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, 1998                                    1-1553                 
---------------------------                     --------------------------
                         THE BLACK & DECKER CORPORATION
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             (Exact name of registrant as specified in its charter)

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

          Towson, Maryland                                 21286   
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(Address of principal executive offices)                 (Zip Code)

Registrant's telephone number, including area code:     410-716-3900 
                                                      ----------------          
Securities registered pursuant to Section 12(b) of the Act:

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

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant as of January 29, 1999, was $4,640,584,494.

The number of shares of Common Stock  outstanding  as of January 29,  1999,  was
87,558,198.

The exhibit  index as required by Item 601(a) of  Regulation  S-K is included in
Item 14 of Part IV of this report.

Documents  Incorporated by Reference:  Portions of the  registrant's  definitive
Proxy Statement for the 1999 Annual Meeting of Stockholders  are incorporated by
reference in Part III of this Report.
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                                      -2-


                                     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 global marketer and
       manufacturer  of  quality  products  used in and  around the home and for
       commercial applications.  With products and services marketed in over 100
       countries,  the Corporation enjoys worldwide  recognition of strong brand
       names and a superior  reputation  for quality,  design,  innovation,  and
       value.
           The  Corporation  is one of the world's  leading  producers  of power
       tools, power tool accessories, and residential security hardware, and the
       Corporation's  product lines hold leading market share positions in these
       industries.  The  Corporation  is a major global  supplier of  engineered
       fastening and assembly  systems.  The  Corporation  is one of the leading
       producers  of faucets in North  America.  These  assertions  are based on
       total volume of sales of products  compared to the total market for those
       products and are supported by market  research  studies  sponsored by the
       Corporation as well as independent  industry statistics available through
       various trade organizations and periodicals,  internally generated market
       data, and other sources.
           As  more  fully   described   below   under   the   caption   "Recent
       Developments",  in  Management's  Discussion  and  Analysis of  Financial
       Condition and Results of Operations included in Item 7 of Part II of this
       report  under the  caption  "Strategic  Repositioning",  and in Note 2 of
       Notes to Consolidated  Financial Statements included in Item 8 of Part II
       of this  report,  during 1998,  the  Corporation  divested its  household
       products   business,   excluding  the  cleaning  and  lighting   products
       component,  in North  America,  Central  America,  the  Caribbean,  South
       America (excluding  Brazil),  and Australia,  as well as its recreational
       products business,  and glass  container-forming and inspection equipment
       business for aggregate cash proceeds, net of selling expenses paid during
       1998, of $653.6 million.
           During 1995, the Corporation  sold  PRC Realty  Systems,  Inc. (RSI),
       and PRC Environmental  Management,  Inc. (EMI), for aggregate proceeds of
       approximately  $100 million.  In February 1996, the Corporation  sold PRC
       Inc.  to  Litton  Industries,   Inc.,  for  approximately  $425  million.
       Together,  PRC  Inc.,  RSI  and EMI  composed  the  Corporation's  former
       information   technology  and  services  (PRC)  segment.  For  additional
       information about the discontinued PRC segment,  see the discussion below
       under  the  caption  "Discontinued  Operations"  and  Note 13 of Notes to
       Consolidated  Financial  Statements included in Item 8 of Part II of this
       report.
           In  April  1996,  the  Corporation  replaced   its  former  unsecured
       revolving credit facility,  which was scheduled to expire in 1997, with a
       new unsecured revolving credit facility (the Credit Facility), which will
       expire  in  2001.  Under  the  Credit  Facility,  which  consists  of two
       individual facilities, the Corporation may borrow up to $1.0 billion. For
       additional  information about the Credit Facility, see Note 9 of Notes to
       Consolidated  Financial  Statements included in Item 8 of Part II of this
       report.
           Under  terms  established  upon  the  original  sale of its  Series B
       Cumulative  Convertible  Preferred  Stock (Series B), the Corporation had
       the option, after September 1996, to require the conversion of the Series
       B stock into  shares of Common  Stock  under  certain  circumstances.  On
       October 14,  1996,  the  Corporation  exercised  its  conversion  option,
       issuing  6,350,000  shares of Common Stock in exchange for all previously
       outstanding
<PAGE>
                                      -3-


       shares  of Series B stock.  For  additional  information,  see Note 16 of
       Notes to Consolidated  Financial Statements included in Item 8 of Part II
       of this report.
           During  1996, the Corporation commenced a restructuring of certain of
       its  operations  and  recorded a  restructuring  charge of $91.3  million
       ($74.8  million  after tax).  The major  component of that  restructuring
       charge related to the  Corporation's  elimination of approximately  1,500
       positions.  As a result,  an  accrual  of $74.6  million  for  severance,
       principally  associated  with the European  businesses in the Power Tools
       and Accessories segment,  was included in the 1996 restructuring  charge.
       For additional  information about the 1996 restructuring charge, see Note
       12 of Notes to Consolidated  Financial  Statements  included in Item 8 of
       Part II of this  report  and  Management's  Discussion  and  Analysis  of
       Financial  Condition and Results of Operations included in Item 7 of Part
       II of this  report.  As more  fully  described  below  under the  caption
       "Recent  Developments"  and in Note 2 of Notes to Consolidated  Financial
       Statements included in Item 8 of Part II of this report, in January 1998,
       the Corporation commenced an additional restructuring program.
           In June 1998, a  wholly owned  subsidiary of the  Corporation  issued
       senior  unsecured  notes that were  guaranteed by the  Corporation in the
       amount of $300.0 million. Of that amount, $150.0 million bear interest at
       a fixed  rate of  6.55%  and are due in 2007,  and  $150.0  million  bear
       interest at a fixed rate of 7.05% and are due in 2028.  Proceeds from the
       issuance of the senior  unsecured  notes were used to repay  indebtedness
       outstanding under the Corporation's Credit Facility.

(b)    RECENT DEVELOPMENTS
       As more fully  described  in  Management's  Discussion  and  Analysis  of
       Financial  Condition and Results of Operations included in Item 7 of Part
       II of this report under the caption "Strategic Repositioning" and in Note
       2 of Notes to  Consolidated  Financial  Statements  included in Item 8 of
       Part II of this report, in January 1998, the Board of Directors  approved
       a comprehensive strategic repositioning of the Corporation, consisting of
       three separate elements.
           The first  element  of the  strategic  repositioning  is to focus the
       Corporation  on  its  core  operations.   The  Corporation  substantially
       completed this aspect of the strategic repositioning plan in 1998 through
       the divestiture of its non-strategic businesses:  True Temper Sports, its
       recreational products business; Emhart Glass, its glass container-forming
       and inspection  equipment  business;  and the household products business
       (other than certain assets associated with the Corporation's cleaning and
       lighting business) in North America,  Latin America  (excluding  Brazil),
       and  Australia.   The  Corporation  is  continuing  to  evaluate  various
       alternatives for its household products business in Brazil.
           In  connection  with  the  divestitures  of  these  businesses,   the
       Corporation received aggregate cash proceeds, net of selling expenses and
       taxes paid, of  approximately  $625 million and recognized a pre-tax gain
       on sale of businesses of $114.5 million  ($16.5 million after tax).  That
       pre-tax gain is net of an impairment  loss of  approximately  $15 million
       recognized in  connection  with the  anticipated  exit from the household
       products business in Brazil.
           The  proceeds  received  during  1998  were  used to fund the  second
       element of the strategic  repositioning plan--the repurchase of up to 10%
       of the  Corporation's  outstanding  common stock over a two-year  period.
       During the year ended  December 31,  1998,  the  Corporation  repurchased
       9,025,400  shares of common stock at an aggregate cost of $464.3 million.
       The aggregate cost of $464.3 million is net of $1.4 million in
<PAGE>
                                      -4-


       premiums  received  in  connection  with  the  Corporation's  sale of put
       options  on  800,000  shares of its  common  stock.  Prior to  receipt of
       proceeds from the sales of divested businesses,  the Corporation utilized
       its  existing  borrowing  facilities  to  fund a  portion  of  the  stock
       repurchase program.
           The third  element of the  strategic  repositioning  plan  involves a
       major  restructuring  program intended to reduce the Corporation's  fixed
       costs  and  simplify  the  supply  chain  and  new  product  introduction
       processes.  This  restructuring  program  resulted in a pre-tax charge of
       $164.7 million  during the year ended  December 31, 1998 ($117.3  million
       after tax).  Additional actions are possible as the program progresses in
       1999.  Restructuring and exit costs recognized by the Corporation  during
       1998 were  principally  associated with severance  benefits and voluntary
       retirement  program  costs,  as well as the  write-down to net realizable
       value of certain land, buildings, and equipment.
           As a consequence of the strategic repositioning plan, the Corporation
       elected  to  change  the  basis  upon  which it  evaluates  goodwill  for
       impairment  effective January 1, 1998. The change,  from the undiscounted
       cash flow  basis to the  discounted  cash  flow  basis,  resulted  in the
       write-off  of $900  million  of  goodwill  through a  non-cash  charge to
       operations in the first quarter of 1998.
           For additional information about the strategic repositioning plan and
       the change in  accounting  with  respect to the  measurement  of goodwill
       impairment,  see  Note 2 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)    DISCONTINUED OPERATIONS
       On February 16, 1996, the Corporation announced that it had completed the
       previously  announced  sale of PRC Inc.,  the  remaining  business in the
       discontinued PRC segment, for $425.0 million.  Earnings from discontinued
       operations  of  $70.4  million  for the year  ended  December  31,  1996,
       consisted  primarily  of  the  gain  on the  sale  of  PRC  Inc.,  net of
       applicable  income taxes of $55.6 million and related  selling  expenses.
       Revenues and operating  income of PRC Inc. for the period from January 1,
       1996, through February 15, 1996, were not significant.
           The   Corporation   acquired  the  former  PRC  segment  through  its
       acquisition of Emhart Corporation in April 1989.  Operating results,  net
       assets, and cash flows of the discontinued PRC segment have been reported
       separately  from the  continuing  operations  of the  Corporation  in the
       Consolidated  Financial  Statements included in Item 8 of Part II of this
       report.
           Net earnings of the discontinued PRC segment were $70.4 million ($.73
       per share on a diluted  basis) in 1996.  The results of the  discontinued
       PRC  segment do not reflect any  expense  for  interest  allocated  by or
       management fees charged by the Corporation.
<PAGE>
                                      -5-


(d)    FINANCIAL INFORMATION ABOUT BUSINESS SEGMENTS
       As more fully described above under the caption "Recent Developments", in
       Management's  Discussion and Analysis of Financial  Condition and Results
       of  Operations  included  in Item 7 of Part II of this  report  under the
       caption "Strategic Repositioning", and in Note 2 of Notes to Consolidated
       Financial Statements included in Item 8 of Part II of this report, during
       1998, the Corporation divested the household products business, excluding
       the cleaning and lighting products component,  in North America,  Central
       America, the Caribbean,  South America (excluding Brazil), and Australia;
       the recreational  products  business,  True Temper Sports;  and the glass
       container-forming  and inspection  equipment business,  Emhart Glass. The
       following  discussion pertains to the reportable business segments of the
       Corporation at December 31, 1998, which excludes the divested  businesses
       mentioned  above  and also  excludes  any  matters  with  respect  to the
       discontinued PRC segment.
           The Corporation operates in three reportable business segments: Power
       Tools and Accessories,  including  consumer and professional  power tools
       and accessories,  product service,  cleaning and lighting  products,  and
       outdoor products  (composed of electric lawn and garden tools);  Building
       Products,   including  security  hardware  and  plumbing  products;   and
       Fastening and Assembly  Systems.  For additional  information about these
       segments,  see  Note 19 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.

(e)    NARRATIVE DESCRIPTION OF THE BUSINESS
       As more fully described above under the caption "Recent Developments", in
       Management's  Discussion and Analysis of Financial  Condition and Results
       of  Operations  included  in Item 7 of Part II of this  report  under the
       caption "Strategic Repositioning", and in Note 2 of Notes to Consolidated
       Financial Statements included in Item 8 of Part II of this report, during
       1998, the Corporation divested the household products business, excluding
       the cleaning and lighting products component,  in North America,  Central
       America, the Caribbean,  South America (excluding Brazil), and Australia;
       the recreational  products  business,  True Temper Sports;  and the glass
       container-forming and inspection equipment business, Emhart Glass.
           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  power
       tools and accessories,  outdoor  products  (composed of electric lawn and
       garden tools),  cleaning and lighting products,  and product service.  In
       addition,  the Power Tools and Accessories segment has responsibility for
       the sale of plumbing  products to customers outside North America and for
       sales of the retained household  products business,  which is principally
       in Europe and  Brazil.  Power  tools  include  both  corded and  cordless
       electric  portable  power  tools,  such as  drills,  screwdrivers,  saws,
       sanders,  and grinders;  car care products;  WORKMATE(R)  workcenters and
       related  products;  and bench and stationary tools.  Accessories  include
       accessories and attachments for power tools.  Outdoor  products include a
       variety of both corded and cordless  electric  lawn and garden  products,
       such  as  hedge  and  yard  (string)  trimmers,   lawn  mowers,   edgers,
       blower/vacuums, and related

<PAGE>
                                      -6-


       lawn and garden  accessories.  Cleaning  and  lighting  products  include
       cordless upright and hand-held  vacuums,  flexible  flashlights,  and wet
       scrubbers.
           Power tools,  electric lawn and garden  tools,  cleaning and lighting
       products, and related accessories are marketed around the world under the
       BLACK &  DECKER  name  as  well as  other  trademarks  and  trade  names,
       including,  without  limitation,   DEWALT;  BLACK  &  DECKER  INDUSTRY  &
       CONSTRUCTION;  ELU;  VERSAPAK;  WOOD HAWK; WIZARD;  SANDSTORM;  WORKMATE;
       WORKBOX;  FIRESTORM;  QUANTUM PRO; PROLINE; MACHO;  TIMBERWOLF;  CYCLONE;
       SAWCAT; TRIMCAT; MOUSE; SCRUGUN;  SCRU-DRILL;  HOLGUN; CUT SAW; SPITFIRE;
       WILDCAT; SHORTY; SAWFORCE;  POWERDRIVER;  QUATTRO; ALLIGATOR;  POWERFILE;
       TWISTLOK;  VERSA-CLUTCH;  AIR  STATION;  GROOM `N' EDGE;  VAC `N'  MULCH;
       MASTERVAC;  LEAFBUSTER;  AUTOSTOP; STRIMMER; STRIPEMASTER; BLACK & DECKER
       HOVERMASTER; BLACK & DECKER POWER COMBI; REFLEX; HEDGE HOG; HEDGE HOG XB;
       GRASS HOG; LOG HOG;  DUSTBUSTER;  SCUMBUSTER;  FLOORBUSTER;  SPILLBUSTER;
       SNAKELIGHT;  SPOTLITER;  SAFELITER; SERIES 20; SERIES 40; SERIES 60; B&D;
       PIRANHA; ROCK CARBIDE; BULLET; PILOT-POINT;  SCORPION ANTI-SLIP; MAGNETIC
       DRILL AND DRIVE SYSTEM; RAPID LOAD; and MASTER SERIES.
           The  Corporation's  product service program supports its power tools,
       electric lawn and garden  products,  and cleaning and lighting  products.
       Replacement  parts and product  repair  services are available  through a
       network of  company-operated  service  centers,  which are identified and
       listed in product  information  material  generally  included  in product
       packaging.  At  December  31,  1998,  there were  approximately  140 such
       service centers,  of which roughly  two-thirds were located in the United
       States. The remainder were located around the world,  primarily in Canada
       and Europe.  These  company-operated  service centers are supplemented by
       several hundred  authorized service centers operated by independent local
       owners.  The Corporation also operates a  reconditioning  center in which
       power tools and cleaning and lighting products are reconditioned and then
       re-sold  through  numerous  company-operated  factory outlets and service
       centers.
           Most of the  Corporation's  consumer  power tools,  electric lawn and
       garden  products,  and 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 warranty, with similar provisions.  Products sold
       outside the United States generally have similar  warranty  arrangements.
       Such arrangements vary,  however,  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 reconditioned  power tools and
       cleaning and lighting products are sold through  company-operated service
       centers and factory outlets directly to end users.
<PAGE>
                                      -7-



           The principal  materials used in the manufacturing of products in the
       Power Tools and  Accessories  segment  are  plastics,  aluminum,  copper,
       steel, certain electronic components,  and batteries. These materials are
       used in various  forms.  For  example,  aluminum  or steel may be used in
       wire, sheet, bar, and strip stock form.
           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.  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, 1998,
       the amount of product  under  commodity  hedges was not  material  to the
       Corporation.
           As a global  marketer and  manufacturer,  the  Corporation  purchases
       materials and supplies from suppliers in many different  countries around
       the world.  Certain of the  finished  products  and  component  parts are
       purchased from suppliers that have  manufacturing  operations in mainland
       China. In addition,  the Corporation carries on manufacturing  operations
       in that country.  China has been granted Most Favored Nation (MFN) status
       through  July 3,  1999,  and  currently  there are no  significant  trade
       restrictions  or tariffs  imposed on such products.  The  Corporation has
       investigated  alternate sources of supply and production  arrangements in
       case the MFN status is not  extended.  Alternative  sources of supply are
       available,  or  can  be  developed,  for  many  of  these  products,  and
       alternative  production  arrangements can be made available at certain of
       the  Corporation's  other  manufacturing   facilities.   The  Corporation
       believes that,  although there could be some  disruption in the supply of
       certain of these  finished  products and  component  parts if China's MFN
       status is not extended or if significant  trade  restrictions  or tariffs
       are imposed,  the impact would not have a material  adverse effect on the
       operating results of the Power Tool and Accessories segment over the long
       term. However,  the Corporation  believes that, in the event that China's
       MFN status is not extended or significant  trade  restrictions or tariffs
       are imposed,  the impact would likely have a significant  negative effect
       on the operating results of the Power Tool and Accessories  segment,  and
       therefore the Corporation, over the short term.
           Principal  manufacturing and assembly  facilities of the power tools,
       electric lawn and garden products,  cleaning and lighting  products,  and
       accessories  businesses in the United States are located in Fayetteville,
       North   Carolina,   and  Easton  and   Hampstead,   Maryland.   Principal
       distribution facilities in the United States, other than those located at
       the  manufacturing  facilities  listed  above,  are located in Fort Mill,
       South Carolina, and Rancho Cucamonga, California.
           Principal  manufacturing  and assembly facilities  outside the United
       States of the power tools,  electric lawn and garden  products,  cleaning
       and  lighting  products,   and  accessories  businesses  are  located  in
       Buchlberg,  Germany;  Perugia, Italy; Spennymoor and Rotherham,  England;
       Mexicali,  Mexico;  Uberaba,  Brazil;  and Suzhou,  China.  The principal
       distribution facility outside the United States, other than those located
       at the  manufacturing  facilities  listed  above,  is located in Idstein,
       Germany.
<PAGE>
                                      -8-


           In connection  with  the strategic  repositioning  plan  announced in
       January 1998,  the  Corporation  closed its  manufacturing  facilities in
       Brockville,  Canada;  Kuantan,  Malaysia;  Jurong  Town,  Singapore;  and
       Molteno,  Italy,  during 1998.  Power tool  production at the plants that
       were closed was transferred to other manufacturing sites within the Power
       Tools and Accessories segment.
           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 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 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 power tools tend to be higher during
       the period immediately  preceding the Christmas gift-giving season, while
       the sales of most electric lawn and garden tools are at their peak during
       the winter  and early  spring  period.  Most of the  Corporation's  other
       product  lines within this segment  generally  are not seasonal in nature
       but may be 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.

       BUILDING PRODUCTS
       The  Building  Products  segment  has  worldwide  responsibility  for the
       manufacture and sale of security hardware  products,  for the manufacture
       of plumbing products,  and for the sale of plumbing products to customers
       in North America.  Security  hardware products consist of residential and
       commercial  door  hardware,   including   locksets,   high-security   and
       electronic  locks and  locking  devices;  door  closers,  hinges and exit
       devices;  and  master  keying  systems.  Plumbing  products  consist of a
       variety of conventional  and decorative  faucets,  shower heads, and bath
       accessories.
           Security   hardware  products   are  marketed  under  a   variety  of
       trademarks  and trade  names,  including,  without  limitation,  KWIKSET;
       KWIKSET PLUS;  TITAN;  TITAN COMMERCIAL  SERIES;  AccessOne;  LOCKMINDER;
       NIGHTSIGHT;  SOCIETY  BRASS  COLLECTION;  BLACK & DECKER;  BLACK & DECKER
       PLUS; GEO; LANE;  ASTRA; DOM;  DIAMANT;  PENTAGON;  NEMEF; and CORBIN CO.
       Plumbing products are marketed under the trademarks and trade names PRICE
       PFISTER;

<PAGE>
                                      -9-


       BLACK & DECKER; THE PFABULOUS PFAUCET WITH THE PFUNNY NAME; THE PFABULOUS
       PFAUCET.  PFOREVER;  THE PFOREVER PFAUCET;  PFREQUENT  PFAUCET;  PFOREVER
       PFINISH;  PFOREVER SEAL;  PFOREVER  WARRANTY;  PFILTER PFAUCET;  GENESIS;
       CARMEL; TRIBECA;  PARISA;  GEORGETOWN;  SAVANNAH;  EUROSTYLE;  BODYGUARD;
       MATCH MAKERS; and QUICK TRIM.
           Most of the  Corporation's  security  hardware  products  sold in the
       United States carry a warranty, pursuant to which the consumer can return
       defective  product during the warranty term in exchange for a replacement
       product at no cost to the  consumer.  Warranty  terms vary by product and
       range from a 10-year to a lifetime  warranty  with respect to  mechanical
       operations  and from a 5-year to a  lifetime  warranty  with  respect  to
       finish.  Products  sold  outside 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 a limited lifetime
       warranty  with  respect to 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 Building Products segment
       are sold primarily to retailers, wholesalers,  distributors, and jobbers.
       Certain security hardware products are sold to commercial, institutional,
       and industrial customers.
           The principal  materials used in the manufacturing of products in the
       Building Products segment are plastics,  aluminum,  steel,  brass, zamak,
       and ceramics.
           The  materials  used  in  the  various  manufacturing  processes  are
       purchased on the open market,  and the  majority  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.  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, 1998,
       the amount of product  under  commodity  hedges was not  material  to the
       Corporation.
           As a  global marketer  and manufacturer,  the  Corporation  purchases
       materials and supplies from suppliers in many different  countries around
       the world.  Certain of the  finished  products  and  component  parts are
       purchased from suppliers that have  manufacturing  operations in mainland
       China.  As previously  noted,  China has been granted Most Favored Nation
       (MFN) status through July 3, 1999, and currently there are no significant
       trade  restrictions or tariffs imposed on such products.  The Corporation
       has investigated alternate sources of supply and production  arrangements
       in case the MFN status is not extended. Alternative sources of supply are
       available,  or  can  be  developed,  for  many  of  these  products,  and
       alternative  production  arrangements can be made available at certain of
       the  Corporation's  other  manufacturing   facilities.   The  Corporation
       believes that,  although there could be some  disruption in the supply of
       certain of these  finished  products and  component  parts if China's MFN
       status is not extended or if
<PAGE>
                                      -10-


       significant trade  restrictions or tariffs are imposed,  the impact would
       not have a  material  adverse  effect  on the  operating  results  of the
       Building Products segment.
           Principal  manufacturing  and  assembly  facilities  of the  Building
       Products segment in the United States are located in Anaheim and Pacoima,
       California; Denison, Texas; Waynesboro, Georgia; and Bristow, Oklahoma.
           Principal  manufacturing and assembly  facilities  outside the United
       States of the Building  Products  segment are located in Bruhl,  Germany;
       Mexicali, Mexico; and Apeldoorn, Netherlands.
           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 Building Products  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  Building
       Products   segment  is   derived   from  the   do-it-yourself   and  home
       modernization  markets,  which generally are not seasonal in nature,  but
       may  be  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,  and  assembly
       systems,  specialty screws,  prevailing  torque nuts and assemblies,  and
       insert systems.  The fastening and assembly systems products are marketed
       under the trademarks and trade names EMHART FASTENING TEKNOLOGIES; DODGE;
       GRIPCO;  GRIPCO ASSEMBLIES;  HELICOIL;  NPR;  PARKER-KALON;  POP; POPLOK;
       POWERLINK 30; T-RIVET; ULTRA-GRIP;  TUCKER; WARREN; DRIL-KWIK;  PARABOLT;
       JACK NUT; KALEI; PLASTIFAST;  PLASTI-KWICK;  POP-MATIC; POPNUT; POP-SERT;
       SWAGEFORM; WELDFAST; SWS; SPLITFAST; NUT-FAST; and WELL-NUT.
           The  principal  markets for these  products  include the  automotive,
       transportation,  construction,  electronics, aerospace, machine tool, and
       appliance   industries.   Substantial   sales  are  made  to   automotive
       manufacturers worldwide.
<PAGE>
                                      -11-


           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.  Except  for  sales  to
       automotive  manufacturers,  which  historically  schedule plant shutdowns
       during July and August of each year, there is little seasonal variation.
           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,  the  Corporation is not
       materially  dependent upon such patents or license rights with respect to
       its operations.
           Principal  manufacturing  facilities  for the  Fastening and Assembly
       Systems  segment in the United States are located in Danbury and Shelton,
       Connecticut;   Montpelier,   Indiana;  Campbellsville  and  Hopkinsville,
       Kentucky;  and Mt. Clemens,  Michigan.  Principal  facilities outside 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.

       BACKLOG
       The following is a summary of total backlog by business segment as of the
       referenced dates.
       (Millions of Dollars)                                  December 31,    
                                                          1998           1997
                                                          ----           ----
       Power Tools and Accessories                       $  56          $  27
       Building Products                                    29             29
       Fastening and Assembly Systems                       66             53
       Divested businesses                                   -            108
                                                         -----          -----
        Total Backlog                                    $ 151          $ 217
                                                         =====          =====

           None of the  backlog at  December 31, 1998, or  at December 31, 1997,
       included unfunded amounts.

