of goods sold                         3,432.9      2,887.1       2,805.6
  Selling, general, and
    administrative expenses                  1,336.3      1,135.3       1,071.6
  Restructuring and exit costs                    --         31.6          46.6
--------------------------------------------------------------------------------
OPERATING INCOME                               629.2        428.7         368.0
  Interest expense (net of interest income
    of $35.8 for 2004, $25.5 for 2003,
    and $26.5 for 2002)                         22.1         35.2          57.8
  Other expense                                  2.8          2.6           4.8
--------------------------------------------------------------------------------
EARNINGS FROM CONTINUING OPERATIONS
  BEFORE INCOME TAXES                          604.3        390.9         305.4
  Income taxes                                 163.2        103.7          76.9
--------------------------------------------------------------------------------
NET EARNINGS FROM CONTINUING OPERATIONS        441.1        287.2         228.5
--------------------------------------------------------------------------------
DISCONTINUED OPERATIONS (NET OF INCOME
    TAXES):
  Earnings of discontinued operations
    (net of income taxes of $1.0 for 2004,
     $3.5 for 2003, and $.8 for 2002)            2.2          5.8           1.2
  Gain on sale of discontinued
    operations (net of impairment charge
    of $24.4)                                   12.7           --            --
--------------------------------------------------------------------------------
NET EARNINGS FROM DISCONTINUED OPERATIONS       14.9          5.8           1.2
--------------------------------------------------------------------------------
NET EARNINGS                                $  456.0     $  293.0      $  229.7
================================================================================

BASIC EARNINGS PER COMMON SHARE
  Continuing operations                     $   5.53     $   3.69      $   2.85
  Discontinued operations                        .19          .07           .01
--------------------------------------------------------------------------------
NET EARNINGS PER COMMON SHARE --
  BASIC                                     $   5.72     $   3.76      $   2.86
================================================================================

DILUTED EARNINGS PER COMMON SHARE
  Continuing operations                     $   5.40     $   3.68      $   2.83
  Discontinued operations                        .19          .07           .01
--------------------------------------------------------------------------------
NET EARNINGS PER COMMON SHARE --
  ASSUMING DILUTION                         $   5.59     $   3.75      $   2.84
================================================================================
See Notes to Consolidated Financial Statements.

                                      -28-
<PAGE>


                           CONSOLIDATED BALANCE SHEET
                 THE BLACK & DECKER CORPORATION AND SUBSIDIARIES
                              (MILLIONS OF DOLLARS)


DECEMBER 31,                                                  2004         2003
--------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents                                 $  514.4     $  308.2
Trade receivables, less allowances
  of $52.1 for 2004 and $47.4 for 2003                     1,046.6        808.6
Inventories                                                  981.8        709.9
Current assets of discontinued operations                     70.8        160.2
Other current assets                                         313.6        216.1
--------------------------------------------------------------------------------
   TOTAL CURRENT ASSETS                                    2,927.2      2,203.0
--------------------------------------------------------------------------------
PROPERTY, PLANT, AND EQUIPMENT                               754.6        660.2
GOODWILL                                                   1,184.0        771.7
OTHER ASSETS                                                 665.0        587.6
--------------------------------------------------------------------------------
                                                          $5,530.8     $4,222.5
================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings                                     $    1.1     $     .1
Current maturities of long-term debt                            .5           .4
Trade accounts payable                                       466.9        379.8
Current liabilities of discontinued operations                29.9         38.0
Other current liabilities                                  1,294.2        893.8
--------------------------------------------------------------------------------
   TOTAL CURRENT LIABILITIES                               1,792.6      1,312.1
--------------------------------------------------------------------------------
LONG-TERM DEBT                                             1,200.6        915.6
DEFERRED INCOME TAXES                                        171.1        179.8
POSTRETIREMENT BENEFITS                                      423.4        451.9
OTHER LONG-TERM LIABILITIES                                  384.4        516.6
STOCKHOLDERS' EQUITY
Common stock (outstanding:
  December 31, 2004 -- 82,095,161 shares;
  December 31, 2003 -- 77,933,464 shares)                     41.0         39.0
Capital in excess of par value                               699.6        486.7
Unearned restricted stock compensation                       (12.6)          --
Retained earnings                                          1,161.5        773.0
Accumulated other comprehensive income (loss)               (330.8)      (452.2)
--------------------------------------------------------------------------------
   TOTAL STOCKHOLDERS' EQUITY                              1,558.7        846.5
--------------------------------------------------------------------------------
                                                          $5,530.8     $4,222.5
================================================================================
See Notes to Consolidated Financial Statements.


                                      -29-
<PAGE>


                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                 THE BLACK & DECKER CORPORATION AND SUBSIDIARIES
                   (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)

                                                          OUTSTANDING
                                                               COMMON       PAR
                                                               SHARES     VALUE
--------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2001                               79,829,641     $39.9
Comprehensive income (loss):
   Net earnings                                                    --        --
   Net loss on derivative instruments
     (net of tax)                                                  --        --
   Minimum pension liability adjustment
     (net of tax)                                                  --        --
   Foreign currency translation adjustments,
     less effect of hedging activities
     (net of tax)                                                  --        --
--------------------------------------------------------------------------------
Comprehensive income (loss)                                        --        --
--------------------------------------------------------------------------------
Cash dividends on common stock
   ($.48 per share)                                                --        --
Purchase and retirement of common stock                    (1,008,101)      (.5)
Common stock issued under employee
   benefit plans                                              783,246        .4
--------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2002                               79,604,786      39.8
Comprehensive income (loss):
   Net earnings                                                    --        --
   Net loss on derivative instruments
     (net of tax)                                                  --        --
   Minimum pension liability adjustment
     (net of tax)                                                  --        --
   Foreign currency translation adjustments,
     less effect of hedging activities
     (net of tax)                                                  --        --
--------------------------------------------------------------------------------
Comprehensive income                                               --        --
--------------------------------------------------------------------------------
Cash dividends on common stock
   ($.57 per share)                                                --        --
Purchase and retirement of common stock                    (2,011,570)     (1.0)
Common stock issued under employee
   benefit plans                                              340,248        .2
--------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2003                               77,933,464      39.0
Comprehensive income (loss):
   Net earnings                                                    --        --
   Net gain on derivative instruments
     (net of tax)                                                  --        --
   Minimum pension liability adjustment
     (net of tax)                                                  --        --
   Foreign currency translation adjustments,
     less effect of hedging activities
     (net of tax)                                                  --        --
   Write-off of accumulated foreign currency
     translation adjustments due to sale
     of businesses                                                 --        --
--------------------------------------------------------------------------------
Comprehensive income                                               --        --
--------------------------------------------------------------------------------
Cash dividends on common stock
   ($.84 per share)                                                --        --
Restricted stock grants                                       278,296        .1
Restricted stock amortization,
   net of forfeitures                                          (7,950)       --
Purchase and retirement of common stock                       (66,100)       --
Common stock issued under employee
   benefit plans                                            3,957,451       1.9
--------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2004                               82,095,161     $41.0
================================================================================
See Notes to Consolidated Financial Statements.

                                      -30-
<PAGE>


                    UNEARNED                      ACCUMULATED
CAPITAL IN        RESTRICTED                            OTHER             TOTAL
 EXCESS OF             STOCK      RETAINED      COMPREHENSIVE     STOCKHOLDERS'
 PAR VALUE      COMPENSATION      EARNINGS      INCOME (LOSS)            EQUITY
--------------------------------------------------------------------------------
    $566.6            $   --      $  333.2            $(188.7)         $  751.0

        --                --         229.7                 --             229.7

        --                --            --              (16.4)            (16.4)

        --                --            --             (369.7)           (369.7)


        --                --            --               60.2              60.2
--------------------------------------------------------------------------------
        --                --         229.7             (325.9)            (96.2)
--------------------------------------------------------------------------------

        --                --         (38.6)                --             (38.6)
     (42.6)               --            --                 --             (43.1)

      26.1                --            --                 --              26.5
--------------------------------------------------------------------------------
     550.1                --         524.3             (514.6)            599.6

        --                --         293.0                 --             293.0

        --                --            --              (15.8)            (15.8)

        --                --            --              (20.2)            (20.2)


        --                --            --               98.4              98.4
--------------------------------------------------------------------------------
        --                --         293.0               62.4             355.4
--------------------------------------------------------------------------------

        --                --         (44.3)                --             (44.3)
     (76.5)               --            --                 --             (77.5)

      13.1                --            --                 --              13.3
--------------------------------------------------------------------------------
     486.7                --         773.0             (452.2)            846.5

        --                --         456.0                 --             456.0

        --                --            --                4.9               4.9

        --                --            --               49.4              49.4


        --                --            --               95.8              95.8


        --                --            --              (28.7)            (28.7)
--------------------------------------------------------------------------------
        --                --         456.0              121.4             577.4
--------------------------------------------------------------------------------

        --                --         (67.5)                --             (67.5)
      15.8             (15.9)           --                 --                --

       (.5)              3.3            --                 --               2.8
      (3.6)               --            --                 --              (3.6)

     201.2                --            --                 --             203.1
--------------------------------------------------------------------------------
    $699.6            $(12.6)     $1,161.5            $(330.8)         $1,558.7
================================================================================

                                      -31-
<PAGE>

                      CONSOLIDATED STATEMENT OF CASH FLOWS
                 THE BLACK & DECKER CORPORATION AND SUBSIDIARIES
                              (MILLIONS OF DOLLARS)


YEAR ENDED DECEMBER 31,                            2004        2003        2002
--------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net earnings                                    $ 456.0     $ 293.0     $ 229.7
Adjustments to reconcile net earnings
  to cash flow from operating activities
  of continuing operations:
  Earnings of discontinued operations              (2.2)       (5.8)       (1.2)
  Gain on sale of discontinued operations
    (net of impairment charge)                    (12.7)         --          --
  Non-cash charges and credits:
    Depreciation and amortization                 142.5       133.4       122.4
    Restructuring and exit costs                     --        31.6        46.6
    Other                                           (.3)       (8.1)       (8.6)
  Changes in selected working capital items
    (net of assets and liabilities
    of acquired businesses):
    Trade receivables                               1.3        (6.4)       13.1
    Inventories                                   (66.7)       94.2       (10.0)
    Trade accounts payable                        (39.9)       21.0        18.9
    Other current liabilities                     102.8        56.4        28.7
  Restructuring spending                          (25.0)      (40.4)      (36.9)
  Other assets and liabilities                     60.2        (7.0)       35.6
--------------------------------------------------------------------------------
  CASH FLOW FROM OPERATING ACTIVITIES
    OF CONTINUING OPERATIONS                      616.0       561.9       438.3
  CASH FLOW FROM OPERATING ACTIVITIES
    OF DISCONTINUED OPERATIONS                      3.1         8.7        13.3
--------------------------------------------------------------------------------
  CASH FLOW FROM OPERATING ACTIVITIES             619.1       570.6       451.6
--------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from disposal of assets                   26.0        15.0         4.6
Proceeds from sale of discontinued
  operations, net of cash transferred              77.5          --          --
Capital expenditures                             (117.8)     (102.5)      (94.3)
Purchase of businesses, net of cash acquired     (804.6)     (277.6)         --
Investing activities of discontinued
  operations                                       (1.2)       (3.3)       (2.3)
Cash inflow from hedging activities                 7.2          --          --
Cash outflow from hedging activities               (7.9)         --          --
Other investing activities, net                     1.2          .3         1.4
--------------------------------------------------------------------------------
  CASH FLOW FROM INVESTING ACTIVITIES            (819.6)     (368.1)      (90.6)
--------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net decrease in short-term borrowings              (3.4)       (4.9)       (7.2)
Proceeds from long-term debt (net of debt
  issue cost of $2.4)                             295.4          --          --
Payments on long-term debt                          (.6)     (310.6)      (33.9)
Purchase of common stock                           (3.6)      (77.5)      (43.1)
Issuance of common stock                          171.6        11.6        20.8
Cash dividends                                    (67.5)      (44.3)      (38.6)
--------------------------------------------------------------------------------
  CASH FLOW FROM FINANCING ACTIVITIES             391.9      (425.7)     (102.0)
Effect of exchange rate changes on cash            14.8        14.3        13.6
--------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS                                206.2      (208.9)      272.6
Cash and cash equivalents at beginning
  of year                                         308.2       517.1       244.5
--------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR        $ 514.4     $ 308.2     $ 517.1
================================================================================
See Notes to Consolidated Financial Statements.

