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, 1997                                              1-1553

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

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

 Towson, Maryland                                         21286
(Address of principal 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 30, 1998, was $4,560,898,176.

The number of shares of Common Stock  outstanding  as of January 30,  1998,  was
95,018,712.

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 1998 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 household  products  business is a
       major  global  competitor  in  the  small  electric  household  appliance
       industry.  The Corporation is a worldwide leader in the  manufacturing of
       steel  golf  club  shafts  and  glass  container-forming  and  inspection
       equipment.  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"  and  in  Note  23  of  Notes  to  Consolidated   Financial
       Statements included in Item 8 of Part II of this report, in January 1998,
       the  Corporation  announced  its  planned  divestiture  of the  household
       products business in North America, Latin America, and Australia, as well
       as its recreational  products business,  and glass  container-forming and
       inspection equipment business.
            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 12 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 8 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  shares  of Series B stock.  In July  1997,  the  Corporation
       reclassified   previously   designated   shares   of   Series   A  Junior
       Participating   Preferred   Stock  and  Series  B  Preferred  Stock  into
       undesignated Series Preferred Stock. For additional information, see Note
       15 of Notes to Consolidated  Financial  Statements  included in Item 8 of
       Part II of this report.


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                                       3

            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 Consumer and
       Home Improvement Products segment, was included in the 1996 restructuring
       charge. For additional  information about the 1996 restructuring  charge,
       see  Notes  11 and  18 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 23 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, principally related to its worldwide power tools and accessories
       business,  which is expected to be completed  over the course of the next
       two years.

(b)    RECENT DEVELOPMENTS
       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  is to focus the
       Corporation on its core  operations,  that is, those  businesses that the
       Corporation  believes are capable of  delivering  superior  operating and
       financial performance. As a result, investment bankers have been retained
       to assist in selling the Corporation's  non-strategic  businesses.  Those
       non-strategic  businesses consist of the recreational  products business,
       True Temper Sports; the glass  container-forming and inspection equipment
       business,  Emhart  Glass;  and the household  products  business in North
       America,  Latin  America,  and  Australia.  The  Corporation  expects the
       divestitures of these businesses to be completed in 1998.
           The  second  element  of  the  strategic  repositioning  plan  is the
       repurchase  of up to 10% of the  Corporation's  outstanding  common stock
       over the next two years.  A combination  of net proceeds from the sale of
       divested businesses and cash flow from remaining  operations are expected
       to be used to fund the stock  repurchase  program.  Prior to  receipt  of
       proceeds from the sale of divested  businesses,  the Corporation also may
       utilize its existing borrowing  facilities to fund a portion of the stock
       repurchase program.
           The third  element  of the  strategic  repositioning  plan is a major
       restructuring program intended to reduce the Corporation's cost structure
       substantially.  This  program  will be  implemented  over a period of two
       years and primarily  relates to the worldwide power tools and accessories
       business. The estimated pre-tax cost of the program is approximately $250
       million, of which approximately $200 million is expected to be recognized
       in the first quarter of 1998, with the balance  recognized as the program
       progresses  over the next two years.  In  addition  to the  restructuring
       charge,  related expenses of approximately $60 million will be charged to
       operations  over  the  next  two  years  as  the  restructuring   program
       progresses.  These  costs,  which  are  incremental  to the  plans  being
       implemented,  do not  qualify  as exit  costs  under  generally  accepted
       accounting principles.






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                                       4

           As a consequence of the strategic repositioning plan, the Corporation
       has  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,  will result in the
       write-off of  approximately  $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 23 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 terms of the
       sale of PRC Inc.  provided for an  adjustment  to the sales price,  based
       upon the changes in the net assets of PRC Inc. through February 15, 1996.
       That adjustment was finalized in January 1998.
           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 and $38.4  million ($.41 per share
       on a diluted basis) in 1995. The results of the  discontinued PRC segment
       do not reflect any expense for interest  allocated by or management  fees
       charged by the Corporation.

(d)    FINANCIAL INFORMATION ABOUT BUSINESS SEGMENTS
       As more fully described above under the caption "Recent Developments" and
       in Note 23 of Notes to Consolidated Financial Statements included in Item
       8 of Part II of this report,  in January 1998, the Corporation  announced
       its planned  divestiture  of the  recreational  products  business,  True
       Temper  Sports;  the glass  container-forming  and  inspection  equipment
       business,  Emhart  Glass;  and the household  products  business in North
       America, Latin America, 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  until their
       sale. Unless otherwise  indicated,  the following  discussion pertains to
       the  continuing  operations of the  Corporation  -- including True Temper
       Sports,  Emhart  Glass,  and the  household  products  business  in North
       America,  Latin  America,  and Australia -- and excludes any matters with
       respect to the discontinued PRC segment.






<PAGE>
                                       5

           The Corporation operates in two business segments:  Consumer and Home
       Improvement Products, including consumer and professional power tools and
       accessories,  household  products,  security  hardware,  outdoor products
       (composed of electric lawn and garden tools and  recreational  products),
       plumbing  products,  and product  service;  and Commercial and Industrial
       Products,   including   fastening   and   assembly   systems   and  glass
       container-forming  and  inspection  equipment.  See  Note 18 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.
           Sales from  continuing  operations by product  group within  business
       segments are presented in the following table.

              1997 Sales by Product Group within Business Segments
                              (Millions of Dollars)

                                                                  Year Ended
                                                              December 31, 1997
                                                              Amount          %
          Consumer and Home Improvement Products             -------         ---
             Power Tools and Product Service                  $2,070         42%
             Household Products                                  669 (a)     13
             Security Hardware                                   574         12
             Accessories                                         342          7
             Outdoor Products                                    345 (b)      7
             Plumbing Products                                   242          5
                                                            --------       ----
             Total Consumer and Home Improvement Products      4,242         86%
          Commercial and Industrial Products                     699 (c)     14%
                                                            --------        ---
          Total Sales                                         $4,941        100%
                                                              ======        ===
          ------------------------------

          (a) Includes $588 million of sales of the household  products business
              to be sold,  that is, the  household  products  business  in North
              America,  Latin America and Australia.  The balance relates to the
              household products business in other geographic  locations,  to be
              retained by the Corporation.

          (b) Includes  $83  million  of  sales  of  the  recreational  products
              business to be sold.
 
          (c) Includes $239 million of sales of the glass  container-forming and
              inspection equipment business to be sold.

           There is no single class of product  within the product groups listed
       in the above  table that  represents  more than 10% of the  Corporation's
       consolidated sales from continuing operations.
           Sales  for the year  ended  December  31,  1997,  to The  Home  Depot
       accounted  for  approximately  13% of  sales  in the  Consumer  and  Home
       Improvement  Products  segment.  Sales  to The  Home  Depot  during  1997
       represented  approximately 11% of the Corporation's  consolidated  sales.
       The loss of this  customer  would have a material  adverse  effect on the
       Corporation.



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                                       6

(e)    NARRATIVE DESCRIPTION OF THE BUSINESS
       As more fully described above under the caption "Recent Developments" and
       in Note 23 of Notes to Consolidated Financial Statements included in Item
       8 of Part II of this report,  in January 1998, the Corporation  announced
       its planned  divestiture  of the  recreational  products  business,  True
       Temper  Sports;  the glass  container-forming  and  inspection  equipment
       business,  Emhart  Glass;  and the household  products  business in North
       America, Latin America, 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  until their
       sale. Unless otherwise  indicated,  the following  discussion pertains to
       the  continuing  operations of the  Corporation  -- including True Temper
       Sports,  Emhart  Glass,  and the  household  products  business  in North
       America,  Latin  America,  and Australia -- and excludes any matters with
       respect to the discontinued PRC segment.
           The  following  is a  brief  description  of  each  of  the  business
       segments.

       CONSUMER AND HOME IMPROVEMENT PRODUCTS SEGMENT
       The  Consumer  and Home  Improvement  Products  segment  is  composed  of
       consumer  (home  use)  and  professional  power  tools  and  accessories,
       household  products,  security  hardware,  outdoor products  (composed of
       electric  lawn and  garden  tools and  recreational  products),  plumbing
       products,  and  product  service.  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;  bench and stationary tools; and cordless lighting
       products.  Accessories  include  accessories  and  attachments  for power
       tools,  and a  variety  of  consumer-use  fastening  products,  including
       stapling  products.  Household  products include a variety of both corded
       and cordless small electric  household  appliances,  including  hand-held
       vacuums; irons; lighting products; food mixers,  processors and choppers;
       can openers; blenders; coffeemakers; kettles; toasters and toaster ovens;
       wafflebakers;  knives; breadmakers; and wet scrubbers.  Security hardware
       includes  both  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.  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 lawn and garden accessories. Outdoor
       products also include recreational  products,  which consist of a variety
       of steel and composite golf club shafts and bicycle and specialty tubing.
       Plumbing  products  include  a variety  of  conventional  and  decorative
       faucets, shower heads, and bath accessories.
           Power tools, household products,  electric lawn and garden tools, 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; Elu; Black & Decker Industry & Construction;
       VERSAPAK; Wood Hawk; Wizard; SandStorm;  Workmate;  Quantum Pro; Proline;
       Macho; TimberWolf; Cyclone; Sawcat; Trimcat; Scrugun; Scru-drill; Holgun;
       Paintmate;  CutSaw; Spitfire;  Wildcat;  Shorty;  Sawforce;  PowerDriver;
       Quattro;  Alligator;   Powerfile;  Guaranteed  Tough;  Controlled  Finish
       System; Versa-Clutch; Air Station; Dustbuster;  ScumBuster;  FloorBuster;
       Spillbuster;   Spacemaker;   Quick  `N  Easy;  Sure  Steam;  SurgeXpress;
       ProXpress;  Stowaway;  KT  kitchentools;  Flavor Scenter  Steamer;  Super
       Chopper; HandyChopper; Spatula Smart; All-In-One; Toast-R-Oven; Hideaway;
       Slice  Right/SlimGrip;  PowerPro;  Brew  `N  Go;  SnakeLight;  SpotLiter;
       SafeLiter;  Groom  `N'


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                                       7

       Edge;  Vac  `N'  Mulch;  MasterVac;   LeafBuster;   AutoStop;   Strimmer;
       StripeMaster; Lawn Raker; Black & Decker Hovermaster;  Reflex; Hedge Hog;
       Grass Hog;  Automatic  Feed  Spool-AFS;  Series 20; Series 40; Series 60;
       B&D; Piranha;  Piranha Pro; Rock Carbide; Bullet;  Pilot-Point;  Scorpion
       Anti-Slip;  Magnetic Drill and Drive System; Master Series;  Build-a-Set;
       and POP.  Security  hardware  products  are  marketed  under a variety of
       trademarks  and trade  names,  including,  without  limitation,  Kwikset;
       Kwikset  Plus;  TITAN;  TITAN  Commercial  Series;   TITAN  Technologies;
       AccessOne;  LockMinder;  NightSight; Black & Decker; Black & Decker Plus;
       GEO;  Lane;  Astra;  DOM;  Diamant;   Pentagon;  NEMEF;  and  Corbin  Co.
       Recreational  products are marketed  under the trademarks and trade names
       True Temper; Dynamic; Dynamic Gold; Dynalite;  EI-70; Comet; Rocket; True
       Lite;  SENSICORE;  TT Lite; Release;  Assailant;  Endurance;  and others.
       Plumbing products are marketed under the trademarks and trade names Price
       Pfister;  Black & Decker; The Pfabulous Pfaucet With The Pfunny Name; The
       Pfabulous Pfaucet.  Pforever.;  The Pforever Pfaucet;  Pfrequent Pfaucet;
       Pforever  Pfinish;  Pforever Seal;  Pforever  Warranty;  The Professional
       Pfranchise Club;  Genesis;  Society Brass  Collection;  Bodyguard;  Match
       Makers; Quick Trim; and others.
           The  Corporation's  product service program supports its power tools,
       electric lawn and garden  products,  and household  products  businesses.
       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,  1997,  there were  approximately  150 such
       service centers,  of which roughly  two-thirds were located in the United
       States. The remainder were located around the world,  primarily in Europe
       and Canada.  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 household  appliances are  reconditioned and then re-sold
       through numerous company-operated factory outlets and service centers.
           Most of the Corporation's consumer 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.
       Consumer  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  Consumer  and  Home
       Improvement   Products   segment  are  sold   primarily   to   retailers,
       wholesalers, distributors, and jobbers, although some reconditioned power
       tools and household  products are sold through  company-operated  service
       centers  and factory  outlets  directly  to end users.  Certain  security
       hardware products are sold to commercial,  institutional,  and industrial
       customers.
           The principal  materials used in the manufacturing of products in the
       Consumer and Home Improvement  Products  segment are plastics,  aluminum,
       copper,  steel, bronze, zinc, brass, 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

<PAGE>
                                       8

       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, 1997,
       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,  1998,  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 Corporation  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  significant  negative  effect on the  operating
       results of the Corporation over the short term.
           Principal  manufacturing  and assembly  facilities of the power tools
       and accessories,  security hardware,  and plumbing products businesses in
       the United States are located in Fayetteville, North Carolina; Easton and
       Hampstead,  Maryland;  Anaheim and Pacoima,  California;  Denison, Texas;
       Waynesboro,  Georgia; and Bristow, Oklahoma.  Principal manufacturing and
       assembly  facilities  located  in the  United  States  of  the  household
       products and recreational  products businesses to be divested are located
       in Asheboro,  North  Carolina;  and Amory and Olive Branch,  Mississippi.
       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 and  accessories  business,  security  hardware
       business,  and  household  products  business -- other than the household
       products business in Latin America and Australia, which are to be sold --
       are located in Buchlberg and Bruhl, Germany;  Molteno and Perugia, Italy;
       Spennymoor and Rotherham, England; Brockville,  Canada; Mexicali, Mexico;
       Jurong  Town;  Singapore;   Kuantan,   Malaysia;   Uberaba,  Brazil;  and
       Apeldoorn,  Netherlands.  The  principal  manufacturing  facility  of the
       household   products  business  in  Latin  America  to  be  sold  by  the
       Corporation  in 1998,  is located in  Queretaro,  Mexico.  The  principal
       distribution facility outside the United States, other than those located
       at the  manufacturing  facilities  listed  above,  is located in Idstein,
       Germany.


<PAGE>
                                       9

            In connection with the strategic repositioning plan announced by the
       Corporation  in January 1998, the worldwide  power tools and  accessories
       business  has  announced  that it  intends  to  close  its  manufacturing
       facilities  in  Brockville,  Canada;  Molteno,  Italy;  and Jurong  Town,
       Singapore;  and that it intends to announce the closure of an  additional
       manufacturing  facility over the next several months.  Current power tool
       production  at the  plants  to be  closed  will be  transferred  to other
       manufacturing  sites  within the  worldwide  power tools and  accessories
       business.
            For  additional   information   with  respect  to  these  and  other
       properties owned or leased by the Corporation, see Item 2, "Properties."
           In 1996, the Corporation  commenced a restructuring of certain of its
       operations and recorded a restructuring charge of $91.3 million, of which
       $87.7  million  related to the  Consumer  and Home  Improvement  Products
       segment. For additional  information about the 1996 restructuring charge,
       see  Notes  11 and  18 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.  As more fully  described above under the caption
       "Recent  Developments" and in Note 23 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,
       principally   related  to  its  worldwide  power  tools  and  accessories
       business.
           The  Corporation  holds  various  patents and licenses on many of its
       products and  processes in the  Consumer  and Home  Improvement  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 Consumer and
       Home Improvement  Products segment is derived from the do-it-yourself and
       home modernization  markets,  which generally are not seasonal in nature.
       However,  sales of household  products and 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  trends  in the
       residential  and  commercial   construction  markets  and  other  general
       economic trends.
           The  Corporation is one of the world's  leaders in the  manufacturing
       and  marketing  of  portable  power  tools,   small  electric   household
       appliances,  electric lawn and garden tools, security hardware,  plumbing
       products,   and  accessories.   Worldwide,   the  markets  in  which  the
       Corporation  sells these products are highly  competitive on the basis of
       price,  quality,  and after-sale  service. A number of competing domestic
       and foreign  companies are strong,  well-established  manufacturers  that
       compete on a global basis. Some of these companies  manufacture  products
       that are competitive  with a number of the  Corporation's  product lines.
       Other competitors restrict their operations to fewer categories, and some
       offer  only a narrow  range of  competitive  products.  Competition  from
       certain of these  manufacturers  has been  intense in recent years and is
       expected to continue.



<PAGE>
                                       10

       COMMERCIAL AND INDUSTRIAL PRODUCTS SEGMENT
       The Corporation's fastening and assembly systems business manufactures 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;  T-Rivet;  Ultra-Grip;  Tucker;  Warren;  Dril-Kwik;
       Parabolt; Jack Nut; KALEI; Plastifast;  PLASTI-KWICK;  POP-matic; POPNUT;
       Pop-sert; Swageform; Weldfast; Splitfast; 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. Some of these products are also sold through the
       Corporation's Consumer and Home Improvement Products segment.
           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 business 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, strip and sheet metals, and chemical compounds,  plastics, and
       rubber. These materials are readily available from a number of suppliers.
           The  Corporation  manufactures  a variety  of  automatic,  high-speed
       machines for the glass container-forming industry, including machines for
       supplying  molten  glass  for  the  feeding  and  forming  processes  and
       electronic  inspection  equipment for monitoring  quality  levels.  These
       machines are used in producing bottles,  jars, tumblers,  and other glass
       containers  primarily for food, beverage,  pharmaceutical,  and household
       products packaging. The Corporation also provides replacement parts and a
       variety of engineering,  repairing, rebuilding, and other services to the
       glass   container-making   industry   throughout  the  world,  and  these
       activities  generate  nearly  two-thirds  of the sales in this  business.
       These products and services are marketed principally under the trademarks
       and trade names Emhart;  Emhart Glass; Powers;  FLEX-LINE;  T-600 Forming
       Control System; Verti-Flow Cooling Systems; PowerNET; QualiTrac; TIM; and
       Total Inspection Machine.