       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,  in the United  States,  and outside the United States
       from Slough,  England and are carried on at  facilities  in Rotherham and
       Spennymoor,  England;  Brockville,  Canada;  Perugia, Italy; and Idstein,
       Germany.
           Product development  activities for the Building Products segment are
       carried  on  at  facilities  in  Anaheim  and  Pacoima,  California,  and
       Apeldoorn, Netherlands.
           Product development activities for the Fastening and Assembly Systems
       segment are  currently  carried on at various  product or business  group
       headquarters or at principal manufacturing locations as previously noted.
<PAGE>
                                      -12-


           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,  1998,  the  Corporation  employed  approximately
       21,800 persons in its operations worldwide. Approximately 1,000 employees
       in the United  States are covered by  collective  bargaining  agreements.
       During  1998,  several  collective  bargaining  agreements  in the United
       States were negotiated  without  material  disruption to operations.  One
       agreement is scheduled for negotiation during 1999. Also, the Corporation
       has  government-mandated  collective  bargaining  arrangements  or  union
       contracts  with  employees  in  other  countries.  With  respect  to  the
       Corporation's  ongoing  operations,  operations  have not  been  affected
       significantly by work stoppages,  except as discussed below,  and, in the
       opinion  of  management,   employee  relations  are  good.  Several  work
       stoppages  were  experienced in 1998 at the  Corporation's  manufacturing
       facility in Molteno, Italy, related to the closure of that facility.
           The  Corporation's   operations  worldwide  are  subject  to  certain
       foreign,  federal,  state, and local  environmental laws and regulations.
       Many foreign,  federal,  state,  and local  governments also have enacted
       laws and  regulations  that govern the labeling and packaging of products
       and limit the sale of products  containing certain materials deemed to be
       environmentally  sensitive. These laws and regulations not only limit the
       acceptable  methods for 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, it has not materially  increased
       capital  expenditures  and has not had a material  adverse  effect on the
       Corporation.
           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 by the EPA or
       state authorities 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
       CERCLA. As of December 31, 1998, the Corporation had been identified as a
       potentially  responsible party (PRP) in connection with  approximately 22
       sites being  investigated by federal or state agencies under CERCLA.  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,   when
       appropriate,  management  has  undertaken,  among  other  things,  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   over  the   Corporation's
       involvement in some of the sites,  uncertainty over the remedial measures
       to be  adopted  at  various  sites  and  facilities,  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,
       appropriate  liability accruals have been established by the Corporation.
       As of December 31, 1998, the Corporation's aggregate probable exposure
<PAGE>
                                      -13-


       with respect to environmental  liabilities,  for which accruals have been
       established in the Consolidated Financial Statements,  was $32.2 million.
       With respect to environmental liabilities,  unless otherwise noted below,
       the  Corporation  does not believe that its liability with respect to any
       individual site will exceed $10.0 million.
           In  1985,  as  a  consequence  of  investigations  stemming  from  an
       underground storage tank leak from a nearby gas station,  the Corporation
       discovered certain  groundwater  contamination at its facility located in
       Hampstead, Maryland. Upon discovery of the groundwater contamination, the
       Corporation,  in  cooperation  with the  Department of Environment of the
       State of Maryland (MDE),  embarked on a program to remediate  groundwater
       contamination  and to prevent the  migration of  contaminants,  including
       installation of an air stripping  system designed to remove  contaminants
       from  groundwater.  The Corporation,  in cooperation with MDE,  conducted
       extensive  investigations  as to  potential  sources  of the  groundwater
       contamination.  Following submission of the results of its investigations
       to MDE, the Corporation  proposed to expand its  groundwater  remediation
       system and also proposed to excavate and remediate  soils in the vicinity
       of the plant that appear to be a source  area for certain  contamination.
       The  Corporation  has  received  all  permits  necessary  to operate  its
       expanded  groundwater  treatment facility at the Hampstead facility,  and
       the system is fully operational.
           In 1988, J.C. Rhodes, a former subsidiary of Emhart Industries, Inc.,
       was notified by both the EPA and the State of  Massachusetts  that it was
       considered a PRP with regard to the Sullivan's Ledge site in New Bedford,
       Massachusetts.  Emhart  and 11  other  companies  formed  a PRP  group to
       respond to the EPA's and Massachusetts'  demands, and, in September 1990,
       executed a Consent Order to perform the remedial  action  recommended  by
       the EPA in its Record of Decision. The remedial action is now underway.
           A second area of the  Sullivan's  Ledge site,  known as Middle Marsh,
       was  investigated  by the EPA and a Record  of  Decision  was  issued  in
       September 1991. In September 1992,  Emhart,  11 other companies,  and the
       City of New Bedford,  Massachusetts,  executed a Consent Order to perform
       the remediation required in the Middle Marsh section of the site. At this
       time,  Emhart's estimated remaining liability for remediation cost at the
       Sullivan's Ledge site is estimated at $1.5 million.
           The Corporation has been investigating  certain environmental matters
       at its NEMEF security  hardware  facility in the  Netherlands.  The NEMEF
       facility has been a manufacturing  operation since 1921.  During building
       construction in 1990, soil and groundwater  contamination  was discovered
       on the  property.  Investigations  to  understand  the full extent of the
       contamination were undertaken at that time, and those  investigations are
       continuing.  The  Corporation is continuing to work with  consultants and
       local  authorities  to  develop  a  comprehensive   remediation  plan  in
       conjunction with neighboring property owners.
           In  the opinion  of management, the  costs of compliance with respect
       to the  matters  set  forth  above  and other  remedial  costs  have been
       adequately accrued, and the ultimate resolution of these matters will not
       have a material adverse effect on the  Corporation.  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.
<PAGE>
                                      -14-


(f)    FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC
       OPERATIONS
       Reference  is  made  to  Note  19  of  Notes  to  Consolidated  Financial
       Statements,  entitled  "Business  Segments and  Geographic  Information",
       included in Item 8 of Part II of this report.

(g)    EXECUTIVE OFFICERS AND OTHER SENIOR OFFICERS OF THE 
       CORPORATION
       The  current  Executive   Officers  and  Other  Senior  Officers  of  the
       Corporation, their ages, current offices or positions, and their business
       experience during the past five years are set forth below.

       Nolan D. Archibald - 55
       Chairman, President, and Chief Executive Officer;
           January 1990 - present.

       Joseph Galli - 40
       Executive Vice President of the Corporation and President - Power Tools
       and Accessories Group,
           December 1996 - present;
       Group Vice President and President - Power Tools and Accessories,
           March 1996 - December 1996;
       Group Vice President and President - Power Tools,
           October 1995 - March 1996;
       Vice President and President - North American Power Tools,
           October 1993 - October 1995.

       Paul A. Gustafson - 56
       Executive Vice President of the Corporation and President - Fastening and
       Assembly Systems Group,
           December 1996 - present;
       Group Vice President and President - Emhart Fastening Teknologies,
           July 1996 - December 1996;
       President - Emhart Fastening Teknologies,
           April 1990 - July 1996.

       Dennis G. Heiner - 55
       Executive Vice President of the Corporation and President - Security
       Hardware, Building Products Group,
           January 1992 - present.

       Charles E. Fenton - 50
       Senior Vice President and General Counsel,
           December 1996 - present;
       Vice President and General Counsel,
           May 1989 - December 1996.


<PAGE>
                                      -15-


       Barbara B. Lucas - 53
       Senior Vice President - Public Affairs and Corporate Secretary,
           December 1996 - present;
       Vice President - Public  Affairs  and  Corporate  Secretary,
           July 1985 - December 1996.

       Thomas M. Schoewe - 46
       Senior Vice President and Chief Financial Officer,
           December 1996 - present;
       Vice President and Chief Financial Officer,
           October 1993 - December 1996.

       Leonard A. Strom - 53
       Senior Vice President - Human Resources,
           December 1996 - present;
       Vice President - Human Resources,
           May 1986 - December 1996.

       Ronald B. Cooper* - 44
       Vice President of the Corporation and President - Plumbing Products,
       Building Products Group,
           December 1996 - present;
       President - Price Pfister,
           August 1996 - December 1996;
       President - Accessories,
           March 1996 - August 1996;
       President and Chief Executive Officer - Interrealty Company,
           March 1995 - September 1995;
       President, Commercial Systems Group - PRC,
           August 1992 - March 1995.

       Stephen F. Reeves - 39
       Vice President and Controller,
           September 1996 - present;
       Corporate Controller,
           May 1994 - September 1996;
       Senior Manager - Ernst & Young LLP,
           October 1988 - April 1994.
----------------------------

      * Mr. Cooper will be leaving the Corporation by the end of March 1999.
<PAGE>
                                      -16-



       James J. Roberts - 40
       Vice President of the Corporation and Vice President/General
       Manager - U.S. Accessories, Power Tools and Accessories Group,
           December 1996 - present;
       Vice President and General Manager - U.S. Accessories,
           August 1996 - December 1996;
       Vice President and General Manager - Professional Power Tools, Europe,
           April 1994 - August 1996;
       Vice President Sales and Marketing - U.S. Consumer Power Tools,
           April 1993 - April 1994.

       Mark M. Rothleitner - 40
       Vice President and Treasurer,
           March 1997 - present;
       Treasurer - Dresser Industries, Inc.,
           December 1996 - March 1997;
       Assistant Treasurer, International,
           June 1994 - December 1996;
       Director, International Treasury,
           January 1991 - June 1994.

       Edward J. Scanlon - 44
       Vice President of the Corporation  and Vice  President/General Manager - 
       The Home Depot  Division,  Power Tools and Accessories Group,
           December 1997 - present;
       Senior Vice President Sales - North American Power Tools and Accessories,
           August 1995 - December 1997;
       Vice President Sales - Home Depot Division, North American Power Tools,
           February 1994 - August 1995;
       Vice President Sales - Industrial/Construction, U. S. Power Tools,
           January 1992 - February 1994.

       John W. Schiech - 40
       Vice President of the Corporation and Vice  President/General  Manager - 
       North American Professional Power Tools, Power Tools and Accessories 
       Group,
           December 1997 - present;
       Vice President and General Manager - Professional Power Tools,
           October 1995 - December 1997;
       Vice President Engineering - North American Power Tools,
           July 1994 - October 1995;
       Product Development  Manager - European  Power  Tools,
           July 1991 - July 1994.
<PAGE>
                                      -17-



       Frederik B. van den Bergh - 53
       Vice President of the Corporation and President - Europe, Power Tools and
       Accessories Group,
           July 1997 - present;
       Executive Vice President, Coleman Company Inc., and President, Coleman
       International,
           May 1996 - July 1997;
       Member, Board of Management, Braun A.G. Business Management and Group
       Sales,
           April 1992 - May 1996.


(h)    FORWARD-LOOKING STATEMENTS
       This  Annual  Report on Form 10-K  includes  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.   By  their  nature,  all  forward-looking
       statements  involve  risk 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: market  acceptance of
       the new products  introduced in 1998 and scheduled  for  introduction  in
       1999; the level of sales  generated  from these new products  relative to
       expectations,  based on the 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; the
       ability of the Corporation and its suppliers to meet scheduled timetables
       for new product  introductions;  unforeseen competitive pressure or other
       difficulties in maintaining  mutually  beneficial  relationships with key
       distributors  or in  penetrating  new channels of  distribution;  adverse
       changes in currency exchange rates or raw material commodity prices, both
       in absolute terms and relative to competitors'  risk profiles;  delays in
       or  unanticipated   inefficiencies   resulting  from   manufacturing  and
       administrative  reorganization actions in progress or contemplated by the
       strategic  repositioning  plan  announced by the  Corporation  in January
       1998; and the continuation of modest economic growth in the United States
       and Europe and gradual  improvement in the economic  environment in Latin
       America and Asia.
           In addition to the foregoing,  the  Corporation's  ability to realize
       the   anticipated   benefits  during  1999  and  in  the  future  of  the
       restructuring actions undertaken in 1998 is dependent upon current market
       conditions,  as well as the timing and effectiveness of the relocation or
       consolidation of production and administrative  processes. The ability to
       realize the benefits inherent in the balance of the restructuring actions
       is dependent on the selection and  implementation of economically  viable
       projects in  addition to the  restructuring  actions  taken to date.  The
       ability to achieve certain sales and profitability  targets and cash flow
       projections also is dependent upon the Corporation's  ability to identify
       appropriate   selected   acquisitions   that  are  complementary  to  the
       Corporation's   existing   businesses  at  acquisition  prices  that  are
       consistent with these objectives.
           The incremental  costs of the year 2000 program and the time by which
       the  Corporation  believes it will  complete  the year 2000  remediation,
       testing,  and implementation  phases, as well as new systems  initiatives
       that are year-2000 compliant, are based upon management's best estimates,
       which were derived using numerous assumptions of future events, including
       the  continued  availability  of  certain  resources  and other  factors.
       However, there can be  no guarantee that these estimates will be achieved


<PAGE>
                                      -18-


       and actual  results  could  differ  materially  from  those  anticipated.
       Specific factors that might cause such material  differences include, but
       are not limited to, the  availability  and cost of  personnel  trained in
       this area, the ability to locate and correct all relevant computer codes,
       and similar uncertainties.


ITEM 2.    PROPERTIES

The Corporation operates 37 manufacturing facilities around the world, including
18  located  outside  the  United  States  in 9  foreign  countries.  The  major
properties  associated  with each  business  segment  are  listed in  "Narrative
Description of the Business" in Item 1(e) of Part I of this report.
     The  Corporation  owns most of its  facilities  with the  exception  of the
following major leased facilities:
     In the United States:  Mt. Clemens, Michigan and Towson, Maryland.
     Outside the United States:  Rotherham, England and Mexicali, Mexico.
     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 which is located on leased land in Suzhou, China.
     In connection with the strategic  repositioning  program  undertaken by the
Corporation  in 1998 and  described  in Item 1 of this  report  and in Note 2 of
Notes to Consolidated Financial Statements included in Item 8 of Part II of this
report,  the  Corporation  closed its  manufacturing  facilities in  Brockville,
Canada;  Kuantan,  Malaysia;  Jurong Town, Singapore;  and Molteno, Italy during
1998.
     The Corporation's average utilization rate for its manufacturing facilities
for 1998 was in the range of 77% to 87%. The  Corporation  continues to evaluate
its worldwide  manufacturing cost structure to identify opportunities to improve
capacity utilization 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(e)  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.  Certain of these matters assert damages and liability for remedial
investigations and clean-up costs with respect to sites at which the Corporation
has
<PAGE>
                                      -19-


been  identified  as  a  PRP under  federal  and  state  environmental  laws and
regulations.  Other matters involve sites that the Corporation owns and operates
or previously sold.
     In connection with the  Corporation's  sale of its former PRC subsidiary to
Litton Industries,  Inc. ("Litton") in 1996, the Corporation agreed to indemnify
Litton for  various  liabilities.  Litton  has made a number of  indemnification
claims under the  agreement  relating to the sale of PRC,  and the  Corporation,
Litton and PRC are  continuing  to discuss  those claims.  The  Corporation  has
acknowledged its responsibility for certain claims and has denied responsibility
for  others.  In February  1999,  Litton and PRC filed an  arbitration  claim in
accordance  with the  terms of the  agreement  relating  to the sale of PRC with
respect  to  certain  of  these  indemnification   claims.  In  the  opinion  of
management,  the resolution of the indemnification claims that have been made by
Litton to date will not have a material adverse effect on the Corporation.
     In 1996,  Emerson  Electric  Company  ("Emerson")  filed suit  against  the
Corporation in the United States District Court for the Southern District of New
York  (Emerson  Electric  Co. v. Black & Decker  Inc.  et al.,  No. 96 Civ 4334)
alleging that the Corporation made false  representations in connection with the
sale of the  Mallory  Controls  business  to  Emerson  in 1991.  Emerson's  suit
includes claims for negligent  misrepresentation  and fraud as well as breach of
contract,  and asserts liability for contribution  relating to the settlement by
Emerson of a suit arising out of the Mallory  Controls  business.  Emerson seeks
damages in the amount of $15 million on the negligent  misrepresentation,  fraud
and breach of  contract  claims,  and damages of not less than $8 million on the
contribution claim.
     In October 1997, the United States District Court for the Southern District
of New York granted the  Corporation's  motion to dismiss  Emerson's  claims for
fraud and negligent  misrepresentation  and denied the  Corporation's  motion to
dismiss  Emerson's breach of contract and contribution  claims.  The Corporation
intends to defend vigorously against the allegations made in this matter. In the
opinion of  management,  the ultimate  resolution of this matter will not have a
material adverse effect on the Corporation.
     In 1996,  Liberty Mutual Insurance Company ("Liberty Mutual") filed suit in
the Superior Court in  Massachusetts  against the Corporation and certain of its
subsidiaries  seeking a  declaratory  judgment that various  insurance  policies
issued by Liberty Mutual to the Corporation did not cover liability and expenses
relating  to certain  on-site  and  off-site  environmental  contamination.  The
Corporation  and  subsidiary  defendants  removed the case to the United  States
District  Court  for the  Eastern  District  of  Massachusetts  (Liberty  Mutual
Insurance Company v. The Black & Decker  Corporation et al., No.  96-10804-DPW),
and filed a  counterclaim  asserting,  among other things,  bad faith,  unlawful
business  practices  and breach of contract on the part of Liberty  Mutual.  The
Corporation and Liberty Mutual have completed most of the discovery in this case
and both parties have filed summary judgment motions that are pending before the
Court.
     In 1996,  the  Corporation  filed a separate  suit in the Circuit Court for
Baltimore County,  Maryland against Liberty Mutual and certain other primary and
excess  insurance  carriers (Black & Decker (U.S.) Inc. et al. v. Liberty Mutual
Insurance  Company et al.  (03-C-96-003801))  asserting  that various  insurance
policies  issued by Liberty Mutual and the other  carriers  cover  indemnity and
expenses  associated with groundwater and soil  contamination  claims alleged to
have occurred at the Corporation's  Hampstead,  Maryland  facility.  In December
1996,  Liberty Mutual filed a counterclaim with the Circuit Court  incorporating
the allegations made in the suit pending in the United States District Court for
the Eastern District of Massachusetts  and seeking,  in effect,  to transfer the
Massachusetts  litigation to Baltimore  County.  Liberty  Mutual's  counterclaim
against the Corporation was dismissed.  The Corporation,  Liberty Mutual and the
other defendants have settled the Baltimore  County
<PAGE>
                                      -20-


litigation and the various claims and counterclaims have been dismissed.
     The  Corporation  and  a  customer  of  the   Corporation's   former  glass
container-forming   and  inspection   equipment  business  are  parties  to  two
arbitration proceedings pending in the Court of Arbitration of the International
Chamber of Commerce in London. In these  proceedings,  the customer alleges that
the Corporation breached two contracts for the construction and equipping of two
separate glass manufacturing  plants owned by the customer and currently asserts
that it is  entitled  to  damages  in  excess  of  $150  million.  Although  the
Corporation  has sold  its  glass  container-forming  and  inspection  equipment
business,  the Corporation has retained  responsibility for the defense of these
proceedings  and any  damages  awarded to the  customer  in excess of $1 million
(exclusive of legal fees and other  costs).  The  Corporation  intends to defend
vigorously against the allegations made in these proceedings.  In the opinion of
management,  the  ultimate  resolution  of  these  proceedings  will  not have a
material adverse affect on the Corporation.
     In the opinion of management,  amounts accrued for awards or assessments in
connection  with the matters  specified above and in Item 1(e) of Part I of this
report  with  respect  to   environmental   matters  and  other  litigation  and
administrative proceedings to which the Corporation is a party are adequate and,
accordingly,  ultimate  resolution  of these  matters  will not have a  material
adverse effect on the Corporation.
     As of  December  31,  1998,  the  Corporation  had no  known  probable  but
inestimable  exposures for awards and assessments in connection with the matters
specified  above  and in Item  1(e) of Part I of this  report  with  respect  to
environmental  matters and other litigation and administrative  proceedings that
could have a material adverse effect on the Corporation.



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

Not applicable.

<PAGE>
                                      -21-


                                     PART II


ITEM 5.    MARKET FOR THE COMPANY STOCK AND RELATED SECURITY
           HOLDER 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                       1998                         1997
         -------                       ----                         ----
         January to March       $53-5/16   to $37-15/16    $34-7/8    to $30
         April to June          $60-13/16  to $48-3/4      $37-1/2    to $29-5/8
         July to September      $65-1/2    to $41-5/8      $43-7/16   to $36-3/8
         October to December    $58-1/2    to $38-15/16    $41-13/16  to $35-3/4
         -----------------------------------------------------------------------

(b)    HOLDERS OF THE CORPORATION'S CAPITAL STOCK
       As of January  29,  1999, there  were  18,284  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  necessarily  will depend upon the
       Corporation's  earnings,  financial  condition,  and other  factors.  The
       Credit  Facility  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                                     1998  1997
               -------                                     ----  ----
               January to March                            $.12  $.12
               April to June                                .12   .12
               July to September                            .12   .12
               October to December                          .12   .12
                                                          -----  ----
                                                           $.48  $.48
             ----------------------------------------------------------


       Common Stock:     150,000,000  authorized,  $.50  par  value,  87,498,424
                         shares and 94,842,544 shares outstanding as of December
                         31, 1998 and 1997, respectively.

       Preferred Stock:  5,000,000  authorized, without  par  value,  no  shares
                         outstanding as of December 31, 1998 and 1997.
<PAGE>
                                      -22-



(d)    ANNUAL MEETING OF STOCKHOLDERS
       The 1999 Annual Meeting of  Stockholders  of the Corporation is scheduled
       to be held on April 27, 1999, at 9:00 a.m. at Black & Decker, 28712 Glebe
       Road, Easton, Maryland 21601.


ITEM 6.   SELECTED FINANCIAL DATA
<TABLE>

FIVE-YEAR SUMMARY
(Millions of Dollars Except Per Share Data)
<CAPTION>
                                                             1998(a)        1997          1996(b)       1995(c)     1994
-------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>            <C>           <C>           <C>         <C>     
Sales                                                    $4,559.9       $4,940.5      $4,914.4      $4,766.1    $4,365.2
Earnings (loss) from continuing operations                 (754.8)         227.2         159.2         216.5        89.9
Earnings from discontinued operations (d)                      --             --          70.4          38.4        37.5
Extraordinary items                                            --             --            --         (30.9)        --
Net earnings (loss)                                        (754.8)         227.2         229.6         224.0       127.4

Net earnings (loss) per common share -- basic:
    Continuing operations                                   (8.22)          2.40          1.69          2.39         .93
    Discontinued operations                                    --             --           .79           .45         .45
    Extraordinary items                                        --             --            --          (.36)        --
Net earnings (loss) per common share -- basic               (8.22)          2.40          2.48          2.48        1.38

Net earnings (loss) per common share assuming dilution:
    Continuing operations                                   (8.22)          2.35          1.66          2.29         .92
    Discontinued operations                                    --             --           .73           .41         .44
    Extraordinary items                                        --             --            --          (.33)        --
Net earnings (loss) per common share -- assuming dilution   (8.22)          2.35          2.39          2.37        1.36

Total assets                                              3,852.5        5,360.7       5,153.5       5,545.3     5,264.3
Long-term debt                                            1,148.9        1,623.7       1,415.8       1,704.5     1,723.2
Cash dividends per common share                               .48            .48           .48           .40         .40
-------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Earnings  from  continuing  operations  for 1998  includes  a  write-off  of
    goodwill of $900.0 million, a restructuring  charge of $164.7 million before
    taxes ($117.3 million after taxes),  and a gain on the sale of businesses of
    $114.5 million before taxes ($16.5 million after taxes).
(b) Earnings from continuing operations for 1996 includes a restructuring charge
    of $91.3  million  before  taxes  ($74.8  million  after  taxes) and a $10.6
    million  reduction  in income tax  expense as a result of the  reversal of a
    portion of the Corporation's deferred tax asset valuation allowance.
(c) Earnings  from  continuing  operations  for  1995  include  a $65.0  million
    reduction  in income tax expense as a result of the reversal of a portion of
    the  Corporation's  deferred tax asset  valuation  allowance.  In 1995,  the
    Corporation   recognized   a   $30.9   million   extraordinary   loss   from
    early extinguishment of debt, net of income tax benefit of $2.6 million.
(d) Earnings  from  discontinued  operations  represent  the  earnings,  net  of
    applicable income taxes, of the Corporation's  discontinued PRC segment. The
    earnings  of the  discontinued  PRC  segment do not  reflect  any charge for
    interest  allocated  to that  segment  by the  Corporation.  For  additional
    information about the discontinued PRC segment, see the discussion under the
    caption  "Discontinued  Operations"  included in Item 1(c) of Part I of this
    report and Note 13 of Notes to Consolidated Financial Statements included in
    Item 8 of Part II of this report.
</FN>
</TABLE>
<PAGE>
                                     - 23 -

ITEM 7.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS

OVERVIEW
The  Corporation  reported a net loss of $754.8  million or $8.22 per share on a
diluted basis for the year ended December 31, 1998,  compared to net earnings of
$227.2 million or $2.35 per share on a diluted basis for the year ended December
31, 1997.
     As more fully described under the caption "Strategic  Repositioning" and in
Note 2 of Notes to  Consolidated  Financial  Statements,  the  Corporation  made
substantial  progress  during  1998 in  implementing  the three  elements of the
comprehensive  strategic  repositioning plan, which was approved by the Board of
Directors in January 1998.  First, the Corporation  completed the divestiture of
the recreational products business,  the glass  container-forming and inspection
equipment  business,  and the  household  products  business  (exclusive  of the
cleaning and lighting  business  retained by the  Corporation) in North America,
Latin America  (excluding  Brazil),  and  Australia  during 1998. As a result of
these  divestitures,  the  Corporation  received cash  proceeds,  net of selling
expenses and taxes paid, of approximately  $625 million and recognized a pre-tax
gain on sale of businesses of $114.5 million  ($16.5 million net of tax).  These
proceeds were applied against the second element of the strategic  repositioning
plan - the repurchase of up to 10% of the Corporation's common shares.  Finally,
the  Corporation  commenced a  restructuring  of its  operations,  recognizing a
pre-tax  restructuring  charge of $164.7 million  ($117.3  million after tax) in
1998.
     Also, in January 1998, the Board of Directors elected to authorize a change
in the basis upon which the Corporation evaluates goodwill for impairment.  As a
result,  $900.0  million  of  goodwill  was  written  off  through  a charge  to
operations during 1998.
     Excluding  the  effects  of the gain on sale of  businesses,  restructuring
charge,  and goodwill  write-off,  net earnings for the year ended  December 31,
1998,  would have been $246.0 million,  or $2.63 per diluted share,  compared to
net earnings of $227.2 million,  or $2.35 per diluted share,  for the year ended
December 31, 1997.