                                      -32-
<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 2004.

Use of Estimates:  The  preparation of financial  statements in conformity  with
accounting   principles   generally  accepted  in  the  United  States  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  occurs  either  upon  shipment  or  upon  delivery  based  upon
contractual terms. The Corporation  recognizes customer program costs, including
customer incentives such as volume or trade discounts,  cooperative  advertising
and other sales related discounts, as a reduction to sales.

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, 2004, approximately 28% 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, 2004, by segment in millions of dollars, are as follows:

                                           POWER        HARDWARE      FASTENING
                                         TOOLS &          & HOME     & ASSEMBLY
                                     ACCESSORIES     IMPROVEMENT        SYSTEMS
--------------------------------------------------------------------------------
Goodwill at January 1                     $ 25.8          $458.6         $287.3
Acquisitions                               384.4              --            4.1
Activity associated with
   prior year acquisitions                   4.7             4.8             --
Currency translation
   adjustment                                2.2              .5           11.6
--------------------------------------------------------------------------------
Goodwill at December 31                   $417.1          $463.9         $303.0
================================================================================
     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 2004,  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

                                      -33-
<PAGE>

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.

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 $118.6 million in 2004, $100.4 million in 2003, and $94.3
million in 2002.

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 $278.1  million in 2004,  $229.4  million in 2003, and $218.1
million in 2002. Freight charged to customers is recorded as revenue.

Advertising and Promotion:  Advertising and promotion expense, which is expensed
as incurred,  was $174.9  million in 2004,  $154.0  million in 2003,  and $134.6
million in 2002.

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:  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 11 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 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

                                      -34-
<PAGE>

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 (net of tax),
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 current assets, other assets,  other current  liabilities,  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 current  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, 2004,  2003, and 2002, 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)                               2004       2003       2002
--------------------------------------------------------------------------------
Net earnings                                       $456.0     $293.0     $229.7
Adjustment to net earnings for:
   Stock-based compensation
     expense included
     in net earnings, net of tax                     11.9        2.6         --
   Pro forma stock-based
     compensation (expense),
     net of tax                                     (22.3)     (19.3)     (18.5)
--------------------------------------------------------------------------------
Pro forma net earnings                             $445.6     $276.3     $211.2
================================================================================

Pro forma net earnings
   per common share -- basic                       $ 5.59     $ 3.55     $ 2.63
================================================================================

Pro forma net earnings
   per common share --
   assuming dilution                               $ 5.49     $ 3.55     $ 2.62
================================================================================
New  Accounting  Pronouncements:  In December  2004,  the  Financial  Accounting
Standards Board (FASB) issued  Statement of Financial  Accounting  Standards No.
123 (revised 2004) (FASB 123R),  Share-Based Payment. FASB 123R will require the
Corporation to expense share-based  payments,  including employee stock options,
based on their fair value.  The  Corporation is required to adopt the provisions
of FASB 123R  effective as of the beginning of its third  quarter in 2005.  FASB
123R  provides   alternative  methods  of  adoption  which  include  prospective
application and a modified retroactive application. The Corporation is currently
evaluating  the  financial  impact,  including  the  available  alternatives  of
adoption, of FASB 123R.
     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

                                      -35-
<PAGE>

health care benefit  plans that  provide a benefit that is at least  actuarially
equivalent  to  Medicare  Part D. In January  2004,  the 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  was  issued or until a  significant  event  occured  that
ordinarily would call for the remeasurement of the postretirement benefit plan's
obligations.
     In May 2004,  the FASB issued FSP No. FAS 106-2,  Accounting and Disclosure
Requirements  Related  to  the  Medicare  Prescription  Drug,   Improvement  and
Modernization Act of 2003. The provisions of FSP No. FAS 106-2 are effective for
the first interim or annual period  beginning  after June 15, 2004, and as such,
the  Corporation  prospectively  accounted  for the effects of the Act as of the
beginning of its third quarter of 2004. The accrued  benefit  obligation and the
net  periodic   postretirement  cost  included  in  the  consolidated  financial
statements,  for the periods  prior to the date of adoption,  do not reflect the
effects  of the  Act on  the  Corporation's  postretirement  benefit  plan.  The
adoption did not have a material impact on the Corporation's  financial position
or results of operations.
     In  November  2004,  the FASB  issued  Statement  of  Financial  Accounting
Standards No. 151 (FASB 151),  Inventory  Costs.  The Corporation is required to
adopt the provisions of FASB 151, on a prospective basis, as of January 1, 2006.
FASB 151 clarifies the accounting for abnormal amounts of idle facility expense,
freight, handling costs, and wasted material. FASB 151 requires that those items
- if abnormal - be recognized as expenses in the period  incurred.  In addition,
FASB 151 requires the allocation of fixed  production  overheads to the costs of
conversions  based upon the normal  capacity of the production  facilities.  The
Corporation  has not yet  determined  what  effect  FASB  151  will  have on its
earnings and financial position.

NOTE 2: ACQUISITIONS
Effective  after the close of  business  on  October 2,  2004,  the  Corporation
acquired  the  Porter-Cable  and  Delta  Tools  Group  from  Pentair,  Inc.  The
Porter-Cable and Delta Tools Group includes the Porter-Cable,  Delta,  DeVilbiss
Air Power Company,  Oldham Saw and FLEX businesses.  The cash purchase price for
the  transaction was  approximately  $792.0 million net of cash acquired of $8.3
million and  including  transaction  costs of $3.5  million.  That cash purchase
price of $792.0 million  included a payment of $21.8  million,  on a preliminary
basis,  based upon the estimated  increase in the net assets of the Porter-Cable
and Delta  Tools  Group.  The  final  purchase  price is  subject  to  customary
adjustments  based upon changes in the net assets of the  Porter-Cable and Delta
Tools Group through the closing date. The acquired  Porter-Cable and Delta Tools
Group will be  integrated  into the  Corporation's  Power Tools and  Accessories
segment and will allow the Corporation to offer its customers a broader range of
products.
     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,  finalization  of independent  appraisals,  required to complete the
purchase price  allocation  related to the acquisition of the  Porter-Cable  and
Delta Tools Group.  The final  allocation will be completed in 2005. The initial
purchase  price  allocation  of  the  acquired  business  based  on  preliminary
appraisal  data  and  management's  estimates  at the  date of  acquisition,  in
millions of dollars, is as follows:

--------------------------------------------------------------------------------
Accounts receivable                                                    $  202.5
Inventories                                                               170.9
Property and equipment                                                    128.1
Goodwill                                                                  383.4
Intangible assets                                                         156.5
Other current and long-term assets                                         42.2
--------------------------------------------------------------------------------
   Total assets acquired                                                1,083.6
--------------------------------------------------------------------------------
Accounts payable and accrued liabilities                                  222.3
Other liabilities                                                          69.3
--------------------------------------------------------------------------------
   Total liabilities                                                      291.6
--------------------------------------------------------------------------------
Fair value of net assets acquired                                      $  792.0
================================================================================
     The   preliminary   allocation  of  the  purchase  price  resulted  in  the
recognition of $383.4 million of goodwill  primarily  related to the anticipated
future  earnings  and cash  flows of the  Porter-Cable  and Delta  Tools  Group,
including the  estimated  effects of the  integration  of this business into the
Corporation's  Power  Tools  and  Accessories  business.  The  transaction  also
generated  $156.5  million in  intangible  assets of which  $130.2  million were
indefinite-lived  intangible  assets  related to trade  names and $26.3  million
related to finite-lived intangible assets that will be amortized over periods of
10 to 15 years.  These  intangible  assets are  reflected in other assets in the
Consolidated  Balance Sheet. The Corporation  believes that  approximately  $370
million of the intangible assets and goodwill  recognized will be deductible for
income tax purposes.
     Prior to the date of the  acquisition of the  Porter-Cable  and Delta Tools
Group  and  during  the  fourth  quarter  of 2004,  the  Corporation  identified
opportunities  to  restructure  the acquired  businesses as well as to integrate
these  businesses  into  its  existing  Power  Tools  and  Accessories  segment.
Subsequent to the acquisition,  the Corporation approved  restructuring  actions

                                      -36-
<PAGE>

relating  to the  acquired  businesses  in the  amount of $16.2  million.  These
actions  principally  reflect severance costs associated with administrative and
manufacturing actions related to the acquired businesses,  including the closure
of two  manufacturing  facilities,  as  well  as the  cost of  lease  and  other
contractual obligations for which no future benefit will be realized. Certain of
these restructuring  actions commenced in 2004 with the remainder  commencing in
early 2005. The  Corporation  expects that these  restructuring  actions will be
completed  by the  end of  2006.  The  Corporation's  evaluation  of  identified
opportunities  to  restructure  the acquired  businesses as well as to integrate
these  businesses  into its  existing  Power  Tools and  Accessories  segment is
ongoing with finalization not expected until later in 2005.
     The following pro forma unaudited  combined  financial  information for the
years ended December 31, 2004 and 2003 are presented as if the  Porter-Cable and
Delta Tools Group  acquisition  had  occurred  at the  beginning  of each period
presented:

(AMOUNTS IN MILLIONS
EXCEPT PER SHARE DATA)                                        2004         2003
--------------------------------------------------------------------------------
Sales                                                     $6,242.6     $5,564.1
--------------------------------------------------------------------------------
Net Earnings from Continuing Operations                      462.9        315.4
--------------------------------------------------------------------------------
Net earnings per Common Share
  from Continuing Operations - Basic                      $   5.80     $   4.05
--------------------------------------------------------------------------------
Net earnings per Common Share
  from Continuing  Operations - Diluted                   $   5.67     $   4.04
--------------------------------------------------------------------------------
     These  pro  forma  combined   financial  results  have  been  prepared  for
comparative  purposes only and include  certain  adjustments,  such as increased
interest  expense  on  acquisition  debt.  They do not  reflect  the  effect  of
synergies that would have been expected to result from the  integration of these
acquisitions. The pro forma information does not purport to be indicative of the
results of  operations  that actually  would have  resulted had the  combination
occurred  on  January 1 of each year  presented,  or of  future  results  of the
consolidated entities.
     In March 2004, the Corporation  acquired MasterFix for $7.9 million, net of
cash acquired. The results of MasterFix,  included in the consolidated financial
statements from the date of acquisition, were not material.
     On  September  30,  2003,  the  Corporation   acquired   Baldwin   Hardware
Corporation   (Baldwin)  and  Weiser  Lock   Corporation   (Weiser)  from  Masco
Corporation  for $277.8  million in cash,  including  transaction  costs of $2.8
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
businesses,  a component of its Hardware and Home Improvement  segment,  allowed
the  Corporation  to offer its  customers  a broader  range of styles  and price
points.
     The Corporation's  acquisition of Baldwin and Weiser has been accounted for
in accordance  with SFAS No. 141, and  accordingly,  the financial  position and
results of operations have been included in the  Corporation's  operations since
the  date  of  acquisition.  The  purchase  price  allocation  of  the  acquired
businesses based upon independent  appraisals and management's  estimates at the
date of acquisition, in millions of dollars, is as follows:

--------------------------------------------------------------------------------
Accounts receivable                                                      $ 38.2
Inventories                                                                38.0
Property and equipment                                                     61.1
Goodwill                                                                   99.2
Intangible assets                                                          76.3
Other current and long-term assets                                         10.7
--------------------------------------------------------------------------------
   Total assets acquired                                                  323.5
--------------------------------------------------------------------------------
Accounts payable and accrued liabilities                                   35.9
Other liabilities                                                           9.8
--------------------------------------------------------------------------------
   Total liabilities                                                       45.7
--------------------------------------------------------------------------------
Fair value of net assets acquired                                        $277.8
================================================================================
     The purchase price allocation  resulted in the recognition of $99.2 million
of goodwill  primarily  related to the future earnings and cash flows of Baldwin
and  Weiser,  including  the  estimated  effects  of the  integration  of  these
businesses into the Corporation's then existing security hardware business.  The
transaction  also  generated  $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 pre-existing
security  hardware  business.  Subsequent to the  acquisition,  the  Corporation
approved  restructuring  actions  relating  to the  acquired  business  of  $3.7
million.  These actions  principally  reflect severance benefits associated with
administrative  and  manufacturing  actions related to the acquired  businesses,
including the closures of an  administrative  and  distribution  facility of the
Weiser  business  and a  distribution  facility of the Baldwin  business.  These
restructuring  actions commenced in 2004 and the Corporation expects the actions
to be completed in 2005. 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  businesses,  a  pre-existing  component  of its  Hardware  and Home
Improvement segment.

                                      -37-
<PAGE>

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  and  received  cash  proceeds,  net of cash
transferred,  of $74.6  million.  In September  2004, the  Corporation  received
additional cash proceeds of $2.9 million. These additional cash proceeds reflect
the final  adjustment to the purchase  price for the net assets of the NEMEF and
Corbin businesses at the date of closing. 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.  The DOM sales contract provided the
Corporation  with the right to  terminate  the sales  contract in the event that
regulatory  approval  was not obtained by December  31,  2004.  The  Corporation
terminated  the  contract in January 2005  because  regulatory  approval was not
obtained.  The  Corporation is currently  marketing the DOM business for sale to
other potential buyers.
     During 2004,  the  Corporation  recognized a $12.7  million net gain on the
sale of these  discontinued  operations  (the "net gain on sale of  discontinued
operations"). That net gain consisted of a $37.1 million gain on the sale of the
NEMEF and Corbin  businesses,  less a $24.4 million goodwill  impairment  charge
associated with the remaining  European  security hardware  business,  DOM. That
goodwill impairment charge was determined as the excess of the carrying value of
goodwill  associated  with the DOM business over its implied fair value inherent
in the contractual value of $28.0 million.
     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:

                                                     2004       2003       2002
--------------------------------------------------------------------------------
Sales                                               $66.2     $119.3     $102.2
Earnings before income taxes                          3.1        9.3        2.0
--------------------------------------------------------------------------------
     The results of the  discontinued  operations do not reflect any expense for
interest allocated by or management fees charged by the Corporation.
     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:

                                                                2004       2003
--------------------------------------------------------------------------------
Trade receivables, less allowances                             $ 9.2     $ 16.1
Inventories                                                     11.9       28.4
Property, plant, and equipment                                  16.9       27.9
Goodwill                                                        28.1       82.7
Other assets                                                     4.7        5.1
--------------------------------------------------------------------------------
   Total assets                                                 70.8      160.2
--------------------------------------------------------------------------------
Trade accounts payable                                           3.7        8.5
Other current liabilities                                        7.4       11.5
Postretirement benefits and
    other long-term liabilities                                 18.8       18.0
--------------------------------------------------------------------------------
Total liabilities                                               29.9       38.0
--------------------------------------------------------------------------------
Net assets                                                     $40.9     $122.2
================================================================================

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

                                                                2004       2003
--------------------------------------------------------------------------------
FIFO cost
Raw materials and work-in-process                             $267.8     $186.3
Finished products                                              692.8      510.3
--------------------------------------------------------------------------------
                                                               960.6      696.6
Adjustment to arrive at
   LIFO inventory value                                         21.2       13.3
--------------------------------------------------------------------------------
                                                              $981.8     $709.9
================================================================================
     The cost of United  States  inventories  stated  under the LIFO  method was
approximately 53% and 43% of the value of total inventories at December 31, 2004
and 2003, 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:

                                                              2004         2003
--------------------------------------------------------------------------------
Property, plant, and equipment at cost:
Land and improvements                                     $   51.6     $   50.0
Buildings                                                    299.5        268.8
Machinery and equipment                                    1,410.6      1,234.6
--------------------------------------------------------------------------------
                                                           1,761.7      1,553.4
Less accumulated depreciation                              1,007.1        893.2
--------------------------------------------------------------------------------
                                                          $  754.6     $  660.2
================================================================================

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

                                                               2004        2003
--------------------------------------------------------------------------------
Trade discounts and allowances                             $  254.4      $178.0
Redeemable preferred stock of subsidiary                      192.2          --
Employee benefits                                             154.6       130.3
Salaries and wages                                            135.6       103.4
Advertising and promotion                                      57.7        46.4
Warranty                                                       55.2        40.4
Income taxes, including deferred taxes                         51.4        39.4
Accruals related to restructuring actions                      20.2        43.7
All other                                                     372.9       312.1
--------------------------------------------------------------------------------
                                                           $1,294.2      $893.8
================================================================================

                                      -38-
<PAGE>

     All other at December  31, 2004 and 2003,  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:

                                                                 2004      2003
--------------------------------------------------------------------------------
Warranty reserve at January 1                                   $40.4     $41.8
Accruals for warranties issued during
   the period and changes in estimates
   related to pre-existing warranties                            91.0      80.4
Settlements made                                                (92.2)    (85.5)
Additions due to acquisitions                                    14.4        .8
Currency translation adjustments                                  1.6       2.9
--------------------------------------------------------------------------------
Warranty reserve at December 31                                 $55.2     $40.4
================================================================================

NOTE 7: SHORT-TERM BORROWINGS
Short-term borrowings in the amounts of $1.1 million and $.1 million at December
31, 2004 and 2003,  respectively,  consisted  primarily of borrowings  under the
terms of uncommitted lines of credit or other short-term borrowing arrangements.
     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 September 2004, the Corporation increased
the maximum amount  authorized  for issuance under its commercial  paper program
from $500 million to $1.0 billion.
     In April  2001,  the  Corporation  entered  into a $1.0  billion  unsecured
revolving  credit  facility  that expires in April 2006.  In October  2004,  the
Corporation  replaced its $1.0 billion unsecured  revolving credit facility (the
Former  Credit  Facility)  that  would  have  expired  in April 2006 with a $1.0
billion  unsecured  revolving credit facility (the Credit Facility) that expires
in October 2009. The amount available for borrowing under the Credit Facility at
December 31, 2004 was $1.0 billion.
     While  no  amounts  were  outstanding  under  the  Corporation's  unsecured
revolving credit  facilities or commercial paper program at December 31, 2004 or
2003, average borrowings outstanding under these facilities during 2004 and 2003
were $274.5 million and $414.8 million, respectively.
     Under the Credit  Facility,  the Corporation has the option of borrowing at
LIBOR plus a specified percentage, or at other variable rates set forth therein.
The Credit Facility provides that the interest rate margin over LIBOR, initially
set at .375%,  will  increase  (by a maximum  amount of .625%) or decrease (by a
maximum amount of .115%) based upon changes in the ratings of the  Corporation's
long-term senior unsecured debt.
     In addition to interest  payable on the  principal  amount of  indebtedness
outstanding  from time to time under the Credit  Facility,  the  Corporation  is
required to pay an annual facility fee,  initially equal to .125%, of the amount
of the Credit Facility's commitment,  whether used or unused. The Corporation is
also required to pay a utilization fee, initially equal to .125%, applied to the
outstanding  balance when borrowings under the Credit Facility exceed 50% of the
Credit Facility. The Credit Facility provides that both the facility fee and the
utilization  fee will increase or decrease  based upon changes in the ratings of
the Corporation's long-term senior unsecured debt.
     The Credit  Facility  includes  various  customary  covenants.  Some of the
covenants limit the ability of the  Corporation  and its  subsidiaries to pledge
assets  or  incur  liens  on  assets.  Other  financial  covenants  require  the
Corporation to maintain a specified  leverage ratio and interest coverage ratio.
As of December 31, 2004, the  Corporation  was in compliance  with all terms and
conditions of the Credit Facility.
     Under  the  Former  Credit  Facility,  the  Corporation  had the  option of
borrowing at LIBOR plus a specified  percentage,  or at other variable rates set
forth therein. The Former Credit Facility provided that the interest rate margin
over LIBOR, initially set at .475% would increase or decrease based upon changes
in the ratings of the Corporation's  long-term senior unsecured debt. The Former
Credit Facility  provided for an interest rate margin over LIBOR of .475% during
2004,  2003,  and 2002.  In addition to the  interest  payable on the  principal
amount of  indebtedness  outstanding  from time to time under the Former  Credit
Facility,  the  Corporation  was 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 was also required to pay a
utilization fee under the Former Credit Facility equal to .125%,  applied to the
outstanding  balance when  borrowings  exceeded 50% of the facility.  The Former
Credit  Facility  provided  that both the facility fee and the  utilization  fee
would   increase  or  decrease   based  upon  changes  in  the  ratings  of  the
Corporation's senior unsecured debt.
     Under  the terms of  uncommitted  lines of credit  at  December  31,  2004,
certain subsidiaries outside of the United States may borrow up to an additional
$388.3 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.