<PAGE>
                                       11

           The  Corporation   sells  glass   container-forming   and  inspection
       equipment and  replacement  parts  primarily  through its own sales force
       directly  to glass  container  manufacturers  throughout  the world.  The
       business is not  dependent on one or a few  customers,  the loss of which
       would  have  a  material  adverse  effect  on  operating  results  of the
       business.
           Some  domestic  manufacturers  and a number of foreign  manufacturers
       compete with the Corporation in the manufacture and sale of various types
       of  glass  container-forming  and  inspection  equipment.   However,  the
       Corporation  believes that it  is a leading supplier and offers  the most
       complete line of glass container-forming and inspection machinery, parts,
       and service. In recent years, the glass  container-forming and inspection
       equipment  business has experienced the effects of increased  competition
       with packaging  applications of plastic and other  non-glass  containers.
       Important  competitive  factors  are  price,  technological  and  machine
       performance features; product reliability;  and technical and application
       engineering  services.   There  is  little  seasonal  variation  in  this
       business.
           In 1996, the Corporation  commenced a restructuring of certain of its
       operations and recorded a restructuring charge of $91.3 million, of which
       $3.6  million  related to the  Commercial  and  Industrial  segment.  For
       additional  information about the 1996 restructuring charge, see Notes 11
       and 18 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.
           The Corporation  owns a number of United States and foreign  patents,
       trademarks,  and license rights  relating to the glass  container-forming
       and inspection equipment business.  While the Corporation considers those
       patents,  trademarks, and license rights to be valuable, this business is
       not materially dependent upon such patents or license rights with respect
       to its operations.
           The  principal  glass   container-forming  and  inspection  equipment
       manufacturing  facility  in the  United  States is  located  in  Windsor,
       Connecticut. Principal manufacturing facilities outside the United States
       are located in Orebro and Sundsvall,  Sweden. For additional  information
       with  respect  to these  and  other  properties  owned or  leased  by the
       Corporation, see Item 2, "Properties."
           The principal raw materials required for the glass  container-forming
       and  inspection   equipment   business  are  steel,   iron,   copper  and
       copper-based materials, aluminum and refractory materials, and electronic
       components.  Manufactured parts are purchased from a number of suppliers.
       All such  materials and  components  are generally  available in adequate
       quantities.

       BACKLOG
       The following is a summary of total backlog by business segment as of the
       referenced dates.
      
       (Millions of Dollars)                                   December 31,
                                                           1997           1996
                                                           ----           ----
       Consumer and Home Improvement Products              $ 85           $ 71
       Commercial and Industrial Products                   132            145
                                                           ----           ----
                  Total Backlog                            $217           $216
                                                           ====           ====

           None of the backlog at December  31,  1997,  or at December 31, 1996,
       included unfunded amounts.



<PAGE>
                                       12

       OTHER INFORMATION
       The Corporation's  product  development  program in the United States for
       the Consumer and Home  Improvement  Products  segment is coordinated from
       the Corporation's  headquarters in Towson,  Maryland, for power tools and
       accessories;  from Shelton,  Connecticut,  for household  products;  from
       Anaheim, California, for residential security hardware; and from Pacoima,
       California,  for plumbing  products.  Outside the United States,  product
       development  activities  for power tools and  accessories  and  household
       products  are  coordinated  from Slough,  England,  and are carried on at
       facilities in Spennymoor,  England;  Brockville,  Canada; Molteno, Italy;
       and Idstein, Germany.
           Product  development  activities  for the  Commercial  and Industrial
       Products segment are currently  carried on at various product or business
       group headquarters or at principal  manufacturing locations as previously
       noted.
           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,  1997,  the  Corporation  employed  approximately
       28,600 persons in its operations worldwide. Approximately 1,800 employees
       in the United  States are covered by  collective  bargaining  agreements.
       During  1997,  several  collective  bargaining  agreements  in the United
       States were  negotiated  without  material  disruption to  operations.  A
       number of other  agreements  are scheduled for  negotiation  during 1998.
       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  and,  in  the  opinion  of
       management,  employee  relations  are good.  A brief  work  stoppage  was
       experienced in early 1998 at the Corporation's  manufacturing facility in
       Molteno, Italy, when workers learned that the facility was to be closed.
           The  Corporation's   operations  worldwide  are  subject  to  certain
       foreign, federal, state, and local environmental laws and regulations. In
       recent  years,  many state and local  governments  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, 1997, 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

 

<PAGE>
                                       13

       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,  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,  1997,   the
       Corporation's  aggregate  probable exposure with respect of environmental
       liabilities, for which accruals have been established in the Consolidated
       Financial  Statements,  was $43.2 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.
           Pursuant  to the  terms of the  Corporation's  agreement  to sell the
       Bostik chemical  adhesives business to Orkem S.A., the Corporation agreed
       to indemnify  Orkem against costs incurred or claims made with respect to
       environmental  matters at Bostik  facilities  within  four years from the
       date of sale to the extent that the aggregate  costs and claims  exceeded
       $5.0 million,  provided,  however, that the Corporation's total liability
       to Orkem for all environmental  matters with respect to Bostik facilities
       shall not exceed  $10.0  million.  By letter  dated  November  22,  1993,
       Orkem's  successor in interest  ("Total,  S.A.") notified the Corporation
       that within the  four-year  period  following the closing it had incurred
       costs of approximately $5.4 million and demanded payment of the amount in
       excess of $5.0 million.  Total, S.A. also demanded  indemnification for a
       number of environmental  conditions identified in its letter, the cost of
       which it  estimated  would  exceed the $10.0  million  limitation  of the
       Corporation's  indemnification obligation.  During the last several years
       the   Corporation   and  Total,   S.A.  have   continued  to  review  the
       indemnification   claims  and,  subsequent  to  December  31,  1997,  the
       Corporation and Total, S.A. entered into a settlement  agreement pursuant
       to which all remaining claims were resolved.
           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.


<PAGE>
                                       14

           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 liability for remediation cost at the Sullivan's
       Ledge site is estimated at $2.0 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.

(f)    FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC
       OPERATIONS
       Reference  is  made  to  Note  18  of  Notes  to  Consolidated  Financial
       Statements,  entitled "Business Segments and Geographic Areas",  included
       in Item 8 of Part II and to the section entitled  "Business  Segments" in
       Management's  Discussion and Analysis of Financial  Condition and Results
       of Operations included in Item 7 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 is set forth below.

       Nolan D. Archibald - 54
       Chairman, President, and Chief Executive Officer;
           January 1990 - present.



<PAGE>
                                       15

       Joseph Galli - 39
       Executive Vice President 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;
       President - U.S. Power Tools,
           February 1993 - October 1993;
       Vice President Sales and Marketing - U.S. Power Tools,
           May 1991 - February 1993.

       Paul A. Gustafson - 55
       Executive Vice President 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 - 54
       Executive Vice President and President - Security Hardware Group, 
           January 1992 - present.

       Michael P. Hoopis - 46
       Executive Vice President and President - Household Products Group,
           December 1996 - present;
       Group Vice President and President - Worldwide Household Products Group,
           July 1996 - December 1996;
       President - Price Pfister,
           May 1992 - July 1996.

       Charles E. Fenton - 49
       Senior Vice President and General Counsel,
           December 1996 - present;
       Vice President and General Counsel,
           May 1989 - December 1996.

       Barbara B. Lucas - 52
       Senior Vice President - Public Affairs and Corporate Secretary,
           December 1996 - present;
       Vice President  - Public  Affairs  and  Corporate  Secretary,  
           July 1985 - December 1996.



<PAGE>
                                       16

       Thomas M. Schoewe - 45
       Senior Vice President and Chief Financial Officer,
           December 1996 - present;
       Vice President and Chief Financial Officer,
           October 1993 - December 1996;
       Vice President - Finance,
           January 1990 - October 1993.

       Leonard A. Strom - 52
       Senior Vice President - Human Resources,
           December 1996 - present;
       Vice President - Human Resources,
           May 1986 - December 1996.

       Ronald B. Cooper - 43
       Vice President and President - Plumbing Products,
           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.

       Scott C. Hennessy - 38
       Vice President and President - Recreational Products,
           December 1996 - present;
       General Manager and President - True Temper Sports,
           January 1996 - December 1996;
       Vice President Sales and Marketing - True Temper Sports,
           August 1994 - January 1996;
       Vice President Sales and Marketing - North American  Accessories,  
           October 1990 - August 1994.

       Stephen F. Reeves - 38
       Vice President and Controller,
           September 1996 - present;
       Corporate Controller,
           May 1994 - September 1996; Senior Manager - Ernst & Young LLP,
           October 1988 - April 1994.



<PAGE>
                                       17

       James J. Roberts - 39
       Vice President and Vice President/General Manager - U.S. Accessories,
           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;
       Vice President Marketing - U.S. Power Tools,
           June 1991 - April 1993.

       Mark M. Rothleitner - 39
       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 - 43
       Vice President 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 & Accessories,
           August 1995 - December 1997;
       Vice President Sales - Home Depot Division,
           February 1994 - August 1995;
       Vice President  Sales -  Industrial/Construction,  
           January 1992 - February 1994.

       John W. Schiech - 39
       Vice President and Vice President/General Manager - 
         North American Professional Power Tools, 
           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>
                                       18


       Kurt E. Siegenthaler - 55
       Vice President and President - 
         Glass Container-Forming and Inspection Equipment,
           December 1996 - present;
       President - Emhart Glass,
           July 1993 - December 1996;
       President - Packaging Technology Division SIG, Schweizerische
         Industrie-Gesellschaft, 
           April 1989 - June 1993.

       Frederik B. van den Bergh - 52
       Vice President 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;
       Vice President,  Black & Decker Europe,  Commercial Operations,  
           September 1986 - April 1992.



(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 1997 and scheduled  for  introduction  in
       1998; 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 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 described  above under the caption "Recent
       Developments";  and the  continuation  of modest  economic  growth in the
       United  States and gradual  improvement  in the economic  environment  in
       Europe and Asia.
           In addition to the foregoing,  the  Corporation's  ability to realize
       the   anticipated   benefits  during  1998  and  in  the  future  of  the
       restructuring  program undertaken in 1996 and to be undertaken as part of
       the strategic  repositioning of the Corporation 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 achieve certain sales and  profitability  targets and cash
       flow  projections  also is dependent  upon the  Corporation's


<PAGE>
                                       19

       ability  to  identify   appropriate   selected   acquisitions   that  are
       complementary  to the repositioned  business units at acquisition  prices
       that are consistent with these objectives.
           There can be no assurance that the  Corporation  will  consummate the
       sales 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.   Further,  the
       Corporation's  ability to realize the  aggregate  net  proceeds  from the
       sales of such  businesses  in excess of $500  million is  dependent  upon
       market conditions at the time of these sales.
           The incremental  costs of the Year 2000 project and the time by which
       the Corporation believes it will complete the Year 2000 modifications, 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 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 and its subsidiaries operate 50 manufacturing  facilities around
the  world,  including  25  located  outside  the  United  States in 13  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; Amory, Mississippi;  Shelton,
Connecticut; and Towson, Maryland.
     Outside the United  States:  Rotherham,  England;  Kuantan,  Malaysia;  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 Jurong Town, Singapore.
     As more fully described in Item 1 of this report and in Note 23 of Notes to
Consolidated  Financial Statements included in Item 8 of Part II of this report,
the  Corporation  recently  announced  that it  would  close  its  manufacturing
facilities in Brockville,  Canada;  Molteno,  Italy; and Jurong Town, Singapore;
and would announce the closure of an additional  manufacturing facility over the
next several months. In addition,  the Corporation  announced that it would sell
the recreational products business,  the glass  container-forming and inspection
equipment business,  and the household products business in North America, Latin
America, and Australia.
     The Corporation's average utilization rate for its manufacturing facilities
for 1997 was in the range of 75% to 85%. 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.


<PAGE>
                                       20

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 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. in 1996, the Corporation agreed to indemnify Litton for
various liabilities,  including  liabilities relating to the matter described in
the  following  paragraph.  Litton has made a number of  indemnification  claims
under  the  terms  of  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 the opinion of management,  the resolution
of those  indemnification  claims that have been made by Litton to date will not
have a material adverse effect on the Corporation.
     In  1990,  the  Corporation's  former  PRC  subsidiary  was  served  by the
Inspector General of the United States Department of Defense with a subpoena for
documents  from  the  period  1986  to  1990  in  connection   with  a  criminal
investigation of bid and proposal cost charging  practices of certain  divisions
of PRC.  Since that date,  PRC has been  served  with two  additional  Inspector
General subpoenas for marketing and proposal-related documents. During 1992, PRC
and some former  employees  also  received  grand jury  subpoenas  issued by the
United States District Court for the Eastern District of Virginia.  During 1993,
PRC received an additional subpoena from the grand jury directing PRC to provide
information  concerning  the  procurement  and  government  property  management
functions  of certain  divisions  of PRC. In 1996,  the United  States  Attorney
advised PRC that the criminal investigation had concluded without further action
and the  matter was  transferred  to the Civil  Division  of the  Department  of
Justice.  In connection with the Corporation's sale of PRC to Litton Industries,
Inc.  in  1996,  the  Corporation   agreed  to  indemnify   Litton  for  various
liabilities,  including  liabilities  relating  to the  matters  subject  to the
foregoing  subpoenas.  In November  1997,  PRC and the United States  Government
settled this matter.
     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.  96Civ 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 


<PAGE>
                                       21

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
believes  that  Emerson's  claims  are  without  merit  and  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.  This
case is currently proceeding pursuant to a Scheduling Order entered by the Court
and is still in the discovery stage.
     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.   A  motion  to  strike  the
counterclaim  or, in the  alternative,  to dismiss or stay the  counterclaim was
granted by the Circuit  Court for  Baltimore  County with the  counterclaim  and
crossclaims  asserted  by the  defendants  having been  dismissed.  This case is
currently  proceeding  under a Case  Management  Order  and fact  discovery  was
completed in January 1998.
     In October 1997, the Consumer Product Safety  Commission  ("CPSC") filed an
administrative  complaint against the Corporation seeking an order requiring the
Corporation  to give public  notice of a fire hazard  associated  with the T1000
Type 1 Horizontal  Toaster and an order  requiring the Corporation to provide an
adequate remedy for the T1000 Type 1 Horizontal Toaster.  Prior to the filing of
the  complaint  by the CPSC,  the  Corporation  had  recalled  the T1000  Type 1
Horizontal Toaster and given public notice of the safety hazards associated with
the product.  The CPSC has claimed that the Corporation's  notice and remedy are
inadequate.  The  Corporation and the CPSC are proceeding with discovery 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 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

<PAGE>
                                       22

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,  1997,  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 effect on the Corporation.



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

Not applicable.




                                     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 sales prices of the Common Stock as reported in the  consolidated
       reporting system for the New York Stock Exchange Composite Transactions:

        ----------------------------------------------------------------------
        Quarter                         1997                      1996
        -------                         ----                      ----
        January to March         $34-7/8    to $30         $38-1/4  to $30-3/4
        April to June            $37-1/2    to $29-5/8     $44-1/4  to $35-1/8
        July to September        $43-7/16   to $36-3/8     $42-3/8  to $32-7/8
        October to December      $41-13/16  to $35-3/4     $42-1/2  to $29
        ----------------------------------------------------------------------

(b)    HOLDERS OF THE CORPORATION'S CAPITAL STOCK
       As of  January  30,  1998,  there  were  19,328  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                                     1997      1996
           -------                                     ----      ----
           January to March                            $.12      $.12
           April to June                                .12       .12
           July to September                            .12       .12
           October to December                          .12       .12
                                                       ----      ----
                                                       $.48      $.48
                                                       ====      ====
           ----------------------------------------------------------



<PAGE>
                                       23

           For the first three  quarters  in 1996,  the  Corporation  declared a
       dividend  of  approximately  $2.9  million  on its  shares  of  Series  B
       Cumulative  Convertible  Preferred Stock (Series B). On October 14, 1996,
       the Corporation exercised its conversion option, issuing 6,350,000 shares
       of Common  Stock in  exchange  for the  150,000  shares of Series B stock
       previously  outstanding.  Dividends of approximately $.4 million relating
       to the period from  September 29, 1996,  through  October 13, 1996,  were
       paid to the  holder of the  Series B stock.  During  the most  recent two
       years,  no other  dividends were declared or paid in respect of shares of
       preferred stock of the Corporation.

       Common Stock:          150,000,000 authorized, $.50 par value, 94,842,544
                              shares and  94,248,807  shares  outstanding  as of
                              December 31, 1997 and 1996, respectively.

       Preferred Stock:       5,000,000 authorized, without par value, no shares
                              outstanding as of December 31, 1997 and 1996.

(d)    ANNUAL MEETING OF STOCKHOLDERS
       The 1998 Annual Meeting of  Stockholders  of the Corporation is scheduled
       to be held on April 28,  1998,  at 8:30 a.m. at the  Radisson  Riverfront
       Hotel, 2 Tenth Street, Augusta, Georgia 30901.