STRATEGIC REPOSITIONING
As more fully described in Note 2 of Notes to Consolidated Financial Statements,
on January 26, 1998, the Board of Directors  approved a comprehensive  strategic
repositioning of the Corporation, consisting of three separate elements.
     The  first  element  of the  strategic  repositioning  plan is to focus the
Corporation on its core operation - that is, those strategic businesses that the
Corporation  believes are capable of delivering superior operating and financial
performance.   The  Corporation  substantially  completed  this  aspect  of  the
strategic  repositioning  plan in 1998 through the divestiture of  non-strategic
businesses:  True Temper Sports,  its  recreational  products  business;  Emhart
Glass, its glass  container-forming  and inspection equipment business;  and the
household  products  business  (other than certain  assets  associated  with the
Corporation's  cleaning and lighting  business) in North America,  Latin America
(excluding  Brazil),  and Australia.  The  Corporation is continuing to evaluate
various alternatives for its household products business in Brazil.
     In June 1998, the Corporation  closed on the sale of its household products
business in North  America,  Central  America,  the  Caribbean and South America
(excluding  Brazil)  for $315.0  million.  During  1998,  the  Corporation  also
completed the sale of its household products business in Australia, the proceeds
from  which  were  immaterial.  In  connection  with 
<PAGE>
                                      -24-


the sale of the household  products  businesses,  the  Corporation  retained its
cleaning and lighting  product  lines,  which include,  among other things,  the
Dustbuster(R) cordless vacuum.
     In September 1998, the Corporation announced that it had closed on the sale
of Emhart Glass. In connection  with the sale, the Corporation  received cash of
$178.7 million.  The Corporation  retained certain  liabilities and the purchase
price is subject to adjustment based upon changes in net assets.
     Also in September 1998, the Corporation  completed the  recapitalization of
True Temper Sports. The Corporation  retained  approximately 6% of preferred and
common stock of the recapitalized company, now known as True Temper Corporation,
valued at approximately $4 million. In addition, the Corporation received $177.7
million in cash and a senior increasing rate discount note,  bearing interest at
a variable  rate, in an initial  accreted  amount of $25.0 million in connection
with the recapitalization. Because True Temper Corporation is a highly leveraged
entity and there is no active  market for the note,  the  Corporation  has fully
reserved the $25.0 million note as of December 31, 1998.
     The pre-tax gain on the sale of businesses of $114.5 million ($16.5 million
net of tax)  recognized by the Corporation  during 1998,  represents the gain on
the sale or  recapitalization  of Emhart  Glass,  True  Temper  Sports,  and the
household  products  business  (excluding  certain  assets  associated  with the
cleaning and lighting  product lines) in North  America,  Central  America,  the
Caribbean,  and  South  America  (excluding  Brazil).  That  gain  is  net of an
impairment loss of approximately  $15 million  recognized in connection with the
anticipated exit from the household products business in Brazil.
     Because  True Temper  Sports,  Emhart  Glass,  and the  household  products
business in North America,  Latin America (excluding Brazil), and Australia were
not treated as  discontinued  operations  under  generally  accepted  accounting
principles,  they  remained a part of the  Corporation's  reported  results from
continuing  operations  until their sale.  Under the  accounting  prescribed  by
Statement of Financial  Accounting  Standards (SFAS) No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, the
Corporation was required to reflect the long-lived assets of these businesses at
the lower of their  carrying  amounts or their expected fair value less costs to
sell, and to cease depreciation of the businesses' fixed assets and amortization
of goodwill  related to these  businesses  during the period held for sale.  Had
depreciation  not ceased on the fixed assets of these businesses while they were
held for sale, aggregate depreciation in 1998 through the dates of their sale or
recapitalization would have approximated $10 million.
     The net proceeds  from the sale of these  businesses  were used to fund the
second element of the strategic  repositioning  plan - the planned repurchase of
approximately 10.5 million of the Corporation's outstanding common shares over a
two-year  period.  During the year ended  December  31,  1998,  the  Corporation
repurchased  9,025,400  common  shares at an aggregate  cost of $464.3  million,
which  is net of $1.4  million  in  premiums  received  in  connection  with the
Corporation's  sale of put  options  on shares of its common  stock.  During the
period from January 1, 1999 through February 11, 1999, the Corporation purchased
an additional 225,000 common shares at an aggregate cost of $12.5 million.
     The third  element of the  strategic  repositioning  plan  involves a major
restructuring  program. That restructuring program is being undertaken to reduce
fixed  costs and to  simplify  the  supply-chain  and new  product  introduction
processes. As part of the restructuring program, the Corporation expects to make
significant  changes to its European power tools and  accessories  businesses by
consolidating   distribution  and  transportation   and  centralizing   finance,
marketing,  and support services. These changes in Europe will be accompanied by
<PAGE>
                                      -25-


investment in  state-of-the-art  information  systems similar to the investments
being made in the North  American  business.  In addition,  the worldwide  power
tools and accessories business will rationalize its manufacturing plant network,
resulting in the closure of a number of manufacturing  plants. The restructuring
program  also  will  include  actions  to  improve  the cost  position  of other
businesses.
     This  restructuring  program resulted in a pre-tax charge of $164.7 million
during the year ended December 31, 1998 ($117.3  million after tax).  Additional
actions are possible as the program  progresses in 1999.  Restructuring and exit
costs recognized by the Corporation during 1998 were principally associated with
severance  benefits  and  voluntary  retirement  program  costs,  as well as the
write-down to net realizable value of certain land,  buildings, and equipment in
accordance with SFAS No. 121.
     A summary of the  Corporation's  restructuring  activity  during 1998 is as
follows:
<TABLE>
<CAPTION>
                                             Reserve As     Utilization of Reserve During 1998    Reserve at
                                            Established                                         December 31,
(Dollars in Millions)                           in 1998               Cash         Non-Cash             1998
-------------------------------------------------------------------------------------------------------------------
<S>                                              <C>                <C>              <C>              <C>
Severance benefits and cost of
   voluntary retirement program                  $121.3             $(52.8)          $(28.6)          $ 39.9
Write-down to net realizable value of
   certain land, buildings, and equipment          29.5                 --            (29.5)              --
Other charges                                      13.9               (2.8)             (.2)            10.9
-------------------------------------------------------------------------------------------------------------------
Total                                            $164.7             $(55.6)          $(58.3)          $ 50.8
===================================================================================================================
</TABLE>
     In  connection  with the  restructuring  program  undertaken  in 1998,  the
Corporation  recorded  severance  obligations when the liability became probable
under its established  severance policies or as provided statutorily or, when no
policy or  statutory  provision  existed or applied,  based on when the benefits
were communicated to affected  employees.  The timing of the charge was dictated
based on the later of: (i) approval by management having the ultimate  authority
to approve the actions;  (ii)  contingencies  affecting the  feasibility  of, or
returns from the project, were resolved; or (iii) if applicable, notification of
affected  employees.  The  severance  component  of  the  restructuring  reserve
established in 1998 is net of adjustments  that occurred during the year due 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.  None of the
adjustments  to  the  severance   obligations  recorded  as  part  of  the  1998
restructuring charge was individually material.
     Asset  write-downs  taken  as  part  of  the  1998   restructuring   charge
principally  related to the book value of manufacturing  equipment and furniture
and fixtures net of estimated salvage, which was negligible. The carrying values
of land and  building to be  abandoned  or sold were  written down to their fair
value, generally based on third party offers, when that fair value was less than
net book value.  Gains were realized when two facilities,  exited as part of the
restructuring,  that had a fair value exceeding their net book value at the time
of the charge,  were sold.  Those gains were reported as a reduction of the 1998
restructuring charge when realized.
     In the preceding  table,  the $28.6  million  non-cash  utilization  of the
reserve  established  for severance  benefits and costs of voluntary  retirement
program  represents  the  present  value of payments to be made as a result of a
voluntary  retirement program for employees in the
<PAGE>
                                      -26-


United States.  Those payments will be made from the assets of the Corporation's
pension plan trust rather than from working capital of the Corporation.
     In addition to the  restructuring  charge,  it is anticipated  that related
expenses of  approximately  $60  million  will be charged to  operations  over a
two-year period as the restructuring program progresses. These related expenses,
which  are  incremental  to the  plans  being  implemented,  do not  qualify  as
restructuring  or exit costs under  generally  accepted  accounting  principles.
During the year ended  December  31,  1998,  the  Corporation  recognized  $44.4
million of  expenses  related to the  restructuring  program.  Included in those
restructuring-related  expenses  were  $11.5  million of  inventory  write-downs
associated  with  products in the retained  cleaning and lighting  business that
will be discontinued.  Cash spending on the restructuring program during 1999 is
expected to range between $40 million to $45 million.
     Benefits  from the  restructuring  charge taken in 1998,  estimated at more
than $100 million on an annual,  pre-tax basis once fully  implemented,  are not
expected to become  evident  until some time in 1999,  as the 1998 benefits were
more than offset by related expenses  associated with the program.  As indicated
in Note 2 of Notes to  Consolidated  Financial  Statements,  the  severance  and
voluntary retirement accrual included in the $164.7 million restructuring charge
taken in 1998 related to the elimination of approximately  5,100  positions.  As
the  Corporation  shifts certain  production  and other  activities and replaces
certain  employees  who retired  under the United  States  voluntary  retirement
program,  it is anticipated  that an additional 2,200 positions will be created.
As a result, the Corporation's  estimate of annual, pre-tax savings in excess of
$100 million,  expected once the  restructuring  actions taken in 1998 are fully
implemented,  reflects the savings from a net reduction of  approximately  2,900
positions.  The Corporation's estimate of savings was based upon a comparison to
the  pre-restructuring  cost base,  and actual savings will be mitigated by such
factors as continued economic  deterioration in foreign markets and decisions to
increase  costs in such areas as promotion  and research and  development  above
levels that were otherwise assumed.
     As a  consequence  of the strategic  repositioning  plan,  the  Corporation
elected  to  change  its  method  of  measuring  goodwill   impairment  from  an
undiscounted  cash flow approach to a discounted  cash flow approach,  effective
January 1, 1998.  The  Corporation  believes  that  measurement  of the value of
goodwill  through the discounted cash flow approach,  as more fully described in
Note 2 of Notes to Consolidated Financial Statements,  is preferable in that the
discounted  cash flow  measurement  facilitates  the  timely  identification  of
impairment of the carrying  value of  investments  in businesses  and provides a
more current and, with respect to the businesses to be sold, realistic valuation
than the  undiscounted  approach.  The  adoption  of this  discounted  cash flow
approach,  however,  may result in greater earnings volatility because decreases
in projected  discounted cash flows of certain  businesses will result in timely
recognition of future impairment.
     In  connection   with  this  change  in  accounting  with  respect  to  the
measurement  of goodwill  impairment,  a non-cash  charge of $900.0  million was
recognized  in January  1998 ($9.80 per share both on a basic and diluted  basis
for the year ended  December 31, 1998).  The $900.0  million  write-down,  which
related to goodwill  associated  with the  Corporation's  Fastening and Assembly
Systems segment and the Building  Products  segment and included a $40.0 million
write-down  of  goodwill  associated  with  one  of  the  divested   businesses,
represents  the amount  necessary to reduce the carrying  values of goodwill for
those businesses to the Corporation's  best estimate,  as of January 1, 1998, of
those businesses'  future discounted cash flows using the methodology  described
in Note 2 of Notes to  Consolidated  Financial  Statements.  As a result  of the
goodwill  write-off  and the cessation of goodwill  amortization
<PAGE>
                                      -27-


related  to the  businesses  sold,  goodwill  amortization  declined  from $63.3
million for the year ended December 31, 1997 to $25.2 million for the year ended
December 31, 1998.

CONTINUING OPERATIONS
SALES
The following  chart provides an analysis of the  consolidated  changes in sales
for the years ended December 31, 1998, 1997, and 1996.
<TABLE>
<CAPTION>
                                                                        For the Year Ended December 31,
-------------------------------------------------------------------------------------------------------------------
(Dollars in millions)                                                1998           1997              1996
-------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>            <C>               <C>
Total sales                                                      $4,559.9       $4,940.5          $4,914.4
===================================================================================================================
Unit volume -- existing (a)                                             2%             5%                5%
Unit volume -- disposed (b)                                            (8)%           --                --
Price                                                                  (1)%           (1)%              (1)%
Currency                                                               (1)%           (3)%              (1)%
-------------------------------------------------------------------------------------------------------------------
Change in total sales                                                  (8)%            1%                3%
===================================================================================================================
<FN>
(a)  Represents  change  in  unit  volume  for  businesses  where   year-to-year
     comparability exists.
(b)  Represents  change in unit  volume for  businesses  included in prior years
     results but were sold or recapitalized in 1998.
</FN>
</TABLE>

     Total  consolidated  sales for the year ended December 31, 1998, were $4.56
billion,  which represented an 8% decrease from 1997 sales of $4.94 billion. The
negative  effects of a stronger  United  States  dollar  compared  to most major
foreign currencies caused a 1% decrease in the Corporation's  consolidated sales
during  1998 from the prior  year's  level.  Pricing  actions  had a 1% negative
effect on sales for 1998 as compared to 1997.  Total unit volume  declined by 6%
during 1998 from the 1997 levels,  as increased unit volume in the Corporation's
existing  businesses was more than offset by unit volume declines as a result of
the  divestitures  during  1998 of the  household  products  business  in  North
America,  Latin  America  (excluding  Brazil),  and  Australia,   of  the  glass
container-forming  and inspection  equipment  business,  and of the recreational
products business.
     Total  consolidated  sales for the year ended December 31, 1997, were $4.94
billion,  which  represented  a 1%  increase  over 1996 sales of $4.91  billion.
During 1997,  unit volume grew 5% over the sales level in 1996.  The 1997 growth
in  unit  volume  occurred  in  each of the  Corporation's  reportable  business
segments:  Power Tools and  Accessories,  Building  Products,  and Fastening and
Assembly Systems.

EARNINGS
The Corporation  experienced a consolidated  operating loss of $466.2 million on
sales of $4,559.9 million in 1998. Consolidated operating income as a percentage
of sales was 9.9% and 7.3% for 1997 and 1996, respectively. Excluding the $900.0
million  write-off of goodwill and the $114.5 million gain on sale of businesses
in 1998, as well as the $164.7 million and $91.3 million  restructuring  charges
recognized in 1998 and 1996,  respectively,  operating income as a percentage of
sales  was  10.6%  for 1998  compared  to 9.9%  and  9.1%  for  1997  and  1996,
respectively. 
<PAGE>
                                      -28-


     Operating  results for the year ended  December  31, 1998,  included  $44.4
million of expenses directly related to the strategic repositioning plan that do
not qualify as restructuring or exit costs under generally  accepted  accounting
principles  ("restructuring-related  expenses"). Included in these amounts is an
$11.5  million  write-down  to net  realizable  value of cleaning  and  lighting
inventories  that are being  discontinued  in connection  with the assumption of
those  product  lines in North  America  by the  Corporation's  Power  Tools and
Accessories  segment.  Excluding  the  effects  of  these  restructuring-related
expenses,  the restructuring  charges,  the goodwill write-off,  and the gain on
sale of businesses, operating income as a percentage of sales was 11.6% for 1998
compared  to 9.9% and 9.1% for 1997 and 1996,  respectively.  In addition to the
realization  of  benefits  from  restructuring  actions  taken in 1998,  a major
contributor  to this increase in operating  income as a percentage of sales from
1997 to 1998 was the $38.1 million reduction in goodwill amortization in 1998 as
compared  to 1997.  This  reduced  goodwill  amortization  was a  result  of the
goodwill write-off and cessation of amortization of goodwill associated with the
divested  businesses.  The lower level of goodwill  amortization  experienced in
1998 will continue in future periods.
     Consolidated  gross  margin  as a  percentage  of sales  for 1998 was 35.3%
compared  to 35.9%  for 1997 and 35.8% for 1996.  The  decline  in gross  margin
during 1998 from 1997 primarily  resulted from adverse foreign  exchange effects
on product costs, principally in the European operations;  competitive pressures
that  continued  to  constrain  pricing;  manufacturing  inefficiencies  in  the
security   hardware   portion   of   the   Building   Products   segment;    and
restructuring-related  expenses;  partially offset by higher production  volumes
and the decline in sales of lower  margin  products in the  household  products,
recreational  products,  and glass  container-forming  and inspection  equipment
businesses  as a  result  of  the  divestiture  of  those  businesses  in  1998.
Consolidated  gross margin in 1997,  as compared to that of 1996,  was adversely
affected by selective price reductions, particularly in the domestic power tools
and accessories,  cleaning and lighting,  and household products lines;  pricing
constraints due to competitive  pressures;  currency-related cost pressures that
resulted  from stronger  currencies in countries in which certain  products were
manufactured  relative to currencies  of countries in which those  products were
sold;  and the  decline in sales of the  higher  margin  SNAKELIGHT(R)  flexible
flashlight.  These  negative  impacts  on gross  margin  were  offset  by higher
production volumes and  better-than-average  margins on new products  introduced
during 1997.
     Consolidated selling,  general, and administrative expenses as a percentage
of sales were 24.7% for 1998 compared to 25.9% for 1997 and 26.6% for 1996.  The
improvements  in 1998  compared  to 1997  were  the  result  of  lower  goodwill
amortization in 1998 compared to 1997 as a result of the goodwill  write-off and
cessation of amortization  of goodwill  related to the businesses to be sold, as
well as benefits realized from  restructuring  actions taken in 1998,  partially
offset by  restructuring-related  expenses  in 1998.  The  improvements  in 1997
compared to 1996 were the result of cost  reduction  initiatives,  the  leverage
effects of higher sales volumes on fixed and semi-fixed costs, and benefits from
the 1996 restructuring program.
     Consolidated net interest expense  (interest  expense less interest income)
was $114.4 million in 1998 compared to $124.6 million in 1997 and $135.4 million
in 1996. The lower net interest  expense for 1998 compared to 1997 was primarily
the  result  of a lower  level  of net  debt  (total  debt  less  cash  and cash
equivalents)  due to  improved  cash flows from  operating  activities  and debt
reductions  which  occurred with net proceeds  from business  sales in excess of
amounts  used to  repurchase  common  stock  and as a result  of more  favorable
interest  rates and debt mix in 1998.  The lower net  interest  expense for 1997
compared to
<PAGE>
                                      -29-


1996 was  primarily  the  result of reduced  debt  levels  coupled  with a lower
average  interest rate inherent in the debt  portfolio.  Those lower debt levels
resulted  from debt  repayments  early in 1996 with the  sales  proceeds  of the
discontinued PRC segment and from improved operating cash flow during 1996.
     Consolidated  other  expense  for 1998  principally  consisted  of currency
losses.  Other expense for 1997 and 1996 primarily  included the discount on the
sale of receivables as well as currency losses.
     Consolidated  income tax expense of $166.5  million was  recognized  on the
Corporation's  pre-tax loss of $588.3 million for 1998. Excluding the income tax
benefits of $47.4 million and $16.5 million related to the pre-tax restructuring
charges in 1998 and 1996, respectively, the non-deductible write-off of goodwill
in the amount of $900.0  million  recognized  in 1998,  the tax expense of $98.0
million  recognized  on the gain on sale of  businesses  in 1998,  and the $10.6
million  income tax benefit that resulted from the reduction of its deferred tax
asset  valuation  allowance  in 1996,  the  Corporation's  reported  tax rate on
continuing  operations  was 32% in 1998 compared to 35% in 1997 and 24% in 1996.
The decrease in the effective tax rate in 1998 resulted from the lower amount of
goodwill  amortization,  which is not tax  deductible,  due to the  write-off of
goodwill  discussed above. The effective tax rate increased in 1997 because,  by
the end of 1996, the  Corporation  had fully  recognized the benefit of domestic
deferred tax assets,  exclusive of foreign tax credits,  for financial reporting
purposes.  The benefit of the  previously  unrecognized  deferred tax assets had
lowered the domestic  portion of tax expense for 1996 as well as for a number of
prior years. An analysis of taxes on earnings is included in Note 14 of Notes to
Consolidated Financial Statements.
     The Corporation  reported a net loss of $754.8 million,  or $8.22 per share
both on a basic  and  diluted  basis,  for the year  ended  December  31,  1998,
principally  as a result of the goodwill  write-off and  restructuring  and exit
costs,  less the gain on sale of  businesses,  recognized  in 1998.  Because the
Corporation  reported  a net loss for the year  ended  December  31,  1998,  the
calculation  of reported  earnings  per share on a diluted  basis  excludes  the
impact of stock options since their inclusion would be  anti-dilutive - that is,
decrease the per-share loss. For  comparative  purposes,  however,  the dilutive
effect  of  these  options  has  been   included  for  the   evaluation  of  the
Corporation's  performance  that follows.  Excluding the effects of the goodwill
write-off of $900.0 million,  after-tax  restructuring  and exit costs of $117.3
million,  and the after-tax  gain on sale of businesses  of $16.5  million,  net
earnings  for 1998  would  have been  $246.0  million or $2.63 per share on this
diluted  basis as  compared  to net  earnings  of $227.2  million,  or $2.35 per
diluted share, for 1997.  Excluding the after-tax  restructuring charge of $74.8
million, the after-tax gain on the sale of PRC, and the $10.6 million income tax
benefit that resulted from the reduction of the Corporation's deferred tax asset
valuation  allowance,  net earnings for 1996 would have been $223.4 million,  or
$2.32 per diluted share.

BUSINESS SEGMENTS
As  more  fully  described  in  Note  19  of  Notes  to  Consolidated  Financial
Statements,  the Corporation  operates in three  reportable  business  segments:
Power Tools and  Accessories,  Building  Products,  and  Fastening  and Assembly
Systems.
     Expenses  directly  related  to  reportable  business  segments  booked  in
consolidation  and,  thus,  excluded from segment  profit for the  Corporation's
reportable business segments were $20.4 million, $17.6 million, and $1.0 million
for the years ended December 31, 1998, 1997, and 1996,  respectively.  The $20.4
million  of  segment-related  expenses  excluded  from 

<PAGE>
                                      -30-


segment  profit in 1998  primarily  related to unbudgeted  restructuring-related
expenses,  including the aforementioned $11.5 million write-down of cleaning and
lighting  inventory to net  realizable  value  associated  with the product line
rationalization  undertaken  to  integrate  the  retained  cleaning and lighting
business into the Power Tools and Accessories  operations.  The $17.6 million of
segment-related expenses excluded from segment profit in 1997 related to certain
unbudgeted  costs recognized by the Corporation on behalf of the Power Tools and
Accessories segment,  primarily related to deteriorating  business conditions in
Asia, and on behalf of the Building Products  segment,  primarily related to the
cost of  programs  initiated  by the prior  management  of that  segment.  These
segment-related   expenses   excluded   from   segment   profit  are   generally
non-recurring in nature and were included in the Corporation's discussion of the
results of the  underlying  businesses  prior to its adoption in 1998 of the new
segment reporting standard.
     As  indicated  above  and in Note 19 of  Notes  to  Consolidated  Financial
Statements,   the   Corporation's   determination  of  segment  profit  excludes
restructuring and exit costs. Of the $164.7 million pre-tax charge taken in 1998
for  restructuring  and exit costs,  $97.8 million  relates to businesses in the
Power Tools and Accessories segment,  $15.4 million relates to the businesses in
the  Building  Products  segment,  $3.3  million  relates to  businesses  in the
Fastening and Assembly  Systems  segment,  and $17.1 million relates to divested
businesses.  The  balance  of $31.1  million  principally  relates  to the $28.6
million charge for the voluntary  retirement for employees in the United States,
including those of all three reportable  business  segments and of the Corporate
center.

Power Tools and Accessories
Segment sales and profit for the Power Tools and Accessories segment, determined
on the basis described in Note 19 of Notes to Consolidated Financial Statements,
were as follows (in millions of dollars):
<TABLE>
<CAPTION>
For the Year Ended December 31,                                      1998             1997              1996
-------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>              <C>               <C>     
Sales to unaffiliated customers                                  $2,946.4         $2,936.4          $2,820.1
Segment profit                                                      293.4            290.7             243.4
-------------------------------------------------------------------------------------------------------------------
</TABLE>
     Sales to unaffiliated  customers in the Power Tools and Accessories segment
approximated the 1997 level despite competitive pressures that resulted in price
reductions.  Sales of  power  tool  products  in North  America  benefited  from
double-digit rates of growth in sales of the DeWALT(R)  professional power tools
and outdoor  products  lines in the United  States  coupled with a  double-digit
growth rate by the power tools business in Canada. This growth in North America,
however,  was  offset  by a sharp  decline  in sales of  cleaning  and  lighting
products,   most  significantly  with  respect  to  the  SCUMBUSTER(R)  cordless
submersible scrubber. In addition,  sales of accessories in North America during
1998  declined  slightly  from the 1997  level as that  business  undertook  SKU
reduction efforts and exited its fastening line in 1998.
     Sales in Europe  increased at a low-single digit rate in 1998 over the 1997
level  as  increased  sales  of  consumer  and  professional   power  tools  and
accessories  offset  declines in sales of  household  products  and cleaning and
lighting products.  Sales of outdoor products in Europe in 1998 approximated the
1997 level.
     Sales in other  geographic  areas declined at a  double-digit  rate in 1998
from the 1997 levels,  due  principally  to continued  economic  turmoil in Asia
during 1998 and worsening economic conditions in Latin America during the latter
part of 1998.
<PAGE>
                                      -31-


     Segment profit as a percentage of sales for the Power Tools and Accessories
segment was 10.0% in 1998 compared to 9.9% in 1997.
     Sales to unaffiliated  customers in the Power Tools and Accessories segment
for 1997 were 4% higher  than in 1996.  Sales in North  America  increased  at a
mid-single  digit  rate in 1997 over the 1996 level  principally  as a result of
strong sales growth in power tools and accessories  partially  offset by sharply
lower sales of cleaning and lighting products. The 1997 sales growth in domestic
power tools and  accessories  was driven  primarily by the  introduction  of new
products,  including  the  DeWALT  stationary  machinery  tool line and  EXTREME
CORDLESS(R)  18-volt  reciprocating saw, the WOOD HAWK(R) consumer circular saw,
and the WIZARD(TM) rotary tool line. The incremental sales benefit realized from
the sell-in of new products was  partially  offset by price  reductions  on core
professional  and consumer  products and by weaker sales of other consumer power
tools and  accessories  and outdoor  products.  Cleaning and  lighting  products
experienced a significant sales decline in 1997 from 1996 levels  principally as
a result of sharply  lower sales of the  SNAKELIGHT  flexible  flashlight.  This
sales  decrease  during  1997 was  partially  offset by sales  increases  of the
SCUMBUSTER cordless submersible scrubber.
     Sales to unaffiliated  customers in the Power Tools and Accessories segment
in  Europe  increased  by 6% in 1997  over the 1996  level  as  higher  sales of
consumer and professional power tools, accessories,  and outdoor lawn and garden
tools in Europe in 1997 more than offset declines in product service,  household
products, and cleaning and lighting products during that period.
     Sales in the  Power  Tools  and  Accessories  segment  in other  geographic
regions in 1997 declined from the 1996 level.  Sales declines in Asia and Brazil
were partially offset by increased sales in a number of countries during 1997.
     Segment profit as a percentage of sales for the Power Tools and Accessories
segment was 9.9% in 1997 compared to 8.6% in 1996.

Building Products
Segment sales and profit for the Building  Products  segment,  determined on the
basis described in Note 19 of Notes to Consolidated  Financial Statements,  were
as follows (in millions of dollars):
<TABLE>
<CAPTION>
For the Year Ended December 31,                                      1998             1997              1996
-------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>              <C>               <C>   
Sales to unaffiliated customers                                    $851.1           $804.8            $776.0
Segment profit                                                      125.2            121.3             125.1
-------------------------------------------------------------------------------------------------------------------
</TABLE>
     Sales to unaffiliated  customers in the Building Products segment increased
by 6% over the 1997  level,  due  principally  to  increased  sales of  security
hardware and  plumbing  products in North  America,  driven by sales of TITAN(R)
locksets and new plumbing  product  introductions,  and of security  hardware in
Europe.  These  increases  were  partially  offset  by lower  sales of  security
hardware products in Latin America and Asia.
     Segment profit as a percentage of sales for the Building  Products  segment
was 14.7% in 1998 compared to 15.1% in 1997.  Segment  profit as a percentage of
sales in 1998  declined  from the 1997  level as  decreased  profitability  with
respect to security hardware products, principally associated with manufacturing
inefficiencies,  more  than  offset  profitability  gains in  plumbing  products
experienced in 1998.  Those gains,  however,  were in comparison to an extremely
weak 1997.
<PAGE>
                                      -32-


     Sales in the  Building  Products  segment  increased by 4% in 1997 over the
1996 level due, in part, to sales of new security hardware  products,  including
locksets and handlesets with Lifetime Finish,  while sales of plumbing  products
during 1997 were slightly above the 1996 level.
     Segment profit as a percentage of sales for the Building  Products  segment
was  15.1%  in  1997  compared  to  16.1%  in  1996  as  a  slight  increase  in
profitability  of  security  hardware  products  in 1997 was more than offset by
decreased  profitability  in plumbing  products  that  resulted,  in part,  from
manufacturing  issues  associated  with the  transition of production to a lower
cost facility in Mexicali, Mexico, during the first half of 1997.

