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, 2002                                    1-1553
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                         THE BLACK & DECKER CORPORATION
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


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


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


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


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

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



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


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

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

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

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant as of June 28, 2002, was $3,858,726,337.

The number of shares of Common Stock  outstanding  as of January 24,  2003,  was
78,598,839.

The exhibit  index as required by Item 601(a) of  Regulation  S-K is included in
Item 15 of Part IV of this report.

Documents  Incorporated by Reference:  Portions of the  registrant's  definitive
Proxy Statement for the 2003 Annual Meeting of Stockholders  are incorporated by
reference in Part III of this Report.

<PAGE>

                                     Part I

ITEM 1.  BUSINESS

(a)  General Development of Business
The  Black  &  Decker  Corporation  (collectively  with  its  subsidiaries,  the
Corporation), incorporated in Maryland in 1910, is a leading global manufacturer
and  marketer  of power tools and  accessories,  hardware  and home  improvement
products,  and  technology-based  fastening systems.  With products and services
marketed in over 100 countries,  the Corporation enjoys worldwide recognition of
strong brand names and a superior  reputation for quality,  design,  innovation,
and value.
   The Corporation is one of the world's leading producers of power tools, power
tool  accessories,  and residential  security  hardware,  and the  Corporation's
product  lines hold leading  market share  positions  in these  industries.  The
Corporation  is a major global  supplier of  engineered  fastening  and assembly
systems.  The  Corporation  is one of the leading  producers of faucets in North
America.  These  assertions  are  based on  total  volume  of sales of  products
compared to the total  market for those  products  and are  supported  by market
research  studies  sponsored by the Corporation as well as independent  industry
statistics  available  through  various  trade  organizations  and  periodicals,
internally generated market data, and other sources.

(b)  Financial Information About Business Segments
The Corporation operates in three reportable business segments:  Power Tools and
Accessories,  including  consumer and professional  power tools and accessories,
electric lawn and garden tools,  electric  cleaning and lighting  products,  and
product service; Hardware and Home Improvement,  including security hardware and
plumbing   products;   and  Fastening  and  Assembly  Systems.   For  additional
information about these segments, see Note 15 of Notes to Consolidated Financial
Statements  included  in Item 8 of Part  II,  and  Management's  Discussion  and
Analysis of Financial  Condition and Results of Operations included in Item 7 of
Part II of this report.

(c)  Narrative Description of the Business
The following is a brief  description  of each of the  Corporation's  reportable
business segments.

POWER TOOLS AND ACCESSORIES
The Power Tools and  Accessories  segment has worldwide  responsibility  for the
manufacture and sale of consumer (home use) and professional corded and cordless
electric  power tools,  lawn and garden tools,  home products,  accessories  and
attachments for power tools, and product service.  In addition,  the Power Tools
and Accessories  segment has responsibility for the sale of security hardware to
customers in Mexico, Central America, the Caribbean,  and South America; for the
sale of plumbing  products to customers outside of the United States and Canada;
and for sales of household products, principally in Europe and Brazil.
   Power tools include drills, screwdrivers,  saws, sanders, grinders, pneumatic
nailers,  bench and stationary  machinery,  air compressors,  generators,  laser
products, and WORKMATE(R) project centers and related products.  Lawn and garden
tools  include  hedge   trimmers,   string   trimmers,   lawn  mowers,   edgers,
blower/vacuums,  power sprayers, and related accessories.  Home products include
upright and hand-held vacuums,  flexible flashlights,  and wet scrubbers.  Power
tool accessories  include drill bits, circular saw blades, jig and reciprocating
saw blades,  screwdriver bits and quick-change  systems,  bonded abrasives,  and
worksite tool belts and bags.  Product service  provides  replacement  parts and
repair and maintenance of power tools and electric lawn and garden tools.
   Power tools,  lawn and garden  tools,  home  products,  and  accessories  are
marketed  around  the  world  under  the  BLACK &  DECKER  name as well as other
trademarks  and trade names,  including,  without  limitation,  ORANGE AND BLACK
COLOR SCHEME; DEWALT; YELLOW AND BLACK COLOR SCHEME; VERSAPAK;  NAVIGATOR; PIVOT
DRIVER; SANDSTORM;  WORKMATE; FIRESTORM; MOUSE; MEGA MOUSE; RTX; SWIVEL; QUANTUM
PRO; ZIPSAW MULTI PROJECT TOOL; ALLIGATOR; QUATTRO; PRODUCT FINDER; GIFT FINDER;
TOOL SCHOOL;  GUARANTEED TOUGH; XRP; SCRUGUN; HOLGUN; BULLS EYE; WILDCAT; EMGLO;
MOMENTUM;  ELU;  GROOM  `N' EDGE;  VAC `N'  MULCH;  AFS  AUTOMATIC  FEED  SPOOL;
STRIMMER; REFLEX; HEDGE HOG; GRASS HOG; LEAF HOG; EDGE HOG; LAWN HOG; FLEX TUBE;
DUSTBUSTER;  DIRTBUSTER;  STEAMBUSTER;   SCUMBUSTER;  FLOORBUSTER;   SNAKELIGHT;
SPOTLITER;  SAFELITER;  B&D; PIRANHA;  BULLET;  SCORPION;  SERIES 20; SERIES 40;
SERIES 60; ROCK CARBIDE;  PILOT POINT;  RAPID LOAD;  TOUGH CASE; and ACCESSORIES
FINDER.
   The composition of the Corporation's  sales by product groups for 2002, 2001,
and 2000 is included in Note 15 of Notes to  Consolidated  Financial  Statements
included in Item 8 of Part II of this report.  Within each product  group shown,
there existed no individual  product that  accounted for greater than 10% of the
Corporation's consolidated sales for 2002, 2001, or 2000.
   The  Corporation's  product  service  program  supports  its power  tools and
electric lawn and garden tools.  Replacement  parts and product repair  services
are available through a network of company-operated  service centers,  which are
identified  and listed in product  information  material  generally  included in
product  packaging.  At December 31,  2002,  there were  approximately  130 such