<PAGE>
                                       24

ITEM 6.   SELECTED FINANCIAL DATA

<TABLE>
FIVE-YEAR SUMMARY
(Millions of Dollars Except Per Share Data)

<CAPTION>
                                                 1997          1996(a)      1995(b)        1994        1993(c)
---------------------------------------------------------------------------------------------------------------
<S>                                            <C>           <C>            <C>          <C>         <C>     
Sales                                          $4,940.5      $4,914.4       $4,766.1     $4,365.2    $4,121.5
Earnings from continuing operations               227.2         159.2          216.5         89.9        64.1
Earnings from discontinued operations (d)            --          70.4           38.4         37.5        31.1
Extraordinary items                                  --            --          (30.9)          --          --
Cumulative effects of changes in
   accounting principle                              --            --             --           --       (29.2)
Net earnings                                      227.2         229.6          224.0        127.4        66.0

Net earnings per common share - basic (e):
     Continuing operations                         2.40          1.69           2.39          .93         .63
     Discontinued operations                         --           .79            .45          .45         .37
     Extraordinary items                             --            --           (.36)          --          --
     Cumulative effects of accounting
        changes                                      --            --             --           --        (.35)
Net earnings per common share - basic              2.40          2.48           2.48         1.38         .65

Net earnings per common share - assuming
   dilution (e):
     Continuing operations                         2.35          1.66           2.29          .92         .62
     Discontinued operations                         --           .73            .41          .44         .37
     Extraordinary items                             --            --           (.33)          --          --
     Cumulative effects of accounting
       changes                                       --            --             --           --        (.35)
Net earnings per common share - assuming
   dilution                                        2.35          2.39           2.37         1.36         .64

Total assets                                    5,360.7       5,153.5        5,545.3      5,264.3     5,166.8
Long-term debt                                  1,623.7       1,415.8        1,704.5      1,723.2     2,069.2
Cash dividends per common share                     .48           .48            .40          .40         .40
--------------------------------------------------------------------------------------------------------------
<FN>
(a) 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.

(b) 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
    extinguishment of debt, net of income tax benefit of $2.6 million.

(c) Effective January 1, 1993, the Corporation  changed its method of accounting
    for  postemployment   benefits.   In  addition,   earnings  from  continuing
    operations  for 1993 include a  restructuring  credit of $6.3 million before
    tax ($.2 million after tax).

(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 12 of Notes to Consolidated Financial Statements included in
    Item 8 of Part II of this report.

(e) Earnings per share amounts for all periods presented have been calculated in
    accordance  with the  requirements  of  Statement  of  Financial  Accounting
    Standards  (SFAS) No. 128,  Earnings  Per Share.  As a result,  earnings per
    share amounts for 1993 through 1996 have been restated,  where  appropriate,
    to conform with the requirements of SFAS No. 128.
</FN>
</TABLE>

<PAGE>
                                       25

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


OVERVIEW

The Corporation  reported net earnings of $227.2 million or $2.35 per share on a
diluted basis for the year ended December 31, 1997,  compared to net earnings of
$229.6 million or $2.39 per share on a diluted basis in 1996.
     Earnings from  continuing  operations  before income taxes rose from $294.0
million,  excluding  restructuring  charges,  in 1996 to $349.5 million in 1997.
Earnings from continuing operations,  excluding the 1996 restructuring charge of
$91.3 million ($74.8 million after tax) and the $10.6 million decrease in income
tax expense that occurred in 1996 as a result of the Corporation's  reduction in
its deferred tax asset valuation allowance, increased from $223.4 million ($2.32
per share on a diluted  basis) in 1996 to $227.2  million  ($2.35 per share on a
diluted basis) in 1997. This increase  occurred despite a sharp increase in 1997
in the Corporation's reported tax rate.
     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,  more fully
described below under the heading "Subsequent Events" and in Note 23 of Notes to
Consolidated  Financial  Statements,  includes  the  following  components:  (i)
divestiture of the recreational products business,  the glass  container-forming
and inspection equipment business,  and the household products business in North
America,  Latin America, and Australia;  (ii) the repurchase of up to 10% of the
Corporation's  outstanding  common stock; and (iii) a restructuring of remaining
businesses.  The  restructuring  program is expected to take  approximately  two
years to  complete  and to  result in a pre-tax  charge  of  approximately  $250
million. Approximately $200 million of the total pre-tax restructuring charge is
expected to be recognized  in the first quarter of 1998,  with the balance to be
recognized over the remaining course of the program.
     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.  The effect of this accounting  change will result in a write-off of
approximately  $900 million of goodwill  through a non-cash charge to operations
in the first quarter of 1998.


CONTINUING OPERATIONS

SALES
The following  chart provides an analysis of the  consolidated  changes in sales
for the years ended December 31, 1997, 1996, and 1995.

Analysis of Changes in Sales of Continuing Operations

For the Year Ended December 31,
--------------------------------------------------------------------------------
(Dollars in Millions)            1997                1996                1995
--------------------------------------------------------------------------------
Total sales                    $4,941              $4,914              $4,766
Unit volume                         5%                  5%                  6%
Price                              (1)%                (1)%                 1%
Currency                           (3)%                (1)%                 2%
--------------------------------------------------------------------------------
Change in total sales               1%                  3%                  9%
================================================================================





<PAGE>
                                       26

     Total 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 both the Consumer and Home Improvement  Products  (Consumer) segment
and the Commercial and Industrial Products (Commercial) segment.
     Total sales for the year ended December 31, 1996, were $4.91 billion, which
represented a 3% increase over 1995 sales of $4.77  billion.  During 1996,  unit
volume  grew 5% over the sales  level in 1995.  The 1996  growth in unit  volume
occurred in both the Consumer and Commercial segments.


EARNINGS

Operating income as a percentage of sales was 9.9% for 1997 compared to 7.3% and
8.9% for 1996 and 1995, respectively.  Excluding the $91.3 million restructuring
charge  recognized in 1996,  operating  income as a percentage of sales was 9.9%
for 1997 compared to 9.1% and 8.9% for 1996 and 1995, respectively.
     Gross margin as a percentage of sales for 1997 was 35.9%  compared to 35.8%
for 1996 and 36.7% for 1995.  Gross margin in 1997 compared to that of the prior
year was adversely  affected by selective price reductions,  particularly in the
domestic power tools and accessories and household products businesses;  pricing
constraints due to competitive  pressures;  currency-related cost pressures that
resulted  from stronger  currencies  in countries in which certain  products are
manufactured  relative to  currencies  of countries in which those  products are
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. The  currency-related  cost pressures have been partially mitigated
by the hedge program as more fully  described  below under the heading  "Hedging
Activities" and in Note 9 of Notes to  Consolidated  Financial  Statements.  The
Corporation will experience  increased margin pressure at current exchange rates
when hedges,  which it entered into prior to the current appreciation of certain
currencies in jurisdictions in which it manufactures, expire.
     The  decrease  in gross  margin  for 1996 from the prior  year's  level was
primarily  attributable  to several  factors.  First,  actions  taken in 1996 to
reduce  inventories  from the high  level at the end of 1995  resulted  in lower
production  volumes during 1996, and the  associated  lower overhead  absorption
negatively affected gross margin.  Second,  competitive pressures did not permit
the businesses to institute  certain price increases and, in some cases,  caused
the  businesses to reduce prices from the prior year's level.  Gross margin also
was  negatively  affected  by  manufacturing  inefficiencies,   including  those
associated with new manufacturing facilities, and changes in the mix of products
sold in 1996.
     Selling, general, and administrative expenses as a percentage of sales were
25.9% for 1997 compared to 26.6% for 1996 and 27.8% for 1995.  The  improvements
in 1997  compared  to 1996 and in 1996  compared to 1995 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.


<PAGE>
                                       27

     Net interest  expense  (interest  expense less interest  income) was $124.6
million in 1997 compared to $135.4  million in 1996 and $184.4  million in 1995.
The lower net  interest  expense  for 1997  compared to 1996 was  primarily  the
result of  reduced  debt  levels  coupled  with a lower  average  interest  rate
inherent in the debt portfolio. The lower net interest expense for 1996 compared
to 1995 was primarily due to lower debt levels in 1996.  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.
     As more  fully  described  in Note 13 of  Notes to  Consolidated  Financial
Statements,  during  1996 and 1995,  the  Corporation  reversed a portion of the
deferred tax asset valuation allowance based on its projection of future taxable
earnings  in  the  United  States,  including,  for  1995,  the  impact  of  the
then-pending  sale of PRC Inc. The effect of this  reduction in the deferred tax
asset  valuation  allowance  was to decrease 1996 and 1995 income tax expense by
$10.6 million and $65.0 million, respectively.
     Excluding  the effect of the $16.5  million  income tax benefit  associated
with the  restructuring  charge in 1996 and the effects of the $10.6 million and
$65.0  million  income tax benefits  that  resulted  from the  reductions of its
deferred  tax asset  valuation  allowance  in 1996 and 1995,  respectively,  the
reported tax rate on  continuing  operations  was 35% in 1997 compared to 24% in
1996 and 33% in 1995.  The increase in the  effective  tax rate in 1997 resulted
from the fact that, 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. Contributing to the lower tax rate for 1996
compared to 1995 were higher taxable  earnings in the United States and a change
in the mix of operating  income outside the United States from  subsidiaries  in
higher-rate tax jurisdictions to subsidiaries in lower-rate tax jurisdictions or
subsidiaries   that  profit  from  the   utilization   of  net  operating   loss
carryforwards.  An analysis of taxes on earnings is included in Note 13 of Notes
to Consolidated Financial Statements.


BUSINESS SEGMENTS

The Corporation operates in two business segments:  Consumer, including consumer
and  professional  power tools and  accessories,  household  products,  security
hardware,  outdoor  products  (composed  of electric  lawn and garden  tools and
recreational products),  plumbing products, and product service; and Commercial,
including  fastening  and  assembly  systems  and  glass  container-forming  and
inspection equipment.
     As more fully described below under the heading  "Subsequent Events" and in
Note 23 of Notes to  Consolidated  Financial  Statements,  in January 1998,  the
Corporation  announced  its planned  divestiture  of the  recreational  products
business, the glass container-forming and inspection equipment business, and the
household products business in North America, Latin America, and Australia.  The
Corporation's  consolidated sales and operating income, as well as its sales and
operating  income by business  segment for all  periods  presented,  include the
results of businesses to be divested.



<PAGE>
                                       28

<TABLE>
Sales and Operating Income by Business Segment
<CAPTION>
                                                                    For the Year Ended December 31,
--------------------------------------------------------------------------------------------------------------
(Dollars in Millions)                                         1997                1996                1995
--------------------------------------------------------------------------------------------------------------
<S>                                                       <C>                 <C>                 <C>     
Consumer
Total sales                                               $  4,242            $  4,212            $  4,076
Operating income                                               401                 273                 348
Operating income excluding restructuring
   costs and goodwill amortization                             449                 411                 400
Commercial
Total sales                                                    699                 702                 690
Operating income                                                82                  76                  75
Operating income excluding restructuring
   costs and goodwill amortization                              98                  96                  92
Corporate and Eliminations
Operating income                                                 6                   8                   3
--------------------------------------------------------------------------------------------------------------
Total sales                                               $  4,941            $  4,914            $  4,766
Total operating income                                    $    489            $    357            $    426
Total operating income excluding restructuring
   costs and goodwill amortization                        $    553            $    515            $    495
==============================================================================================================
</TABLE>


Consumer and Home Improvement Products

The  following  chart  provides  an analysis of the change in sales for the year
ended  December 31,  1997,  compared to the year ended  December  31,  1996,  by
geographic area within the Consumer segment.

                    United                                              Total
                    States            Europe            Other          Consumer
--------------------------------------------------------------------------------
Unit volume            6%                5%              --%                5%
Price                 (2)%              (1)%             --%               (1)%
Currency              --%               (9)%             (2)%              (3)%
--------------------------------------------------------------------------------
Total Consumer         4%               (5)%             (2)%               1%
================================================================================
     Total sales in the  Consumer  segment for 1997 were 1% higher than in 1996,
with unit volume up 5% over the 1996 level. Sales in the United States increased
by 4% over the prior  year's  level,  reflecting  a 6% increase in unit  volume,
partially  offset by a 2% decline in price.  The 2% price  decline from the 1996
level was primarily due to price reductions taken in the household  products and
the power tools and accessories businesses.
     Unit  volume in the  United  States  increased  by 6% in 1997 over the 1996
level  principally  as a result of strong unit volume  growth in the power tools
and accessories and security  hardware  businesses,  partially  offset by a unit
volume decline in the household products  business.  The 1997 unit volume growth
in the domestic power tools and accessories business was driven primarily by the
introduction  of new products,  including the DEWALT(R)  machinery tool line and
Extreme  Cordless(R)  18-volt  reciprocating  saw,  the Wood  Hawk(TM)  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.  Sales in the
domestic security  hardware business  increased in 1997 over the 1996 level due,
in part,  to sales of new  products,  including  locksets  and  handlesets  with
Lifetime  Finish.  The  domestic  household  products  business   experienced  a



<PAGE>
                                       29

significant  sales decline in 1997 from 1996 levels  principally  as a result of
sharply  lower  sales  of the  SnakeLight  flexible  flashlight.  However,  this
business  also  experienced  sales  decreases  during 1997 in most other product
categories with the exception of cleaning products, where sales increased on the
strength  of the  ScumBuster(TM)  cordless  submersible  scrubber.  Sales in the
plumbing products business during 1997 were slightly above the 1996 level, while
sales in the recreational  products business increased at a double-digit rate in
1997 over the 1996 level.
     Excluding the significant  negative  effects of changes in foreign exchange
rates,  sales in the Consumer  businesses in Europe increased by 4% in 1997 over
the 1996 level. Excluding negative foreign exchange effects,  increased sales of
consumer and professional power tools, accessories,  and outdoor lawn and garden
tools in Europe  during 1997 as compared  to the prior  year's  levels more than
offset declines in sales of household products and product service,  while sales
of security hardware approximated the prior year's level. Excluding the negative
effects of changes in foreign  exchange  rates,  some areas  achieved good sales
growth in 1997 over 1996 levels,  most notably the United Kingdom,  Scandinavia,
and  eastern  Europe;  however,  this  growth was  partially  offset by weakness
throughout other parts of Europe.
     Excluding the negative effects of changes in foreign exchange rates,  sales
in the Consumer  businesses in other geographic regions in 1997 approximated the
1996 level.  Increased  sales in Consumer  businesses  in a number of  countries
during 1997 were  substantially  offset by sales  declines in Asia as well as in
household  products  businesses in other countries,  particularly  Australia and
Brazil.
     Operating income as a percentage of sales for the Consumer segment was 9.4%
in 1997 compared to 6.5% in 1996.  Excluding goodwill  amortization and the 1996
restructuring charge,  operating income as a percentage of sales would have been
10.6% in 1997  compared to 9.7% in 1996.  Operating  income as a  percentage  of
sales,  excluding  goodwill  amortization  and the  1996  restructuring  charge,
improved  in  1997  over  the  1996  level  in the  worldwide  power  tools  and
accessories business; however, that improvement was partially offset by declines
in the plumbing products and, most significantly, household products businesses.
Operating income as a percentage of sales,  excluding goodwill  amortization and
the 1996 restructuring  charge, in the security hardware business in 1997 showed
a slight  improvement  over the 1996 level.  Decreased  profitability in 1997 as
compared to 1996 in the  plumbing  products  business  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.  Decreased
profitability  in 1997 as compared to 1996 in the  household  products  business
largely  resulted  from  sharply  lower  sales  in  1997  of the  higher  margin
SnakeLight flexible flashlight.
     Total sales in the  Consumer  segment for 1996 were 3% higher than in 1995,
with unit volume up 5% over the 1995 level. Sales in the United States increased
by 7% over the prior year's  level,  reflecting  an 8% increase in existing unit
volume, partially offset by a 1% decline in price. The 1% price decline from the
1995 level was primarily due to price reductions taken in the household products
and the power tools and accessories  businesses.  A significant component of the
1996 price reduction by the household products business related to a substantial
price  reduction  taken in the latter  part of 1996 on the  SnakeLight  flexible
flashlight,  with the balance related to price reductions taken on various other
product  lines,  predominantly  to  reduce  levels  of  excess  inventory  or in
connection  with the exit of certain  low-margin  product lines.  The 1996 price
reduction by the power tools and accessories  business was primarily in response
to competitive pressures, but also to reduce levels of excess inventories.