Fastening and Assembly Systems
Segment  sales and  profit  for the  Fastening  and  Assembly  Systems  segment,
determined on the basis described in Note 19 of Notes to Consolidated  Financial
Statements, were as follows (in millions of dollars):
<TABLE>
<CAPTION>
For the Year Ended December 31,                                      1998             1997              1996
-------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>              <C>               <C>   
Sales to unaffiliated customers                                    $463.0           $451.3            $421.0
Segment profit                                                       76.6             69.7              63.5
-------------------------------------------------------------------------------------------------------------------
</TABLE>
     Despite lower  automotive sales during 1998 due to softness in Asia as well
as the effects of the  now-settled  General  Motors strike in the United States,
sales to  unaffiliated  customers in the Fastening and Assembly  Systems segment
increased  by 3% in 1998 over the 1997  level,  due in part to the  strength  of
European automotive sales.
     Segment  profit as a  percentage  of sales for the  Fastening  and Assembly
Systems  segment  increased  from  15.4% in 1997 to 16.5% in 1998 as a result of
cost reduction initiatives.
     Sales to  unaffiliated  customers in the  Fastening  and  Assembly  Systems
segment for 1997 were 7% higher than the 1996 level as a result of strong  sales
to the automotive industry in the United States, partially offset by softness in
the domestic industrial market and in Europe.
     Segment  profit as a  percentage  of sales for the  Fastening  and Assembly
Systems segment was 15.4% and 15.1% for 1997 and 1996, respectively.

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 pound
sterling, deutsche mark, Dutch guilder, Canadian dollar, Swedish krona, Japanese
yen, French franc, Italian lira, Australian dollar,  Mexican peso, and Brazilian
real.  In addition,  with the  introduction  of the European  Union's new common
currency,  the euro, on January 1, 1999, the  Corporation's  currency risks also
include  transactions  denominated  in the euro.  Through its  foreign  currency
activities, the Corporation seeks to minimize 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.
<PAGE>
                                      -33-


     At the time of the euro's  introduction  on  January  1,  1999,  the eleven
participating  member countries of the European Monetary Union established fixed
conversion  rates  between  their  legacy  currencies  and the  euro.  During  a
three-year  phase-in  period during which special  conversion  rules apply,  the
legacy  currencies will continue to be used as legal tender. On January 1, 2002,
the legacy currencies will be canceled and replaced by the euro as legal tender.
The  Corporation  has initiated  actions to ensure that computer  systems in its
European operation will be in a position to accommodate the adoption of the euro
by no later than January 1, 2002. The Corporation believes that the introduction
of the euro may result 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.
     Prior to January 1, 1999,  Mexico was a highly  inflationary  economy  and,
accordingly,  the results of the Corporation's  Mexican subsidiary were measured
using the United States dollar as its functional currency.  Effective January 1,
1999,  Mexico  no  longer  qualifies  as  a  highly  inflationary  economy  and,
accordingly,  the results of the Mexican  subsidiary  will be measured using the
Mexican  peso as its  functional  currency,  with gains and losses  from  United
States  dollar-denominated  transactions  included  in net  earnings.  Prior  to
January 1, 1998, Brazil was a highly inflationary economy and, accordingly,  the
results of the Corporation's Brazilian subsidiary were measured using the United
States dollar as its functional  currency.  Effective January 1, 1998, Brazil no
longer qualified as a highly inflationary economy and, accordingly,  the results
of the Brazilian  subsidiary in 1998 were measured  using the Brazilian  real as
its   functional   currency,   with  gains  and  losses   from   United   States
dollar-denominated  transactions  included in net  earnings.  In January 1999, a
devaluation  of the  Brazilian  real  took  place  and,  in  response,  a lesser
devaluation in the value of the Mexican peso occurred. Because the Corporation's
exposures  in Brazil and Mexico  either  offset or were  partially  hedged,  the
Corporation  expects  that the impact of the January  1999  devaluations  on its
reported  results will not be material.  While the Corporation will take actions
to mitigate its exposures, there can be no assurance that any future devaluation
of the Brazilian real or Mexican peso will not adversely affect the Corporation.
     Assets and liabilities of subsidiaries located outside of the United States
are  translated  at rates of exchange  at the  balance  sheet date as more fully
explained in Note 1 of Notes to Consolidated Financial Statements. The resulting
translation  adjustments  are included in the  accumulated  other  comprehensive
income component of stockholders' equity. During 1998, translation  adjustments,
recorded  in  the   accumulated   other   comprehensive   income   component  of
stockholders' equity,  decreased  stockholders' equity by $37.7 million compared
to a decrease of $63.1 million in 1997.
     In order to minimize the  volatility of reported  equity,  the  Corporation
hedges, on a limited basis, the exposure to foreign currency fluctuations on its
net investments in subsidiaries located outside of the United States through the
use of currency swaps, forward contracts,  and options. These hedging activities
generate  cash  inflows and  outflows  that offset the  translation  adjustment.
During 1998 and 1997, these  activities  netted to a cash inflow of $3.4 million
and $26.9 million,  respectively.  The  corresponding  gains and losses on these
hedging activities were recorded in the accumulated other  comprehensive  income
component  of
<PAGE>
                                      -34-


stockholders'  equity.  Also  included in the  accumulated  other  comprehensive
income  component were the costs of maintaining  the hedge  portfolio of foreign
exchange contracts. These hedge costs were not significant in 1998 and 1997.
     As more  fully  explained  in Note 10 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 later  convert  such debt from fixed to
variable or from variable to fixed interest rates, or from United States dollar-
based rates to rates based upon  another  currency,  through the use of interest
rate swap agreements.
     In order to meet  its  goal of  fixing  or  limiting  interest  costs,  the
Corporation  maintains  a  portfolio  of interest  rate hedge  instruments.  The
variable rate debt to total debt ratio,  after taking  interest rate hedges into
account, was 47% at December 31, 1998, compared to 63% at December 31, 1997, and
35% at December 31, 1996.  At December 31, 1998,  average debt  maturity was 6.7
years  compared to 3.9 years at December 31, 1997, and 4.5 years at December 31,
1996.
<PAGE>
                                      -35-


Interest Rate Sensitivity
The following  table  provides  information  as of December 31, 1998,  about the
Corporation's  derivative financial  instruments and other financial instruments
that are sensitive to changes in interest  rates,  including  interest 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, 1998.
<TABLE>

Principal Payments and Interest Rate Detail by Contractual Maturity Dates 
<CAPTION>
                                                                                                            Fair Value
                                                                                                             (Assets)/
(U.S. Dollars in Millions)       1999       2000        2001       2002       2003  Thereafter      Total  Liabilities
---------------------------------------------------------------------------------------------------------------------------
<S>                            <C>        <C>         <C>        <C>       <C>          <C>      <C>          <C> 
Liabilities
Short-term borrowings   
Variable rate (U.S. dollars)   $117.6     $   --      $   --     $   --     $   --      $   --   $  117.6     $  117.6
  Average interest rate          5.73%                                                               5.73%
Variable rate(other currencies)$ 34.9     $   --      $   --     $   --     $   --      $   --   $   34.9     $   34.9
  Average interest rate         11.66%                                                              11.66%
Long-term debt
Fixed rate (U.S. dollars)      $ 30.0     $214.5      $ 45.0     $ 47.4     $335.7      $454.4   $1,127.0     $1,178.3
  Average interest rate          8.52%      6.63%       8.94%      8.88%      7.50%       6.87%      7.22%
Fixed rate (other currencies)  $  9.2     $  4.8      $  5.0     $  1.5$        .7      $   --   $   21.2     $   21.2
  Average interest rate          7.33%      5.74%       5.78%      1.04%      1.08%                  5.97%
Variable rate (U.S. dollars)   $ 20.0     $   --      $ 36.9 (a) $   --     $  3.0      $   --   $   59.9     $   59.9
  Average interest rate         L+.65%(b)              L+.24%(b)           Various                Various
---------------------------------------------------------------------------------------------------------------------------
<FN>
(a)  Includes $29.4 million of borrowings  under the unsecured  revolving credit
     facility,  which expires in 2001. The  Corporation  does not represent that
     such borrowings will be outstanding until 2001.
(b)  Variable rate specified is based upon LIBOR plus the specified  margin over
     LIBOR.
</FN>
</TABLE>
<PAGE>
                                      -36-


<TABLE>
Notional Principal Amounts and Interest Rate Detail by Contractual Maturity Dates
<CAPTION>
                                                                                                           Fair Value
                                                                                                            (Assets)/
(U.S. Dollars in Millions)      1999        2000        2001       2002       2003  Thereafter      Total Liabilities
---------------------------------------------------------------------------------------------------------------------------
<S>                           <C>         <C>         <C>        <C>        <C>         <C>        <C>         <C>    
Interest Rate Derivatives
Interest Rate Swaps
Fixed to variable rates
(all U.S. dollar denominated) $   --      $ 50.0      $   --     $   --     $125.0      $250.0     $425.0      $(14.2)
  Average pay rate (c)
  Average receive rate                      5.54%                             6.02%       6.02%      5.96%
Fixed U.S. rates to
  fixed foreign rates (d)
  To Japanese yen             $100.0      $   --      $   --     $   --     $   --      $   --     $100.0      $ (4.8)
    Average pay rate
     (in Japanese yen) (e)      1.99%                                                                1.99%
    Average receive rate        6.66%                                                                6.66%
  To deutsche marks           $100.0      $   --      $   --     $   --     $   --      $   --     $100.0      $ (8.1)
    Average pay rate
     (in deutsche marks) (f)    4.73%                                                                4.73%
    Average receive rate        6.64%                                                                6.64%
  To Dutch guilders           $ 50.0      $   --      $   --     $   --     $   --      $   --     $ 50.0      $ (4.7)
    Average pay rate
     (in Dutch guilders) (g)    4.58%                                                                4.58%
    Average receive rate        6.77%                                                                6.77%
---------------------------------------------------------------------------------------------------------------------------
<FN>
(c)  The average pay rate is based upon 6-month forward LIBOR, except for $125.0
     million in notional  principal amount which matures after 2003 and is based
     upon 3-month forward LIBOR.
(d)  The indicated  fair values of interest rate swaps that swap from fixed U.S.
     rates to fixed foreign rates include the fair values of the exchange of the
     notional  principal  amounts  at the end of the  swap  terms as well as the
     exchange of interest streams over the life of the swaps. The fair values of
     the  currency  exchange  are also  included in the  disclosures  of foreign
     currency exchange rate sensitivity.
(e)  The average pay rate (in Japanese  yen) is based upon a notional  principal
     amount of 10.9 billion yen.
(f)  The average pay rate (in deutsche marks) is based upon a notional principal
     amount of 153.3 million deutsche marks.
(g)  The average pay rate (in Dutch guilders) is based upon a notional principal
     amount of 85.9 million Dutch guilders.
</FN>
</TABLE>

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, 1998, the Corporation has
hedged a substantial portion of its 1999 estimated foreign currency transactions
using  forward  exchange  contracts  and  purchased  options.  As a result,  the
Corporation  estimates that,  based upon a recent  estimate of foreign  exchange
exposures,  the result of a uniform 10% strengthening in the value of the United
States  dollar  would  have the  effect of  reducing  gross  profit  for 1999 by
approximately  $20  million.  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  described  above
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
1998, inherent in the foreign exchange hedging portfolio at December 31, 1998.
<PAGE>
                                      -37-


RESTRUCTURING UNDERTAKEN IN 1996
Based upon a number of factors,  the  Corporation  decided to intensify its cost
reduction  efforts and  recorded a  restructuring  charge in the amount of $91.3
million ($74.8 million after tax) in 1996.
     The  major  component  of the  1996  restructuring  charge  related  to the
elimination of approximately 1,500 positions,  of which approximately 1,300 were
in the Power Tools and  Accessories  segment.  As a result,  severance  benefits
totaling  $74.6  million,  principally  associated  with  the  Power  Tools  and
Accessories  segment in Europe,  were accrued in the restructuring  charge.  The
balance of the 1996 restructuring charge primarily  represented non-cash charges
associated with the decision to rationalize  certain  manufacturing  operations,
principally  in the  Building  Products  segment  in  the  United  States.  Such
rationalization  included the  outsourcing of products then  manufactured by the
Corporation  and the  closure of several  small  manufacturing  facilities.  The
principal  non-cash charge consisted of a $6.6 million  write-down to fair value
of  land  and  buildings   affected  by  the   rationalization.   The  remaining
restructuring  charge  primarily  related  to the  write-down  to fair  value of
equipment  made  obsolete or  redundant  due to the  decision  to close  certain
facilities or outsource certain production.
     The  restructuring  reserve of $37.7  million  remaining as of December 31,
1996, was substantially spent in cash during 1997.

IMPACT OF YEAR 2000
The year 2000 ("Y2K") issue arises out of the fact that many  computer  programs
were written using two digits to identify the  applicable  year rather than four
digits. As a result, computer programs with date-sensitive software or equipment
with embedded  date-sensitive  technology may recognize a two-digit code for any
year in the next century as related to this century. For example,  "00," entered
in a date-field for the year "2000," may be interpreted as the year "1900." This
error may  result  in  system  or  equipment  failures  or  miscalculations  and
disruptions  of  operations,  including,  among other  things,  an  inability to
process transactions or engage in other normal business activities.
     The  Corporation  is taking  action to minimize the impact of Y2K issues in
its business.  These actions,  which are being separately  undertaken by each of
the  Corporation's  businesses and monitored by the Corporation on a centralized
basis, are categorized into the following  phases:  (i) awareness,  during which
the businesses conduct Y2K awareness meetings and establish Y2K project offices;
(ii) assessment, during which the businesses complete inventories of Y2K issues,
determine remediation  strategies,  and assign priorities to various remediation
efforts based, in part, on the significance of the individual system or location
to the  businesses'  overall  operations;  (iii)  remediation,  during which the
businesses take the necessary actions to renovate,  upgrade,  replace, or retire
systems that are not Y2K  compliant;  (iv)  testing,  during  which  remediation
actions are evaluated for effectiveness;  and (v)  implementation,  during which
remediation actions are integrated into the production environment. These phases
are being  evaluated  separately  for each of the  businesses'  significant  Y2K
exposures,  which  consist of: (i) software  and  hardware;  (ii)  manufacturing
equipment;  (iii) facilities equipment;  (iv) key customers;  (v) key suppliers;
and (vi) products.
     In general,  for each of the  businesses'  significant  Y2K exposures,  the
awareness and assessment phases have been completed with respect to software and
hardware and have been  substantially  completed  with respect to  manufacturing
equipment and facilities.  Remediation

<PAGE>
                                      -38-


is   substantially   complete   with   respect  to  software  and  hardware  and
approximately  50% complete with respect to manufacturing  and facilities,  with
significant  testing and implementation  completed or planned for the first half
of 1999.  Surveys of  customers,  suppliers,  and  partners  for Y2K  compliance
generally  have  been  completed  or are  underway.  Selective  customer  review
meetings  have been held,  and  others are  planned.  The  Corporation  has been
certified for  electronic  data  interface  (EDI)  transactions  by the National
Retailers  Federation.  Key  suppliers  have  been or are being  identified  for
further surveys,  reviews,  testing,  and evaluation.  Contingency planning with
critical suppliers is planned or is, in some cases, completed. Evaluation of the
Corporation's   products  has  been  completed  without  identification  of  any
significant  Y2K impact.  The  Corporation  is  continuing  to work with outside
experts   to   provide   independent   validation   and   verification   of  its
non-information technology,  embedded systems, particularly in the Corporation's
manufacturing  and  distribution  facilities.  To date, the  Corporation has not
discovered  any  significant  Y2K  issues  related  to  embedded   systems  that
management  expects,  after taking into account the Corporation's Y2K evaluation
and remediation  program,  will have a material adverse effect on the continuity
of the Corporation's business.
     Each of the  Corporation's  businesses have  established key milestones for
completion of the remediation,  testing,  and  implementation  phases of the Y2K
program.  In general,  these  milestones  call for completion of the testing and
implementation  phases for all critical  systems by no later than the end of the
second quarter of 1999 so that any slippage in the milestones for these critical
systems can be corrected in the third quarter of 1999. For non-critical systems,
these  milestones  generally call for completion of the remediation  phase by no
later than the end of the second  quarter of 1999 and  completion of the testing
and implementation  phases by no later than the end of the third quarter of 1999
so that any slippage in  milestones  can be  corrected in the fourth  quarter of
1999.
     In order to improve operating  performance over the last several years, the
Corporation  has  undertaken  or  commenced  a  number  of  significant  systems
initiatives,  including a major  reengineering  of supply-chain and distribution
systems  throughout the world. In the North American Power Tools  business,  for
example,  the  Corporation  is  in  the  final  stages  of  installing  advanced
supply-chain  management systems and SAP information  systems. The final testing
and  implementation  of these systems is scheduled for April 1999.  Although the
Corporation's systems initiatives were unrelated to concerns over the Y2K issue,
an  ancillary  benefit  of many of these  systems  improvements  is that the new
systems are Y2K compliant.  During the last several years,  the  Corporation has
spent  approximately  $10 million to address  issues related to the Y2K problem.
During  1999,  the  Corporation  expects  to spend an  additional  $5 million to
address Y2K issues,  of which  approximately  $2 million is  attributable to new
systems  initiatives in Europe that have been accelerated to address Y2K issues.
These costs include internal  information  systems  resources  redirected to the
Corporation's  Y2K program.  Other costs for implementing  systems  improvements
within  the  Corporation  that  were  planned   primarily  for  operational  and
supply-chain  improvements  and were not accelerated as a result of Y2K concerns
are not included in the foregoing  costs.  The external  costs  associated  with
these  systems  improvements,   which  are  significant,   generally  have  been
capitalized as part of other assets. The internal information systems department
costs that are included  above as Y2K costs are expensed as incurred,  are being
funded by cash flow from  operations,  and are not  expected  to have a material
adverse effect on the Corporation.
<PAGE>
                                      -39-


     Management  believes that the Corporation has an effective program in place
to resolve the Y2K issue in a timely manner. As noted above, the Corporation has
not yet completed all necessary phases of its Y2K program. In the event that the
Corporation does not complete any additional phases of its program,  significant
subsidiaries  of the  Corporation  would  be  unable  to take  customer  orders,
manufacture  or ship  products,  invoice  customers,  or  collect  payments.  In
addition,  although the  Corporation  has  undertaken  surveys of key customers,
suppliers,  and  partners  to  determine  the extent to which the  Corporation's
interface  systems are vulnerable to those third  parties'  failure to remediate
their own Y2K issues,  there is no guarantee that the systems of other companies
on which the  Corporation's  systems  rely will be  timely  converted.  If those
systems are not updated or otherwise are not Y2K compliant, the inability of the
Corporation  to  interface  effectively  with these third  parties  could have a
material  adverse  effect on the  Corporation  and its  financial  condition and
operating and financial  performance.  In addition,  disruptions  to the economy
generally  resulting from Y2K issues could also materially  adversely affect the
Corporation.  The  amount of  potential  liability  and lost  revenue  cannot be
reasonably estimated at this time.
     The Corporation has contingency plans for certain critical applications and
is in the process of developing  such plans for other critical  applications  in
the event that remediation  milestones are not achieved.  Such contingency plans
involve consideration of a number of possible actions,  including, to the extent
necessary,   manual  workarounds,   temporary  increases  in  inventories,   and
adjustments to staffing strategies.  The Corporation is also considering methods
for  "early  warning"  of  problems  related to Y2K with  rapid  escalation  and
resolution  through  teams of in-house  and  outside  experts.  The  Corporation
intends to develop additional  contingency plans with its customers,  suppliers,
and partners during 1999 based on risks and possible business impact.

DISCONTINUED OPERATIONS
Discontinued  operations consist of the results of PRC Inc., PRC Realty Systems,
Inc. (RSI), and PRC Environmental  Management,  Inc. (EMI).  Together, PRC Inc.,
RSI,  and EMI composed  the  Corporation's  former  Information  Technology  and
Services (PRC) segment.
     On February 16, 1996, the  Corporation  completed the sale of PRC Inc., the
remaining  business in the discontinued PRC segment.  Proceeds of $425.0 million
from the sale of PRC Inc.,  less cash  selling  expenses of $11.4  million  paid
during  1996,  were  used to reduce  indebtedness.  Earnings  from  discontinued
operations  of $70.4  million  ($.73  per  share  on a  diluted  basis)  in 1996
primarily  consist of the gain on the sale of PRC Inc., net of applicable income
taxes of $55.6  million.  The gain is net of  provisions  for  adjustment to the
sales price and retained liabilities.  Revenues and operating income of PRC Inc.
for the  period  from  January  1,  1996,  through  the  date of sale  were  not
significant.

FINANCIAL CONDITION
Operating  activities  generated  cash of  $366.3  million  for the  year  ended
December 31, 1998,  compared to $353.2 million of cash generated before the sale
of  receivables  for the year ended  December  31,  1997.  This  increased  cash
generation was principally the result of improved working capital  management in
1998 as compared to 1997.
     In December 1997, the  Corporation  determined that its sale of receivables
program was no longer necessary to support its liquidity  requirements and, as a
result, voluntarily terminated the program. The total amount of receivables sold
under the sale of receivables program at December 31, 1996, was $212.0 million.
<PAGE>
                                      -40-


     Investing  activities  for  1998  generated  cash  of  $531.4  million  due
principally  to the  receipt  of $653.6  million  of  proceeds,  net of  selling
expenses  paid,  from  the  sale of the  household  products  business  in North
America,  Central America,  the Caribbean and South America (excluding  Brazil),
proceeds from the sale of the glass  container-forming  and inspection equipment
business,  and proceeds from the  recapitalization of the recreational  products
business.  Excluding those proceeds,  investing activities for 1998 used cash of
$122.2  million  compared  to  $162.8  million  of cash  used in  1997.  Capital
expenditures  were $146.0  million during 1998 compared to $203.1 million during
1997.  During 1998,  approximately  54% of the capital  expenditures were in the
Power  Tools and  Accessories  segment,  primarily  in  support  of new  product
initiatives  and  productivity  enhancements.  The  Corporation  expects capital
spending in 1999 to increase significantly over the 1998 level.
     Financing  activities  for 1998 used cash of $1,054.3  million  compared to
$129.6 million of cash generated in 1997. The increase in cash used in financing
activities during 1998 over 1997 was principally the result of cash expended for
the stock  repurchase  program and for the  redemption  of preferred  stock of a
subsidiary,  coupled  with  lower  borrowing  levels  in 1998 due,  in part,  to
increased  cash from  operating  activities and the receipt of proceeds from the
divested businesses.
     During 1998, a wholly owned  subsidiary  of the  Corporation  issued $300.0
million  of fixed  rate,  senior  unsecured  notes that were  guaranteed  by the
Corporation,  of which  $150.0  million is due in 2007 and the balance is due in
2028.  Proceeds of that debt issuance were used to repay borrowings  outstanding
under the Corporation's revolving credit facility.
     In addition to measuring its cash flow  generation and usage based upon the
operating, investing, and financing classifications included in the Consolidated
Statement of Cash Flows,  the Corporation also measures its free cash flow. Free
cash flow, a measure  commonly  employed by bond rating  agencies and banks,  is
defined by the  Corporation  as cash  available  for debt  reduction  (including
short-term  borrowings),  prior to the effects of cash  received  from  divested
businesses  (net of selling  expenses  and related  taxes  paid),  issuances  of
equity,  and  sales of  receivables  and to the  effects  of cash paid for stock
repurchases and for the redemption of stock of  subsidiaries.  Free cash flow, a
more inclusive measure of the Corporation's  cash flow generation than cash flow
from operating activities included in the Consolidated  Statement of Cash Flows,
considers  items such as cash used for capital  expenditures  and dividends,  as
well as net cash inflows or outflows  from hedging  activities.  During the year
ended  December 31, 1998,  the  Corporation  generated  free cash flow of $188.2
million  compared to $150.2  million of free cash flow  generated in 1997.  This
$38.0  million  increase  in free cash flow  during 1998 over the 1997 level was
primarily  the  result  of  improved  cash  flows  from  investing   activities,
principally  due to  lower  capital  expenditures  in 1998,  and from  operating
activities.
     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 strategic  repositioning  plan begun in 1998. In order
to meet these  cash  requirements,  the  Corporation  intends to use  internally
generated funds and to borrow under its unsecured  revolving  credit facility or
under  short-term  borrowing  facilities.  The  Corporation  believes  that cash
generated from these sources will be adequate to meet its cash requirements over
the next 12 months.
<PAGE>
                                      -41-



ITEM 7A.       QUANTITATIVE AND QUALITATIVE DICLOSURES ABOUT MARKET RISK

Information required under this Item is contained in Item 7 of this report under
the caption "Hedging Activity" and in Item 8 of this report in Notes 1 and 10 of
Notes to  Consolidated  Financial  Statements,  and is  incorporated  herein  by
reference.


ITEM 8.        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The  following  consolidated  financial  statements of the  Corporation  and its
subsidiaries are included herein as indicated below:

Consolidated Financial Statements
---------------------------------
     Consolidated  Statement of Earnings
     - years ended December 31, 1998,  1997, and 1996.

     Consolidated Balance Sheet
     - December 31, 1998 and 1997.

     Consolidated  Statement of Stockholders'  Equity
     - years ended December 31, 1998, 1997, and 1996.

     Consolidated Statement of Cash Flows
     - years ended December 31, 1998, 1997, and 1996.

     Notes to Consolidated Financial Statements.

     Report of Independent Auditors.