                                      -39-
<PAGE>

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

                                                                2004       2003
--------------------------------------------------------------------------------
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
   $2.0 in 2004 and $2.3 in 2003)                              398.0      397.7
4.75% notes due 2014
   (including discount of  $2.2)                               297.8         --
7.05% notes due 2028                                           150.0      150.0
Other loans due through 2009                                     1.5        1.1
Fair value hedging adjustment                                   49.2       62.6
Less current maturities of long-term debt                        (.5)       (.4)
--------------------------------------------------------------------------------
                                                            $1,200.6     $915.6
================================================================================
     As more fully  described  in Note 1, at  December  31,  2004 and 2003,  the
carrying amount of long-term debt and current  maturities thereof includes $49.2
million and $62.6 million,  respectively,  relating to outstanding or terminated
fixed-to-variable rate interest rate swaps agreements.
     Indebtedness of subsidiaries in the aggregate  principal  amounts of $302.6
million and $301.3  million were included in the  Consolidated  Balance Sheet at
December 31, 2004 and 2003,  respectively,  in  short-term  borrowings,  current
maturities of long-term debt, and long-term debt.
     Principal  payments on long-term  debt  obligations  due over the next five
years are as  follows:  $.5  million in 2005,  $155.1  million  in 2006,  $150.2
million in 2007, $.2 million in 2008, and $.1 million in 2009. Interest payments
on all  indebtedness  were $77.2  million in 2004,  $80.3  million in 2003,  and
$100.8 million in 2002.

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 11 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, 2004 and 2003,  consisted  of $788.0  million  notional  and $588.0  million
notional amounts of fixed-to-variable  rate swaps with a weighted-average  fixed
rate receipt of 5.59% and 5.99%,  respectively.  The basis of the variable  rate
paid is LIBOR.
     Credit exposure on the Corporation's  interest rate derivatives at December
31, 2004 and 2003, was $32.8 million and $54.3 million,  respectively.  Deferred
gains on the early  termination  of interest  rate swaps were $27.8  million and
$30.2 million at December 31, 2004 and 2003.

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.

                                      -40-
<PAGE>

     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, 2004 and 2003,  in millions of dollars,  including
details by major currency as of December 31, 2004. 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, 2004                                       BUY          SELL
--------------------------------------------------------------------------------
United States dollar                                     $1,348.6     $(1,252.5)
Pound sterling                                              922.8        (378.2)
Euro                                                        689.0      (1,015.1)
Canadian dollar                                              11.1        (134.5)
Australian dollar                                            25.9         (56.4)
Czech koruna                                                 65.2         (13.9)
Japanese yen                                                  8.7         (59.1)
Swedish krona                                                44.4         (90.9)
Swiss franc                                                  10.9         (25.7)
Norwegian krone                                                --         (38.9)
Danish krone                                                   .4         (53.4)
Other                                                         3.0         (21.2)
--------------------------------------------------------------------------------
Total                                                    $3,130.0     $(3,139.8)
================================================================================

AS OF DECEMBER 31, 2003
--------------------------------------------------------------------------------
Total                                                    $2,682.6     $(2,710.3)
================================================================================
     No purchased options to buy or sell currencies were outstanding at December
31, 2004.
     Credit exposure on foreign currency derivatives as of December 31, 2004 and
2003, was $52.2 million and $10.9 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 2004 and 2003 were not
significant.
     Amounts  deferred  in  accumulated  other  comprehensive  income  (loss) at
December 31, 2004,  that are expected to be  reclassified  into earnings  during
2005  represent an after-tax loss of $19.7  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 current liabilities and 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.

                                      -41-
<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, 2004                                   AMOUNT          VALUE
--------------------------------------------------------------------------------
Non-derivatives:
   Other current liabilities                          $   (192.2)     $  (192.2)
   Long-term debt                                       (1,200.6)      (1,247.6)
--------------------------------------------------------------------------------
Derivatives relating to:
   Other current liabilities
     Assets                                                  5.8            5.8
   Debt
     Assets                                                 27.0           27.0
     Liabilities                                             (.3)           (.3)
   Foreign Currency
     Assets                                                 52.2           52.2
     Liabilities                                           (61.7)         (61.7)
--------------------------------------------------------------------------------

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)
--------------------------------------------------------------------------------

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

                                                     2004       2003       2002
--------------------------------------------------------------------------------
United States                                      $308.4     $189.5     $186.2
Other countries                                     295.9      201.4      119.2
--------------------------------------------------------------------------------
                                                   $604.3     $390.9     $305.4
================================================================================
     Significant   components  of  income  taxes   (benefits)   from  continuing
operations for each year, in millions of dollars, were as follows:

                                                     2004       2003       2002
--------------------------------------------------------------------------------
Current:
   United States                                   $108.0    $  69.0      $58.7
   Other countries                                   49.6       23.6       13.7
--------------------------------------------------------------------------------
                                                    157.6       92.6       72.4
--------------------------------------------------------------------------------
Deferred:
   United States                                      7.0       (6.5)       3.8
   Other countries                                   (1.4)      17.6         .7
--------------------------------------------------------------------------------
                                                      5.6       11.1        4.5
--------------------------------------------------------------------------------
                                                   $163.2     $103.7      $76.9
================================================================================
     Income tax expense recorded directly as an adjustment to equity as a result
of hedging  activities was not significant in 2004,  2003, and 2002.  Income tax
benefits  recorded  directly as an  adjustment to equity as a result of employee
stock options were $31.2 million,  $1.3 million, and $5.4 million in 2004, 2003,
and 2002, respectively.
     Income tax payments were $89.5 million in 2004,  $82.0 million in 2003, and
$47.0  million in 2002.
     Deferred tax  (liabilities)  assets at the end of each year, in millions of
dollars, were composed of the following:

                                                                2004       2003
--------------------------------------------------------------------------------
Deferred tax liabilities:
   Fixed assets                                              $ (10.1)   $ (15.4)
   Employee and postretirement benefits                       (157.8)    (164.8)
   Other                                                        (9.3)      (5.6)
--------------------------------------------------------------------------------
Gross deferred tax liabilities                                (177.2)    (185.8)
--------------------------------------------------------------------------------
Deferred tax assets:
   Tax loss carryforwards                                      114.6      109.2
   Tax credit and capital loss
     carryforwards                                              54.0       57.8
   Postretirement benefits                                     112.1      135.9
   Other                                                       140.5      113.6
--------------------------------------------------------------------------------
Gross deferred tax assets                                      421.2      416.5
--------------------------------------------------------------------------------
Deferred tax asset valuation allowance                        (104.1)     (99.9)
--------------------------------------------------------------------------------
Net deferred tax assets                                      $ 139.9    $ 130.8
================================================================================
     Other deferred tax assets  principally  relate to accrued  liabilities that
are not currently deductible.

                                      -42-
<PAGE>

     Deferred  income taxes are included in the  Consolidated  Balance  Sheet in
other current  assets,  other assets,  other current  liabilities,  and deferred
income taxes.
     Tax basis  carryforwards  at December 31, 2004,  consisted of net operating
losses expiring from 2005 to 2010.
     At December 31, 2004,  unremitted  earnings of subsidiaries  outside of the
United States were approximately  $1.6 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.
     The American Jobs Creation Act of 2004 (the Jobs Act)  introduced a special
one-time  dividends  received  deduction on the  repatriation of certain foreign
earnings to the United States,  provided certain  conditions are met. If certain
conditions   are  met,  a  5.25%   income  tax  rate  would  apply  to  eligible
repatriations  of  certain  foreign  earnings.   The  Corporation  is  currently
evaluating these provisions under the Jobs Act and is also awaiting interpretive
guidance  relating to these  regulations  from either  Congress or the  Treasury
Department. At the current date, the Corporation has not determined that it will
repatriate  any  unremitted   foreign   earnings  under  the  special   one-time
repatriation  provisions of the Jobs Act. However, the Corporation  continues to
evaluate the special one-time  repatriation  provisions of the Jobs Act and that
evaluation  could  result in the  Corporation  repatriating  certain  unremitted
foreign earnings. The amount of unremitted foreign earnings that the Corporation
is evaluating for repatriation ranges from zero to $500 million. The Corporation
expects to complete its evaluation of the amount of repatriation, if any, during
2005. If the Corporation was to repatriate  certain  unremitted foreign earnings
under the special one-time  repatriation  provisions of the Jobs Act at the high
end of the range noted in the preceding sentence, the income tax effects of such
repatriation could range from approximately $24 million to $41 million.
     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:

                                                     2004       2003       2002
--------------------------------------------------------------------------------
Income taxes at federal
   statutory rate                                  $211.5     $136.8     $106.9
Lower effective taxes on
   earnings in other countries                      (57.7)     (40.4)     (31.9)
Other -- net                                          9.4        7.3        1.9
--------------------------------------------------------------------------------
Income taxes                                       $163.2     $103.7     $ 76.9
================================================================================