                                      -1-
<PAGE>

service centers,  of which roughly two-thirds were located in the United States.
The  remainder  was located  around the world,  primarily in Canada,  Asia,  and
Europe.  These  company-operated  service  centers are  supplemented  by several
hundred  authorized  service centers operated by independent  local owners.  The
Corporation also operates  reconditioning centers in which power tools, electric
lawn  and  garden  tools,  and  electric  cleaning  and  lighting  products  are
reconditioned and then re-sold through numerous company-operated factory outlets
and service centers.
   Most of the  Corporation's  consumer  power tools,  electric  lawn and garden
tools,  and electric  cleaning and lighting  products  sold in the United States
carry a two-year  warranty,  pursuant to which the consumer can return defective
products  during  the  two  years  following  the  purchase  in  exchange  for a
replacement  product  or  repair  at no  cost  to  the  consumer.  Most  of  the
Corporation's  professional  power  tools  sold  in the  United  States  carry a
one-year warranty with similar  provisions.  Products sold outside of the United
States generally have similar warranty  arrangements.  Such  arrangements  vary,
however, depending upon local market conditions and laws and regulations.
   The  Corporation's  product  offerings  in the Power  Tools  and  Accessories
segment are sold primarily to retailers, wholesalers, distributors, and jobbers,
although  some  discontinued  or  reconditioned  power tools,  electric lawn and
garden  tools,  and electric  cleaning  and  lighting  products are sold through
company-operated  service  centers  and factory  outlets  directly to end users.
Sales to The Home Depot, one of the segment's  customers,  accounted for greater
than 10% of the Corporation's consolidated sales for 2002, 2001, and 2000. Sales
to Lowe's Home Improvement Warehouse, one of the segment's customers,  accounted
for  greater  than 10% of the  Corporation's  consolidated  sales for 2002.  For
additional  information  regarding  sales  to The Home  Depot  and  Lowe's  Home
Improvement Warehouse, see Note 15 of Notes to Consolidated Financial Statements
included in Item 8 of Part II of this report.
   The principal  materials used in the  manufacturing  of products in the Power
Tools and Accessories segment are plastics,  aluminum,  copper,  steel,  certain
electronic components, and batteries. These materials are used in various forms.
For example,  aluminum or steel may be used in the form of wire, sheet, bar, and
strip stock.
   The materials  used in the various  manufacturing  processes are purchased on
the open market, and the majority are available through multiple sources and are
in  adequate  supply.  The  Corporation  has  experienced  no  significant  work
stoppages to date as a result of shortages of  materials.  The  Corporation  has
certain  long-term  commitments for the purchase of various  component parts and
raw  materials  and believes  that it is unlikely  that any of these  agreements
would be  terminated  prematurely.  Alternate  sources of supply at  competitive
prices  are  available  for most,  if not all,  materials  for  which  long-term
commitments exist. The Corporation believes that the termination of any of these
commitments would not have a material adverse effect on operations.
   Principal  manufacturing and assembly facilities of the power tools, electric
lawn and garden tools, electric cleaning and lighting products,  and accessories
businesses in the United  States are located in  Fayetteville,  North  Carolina;
Easton,  Maryland; and Tampa, Florida. The principal distribution  facilities in
the United States,  other than those located at the  manufacturing  and assembly
facilities  listed above, are located in Fort Mill,  South Carolina,  and Rancho
Cucamonga, California.
   Principal  manufacturing and assembly facilities of the power tools, electric
lawn and garden tools, electric cleaning and lighting products,  and accessories
businesses  outside of the  United  States are  located in  Buchlberg,  Germany;
Perugia,  Italy;  Spennymoor  and Maltby,  England;  Reynosa,  Mexico;  Uberaba,
Brazil;  Suzhou,  China; and Usti nad Labem, Czech Republic.  In addition to the
principal  facilities  described above, the manufacture and assembly of products
for the Power Tools and  Accessories  segment also occurs at the facility of its
50%-owned joint venture located in Shen Zhen, China. The principal  distribution
facilities  outside  of the  United  States,  other  than  those  located at the
manufacturing   facilities   listed   above,   consist  of  a   central-European
distribution  center  in  Tongeren,  Belgium,  and a  facility  in  Northampton,
England.
   For additional  information  with respect to these and other properties owned
or leased by the Corporation, see Item 2, "Properties."
   The  Corporation  holds various  patents and licenses on many of its products
and processes in the Power Tools and Accessories segment. Although these patents
and licenses are important,  the Corporation is not materially dependent on such
patents or licenses with respect to its operations.
   The Corporation holds various  trademarks that are employed in its businesses
and operates under various trade names, some of which are stated previously. The
Corporation  believes that these trademarks and trade names are important to the
marketing and distribution of its products.
   A  significant  portion  of the  Corporation's  sales in the Power  Tools and
Accessories  segment is derived from the  do-it-yourself  and home modernization
markets,  which generally are not seasonal in nature.  However, sales of certain
consumer  and  professional  power  tools  tend to be higher  during  the period
immediately  preceding the Christmas gift-giving season, while the sales of most
electric  lawn and garden  tools are at their  peak  during the winter and early
spring period. Most of the Corporation's other product lines within this segment
generally  are not seasonal in nature,  but may be  influenced  by other general
economic trends.
   The  Corporation  is one of the  world's  leaders  in the  manufacturing  and
marketing  of  portable  power  tools,  electric  lawn  and  garden  tools,  and
accessories.  Worldwide,  the  markets  in which  the  Corporation  sells  these
products are highly competitive on the basis of price,  quality,  and after-sale
service. A number of competing domestic and foreign companies are strong, well-