<PAGE>

                                     - 42 -
<TABLE>

CONSOLIDATED STATEMENT OF EARNINGS
The Black & Decker Corporation and Subsidiaries
(Dollars in Millions Except Per Share Data)
<CAPTION>

                                                                             Year Ended December 31,
-------------------------------------------------------------------------------------------------------------------
                                                                     1998             1997              1996
-------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>              <C>               <C>     
Sales                                                            $4,559.9         $4,940.5          $4,914.4
   Cost of goods sold                                             2,951.0          3,169.2           3,156.6
   Selling, general, and administrative expenses                  1,124.9          1,282.0           1,309.6
   Write-off of goodwill                                            900.0               --                --
   Restructuring and exit costs                                     164.7               --              91.3
   Gain on sale of businesses                                       114.5               --                --
-------------------------------------------------------------------------------------------------------------------
Operating Income (Loss)                                            (466.2)           489.3             356.9
   Interest expense (net of interest income of
     $30.9 for 1998, $8.1 for 1997, and $4.7 for 1996)              114.4            124.6             135.4
   Other expense                                                      7.7             15.2              18.8
-------------------------------------------------------------------------------------------------------------------
Earnings (Loss) From Continuing Operations
   Before Income Taxes                                             (588.3)           349.5             202.7
   Income taxes                                                     166.5            122.3              43.5
-------------------------------------------------------------------------------------------------------------------
Earnings (Loss) From Continuing Operations                         (754.8)           227.2             159.2
Earnings from discontinued operations
   (net of income taxes of $55.6)                                      --               --              70.4
-------------------------------------------------------------------------------------------------------------------
Net Earnings (Loss)                                              $ (754.8)        $  227.2          $  229.6
===================================================================================================================


-------------------------------------------------------------------------------------------------------------------
Net Earnings (Loss) Per Common Share -- Basic:
   Earnings (loss) from continuing operations                    $  (8.22)      $     2.40          $   1.69
   Earnings from discontinued operations                               --               --               .79
-------------------------------------------------------------------------------------------------------------------
Net Earnings (Loss) Per Common Share -- Basic                    $  (8.22)      $     2.40          $   2.48
===================================================================================================================
Net Earnings (Loss) Per Common Share --
   Assuming Dilution:
   Earnings (loss) from continuing operations                    $  (8.22)      $     2.35          $   1.66
   Earnings from discontinued operations                               --               --               .73
-------------------------------------------------------------------------------------------------------------------
Net Earnings (Loss) Per Common Share --
   Assuming Dilution                                             $  (8.22)      $     2.35          $   2.39
===================================================================================================================
<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>
<PAGE>
                                      -43-


<TABLE>

CONSOLIDATED BALANCE SHEET
The Black & Decker Corporation and Subsidiaries
(Millions of Dollars)
<CAPTION>
                                                                                          December 31,
-------------------------------------------------------------------------------------------------------------------
                                                                                      1998              1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>               <C>      
Assets
Cash and cash equivalents                                                         $   87.9          $  246.8
Trade receivables, less allowances of
   $44.3 for 1998 and $47.8 for 1997                                                 792.4             931.4
Inventories                                                                          636.9             774.7
Other current assets                                                                 234.6             125.9
-------------------------------------------------------------------------------------------------------------------
   Total Current Assets                                                            1,751.8           2,078.8
-------------------------------------------------------------------------------------------------------------------
Property, Plant, and Equipment                                                       727.6             915.1
Goodwill                                                                             768.7           1,877.3
Other Assets                                                                         604.4             489.5
-------------------------------------------------------------------------------------------------------------------
                                                                                  $3,852.5          $5,360.7
===================================================================================================================
Liabilities and Stockholders' Equity
Short-term borrowings                                                             $  152.5          $  178.3
Current maturities of long-term debt                                                  59.2              60.5
Trade accounts payable                                                               348.8             372.0
Other accrued liabilities                                                            814.2             761.8
-------------------------------------------------------------------------------------------------------------------
   Total Current Liabilities                                                       1,374.7           1,372.6
-------------------------------------------------------------------------------------------------------------------
Long-Term Debt                                                                     1,148.9           1,623.7
Deferred Income Taxes                                                                279.9              57.7
Postretirement Benefits                                                              263.5             304.2
Other Long-Term Liabilities                                                          211.5             211.1
Stockholders' Equity
Common stock (outstanding: December 31, 1998 -- 87,498,424 shares;
   December 31, 1997 -- 94,842,544 shares)                                            43.7              47.4
Capital in excess of par value                                                       871.4           1,278.2
Retained earnings (deficit)                                                         (236.6)            562.0
Accumulated other comprehensive income                                              (104.5)            (96.2)
-------------------------------------------------------------------------------------------------------------------
   Total Stockholders' Equity                                                        574.0           1,791.4
-------------------------------------------------------------------------------------------------------------------
                                                                                  $3,852.5          $5,360.7
===================================================================================================================
<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>
<PAGE>
                                      -44-


<TABLE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
The Black & Decker Corporation and Subsidiaries
(Dollars in Millions Except Per Share Data)
<CAPTION>
                                                                                               Accumulated
                                              Outstanding            Capital in    Retained          Other         Total
                                Preferred          Common     Par     Excess of    Earnings  Comprehensive Stockholders'
                                   Shares          Shares   Value     Par Value   (Deficit)         Income        Equity
---------------------------------------------------------------------------------------------------------------------------
<S>                               <C>          <C>          <C>        <C>          <C>           <C>           <C>     
Balance at December 31, 1995      $ 150.0      86,447,588   $43.2      $1,084.5     $ 202.6       $  (57.1)     $1,423.2
Comprehensive income:
  Net earnings                         --              --      --            --       229.6             --         229.6
  Foreign currency translation
    adjustments, less effect of
    hedging activities (net of  tax)   --              --      --            --          --             .5            .5  
---------------------------------------------------------------------------------------------------------------------------
Comprehensive income                   --              --      --            --       229.6             .5         230.1
---------------------------------------------------------------------------------------------------------------------------
Cash dividends:
  Common ($.48 per share)              --             --       --            --       (42.9)            --         (42.9)
  Preferred                            --             --       --            --        (9.1)            --          (9.1)
Conversion of preferred shares 
  into common shares               (150.0)      6,350,000     3.2         146.8          --             --            --
Common stock issued under
  employee benefit plans               --       1,451,219      .7          30.4          --             --          31.1
---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996           --      94,248,807    47.1       1,261.7       380.2          (56.6)      1,632.4
Comprehensive income:
  Net earnings                         --              --      --            --       227.2             --         227.2
  Foreign currency translation
    adjustments, less effect of
    hedging activities (net of  tax)   --              --      --            --          --          (39.6)        (39.6)
---------------------------------------------------------------------------------------------------------------------------
Comprehensive income                   --              --      --            --       227.2          (39.6)        187.6
---------------------------------------------------------------------------------------------------------------------------
Cash dividends on common stock
  ($.48 per share)                     --              --      --            --       (45.4)            --         (45.4)
Common stock issued under
  employee benefit plans               --         593,737      .3          16.5          --             --          16.8
---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997           --      94,842,544    47.4       1,278.2       562.0          (96.2)      1,791.4
Comprehensive income (loss):
  Net loss                             --              --      --            --      (754.8)            --        (754.8)
  Minimum pension liability
    adjustment (net of tax)            --              --      --            --          --           (6.1)         (6.1)
  Foreign currency translation
    adjustments, less effect of
    hedging activities (net of tax)    --              --      --            --          --          (37.8)        (37.8)
  Write-off of accumulated foreign
    currency translation adjustments
    due to sale of businesses          --              --      --            --          --           35.6          35.6
---------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss)            --              --      --            --      (754.8)          (8.3)       (763.1)
---------------------------------------------------------------------------------------------------------------------------
Cash dividends on common stock
  ($.48 per share)                     --              --      --            --       (43.8)            --         (43.8)
Purchase and retirement of
  common stock                         --      (9,025,400)   (4.5)       (459.8)         --             --        (464.3)
Common stock issued under
  employee benefit plans               --       1,681,280      .8          53.0          --             --          53.8
---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998      $    --      87,498,424   $43.7      $  871.4     $(236.6)       $(104.5)   $    574.0
===========================================================================================================================
<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>
<PAGE>
                                      -45-


<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
The Black & Decker Corporation and Subsidiaries
(Millions of Dollars)
<CAPTION>
                                                                                      Year Ended December 31,
---------------------------------------------------------------------------------------------------------------------------
                                                                              1998             1997              1996
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>               <C>               <C>    
Operating Activities
Net earnings (loss)                                                       $ (754.8)         $ 227.2           $ 229.6
Adjustments to reconcile net earnings (loss) to cash flow
  from operating activities of continuing operations
  Gain on sale of businesses                                                (114.5)              --                --
  Non-cash charges and credits:
    Goodwill write-off                                                       900.0               --                --
    Restructuring charges and exit costs                                     164.7               --              91.3
    Depreciation and amortization                                            155.2            214.2             214.6
    Deferred income taxes                                                     67.5             71.7               2.9
    Other                                                                     (1.7)             1.5               1.2
  Earnings of discontinued operations                                           --               --             (70.4)
  Changes in selected working capital items
    (excluding, for 1998, effects of divested businesses):
    Trade receivables                                                        (24.3)           (85.1)            (10.0)
    Inventories                                                               26.9            (63.7)            107.5
    Trade accounts payable                                                    16.9              2.3             (21.4)
  Restructuring spending                                                     (55.6)           (27.4)            (39.2)
  Other assets and liabilities                                               (14.0)            12.5             (42.7)
  Net decrease in receivables sold                                              --           (212.0)            (18.0)
---------------------------------------------------------------------------------------------------------------------------
  Cash flow from operating activities of continuing operations               366.3            141.2             445.4
  Cash flow from operating activities of discontinued operations                --               --             (12.4)
---------------------------------------------------------------------------------------------------------------------------
  Cash Flow From Operating Activities                                        366.3            141.2             433.0
---------------------------------------------------------------------------------------------------------------------------
Investing Activities
Proceeds from sale of businesses, net of selling expenses                    653.6               --                --
Proceeds from sale of discontinued operations                                   --               --             413.6
Proceeds from disposal of assets                                              20.4             13.4              31.5
Capital expenditures                                                        (146.0)          (203.1)           (196.3)
Cash inflow from hedging activities                                          343.5            384.8             392.9
Cash outflow from hedging activities                                        (340.1)          (357.9)           (398.3)
---------------------------------------------------------------------------------------------------------------------------
  Cash Flow From Investing Activities                                        531.4           (162.8)            243.4
---------------------------------------------------------------------------------------------------------------------------
  Cash Flow Before Financing Activities                                      897.7            (21.6)            676.4
Financing Activities
Net decrease in short-term borrowings                                        (23.2)           (18.4)           (360.9)
Proceeds from long-term debt (including revolving credit facility)           586.6            667.2             461.1
Payments on long-term debt (including revolving credit facility)          (1,096.3)          (483.9)           (735.2)
Debt issue costs paid                                                         (2.9)              --                --
Redemption of preferred stock of subsidiary                                  (41.7)              --                --
Purchase of common stock                                                    (464.3)              --                --
Issuance of common stock                                                      31.3             10.1              22.3
Cash dividends                                                               (43.8)           (45.4)            (54.6)
---------------------------------------------------------------------------------------------------------------------------
  Cash Flow From Financing Activities                                     (1,054.3)           129.6            (667.3)
Effect of exchange rate changes on cash                                       (2.3)            (3.0)              1.1
---------------------------------------------------------------------------------------------------------------------------
(Decrease) Increase in Cash and Cash Equivalents                            (158.9)           105.0              10.2
Cash and cash equivalents at beginning of year                               246.8            141.8             131.6
---------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year                                  $   87.9          $ 246.8           $ 141.8
===========================================================================================================================
<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>
<PAGE>
                                      -46-


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 1998.

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

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, 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 original  maturities of three
months or less.
 
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 Intangibles:  Goodwill and other intangibles are amortized on
the  straight-line  method.  Goodwill is  amortized  principally  over a 40-year
period.
     As  more  fully  described  in Note  2,  effective  January  1,  1998,  the
Corporation  changed its method for measuring and  recognizing  an impairment of
goodwill  from an  undiscounted  cash flow  approach to a  discounted  cash flow
approach. 

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 $90.5 million in 1998, $99.1 million in 1997, and $101.3
million in 1996.

Advertising and Promotion:  All costs  associated with advertising and promoting
products are expensed in the year incurred.  Advertising and promotion  expense,
including  expense  of  consumer  rebates,  was $211.2  million in 1998,  $248.0
million in 1997, and $258.5 million in 1996.
<PAGE>
                                      -47-


Postretirement  Benefits:  Pension plans,  which cover  substantially all of the
Corporation's  employees,  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.
     Effective December 31, 1998, the Corporation adopted Statement of Financial
Accounting  Standards (SFAS) No. 132, Employers'  Disclosures about Pensions and
Other Postretirement  Benefits. The provisions of SFAS No. 132 revise employers'
disclosures  about pension and other  postretirement  benefit plans, but have no
impact on the Corporation's  measurement or recognition of its pension and other
postretirement  benefit  plans.

Derivative  Financial  Instruments:  Derivative  financial  instruments are used
principally in the management of interest rate and foreign currency exposures.
     Amounts to be paid or received  under  interest  rate swap  agreements  are
accrued as interest  rates change and are  recognized  over the life of the swap
agreements as an adjustment to interest  expense.  The related amounts due to or
from the  counterparties are included in other accrued  liabilities.  Since they
are  accounted  for as  hedges,  the fair  value of the swap  agreements  is not
recognized in the Consolidated Financial Statements.
     The costs of interest rate cap agreements are included in interest  expense
ratably over the lives of the agreements. Payments to be received as a result of
the  cap  agreements  are  accrued  as a  reduction  of  interest  expense.  The
unamortized costs of the cap agreements are included in other assets.
     Gains or losses resulting from the early termination of interest rate swaps
or caps are deferred and  amortized as an adjustment to the yield of the related
debt instrument over the remaining period  originally  covered by the terminated
swaps or caps.  Were that related debt  instrument  later to be retired prior to
its scheduled  maturity,  the unamortized  gain or loss resulting from the early
termination  of the  interest  rate swap or cap would be included in the gain or
loss on the extinguishment of debt.
<PAGE>
                                      -48-


     Gains  and  losses on hedges of net  investments  in  subsidiaries  located
outside of the United States are reflected in the Consolidated  Balance Sheet in
the accumulated other  comprehensive  income component of stockholders'  equity,
with the  related  amounts due to or from the  counterparties  included in other
liabilities  or  other  assets.  Gains  and  losses  resulting  from  the  early
termination of hedges of net investments are reflected in the accumulated  other
comprehensive   income  component  of  stockholders'   equity  at  the  time  of
termination.
     Gains and losses on foreign currency  transaction  hedges are recognized in
income and  offset  the  foreign  exchange  gains and  losses on the  underlying
transactions.  Deferred  gains on options  that hedge  forecasted  transactions,
generally related to inventory  purchases,  are recognized in cost of sales when
the related inventory is sold or when a hedged purchase is no longer expected to
occur.
     The carrying amounts of foreign  currency-related  derivatives with respect
to net investment and commitment hedges are included in the Consolidated Balance
Sheet in other  current  assets  and other  accrued  liabilities.  The  carrying
amounts of foreign  currency-related  derivatives  associated  with  transaction
hedges  are  included  in the  same  balance  sheet  line  item  as  the  hedged
transaction.
     Cash effects of the  Corporation's  derivative  financial  instruments  are
included  in the  Consolidated  Statement  of Cash Flows in the periods in which
they  occur.  Except  as noted  below,  the cash  effects  of the  Corporation's
interest rate swaps and caps,  foreign currency  transaction  hedges,  hedges of
foreign  currency firm  commitments,  and hedges of forecasted  transactions are
included in the Consolidated Statement of Cash Flows as cash flow from operating
activities.  The cash  effects  of hedges  of net  investments  in  subsidiaries
located outside of the United States are included in the Consolidated  Statement
of Cash Flows as cash flow from  investing  activities.  The cash effects of the
exchange of  notional  principal  amounts on interest  rate swaps that swap from
fixed United States dollars to fixed or variable foreign currencies are included
in the  Consolidated  Statement  of Cash  Flows  as  cash  flow  from  investing
activities   because  such  amounts  have  been  designated  as  hedges  of  net
investments in subsidiaries located outside of the United States.
     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities,  which is required
to be adopted for years  beginning  after June 15, 1999.  Early adoption of SFAS
No.  133 is  permitted  as of the  beginning  of any  fiscal  quarter  after its
issuance. SFAS No. 133 will require the Corporation to recognize all derivatives
on the balance  sheet at fair value.  Derivatives  that do not qualify as hedges
under the new  standard  must be adjusted  to fair value  through  income.  If a
derivative  qualifies as a hedge,  depending on the nature of the hedge, changes
in the fair value of  derivatives  will  either be offset  against the change in
fair  value of the  hedged  assets,  liabilities,  or firm  commitments  through
earnings or  recognized in other  comprehensive  income until the hedged item is
recognized in earnings.  The  ineffective  portion of a  derivative's  change in
value will be immediately recognized in earnings.
     The  Corporation  has not yet  determined  when it will adopt SFAS No. 133,
although  early adoption is considered  possible due to the new standard's  more
favorable  treatment of certain foreign currency hedges than that afforded under
prior accounting  standards.  The Corporation has not yet determined what effect
SFAS No. 133 will have on its earnings and financial position.
<PAGE>
                                      -49-


Stock-Based  Compensation:  As described in Note 18, 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.
123, Accounting for Stock-Based Compensation.

Business Segments: Effective December 31, 1998, the Corporation adopted SFAS No.
131,  Disclosures  about  Segments of an  Enterprise  and  Related  Information.
Segment  information  for 1997 and 1996 has been restated in conformity with the
requirements of SFAS No. 131.

NOTE 2: STRATEGIC REPOSITIONING
Overview:  A comprehensive  strategic  repositioning plan, designed to intensify
focus on core operations and improve operating performance,  was approved by the
Corporation's  Board of  Directors on January 26,  1998.  The plan  includes the
following components:  (i) the divestiture of the household products business in
North America, Latin America, and Australia, the recreational products business,
and the glass  container-forming  and inspection  equipment  business;  (ii) the
repurchase  of up to 10% of the  Corporation's  outstanding  common stock over a
two-year  period;  and  (iii) a  restructuring  of the  Corporation's  remaining
businesses.  Also on  January  26,  1998,  the  Board of  Directors  elected  to
authorize a change in the basis upon which the  Corporation  evaluates  goodwill
for impairment.

Divestitures:  During 1998, the Corporation sold its household products business
in North  America,  Central  America,  the Caribbean,  South America  (excluding
Brazil), and Australia,  recapitalized its recreational  products business,  and
sold  its  glass   container-forming  and  inspection  equipment  business.  The
Corporation has elected to retain the cleaning and lighting  products  component
of the  household  products  business.  With respect to the  household  products
business in Brazil, the Corporation continues to evaluate various alternatives.
     In  mid-1998,  the  Corporation  closed  on the  sale  to  Windmere-Durable
Holdings,  Inc. of its household  products  business  (other than certain assets
associated with the Corporation's  cleaning and lighting  products,  such as the
DustBuster,  SnakeLight,  ScumBuster,  and  Floorbuster  products) in the United
States,  Canada,  Mexico,  Central  America,  the  Caribbean,  and South America
(excluding  Brazil)  for  $315.0  million.  As  part  of  the  transaction,  the
Corporation  retained  certain  liabilities  and agreed to  license  the Black &
Decker name to Windmere in existing household product categories for a period of
six and one-half years on a  royalty-free  basis,  with  extension  options upon
request  of  Windmere  and  at  the   discretion   of  the   Corporation   on  a
royalty-bearing basis. At the request of Windmere, additional product categories
may be licensed at the Corporation's  option on a royalty-bearing  basis. During
1998, the Corporation also completed the sale of its household products business
in Australia, the proceeds from which were immaterial.
     On September 22, 1998, the Corporation  announced that it had closed on the
sale of its glass  container-forming  and inspection equipment business,  Emhart
Glass,  to Bucher  Holding A.G. In  connection  with the sale,  the  Corporation
received cash of $178.7 million.
     On September 30, 1998, the Corporation  announced that it had completed the
recapitalization of its recreational products business, True Temper Sports, with
an  affiliate of  Cornerstone  Equity  Investors,  LLC. In  connection  with the
transaction,  the  Corporation  received  $177.7  million  in cash and  retained
approximately 6% of preferred and common
<PAGE>
                                      -50-


stock of the recapitalized company, now known as True Temper Corporation, valued
at  approximately  $4 million.  In addition,  the Corporation  received a senior
increasing rate discount note payable by True Temper Corporation,  in an initial
accreted  amount of $25.0 million.  Because True Temper  Corporation is a highly
leveraged entity and there is no active market for the note, the Corporation has
fully reserved the $25.0 million note as of December 31, 1998.
     The  aforementioned  sales of the  household  products  business  and glass
container-forming  and inspection equipment business and recapitalization of the
recreational  products  business  resulted  in  cash  proceeds,   after  selling
expenses,  of $653.6 million. Net proceeds from the sales or recapitalization of
these   businesses  were  utilized  in  the  repurchase  of  a  portion  of  the
Corporation's  outstanding  common stock and to fund the  restructuring  program
described  below.

Repurchase  of Common  Stock:  On  January  26,  1998,  the  Board of  Directors
authorized  the  repurchase  of  up  to  10%,  or  9,484,254   shares,   of  the
Corporation's  outstanding common stock over a two-year period. During 1998, the
Corporation  announced  that the  Board  had  authorized  the  repurchase  of an
additional 1,000,000 shares of the Corporation's common stock. Net proceeds from
the sale of divested  businesses were used to fund the stock repurchase program.
Pending  the  receipt of  proceeds  from the sale of  divested  businesses,  the
Corporation  utilized its existing borrowing facilities to fund a portion of the
stock  repurchase  program.  As more fully described in Note 16, the Corporation
repurchased 9,025,400 shares of common stock during 1998.

Restructuring  Charge: The restructuring  program announced in January 1998 will
be completed over a period of two years and is being  undertaken to reduce fixed
costs and simplify the supply chain and new product introduction processes.  The
Corporation   commenced  the  restructuring  program  in  1998  and  recorded  a
restructuring  charge of $164.7 million.  Additional  restructuring  charges are
possible as the program progresses in 1999.
     The  principal  component  of  the  restructuring  charge  relates  to  the
elimination of approximately 5,100 positions.  As a result, an accrual of $121.3
million,  principally associated with the Power Tools and Accessories segment in
Europe and North America, was included in the restructuring charge.  Included in
that accrual were costs of  approximately  $30 million related to the acceptance
of a voluntary  retirement plan by certain employees in the United States.  Also
included in that accrual was $8.1 million related to severance  actions taken in
the  divested  businesses  and with  respect to the  closure  of a  facility  in
Kuantan,   Malaysia.   The  Kuantan  facility  manufactured  household  products
predominantly  for sale in the United  States and was not included in the assets
sold with the household products business.
     To reduce  fixed  costs  and  simplify  the  supply  chain and new  product
introduction processes, the Corporation is taking actions to rationalize certain
manufacturing,  sales, and administrative operations.  These actions will result
in the closure of a number of facilities.  Therefore,  the restructuring  charge
also  included a $29.5 million  write-down to fair value - less, if  applicable,
costs to sell - of certain  land,  buildings,  and  equipment.  Included in that
$29.5 million  write-down was $9.0 million related to the closure of the Kuantan
facility  described above. The balance of the write-down to fair value primarily
relates  to  long-lived  assets of the Power  Tools and  Accessories  segment in
Europe and North America and is net of a gain of $8.7 million on the sale of two
facilities exited as part of the restructuring plan.
<PAGE>
                                      -51-


     The remaining restructuring charge of $13.9 million, principally associated
with the Power Tools and Accessories  segment in Europe,  relates to the accrual
of future  expenditures,  principally  consisting of lease and other contractual
obligations,  for which no future benefit will be realized.

Change in Accounting  for  Goodwill:  On a periodic  basis through  December 31,
1997,  the  Corporation  estimated  the  future  undiscounted  cash flows of the
businesses  to which  goodwill  related in order to determine  that the carrying
value of the goodwill had not been impaired.
     As a  consequence  of the strategic  repositioning  plan,  the  Corporation
elected  to  change  its  method  of  measuring  goodwill   impairment  from  an
undiscounted  cash flow approach to a discounted  cash flow  approach  effective
January 1, 1998.  On a periodic  basis,  the  Corporation  estimates  the future
discounted  cash flows of the  businesses to which goodwill  relates.  When such
estimate of the future  discounted  cash flows,  net of the  carrying  amount of
tangible  net  assets,  is less  than  the  carrying  amount  of  goodwill,  the
difference will be charged to operations. For purposes of determining the future
discounted  cash  flows  of  the  businesses  to  which  goodwill  relates,  the
Corporation,  based upon historical results,  current projections,  and internal
earnings  targets,  determines the projected future operating cash flows, net of
income tax payments, of the individual  businesses.  These projected future cash
flows are then discounted at a rate corresponding to the Corporation's estimated
cost of capital, which also is the hurdle rate used by the Corporation in making
investment decisions. Future discounted cash flows for the recreational products
business, the glass container-forming and inspection equipment business, and the
household  products  business in North  America,  Latin  America,  and Australia
included an estimate of the proceeds  from the sale of such  businesses,  net of
associated selling expenses and taxes. The Corporation believes that measurement
of the value of goodwill  through a discounted  cash flow approach is preferable
in that such a measurement  facilitates the timely  identification of impairment
of the carrying  value of  investments in businesses and provides a more current
and, with respect to the businesses to be sold,  more  realistic  valuation than
the undiscounted approach.
     In  connection  with the  Corporation's  change in  accounting  policy with
respect to  measurement of goodwill  impairment,  $900.0 million of goodwill was
written off  through a charge to  operations  during the first  quarter of 1998.
That  goodwill  write-off  represented  a per-share  net loss of $9.80 both on a
basic and diluted  basis for 1998.  The  write-off  of  goodwill  related to the
Building  Products  segment and the Fastening and Assembly  Systems  segment and
included a $40.0  million  write-down  of  goodwill  associated  with one of the
divested  businesses,  and  represented  the amount  necessary to write-down the
carrying  values of goodwill  for those  businesses  to the  Corporation's  best
estimate,  as of January 1, 1998, of those  businesses'  future  discounted cash
flows using the methodology  described in the preceding  paragraph.  This change
represents a change in accounting  principle which is  indistinguishable  from a
change in estimate.
<PAGE>
                                      -52-


NOTE 3: TRADE RECEIVABLES
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.  The  Corporation  continuously
evaluates the  creditworthiness  of its customers and generally does not require
collateral.

Sale of Receivables Program:  Prior to December 1997, the Corporation maintained
a sale of receivables  program under which  receivables were sold on a revolving
basis.  In December 1997,  the  Corporation  voluntarily  terminated its sale of
receivables program as the program was no longer deemed necessary to support its
liquidity  requirements.  At December 31, 1996, the  Corporation had sold $212.0
million  of  receivables  under  this  program.  The  discount  on the  sale  of
receivables is included in other expense.