<PAGE>
                                       30

     Unit  volume in the  United  States  increased  by 8% in 1996 over the 1995
level  principally  as a result of strong unit volume  growth in the power tools
and accessories,  security hardware, and plumbing products businesses, partially
offset by unit volume declines in the household products business. The 1996 unit
volume growth in the domestic power tools and accessories business was primarily
the result of strong demand for DEWALT  professional power tools and accessories
as well as the expansion of the  VERSAPAK(R)  interchangeable  battery system to
outdoor  lawn and garden  tools.  The 1996 unit  volume  growth in the  domestic
security hardware business occurred in virtually all product categories, and the
1996 unit  volume  growth in the  plumbing  products  business  occurred in both
retail and professional  distribution  channels. The 1996 unit volume decline in
the domestic  household  products  business was in  comparison to a strong 1995,
which  benefited from pent-up demand for the SnakeLight  flexible  flashlight at
the end of 1994. While unit sales of the SnakeLight  flexible  flashlight during
1996 declined from the 1995 level and unit volume  declines were  experienced in
other  categories due to the exit of certain  low-margin  product  lines,  those
declines were  substantially  offset by unit volume  increases in 1996 resulting
from  refinements to existing  products and from  introductions of new products,
including the ScumBuster cordless submersible scrubber.
     Excluding the negative effects of changes in foreign exchange rates,  sales
in the  Consumer  businesses  in  Europe  decreased  by 1% in 1996 from the 1995
level. The 1% decline in sales in 1996 in the European  Consumer  businesses was
primarily  the  result of price  reductions  taken in  response  to  competitive
pressures  and to reduce levels of excess  inventories.  Unit volume in 1996 was
essentially  equal to the 1995 level as increased sales of power tools,  spurred
by the success of the DEWALT and Elu professional  product lines, were offset by
unit volume declines in security hardware,  accessories,  outdoor products,  and
household  products.  Excluding  the  negative  effects  of  changes  in foreign
exchange rates, some European  countries achieved good sales growth in 1996 over
1995  levels;  however,  this growth was offset by declines in other  countries,
most notably Germany and the United Kingdom.
     Excluding the negative effects of changes in foreign exchange rates,  sales
in the Consumer  businesses in other geographic  regions increased by 3% in 1996
over the 1995 level largely due to price  increases,  primarily in Latin America
to keep pace with  inflation,  partially  offset  by price  reductions  in other
countries.  The 1996 sales growth,  excluding the negative effects of changes in
foreign exchange rates,  was experienced in a number of countries,  most notably
in Mexico,  Colombia,  and Brazil,  offset by sales declines in Asia and certain
other countries, most notably Canada and Australia.
     Operating income as a percentage of sales for the Consumer segment was 6.5%
in 1996 compared to 8.6% in 1995.  Excluding goodwill  amortization and the 1996
restructuring charge,  operating income as a percentage of sales would have been
9.7% in 1996  compared  to 9.8% in 1995.  Operating  income as a  percentage  of
sales,  excluding  goodwill  amortization  and the  1996  restructuring  charge,
improved  in 1996 over the 1995  level in the  domestic  security  hardware  and
plumbing  products  businesses;  however,  those  improvements  were  offset  by
declines in the  household  products  business,  the  worldwide  power tools and
accessories business,  and the European security hardware operations.  Excluding
goodwill amortization and the 1996 restructuring  charge,  operating income as a
percentage of sales for the worldwide  power tools and  accessories  business in
1996 was below the 1995 level,  as declines  experienced  in the power tools and
accessories businesses in the United States, Latin America,  Canada,  Australia,
and Asia in 1996  more  than  offset  an  improvement  in the  power  tools  and
accessories  business in Europe.  That  profitability  improvement  in the power
tools and  accessories  business in Europe,  however,  was in  comparison  to an
extremely weak 1995.


<PAGE>
                                       31

The declines in operating  income as a percentage of sales,  excluding  goodwill
amortization and the 1996 restructuring  charge, in 1996 from 1995 levels in the
power tools and  accessories  businesses in the United  States,  Latin  America,
Canada,    Australia,   and   Asia   primarily   resulted   from   manufacturing
inefficiencies, including those associated with new manufacturing facilities and
the  businesses'  efforts  to  reduce  inventory  levels  in  1996,  competitive
pressures which adversely  affected pricing,  and higher  transportation  costs,
partially  offset by cost savings due to tight  controls over selling,  general,
and administrative expenses.


Commercial and Industrial Products

The  following  chart  provides  an analysis of the change in sales for the year
ended  December 31,  1997,  compared to the year ended  December  31,  1996,  by
geographic area within the Commercial segment.
                   United                                               Total
                   States            Europe            Other          Commercial
--------------------------------------------------------------------------------
Unit volume          15%               (5)%             10%                5%
Price                (1)%              --%              --%               (1)%
Currency             --%               (9)%             (7)%              (5)%
--------------------------------------------------------------------------------
Total Commercial     14%              (14)%              3%               (1)%
================================================================================
     Total sales in the Commercial  segment for 1997 were 1% lower than the 1996
level.  Excluding  the negative  effects of changes in foreign  exchange  rates,
sales in the  Commercial  segment  were 4%  higher  in 1997  than in  1996.  The
fastening and assembly  systems  (Fastening)  business  achieved  growth in unit
volume in 1997 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.  Unit  volume  in the  glass  container-forming  and  inspection
equipment (Glass) business in 1997 slightly exceeded the prior year's level.
     Operating  income as a percentage of sales for the  Commercial  segment was
11.8% and 10.8% for 1997 and 1996, respectively. Excluding goodwill amortization
and the 1996  restructuring  charge,  operating  income as a percentage of sales
would have been 14.0% in 1997 compared to 13.6% in 1996.  Operating  income as a
percentage of sales improved  during 1997 over 1996 levels in both the Fastening
and Glass businesses.
     Total sales in the Commercial segment for 1996 were 2% higher than the 1995
level.  Excluding  the negative  effects of changes in foreign  exchange  rates,
sales in the  Commercial  segment  were 5%  higher  in 1996  than in  1995.  The
Fastening  business achieved growth in unit volume in 1996 as a result of strong
sales in Asia and the continued strength of sales to the automotive  industry in
the United  States,  partially  offset by  protracted  softness in the  domestic
industrial market and in Europe.  The Glass business also experienced  growth in
unit volume in 1996 over 1995.
     Operating  income as a percentage of sales for the  Commercial  segment was
10.8% for both  1996 and  1995.  Excluding  goodwill  amortization  and the 1996
restructuring charge,  operating income as a percentage of sales would have been
13.6% in 1996  compared to 13.3% in 1995.  Operating  income as a percentage  of
sales  improved  during  1996 over 1995 levels in both the  Fastening  and Glass
businesses.





<PAGE>
                                       32

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. 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.
     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, 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  qualifies  as  a  highly  inflationary  economy  and,
accordingly,  the results of the Brazilian subsidiary will be measured using the
Brazilian  real as its  functional  currency,  with gains and losses from United
States  dollar-denominated  transactions  included  in net  earnings.  While the
Corporation  will  take  actions  to  mitigate  its  exposure,  there  can be no
assurance  that any future  devaluation of the Brazilian real will not adversely
affect the Corporation.
     As a result of recent economic turmoil in a number of Asian countries,  the
Asian markets are expected to remain weak during 1998.  Because the Asian region
accounted  for less than 4% of its total sales and a smaller  proportion  of its
total profits in 1997, the economic  situation in Asia is not expected to have a
material adverse effect on the Corporation's operating results during 1998 other
than  with  respect  to those  actions  included  in the  restructuring  program
recently announced and described below under the heading "Subsequent Events".
     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 equity adjustment from  translation,  a
separate   component  of   stockholders'   equity.   During  1997,   translation
adjustments,  recorded in the equity  adjustment from  translation  component of
stockholders' equity,  decreased  stockholders' equity by $63.1 million compared
to a decrease of $13.6 million in 1996.
     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 1997, these activities  netted to a cash inflow of $26.9 million compared
to a cash outflow of $5.4 million in 1996. The corresponding gains and losses on
these hedging activities were recorded in the equity adjustment from translation
component of stockholders'  equity.  Also included in the equity adjustment from
translation  component  were the costs of  maintaining  the hedge  portfolio  of
foreign exchange  contracts.  These hedge costs were not significant in 1997 and
1996.






<PAGE>
                                       33

    As more  fully  explained  in Note 9 of  Notes  to  Consolidated  Financial
Statements,  the Corporation seeks to issue debt  opportunistically,  whether at
fixed or variable rates, at the lowest possible costs. Based upon its assessment
of the future interest rate  environment  and its desired  variable rate debt to
total debt ratio,  the  Corporation  may 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.  These
interest  rate hedges could  change the mix of fixed and  variable  rate debt as
actual interest rates move outside the ranges covered by these instruments.  The
variable rate debt to total debt ratio,  after taking  interest rate hedges into
account, was 63% at December 31, 1997, compared to 35% at December 31, 1996, and
43% at December 31, 1995.  At December 31, 1997,  average debt  maturity was 3.9
years  compared to 4.5 years at December 31, 1996, and 4.0 years at December 31,
1995.


Interest Rate Sensitivity

The following  table  provides  information  as of December 31, 1997,  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.  Short-term  borrowings,
current  maturities of long-term debt, and long-term debt are not denominated in
any single  currency  other than the United States  dollar,  which  accounts for
greater than 10% of total outstanding  indebtedness at December 31, 1997. Unless
otherwise  indicated,  the information is presented in U.S. dollar  equivalents,
which is the Corporation's reporting currency, as of December 31, 1997.

<TABLE>
Principal Payments and Interest Rate Detail by Contractual Maturity Dates
<CAPTION>
                                                                                                                Fair Value
                                                                                                                (Assets)/
(U.S. Dollars in Millions)          1998       1999       2000       2001        2002   Thereafter      Total  Liabilities
--------------------------------------------------------------------------------------------------------------------------
<S>                               <C>        <C>        <C>        <C>        <C>        <C>        <C>           <C>     
Liabilities
Short-term borrowings
Variable rate (U.S. dollars)      $ 54.7     $   --     $   --     $   --     $   --     $   --     $   54.7      $   54.7
   Average interest rate            6.23%                                                               6.23%
Variable rate (other currencies)  $123.6     $   --     $   --     $   --     $   --     $   --     $  123.6      $  123.6
   Average interest rate            5.22%                                                               5.22%
Long-term debt
Fixed rate (U.S. dollars)         $ 53.0     $ 30.0     $250.0     $ 45.0     $ 47.5     $636.6     $1,062.1      $1,098.6
   Average interest rate            8.15%      8.52%      6.63%      8.94%      8.88%      7.34%        7.38%
Fixed rate (other currencies)     $  7.5     $  8.1     $  3.4     $  3.5     $   --     $   --     $   22.5      $   22.7
   Average interest rate            8.72%      8.78%      7.93%      7.64%                              8.44%
Variable rate (U.S. dollars)      $   --     $ 20.0     $   --     $576.6 (a) $   --     $  3.0     $  599.6      $  599.6
   Average interest rate                      L+.65%(b)             L+.16%(b)            Various     Various
--------------------------------------------------------------------------------------------------------------------------
<FN>

(a)  Includes $569.1 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>
                                       34

<TABLE>
Notional Principal Amounts and Interest Rate Detail by Contractual Maturity Dates
<CAPTION>
                                                                                                              Fair Value
                                                                                                                (Assets)/
(U.S. Dollars in Millions)        1998       1999        2000        2001        2002   Thereafter   Total     Liabilities
--------------------------------------------------------------------------------------------------------------------------
<S>                              <C>        <C>         <C>         <C>         <C>       <C>          <C>         <C>   
Interest Rate Derivatives
Interest Rate Swaps
   (all U.S. dollar denomi-
   nated except for U.S. rates
   to foreign rates)
Fixed to variable rates          $100.0     $   --      $150.0      $ 50.0      $  --     $400.0       $700.0      $  3.4
   Average pay rate (c)
   Average receive rate            5.40%                  5.76%       5.60%                 6.36%        6.04%
Variable to fixed rates          $250.0     $   --      $   --      $   --      $  --     $   --       $250.0      $  2.1
   Average pay rate                7.12%                                                                 7.12%
   Average receive rate (d)
Rate basis swaps (e)             $ 50.0     $   --      $   --      $   --      $  --     $   --       $ 50.0      $   .1
Fixed U.S. rates to fixed
   foreign rates (f)
      To Japanese yen            $ 15.0     $100.0      $   --      $   --      $  --     $   --       $115.0      $(17.9)
        Average pay rate (in
           Japanese yen) (g)        .72%      1.99%                                                      1.82%
        Average receive rate       6.04%      6.66%                                                      6.57%
      To deutsche marks          $   --     $100.0      $   --      $   --      $  --     $   --       $100.0      $(14.7)
        Average pay rate  (in
           deutsche marks) (h)                4.73%                                                      4.73%
        Average receive rate                  6.64%                                                      6.64%
      To Dutch guilders          $   --     $ 50.0      $   --      $   --      $  --     $   --       $ 50.0      $ (8.1)
        Average pay rate (in
           Dutch guilders) (i)                4.58%                                                      4.58%
        Average receive rate                  6.77%                                                      6.77%
-----------------------------------------------------------------------------------------------------------------------------
<FN>

(c)  The average pay rate is based upon 6-month forward LIBOR.

(d)  The average receive rate is based upon 3-month forward LIBOR.

(e)  Rate basis swaps swap from a variable rate (based upon LIBOR) to the higher
     of a fixed rate of 6.76% or a variable rate (LIBOR minus 1.74%).

(f)  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.

(g) The average pay rate (in Japanese yen) is based upon the following notional
     principal amounts,  in billions of Japanese yen: 1.74 yen in 1998 and 10.90
     yen in 1999.

(h)  The average pay rate (in deutsche marks) is based upon a notional principal
     amount of 153.3 million deutsche marks.

(i)  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

The  Corporation  is exposed to market  risks  arising  from  changes in foreign
exchange  rates  as a result  of  manufacturing  its  products  in 14  different
countries  and  marketing  its  products  and  services  in over 100  countries.
Earnings  are  primarily  affected  by  fluctuations  in the value of the United
States dollar, pound sterling, and Italian lira as compared to other currencies,
predominantly in European countries, as a result of the sales of its products in
foreign markets.
     As of December 31, 1997, the Corporation  has hedged a substantial  portion
of its 1998  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 1998 by  approximately  $13 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.  


<PAGE>
                                       35

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  1997,  inherent  in  the  foreign  exchange  hedging
portfolio at December 31, 1997.


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 1,400 were
in the Consumer segment. As a result, severance benefits totaling $74.6 million,
principally  associated with the European Consumer  businesses,  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 Consumer businesses 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.
     The Corporation estimates that the implementation of the 1996 restructuring
plan  resulted in savings of  approximately  $10.0  million and $40.0 million in
1996 and 1997, respectively.
     The  Corporation  actively seeks to identify  opportunities  to improve its
cost structure.  These  opportunities  may involve the closure of  manufacturing
facilities or the  reorganization of other  operations.  The Corporation has, in
the past, undertaken  restructuring  actions that generated  improvements in its
cost structure. Those improvements, however, are subject to erosion over time as
competitive  pressures  intensify  or  commodity  prices  increase.  In order to
preserve  those  improvements,   the  Corporation   continuously  seeks  further
opportunities to enhance its cost structure. As more fully described below under
the  heading  "Subsequent  Events"  and in  Note  23 of  Notes  to  Consolidated
Financial  Statements,  the  Corporation  commenced an additional  restructuring
program in January 1998.


IMPACT OF  YEAR 2000

The Year 2000 issue stems from the fact that many computer programs were written
using two,  rather  than four,  digits to identify  the  applicable  year.  As a
result, computer programs with time-sensitive software 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,  resulting  in system  failures  or  miscalculations  and  disruptions  of
operations,  including,  among other  things,  a temporary  inability to process
transactions or engage in other normal business activities.
     In order to improve operating performance,  the Corporation has undertaken,
or  will  undertake  in  the  near  future,  a  number  of  significant  systems
initiatives.  An  ancillary  benefit of those  systems  initiatives  is that the
resulting systems are Year 2000 compliant.  Based upon a recent assessment,  the
Corporation  has  determined  that the  incremental  cost of  ensuring  that 


<PAGE>
                                       36

its remaining computer systems are Year 2000 compliant is not expected to have a
material  adverse effect on the  Corporation.  The  Corporation  has completed a
preliminary  assessment of each of its operations and their Year 2000 readiness,
feels that  appropriate  actions are being  taken,  and expects to complete  its
overall Year 2000 remediation prior to any anticipated impact on its operations.
The  Corporation  believes that,  with  modifications  to existing  software and
conversions  to new  systems,  the Year  2000  issue  will not pose  significant
operational  problems for its computer systems.  However,  if such modifications
and conversions are not made, or are not completed  timely,  the Year 2000 issue
could have a material  impact on the  operations  of the  Corporation.  Further,
while the Corporation has initiated formal  communications  with a number of its
significant  suppliers  to  determine  the  extent  to which  the  Corporation's
interface  systems are vulnerable to those third  parties'  failure to remediate
their own Year 2000 issues,  and will initiate similar  communication with major
customers  as well as the balance of its major  suppliers  in 1998,  there is no
guarantee that the systems of other companies on which the Corporation's systems
rely  will be timely  converted  and  would  not have an  adverse  effect on the
Corporation's systems.


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.
     Net earnings of the  discontinued  PRC segment were $38.4 million ($.41 per
share on a diluted basis) in 1995. The  Corporation  sold RSI on March 31, 1995,
and EMI on September 15, 1995, for aggregate proceeds of $95.5 million.


FINANCIAL CONDITION

Operating  activities of continuing  operations  before the sale of  receivables
generated cash of $353.2 million for the year ended December 31, 1997,  compared
to $463.4  million for the year ended  December 31, 1996.  This decrease in cash
generation  during 1997 was primarily the result of changes in working  capital.
Actions taken in 1996 to reduce  inventories from the high level that existed in
1995  resulted  in cash  generation  of $107.5  million  in 1996.  However,  the
Corporation  increased  inventories  at December 31, 1997,  in part, to increase
customer service levels,  which resulted in cash usage of $63.7 million in 1997.
The increase in accounts  receivable from the prior year level,  before the sale
of receivables,  at December 31, 1997, exceeded the increase experienced in 1996
due to a higher  level of sales in the fourth  quarter of 1997  compared  to the
fourth quarter of 1996.