                                      -43-
<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
                                                        ----------------------------------------------------------------------------
                                                         2004          2003          2004          2003          2004          2003
------------------------------------------------------------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION
<S>                                                   <C>           <C>           <C>           <C>           <C>           <C>
Benefit obligation at beginning of year               $ 942.8       $ 895.5       $ 632.6       $ 500.7       $ 157.7       $ 162.1
Service cost                                             17.7          15.5          13.7          10.9            .7            .9
Interest cost                                            54.7          58.4          35.5          27.6           8.8          10.7
Plan participants' contributions                           --            --           1.8           1.9           6.8           7.8
Actuarial (gains) losses                                 (5.3)         40.4           8.4          58.5         (11.2)         (3.7)
Foreign currency exchange rate changes                     --            --          55.6          54.2            .7            .8
Benefits paid                                           (61.2)        (60.5)        (27.5)        (25.0)        (21.8)        (20.9)
Acquisitions                                             45.2            --          10.8            --           2.9            --
Plan amendments                                            .6            .6           2.2           3.8            --            --
Curtailments                                               .3          (7.1)           --            --            --            --
------------------------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year                       994.8         942.8         733.1         632.6         144.6         157.7
------------------------------------------------------------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year          785.4         717.8         375.3        319.1             --            --
Actual return on plan assets                             97.0         131.9          33.8         43.8             --            --
Expenses                                                 (5.4)         (6.9)          (.7)         (.7)            --            --
Benefits paid                                           (61.2)        (60.5)        (26.8)       (24.3)         (21.8)        (20.9)
Employer contributions                                    3.6           3.1          14.0          6.1           15.0          13.1
Contributions by plan participants                         --            --           1.8          1.9            6.8           7.8
Acquisitions                                             28.0            --          10.0           --             --            --
Effects of currency exchange rates                         --            --          33.7         29.4             --            --
------------------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year                847.4         785.4         441.1        375.3             --            --
------------------------------------------------------------------------------------------------------------------------------------
Funded status                                          (147.4)       (157.4)       (292.0)      (257.3)        (144.6)       (157.7)
Unrecognized net actuarial loss                         411.3         442.4         291.9        269.8           24.4          37.0
Unrecognized prior service cost                           4.1           5.3          12.3         10.6           (5.1)         (7.0)
Contributions subsequent to measurement date               --            --           3.8          2.0             --            --
------------------------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost                        $ 268.0       $ 290.3         $16.0     $   25.1        $(125.3)      $(127.7)
====================================================================================================================================
AMOUNTS RECOGNIZED IN THE
   CONSOLIDATED BALANCE SHEET
Prepaid benefit cost                                  $  44.7       $  42.2       $    --     $     --        $    --       $    --
Accrued benefit cost                                   (102.6)       (132.9)       (224.4)      (214.8)        (125.3)       (127.7)
Intangible asset                                          3.9           5.1          12.5         10.8             --            --
Accumulated other comprehensive income                  322.0         375.9         227.9        229.1             --            --
------------------------------------------------------------------------------------------------------------------------------------
Net amount recognized                                 $ 268.0       $ 290.3       $  16.0     $   25.1        $(125.3)      $(127.7)
====================================================================================================================================
WEIGHTED-AVERAGE ASSUMPTIONS
   USED TO DETERMINE BENEFIT
   OBLIGATIONS AS OF MEASUREMENT DATE
Discount rate                                            6.00%         6.00%         5.43%        5.40%          6.25%         6.25%
Rate of compensation increase                            4.00%         4.00%         3.81%        3.40%            --            --
====================================================================================================================================
</TABLE>

                                      -44-
<PAGE>

     The  allocation,  by asset  category,  of assets of defined benefit pension
plans in the United States at September 30, 2004 and 2003, respectively, were as
follows:

PLAN ASSETS AT SEPTEMBER 30                                       2004     2003
--------------------------------------------------------------------------------
Asset Category
   Equity Securities                                                69%      69%
   Fixed Income Securities                                          28%      28%
   Alternative Investments                                           3%       3%
--------------------------------------------------------------------------------
                                                                   100%     100%
================================================================================
At September 30, 2004, 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%.
     The  allocation,  by asset  category,  of assets of defined benefit pension
plans outside of the United States at September 30, 2004 and 2003, respectively,
were as follows:

PLAN ASSETS AT SEPTEMBER 30                                       2004     2003
--------------------------------------------------------------------------------
Asset Category
   Equity Securities                                                67%      66%
   Fixed Income Securities                                          25%      27%
   Real Estate                                                       7%       6%
   Other                                                             1%       1%
--------------------------------------------------------------------------------
                                                                   100%     100%
================================================================================
     At September 30, 2004,  the  Corporation's  targeted  allocation,  by asset
category,  of assets of  defined  benefit  pension  plans  outside of the United
States is equity  securities - 66%; fixed income securities - 25%; real estate -
6%; and other investments - 3%.
     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.
     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  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  $549.9
million in the Consolidated Balance Sheet at December 31, 2004.
     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
                                                                           ---------------------------------------------------------
                                                                            2004            2003               2004            2003
------------------------------------------------------------------------------------------------------------------------------------
All defined benefit plans:
<S>                                                                       <C>             <C>                <C>             <C>
   Accumulated benefit obligation                                         $926.9          $895.0             $666.1          $590.9
Unfunded defined benefit plans:
   Projected benefit obligation                                             77.7            66.2               99.8            89.7
   Accumulated benefit obligation                                           73.9            62.7               93.1            83.5
Defined benefit plans with an accumulated benefit obligation
   in excess of the fair value of plan assets:
   Projected benefit obligation                                            953.7           899.4              733.1           632.6
   Accumulated benefit obligation                                          885.8           851.7              666.1           590.9
   Fair value of plan assets                                               778.0           719.5              441.1           375.3
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

     The following table sets forth, in millions of dollars,  benefit  payments,
which reflect  expected future service,  as appropriate,  expected to be paid in
the periods indicated.

<TABLE>
<CAPTION>
                                           PENSION BENEFITS PLANS          PENSION BENEFITS PLANS              OTHER POSTRETIREMENT
                                            IN THE UNITED STATES         OUTSIDE OF THE UNITED STATES           BENEFITS ALL PLANS
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>                            <C>                                 <C>
2005                                               $60.4                          $ 30.2                              $18.9
2006                                                59.0                            31.3                               18.3
2007                                                58.3                            31.3                               17.8
2008                                                58.4                            33.4                               17.2
2009                                                59.4                            34.5                               16.9
2010-2014                                          312.3                           190.6                               77.4
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      -45-
<PAGE>

     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
                                                        ----------------------------------------------------------------------------
                                                         2004          2003          2002          2004          2003          2002
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>           <C>           <C>           <C>           <C>           <C>
Service cost                                           $ 19.0        $ 16.5        $ 15.8        $ 13.7        $ 13.8        $ 11.0
Interest cost                                            54.7          58.4          56.7          35.5          27.5          24.2
Expected return on plan assets                          (82.4)        (87.1)        (94.3)        (35.1)        (31.8)        (30.8)
Amortization of the unrecognized
   transition obligation or asset                          --            --            --            .1            .1          (1.2)
Amortization of prior service cost                        1.2           1.2           1.1           1.4           1.4           2.3
Curtailment/settlement loss                                .3            .9           1.1            --            .1           7.6
Amortization of net actuarial loss                       15.8           7.6            .8          10.2           4.7            .7
------------------------------------------------------------------------------------------------------------------------------------
Net periodic (benefit) cost                            $  8.6        $ (2.5)       $(18.8)       $ 25.8        $ 15.8        $ 13.8
====================================================================================================================================
WEIGHTED-AVERAGE ASSUMPTIONS
  USED IN DETERMINING NET
  PERIODIC (BENEFIT) COST FOR YEAR:
Discount rate                                            6.00%         6.75%         7.25%         5.44%         5.50%         6.10%
Expected return on plan assets                           8.75%         9.00%         9.50%         7.49%         7.75%         8.00%
Rate of compensation increase                            4.00%         4.00%         4.50%         3.40%         3.90%         3.90%
====================================================================================================================================
</TABLE>

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

                                                         2004     2003     2002
--------------------------------------------------------------------------------
Service cost                                            $  .7    $  .9    $ 1.2
Interest cost                                             8.8     10.7     10.8
Amortization of
   prior service cost                                    (1.9)    (2.2)    (8.3)
Amortization of
   net actuarial loss                                     1.2      2.0      1.4
--------------------------------------------------------------------------------
Net periodic cost                                       $ 8.8    $11.4    $ 5.1
================================================================================
Weighted-average discount rate
   used in determining net
   periodic cost for year                                6.25%    7.00%    7.25%
================================================================================
     The  health  care cost  trend  rate used to  determine  the  postretirement
benefit  obligation  was 10.0% for 2004.  This rate  decreases  gradually  to an
ultimate rate of 5.0% in 2011, 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         $ (.5)
Effect on postretirement
   benefit obligation                                         9.7          (8.9)
--------------------------------------------------------------------------------
     In  2005,  the   Corporation   expects  to  make  cash   contributions   of
approximately  $21.0 million to its defined benefit  pension plans.  The amounts
principally represent  contributions  required by funding regulations or laws or
those related to unfunded plans necessary to fund current benefits. In addition,
the Corporation  expects to continue to make contributions in 2005 sufficient to
fund  benefits  paid under its other  postretirement  benefit  plans during that
year, net of  contributions by plan  participants.  Such  contributions  totaled
$15.0 million in 2004.
     Expense for defined  contribution  plans amounted to $11.8  million,  $10.4
million, and $9.2 million in 2004, 2003, and 2002, respectively.

NOTE 13: OTHER LIABILITIES
In December 2000, a subsidiary of the  Corporation  issued  preferred  shares to
private  investors.  The  preferred  shares are  redeemable  in  December  2005,
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 current
liabilities  in the  Consolidated  Balance  Sheet at December 31, 2004 is $192.2
million related to those preferred  shares. At December 31, 2003, $202.6 million
related to those preferred  shares was included in other long-term  liabilities.
The carrying value of the subsidiary's preferred shares at December 31, 2004 and
2003 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 current liabilities,  as
of December 31, 2004, and other  long-term  liabilities as of December 31, 2003.
The Corporation does not believe that it has any additional  exposure to loss as
a result of its involvement with the subsidiary.

                                      -46-
<PAGE>

     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,
$10.7  million and $5.3  million of  dividends  on those  preferred  shares were
classified  as interest  expense in the years ended  December 31, 2004 and 2003,
respectively.
     At  December  31, 2004 and 2003,  other  long-term  liabilities  included a
reserve of $239.7  million and $224.4  million,  respectively,  associated  with
various tax matters in a number of jurisdictions.

NOTE 14: STOCKHOLDERS' EQUITY
The  Corporation  repurchased  66,100,  2,011,570,  and 1,008,101  shares of its
common stock during 2004,  2003,  and 2002 at an aggregate cost of $3.6 million,
$77.5 million, and $43.1 million, respectively.
     In 2004,  the  Corporation  adopted a  restricted  stock  plan.  A total of
1,000,000  shares of  restricted  stock were  authorized  under this plan. As of
December 31, 2004,  270,346  shares of common stock were issued and  outstanding
and 729,654  shares of common stock were reserved for future  grants.  Under the
Plan,  eligible  employees are awarded  restricted  shares of the  Corporation's
common stock.  Restrictions on awards  generally expire from three to four years
after issuance,  subject to continuous  employment and certain other conditions.
Restricted stock awards are recorded at market value on the date of the grant as
unearned  compensation.  Unearned  compensation  is  shown  as  a  reduction  of
stockholders'  equity and is amortized to expense over the  restriction  period.
Expense recognized relating to restricted stock awards was $2.8 million in 2004.
     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:

                                                               2004        2003
--------------------------------------------------------------------------------
Foreign currency translation adjustment                     $  65.9     $ (14.6)
Net loss on derivative instruments,
   net of tax                                                 (28.2)      (33.1)
Minimum pension liability adjustment,
   net of tax                                                (368.5)     (404.5)
--------------------------------------------------------------------------------
                                                            $(330.8)    $(452.2)
================================================================================
     The  Corporation  has  designated  certain  intercompany  loans and foreign
currency  derivative  contracts  as  long-term  investments  in certain  foreign
subsidiaries and foreign currency  derivative  contracts.  Net translation gains
associated  with  these  designated  intercompany  loans  and  foreign  currency
derivative  contracts  in the  amount of $7.6  million  and $25.9  million  were
recorded  in the  foreign  currency  translation  adjustment,  in 2004 and 2003,
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, 2004 and 2003, are
net of taxes of $181.4 million and $200.5 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)                               2004       2003       2002
--------------------------------------------------------------------------------
Numerator:
   Net earnings from
     continuing operations                         $441.1     $287.2     $228.5
   Net earnings from
     discontinued operations                         14.9        5.8        1.2
--------------------------------------------------------------------------------
   Net earnings                                    $456.0     $293.0     $229.7
================================================================================
Denominator:
   Denominator for basic
     earnings per share --
     weighted-average shares                         79.8       77.9       80.4
   Employee stock options and
     stock issuable under
     employee benefit plans                           1.8         .3         .5
--------------------------------------------------------------------------------
   Denominator for diluted
     earnings per share --
     adjusted weighted-
     average shares and
     assumed conversions                             81.6       78.2       80.9
================================================================================
Basic earnings per share
   Continuing operations                           $ 5.53     $ 3.69     $ 2.85
   Discontinued operations                            .19        .07        .01
--------------------------------------------------------------------------------
Basic earnings per share                           $ 5.72     $ 3.76     $ 2.86
================================================================================
Diluted earnings per share
   Continuing operations                           $ 5.40     $ 3.68     $ 2.83
   Discontinued operations                            .19        .07        .01
--------------------------------------------------------------------------------
Diluted earnings per share                         $ 5.59     $ 3.75     $ 2.84
================================================================================
     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.