NOTE 4: INVENTORIES
The  classification  of  inventories  at the end of each year,  in  millions  of
dollars, was as follows:
<TABLE>
<CAPTION>
                                                                                      1998              1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>               <C>   
FIFO cost
Raw materials and work-in-process                                                   $173.5            $199.4
Finished products                                                                    482.3             599.4
-------------------------------------------------------------------------------------------------------------------
                                                                                     655.8             798.8
Excess of FIFO cost over LIFO inventory value                                        (18.9)            (24.1)
-------------------------------------------------------------------------------------------------------------------
                                                                                    $636.9            $774.7
===================================================================================================================
</TABLE>
     The cost of United  States  inventories  stated  under the LIFO  method was
approximately 43% and 41% of the value of total inventories at December 31, 1998
and 1997, 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:
<TABLE>
<CAPTION>
                                                                                      1998              1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>               <C>       
Property, plant, and equipment at cost:
Land and improvements                                                             $   60.2          $   63.4
Buildings                                                                            304.3             360.8
Machinery and equipment                                                            1,209.2           1,493.7
-------------------------------------------------------------------------------------------------------------------
                                                                                   1,573.7           1,917.9
Less accumulated depreciation                                                        846.1           1,002.8
-------------------------------------------------------------------------------------------------------------------
                                                                                  $  727.6          $  915.1
===================================================================================================================
</TABLE>
<PAGE>
                                      -53-


NOTE 6: GOODWILL
In connection with the Corporation's change in accounting policy with respect to
measurement of goodwill  impairment  discussed in Notes 1 and 2, goodwill in the
amount of $900.0 million was written off through a charge to operations in 1998,
and has been reflected in the  Consolidated  Statement of Earnings as "Write-off
of goodwill".  That  write-off,  which relates to goodwill  associated  with the
Building  Products  segment,  the Fastening and Assembly  Systems  segment,  and
includes a $40.0  million  write-down  of  goodwill  associated  with one of the
divested businesses,  represents the amount necessary to write-down the carrying
values of goodwill for those businesses to the Corporation's  best estimate,  as
of January 1, 1998, of those businesses'  future discounted cash flows using the
methodology described in Note 2.
     In addition,  goodwill  related to the  Corporation's  household  products,
glass  container-forming  and inspection  equipment,  and recreational  products
businesses  was  written  off in  connection  with  the  divestitures  of  those
businesses during 1998.
     Goodwill amortization was $25.2 million in 1998, $63.3 million in 1997, and
$66.3 million in 1996. Goodwill at the end of each year, in millions of dollars,
was as follows:
<TABLE>
<CAPTION>
                                                                                      1998              1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>               <C>     
Goodwill                                                                          $1,300.9          $2,499.9
Less accumulated amortization                                                        532.2             622.6
-------------------------------------------------------------------------------------------------------------------
                                                                                  $  768.7          $1,877.3
===================================================================================================================
</TABLE>

NOTE 7: OTHER ACCRUED LIABILITIES
Other  accrued  liabilities  at the end of each year,  in  millions  of dollars,
included the following:
<TABLE>
<CAPTION>
                                                                                      1998              1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>               <C>    
Salaries and wages                                                                  $ 63.6            $ 74.2
Employee benefits                                                                     93.1              53.7
Trade discounts and allowances                                                       114.0             112.2
Income taxes, including deferred taxes                                               107.9              53.7
Redeemable preferred stock of subsidiary                                                --              42.3
Accruals related to 1998 restructuring program                                        50.8                --
All other                                                                            384.8             425.7
-------------------------------------------------------------------------------------------------------------------
                                                                                    $814.2            $761.8
===================================================================================================================
</TABLE>
     All other at December  31, 1998 and 1997,  consisted  primarily of accruals
for advertising, warranty costs, interest, insurance, and taxes other than
income taxes.

NOTE 8: SHORT-TERM BORROWINGS
Short-term  borrowings  in the amounts of $152.5  million and $113.5  million at
December 31, 1998 and 1997,  respectively,  consisted  primarily  of  borrowings
under the terms of  uncommitted  lines of credit or other  short-term  borrowing
arrangements.  Short-term  borrowings at December 31, 1997 also  included  $64.8
million  of  borrowings  under  the  Corporation's  unsecured  revolving  credit
facility, as more fully described in Note 9. The 

<PAGE>
                                      -54-


weighted-average  interest rate on short-term borrowings outstanding at December
31, 1998, was 7.1%.
     Under  the terms of  uncommitted  lines of credit  at  December  31,  1998,
certain subsidiaries outside of the United States may borrow up to an additional
$373.9 million on such terms as may be mutually  agreed.  These  arrangements do
not  have  termination  dates  and  are  reviewed   periodically.   No  material
compensating balances are required or maintained.

NOTE 9: LONG-TERM DEBT
The  composition  of  long-term  debt at the end of each year,  in  millions  of
dollars, was as follows:
<TABLE>
<CAPTION>
                                                                                      1998              1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>               <C>      
Revolving credit facility expiring 2001                                           $   29.4          $  569.1
Medium Term Notes due through 2002                                                   150.0             200.0
6.625% notes due 2000                                                                214.4             250.0
7.50% notes due 2003                                                                 335.7             429.4
7.0% notes due 2006                                                                  154.6             207.6
6.55% notes due 2007                                                                 150.0                --
7.05% notes due 2028                                                                 150.0                --
Other loans due through 2003                                                          24.0              28.1
Less current maturities of long-term debt                                            (59.2)            (60.5)
-------------------------------------------------------------------------------------------------------------------
                                                                                  $1,148.9          $1,623.7
===================================================================================================================
</TABLE>
     The Corporation may borrow up to $1.0 billion under its unsecured revolving
credit  facility  (the  Credit  Facility),  which  consists  of  two  individual
facilities.  The amount  available  for borrowing  under the Credit  Facility at
December 31, 1998, was $970.6 million.
     Borrowing  options  under the Credit  Facility are at the London  Interbank
Offered Rate (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  .15%  and  .25%,  respectively,  for  each of the two
individual  facilities,  will  increase  or decrease  based upon  changes in the
ratings of the  Corporation's  long-term  senior unsecured debt. The Corporation
also is able to borrow  under the Credit  Facility by means of  competitive  bid
rate loans made through an auction  process at  then-current  market  rates.  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 to each bank,  initially equal to .125% of the amount of
each bank's  commitment,  whether used or unused. The facility fee changes based
on the ratings of the Corporation's long-term senior unsecured debt.
     The  Credit  Facility  includes  various  customary  covenants,   including
covenants limiting the ability of the Corporation and its subsidiaries to pledge
assets or incur liens on assets,  and  covenants  requiring the  Corporation  to
maintain a specified  leverage  ratio and to achieve  certain cash flow to fixed
expense  coverage  ratios.  As of December  31,  1998,  the  Corporation  was in
compliance with all terms and conditions of the Credit Facility. The Corporation
expects to continue to meet the  covenants  imposed by the Credit  Facility over
the next 12 months.  Meeting the cash flow coverage  ratio is dependent upon the
level  of  future  earnings  and  interest  rates,  each  of  which  can  have a
significant impact on the ratio.
<PAGE>
                                      -55-


     During 1998, a wholly owned  subsidiary  of the  Corporation  issued senior
unsecured  notes that were guaranteed by the Corporation in the amount of $300.0
million.  Of that amount,  $150.0 million bear interest at a fixed rate of 6.55%
and are due in 2007,  and $150.0  million bear interest at a fixed rate of 7.05%
and are due in 2028.  Proceeds from the issuance of the senior  unsecured  notes
were  used to repay  indebtedness  outstanding  under the  Corporation's  Credit
Facility.
     As of December 31,  1998,  $150.0  million  aggregate  principal  amount of
unsecured  Medium Term Notes were  outstanding.  Of that amount,  $122.5 million
bear  interest at fixed rates  ranging from 8.36% to 8.95%,  while the remainder
bear interest at variable  rates.  At December 31, 1998,  those  variable  rates
ranged from 5.71% to 5.77%.
     Indebtedness of subsidiaries in the aggregate  principal  amounts of $412.4
million and $776.0  million were included in the  Consolidated  Balance Sheet at
December 31, 1998 and 1997,  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:  $59.2  million in 1999,  $219.3  million in 2000,  $86.9
million in 2001,  $48.9 million in 2002,  and $339.4  million in 2003.  Interest
payments on all  indebtedness  were $160.8  million in 1998,  $159.3  million in
1997, and $170.7 million in 1996.

NOTE 10: 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 ten 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 11. 

Interest Rate Risk Management:  The Corporation  manages its interest rate risk,
primarily through the use of interest rate swap and cap 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 and then, based upon its assessment of the future interest
rate environment,  may convert such debt from fixed to variable or from variable
to fixed interest rates through the use of interest rate derivatives. Similarly,
the  Corporation  may, at times,  seek to limit the  effects of rising  interest
rates on its variable  rate debt through the use of interest  rate caps. It does
not utilize  derivative  financial  instruments that contain leverage  features.
Because the Corporation's  interest rate derivative financial instruments do not
contain  leverage  features and because they are effective in changing the tenor
of  existing  indebtedness  (e.g.,  from  fixed to  variable  rate  debt or from
variable to fixed rate debt), they are afforded hedge accounting treatment.
<PAGE>
                                      -56-


     The amounts  exchanged by the  counterparties to interest rate swap and cap
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 and caps 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 notional amounts of interest rate
derivatives at the end of each year, in millions of dollars, were as follows:
<TABLE>
<CAPTION>
                                                                                      1998              1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>               <C>   
Interest rate swaps:
   Fixed to variable rates                                                          $425.0            $700.0
   Variable to fixed rates                                                              --             250.0
   Rate basis swaps                                                                     --              50.0
   U.S. rates to foreign rates                                                       250.0             265.0
-------------------------------------------------------------------------------------------------------------------
</TABLE>
     The  Corporation's  portfolio  of  interest  rate  swap  instruments  as of
December 31, 1998, included $425.0 million notional amounts of fixed to variable
rate swaps with a weighted-average fixed rate receipt of 5.96%. The basis of the
variable rates paid is LIBOR.
     The remainder of the interest rate swap  portfolio as of December 31, 1998,
consisted of $250.0  million  notional  amounts of interest rate swaps that swap
from fixed rate United  States  dollars into fixed rate foreign  currencies.  Of
that amount,  $100.0 million had been swapped from United States dollars (with a
weighted-average fixed rate of 6.66%) into Japanese yen (with a weighted-average
fixed rate of 1.99%).  A total of $100.0  million  notional  amounts of interest
rate swaps had been swapped from United States dollars (with a  weighted-average
fixed rate of 6.64%) into deutsche marks (with a weighted-average  fixed rate of
4.73%).  Interest rate swaps  totaling  $50.0 million  notional  amount had been
swapped from United States dollars (with a weighted-average fixed rate of 6.77%)
into Dutch guilders (with a weighted-average fixed rate of 4.58%).
     The  Corporation's  credit  exposure on its interest rate  derivatives  was
$14.2 million as of December 31, 1998,  and was not  significant  as of December
31, 1997.  Gross deferred gains and losses on the early  termination of interest
rate swaps as of  December  31,  1998 and 1997,  were not  significant.

Foreign  Currency  Management:  The  Corporation  enters  into  various  foreign
currency  contracts  in managing its foreign  exchange  risks.  The  contractual
amounts of  foreign  currency  derivative  financial  instruments  (principally,
forward exchange contracts and purchased options) generally are exchanged by the
counterparties.   The  Corporation's   foreign  currency  derivative   financial
instruments  are designated to, and generally are  denominated in the currencies
of, the underlying  exposures.  Because the derivative financial instruments are
effective in managing foreign exchange risks and are appropriately designated to
the underlying exposures, they are afforded hedge accounting treatment.
     To minimize the volatility of reported equity, the Corporation hedges, on a
limited basis, a portion of its net investment in  subsidiaries  located outside
of the United  States  through the use of foreign  currency  forward  contracts,
foreign currency swaps, and purchased foreign currency options.
<PAGE>
                                      -57-


     Through its foreign currency hedging  activities,  the Corporation seeks to
minimize  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.  The  Corporation  responds to foreign
exchange  movements through various means,  such as pricing actions,  changes in
cost structure, and changes in hedging strategies.
     The Corporation hedges its foreign currency transaction exposures,  as well
as certain forecasted  transactions,  based on management's judgment,  generally
through options and forward exchange  contracts.  Some of the 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 following table summarizes the contractual  amounts of forward exchange
contracts  as of December 31, 1998 and 1997,  in millions of dollars,  including
details by major currency as of December 31, 1998. 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.
<TABLE>
<CAPTION>
As of December 31, 1998                                                                Buy              Sell
-------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>              <C>        
United States dollar                                                              $1,002.3         $  (607.1)
Pound sterling                                                                       365.1             (66.2)
Deutsche mark                                                                        116.2            (307.8)
Dutch guilder                                                                         72.9            (104.8)
Japanese yen                                                                          17.1            (135.8)
French franc                                                                           5.2            (144.0)
Canadian dollar                                                                       69.6             (95.2)
Italian lira                                                                          44.9             (89.0)
Other                                                                                 38.9            (161.7)
-------------------------------------------------------------------------------------------------------------------
Total                                                                             $1,732.2         $(1,711.6)
===================================================================================================================

As of December 31, 1997
-------------------------------------------------------------------------------------------------------------------
Total                                                                             $1,730.9         $(1,690.0)
===================================================================================================================
</TABLE>
     The   contractual   amounts  of  purchased   options  to  buy   currencies,
predominantly  the pound sterling and United States dollar,  were $343.8 million
and $401.2 million, at December 31, 1998 and 1997, respectively. The contractual
amounts of purchased options to sell various  currencies were $338.5 million and
$383.3 million at December 31, 1998 and 1997, respectively.
     Credit exposure on foreign currency derivatives as of December 31, 1998 and
1997, was $40.8 million and $82.6 million, respectively.
     Deferred  realized  gains from  option  contracts  on hedges of  forecasted
transactions  were not significant at December 31, 1998 and 1997.  Substantially
all of the amounts  deferred at December 31, 1998, are expected to be recognized
in earnings during 1999, when the gains or losses on the underlying transactions
also will be recognized.
<PAGE>
                                      -58-


NOTE 11: 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 amount reported in the  Consolidated  Balance Sheet for other long-term debt
approximates fair value, since such debt was primarily variable rate debt.
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.
     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:
<TABLE>
<CAPTION>
Assets (Liabilities)                                                              Carrying              Fair
As of December 31, 1998                                                             Amount             Value
-------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>               <C>       
Non-derivatives:
   Long-term debt                                                                $(1,148.9)        $(1,200.2)
-------------------------------------------------------------------------------------------------------------------
Derivatives relating to:
   Debt
     Assets                                                                             .5              14.2
   Foreign currency
     Assets                                                                           60.1              40.8
     Liabilities                                                                     (35.2)            (34.9)
===================================================================================================================
Assets (Liabilities)                                                              Carrying              Fair
As of December 31, 1997                                                             Amount             Value
-------------------------------------------------------------------------------------------------------------------
Non-derivatives:
   Long-term debt                                                                $(1,623.7)        $(1,660.4)
-------------------------------------------------------------------------------------------------------------------
Derivatives relating to:
   Debt
     Liabilities                                                                        --              (5.6)
   Foreign currency
     Assets                                                                           68.4              82.6
     Liabilities                                                                     (13.2)            (17.5)
===================================================================================================================
</TABLE>
<PAGE>
                                      -59-


NOTE 12: RESTRUCTURING UNDERTAKEN IN 1996
In 1996, the  Corporation  commenced a restructuring  of certain  operations and
recorded a restructuring charge of $91.3 million.  Actions taken with respect to
that restructuring have been completed.
     The major component of the restructuring  charge related to the elimination
of approximately  1,500 positions.  As a result, an accrual of $74.6 million for
severance,  principally  associated  with the European  businesses  in the Power
Tools and Accessories segment, was included in the restructuring charge.
     In  connection  with the  restructuring  plan,  the  Corporation  also took
actions to  rationalize  certain  manufacturing  and  service  operations.  Such
rationalization,  principally  associated with the Building  Products segment in
the United States, included the outsourcing of products then manufactured by the
Corporation  and the closure of several  small  manufacturing  facilities.  As a
result, the restructuring charge also included a $6.6 million write-down to fair
value  of land and  buildings.  The  remaining  restructuring  charge  primarily
related to the  write-down to fair value of equipment made obsolete or redundant
due to the decision to close certain facilities or outsource certain production.
     As  more  fully  described  in Note 2, in  January  1998,  the  Corporation
commenced an additional restructuring program.

NOTE 13: DISCONTINUED OPERATIONS
Earnings from the discontinued Information Technology and Services (PRC) segment
amounted  to $70.4  million in 1996,  net of  applicable  income  taxes of $55.6
million.  The results of the discontinued PRC segment do not reflect any expense
for interest allocated by or management fees charged by the Corporation.
     On February 16, 1996, the  Corporation  completed the sale of PRC Inc., the
remaining business in the discontinued PRC segment, for $425.0 million. Earnings
from discontinued operations in 1996 consisted primarily of the gain on the sale
of PRC Inc., net of selling expenses and applicable  income taxes.  Revenues and
operating  income of PRC Inc. for the period from  January 1, 1996,  through the
date of sale were not significant.

NOTE 14: INCOME TAXES
Earnings (loss) from continuing  operations  before income taxes, for each year,
in millions of dollars, were as follows:
<TABLE>
<CAPTION>
                                                                    1998             1997               1996
-------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>               <C>                <C>   
United States                                                    $(734.3)          $180.3             $121.0
Other countries                                                    146.0            169.2               81.7
-------------------------------------------------------------------------------------------------------------------
                                                                 $(588.3)          $349.5             $202.7
===================================================================================================================
</TABLE>
<PAGE>
                                      -60-


     Significant  components  of  income  taxes  (benefits)  for each  year,  in
millions of dollars, were as follows:
<TABLE>
<CAPTION>
                                                                    1998              1997              1996
-------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>               <C>               <C>    
Current:
   United States                                                  $ 55.0            $ 32.4            $  4.0
   Other countries                                                  44.0              16.3              34.5
   Withholding on remittances from other countries                    --               1.9               2.1
-------------------------------------------------------------------------------------------------------------------
                                                                    99.0              50.6              40.6
-------------------------------------------------------------------------------------------------------------------
Deferred:
   United States                                                    92.9              92.5             (10.6)
   Other countries                                                 (25.4)            (20.8)             13.5
-------------------------------------------------------------------------------------------------------------------
                                                                    67.5              71.7               2.9
-------------------------------------------------------------------------------------------------------------------
                                                                  $166.5            $122.3            $ 43.5
===================================================================================================================
</TABLE>
     During 1996, the Corporation  utilized United States tax loss carryforwards
and capital loss  carryforwards  obtained in a prior business  combination.  The
effect of utilizing  these  carryforwards  was to recognize  deferred income tax
expense and to reduce goodwill by $19.0 million in 1996.
     Income tax expense recorded directly as an adjustment to equity as a result
of hedging activities in 1997 was $14.9 million, and was not significant in 1998
and 1996.  Income tax expense recorded  directly as an adjustment to equity as a
result  of  employee  stock options  in  1998  was  $17.0  million  and  was not
significant in 1997 and 1996.
     Income tax payments were $95.4 million in 1998,  $60.2 million in 1997, and
$40.8  million in 1996.
     Deferred tax  (liabilities)  assets at the end of each year, in millions of
dollars, were composed of the following:
<TABLE>
<CAPTION>
                                                                                      1998              1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>                <C>     
Deferred tax liabilities:
   Fixed assets                                                                   $  (35.0)          $ (46.5)
   Postretirement benefits                                                          (227.7)            (35.5)
   Other                                                                             (38.7)            (15.8)
-------------------------------------------------------------------------------------------------------------------
Gross deferred tax liabilities                                                      (301.4)            (97.8)
-------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
   Tax loss carryforwards                                                             46.1              69.0
   Tax credit and capital loss carryforwards                                          98.0                --
   Other                                                                             127.9              78.8
-------------------------------------------------------------------------------------------------------------------
Gross deferred tax assets                                                            272.0             147.8
-------------------------------------------------------------------------------------------------------------------
Deferred tax asset valuation allowance                                               (41.3)            (56.5)
-------------------------------------------------------------------------------------------------------------------
Net deferred tax (liabilities) assets                                             $  (70.7)          $  (6.5)
===================================================================================================================
</TABLE>
     Deferred  income taxes are included in the  Consolidated  Balance  Sheet in
other current  assets,  other assets,  other accrued  liabilities,  and deferred
income taxes.
<PAGE>
                                      -61-


     During the year ended December 31, 1996,  the deferred tax asset  valuation
allowance decreased by $76.2 million. Included in the decrease was $10.6 million
that resulted from the reversal of a portion of the deferred tax asset valuation
allowance based on the projections of estimable  taxable  earnings in the United
States.  The remaining  decrease was due to the utilization of domestic tax loss
carryforwards, offset by increased tax losses generated by foreign operations.
     Tax basis  carryforwards  at December 31, 1998,  consisted of net operating
losses expiring from 1999 to 2004.
     At December 31, 1998,  unremitted  earnings of subsidiaries  outside of the
United States were approximately  $1.2 billion,  on which no United States taxes
had been provided,  except that deferred withholding taxes have been provided on
approximately  $300  million  of such  unremitted  earnings.  The  Corporation's
intention  is to  reinvest  these  earnings  permanently  or to  repatriate  the
earnings only when tax effective to do so. It is not practicable to estimate the
amount of additional  taxes that might be payable upon  repatriation  of foreign
earnings;  however,  the  Corporation  believes that United  States  foreign tax
credits would  largely  eliminate any United States taxes and offset any foreign
withholding taxes not previously provided.
     A  reconciliation  of income  taxes at the  federal  statutory  rate to the
Corporation's income taxes for each year, in millions of dollars, is as follows:
<TABLE>
<CAPTION>
                                                                     1998             1997              1996
-------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>               <C>               <C>   
Income taxes (benefit) at federal statutory rate                  $(205.9)          $122.3            $ 70.9
Lower effective taxes on earnings in other countries                (19.8)           (14.5)            (10.3)
Effect of net operating loss carryforwards                             --              2.8             (52.3)
Effect of reduction in deferred tax asset valuation allowance
   due to projection of estimable earnings in the United States        --               --             (10.6)
Withholding on remittances from other countries                      (1.5)            (1.3)             21.1
Amortization and write-off of goodwill                              386.6             22.0              23.6
Other -- net                                                          7.1             (9.0)              1.1
-------------------------------------------------------------------------------------------------------------------
Income taxes                                                      $ 166.5           $122.3            $ 43.5
===================================================================================================================
</TABLE>

NOTE 15: 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.  Assets of the  defined  benefit  pension  plans
consist  principally of investments in equity securities,  debt securities,  and
cash equivalents.  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.
<PAGE>
                                      -62-


<TABLE>
<CAPTION>
                                              Pension Benefits       Pension Benefits             Other
                                                  Plans in             Plans outside     Postretirement Benefits
                                             the United States      the United States           All Plans
-------------------------------------------------------------------------------------------------------------------
                                               1998       1997        1998       1997       1998        1997
-------------------------------------------------------------------------------------------------------------------
<S>                                          <C>        <C>         <C>        <C>       <C>         <C>    
Change in Benefit Obligation
Benefit obligation at beginning of year      $709.9     $631.0      $324.9     $296.0    $ 150.5     $ 142.4
Service cost                                   16.0       13.9         8.4        8.3        1.5         1.2
Interest cost                                  51.5       48.6        22.5       21.7       10.4        10.8
Plan participants' contributions                 --         --         2.4        5.1        3.8         4.5
Actuarial (gains)/losses                       96.8       64.7        82.9       25.2       (1.4)       13.4
Foreign currency exchange rate changes           --         --        (4.7)      (8.0)       (.3)        (.4)
Benefits paid                                 (49.1)     (48.5)      (21.9)     (22.3)     (16.3)      (18.8)
Plan amendments                                 4.8         .2         3.3        3.2      (12.5)       (2.6)
Divestitures                                     --         --        (9.2)        --       (5.7)         --
Curtailments (gain)/loss                      (13.5)        --          --       (1.3)        --          --
Settlements                                      --         --         (.4)      (3.0)        --          --
Special termination benefits                   29.1         --          --         --         --          --
-------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year             845.5      709.9       408.2      324.9      130.0       150.5
-------------------------------------------------------------------------------------------------------------------
Change in Plan Assets
Fair value of plan assets at
   beginning of year                          942.4      796.2       400.4      358.0         --          --
Actual return on plan assets                   12.9      198.0        19.0       58.4         --          --
Expenses                                       (6.1)      (6.0)        (.8)      (1.8)        --          --
Benefits paid                                 (49.1)     (48.5)      (21.9)     (22.3)     (16.3)      (18.8)
Employer contributions                          2.6        2.7         3.5        4.7       16.3        18.8
Contributions by plan participants               --         --         2.4        5.1         --          --
Divestitures                                     --         --        (9.3)        --         --          --
Settlements                                      --         --         (.4)      (3.0)        --          --
Effects of currency exchange rates               --         --        (9.6)       1.3         --          --
-------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year      902.7      942.4       383.3      400.4         --          --
-------------------------------------------------------------------------------------------------------------------
Funded status                                  57.2      232.5       (24.9)      75.5     (130.0)     (150.5)
Unrecognized net actuarial (gain)/loss        149.2        9.8        69.9      (26.6)     (24.7)      (24.1)
Unrecognized prior service cost                 7.8        4.7        21.4       20.5      (42.7)      (45.4)
Unrecognized net asset at date of adoption,
   net of amortization                          (.8)      (2.0)       (6.4)      (9.1)        --          --
-------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost               $213.4     $245.0      $ 60.0    $  60.3    $(197.4)    $(220.0)
===================================================================================================================
Amounts recognized in the
   Consolidated Balance Sheet
Prepaid benefit cost                         $241.0     $271.4      $131.2     $126.3    $    --     $    --
Accrued benefit cost                          (42.8)     (26.4)      (71.9)     (66.0)    (197.4)     (220.0)
Intangible asset                                6.1         --          --         --         --          --
Accumulated other comprehensive income          9.1         --          .7         --         --          --
-------------------------------------------------------------------------------------------------------------------
Net amount recognized                        $213.4     $245.0      $ 60.0    $  60.3    $(197.4)    $(220.0)
===================================================================================================================
</TABLE>
<PAGE>
                                      -63-


     The total  accumulated  benefit  obligation  for unfunded  defined  benefit
pension  plans as of  December  31, 1998 and 1997,  was $42.0  million and $30.3
million,  respectively,  for plans in the United  States and $63.0  million  and
$52.5  million,  respectively,  for plans outside the United  States.  The total
projected  benefit  obligation for unfunded  defined benefit pension plans as of
December 31, 1998 and 1997, was $49.6 million and $34.0  million,  respectively,
for  plans  in  the  United  States  and  $70.8   million  and  $58.9   million,
respectively, for plans outside the United States.
     The net periodic  benefit cost related to the defined benefit pension plans
included the following components:
<TABLE>
<CAPTION>
                                                    Pension Benefits                  Pension Benefits
                                               Plans in the United States      Plans outside the United States
-------------------------------------------------------------------------------------------------------------------
                                               1998       1997        1996       1998       1997        1996
-------------------------------------------------------------------------------------------------------------------
<S>                                          <C>        <C>         <C>        <C>        <C>         <C>    
Service cost                                 $ 16.7     $ 14.8      $ 16.5     $  8.4     $  8.3      $  8.4
Interest cost                                  51.5       48.6        48.8       22.5       21.7        21.0
Expected return on plan assets                (79.0)     (73.0)      (74.8)     (33.2)     (32.1)      (41.6)
Amortization of the unrecognized
   transition obligation or asset              (1.1)      (1.1)       (1.1)       2.7         --        (1.9)
Amortization of prior service cost               .8         .8          .8       (2.4)        --         1.9
Curtailment (gain)/loss                          .9         --          --        (.3)       1.3          --
Amortization of net actuarial loss              3.8        1.3         7.3        (.3)        .1        13.1
Settlement loss                                11.4         --          --        1.4         --          --
-------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost                    $  5.0     $ (8.6)     $ (2.5)    $ (1.2)    $  (.7)     $   .9
===================================================================================================================
Weighted average assumptions
   as of December 31:
Discount rate                                  6.50%      7.50%       8.00%      6.00%      7.40%       6.25%
Expected return on plan assets                 9.75%      9.75%      10.50%      9.50%      9.90%       9.70%
Rate of compensation increase                  5.00%      5.00%       5.00%      3.90%      3.90%       4.00%
===================================================================================================================
</TABLE>
     The net periodic benefit cost related to the defined benefit postretirement
plans included the following components:
<TABLE>
<CAPTION>
                                                                      1998            1997              1996
-------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>              <C>              <C>   
Service cost                                                        $  1.5           $ 1.2            $  1.2
Interest cost                                                         10.4            10.8              11.6
Amortization of prior service cost                                    (7.9)           (8.5)             (8.3)
Amortization of net actuarial gain                                     (.7)           (1.7)              (.5)
-------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost                                           $  3.3           $ 1.8            $  4.0
===================================================================================================================
Weighted average discount rate as of December 31                      6.50%           7.50%             8.00%
===================================================================================================================
</TABLE>
<PAGE>
                                      -64-


     The  health  care cost  trend  rate used to  determine  the  postretirement
benefit  obligation  was 7.20% for 1999.  This rate  decreases  gradually  to an
ultimate rate of 4.41% in 2005, 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:
<TABLE>
<CAPTION>
One-Percentage Point                                                              Increase          Decrease
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>               <C>    
Effect on total of service and interest cost components                             $   .7            $  (.8)
Effect on postretirement benefit obligation                                            7.2              (8.1)
-------------------------------------------------------------------------------------------------------------------
</TABLE>
     Expense for defined  contribution  plans amounted to $10.7  million,  $12.0
million, and $11.3 million in 1998, 1997, and 1996, respectively.