<PAGE>
                                       37

     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
compared to $230.0 million at December 31, 1995.
     In  addition to  measuring  cash flow  generation  and usage based upon the
operating, investing, and financing classifications included in the Consolidated
Statement  of Cash Flows,  the  Corporation  monitors  free cash flow, a measure
commonly  employed by bond rating agencies and banks.  The  Corporation  defines
free  cash  flow as cash  available  for debt  reduction  (including  short-term
borrowings),  prior to the  effects  of cash  proceeds  received  from  sales of
divested  businesses,  issuances of equity, and sales of receivables.  Free cash
flow,  a more  inclusive  measure of cash flow  generation  than cash flows 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, 1997,  the  Corporation  generated  free cash flow of $150.2
million  compared to $235.4  million in 1996.  The decrease in free cash flow in
1997  from  the 1996  level  was  primarily  the  result  of a  working  capital
investment in 1997 as opposed to a working capital liquidation in 1996.
     Excluding amounts related to discontinued operations,  investing activities
for 1997 used cash of $162.8 million compared to $170.2 million in 1996. Capital
expenditures  were $203.1  million during 1997 compared to $196.3 million during
1996.  During 1997,  approximately  89% of the capital  expenditures were in the
Consumer  segment,   primarily  in  support  of  new  product   initiatives  and
productivity  enhancements.  The Corporation expects capital spending in 1998 to
approximate the 1997 level.
     Financing  activities for 1997 generated cash of $129.6 million compared to
$667.3 million of cash used in 1996. During 1997, the Corporation  increased its
outstanding borrowings by $164.9 million, of which an increase of $212.0 million
was attributable to the termination of the sale of receivables  program.  During
1996, the Corporation  replaced its former unsecured  revolving credit facility,
which was  scheduled to expire in 1997,  with a new unsecured  revolving  credit
facility,  expiring  in 2001.  Also during  1996,  the  Corporation  reduced its
outstanding  borrowings by $635.0 million  through the proceeds from the sale of
discontinued  operations and through improved operating cash flows. During 1995,
the Corporation  recognized a $30.9 million extraordinary loss, $26.5 million of
which  was a  non-cash  charge,  as a  result  of the  early  redemption  in the
aggregate  amount of $150.0 million of the 9.25% sinking fund  debentures of its
Emhart  Corporation  subsidiary.   This  extraordinary  loss  consisted  of  the
write-off of the associated  debt discount,  plus premiums and costs  associated
with the redemption, net of related income tax benefits.
     The  ongoing  costs of  compliance  with  existing  environmental  laws and
regulations  have not had,  nor are they  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 its newly  announced  restructuring  program.  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>
                                       38

SUBSEQUENT EVENTS

As  more  fully  described  in  Note  23  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 operations, that is, those strategic businesses that the
Corporation  believes are capable of delivering superior operating and financial
performance.  As a result,  investment  bankers have been  retained to assist in
selling non-strategic businesses.  These non-strategic businesses consist of the
recreational products business,  True Temper Sports; the glass container-forming
and inspection  equipment  business,  Emhart Glass;  and the household  products
business in North America, Latin America, and Australia. The Corporation expects
that the divestitures of these businesses will be completed in 1998.
     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
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 is 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.  Based upon
preliminary  indications from investment bankers, the Corporation estimates that
aggregate  net  proceeds in excess of $500  million  will be received  for these
businesses.  Based  upon that  level of  aggregate  net  proceeds  and after the
write-down  of goodwill  described  below,  the  Corporation  does not expect to
recognize an impairment  loss on the  long-lived  assets of True Temper  Sports,
Emhart  Glass,  or the  household  products  business  in North  America,  Latin
America,  and Australia.  The Corporation will periodically  assess the expected
fair value less costs to sell these  businesses.  In the event that the expected
fair value less costs to sell these businesses  declines prior to the closing of
the sales to an amount less than their carrying  values,  the  Corporation  will
recognize  impairment  losses  on the  underlying  long-lived  assets  of  these
businesses.
     The net proceeds  from the sales of these  businesses,  together  with free
cash flow generated by the remaining businesses, will be used to fund the second
element of the strategic  repositioning  plan,  that is, the repurchase of up to
10% of the  Corporation's  outstanding  common  shares  over the next two years.
Prior to the receipt of  proceeds  from the sales of  divested  businesses,  the
Corporation may borrow to finance a portion of its repurchase of common shares.
     The third  element of the  strategic  repositioning  plan  involves a major
restructuring  program. That restructuring  program,  which primarily relates to
the worldwide power tools and accessories  business and will be implemented over
a period of two years, 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 business by consolidating  distribution
and transportation and centralizing  finance,  marketing,  and support services.
These changes in Europe will be  accompanied  by investment in  state-of-the-art
information  systems similar to the investments being made in the North American
business.  In addition,  the


<PAGE>
                                       39

worldwide   power  tools  and   accessories   business  will   rationalize   its
manufacturing  plant and design  center  network,  resulting in the closure of a
number of manufacturing  plants and design centers.  The  restructuring  program
also will include actions to improve the cost position of other businesses.
     In connection with the restructuring program, the worldwide power tools and
accessories  business has  announced  the planned  closure of its  manufacturing
facilities in Brockville,  Canada;  Molteno,  Italy; and Jurong Town, Singapore.
Over the next few months,  the  business  expects to announce  the closure of an
additional  manufacturing facility.  Current power tool production at the plants
to be  closed  will be  transferred  to other  manufacturing  sites  within  the
worldwide power tools and accessories business.
     This  restructuring  program is estimated to result in a pre-tax  charge of
approximately $250 million,  of which  approximately $200 million is expected to
be recognized in the first quarter of 1998,  with the balance  recognized as the
program  progresses over the next two years. Of the total pre-tax  restructuring
charge,  approximately $200 million is expected to be paid in cash,  principally
related to severance benefits,  with the balance representing  non-cash charges,
principally   related  to  the  write-down  of  assets.  Cash  spending  on  the
restructuring  program during 1998 is expected to be approximately $150 million.
In addition to the restructuring  charge,  related expenses of approximately $60
million  will  be  charged  to  operations  over  the  next  two  years  as  the
restructuring  program  progresses.  These costs,  which are  incremental to the
plans being  implemented,  do not qualify as exit costs under generally accepted
accounting  principles.  Benefits from the restructuring  program,  estimated at
more than $100  million  on a pre-tax  basis  once  fully  implemented,  are not
expected to begin to be realized  until some time in 1999,  as the 1998 benefits
are likely to be offset by operating expenses associated with the program.
     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 23 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 since decreases in
projected  discounted cash flows of certain businesses will, as discussed above,
result in timely recognition of future impairment.
     As a result of this change in accounting with respect to the measurement of
goodwill   impairment,    goodwill   approximating   $900   million,   including
approximately  $60 million related to the businesses to be sold, will be charged
to  operations  during  the  first  quarter  of 1998 as a change  in  accounting
estimate  inseparable  from a change in principle.  Had this goodwill  write-off
occurred on January 1, 1997,  goodwill  amortization for the year ended December
31, 1997, would have decreased by approximately $30 million.

<PAGE>
                                       40

ITEM 7A.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information required under this Item is contained in Item 7 of this report under
the caption "Hedging  Activity" and in Item 8 of this report in Notes 1 and 9 of
Notes to  Consolidated  Financial  Statements,  and is  incorporated  herein  by
reference.


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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


Consolidated Financial Statements

     Consolidated  Statement of Earnings 
     - years ended December 31, 1997,  1996, and 1995.

     Consolidated Balance Sheet 
     - December 31, 1997 and 1996.

     Consolidated Statement of Cash Flows 
     - years ended December 31, 1997, 1996, and 1995.

     Notes to Consolidated Financial Statements.

     Report of Independent Auditors.


<PAGE>
                                       41


<TABLE>

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

                                                                                   Year Ended December 31,
---------------------------------------------------------------------------------------------------------------------
                                                                            1997              1996            1995
---------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>               <C>             <C>       
Sales                                                                 $  4,940.5        $  4,914.4      $  4,766.1
   Cost of goods sold                                                    3,169.2           3,156.6         3,016.7
   Selling, general, and administrative expenses                         1,282.0           1,309.6         1,323.3
   Restructuring costs                                                        --              91.3              --
---------------------------------------------------------------------------------------------------------------------
Operating Income                                                           489.3             356.9           426.1
   Interest expense (net of interest income of $8.1
     for 1997, $4.7 for 1996, and $8.6 for 1995)                           124.6             135.4           184.4
   Other expense                                                            15.2              18.8            16.2
---------------------------------------------------------------------------------------------------------------------
Earnings From Continuing Operations Before Income Taxes                    349.5             202.7           225.5
   Income taxes                                                            122.3              43.5             9.0
---------------------------------------------------------------------------------------------------------------------
Earnings From Continuing Operations                                        227.2             159.2           216.5
Earnings from discontinued operations (net of income taxes of
   $55.6 for 1996 and $8.7 for 1995)                                          --              70.4            38.4
---------------------------------------------------------------------------------------------------------------------
Earnings Before Extraordinary Item                                         227.2             229.6           254.9
Extraordinary loss from early extinguishment of debt
   (net of income tax benefit of $2.6)                                        --               --            (30.9)
---------------------------------------------------------------------------------------------------------------------
Net Earnings                                                          $    227.2        $    229.6      $    224.0
=====================================================================================================================





---------------------------------------------------------------------------------------------------------------------
Net Earnings Per Common Share -- Basic:
   Earnings from continuing operations                                $     2.40        $    1.69       $     2.39
   Earnings from discontinued operations                                      --              .79              .45
   Extraordinary loss from early extinguishment of debt                       --               --             (.36)
---------------------------------------------------------------------------------------------------------------------
Net Earnings Per Common Share -- Basic                                $     2.40        $    2.48       $     2.48
=====================================================================================================================

Net Earnings Per Common Share -- Assuming Dilution:
   Earnings from continuing operations                                $     2.35        $    1.66       $     2.29
   Earnings from discontinued operations                                      --              .73              .41
   Extraordinary loss from early extinguishment of debt                       --               --             (.33)
---------------------------------------------------------------------------------------------------------------------
Net Earnings Per Common Share -- Assuming Dilution                    $     2.35        $    2.39       $     2.37
=====================================================================================================================

<FN>

See Notes to Consolidated Financial Statements

</FN>
</TABLE>

<PAGE>
                                       42

<TABLE>

CONSOLIDATED BALANCE SHEET
The Black & Decker Corporation and Subsidiaries
(Millions of Dollars)

<CAPTION>

                                                                                               December 31,
-------------------------------------------------------------------------------------------------------------------
                                                                                           1997             1996
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>              <C>        
Assets
Cash and cash equivalents                                                             $   246.8        $   141.8
Trade receivables, less allowances of $47.8 for 1997 and $44.0 for 1996                   931.4            672.4
Inventories                                                                               774.7            747.8
Other current assets                                                                      125.9            242.2
-------------------------------------------------------------------------------------------------------------------
   Total Current Assets                                                                 2,078.8          1,804.2
-------------------------------------------------------------------------------------------------------------------
Property, Plant, and Equipment                                                            915.1            905.8
Goodwill                                                                                1,877.3          2,012.2
Other Assets                                                                              489.5            431.3
-------------------------------------------------------------------------------------------------------------------
                                                                                      $ 5,360.7        $ 5,153.5
===================================================================================================================

Liabilities and Stockholders' Equity
Short-term borrowings                                                                 $   178.3        $   235.9
Current maturities of long-term debt                                                       60.5             54.1
Trade accounts payable                                                                    372.0            380.7
Other accrued liabilities                                                                 761.8            835.9
-------------------------------------------------------------------------------------------------------------------
   Total Current Liabilities                                                            1,372.6          1,506.6
-------------------------------------------------------------------------------------------------------------------
Long-Term Debt                                                                          1,623.7          1,415.8
Deferred Income Taxes                                                                      57.7             67.5
Postretirement Benefits                                                                   304.2            310.3
Other Long-Term Liabilities                                                               211.1            220.9
Stockholders' Equity
Common stock (outstanding: December 31, 1997 -- 94,842,544 shares;
   December 31, 1996 -- 94,248,807 shares)                                                 47.4             47.1
Capital in excess of par value                                                          1,278.2          1,261.7
Retained earnings                                                                         562.0            380.2
Equity adjustment from translation                                                        (96.2)           (56.6)
-------------------------------------------------------------------------------------------------------------------
   Total Stockholders' Equity                                                           1,791.4          1,632.4
-------------------------------------------------------------------------------------------------------------------
                                                                                      $ 5,360.7        $ 5,153.5
===================================================================================================================

<FN>

See Notes to Consolidated Financial Statements
</FN>
</TABLE>

<PAGE>
                                       43


<TABLE>

CONSOLIDATED STATEMENT OF CASH FLOWS
The Black & Decker Corporation and Subsidiaries
(Millions of Dollars)
<CAPTION>


                                                                                     Year Ended December 31,
-------------------------------------------------------------------------------------------------------------------
                                                                           1997              1996           1995
-------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>              <C>             <C>      
Operating Activities
Net earnings                                                          $   227.2        $    229.6      $   224.0
Adjustments to reconcile net earnings to cash flow from operating
   activities of continuing operations:
   Non-cash charges and credits:
     Depreciation and amortization                                        214.2             214.6          206.7
     Restructuring charges                                                   --              91.3             --
     Deferred income taxes                                                 71.7               2.9          (46.1)
     Extraordinary item                                                      --                --           26.5
     Other                                                                  1.5               1.2           19.5
   Earnings of discontinued operations                                       --             (70.4)         (38.4)
   Changes in selected working capital items:
     Trade receivables                                                    (85.1)            (10.0)          14.8
     Inventories                                                          (63.7)            107.5         (138.7)
     Trade accounts payable                                                 2.3             (21.4)         108.1
   Other assets and liabilities                                           (14.9)            (81.9)         (59.5)
   Net decrease in receivables sold                                      (212.0)            (18.0)         (14.0)
-------------------------------------------------------------------------------------------------------------------
   Cash flow from operating activities of continuing operations           141.2             445.4          302.9
   Cash flow from operating activities of discontinued operations            --             (12.4)           1.5
-------------------------------------------------------------------------------------------------------------------
   Cash Flow From Operating Activities                                    141.2             433.0          304.4
-------------------------------------------------------------------------------------------------------------------
Investing Activities
Proceeds from sale of discontinued operations                                --             413.6           95.5
Investing activities of discontinued operations                              --                --          (12.9)
Proceeds from disposal of assets and businesses                            13.4              31.5           12.3
Capital expenditures                                                     (203.1)           (196.3)        (203.1)
Cash inflow from hedging activities                                       384.8             392.9          485.6
Cash outflow from hedging activities                                     (357.9)           (398.3)        (490.3)
-------------------------------------------------------------------------------------------------------------------
   Cash Flow From Investing Activities                                   (162.8)            243.4         (112.9)
-------------------------------------------------------------------------------------------------------------------
   Cash Flow Before Financing Activities                                  (21.6)            676.4          191.5
Financing Activities
Net (decrease) increase in short-term borrowings                          (18.4)           (360.9)          47.2
Proceeds from long-term debt (including revolving credit facility)        667.2             461.1          274.0
Payments on long-term debt (including revolving credit facility)         (483.9)           (735.2)        (425.2)
Issuance of common stock                                                   10.1              22.3           23.0
Cash dividends                                                            (45.4)            (54.6)         (46.0)
-------------------------------------------------------------------------------------------------------------------
   Cash Flow From Financing Activities                                    129.6            (667.3)        (127.0)
Effect of exchange rate changes on cash                                    (3.0)              1.1            2.1
-------------------------------------------------------------------------------------------------------------------
Increase in Cash and Cash Equivalents                                     105.0              10.2           66.6
Cash and cash equivalents at beginning of year                            141.8             131.6           65.0
-------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year                              $   246.8        $    141.8      $   131.6
===================================================================================================================
<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>

<PAGE>
                                       44

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 1997.

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 equity  adjustment from
translation,  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 while other intangibles are amortized over periods up to 20 years.
     On a periodic basis through  December 31, 1997, the  Corporation  estimated
the future  undiscounted  cash flows of the businesses to which goodwill relates
in order to determine that the carrying value of goodwill had not been impaired.
As more fully described in Note 23,  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 $99.1 million in 1997, $101.3 million in 1996, and $96.1
million in 1995.


<PAGE>
                                       45

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 $248.0  million in 1997,  $258.5
million in 1996, and $265.1 million in 1995. 

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.   

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>
                                       46

     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 equity adjustment from translation  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 equity  adjustment
from translation 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 related 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.  

STOCK-BASED  COMPENSATION:  As described in Note 17, the Corporation has elected
to follow the  accounting  provisions  of  Accounting  Principles  Board Opinion
(APBO)  No.  25 for  stock-based  compensation  and to  furnish  the  pro  forma
disclosures  required under Statement of Financial  Accounting  Standards (SFAS)
No. 123.

EARNINGS PER SHARE:  In 1997, the Financial  Accounting  Standards  Board issued
SFAS No. 128, Earnings per Share. SFAS No. 128 replaced the previously  reported
primary and fully diluted earnings per share with basic and diluted earnings per
share, respectively.  Unlike the previously reported primary earnings per share,
basic earnings per share excludes the dilutive effects of stock options. Diluted
earnings per share is similar to the previously  reported fully diluted earnings
per share.  Earnings  per share  amounts  for all  periods  presented  have been
calculated in accordance with and, where appropriate, restated to conform to the
requirements of SFAS No. 128.