                                                        2004     2003      2002
--------------------------------------------------------------------------------
Number of options (in millions)                           .6      6.5       4.4
Weighted-average exercise price                       $56.13   $47.36    $49.47
--------------------------------------------------------------------------------

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.

                                      -47-
<PAGE>

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,  2004,  6,988,614  non-qualified  stock  options  were
outstanding under domestic plans. There were 300 stock options outstanding under
the United Kingdom plan.
     Under all plans,  there were 4,062,729  shares of common stock reserved for
future grants as of December 31, 2004. Transactions are summarized as follows:

                                                                      WEIGHTED-
                                                                        AVERAGE
                                                           STOCK       EXERCISE
                                                         OPTIONS          PRICE
--------------------------------------------------------------------------------
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
Granted                                                  710,325          62.34
Exercised                                              3,917,697          43.41
Forfeited                                                161,627          44.87
--------------------------------------------------------------------------------
Outstanding at December 31, 2004                       6,988,914         $45.58
================================================================================
Shares exercisable at
   December 31, 2002                                   3,780,183         $44.35
================================================================================
Shares exercisable at
   December 31, 2003                                   6,406,323         $44.83
================================================================================
Shares exercisable at
   December 31, 2004                                   3,567,223         $45.18
================================================================================
     Exercise  prices for options  outstanding  as of December 31, 2004,  ranged
from $30.00 to $83.19.  The following table provides  certain  information  with
respect to stock options outstanding at December 31, 2004:

                                                                      WEIGHTED-
                                                      WEIGHTED-         AVERAGE
                                            STOCK       AVERAGE       REMAINING
RANGE OF                                  OPTIONS      EXERCISE     CONTRACTUAL
EXERCISE PRICES                       OUTSTANDING         PRICE            LIFE
--------------------------------------------------------------------------------
Under $41.99                            2,101,971        $37.12            7.14
$41.99-$58.79                           4,196,918         47.06            5.53
Over $58.79                               690,025         62.31            9.37
--------------------------------------------------------------------------------
                                        6,988,914        $45.58            6.40
================================================================================
     The following  table  provides  certain  information  with respect to stock
options exercisable at December 31, 2004:

                                                       STOCK          WEIGHTED-
RANGE OF                                             OPTIONS            AVERAGE
EXERCISE PRICES                                  EXERCISABLE     EXERCISE PRICE
--------------------------------------------------------------------------------
Under $41.99                                         830,030             $35.21
$41.99-$58.79                                      2,737,193              48.21
Over $58.79                                               --                 --
--------------------------------------------------------------------------------
                                                   3,567,223             $45.18
================================================================================
     The  weighted-average  fair  values  at date of grant for  options  granted
during 2004, 2003, and 2002 were $20.46, $13.31, and $18.17,  respectively,  and
were estimated using the Black-Scholes option valuation model with the following
weighted-average assumptions:

                                                       2004      2003      2002
--------------------------------------------------------------------------------
Expected life in years                                  6.0       6.3       6.3
Interest rate                                          3.97%     3.38%     4.91%
Volatility                                             31.9%     32.3%     33.0%
Dividend yield                                         1.36%     1.21%      .99%
--------------------------------------------------------------------------------
     The  weighted-average  fair value at the date of grant for restricted stock
granted in 2004 was $54.43.

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 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

                                      -48-
<PAGE>

sale of plumbing products to customers outside the United States and Canada; and
for sales of household  products.  On October 2, 2004, the Corporation  acquired
the Porter-Cable and Delta Tools Group from Pentair, Inc. This acquired business
is included in the Power Tools and  Accessories  segment.  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.

<TABLE>
<CAPTION>

Business Segments
(MILLIONS OF DOLLARS)

                                               REPORTABLE BUSINESS SEGMENTS
                                    --------------------------------------------------
                                           POWER      HARDWARE    FASTENING                CURRENCY       CORPORATE,
                                         TOOLS &        & HOME   & ASSEMBLY             TRANSLATION     ADJUSTMENTS,
YEAR ENDED DECEMBER 31, 2004         ACCESSORIES   IMPROVEMENT      SYSTEMS     TOTAL   ADJUSTMENTS   & ELIMINATIONS   CONSOLIDATED
------------------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>             <C>          <C>     <C>            <C>             <C>            <C>
Sales to unaffiliated customers         $3,667.2        $959.4       $586.3  $5,212.9       $ 185.5         $     --       $5,398.4
Segment profit (loss)
  (for Consolidated, operating income)     478.2         145.2         79.8     703.2          19.5            (93.5)         629.2
Depreciation and amortization               85.9          27.2         16.6     129.7           3.8              9.0          142.5
Income from equity method
  investees                                 15.8            --           --      15.8            --             (1.2)          14.6
Capital expenditures                        74.9          25.9         13.2     114.0           2.9               .9          117.8
Segment assets
  (for Consolidated, total assets)       2,609.0         602.4        342.6   3,554.0         237.5          1,739.3        5,530.8
Investment in equity method investees       12.4            --           .3      12.7            .1             (1.7)          11.1

YEAR ENDED DECEMBER 31, 2003
------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers         $3,198.4        $718.1       $530.1  $4,446.6       $  36.1         $     --       $4,482.7
Segment profit (loss)
  (for Consolidated, operating
  income before restructuring
  and exit costs)                          361.2          93.2         77.6     532.0           2.6            (74.3)         460.3
Depreciation and amortization               82.0          24.4         15.4     121.8            .9             10.7          133.4
Income from equity method
  investees                                 21.3            --           --      21.3            --             (2.1)          19.2
Capital expenditures                        69.8          17.1         13.8     100.7           1.0               .8          102.5
Segment assets
  (for Consolidated, total assets)       1,557.1         613.2        320.6   2,490.9         107.6          1,624.0        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         $3,242.5        $660.7       $528.6  $4,431.8       $(140.0)       $      --       $4,291.8
Segment profit (loss)
  (for Consolidated, operating
  income before restructuring
  and exit costs)                          361.5          47.4         77.9     486.8         (11.7)           (60.5)         414.6
Depreciation and amortization               81.5          25.5         14.6     121.6          (2.5)             3.3          122.4
Income from equity method
  investees                                 20.8            --           --      20.8            --              3.0           23.8
Capital expenditures                        72.3           9.0         14.3      95.6          (2.1)              .8           94.3
Segment assets
  (for Consolidated, total assets)       1,638.5         358.1        325.6   2,322.2         (38.8)         1,847.1        4,130.5
Investment in equity method investees       25.4            --           .1      25.5            --             (1.7)          23.8
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      -49-
<PAGE>

     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 2004. 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.
     Segment profit excludes interest income and expense,  non-operating  income
and expense,  adjustments  to eliminate  intercompany  profit in inventory,  and
income tax expense. 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.
     The  reconciliation  of  segment  profit  to  consolidated   earnings  from
continuing operations before income taxes for each year, in millions of dollars,
is as follows:

                                                       2004      2003      2002
--------------------------------------------------------------------------------
Segment profit for total
   reportable business segments                      $703.2    $532.0    $486.8
Items excluded from segment profit:
   Adjustment of budgeted
     foreign exchange rates
     to actual rates                                   19.5       2.6     (11.7)
   Depreciation of
     Corporate property                                (1.2)     (1.1)     (1.3)
   Adjustment to businesses'
     postretirement benefit
     expenses booked
     in consolidation                                    .8      15.4      38.3
   Other adjustments booked
     in consolidation directly
     related to reportable
     business segments                                (10.0)    (15.0)     (8.4)
Amounts allocated to businesses
   in arriving at segment profit
   in excess of (less than)
   Corporate center operating
   expenses, eliminations, and
   other amounts identified above                     (83.1)    (73.6)    (89.1)
--------------------------------------------------------------------------------
Operating income before
   restructuring and exit costs                       629.2     460.3     414.6
Restructuring and exit costs                             --      31.6      46.6
--------------------------------------------------------------------------------
   Operating income                                   629.2     428.7     368.0
Interest expense,
   net of interest income                              22.1      35.2      57.8
Other expense                                           2.8       2.6       4.8
--------------------------------------------------------------------------------
Earnings from continuing
   operations before income taxes                    $604.3    $390.9    $305.4
================================================================================
     The  reconciliation  of segment assets to consolidated  total assets at the
end of each year, in millions of dollars, is as follows:

                                                   2004        2003        2002
--------------------------------------------------------------------------------
Segment assets for total
   reportable business segments                $3,554.0    $2,490.9    $2,322.2
Items excluded from segment assets:
   Adjustment of budgeted
     foreign exchange rates
     to actual rates                              237.5       107.6       (38.8)
   Goodwill                                       625.4       617.5       604.9
   Pension assets                                  45.1        42.2        36.7
Other Corporate assets                          1,068.8       964.3     1,205.5
--------------------------------------------------------------------------------
                                               $5,530.8    $4,222.5    $4,130.5
================================================================================