NOTE 16: STOCKHOLDERS' EQUITY
The  Corporation  has one class of $.50 par value common stock with  150,000,000
authorized shares. The Corporation has authorized  5,000,000 shares of preferred
stock without par value.
     During 1998, the Corporation  repurchased  9,025,400 shares of common stock
at an aggregate cost of $464.3 million.  The aggregate cost of $464.3 million is
net of $1.4 million in premiums  received in connection  with the  Corporation's
sale of put options on 800,000  shares of its common  stock.  As of December 31,
1998,  put  options on 200,000  shares of the  Corporation's  common  stock were
outstanding, with an average strike price of $55.91.
     On October 14, 1996,  the  Corporation  exercised  its  conversion  option,
issuing  6,350,000  shares  of  common  stock  in  exchange  for the  previously
outstanding  150,000 shares of Series B Cumulative  Convertible  Preferred Stock
(Series  B).  Under terms  established  upon the  original  sale of the Series B
stock,  the  Corporation  had the option,  after  September 1996, to require the
conversion  of the shares of Series B stock into  shares of common  stock  under
certain circumstances.  In accordance with the terms of the Series B stock, each
such share was convertible  into 42 1/3 shares of common  stock and was entitled
to 42 1/3 votes on  matters submitted  generally  to  the  stockholders  of  the
Corporation.  The conversion rate and the number of votes per share were subject
to adjustment under certain circumstances pursuant to anti-dilution  provisions.
Prior to the  conversion  in 1996,  holders of Series B stock were  entitled  to
dividends, payable quarterly, at an annual rate of $77.50 per share.
     In connection with the original sale of the Series B stock, the Corporation
and the  purchaser of Series B stock  entered into a standstill  agreement  that
included, among other things,  provisions limiting the purchaser's ownership and
voting of shares of the Corporation's capital stock, provisions limiting actions
by the  purchaser  with respect to the  Corporation,  and  provisions  generally
restricting the purchaser's equity interest to 15%.
<PAGE>
                                      -65-


NOTE 17: EARNINGS PER SHARE
The  computations  of basic  and  diluted  earnings  per share  from  continuing
operations for each year were as follows:
<TABLE>
<CAPTION>
(Amounts in Millions Except Per Share Data)                          1998             1997              1996
-------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>               <C>               <C>   
Numerator:
   Earnings (loss) from continuing operations                     $(754.8)          $227.2            $159.2
   Preferred stock dividend                                            --               --              (9.1)
-------------------------------------------------------------------------------------------------------------------
   Numerator for basic earnings per share --
     earnings (loss) from continuing operations
     available to common stockholders                              (754.8)           227.2             150.1
   Effect of dilutive securities -- preferred stock dividend           --               --               9.1
-------------------------------------------------------------------------------------------------------------------
   Numerator for diluted earnings per share --
     earnings (loss) from continuing operations available to
     common stockholders after assumed conversions                $(754.8)          $227.2            $159.2
===================================================================================================================
Denominator:
   Denominator for basic earnings per share from
     continuing operations -- weighted-average shares                91.8             94.6              88.9
-------------------------------------------------------------------------------------------------------------------
   Effect of dilutive securities:
     Employee stock options and stock issuable
       under employee benefit plans                                    --              1.9               2.2
     Convertible preferred stock                                       --               --               5.0
-------------------------------------------------------------------------------------------------------------------
   Dilutive potential common shares                                    --              1.9               7.2
-------------------------------------------------------------------------------------------------------------------
   Denominator for diluted earnings per share from
     continuing operations -- adjusted weighted-average
     shares and assumed conversions                                  91.8             96.5              96.1
===================================================================================================================
Basic earnings (loss) per share from continuing operations        $ (8.22)          $ 2.40            $ 1.69
===================================================================================================================
Diluted earnings (loss) per share from continuing operations      $ (8.22)          $ 2.35            $ 1.66
===================================================================================================================
</TABLE>
     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.  For  1998,  the loss
experienced by the Corporation caused all options to be anti-dilutive.  For 1997
and 1996, 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.
<TABLE>
<CAPTION>
                                                                     1998             1997              1996
-------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>              <C>               <C>   
Number of options (in millions)                                       5.3              0.7               0.3
Weighted-average exercise price                                    $33.47           $38.64            $37.56
===================================================================================================================
</TABLE>
     For additional information regarding the preferred stock and employee stock
options, see Notes 16 and 18, respectively.

NOTE 18: 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  and to
<PAGE>
                                      -66-


provide the disclosures  required under SFAS No. 123, Accounting for Stock Based
Compensation.
     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 2006.  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,  1998,  5,291,995  non-qualified  stock  options  were
outstanding  under domestic plans.  There were 44,615 stock options  outstanding
under the United Kingdom plan.
     Under all plans,  there were 2,699,676  shares of common stock reserved for
future grants as of December 31, 1998. Transactions are summarized as follows:
<TABLE>
<CAPTION>
                                                                                                   Weighted-
                                                                                                     Average
                                                                             Stock Options    Exercise Price
-------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>                  <C>   
Outstanding at December 31, 1995                                                 5,788,688            $20.66
Granted                                                                          1,410,050             33.92
Exercised                                                                        1,115,328             18.01
Forfeited                                                                          430,931             26.26
-------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1996                                                 5,652,479             24.12
Granted                                                                          1,191,650             37.79
Exercised                                                                          429,402             19.74
Forfeited                                                                          241,333             29.74
-------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1997                                                 6,173,394             26.86
Granted                                                                          1,101,000             53.46
Exercised                                                                        1,646,389             22.18
Forfeited                                                                          291,395             32.70
-------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1998                                                 5,336,610            $33.47
===================================================================================================================
Shares exercisable at December 31, 1996                                          3,424,497            $19.05
===================================================================================================================
Shares exercisable at December 31, 1997                                          3,607,991            $20.87
===================================================================================================================
Shares exercisable at December 31, 1998                                          2,663,535            $23.64
===================================================================================================================
</TABLE>
<PAGE>
                                      -67-


     Exercise  prices for options  outstanding  as of December 31, 1998,  ranged
from $9.88 to $53.72.  The following  table provides  certain  information  with
respect to stock options outstanding at December 31, 1998:
<TABLE>
<CAPTION>
                                                                                                   Weighted-
                                                                                 Weighted-           Average
Range of                                                    Stock Options          Average         Remaining
Exercise Prices                                               Outstanding   Exercise Price  Contractual Life
-------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>                 <C>                  <C>
Under $15.00                                                      775,082           $12.58               2.1
$15.00-$22.49                                                     708,352            19.97               3.4
$22.50-$33.74                                                   1,055,061            29.10               7.4
$33.75-$50.62                                                   1,770,115            38.87               8.2
Over $50.63                                                     1,028,000            53.72               9.9
-------------------------------------------------------------------------------------------------------------------
                                                                5,336,610           $33.47               6.9
===================================================================================================================
</TABLE>
     The following  table  provides  certain  information  with respect to stock
options exercisable at December 31, 1998:
<TABLE>
<CAPTION>
                                                                                                   Weighted-
Range of                                                                     Stock Options           Average
Exercise Prices                                                                Exercisable    Exercise Price
-------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>                  <C>   
Under $15.00                                                                       775,082            $12.58
$15.00-$22.49                                                                      708,352             19.97
$22.50-$33.74                                                                      583,379             28.01
$33.75-$50.62                                                                      596,722             38.09
Over $50.63                                                                             --                --
-------------------------------------------------------------------------------------------------------------------
                                                                                 2,663,535            $23.64
===================================================================================================================
</TABLE>
     In electing  to  continue  to follow  APBO No. 25 for  expense  recognition
purposes,  the  Corporation  is  obliged  to provide  the  expanded  disclosures
required  under SFAS No. 123 for  stock-based  compensation  granted in 1996 and
thereafter, including, if materially different from reported results, disclosure
of pro forma net income and earnings per share had compensation expense relating
to 1998,  1997, and 1996 grants been measured  under the fair value  recognition
provisions of SFAS No. 123.
     The  weighted-average  fair  values  at date of grant for  options  granted
during 1998, 1997, and 1996 were $17.67, $11.86, and $10.30,  respectively,  and
were estimated using the Black-Scholes option valuation model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
                                                                     1998             1997              1996
-------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>              <C>               <C>  
Expected life in years                                                5.7              5.7               5.9
Interest rate                                                        4.54%            5.91%             6.25%
Volatility                                                           29.0%            24.8%             22.2%
Dividend yield                                                        .90%            1.28%             1.43%
===================================================================================================================
</TABLE>
     The  Corporation's  pro forma  information for the years ended December 31,
1998,  1997,  and 1996,  prepared in accordance  with the provisions of SFAS No.
123, is provided  below.  For  purposes  of pro forma  disclosures,  stock-based
compensation is amortized to expense on a  straight-line  basis over the vesting
period.  The following pro forma  information is not  representative  of the pro
forma effect of the fair value  provisions of SFAS No. 123 on the
<PAGE>
                                      -68-


Corporation's  net  earnings  in future  years  because  pro forma  compensation
expense   related  to  grants   made  prior  to  1996  may  not  be  taken  into
consideration:
<TABLE>
<CAPTION>
(Dollars in Millions
Except Per Share Amounts)                                            1998             1997              1996
-------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>               <C>               <C>   
Pro forma net earnings (loss)                                     $(755.8)          $224.3            $227.5
Pro forma net earnings (loss)
   per common share -- basic                                      $ (8.23)          $ 2.37            $ 2.46
Pro forma net earnings (loss)
   per common share -- assuming dilution                          $ (8.23)          $ 2.32            $ 2.37
===================================================================================================================
</TABLE>

NOTE 19: 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,  Building  Products,  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,
cleaning and lighting  products,  and electric lawn and garden tools, as well as
for product service.  In addition,  the Power Tools and Accessories  segment has
responsibility  for the sale of plumbing  products to  customers  outside  North
America and for sales of the retained household products business.  The Building
Products  segment has worldwide  responsibility  for the manufacture and sale of
security  hardware  and for the  manufacture  of  plumbing  products  as well as
responsibility  for the sale of plumbing products to customers in North America.
The Fastening and Assembly Systems segment has worldwide  responsibility for the
manufacture and sale of fastening and assembly systems.
     The  Corporation  also operated  several  businesses that do not constitute
reportable business segments. These businesses included the manufacture and sale
of glass container-forming and inspection equipment, as well as recreational and
household products.  As more fully described in Note 2, in 1998, the Corporation
completed  the  sale or  recapitalization  of its  glass  container-forming  and
inspection equipment business, Emhart Glass; its recreational products business,
True Temper  Sports;  and its household  products  business  (excluding  certain
assets  associated  with the  Corporation's  cleaning and lighting  products) in
North America,  Latin America (excluding  Brazil),  and Australia.  Because True
Temper  Sports,  Emhart  Glass,  and the  household  products  business in North
America, Latin America, and Australia are not treated as discontinued operations
under  generally  accepted  accounting  principles,  they  remain  a part of the
Corporation's  reported results from continuing  operations,  and the results of
operations and financial positions of these businesses have been included in the
consolidated  financial  statements  through  the dates of  consummation  of the
respective  transactions.  Amounts  relating to these businesses are included in
the following table under the caption "All Others". The results of the household
products  businesses  included  under the  caption  "All  Others" are based upon
certain  assumptions and  allocations.  The household  products  businesses sold
during 1998 were  jointly  operated  with the  cleaning
<PAGE>
                                      -69-


and lighting  products  businesses  retained by the  Corporation.  Further,  the
Corporation's  divested  household  products  businesses  in Australia and Latin
America  (excluding  Brazil) were operated jointly with the Corporation's  power
tools and  accessories  businesses.  Accordingly,  the results of the  household
products businesses included in the segment table under the caption "All Others"
were determined  using certain  assumptions and allocations that the Corporation
believes are reasonable under the circumstances.
     The amounts set forth in the following  tables exclude  amounts  related to
the discontinued PRC segment.
<TABLE>
Business Segments
(Millions of Dollars)

<CAPTION>
                                             Reportable Business Segments
                                     --------------------------------------------
                                                               Fasten-
                                                                 ing &                        Currency      Corporate,
                                       Power Tools  Building  Assembly                All  Translation    Adjustments,
Year Ended December 31, 1998         & Accessories  Products   Systems      Total  Others  Adjustments  & Eliminations Consolidated
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>         <C>       <C>      <C>       <C>         <C>            <C>          <C>     
Sales to unaffiliated customers           $2,946.4    $851.1    $463.0   $4,260.5  $333.6      $ (34.2)       $     --     $4,559.9
Segment profit (loss)
 (for Consolidated, operating income
 before restructuring and exit costs,
 write-off of goodwill, and gain on
 sales of businesses)                        293.4     125.2      76.6      495.2    16.5         (4.4)          (23.3)       484.0
Depreciation and amortization                 88.2      27.1      13.4      128.7      --         (1.1)           27.6        155.2
Income from equity method investees            8.8        --        --        8.8      --           --            (2.9)         5.9
Capital expenditures                          79.1      36.5      16.2      131.8    13.3         (1.1)            2.0        146.0
Segment assets
 (for Consolidated, total assets)          1,631.3     507.8     246.7    2,385.8      --         (4.6)        1,471.3      3,852.5
Investment in equity method investees         22.5        --        .6       23.1      --           .1             2.3         25.5

Year Ended December 31, 1997
-----------------------------------------------------------------------------------------------------------------------------------

Sales to unaffiliated customers           $2,936.4    $804.8    $451.3   $4,192.5  $718.1      $  29.9        $     --     $4,940.5
Segment profit (loss)
 (for Consolidated, operating income         290.7     121.3      69.7      481.7    61.7         (2.3)          (51.8)       489.3
Depreciation and amortization                 87.5      24.7      11.9      124.1    24.4          (.3)           66.0        214.2
Income from equity method investees            6.1        --        --        6.1      --           .3            (1.7)         4.7
Capital expenditures                         113.2      47.3      15.4      175.9    25.3          (.2)            2.1        203.1
Segment assets
 (for Consolidated, total assets)          1,635.4     476.5     248.2    2,360.1   438.6          8.0         2,554.0      5,360.7
Investment in equity method investees         23.1        --        .6       23.7      --           .9             1.0         25.6

Year Ended December 31, 1996
-----------------------------------------------------------------------------------------------------------------------------------

Sales to unaffiliated customers           $2,820.1    $776.0    $421.0   $4,017.1  $712.5      $ 184.8        $     --     $4,914.4
Segment profit (loss)
 (for Consolidated, operating income
 before restructuring and exit costs)        243.4     125.1      63.5      432.0    52.7          9.4           (45.9)       448.2
Depreciation and amortization                 87.9      21.2      10.9      120.0    23.9          1.3            69.4        214.6
Income from equity method investees            6.1        --        --        6.1      --           .5            (3.9)         2.7
Capital expenditures                         103.1      42.5      13.5      159.1    33.9          2.0             1.3        196.3
Segment assets
 (for Consolidated, total assets)          1,511.3     417.3     232.6    2,161.2   436.1        119.8         2,436.4      5,153.5
Investment in equity method investees         18.6        --        .2       18.8      --          1.6              .9         21.3
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
                                      -70-


     The  Corporation  assesses  the  performance  of  its  reportable  business
segments based upon a number of factors,  including  segment profit. 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 the United States,  except those units operating in highly  inflationary
economies, are measured using the local currency as the functional currency. For
these units located  outside 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 newly  established  budgeted  rates of
exchange.  The  amounts  included  in the  preceding  table  under the  captions
"Reportable  Business Segments",  "All Others", and "Corporate,  Adjustments,  &
Eliminations"  are  reflected at the  Corporation's  current  budgeted  exchange
rates. The amounts  included in the preceding table under the caption  "Currency
Translation  Adjustments"  represent the difference between consolidated amounts
determined  using 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, goodwill amortization, adjustments to eliminate intercompany profit
in  inventory,  and income tax expense.  In addition,  segment  profit  excludes
restructuring  and exit costs and, for 1998,  the write-off of goodwill and gain
on sale of  businesses.  For  certain  operations  located  in  Brazil,  Mexico,
Venezuela,  and Turkey,  segment  profit is reduced by net interest  expense and
non-operating  expenses.  In determining  segment profit,  expenses  relating to
pension  and other  postretirement  benefits  are based  solely  upon  estimated
service costs. Corporate expenses are allocated to each reportable segment based
upon budgeted  amounts.  No corporate  expenses have been  allocated to divested
businesses. 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 sales 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  nonrecurring   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  Corporation's  various
segments in a later period.
     Segment  assets  exclude  pension  and tax assets,  goodwill,  intercompany
profit in inventory,  and intercompany  receivables.  Segment assets at December
31, 1996,  include  receivables sold under the Corporation's sale of receivables
program.
     Amounts in the preceding table under the caption "Corporate,  Adjustments &
Eliminations" on the lines entitled  "Depreciation and  amortization"  represent
depreciation of Corporate property and consolidated goodwill  amortization.  The
reconciliation of segment profit to the  Corporation's  earnings from continuing
operations  before  income  taxes for each year,  in millions of dollars,  is as
follows:
<PAGE>
                                      -71-


<TABLE>
<CAPTION>
                                                                     1998             1997              1996
-------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>               <C>               <C>   
Segment profit for total reportable business segments             $ 495.2           $481.7            $432.0
Segment profit for all other businesses                              16.5             61.7              52.7
Items excluded from segment profit:
   Adjustment of budgeted foreign exchange rates
     to actual rates                                                 (4.4)            (2.3)              9.4
   Depreciation of Corporate property and
     amortization of goodwill                                       (27.6)           (66.0)            (69.4)
   Adjustment to businesses' postretirement benefit
     expenses booked in consolidation                                24.4             23.8              19.3
   Adjustment to eliminate net interest and non-operating
     expenses from results of certain operations in Brazil,
     Mexico, Venezuela, and Turkey                                    5.7              3.6               3.2
   Other adjustments booked in consolidation directly
     related to reportable business segments                        (20.4)           (17.6)             (1.0)
Amounts allocated to businesses in arriving at segment profit
   in excess of (less than) Corporate center operating expenses,
   eliminations, and other amounts identified above                  (5.4)             4.4               2.0
-------------------------------------------------------------------------------------------------------------------
Operating income before restructuring and exit costs,
   write-off of goodwill, and gain on sale of businesses            484.0            489.3             448.2
Restructuring and exit costs                                        164.7               --              91.3
Write-off of goodwill                                               900.0               --                --
Gain on sale of businesses                                          114.5               --                --
-------------------------------------------------------------------------------------------------------------------
   Operating income (loss)                                         (466.2)           489.3             356.9
Interest expense, net of interest income                            114.4            124.6             135.4
Other expense                                                         7.7             15.2              18.8
-------------------------------------------------------------------------------------------------------------------
   Earnings (loss) before taxes                                   $(588.3)          $349.5            $202.7
===================================================================================================================
</TABLE>
     The  reconciliation of segment assets to the Corporation's  total assets at
the end of each year, in millions of dollars, is as follows:
<TABLE>
<CAPTION>
                                                                     1998             1997              1996
-------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>              <C>               <C>     
Segment assets for total reportable business segments            $2,385.8         $2,360.1          $2,161.2
Segment assets for all other businesses                                --            438.6             436.1
Items excluded from segment assets:
   Adjustment of budgeted foreign exchange rates
     to actual rates                                                 (4.6)             8.0             119.8
   Goodwill                                                         768.7          1,877.3           2,012.2
   Pension assets                                                   348.8            391.6             373.3
   Elimination of trade receivables included
     in segment assets sold under the Corporation's
     sale of receivables program                                       --               --            (212.0)
Other Corporate assets                                              353.8            285.1             262.9
-------------------------------------------------------------------------------------------------------------------
                                                                 $3,852.5         $5,360.7          $5,153.5
===================================================================================================================
</TABLE>
     Other Corporate assets  principally  consist of cash and cash  equivalents,
tax assets, property, and other assets.
<PAGE>
                                      -72-


     Sales to The Home Depot,  a customer of the  Corporation's  Power Tools and
Accessories  and Building  Products  segments,  accounted for $622.3 million and
$541.6  million  of the  Corporation's  consolidated  sales for the years  ended
December 31, 1998 and 1997,  respectively.  Sales to that  customer for the year
ended  December 31, 1996, did not exceed 10% of the  Corporation's  consolidated
sales for that year.
     The composition of the Corporation's  sales by product group for each year,
in millions of dollars, is set forth below:
<TABLE>
<CAPTION>
                                                                     1998             1997              1996
-------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>              <C>               <C>     
Consumer and professional power tools
   and product service                                           $2,123.9         $2,070.4          $1,948.6
Consumer and professional accessories                               339.8            342.1             336.8
Electric lawn and garden products                                   283.6            262.1             261.1
Cleaning and lighting products                                       99.0            183.3             259.3
Security hardware                                                   596.3            573.5             567.1
Plumbing products                                                   257.0            242.3             238.7
Fastening and assembly systems                                      461.0            460.2             451.6
Household products                                                  197.1            485.4             528.7
Glass container-forming and inspection equipment                    130.3            238.6             250.9
Recreational products                                                71.9             82.6              71.6
-------------------------------------------------------------------------------------------------------------------
                                                                 $4,559.9         $4,940.5          $4,914.4
===================================================================================================================
</TABLE>
     The Corporation markets its products and services in over 100 countries and
has manufacturing  sites in ten 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:
<TABLE>
<CAPTION>
                                                                     1998             1997             1996
-------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>              <C>               <C>     
United States                                                    $2,703.7         $2,855.7          $2,726.1
Canada                                                              137.4            179.4             169.4
-------------------------------------------------------------------------------------------------------------------
   North America                                                  2,841.1          3,035.1           2,895.5
Europe                                                            1,364.5          1,378.0           1,466.8
Other                                                               354.3            527.4             552.1
-------------------------------------------------------------------------------------------------------------------
                                                                 $4,559.9         $4,940.5          $4,914.4
===================================================================================================================
</TABLE>
     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:
<TABLE>
<CAPTION>
                                                                     1998             1997              1996
-------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>              <C>               <C>   
United States                                                      $469.0           $532.9            $497.6
Other countries                                                     258.6            382.2             408.2
-------------------------------------------------------------------------------------------------------------------
                                                                   $727.6           $915.1            $905.8
===================================================================================================================
</TABLE>
<PAGE>
                                      -73-


NOTE 20: OTHER EXPENSE
Other expense for 1998, 1997, and 1996 primarily  included  currency losses and,
for 1997 and 1996, the costs associated with the sale of receivables program.

NOTE 21: 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 1998,  1997,  and 1996  amounted  to $81.4  million,  $76.3
million,  and $71.2 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,  1998,  in
millions of dollars, were as follows:
--------------------------------------------------------------------------------
1999                                                                     $ 45.1
2000                                                                       38.1
2001                                                                       28.9
2002                                                                       23.9
2003                                                                       19.8
Thereafter                                                                 33.8
--------------------------------------------------------------------------------
Total                                                                    $189.6
================================================================================

NOTE 22: 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 involved in lawsuits and administrative proceedings
with respect to claims involving the discharge of hazardous  substances into the
environment.  Certain of these claims assert  damages and liability for remedial
investigations  and cleanup costs with respect to sites at which the Corporation
has been identified as a potentially  responsible  party under federal and state
environmental laws and regulations (off-site).  Other matters involve sites that
the  Corporation  currently owns and operates or has previously  sold (on-site).
For off-site claims,  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 on-site  matters  associated with properties  currently
<PAGE>
                                      -74-


owned, the Corporation  makes an assessment as to whether an  investigation  and
remediation  would be required  under  applicable  federal  and state laws.  For
on-site  matters  associated with  properties  previously  sold, the Corporation
considers  the terms of sale as well as  applicable  federal  and state  laws to
determine if it has any remaining liability. If the Corporation is determined to
have 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.
     The  Corporation's  estimate of the costs  associated  with legal,  product
liability,  and environmental exposures is accrued if, in management's judgment,
the  likelihood  of a loss  is  probable.  These  accrued  liabilities  are  not
discounted.
     Insurance recoveries for environmental and certain general liability claims
are not recognized until realized.  In the opinion of the  Corporation,  amounts
accrued for awards or assessments in connection  with these matters are adequate
and, accordingly,  ultimate resolution of these matters will not have a material
effect on the Corporation.
     As of  December  31,  1998,  the  Corporation  had no  known  probable  but
inestimable exposures that could have a material effect on the Corporation.

NOTE 23: QUARTERLY RESULTS (UNAUDITED)
(Millions of Dollars Except Per Share Data)
<TABLE>
<CAPTION>
                                                  First            Second            Third            Fourth
Year Ended December 31, 1998                    Quarter           Quarter          Quarter           Quarter
-------------------------------------------------------------------------------------------------------------------
<S>                                            <C>               <C>              <C>               <C>     
Sales                                          $1,008.3          $1,169.7         $1,107.7          $1,274.2
Gross margin                                      350.0             397.8            398.7             462.4
Net earnings (loss)                              (971.4)             58.4             66.6              91.6
===================================================================================================================
Net earnings (loss) per
   common share -- basic                       $ (10.21)         $    .62         $    .73          $   1.05
===================================================================================================================
Net earnings (loss) per
   common share -- assuming dilution           $ (10.21)         $    .61         $    .72          $   1.03
===================================================================================================================

Year Ended December 31, 1997
-------------------------------------------------------------------------------------------------------------------
Sales                                          $1,015.0          $1,182.2         $1,224.9          $1,518.4
Gross margin                                      364.5             420.4            436.0             550.4
Net earnings                                       26.3              45.5             58.4              97.0
===================================================================================================================
Net earnings per common share -- basic         $    .28          $    .48         $    .62          $   1.02
===================================================================================================================
Net earnings per common share --
   assuming dilution                           $    .27          $    .47         $    .60          $   1.00
===================================================================================================================
</TABLE>
     Results for the first  quarter of 1998  included a write-off of goodwill of
$900.0 million and a restructuring  charge of $140.0 million ($100.0 million net
of tax).
     Results  for  the  second  quarter  of  1998  included  a gain  on  sale of
businesses of $36.5 million ($4.2 million net of tax).
     Results for the third quarter of 1998 included a gain on sale of businesses
of $26.9 million ($9.2 million net of tax) and a  restructuring  charge of $14.2
million ($7.7 million net of tax).
<PAGE>
                                      -75-


     Results  for  the  fourth  quarter  of  1998  included  a gain  on  sale of
businesses of $51.1 million ($3.1 million net of tax) and a restructuring charge
of $10.5 million ($9.6 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 necessarily be
equal to the full year earnings per share amounts.
<PAGE>
                                      -76-


REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors
of The Black & Decker Corporation:

We have  audited  the  accompanying  consolidated  balance  sheet of The Black &
Decker  Corporation  and  Subsidiaries as of December 31, 1998 and 1997, and the
related  consolidated  statements of earnings,  stockholders'  equity,  and cash
flows for each of the three years in the period ended  December  31,  1998.  Our
audits also included the  financial  statement  schedule  listed in the Index at
Item 14(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  generally  accepted  auditing
standards.  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, 1998 and 1997,
and the  consolidated  results of their operations and their cash flows for each
of the three years in the period ended  December 31, 1998,  in  conformity  with
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.
     As discussed in Note 2 to the financial  statements,  effective  January 1,
1998, the  Corporation  changed its method of accounting for measuring  goodwill
impairment.
                                                    
/s/ ERNST & YOUNG LLP

Baltimore, Maryland
January 26, 1999




<PAGE>
                                      -77-


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

Not applicable.