<PAGE>
                                       47

BUSINESS SEGMENTS: In 1997, the Financial Accounting Standards Board issued SFAS
No. 131,  Disclosures  about Segments of an Enterprise and Related  Information,
which is required to be adopted effective December 31, 1998, and requires, among
other things, that the Corporation provide financial and descriptive information
about its reportable operating segments.  Under SFAS No. 131, operating segments
are components of an enterprise  about which separate  financial  information is
available  that is  regularly  evaluated  by the  enterprise's  chief  operating
decision-maker   in  deciding  how  to  allocate   resources  and  in  assessing
performance.
     While  the  Corporation  continues  to  evaluate  the  adoption  of the new
standard, it is likely that its currently reported business segments of Consumer
and Home Improvement  Products (Consumer) and Commercial and Industrial Products
(Commercial)  will be replaced by the  following  reportable  business  segments
under SFAS No. 131: power tools and accessories,  security hardware and plumbing
products,  fastening and assembly systems, and household products. As more fully
described in Note 23, in January  1998,  the  Corporation  determined  to sell a
major portion of its household products business.


NOTE 2:  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 compared to $230.0 million at December
31, 1995. The discount on the sale of receivables is included in other expense.


NOTE 3: INVENTORIES

The  classification  of  inventories  at the end of each year,  in  millions  of
dollars, was as follows:
<TABLE>
<CAPTION>
                                                      1997                1996
--------------------------------------------------------------------------------
<S>                                                 <C>                 <C>   
FIFO cost
   Raw materials and work-in-process                $199.4              $211.1
   Finished products                                 599.4               567.7
--------------------------------------------------------------------------------
                                                     798.8               778.8
Excess of FIFO cost over LIFO inventory value        (24.1)              (31.0)
--------------------------------------------------------------------------------
                                                    $774.7              $747.8
================================================================================
</TABLE>
     The cost of United  States  inventories  stated  under the LIFO  method was
approximately 41% and 38% of the value of total inventories at December 31, 1997
and 1996, respectively.



<PAGE>
                                       48

NOTE 4: PROPERTY, PLANT, AND EQUIPMENT

Property,  plant, and equipment at the end of each year, in millions of dollars,
consisted of the following:
<TABLE>
<CAPTION>
                                                     1997                1996
--------------------------------------------------------------------------------
<S>                                              <C>                 <C>      
Property, plant, and equipment at cost:
Land and improvements                            $    63.4           $    67.2
Buildings                                            360.8               341.6
Machinery and equipment                            1,493.7             1,473.3
--------------------------------------------------------------------------------
                                                   1,917.9             1,882.1
Less accumulated depreciation                      1,002.8               976.3
--------------------------------------------------------------------------------
                                                 $   915.1           $   905.8
================================================================================
</TABLE>


NOTE 5: GOODWILL

Goodwill at the end of each year, in millions of dollars, was as follows:
<TABLE>
<CAPTION>
                                                      1997                1996
--------------------------------------------------------------------------------
<S>                                               <C>                 <C>     
Goodwill                                          $2,499.9            $2,571.5
Less accumulated amortization                        622.6               559.3
--------------------------------------------------------------------------------
                                                  $1,877.3            $2,012.2
================================================================================
</TABLE>
     As more  fully  described  in Note  23,  effective  January  1,  1998,  the
Corporation  changed its method for  measuring  and  recognizing  impairment  of
goodwill  from an  undiscounted  cash flow  approach to a  discounted  cash flow
approach. In connection with this accounting change, goodwill approximating $900
million  will be written  off  through a charge to  operations  during the first
quarter of 1998.


NOTE 6: OTHER ACCRUED LIABILITIES

Other  accrued  liabilities  at the end of each year,  in  millions  of dollars,
included the following:
<TABLE>
<CAPTION>
                                                     1997                1996
--------------------------------------------------------------------------------
<S>                                                 <C>                 <C>  
Salaries and wages                                  $ 74.2              $ 77.6
Employee benefits                                     53.7                54.8
Trade discounts and allowances                       112.2                98.3
Redeemable preferred stock of subsidiary              42.3                  --
All other                                            479.4               605.2
--------------------------------------------------------------------------------
                                                    $761.8              $835.9
================================================================================
</TABLE>
     All other at December  31, 1997 and 1996,  consisted  primarily of accruals
for income and other taxes, advertising, warranty costs, interest, and insurance
as well as accruals related to the 1996 restructuring program.


NOTE 7: SHORT-TERM BORROWINGS

Short-term  borrowings  in the amounts of $113.5  million and $120.9  million at
December 31, 1997 and 1996,  respectively,  primarily consisted of borrowings by
subsidiaries located outside of the United States under the terms of uncommitted
lines  of  credit  or  other  short-term  borrowing   arrangements.   Short-term
borrowings  also included $64.8 million and $115.0  million of borrowings  under
the Corporation's unsecured revolving credit facility, as

<PAGE>
                                       49

more fully described in Note 8, at December 31, 1997 and 1996, respectively. The
weighted-average  interest rate on short-term borrowings outstanding at December
31, 1997, was 5.5%.
     Under  the terms of  uncommitted  lines of credit  at  December  31,  1997,
certain subsidiaries outside of the United States may borrow up to an additional
$447.4 million on such terms as may be mutually  agreed.  These  arrangements do
not  have  termination  dates  and  are  reviewed   periodically.   No  material
compensating balances are required or maintained.


NOTE 8: LONG-TERM DEBT

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

<TABLE>
<CAPTION>
                                                     1997                1996
--------------------------------------------------------------------------------
<S>                                <C>            <C>                 <C>     
Revolving credit facility expiring 2001           $  569.1            $  285.9
7.50% notes due 2003                                 429.4               440.7
6.625% notes due 2000                                250.0               250.0
7.0% notes due 2006                                  207.6               207.6
Medium Term Notes due through 2002                   200.0               221.5
Other loans due through 2003                          28.1                64.2
Less current maturities of long-term debt            (60.5)              (54.1)
--------------------------------------------------------------------------------
                                                  $1,623.7            $1,415.8
================================================================================
</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, 1997, was $366.1 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,  1997,  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.
     Under the previous revolving credit facility, the interest rate margin over
LIBOR was .325%  effective  January  1, 1995,  and  declined  to .25%  effective
January 1, 1996.  In  addition
<PAGE>
                                       50

to interest  payable on the principal amount of indebtedness  outstanding  under
the previous  revolving credit facility,  the Corporation was required to pay an
annual  facility  fee to each bank  equal to .175% of the  amount of the  bank's
commitment as of December 31, 1995.     
     In 1995, the Corporation recognized a $30.9 million extraordinary loss as a
result of the early  redemption  of the 9.25%  sinking  fund  debentures  of its
Emhart Corporation subsidiary. The extraordinary loss consisted primarily of the
write-off of the  associated  debt discount  plus premiums and costs  associated
with the redemption, net of income tax benefits of $2.6 million.
     As of December 31,  1997,  $200.0  million  aggregate  principal  amount of
unsecured  Medium Term Notes were  outstanding.  Of that amount,  $172.5 million
bear  interest at fixed rates  ranging from 8.21% to 8.95%,  while the remainder
bear interest at variable  rates.  At December 31, 1997,  those  variable  rates
ranged from 6.17% to 6.61%.
     Indebtedness of subsidiaries in the aggregate  principal  amounts of $776.0
million and $586.5  million were included in the  Consolidated  Balance Sheet at
December 31, 1997 and 1996,  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:  $60.5  million in 1998,  $58.1  million in 1999,  $253.4
million in 2000,  $625.1  million in 2001,  and $47.5 million in 2002.  Interest
payments on all  indebtedness  were $159.3  million in 1997,  $170.7  million in
1996, and $209.0 million in 1995.


NOTE 9: DERIVATIVE FINANCIAL INSTRUMENTS

The  Corporation  is exposed to market  risks  arising  from changes in interest
rates.  With  products  and  services  marketed in over 100  countries  and with
manufacturing  sites in 14 countries,  the Corporation  also is exposed to risks
arising from changes in foreign exchange rates.

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

INTEREST RATE RISK MANAGEMENT:  The Corporation  manages its interest rate risk,
primarily through the use of interest rate swap 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


<PAGE>
                                       51

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.
     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>
                                                     1997                1996
--------------------------------------------------------------------------------
<S>                                                 <C>                 <C>   
Interest rate swaps:
   Fixed to variable rates                          $700.0              $700.0
   Variable to fixed rates                           250.0               400.0
   Rate basis swaps                                   50.0               100.0
   U.S. rates to foreign rates                       265.0               325.0
Interest rate caps purchased                            --               150.0
--------------------------------------------------------------------------------
</TABLE>
     The  Corporation's  portfolio  of  interest  rate  swap  instruments  as of
December 31, 1997, included $700.0 million notional amounts of fixed to variable
rate swaps with a weighted-average fixed rate receipt of 6.04%. The basis of the
variable rates paid is LIBOR. A total of $300.0 million of these swaps, maturing
in 2003,  contain  provisions  that permit the  counterparties  to terminate the
swaps without penalty in 1998.
     As of December  31,  1997,  the  portfolio  also  included  $250.0  million
notional amounts of variable to fixed rate swaps with a  weighted-average  fixed
rate payment of 7.12%. The basis of the variable rates received is LIBOR.
     As of December  31,  1997,  the  portfolio  also  contained  $50.0  million
notional  amounts of rate basis  swaps,  which swap to the higher of a specified
weighted-average fixed rate payment of 6.76% or a weighted-average variable rate
payment of LIBOR minus 1.74%. The basis of the variable rates received is LIBOR.
Rates  received  under  these rate basis swaps are  generally  reset every three
months.  At  December  31,  1997,  payments  under these swaps were based on the
weighted-average fixed rate payment provisions of the swap agreements.
     The remainder of the interest rate swap  portfolio as of December 31, 1997,
consisted of $265.0  million  notional  amounts of interest rate swaps that swap
from fixed rate United  States  dollars into fixed rate foreign  currencies.  Of
that amount,  $115.0 million had been swapped from United States dollars (with a
weighted-average fixed rate of 6.57%) into Japanese yen (with a weighted-average
fixed rate of 1.82%).  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 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 as of
December 31, 1997 and 1996, was not significant. Gross deferred gains and losses
on the early  termination  of interest  rate swaps as of  December  31, 1997 and
1996, 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


<PAGE>
                                       52

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.
     In order 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.
     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  are  used  to  mitigate  transaction  and
commitment exposures.    
     The following table summarizes the contractual  amounts of forward exchange
contracts  as of December 31, 1997 and 1996,  in millions of dollars,  including
details by major currency as of December 31, 1997. 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, 1997                               Buy                Sell
--------------------------------------------------------------------------------
<S>                                               <C>                <C>       
United States dollar                              $  890.0           $  (620.2)
Pound sterling                                       256.7               (42.3)
Deutsche mark                                         72.9              (244.8)
Dutch guilder                                         47.1               (98.8)
Japanese yen                                           7.3              (109.4)
French franc                                          79.8              (111.3)
Canadian dollar                                      212.7              (179.6)
Italian lira                                          64.6               (91.5)
Swiss franc                                           26.2               (43.1)
Other                                                 73.6              (149.0)
--------------------------------------------------------------------------------
Total                                             $1,730.9           $(1,690.0)
================================================================================
As of December 31, 1996
--------------------------------------------------------------------------------
Total                                             $1,754.0           $(1,747.2)
================================================================================
</TABLE>
     The contractual  amounts of purchased  currency  options to buy currencies,
predominantly  the pound sterling and United States dollar,  were $401.2 million
and $328.5 million, at December 31, 1997 and 1996, respectively. The contractual
amounts of purchased  currency  options to sell various  currencies  were $383.3
million and $309.1 million at December 31, 1997 and 1996, respectively.
     Credit exposure on foreign currency derivatives as of December 31, 1997 and
1996, was $82.6 million and $62.4 million, respectively.


<PAGE>
                                       53

     Deferred  realized  gains from  option  contracts  on hedges of  forecasted
transactions  were not significant at December 31, 1997 and 1996.  Substantially
all of the amounts  deferred at December 31, 1997, are expected to be recognized
in earnings during 1998, when the gains or losses on the underlying transactions
also will be recognized.


NOTE 10: FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair  value of a  financial  instrument  represents  the amount at which the
instrument could be exchanged in a current  transaction between willing parties,
other than in a forced sale or  liquidation.  Significant  differences can arise
between the fair value and  carrying  amount of financial  instruments  that are
recognized at historical cost amounts.
     The  following  methods and  assumptions  were used by the  Corporation  in
estimating  fair value  disclosures for financial  instruments:  
o Cash and cash equivalents,  trade  receivables,  certain other current assets,
short-term  borrowings,  and current  maturities of long-term  debt: The amounts
reported in the Consolidated Balance Sheet approximate fair value.  
o Long-term debt:  Publicly traded debt is valued based on quoted market values.
The 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 the carrying  amounts and fair values of the
Corporation's  financial  instruments,  except for those  noted  above for which
carrying amounts approximate fair values, in millions of dollars:

<TABLE>
<CAPTION>
Assets (Liabilities)                              Carrying               Fair
As of December 31, 1997                             Amount              Value
--------------------------------------------------------------------------------
<S>                                              <C>                 <C>       
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)
--------------------------------------------------------------------------------

Assets (Liabilities)                              Carrying               Fair
As of December 31, 1996                             Amount              Value
--------------------------------------------------------------------------------
Non-derivatives:
   Long-term debt                                $(1,415.8)          $(1,437.5)
--------------------------------------------------------------------------------
Derivatives relating to:
   Debt
     Assets                                             --                  .1
     Liabilities                                        --               (21.8)
   Foreign currency
     Assets                                           39.7                62.4
     Liabilities                                     (21.1)              (19.6)
--------------------------------------------------------------------------------
</TABLE>



<PAGE>
                                       54

NOTE 11: RESTRUCTURING

In 1996, the  Corporation  commenced a restructuring  of certain  operations and
recorded a restructuring charge of $91.3 million.
     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 Consumer
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 Consumer  businesses  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 23, in  January  1998,  the  Corporation
commenced an additional restructuring program, which is expected to be completed
over the course of the next two years.


NOTE 12: DISCONTINUED OPERATIONS

Earnings from the discontinued Information Technology and Services (PRC) segment
amounted to $70.4 million in 1996 and $38.4  million in 1995,  net of applicable
income taxes of $55.6 million and $8.7 million, respectively. 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. The terms of the sale of PRC Inc. provide for
an adjustment to the sales price based upon the changes in the net assets of PRC
Inc. through February 15, 1996. That adjustment was finalized in January 1998.
     The Corporation sold PRC Realty Systems, Inc. (RSI), on March 31, 1995, and
sold PRC  Environmental  Management,  Inc.  (EMI),  on September  15, 1995,  for
proceeds of $60.0 million and $35.5 million, respectively. The aggregate gain on
the sale of RSI and EMI of $2.5 million,  net of applicable income taxes of $5.5
million,  was  included  in  earnings  from  discontinued  operations  for 1995.
Together, PRC Inc., RSI, and EMI composed the discontinued PRC segment.
     Revenues of the discontinued PRC segment were $800.1 million in 1995. These
revenues are not included in sales as reported in the Consolidated  Statement of
Earnings.