                                      -50-
<PAGE>

     Other Corporate assets  principally  consist of cash and cash  equivalents,
tax assets, property, assets of discontinued operations, and other assets.
     Sales to The Home Depot, a customer of the Power Tools and  Accessories and
Hardware and Home  Improvement  segments,  accounted for $969.0 million,  $779.4
million,  and $857.9  million of the  Corporation's  consolidated  sales for the
years ended  December 31, 2004,  2003, and 2002,  respectively.  Sales to Lowe's
Home  Improvement  Warehouse,  a customer of the Power Tools and Accessories and
Hardware and Home  Improvement  segments,  accounted for $700.1 million,  $545.3
million,  and $467.5  million of the  Corporation's  consolidated  sales for the
years ended December 31, 2004, 2003, and 2002, respectively.
     The composition of the Corporation's  sales by product group for each year,
in millions of dollars, is set forth below:

                                                   2004        2003        2002
--------------------------------------------------------------------------------
Consumer and professional
   power tools and
   product service                             $2,888.0    $2,360.1    $2,308.4
Consumer and professional
   accessories                                    379.1       348.6       317.8
Lawn and garden products                          339.2       313.8       285.4
Cleaning, lighting and
   household products                             180.2       179.1       194.4
Security hardware                                 730.1       526.0       461.0
Plumbing products                                 259.5       218.7       221.6
Fastening and
   assembly systems                               622.3       536.4       503.2
--------------------------------------------------------------------------------
                                               $5,398.4    $4,482.7    $4,291.8
================================================================================
     The Corporation markets its products and services in over 100 countries and
has manufacturing  sites in 11 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:

                                                   2004        2003        2002
--------------------------------------------------------------------------------
United States                                  $3,442.6    $2,836.9    $2,824.0
Canada                                            249.4       162.6       138.6
--------------------------------------------------------------------------------
   North America                                3,692.0     2,999.5     2,962.6
Europe                                          1,266.5     1,107.2       986.8
Other                                             439.9       376.0       342.4
--------------------------------------------------------------------------------
                                               $5,398.4    $4,482.7    $4,291.8
================================================================================
     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:

                                                   2004        2003        2002
--------------------------------------------------------------------------------
United States                                    $380.2      $340.0      $362.0
Mexico                                            110.7       109.0        78.6
United Kingdom                                     43.8        47.3        72.1
Other countries                                   219.9       163.9       116.9
--------------------------------------------------------------------------------
                                                 $754.6      $660.2      $629.6
================================================================================

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 2004,  2003,  and 2002  amounted  to $92.6  million,  $85.6
million,  and $82.6 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,  2004,  in
millions of dollars, were as follows:

--------------------------------------------------------------------------------
2005                                                                     $ 67.4
2006                                                                       49.6
2007                                                                       37.4
2008                                                                       29.6
2009                                                                       17.9
Thereafter                                                                 19.8
--------------------------------------------------------------------------------
                                                                         $221.7
================================================================================

                                      -51-
<PAGE>

NOTE 19: RESTRUCTURING ACTIONS
A summary of  restructuring  activity  during the three years ended December 31,
2004, 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, 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
Reserves established
   in 2004                           5.2               --          .2       5.4
Reversal of reserves                (4.0)              --          --      (4.0)
Proceeds received in excess
   of the adjusted carrying
   value of long-lived assets         --             (1.4)         --      (1.4)
Utilization of reserves:
   Cash                            (24.9)              --         (.1)    (25.0)
   Non-cash                           --              1.4          --       1.4
Foreign currency translation          .1               --          --        .1
--------------------------------------------------------------------------------
Restructuring reserve at
   December 31, 2004              $ 19.0           $   --      $  1.2    $ 20.2
================================================================================
     In 2004, the Corporation  recognized $5.4 million of pre-tax  restructuring
and exit  costs  related  to actions  taken in its Power  Tools and  Accessories
segment.  The restructuring  actions taken in 2004 principally reflect severance
benefits. The $5.4 million charge recognized during 2004 was offset, however, by
the  reversal  of $4.0  million of  severance  accruals  established  as part of
previously provided restructuring reserves that were no longer required and $1.4
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 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  related 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

                                      -52-
<PAGE>

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.
     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.
     The  severance  benefits  accrual,  included in the $31.6 million and $46.6
million  pre-tax  restructuring  charges  taken in 2003 and 2002,  respectively,
related  to the  elimination  of  approximately  2,700  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  2,600 replacement  positions will be filled,
yielding  a net total of 100  positions  eliminated  as a result of the 2003 and
2002 restructuring actions.
     During 2004,  2003, and 2002, the Corporation paid severance and other exit
costs of $25.0 million, $40.4 million, and $36.9 million, respectively.
     Of the remaining $20.2 million  restructuring accrual at December 31, 2004,
$8.5  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 2005. $8.0 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 remaining
$3.7 million relates to the closure of a  manufacturing  facility and actions to
reduce selling,  general and administrative  expenses in the Corporation's Power
Tools and Accessories segment that are expected to be completed during 2005.
     The amounts  reflected in the column  titled  write-down to fair value less
costs to sell of  certain  long-lived  assets,  as  included  within  this Note,
relating to reserves established during the three years ended December 31, 2004,
represent adjustments to the carrying value of those long-lived assets.
     As of December 31, 2004,  the carrying  value of facilities to be exited as
part of the Corporation's restructuring actions was not significant.

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

                                      -53-
<PAGE>

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, 2004, the Corporation's aggregate probable exposure with
respect to environmental  liabilities,  for which accruals have been established
in the consolidated financial statements,  was $65.2 million. These accruals are
reflected in other current  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 (IRS) in connection
with  audits  of the tax years  1998  through  2000.  The  principal  adjustment
proposed by the IRS consists of the  disallowance  of a capital  loss  deduction
taken in the Corporation's tax returns and interest on the deficiency.  Prior to
receiving  the notices of proposed  adjustments  from the IRS,  the  Corporation
filed a petition  against the IRS in the Federal District Court of Maryland (the
Court)  seeking  refunds  for a  carryback  of a portion  of the  aforementioned
capital  loss  deduction.  The  IRS  subsequently  filed a  counterclaim  to the
Corporation's  petition.  In October 2004,  the Court granted the  Corporation's
motion for summary  judgement on its complaint against the IRS and dismissed the
IRS counterclaim.  In its opinion,  the Court ruled in the  Corporation's  favor
that the capital  losses cannot be disallowed by the IRS. In December  2004, the
IRS  appealed  the Court's  decision in favor of the  Corporation  to the United
States  Circuit  Court of Appeals for the Fourth  Circuit.  That appeal is still
pending. The Corporation intends to vigorously dispute the position taken by the
IRS in this matter.  The Corporation has provided adequate reserves in the event
that the IRS prevails in its  disallowance of the previously  described  capital
loss and the  imposition  of related  interest.  Should  the IRS  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  $160
million.  If  upheld,  the  Court's  decision  would  result in the  Corporation
receiving a refund of taxes previously paid of approximately  $50 million,  plus
interest.
     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, 2004, 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.

                                      -54-
<PAGE>

NOTE 21: QUARTERLY RESULTS (UNAUDITED)

<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)                                         FIRST        SECOND         THIRD        FOURTH
YEAR ENDED DECEMBER 31, 2004                                                      QUARTER       QUARTER       QUARTER       QUARTER
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>           <C>           <C>           <C>
Sales                                                                            $1,092.9      $1,297.6      $1,282.5      $1,725.4
Gross margin                                                                        402.8         487.6         473.3         601.8
Net earnings from continuing operations                                              74.3         121.8         111.3         133.7
Net earnings                                                                         86.6         121.6         112.5         135.3
====================================================================================================================================
Net earnings from continuing operations per common share - basic                 $    .94      $   1.53      $   1.38      $   1.65
Net earnings per common share--basic                                                 1.10          1.53          1.40          1.67
====================================================================================================================================
Net earnings from continuing operations per common share - diluted               $    .93      $   1.50      $   1.35      $   1.60
Net earnings per common share--diluted                                               1.09          1.50          1.37          1.62
====================================================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                                    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
Net earnings from continuing operations                                              43.1          74.7          73.2          96.2
Net earnings                                                                         43.4          75.7          74.4          99.5
====================================================================================================================================
Net earnings from continuing operations per common share - basic                 $    .55      $    .96      $    .94      $   1.24
Net earnings per common share--basic                                                  .55           .98           .96          1.28
====================================================================================================================================
Net earnings from continuing operations per common share - diluted               $    .55      $    .96      $    .94      $   1.23
Net earnings per common share--diluted                                                .55           .97           .95          1.27
====================================================================================================================================
</TABLE>

     As more fully  described in Note 3, net  earnings for the first  quarter of
2004 included an $11.7 million net gain on the sale of discontinued  operations.
Net earnings for the third  quarter of 2004  included a $1.0 million gain on the
sale of discontinued operations.
     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  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.

                                      -55-
<PAGE>

                        REPORT OF INDEPENDENT REGISTERED
           PUBLIC ACCOUNTING FIRM ON CONSOLIDATED FINANCIAL STATEMENTS

                   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, 2004 and 2003, and the
related  consolidated  statements of earnings,  stockholders'  equity,  and cash
flows for each of the three years in the period ended  December  31,  2004.  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 the  standards of the Public
Company Accounting Oversight Board (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, 2004 and 2003,
and the  consolidated  results of their operations and their cash flows for each
of the three years in the period ended  December 31, 2004,  in  conformity  with
U.S. generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements  taken as a whole,  presents  fairly  in all  material  respects  the
information set forth therein.


/s/ ERNST & YOUNG LLP
---------------------
Baltimore, Maryland
February 17, 2005

                                      -56-
<PAGE>

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

Not applicable.

ITEM 9A.  CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Under the supervision and with the  participation of  Corporation's  management,
including  the  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, 2004. Based
upon that  evaluation,  the  Corporation's  Chief  Executive  Officer  and Chief
Financial  Officer  concluded  that the  Corporation's  disclosure  controls and
procedures are effective.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The  Corporation's  management is responsible for  establishing  and maintaining
adequate  internal control over financial  reporting.  Under the supervision and
with  the  participation  of  Corporation's  management,   including  the  Chief
Executive  Officer and Chief Financial  Officer,  the Corporation  evaluated the
effectiveness  of the design and  operation  of the its  internal  control  over
financial  reporting  based on the  framework  in Internal  Control - Integrated
Framework  issued by the Committee of Sponsoring  Organizations  of the Treadway
Commission.  Based on that evaluation, the Corporation's Chief Executive Officer
and Chief Financial Officer  concluded that the  Corporation's  internal control
over financial reporting was effective as of December 31, 2004.
     The scope of  management's  assessment  of the  effectiveness  of  internal
control over financial  reporting  includes all of the Corporation's  businesses
except for the Porter-Cable and Delta Tools Group, a material  business acquired
on October  2, 2004.  The  Corporation's  consolidated  sales for the year ended
December  31,  2004,  were $5.4  billion,  of which the Tools Group  represented
$244.5  million.  The  Corporation's  total assets as of December 31, 2004, were
$5.5 billion, of which the Tools Group represented $1.1 billion.
     Ernst  &  Young  LLP,  the  Corporation's   independent  registered  public
accounting  firm,  audited  management's  assessment  of  the  effectiveness  of
internal control over financial  reporting and, based on that audit,  issued the
report set forth on the following page.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
On October 2, 2004, the Corporation  acquired the  Porter-Cable  and Delta Tools
Group. During the quarterly period ended December 31, 2004, the Porter-Cable and
Delta  Tools   Group's   processes   and  systems  were  discrete  and  did  not
significantly   impact  internal  controls  over  financial   reporting  at  the
Corporation's  other  businesses.  The  Corporation's  management  performed due
diligence  procedures  associated with the acquisition of the  Porter-Cable  and
Delta Tools Group.  During these due diligence  procedures  and in the quarterly
period after the acquisition,  the Corporation's management found no significant
deficiencies or material  weaknesses in the design of the Porter-Cable and Delta
Tools Group's internal controls over financial reporting.
     There were no other  changes in the  Corporation's  internal  controls over
financial  reporting  during the quarterly  period ended December 31, 2004, that
have materially  affected,  or are reasonably likely to materially  affect,  the
Corporation's internal control over financial reporting.