                                    PART III


ITEM 10.        DIRECTORS AND EXECUTIVE OFFICERS

Information  required  under this Item with respect to Directors is contained in
the  Corporation's  Proxy Statement for the Annual Meeting of Stockholders to be
held April 27, 1999,  under the captions  "Election of  Directors"  and "Section
16(a) Beneficial  Ownership Reporting  Compliance" and is incorporated herein by
reference.
     Information  required under this Item with respect to Executive Officers of
the Corporation is included in Item 1 of Part I of this report.


ITEM 11.        EXECUTIVE COMPENSATION

Information  required  under this Item is contained in the  Corporation's  Proxy
Statement  for the Annual  Meeting of  Stockholders  to be held April 27,  1999,
under the captions  "Board of Directors"  and  "Executive  Compensation"  and is
incorporated herein by reference.


ITEM 12.        SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
                AND MANAGEMENT

Information  required  under this Item is contained in the  Corporation's  Proxy
Statement  for the Annual  Meeting of  Stockholders  to be held April 27,  1999,
under the captions  "Voting  Securities" and "Security  Ownership of Management"
and is incorporated herein by reference.


ITEM 13.        CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information  required  under this Item is contained in the  Corporation's  Proxy
Statement  for the Annual  Meeting of  Stockholders  to be held April 27,  1999,
under  the  caption  "Executive  Compensation"  and is  incorporated  herein  by
reference.





<PAGE>
                                      -78-


                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND                    
          REPORTS ON FORM 8-K

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

     (1)  List of Financial Statements
          The following consolidated financial statements of the Corporation and
          its subsidiaries are included in Item 8 of Part II:

               Consolidated  Statement  of Earnings - years ended  December  31,
               1998, 1997, and 1996.

               Consolidated Balance Sheet - December 31, 1998 and 1997.

               Consolidated  Statement  of  Stockholders'  Equity - years  ended
               December 31, 1998, 1997, and 1996.

               Consolidated  Statement of Cash Flows - years ended  December 31,
               1998, 1997, and 1996.

               Notes to Consolidated Financial Statements.

               Report of Independent Auditors.


     (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.




<PAGE>
                                      -79-


     (3)  List of Exhibits
          The  following   exhibits  are  either  included  in  this  report  or
          incorporated herein by reference as indicated below:


          Exhibit No.   Exhibit

          2(a)(i)       Transaction  Agreement  dated as of May 10, 1998, by and
                        between   The   Black   &   Decker    Corporation    and
                        Windmere-Durable   Holdings,   Inc.,   included  in  the
                        Corporation's  Quarterly  Report  on Form  10-Q  for the
                        quarter ended  June  28,  1998,  is  incorporated herein
                        by reference.*

          2(a)(ii)      Amendment   No. 1   dated  as   June 26,  1998,  to  the
                        Transaction Agreement dated as of May 10, 1998,  by  and
                        between The  Black & Decker Corporation   and  Windmere-
                        Durable  Holdings, Inc., included  in  the Corporation's
                        Quarterly Report on Form 10-Q  for  the  quarter   ended
                        June  28, 1998, is incorporated herein by reference.*

          2(a)(iii)     Letter Agreement dated as of July 29, 1998,  between The
                        Black  &   Decker   Corporation   and   Windmere-Durable
                        Holdings,  Inc.,  included in the Corporation's  Current
                        Report  on Form  8-K  filed  on  October  15,  1998,  is
                        incorporated herein by reference.*

          2(a)(iv)      Amendment  No. 3 dated as of September  23, 1998, to the
                        Transaction  Agreement  dated as of May 10, 1998, by and
                        between   The   Black   &   Decker    Corporation    and
                        Windmere-Durable   Holdings,   Inc.,   included  in  the
                        Corporation's  Current  Report  on  Form  8-K  filed  on
                        October 15, 1998, is incorporated herein by reference.*

          2(a)(v)       Amendment  No. 4 dated as of October  15,  1998,  to the
                        Transaction  Agreement  dated as of May 10, 1998, by and
                        between   The   Black   &   Decker    Corporation    and
                        Windmere-Durable   Holdings,   Inc.,   included  in  the
                        Corporation's  Quarterly  Report  on Form  10-Q  for the
                        quarter ended September 27, 1998, is incorporated herein
                        by reference.*

          2(b)(i)       Reorganization,   Recapitalization  and  Stock  Purchase
                        Agreement  dated as of June 29, 1998, by and between The
                        Black & Decker Corporation, True Temper Sports, Inc. and
                        TTSI LLC, included in the Corporation's Quarterly Report
                        on Form 10-Q for the  quarter  ended June 28,  1998,  is
                        incorporated herein by reference.*
<PAGE>
                                      -80-


          2(b)(ii)      Amendment No. 1 to Reorganization,  Recapitalization and
                        Stock Purchase  Agreement dated as of August 1, 1998, by
                        and between The Black & Decker Corporation,  True Temper
                        Sports, Inc. and TTSI LLC, included in the Corporation's
                        Quarterly Report on Form 10-Q for the quarter ended June
                        28, 1998, is incorporated herein by reference.*

          2(b)(iii)     Amendment  No. 2 dated as of September  30, 1998, to the
                        Reorganization,   Recapitalization  and  Stock  Purchase
                        Agreement  dated as of June 29, 1998, by and between The
                        Black & Decker Corporation,  True Temper Corporation and
                        True Temper Sports,  LLC,  included in the Corporation's
                        Current Report on Form 8-K filed on October 15, 1998, is
                        incorporated herein by reference.*

          2(c)(i)       Transaction  Agreement dated as of July 12, 1998, by and
                        between  The  Black  &  Decker  Corporation  and  Bucher
                        Holding A.G.,  included in the  Corporation's  Quarterly
                        Report on Form 10-Q for the quarter ended June 28, 1998,
                        is incorporated herein by reference.*

          2(c)(ii)      Amendment  No. 1 dated as of September  21, 1998, to the
                        Transaction  Agreement dated as of July 12, 1998, by and
                        between  The  Black  &  Decker  Corporation  and  Bucher
                        Holding  A.G.,  included  in the  Corporation's  Current
                        Report  on Form  8-K  filed  on  October  15,  1998,  is
                        incorporated herein by reference.*

          2(c)(iii)     Amendment No. 2 dated  as of  November  20, 1998, to the
                        Transaction Agreement dated as of July 12, 1998,  by and
                        between  The  Black  &  Decker  Corporation  and  Bucher
                        Holding A.G.

          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.

          3(b)          By-Laws of the Corporation, as amended.

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

          4(b)          Form of 7-1/2% Notes due April 1, 2003,  included in the
                        Corporation's  Current Report on Form 8-K filed with the
                        Commission on March 26, 1993, is incorporated  herein by
                        reference.
<PAGE>
                                      -81-


          4(c)          Form of 6-5/8% Notes due November 15, 2000,  included in
                        the Corporation's  Current Report on Form 8-K filed with
                        the  Commission  on November 22, 1993,  is  incorporated
                        herein by reference.

          4(d)          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.

          4(e)          Indenture  dated as of September 9, 1994, by and between
                        the  Corporation  and Marine  Midland  Bank, as Trustee,
                        included in the Corporation's Current Report on Form 8-K
                        filed with the  Commission  on  September  9,  1994,  is
                        incorporated herein by reference.

          4(f)          Credit  Agreement dated as of April 23, 1996,  among the
                        Corporation,  Black & Decker  Holdings  Inc. and Black &
                        Decker,  as Initial  Borrowers,  and the initial Lenders
                        named  therein,   as  Initial   Lenders,   and  Citibank
                        International  plc,  as  Facility  Agent,  and  Citibank
                        International plc and Midland Bank plc, as Co-Arrangers,
                        included in the  Corporation's  Quarterly Report on Form
                        10-Q  for  the  quarter   ended  March  31,   1996,   is
                        incorporated herein by reference.

          4(g)          Credit  Agreement dated as of April 23, 1996,  among the
                        Corporation,  Black  &  Decker  Holdings  Inc.,  Black &
                        Decker,  Black &  Decker  International  Holdings  B.V.,
                        Black & Decker G.m.b.H., Black & Decker (France) S.A.S.,
                        Black & Decker  (Nederland)  B.V. and Emhart Glass S.A.,
                        as Initial  Borrowers,  and the  initial  Lenders  named
                        therein,  as  Initial  Lenders,  and Credit  Suisse,  as
                        Administrative    Agent,   and   Citibank,    N.A.,   as
                        Documentation   Agent,   and   NationsBank,   N.A.,   as
                        Syndication   Agent,   included  in  the   Corporation's
                        Quarterly  Report  on Form  10-Q for the  quarter  ended
                        March 31, 1996, is incorporated herein by reference.

          4(h)          Indenture  dated as of June  26,  1998,  by and  between
                        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.

          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.
<PAGE>
                                      -82-


          10(a)     The Black & Decker  Corporation  Deferred  Compensation Plan
                    for  Non-Employee  Directors,  as  amended,  included in the
                    Corporation's  Quarterly Report on Form 10-Q for the quarter
                    ended October 2, 1994, is incorporated herein by reference.

          10(b)     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.

          10(c)     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),  filed with the
                    Commission  on  May  5,  1992,  is  incorporated  herein  by
                    reference.

          10(d)     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.

          10(e)     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.

          10(f)     The Black & Decker 1995 Stock  Option Plan for  Non-Employee
                    Directors, as amended.

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

          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.

          10(i)     The Black & Decker  Performance  Equity  Plan,  as  amended,
                    included in the Corporation's Annual Report on Form 10-K for
                    the year ended December 31, 1996, is incorporated  herein by
                    reference.
<PAGE>
                                      -83-


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

          10(k)     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.

          10(l)     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.

          10(m)     Letter Agreement, dated February 1, 1975, by and between the
                    Corporation  and  Alonzo G.  Decker,  Jr.,  included  in the
                    Corporation's  Annual Report on Form 10-K for the year ended
                    December 31, 1990, is incorporated herein by reference.

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

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

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

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

          10(p)(1)  The Black & Decker  Supplemental  Retirement  Savings  Plan,
                    included in the Corporation's Registration Statement on Form
                    S-8  (Reg.  No.  33-65013),  filed  with the  Commission  on
                    December 14, 1995, is incorporated herein by reference.
<PAGE>

                                      -84-  

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

          10(p)(3)  Amendment   No.  2  to  The  Black  &  Decker   Supplemental
                    Retirement Savings Plan dated as of July 16, 1998.

          10(q)     The Black & Decker Supplemental  Executive  Retirement Plan,
                    as amended.

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

          10(s)     The  Black  &  Decker  Executive  Salary  Continuance  Plan,
                    included in the Corporation's  Quarterly Report on Form 10-Q
                    for the quarter ended April 12, 1995, is incorporated herein
                    by reference.

          10(t)     Description  of the  Corporation's  policy and procedure 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.

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

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

          10(w)     Form of Amendment  and  Restatement  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,
                    1996, is incorporated herein by reference.

          10(x)     Amendment and Restatement of Severance  Benefits  Agreement,
                    dated  January 1, 1997, 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, 1996, is
                    incorporated herein by reference.
<PAGE>
                                      -85-


          10(y)     Amendment and Restatement of Severance  Benefits  Agreement,
                    dated  January 1, 1997, by and between the  Corporation  and
                    Joseph Galli, included in the Corporation's Annual Report on
                    Form  10-K  for  the  year  ended   December  31,  1996,  is
                    incorporated herein by reference.

          10(z)     Amendment and Restatement of Severance  Benefits  Agreement,
                    dated  January 1, 1997, 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, 1996, is
                    incorporated herein by reference.

          10(aa)    Severance  Benefits  Agreement,  dated February 12, 1998, by
                    and between the Corporation and Frederik B. van den Bergh.

          10(bb)    Amendment and Restatement of Severance  Benefits  Agreement,
                    dated  January 1, 1997, by and between the  Corporation  and
                    Thomas M.  Schoewe,  included  in the  Corporation's  Annual
                    Report on Form 10-K for the year ended December 31, 1996, is
                    incorporated herein by reference.

          10(cc)(1) Letter Agreement dated May 9, 1997,  between the Corporation
                    and Frederik B. van den Bergh.

          10(cc)(2) Amendment to  Letter Agreement  between  the Corporation and
                    Frederik B. van den Bergh, dated April 21, 1998.

          10(dd)    Distribution  Agreement  dated  September  9,  1994,  by and
                    between the  Corporation,  Lehman  Brothers  Inc.,  Citicorp
                    Securities, Inc., Goldman, Sachs & Co., Morgan Stanley & Co.
                    Incorporated,  NationsBanc Capital Markets, Inc. and Salomon
                    Brothers Inc., included in the Corporation's  Current Report
                    on Form 8-K filed with the  Commission on September 9, 1994,
                    is incorporated herein by reference.

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

          10(ee)(2) Amendment to The Black & Decker 1996 Employee Stock Purchase
                    Plan,  as adopted on  February  12,  1997,  included  in the
                    Corporation's  Annual Report on Form 10-K for the year ended
                    December 31, 1996, is incorporated herein by reference.
<PAGE>
                                      -86-


          11        Computation of Earnings Per Share.

          12        Computation of Ratios.

          21        List of Subsidiaries.

          23        Consent of Independent Auditors.

          24        Powers of Attorney.

          27        Financial Data Schedule.

          99(a)     Securities  Purchase  Agreement  dated as of  September  30,
                    1998,  among  True  Temper   Corporation  and  Emhart  Inc.,
                    included  in the  Corporation's  Current  Report on Form 8-K
                    filed  on  October  15,  1998,  is  incorporated  herein  by
                    reference.

          99(b)     Warrant  Agreement among True Temper  Corporation and Emhart
                    Inc.  dated  as of  September  30,  1998,  included  in  the
                    Corporation's  Current  Report on Form 8-K filed on  October
                    15, 1998, is incorporated herein by reference.

          99(c)     Debt   Registration   Rights  Agreement  among  True  Temper
                    Corporation  and Emhart Inc. dated as of September 30, 1998,
                    included  in the  Corporation's  Current  Report on Form 8-K
                    filed  on  October  15,  1998,  is  incorporated  herein  by
                    reference.

          99(d)     Equity  Registration  Rights  Agreement  among  True  Temper
                    Corporation  and Emhart Inc. dated as of September 30, 1998,
                    included  in the  Corporation's  Current  Report on Form 8-K
                    filed  on  October  15,  1998,  is  incorporated  herein  by
                    reference.

          99(e)     Stock Purchase  Agreement  dated as of December 13, 1995, by
                    and among the  Corporation,  PRC Investments  Inc., PRC Inc.
                    and Litton Industries,  Inc.,  included in the Corporation's
                    Annual  Report on Form 10-K for the year ended  December 31,
                    1995, is incorporated herein by reference.

          ----------

          *    Certain   schedules  and  attachments  have  been  omitted.   The
               Corporation  agrees  to  provide  a copy of these  schedules  and
               attachments  to  the  Securities  and  Exchange  Commission  upon
               request.
           

          All other items are "not applicable" or "none".
<PAGE>
                                      -87-


(b)  Reports on Form 8-K
     The  Corporation  filed the following  reports on Form 8-K during the three
     months ended December 31, 1998:

     On October 14, 1998,  the  Corporation  filed a Current  Report on Form 8-K
     with the Securities and Exchange  Commission.  This Current  Report on Form
     8-K, filed pursuant to Item 5 of that Form, stated that the Corporation had
     reported its earnings  for the three and nine months  ended  September  27,
     1998.

     On  October 15, 1998, the  Corporation  filed a  Current Report on Form 8-K
     with the  Securities and Exchange  Commission.  This Current Report on Form
     8-K, filed pursuant to Item 2 of that Form, stated that the Corporation had
     completed the recapitalization of its recreational products business,  True
     Temper Sports, with an affiliate of Cornerstone Equity Investors, LLC. Also
     included in that Current  Report on Form 8-K,  filed  pursuant to Item 7 of
     that Form, was the Corporation's pro forma financial  information  required
     to be filed due to the divestitures of the household  products  business in
     North  America  and  Latin  America   (excluding   Brazil)  and  the  glass
     container-making and inspection  equipment business,  Emhart Glass, and the
     recapitalization of the recreational products business, True Temper Sports.
     
     All other items are "not applicable" or "none".


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


(d)  Financial Statement Schedules and Other Financial Statements

     (1)  The Financial  Statement  Schedule required by Regulation S-X is filed
          herewith.

     (2)  The  Unaudited  Pro Forma  Statement  of  Earnings  for the year ended
          December  31,  1998,  contemplated  by Article 11 of  Regulation  S-X,
          reflecting  the  Corporation's  sale  during  1998  of  the  household
          products  business  (excluding  certain  assets  associated  with  the
          Corporation's  cleaning  and  lighting  products)  in  North  America,
          Australia,   Central  America,   the  Caribbean,   and  South  America
          (excluding  Brazil)  and the glass  container-forming  and  inspection
          equipment  business,  Emhart Glass,  and the  recapitalization  of the
          recreational products business, True Temper Sports, is filed herewith.





<PAGE>
                                      -88-

<TABLE>

           SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                 The Black & Decker Corporation and Subsidiaries
                              (Millions of Dollars)




<CAPTION>
                                           Balance       Additions                                Other
                                                At         Charged                              Changes           Balance
                                         Beginning        to Costs                                  Add            At End
Description                              of Period    and Expenses         Deductions           (Deduct)        of Period
------------------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>             <C>                <C>               <C>                  <C>   
Year Ended December 31, 1998
----------------------------
Reserve for doubtful accounts
     and cash discounts                     $ 47.8          $ 66.8             $ 65.8(A)         $ (4.5)(B)           $ 44.3
====================================================================================================================================

Year Ended December 31, 1997
----------------------------
Reserve for doubtful accounts
     and cash discounts                     $ 44.0          $ 70.0             $ 63.8(A)         $ (2.4)(B)           $ 47.8
====================================================================================================================================

Year Ended December 31, 1996
----------------------------
Reserve for doubtful accounts
     and cash discounts                     $ 43.1          $ 58.1             $ 56.7(A)         $  (.5)(B)           $ 44.0
====================================================================================================================================

<FN>

(A) Accounts written off during the year and cash discounts taken by customers.

(B) Primarily  includes  currency  translation  adjustments  and, for 1998, the
    write-off of $4.3 million of reserves associated with divested businesses.
</FN>
</TABLE>

<PAGE>
                                      -89-


UNAUDITED PRO FORMA FINANCIAL INFORMATION
The Black & Decker Corporation and Subsidiaries


The  following  unaudited pro forma  consolidated  statement of earnings for the
year ended  December  31, 1998,  has been  prepared by the  Corporation  to give
effect to the sale of the household products business  (excluding certain assets
associated  with the  Corporation's  cleaning  and  lighting  products) in North
America, Australia, Central America, the Caribbean, and South America (excluding
Brazil)  and the glass  container-forming  and  inspection  equipment  business,
Emhart Glass, and the  recapitalization  of the recreational  products business,
True Temper Sports  (collectively,  the "Divested  Businesses").  For additional
information  with  respect to the  Divested  Businesses,  see Note 2 of Notes to
Consolidated Financial Statements, included in Item 8 of Part II of this report,
and Management's  Discussion and Analysis of Financial  Condition and Results of
Operations,  included  in Item 7 of Part II of this  report,  under the  caption
"Strategic Repositioning."

     The  unaudited  pro forma  consolidated  statement of earnings for the year
ended  December 31,  1998,  was prepared  using the  Corporation's  consolidated
statement of earnings for the year ended December 31, 1998, and assumes that the
sales of the Divested Businesses took place on January 1, 1998.

     The  unaudited  pro  forma  consolidated  statement  of  earnings  has been
prepared for comparative  purposes only and does not purport to be indicative of
the results of  operations  which would  actually have resulted had the sales of
the Divested  Businesses been made on the dates or for the periods  indicated or
which may result in the future.

     The  actual  consolidated  financial  statements  of the  Corporation  will
reflect the sales of the Divested  Businesses  only from the  respective  actual
sales dates forward.
<PAGE>
                                      -90-

<TABLE>
             PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
                 The Black & Decker Corporation and Subsidiaries
                          Year Ended December 31, 1998
                 (Dollars in Millions Except Per Share Amounts)

<CAPTION>
                                                                                Less:
                                                                             Divested         Pro Forma          Pro Forma
                                                       As Reported         Businesses       Adjustments        As Adjusted
                                                   ----------------   ----------------      -----------    ----------------
<S>                                                     <C>                <C>                                  <C>       
Sales                                                   $  4,559.9         $    331.2                           $  4,228.7
   Cost of goods sold                                      2,951.0              235.4                              2,715.6
   Selling, general, and administrative
      expenses                                             1,124.9               75.7                              1,049.2
   Write-off of goodwill                                     900.0               40.0                                860.0
   Restructuring and exit costs                              164.7               17.1                                147.6
   Gain (loss) on sale of businesses                         114.5              127.2                                (12.7)
                                                   ----------------   ----------------                     ----------------
Operating Income (Loss)                                     (466.2)              90.2                               (556.4)
   Interest expense (net of interest income)                 114.4                 .1          $  (24.5)(a)           89.8
   Other expense                                               7.7                1.0                                  6.7
                                                   ----------------   ----------------      ------------   ----------------
Earnings (Loss) Before Income Taxes                         (588.3)              89.1              24.5             (652.9)
   Income taxes                                              166.5              102.6               8.6 (b)           72.5
                                                   ----------------   ----------------      ------------   ----------------
Net Earnings (Loss)                                     $   (754.8)        $    (13.5)         $   15.9         $   (725.4)
                                                   ================   ================      ============   ================


Net Earnings (Loss) Per Common
   Share -- Basic                                       $    (8.22)                                             $    (7.90)
                                                   ================                                        ================      
Shares Used in Computing Basic
   Earnings Per Share (in Millions)                           91.8                                                    91.8
                                                   ================                                        ================
Net Earnings (Loss) Per Common
   Share -- Assuming Dilution                           $    (8.22)                                             $    (7.90)
                                                   ================                                        ================
Shares Used in Computing Diluted
   Earnings Per Share (in Millions)                           91.8                                                    91.8
                                                   ================                                        ================
</TABLE>
<PAGE>
                                      -91-


Notes to Unaudited Pro Forma Consolidated Statement of Earnings

Less:  Divested Businesses
--------------------------

These adjustments are made to eliminate the results of Divested Businesses--True
Temper Sports,  Emhart Glass,  and the household  products  business  (excluding
certain assets associated with the Corporation's cleaning and lighting products)
in North America,  Australia,  Central America, the Caribbean, and South America
(excluding  Brazil).  The results of the Divested  Businesses  eliminated do not
reflect charges for certain Corporate overhead expenses  historically  allocated
by the Corporation to these  businesses.  While the Corporation is taking action
to realign its Corporate overhead structure in light of the sale of the Divested
Businesses,  such  actions  are  prospective  in nature  and  projected  savings
resulting  from these  actions are not  reflected in the pro forma  consolidated
results.

The  results  of the  household  products  business  (excluding  certain  assets
associated  with the  Corporation's  cleaning  and  lighting  products) in North
America, Australia, Central America, the Caribbean, and South America (excluding
Brazil) included in the results of the Divested  Businesses  eliminated from the
Corporation's historical results to arrive at the pro forma consolidated results
are based upon certain  assumptions  and  allocations.  The  household  products
businesses  sold were jointly  operated with the cleaning and lighting  products
businesses  retained by the Corporation.  Further,  the  Corporation's  divested
household products businesses in Australia,  Central America, the Caribbean, and
Latin America  (excluding  Brazil) were operated jointly with the  Corporation's
power  tools  and  accessories  businesses.  Accordingly,  the  results  of  the
household  products  businesses,   included  in  the  results  of  the  Divested
Businesses,  were determined using certain  assumptions and allocations that the
Corporation believes are reasonable under the circumstances.

Pro Forma Adjustments
---------------------

For purposes of the pro forma statement of earnings, it was assumed that the net
cash proceeds  (cash  proceeds  after selling  expenses and taxes paid) from the
Divestitures of approximately $625 million were used to reduce indebtedness.

For pro forma purposes,  no interest income was assumed  recognized on the $25.0
million note received by the Corporation in connection with the recapitalization
of True Temper Sports. Such note,  however,  is interest bearing,  with interest
being  added to the  accreted  amount of the note and not paid in cash.  As more
fully discussed in Note 2 of Notes to Consolidated Financial Statements included
in Item 8 of this  report,  the  Corporation  has fully  reserved the note as of
December 31, 1998.

(a)  To reflect a pro forma  reduction in net interest  expense of $24.5 million
     based upon the  Corporation's  weighted average borrowing rate for the year
     ended  December  31, 1998,  of 6.45%.  The pro forma  adjustment  is net of
     estimated actual interest earned on proceeds received during the year ended
     December 31,  1998.  The effect of a 1/8th  percentage  point change in the
     Corporation's  weighted  average  borrowing rate would impact pro forma net
     interest expense by $.4 million for the year ended December 31, 1998.

(b)  To reflect income taxes on entry (a) at the federal statutory rate.

<PAGE>
                                      -92-


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

Date:    March 16, 1999             By      /s/NOLAN D. ARCHIBALD
         --------------                     ---------------------
                                            Nolan D. Archibald
                                            Chairman, President, and
                                            Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on March 16, 1999, by the  following  persons on behalf of
the registrant and in the capacities indicated.

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

Principal Executive Officer

/s/NOLAN D. ARCHIBALD                                             March 16, 1999
---------------------                                             --------------
Nolan D. Archibald                Chairman, President, and
                                  Chief Executive Officer

Principal Financial Officer

/s/THOMAS M. SCHOEWE                                              March 16, 1999
--------------------                                              --------------
Thomas M. Schoewe                 Senior Vice President and
                                  Chief Financial Officer

Principal Accounting Officer

/s/STEPHEN F. REEVES                                              March 16, 1999
--------------------                                              --------------
Stephen F. Reeves                 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                       Alonzo G. Decker, Jr.
          Norman R. Augustine                      Anthony Luiso
          Barbara L. Bowles                        Mark H. Willes
          Malcolm Candlish


By   /s/NOLAN D. ARCHIBALD                                 Date:  March 16, 1999
     ---------------------                                        --------------
     Nolan D. Archibald
     Attorney-in-Fact