<PAGE>
                                       55

NOTE 13: INCOME TAXES

Earnings from continuing  operations before income taxes and extraordinary item,
for each year, in millions of dollars, were as follows:
<TABLE>
<CAPTION>
                                   1997              1996                 1995
--------------------------------------------------------------------------------
<S>                              <C>                <C>                 <C>   
United States                    $180.3             $121.0              $ 83.5
Other countries                   169.2               81.7               142.0
--------------------------------------------------------------------------------
                                 $349.5             $202.7              $225.5
================================================================================
</TABLE>
   Significant  components of income taxes (benefits) for each year, in millions
of dollars, were as follows:
<TABLE>
<CAPTION>
                                   1997               1996                1995
--------------------------------------------------------------------------------
<S>                              <C>                <C>                 <C>   
Current:
   United States                 $ 32.4             $  4.0              $ 20.2
   Other countries                 16.3               34.5                33.5
   Withholding on remittances
    from other countries            1.9                2.1                 1.4
--------------------------------------------------------------------------------
                                   50.6               40.6                55.1
--------------------------------------------------------------------------------
Deferred:
   United States                   92.5              (10.6)              (50.2)
   Other countries                (20.8)              13.5                 4.1
--------------------------------------------------------------------------------
                                   71.7                2.9               (46.1)
--------------------------------------------------------------------------------
                                 $122.3             $ 43.5              $  9.0
================================================================================
</TABLE>
     During  1996 and 1995,  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 and
$21.0 million in 1995.
     In 1995,  income tax benefits of $2.6 million were  recorded in  connection
with the  extraordinary  loss on  extinguishment  of debt.  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 1996 and 1995.
     Income tax payments were $60.2 million in 1997,  $40.8 million in 1996, and
$56.3 million in 1995.
     Deferred tax  (liabilities)  assets at the end of each year, in millions of
dollars, were composed of the following:
<TABLE>
<CAPTION>
                                                      1997                1996
--------------------------------------------------------------------------------
<S>                                               <C>                 <C>      
Deferred tax liabilities:
   Fixed assets                                   $  (46.5)           $  (47.0)
   Postretirement benefits                           (35.5)              (39.1)
   Other                                             (15.8)              (27.7)
--------------------------------------------------------------------------------
Gross deferred tax liabilities                       (97.8)             (113.8)
--------------------------------------------------------------------------------
Deferred tax assets:
   Tax loss carryforwards                             69.0                98.5
   Tax credit and capital loss carryforwards            --                32.2
   Other                                              78.8               124.2
--------------------------------------------------------------------------------
Gross deferred tax assets                            147.8               254.9
--------------------------------------------------------------------------------
Deferred tax asset valuation allowance               (56.5)              (71.5)
--------------------------------------------------------------------------------
Net deferred tax (liabilities) assets             $   (6.5)           $   69.6
================================================================================
</TABLE>

<PAGE>
                                       56

     Deferred  income taxes are included in the  Consolidated  Balance  Sheet in
other current  assets,  other assets,  other accrued  liabilities,  and deferred
income taxes.
     During the year ended December 31, 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.
     During the year ended December 31, 1995,  the deferred tax asset  valuation
allowance  decreased  by $113.5  million.  Included in the  decrease  was $109.0
million that  resulted  from the reversal of a portion of the deferred tax asset
valuation allowance based on the projection of estimable taxable earnings in the
United  States,  including the effect of the  then-pending  sale of PRC Inc. 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, 1997,  consisted of net operating
losses expiring from 1998 to 2004.
     At December 31, 1997,  unremitted  earnings of subsidiaries  outside of the
United States were approximately  $1.0 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>
                                                                1997                1996                1995
-------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>                 <C>                 <C>   
Income taxes at federal statutory rate                        $122.3              $ 70.9              $ 78.9
Lower effective taxes on earnings in other countries           (14.5)              (10.3)              (16.5)
Effect of net operating loss carryforwards                       2.8               (52.3)              (19.4)
Effect of reduction in deferred tax asset valuation
   allowance  due to projection of estimable earnings
   in the United States                                           --               (10.6)              (65.0)
Withholding on remittances from other countries                 (1.3)               21.1                 1.4
Amortization and write-off of goodwill                          22.0                23.6                24.6
Other-- net                                                     (9.0)                1.1                 5.0
-------------------------------------------------------------------------------------------------------------------
Income taxes                                                  $122.3              $ 43.5              $  9.0
===================================================================================================================
</TABLE>
<PAGE>
                                       57

NOTE 14: POSTRETIREMENT BENEFITS

Net pension cost (credit) for all domestic  defined  benefit plans  included the
following components for each year, in millions of dollars:
<TABLE>
<CAPTION>
                                                                1997                1996                1995
-------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>                 <C>                 <C>   
Service cost                                                  $ 14.8              $ 16.5              $ 11.3
Interest cost on projected benefit obligation                   48.6                48.8                47.9
Actual return on assets                                       (192.0)              (62.0)             (108.2)
Net amortization and deferral                                  120.0                (5.8)               39.3
-------------------------------------------------------------------------------------------------------------------
Net pension cost (credit)                                     $ (8.6)             $ (2.5)             $ (9.7)
===================================================================================================================
</TABLE>
     The funded status of the domestic  defined benefit plans at the end of each
year, in millions of dollars, was as follows:
<TABLE>
<CAPTION>
                                                                                   1997                1996
-------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>                 <C>  
Actuarial present value of benefit obligations:
   Vested benefit                                                                 $632.9              $569.8
-------------------------------------------------------------------------------------------------------------------
   Accumulated benefit                                                            $651.1              $589.4
-------------------------------------------------------------------------------------------------------------------
   Projected benefit                                                              $709.9              $631.0
Plan assets at fair value                                                          942.4               796.2
-------------------------------------------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation                              232.5               165.2
Unrecognized net loss                                                                9.8                66.2
Unrecognized prior service cost                                                      4.7                 5.3
Unrecognized net asset at date of adoption, net of amortization                     (2.0)               (3.1)
-------------------------------------------------------------------------------------------------------------------
Net pension asset recognized in the Consolidated Balance Sheet                    $245.0              $233.6
===================================================================================================================
Discount rates                                                                       7.5%                8.0%
Salary scales                                                                    5.0-6.0%            5.0-6.0%
Expected return on plan assets                                                      9.75%               10.5%
-------------------------------------------------------------------------------------------------------------------
</TABLE>
     Net pension cost (credit) for defined  benefit pension plans outside of the
United States was $(2.0)  million in 1997,  $.9 million in 1996, and $.8 million
in 1995. The net pension asset recognized in the Consolidated  Balance Sheet for
those plans  outside of the United  States  where  assets  exceeded  accumulated
benefits  was $127.0  million and $119.3  million at December 31, 1997 and 1996,
respectively.  Liabilities of these plans were  discounted at rates ranging from
4.0% to 7.5% in 1997 and from  4.0% to 8.5% in 1996,  and  expected  returns  on
assets of these plans  ranged from 5.5% to 10.0% in both 1997 and 1996.  The net
pension liability  recognized in the Consolidated  Balance Sheet for those plans
outside of the United  States where  accumulated  benefits  exceeded  assets was
$66.0  million and $71.0  million at December  31, 1997 and 1996,  respectively.
Liabilities  of these  predominantly  unfunded  plans were  discounted  at rates
ranging from 6.75% to 7.75% in 1997 and from 7.0% to 8.0% in 1996.
     Assets of domestic  plans and plans  outside of the United  States  consist
principally of  investments  in equity  securities,  debt  securities,  and cash
equivalents.
     The expected  returns on plan assets during 1995 for defined  benefit plans
were  10.5% for plans in the United  States  and  ranged  from 5.5% to 10.5% for
funded plans outside of the United States.
     Expense for defined  contribution  plans amounted to $12.0  million,  $11.3
million, and $11.6 million in 1997, 1996, and 1995, respectively.


<PAGE>
                                       58

     The Corporation has several unfunded health care plans that provide certain
postretirement  medical,  dental,  and life  insurance  benefits for most United
States employees.  The postretirement  medical and dental plans are contributory
and include certain cost-sharing features, such as deductibles and co-payments.
     Net  periodic   postretirement   benefit  expense  included  the  following
components, in millions of dollars:
<TABLE>
<CAPTION>
                                  1997                1996                1995
--------------------------------------------------------------------------------
<S>                            <C>                  <C>                 <C>   
Service expense                $   1.2              $  1.2              $  1.6
Interest expense                  10.8                11.6                14.0
Net amortization                 (10.2)               (8.8)               (7.0)
--------------------------------------------------------------------------------
Net periodic postretirement
   benefit expense             $   1.8              $  4.0              $  8.6
================================================================================
</TABLE>
     The reconciliation of the accumulated  postretirement benefit obligation to
the liability  recognized in the  Consolidated  Balance Sheet at the end of each
year, in millions of dollars, was as follows:
<TABLE>
<CAPTION>
                                                     1997                1996
--------------------------------------------------------------------------------
<S>                                                 <C>                 <C>   
Accumulated postretirement benefit obligation:
   Retirees                                         $117.2              $114.0
   Fully eligible active participants                 17.3                14.9
   Other active participants                          16.0                13.5
--------------------------------------------------------------------------------
   Total                                             150.5               142.4
--------------------------------------------------------------------------------
Unrecognized prior service cost                       45.4                53.9
Unrecognized net gain                                 24.1                36.5
--------------------------------------------------------------------------------
Net postretirement benefit liability recognized
   in the Consolidated Balance Sheet                $220.0              $232.8
================================================================================
</TABLE>
     The  health  care cost  trend  rate used to  determine  the  postretirement
benefit obligation was 9.7% for 1997 and 7.2% for 1998,  decreases  gradually to
an ultimate  rate of 5.25% in 2001,  and remains at that level  thereafter.  The
trend rate is a significant  factor in  determining  the amounts  reported.  The
effect of a 1% annual  increase  in these  assumed  health care cost trend rates
would increase the accumulated postretirement benefit obligation at December 31,
1997,  by  approximately  $9.9  million.  The  effect  of a 1%  increase  on the
aggregate  of  the  service  and  interest  cost   components  of  net  periodic
postretirement benefit cost is immaterial.  An assumed discount rate of 7.5% was
used to  measure  the  accumulated  postretirement  benefit  obligation  in 1997
compared to 8.0% used in 1996.



<PAGE>
                                       59

NOTE 15:  STOCKHOLDERS' EQUITY

<TABLE>
(Dollars in Millions Except Per Share Amounts)
<CAPTION>
                                                                                                               Equity
                             Outstanding                Outstanding              Capital in                Adjustment
                               Preferred                     Common        Par    Excess of     Retained         From
                                  Shares      Amount         Shares      Value    Par Value     Earnings  Translation
----------------------------------------------------------------------------------------------------------------------
<S>                              <C>        <C>          <C>            <C>       <C>          <C>           <C>      
Balance at December 31, 1994     150,000    $  150.0     84,688,803     $ 42.3    $ 1,049.1    $   24.6      $  (96.6)
Net earnings                         --          --              --         --           --       224.0           --
Cash dividends:
   Common ($.40 per share)           --          --              --         --           --       (34.4)          --
   Preferred                         --          --              --         --           --       (11.6)          --
Common stock issued under
   employee benefit plans            --          --       1,758,785         .9         35.4          --           --
Valuation changes, less net effect
   of hedging activities             --          --              --         --           --          --          39.5
----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995     150,000       150.0     86,447,588       43.2      1,084.5       202.6         (57.1)
Net earnings                         --          --              --         --           --       229.6           --
Cash dividends:
   Common ($.48 per share)           --          --              --         --           --       (42.9)          --
   Preferred                         --          --              --         --           --        (9.1)          --
Conversion of preferred shares
   into common shares           (150,000)     (150.0)     6,350,000        3.2        146.8          --           --
Common stock issued under
   employee benefit plans            --          --       1,451,219         .7         30.4          --           --
Valuation changes, less net effect
   of hedging activities             --          --              --         --           --          --            .5
----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996         --          --      94,248,807       47.1      1,261.7       380.2         (56.6)
Net earnings                         --          --              --         --           --       227.2           --
Cash dividends on common stock
    ($.48 per share)                 --          --              --         --           --       (45.4)          --
Common stock issued under
   employee benefit plans            --          --         593,737         .3         16.5          --           --
Valuation changes, less net effect
   of hedging activities             --          --              --         --           --          --         (39.6)
----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997         --     $    --      94,842,544     $ 47.4    $ 1,278.2    $  562.0      $  (96.2)
======================================================================================================================
</TABLE>
     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.
     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.


<PAGE>
                                       60

     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%. The standstill  agreement,
which  expires in  September  2001,  continues  to apply to the shares of common
stock issued upon conversion of the Series B stock.


NOTE 16: 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)                     1997                1996                1995
-------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>                 <C>                 <C>   
Numerator:
   Earnings from continuing operations                        $227.2              $159.2              $216.5
   Preferred stock dividend                                       --                (9.1)              (11.6)
-------------------------------------------------------------------------------------------------------------------
   Numerator for basic earnings per share --
     earnings from continuing operations available
     to common stockholders                                    227.2               150.1               204.9
   Effect of dilutive securities -- preferred stock
     dividend                                                     --                 9.1                11.6
-------------------------------------------------------------------------------------------------------------------
   Numerator for diluted earnings per share --
     earnings from continuing operations available to
     common stockholders after assumed conversions            $227.2              $159.2              $216.5
===================================================================================================================
Denominator:
   Denominator for basic earnings per share from con-
     tinuing operations-- weighted-average shares               94.6                88.9                85.7
-------------------------------------------------------------------------------------------------------------------
   Effect of dilutive securities:
     Employee stock options and stock issuable under
       employee benefit plans                                    1.9                 2.2                 2.3
     Convertible preferred stock                                  --                 5.0                 6.4
-------------------------------------------------------------------------------------------------------------------
   Dilutive potential common shares                              1.9                 7.2                 8.7
-------------------------------------------------------------------------------------------------------------------
   Denominator for diluted earnings per share from
     continuing operations -- adjusted weighted-
     average shares and assumed conversions                     96.5                96.1                94.4
===================================================================================================================
Basic earnings per share from continuing
   operations                                                 $ 2.40              $ 1.69              $ 2.39
===================================================================================================================
Diluted earnings per share from continuing
   operations                                                 $ 2.35              $ 1.66              $ 2.29
===================================================================================================================
</TABLE>
     For additional information regarding the preferred stock and employee stock
options, see Notes 15 and 17, respectively.
     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  options'  exercise  price was  greater  than the average
market price of the common shares for the year and, therefore,  the effect would
be antidilutive:
<TABLE>
<CAPTION>
                                                                 1997                1996                1995
-------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>                 <C>                 <C>   
Number of options (in millions)                                   0.7                 0.3                 0.1
Weighted-average exercise price                                $38.64              $37.56              $35.38
-------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
                                       61

NOTE 17: 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  because, as discussed below, the alternative fair value accounting
provided  for under  SFAS No.  123,  Accounting  for  Stock-Based  Compensation,
requires  use of option  valuation  models  that were not  developed  for use in
valuing stock-based compensation arrangements provided to employees.
     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,  1997,  6,091,154  non-qualified  stock  options  were
outstanding  under domestic plans.  There were 82,240 stock options  outstanding
under the United Kingdom plan.
     Under all plans,  there were 697,095  shares of common  stock  reserved for
future grants as of December 31, 1997. Transactions are summarized as follows:

<TABLE>
<CAPTION>
                                                                     Weighted-
                                                                       Average
                                             Stock Options      Exercise Price
--------------------------------------------------------------------------------
<S>                                              <C>                    <C>   
Outstanding at December 31, 1995                 5,788,688              $24.18
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
================================================================================
Shares exercisable at December 31, 1996          3,424,497              $19.05
================================================================================
Shares exercisable at December 31, 1997          3,607,991              $20.87
================================================================================
</TABLE>
<TABLE>
<CAPTION>
                                             Stock Options         Price Range
--------------------------------------------------------------------------------
<S>                                              <C>               <C>        
Shares exercised during the year ended
 December 31, 1995                               1,165,152         $9.88-25.25
================================================================================
</TABLE>


<PAGE>
                                       62

     Exercise  prices for options  outstanding  as of December 31, 1997,  ranged
from $9.88 to $41.00.  The following  table provides  certain  information  with
respect to stock options outstanding at December 31, 1997:
<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                  816,163               $12.51                 3.1
$15.00-$22.49               2,033,107                20.43                 3.5
$22.50-$33.74               1,360,499                28.71                 8.3
Over $33.75                 1,963,625                38.21                 9.1
--------------------------------------------------------------------------------
                            6,173,394               $26.86                 6.3
================================================================================
</TABLE>
     The following  table  provides  certain  information  with respect to stock
options exercisable at December 31, 1997:
<TABLE>
<CAPTION>
                                                                     Weighted-
Range of                                     Stock Options             Average
Exercise Prices                                Exercisable      Exercise Price
--------------------------------------------------------------------------------
<S>                                              <C>                    <C>   
Under $15.00                                       816,163              $12.51
$15.00-$22.49                                    2,011,907               20.43
$22.50-$33.74                                      486,521               26.94
Over $33.75                                        293,400               37.12
--------------------------------------------------------------------------------
                                                 3,607,991              $20.87
================================================================================
</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 1995 and
thereafter, including, if materially different from reported results, disclosure
of pro forma net income and earnings per share had compensation expense relating
to 1997,  1996, and 1995 grants been measured  under the fair value  recognition
provisions of SFAS No. 123.
     The  Black-Scholes   option  valuation  model  was  developed  for  use  in
estimating the fair value of traded  options which have no vesting  restrictions
and are fully  transferable.  In addition,  option  valuation models require the
input  of  highly  subjective   assumptions,   including  expected  stock  price
volatility.   The  Corporation's   stock-based  compensation  arrangements  have
characteristics  significantly  different  from  those of  traded  options,  and
changes  in the  subjective  input  assumptions  used in  valuation  models  can
materially affect the fair value estimate.  Therefore, the Corporation is of the
opinion that the existing  models do not  necessarily  provide a reliable single
measure of the fair value of its stock-based compensation.
     The  weighted-average  fair  values  at date of grant for  options  granted
during 1997, 1996, and 1995 were $11.86,  $10.30, and $9.85,  respectively,  and
were estimated using the Black-Scholes option valuation model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
                                     1997             1996                1995
--------------------------------------------------------------------------------
<S>                                 <C>               <C>                <C>  
Expected life in years               5.7               5.9                 5.7
Interest rate                       5.91%             6.25%               5.79%
Volatility                          24.8%             22.2%               22.3%
Dividend yield                      1.28%             1.43%               1.41%
--------------------------------------------------------------------------------
</TABLE>

<PAGE>
                                       63

     The  Corporation's  pro forma  information for the years ended December 31,
1997,  1996,  and 1995,  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  Corporation's
net earnings in future years because pro forma  compensation  expense related to
grants made prior to 1995 may not be taken into consideration:
<TABLE>
<CAPTION>
(Dollars in Millions  Except Per Share Amounts)                   1997              1996                1995
-------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>                <C>                 <C>    
Pro forma net earnings                                        $ 224.3            $ 227.5             $ 223.2
Pro forma net earnings per common share-- basic               $  2.37            $  2.46             $  2.47
Pro forma net earnings per common share --
   assuming dilution                                          $  2.32            $  2.37             $  2.37
-------------------------------------------------------------------------------------------------------------------
</TABLE>


NOTE 18: BUSINESS SEGMENTS AND GEOGRAPHIC AREAS

The Corporation operates in two business segments:  Consumer, including consumer
and  professional  power tools and  accessories,  household  products,  security
hardware,  outdoor  products  (composed  of electric  lawn and garden  tools and
recreational products),  plumbing products, and product service; and Commercial,
including  fastening  and  assembly  systems  and  glass  container-forming  and
inspection equipment.
     Sales, operating income,  capital expenditures,  and depreciation set forth
in the following table exclude the results of the discontinued  PRC segment.  As
more fully described in Note 23, in January 1998, the Corporation  determined to
sell its  recreational  products  and  glass  container-forming  and  inspection
equipment  businesses as well as a portion of its household  products  business.
Sales,  operating  income,   identifiable  assets,  capital  expenditures,   and
depreciation  provided in the following table for all periods  presented include
the results of the recreational products, glass container-forming and inspection
equipment, and household products businesses.
     Corporate assets included in corporate and eliminations were $423.9 million
at December 31, 1997, $366.0 million at December 31, 1996, and $688.1 million at
December 31, 1995, and principally  consist of cash and cash equivalents,  other
current assets,  property, other sundry assets, and, for 1995, net assets of the
discontinued PRC segment.  The remainder of corporate and eliminations  includes
certain pension credits and amounts to eliminate  intercompany items,  including
accounts receivable and payable and intercompany profit in inventory.