                                      -57-
<PAGE>

                        REPORT OF INDEPENDENT REGISTERED
       PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING

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

We have audited  management's  assessment,  included in  Management's  Report on
Internal Control Over Financial  Reporting,  that The Black & Decker Corporation
maintained  effective  internal control over financial  reporting as of December
31,  2004,  based  on  criteria  established  in  Internal   Control--Integrated
Framework  issued by the Committee of Sponsoring  Organizations  of the Treadway
Commission (the COSO criteria).  The Black & Decker Corporation's  management is
responsible for maintaining  effective internal control over financial reporting
and for its assessment of the  effectiveness  of internal control over financial
reporting.   Our  responsibility  is  to  express  an  opinion  on  management's
assessment and an opinion on the effectiveness of the company's internal control
over financial reporting based on our audit.
     We  conducted  our audit in  accordance  with the  standards  of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and  perform  the audit to obtain  reasonable  assurance  about  whether
effective  internal  control over  financial  reporting  was  maintained  in all
material  respects.  Our audit included  obtaining an  understanding of internal
control over financial reporting,  evaluating management's  assessment,  testing
and evaluating the design and operating  effectiveness of internal control,  and
performing   such  other   procedures   as  we   considered   necessary  in  the
circumstances.  We believe that our audit  provides a  reasonable  basis for our
opinion.
     A company's internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial  statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial  reporting  includes those policies and procedures that (1) pertain to
the  maintenance  of records that, in reasonable  detail,  accurately and fairly
reflect the  transactions  and  dispositions  of the assets of the company;  (2)
provide  reasonable  assurance  that  transactions  are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting  principles,  and that receipts and  expenditures  of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of  unauthorized  acquisition,  use, or  disposition  of the company's
assets that could have a material effect on the financial statements.
     Because  of its  inherent  limitations,  internal  control  over  financial
reporting  may not prevent or detect  misstatements.  Also,  projections  of any
evaluation  of  effectiveness  to future  periods  are  subject to the risk that
controls may become  inadequate  because of changes in  conditions,  or that the
degree of compliance with the policies or procedures may deteriorate.
     As indicated in the  accompanying  Management's  Report on Internal Control
Over Financial  Reporting  included in Item 9A,  management's  assessment of and
conclusion on the effectiveness of internal control over financial reporting did
not include the  internal  controls of the  Porter-Cable  and Delta Tools Group,
which is included in the 2004 consolidated  financial  statements of The Black &
Decker Corporation,  and constituted 19% of total assets as of December 31, 2004
and 5% of  sales  for  the  year  then  ended.  Management  did not  assess  the
effectiveness  of  internal  control  over  financial  reporting  at this entity
because The Black & Decker  Corporation  acquired  the Tools Group on October 2,
2004.  Our audit of internal  control  over  financial  reporting of The Black &
Decker  Corporation  also did not include an evaluation of the internal  control
over financial reporting of the Porter-Cable and Delta Tools Group.
     In our opinion, management's assessment that The Black & Decker Corporation
maintained  effective  internal control over financial  reporting as of December
31,  2004,  is  fairly  stated,  in all  material  respects,  based  on the COSO
criteria.  Also, in our opinion, The Black & Decker Corporation  maintained,  in
all material respects, effective internal control over financial reporting as of
December 31, 2004, based on the COSO criteria.
     We have also  audited,  in  accordance  with the  standards  of the  Public
Company  Accounting  Oversight Board (United States),  the consolidated  balance
sheet of The Black & Decker Corporation and Subsidiaries as of December 31, 2004
and 2003,  and the related  consolidated  statements of earnings,  stockholders'
equity,  and cash flows for each of the three years in the period ended December
31, 2004,  and our report  dated  February  17, 2005  expressed  an  unqualified
opinion thereon.


/s/ ERNST & YOUNG LLP
---------------------
Baltimore, Maryland
February 17, 2005

                                      -58-
<PAGE>

                                    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 26, 2005,  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 26,  2005,
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 26,  2005,
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 26,  2005,
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 26, 2005, under
the caption "Ratification of the Selection of the Independent  Registered Public
Accounting Firm" and is incorporated herein by reference.

                                      -59-
<PAGE>

                                     Part IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(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, 2004,  2003,
and 2002.

     Consolidated Balance Sheet - December 31, 2004 and 2003.

     Consolidated  Statement of Stockholders'  Equity - years ended December 31,
2004, 2003, and 2002.

     Consolidated Statement of Cash Flows - years ended December 31, 2004, 2003,
and 2002.

     Notes to Consolidated Financial Statements.

     Report of Independent  Registered  Public  Accounting  Firm on Consolidated
Financial Statements.

(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 2
Purchase  Agreement  between the Corporation and Pentair,  Inc. dated as of July
16, 2004,  included in the  Corporation's  Quarterly Report on Form 10-Q for the
quarter ended June 27, 2004, is incorporated herein by reference.

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,  included in the  Corporation's  Annual
Report  on  Form  10-K  for  the  fiscal  year  ended  December  31,  2004,  are
incorporated herein by reference.

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.

Exhibit 4(g)
Indenture, dated as of October 18, 2004, between the Corporation and The Bank of
New York, as Trustee,  included in the Corporation's  Current Report on Form 8-K
filed with the  Commission  on  October  20,  2004,  is  incorporated  herein by
reference.

                                      -60-
<PAGE>

Exhibit 4(h)
Exchange and Registration Rights Agreement,  dated as of October 18, 2004, among
the  Corporation and J.P. Morgan  Securities  Inc., Banc of America  Securities,
LLC,  Citigroup Global Markets Inc. and other initial  purchasers named therein,
included  in the  Corporation's  Current  Report  on Form  8-K  filed  with  the
Commission on October 20, 2004, is incorporated herein by reference.

Exhibit 4(i)
Form of 4 3/4% Senior Note due 2014  (included in Exhibit 4.1),  included in the
Corporation's  Current  Report on Form 8-K filed with the  Commission on October
20, 2004, 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,  included in the Corporation's Current Report on Form 8-K
filed with the  Commission  on December  15,  2004,  is  incorporated  herein by
reference.

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.

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 Corporation 2004 Restricted Stock Plan, included as Exhibit B
to the Proxy  Statement,  dated March 16, 2004,  for the 2004 Annual  Meeting of
Stockholders of the Registrant, is incorporated herein by reference.

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

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

Exhibit 10(o)(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(p)(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.

                                      -61-
<PAGE>

Exhibit 10(p)(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(q)(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(q)(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(q)(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(q)(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(q)(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(q)(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(q)(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(r)
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(s)
The Black & Decker  Supplemental  Executive  Retirement  Plan,  as  amended  and
restated, included in the Corporation's Quarterly Report on 10-Q for the quarter
ended June 27, 2004, is incorporated herein by reference.

Exhibit 10(t)
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.

Exhibit 10(u)
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(v)
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(w)
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(x)
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(y)
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(z)(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(z)(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.

                                      -62-
<PAGE>

Exhibit 10(aa)(1)
Severance  Benefits  Agreement,  dated  December  12,  2002,  by and between the
Corporation and John W. Schiech.

Exhibit 10(bb)
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(cc)
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(dd)(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(dd)(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(ee)
The Black & Decker  Corporation  Corporate  Governance  Polices  and  Procedures
Statement, as amended,  included in the Corporation's Current Report on Form 8-K
filed with the  Commission  on December  15,  2004,  is  incorporated  herein by
reference.

Items 10(a) through  10(ee)  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 Registered Public Accounting Firm.

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.

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

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

<TABLE>
<CAPTION>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
THE BLACK & DECKER CORPORATION AND SUBSIDIARIES
(MILLIONS OF DOLLARS)

                                                                  BALANCE      ADDITIONS                       OTHER
                                                                       AT     CHARGED TO                     CHANGES        BALANCE
                                                                BEGINNING      COSTS AND                         ADD         AT END
DESCRIPTION                                                     OF PERIOD       EXPENSES     DEDUCTIONS      (DEDUCT)     OF PERIOD
------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2004
<S>                                                                 <C>            <C>            <C>          <C>            <C>
Reserve for doubtful accounts and cash discounts                    $47.4          $86.3          $93.0 (a)    $11.4 (b)      $52.1
------------------------------------------------------------------------------------------------------------------------------------
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
------------------------------------------------------------------------------------------------------------------------------------
<FN>
(a)  Accounts written off during the year and cash discounts taken by customers.
(b)  Primarily includes currency translation adjustments and, for 2004 and 2003,
     amounts associated with acquired businesses.
</FN>
</TABLE>

                                      -63-
<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:  February 18, 2005                        By  /s/ NOLAN D. ARCHIBALD
                                                    ----------------------------
                                                        Nolan D. Archibald
                                                        Chairman, President, and
                                                        Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on February 18, 2005, by the  following  persons on behalf
of the registrant and in the capacities indicated.

SIGNATURE                     TITLE                           DATE
--------------------------------------------------------------------------------


Principal Executive Officer

/s/ NOLAN D. ARCHIBALD                                        February 18, 2005
----------------------                                        -----------------
    Nolan D. Archibald        Chairman, President, and
                              Chief Executive Officer


Principal Financial Officer

/s/ MICHAEL D. MANGAN                                         February 18, 2005
---------------------                                         -----------------
    Michael D. Mangan         Senior Vice President and
                              Chief Financial Officer


Principal Accounting Officer

/s/ CHRISTINA M. MCMULLEN                                     February 18, 2005
-------------------------                                     -----------------
    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                   Manuel A. Fernandez
       Norman R. Augustine                  Benjamin H. Griswold, IV
       Barbara L. Bowles                    Anthony Luiso
       M. Anthony Burns                     Mark H. Willes
       Kim B. Clark


By  /s/ NOLAN D. ARCHIBALD                             Date:  February 18, 2005
    ----------------------                                    -----------------
        Nolan D. Archibald
        Attorney-in-Fact

                                      -64-

<PAGE>