<PAGE>
                                       64
<TABLE>
<CAPTION>

Business Segments
(Millions of Dollars)
                                                                                     Corporate &
1997                                                    Consumer     Commercial     Eliminations     Consolidated
-----------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>            <C>             <C>               <C>      
Sales to unaffiliated customers                        $ 4,241.6      $   698.9       $       --        $ 4,940.5
Operating income                                           400.8           82.2              6.3            489.3
Operating income excluding goodwill amortization           448.8           97.5              6.3            552.6
Identifiable assets                                      5,627.3        1,519.3         (1,785.9)         5,360.7
Capital expenditures                                       181.6           18.9              2.6            203.1
Depreciation                                               130.8           16.5              2.6            149.9

1996
-----------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers                        $ 4,212.0      $   702.4       $       --        $ 4,914.4
Operating income                                           273.0           75.7              8.2            356.9
Operating income excluding restructuring costs
   and goodwill amortization                               410.6           95.7              8.2            514.5
Identifiable assets                                      5,002.5        1,382.0         (1,231.0)         5,153.5
Capital expenditures                                       177.5           17.3              1.5            196.3
Depreciation                                               128.6           16.0              2.8            147.4

1995
-----------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers                        $ 4,075.6      $   690.5       $       --        $ 4,766.1
Operating income                                           348.5           74.8              2.8            426.1
Operating income excluding goodwill amortization           399.8           91.9              2.8            494.5
Identifiable assets                                      4,929.2        1,382.8           (766.7)         5,545.3
Capital expenditures                                       184.1           15.7              3.3            203.1
Depreciation                                               115.9           15.4              4.6            135.9
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>

Geographic Areas
(Millions of Dollars)
                                                United                                 Corporate &
1997                                            States         Europe        Other    Eliminations   Consolidated
-----------------------------------------------------------------------------------------------------------------------
<S>                                          <C>             <C>         <C>            <C>             <C>      
Sales to unaffiliated customers              $ 2,855.7       $1,368.9    $    715.9     $       --      $ 4,940.5
Sales and transfers between geographic areas     232.8          189.8         367.9         (790.5)            --
-----------------------------------------------------------------------------------------------------------------------
Total sales                                  $ 3,088.5       $1,558.7    $  1,083.8     $   (790.5)     $ 4,940.5
=======================================================================================================================
Operating income (loss)                      $   337.9       $  145.5    $      (.4)    $      6.3      $   489.3
Identifiable assets                          $ 3,771.7       $2,461.0    $    818.4     $ (1,690.4)     $ 5,360.7

1996
-----------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers              $ 2,726.1       $1,466.8    $    721.5     $       --      $ 4,914.4
Sales and transfers between geographic areas     246.6          176.4         256.0         (679.0)            --
-----------------------------------------------------------------------------------------------------------------------
Total sales                                  $ 2,972.7       $1,643.2    $    977.5     $   (679.0)     $ 4,914.4
=======================================================================================================================
Operating income (loss)                      $   282.3       $   67.5    $     (1.1)    $      8.2      $   356.9
Operating income excluding 
   restructuring costs                       $   317.4       $  117.2    $      5.4     $      8.2      $   448.2
Identifiable assets                          $ 3,258.5       $2,375.9    $    783.6     $ (1,264.5)     $ 5,153.5

1995
-----------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers              $ 2,551.2       $1,503.6    $    711.3     $       --      $ 4,766.1
Sales and transfers between geographic areas     287.8          165.0         206.0         (658.8)            --
-----------------------------------------------------------------------------------------------------------------------
Total sales                                  $ 2,839.0       $1,668.6    $    917.3     $   (658.8)     $ 4,766.1
=======================================================================================================================
Operating income                             $   300.2       $   96.0    $     27.1     $      2.8      $   426.1
Identifiable assets                          $ 3,216.6       $2,488.4    $    763.9     $   (923.6)     $ 5,545.3
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>
                                       65

     In  the  Geographic  Areas  table,  United  States  includes  all  domestic
operations and several intercompany  manufacturing facilities outside the United
States that manufacture  products  predominantly  for sale in the United States.
Other includes  subsidiaries  located in Canada, Latin America,  Australia,  and
Asia.
     Transfers  between  geographic  areas  are  accounted  for at  cost  plus a
reasonable  profit.  Transfers  between  business  segments are not significant.
Identifiable assets are those assets identified with the operations in each area
or segment, including goodwill.
     During  the year  ended  December  31,  1997,  sales to The Home  Depot,  a
customer in the Consumer  segment, accounted for $541.6 million of  consolidated
sales. No single customer accounted for 10% or more of consolidated sales in the
years ended December 31, 1996 or 1995.
     In 1996,  restructuring  costs in the  amount  of  $87.7  million  and $3.6
million were charged to the Consumer and Commercial segments, respectively.


NOTE 19: OTHER EXPENSE

Other expense for 1997,  1996, and 1995 primarily  included the costs associated
with the sale of receivables program and, for 1997, currency losses.


NOTE 20: 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 1997,  1996,  and 1995  amounted  to $76.3  million,  $71.2
million,  and $68.0 million,  respectively.  Capital  leases were  immaterial in
amount.  Future minimum  payments  under  non-cancelable  operating  leases with
initial or remaining  terms of more than one year as of December  31,  1997,  in
millions of dollars, were as follows:
--------------------------------------------------------------------------------
                  1998                                $  52.9
                  1999                                   43.8
                  2000                                   33.8
                  2001                                   26.2
                  2002                                   27.1
                  Thereafter                             61.9
--------------------------------------------------------------------------------
                  Total                               $ 245.7
================================================================================


NOTE 21: 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

<PAGE>
                                       66

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  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,  1997,  the  Corporation  had no  known  probable  but
inestimable exposures that could have a material effect on the Corporation.


<PAGE>
                                       67

NOTE 22: QUARTERLY RESULTS (UNAUDITED)
<TABLE>
(Millions of Dollars Except Per Share Data)
<CAPTION>

Year Ended December 31, 1997                         First Quarter    Second Quarter   Third Quarter   Fourth Quarter
---------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>               <C>             <C>              <C>       
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
=====================================================================================================================

Year Ended December 31, 1996
---------------------------------------------------------------------------------------------------------------------
Sales                                                   $  1,065.0        $  1,207.9      $  1,186.7       $  1,454.8
Gross margin                                                 394.9             426.0           429.2            507.7
Earnings (loss) from continuing operations                   (32.4)             45.3            55.7             90.6
Earnings from discontinued operations                         70.4                --              --               --
Net earnings                                                  38.0              45.3            55.7             90.6
=====================================================================================================================
Net earnings per common share -- basic:
     Earnings (loss) from continuing operations         $     (.41)       $      .48      $      .60       $      .97
     Earnings from discontinued operations                     .81                --              --               --
---------------------------------------------------------------------------------------------------------------------
Net earnings per common share -- basic                  $      .40        $      .48      $      .60       $      .97
=====================================================================================================================
Net earnings per common share -- assuming dilution:
     Earnings (loss) from continuing operations         $     (.41)       $      .47      $      .58       $      .94
     Earnings from discontinued operations                     .81                --              --               --
---------------------------------------------------------------------------------------------------------------------
Net earnings per common share -- assuming dilution      $      .40        $      .47      $      .58       $      .94
=====================================================================================================================
</TABLE>

     The  earnings  per share  amounts for 1996 and the first three  quarters of
1997 have been restated to comply with SFAS No. 128, Earnings per Share.
     Earnings from discontinued  operations of $70.4 million,  net of applicable
income taxes of $55.6 million,  in the first quarter of 1996 primarily consisted
of the gain on the sale of PRC Inc., the remaining  business in the discontinued
PRC segment.
     Results for the first  quarter of 1996 included a  restructuring  charge of
$81.6 million ($67.0 million net of tax). An additional  restructuring charge of
$9.7 million ($7.8 million net of tax) was  recognized in the fourth  quarter of
1996.
     Results for the quarter ended December 31, 1996,  included a tax benefit of
$10.6  million ($.11 per share both on a basic and a diluted  basis)  related to
the reduction of the deferred tax asset valuation allowance.  Due to a change in
the mix between foreign and domestic earnings during the fourth quarter of 1996,
the  Corporation's  effective  tax rate,  exclusive  of the tax  benefits of the
restructuring charge and the reduction of deferred tax asset valuation allowance
described above,  was 24% for the year ended December 31, 1996,  compared to 27%
for each of the first  three  quarters  in 1996.  Consequently,  results for the
quarter  ended  December 31, 1996,  included a tax benefit of $5.6 million ($.06
per share on both a basic  and a diluted  basis)  reflective  of the  cumulative
year-to-date adjustment of the effective tax rate.
     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>
                                       68

NOTE 23: SUBSEQUENT EVENTS

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 program  includes the
following components: (i) divestiture of the recreational products business, the
glass  container-forming  and inspection  equipment business,  and the household
products  business in North  America,  Latin America,  and  Australia;  (ii) the
repurchase of up to 10% of the Corporation's outstanding common stock; 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:  The Corporation has engaged  investment  bankers to assist in the
divestitures of the recreational products business, the glass  container-forming
and inspection equipment business,  and the household products business in North
America, Latin America, and Australia.  Based upon preliminary  indications from
investment  bankers,  the  Corporation  expects  aggregate net proceeds from the
sales of these businesses to exceed $500 million. Net proceeds from the sales of
these  businesses,  together with cash  generated by remaining  operations,  are
expected  to be  utilized in the  repurchase  of up to 10% of the  Corporation's
outstanding common stock and to fund the restructuring  program described below.
The divestitures are expected to be completed during 1998.

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 the next two years. A combination of
net proceeds from the sale of divested  businesses  and cash flow from remaining
operations  will be used to fund  the  stock  repurchase  program.  Prior to the
receipt of proceeds from the sale of divested  businesses,  the Corporation also
may utilize its  existing  borrowing  facilities  to fund a portion of the stock
repurchase program.

RESTRUCTURING CHARGE: The restructuring  program, which primarily relates to the
worldwide  power tools and  accessories  business and will be  completed  over a
period of two years, is being  undertaken to reduce fixed costs and simplify the
supply  chain  and new  product  introduction  processes.  The  majority  of the
restructuring  charge is expected to be recognized in the first quarter of 1998,
with the balance to be recognized over the remaining course of the program.

CHANGE  IN  ACCOUNTING   FOR  GOODWILL:   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
will  estimate  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
<PAGE>
                                       69

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
include an estimate of the proceeds from the eventual  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  described  above,  approximately
$900  million of goodwill  will be written  off  through a charge to  operations
during the first  quarter of 1998.  That  write-down,  which relates to goodwill
associated  with the security  hardware,  plumbing  products,  and fastening and
assembly systems  businesses and includes an approximate $60 million  write-down
of goodwill  associated  with the  businesses to be sold,  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 the preceding
paragraph.

<PAGE>
                                       70

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

We have  audited the  accompanying  consolidated  balance  sheets of The Black &
Decker   Corporation  as  of  December  31,  1997  and  1996,  and  the  related
consolidated  statements  of earnings and cash flows for each of the three years
in the period ended  December 31, 1997.  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  at  December  31,  1997  and  1996,  and the
consolidated  results  of its  operations  and its cash  flows for each of three
years in the period ended  December  31,  1997,  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.


/s/ERNST & YOUNG LLP                                
Baltimore, Maryland
January 26, 1998




<PAGE>
                                       71

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 28, 1998,  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 28,  1998,
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 28,  1998,
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 28,  1998,
under  the  caption  "Executive  Compensation"  and is  incorporated  herein  by
reference.





<PAGE>
                                       72


                                     PART IV

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

(a)      List of Financial Statements, Financial Statements 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,
                   1997, 1996, and 1995.

                   Consolidated Balance Sheet - December 31, 1997 and 1996.

                   Consolidated  Statement of Cash Flows - years ended  December
                   31, 1997, 1996, and 1995.

                   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>
                                       73

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


              Exhibit No.        Exhibit

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

              3(b)               By-Laws  of  the   Corporation,   as   amended,
                                 included in the Corporation's  Quarterly Report
                                 on Form 10-Q for the  quarter  ended  September
                                 29, 1996, are incorporated herein by reference.

              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.

              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 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 by reference.



<PAGE>
                                       74

              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.

              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.

              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.



<PAGE>
                                       75

              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, included in
                                 the Corporation's Quarterly Report on Form 10-Q
                                 for  the  quarter  ended  March  30,  1997,  is
                                 incorporated herein by reference.

              10(g)              The Black & Decker 1996 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(h)              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.

              10(i)              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(j)              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(k)              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(l)              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(m)(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.

 
<PAGE>
                                       76

              10(m)(2)           Amendment  to The  Black & Decker  Supplemental
                                 Pension Plan dated as of May 21, 1997.

              10(n)(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(n)(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(o)(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.

              10(o)(2)           Amendment  to The  Black & Decker  Supplemental
                                 Retirement  Savings  Plan dated as of April 22,
                                 1997.

              10(p)              The  Black  &  Decker  Supplemental   Executive
                                 Retirement  Plan,  as amended,  included in the
                                 Corporation's  Annual  Report  on Form 10-K for
                                 the  year   ended   December   31,   1995,   is
                                 incorporated herein by reference.

              10(q)              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(r)              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(s)              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(t)              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.


<PAGE>
                                       77

              10(u)              Description  of  certain  incidental   benefits
                                 provided   to   executive   officers   of   the
                                 Corporation.

              10(v)              Form of Amendment and  Restatement of Severance
                                 Benefits   Agreement   by   and   between   the
                                 Corporation  and  approximately  19 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(w)              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.

              10(x)              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(y)              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(z)              Amendment and Restatement of Severance Benefits
                                 Agreement,   dated  January  1,  1997,  by  and
                                 between the  Corporation  and Dennis G. Heiner,
                                 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)             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(bb)             Letter  Agreement  dated as of August 13, 1991,
                                 by and between the  Corporation and Newell Co.,
                                 included in the Corporation's  Quarterly Report
                                 on Form  10-Q for the  quarter  ended  June 30,
                                 1991, is incorporated herein by reference.

 <PAGE>
                                       78

              10(cc)             Standstill  Agreement dated as of September 24,
                                 1991,  between the  Corporation and Newell Co.,
                                 included in the Corporation's Current Report on
                                 Form  8-K  dated   September   25,   1991,   is
                                 incorporated herein by reference.

              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)             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.

              10(ff)(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 by reference.

              10(ff)(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.

              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.

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



<PAGE>
                                       79

(b)      Reports on Form 8-K
         The  Corporation did not file any reports on Form 8-K during the twelve
         month period ended December 31, 1997.

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





<PAGE>
                                       80

<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, 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
===========================================================================================================================

Year Ended December 31, 1995
Reserve for doubtful accounts
     and cash discounts                     $ 38.2          $ 56.6           $ 52.9(A)        $  1.2 (B)           $ 43.1
===========================================================================================================================


<FN>

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

 (B) Primarily includes currency translation adjustments.

</FN>
</TABLE>





<PAGE>
                                       81

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

                                    THE BLACK & DECKER CORPORATION

Date:    February 19, 1998          By      /s/ NOLAN D. ARCHIBALD
         -----------------                  ----------------------
                                            Nolan D. Archibald
                                            Chairman, President, and
                                            Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on February 19, 1998, by the  following  persons on behalf
of the registrant and in the capacities indicated.

     Signature                          Title                        Date

Principal Executive Officer

/s/ NOLAN D. ARCHIBALD                                         February 19, 1998
----------------------                                         -----------------
Nolan D. Archibald              Chairman, President, and
                                Chief Executive Officer

Principal Financial Officer

/s/ THOMAS M. SCHOEWE                                          February 19, 1998
---------------------                                          -----------------
Thomas M. Schoewe               Senior Vice President and
                                Chief Financial Officer

Principal Accounting Officer

/s/ STEPHEN F. REEVES                                          February 19, 1998
---------------------                                          -----------------
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                      M. Cabell Woodward, Jr.


By   /s/ NOLAN D. ARCHIBALD                             Date:  February 19, 1998
     ----------------------                                    -----------------
     Nolan D. Archibald
     Attorney-in-Fact