                                      -2-
<PAGE>

established  manufacturers  that  compete  on a  global  basis.  Some  of  these
companies  manufacture  products  that  are  competitive  with a  number  of the
Corporation's  product lines.  Other  competitors  restrict their  operations to
fewer  categories,  and some offer only a narrow range of competitive  products.
Competition from certain of these manufacturers has been intense in recent years
and is expected to continue.

HARDWARE AND HOME IMPROVEMENT
The Hardware and Home Improvement  segment has worldwide  responsibility for the
manufacture  and sale of  security  hardware  products  (except  for the sale of
security hardware in Mexico, Central America, the Caribbean, and South America).
It also has responsibility for the manufacture of plumbing products, and for the
sale of plumbing products to customers in the United States and Canada. Security
hardware   products   consist  of  residential  and  commercial  door  locksets,
electronic  keyless  entry  systems,  exit devices,  and master keying  systems.
Plumbing products consist of a variety of conventional and decorative  lavatory,
kitchen,  and  tub  and  shower  faucets,  bath  and  kitchen  accessories,  and
replacement parts.
   Security  hardware  products are marketed  under a variety of trademarks  and
trade names, including,  without limitation,  KWIKSET SECURITY;  KWIKSET MAXIMUM
SECURITY; KWIKSET ULTRAMAX SECURITY; SOCIETY BRASS COLLECTION;  KWIKSET; KWIKSET
PLUS;  TITAN;  BLACK & DECKER;  PROTECTO  LOCK;  TYLO;  POLO;  KWIK INSTALL;  EZ
INSTALL;  DOM; DIAMANT;  ELS; NEMEF;  CORBIN CO.; and GEO. Plumbing products are
marketed under the  trademarks and trade names PRICE PFISTER;  CLASSIC SERIES BY
PRICE  PFISTER;  PRICE  PFISTER  PROFESSIONAL  SERIES;  BACH;  SOLO;  CONTEMPRA;
MARIELLE; TWISTPFIT;  MATCHMAKERS; CARMEL; PARISA; SAVANNAH; ARIETTA; ALLEMANDE;
GRAZIA; MORCEAU; CATALINA; and GEORGETOWN.
   The composition of the Corporation's  sales by product groups for 2002, 2001,
and 2000 is included in Note 15 of Notes to  Consolidated  Financial  Statements
included in Item 8 of Part II of this report.  Within each product  group shown,
there existed no individual  product that  accounted for greater than 10% of the
Corporation's consolidated sales for 2002, 2001, or 2000.
   Most of the  Corporation's  security  hardware  products  sold in the  United
States carry a warranty,  pursuant to which the  consumer  can return  defective
product  during the warranty  term in exchange for a  replacement  product at no
cost to the consumer. Warranty terms vary by product and range from a 10-year to
a lifetime warranty with respect to mechanical operations and from a 5-year to a
lifetime  warranty  with respect to finish.  Products sold outside of the United
States for residential use generally have similar  warranty  arrangements.  Such
arrangements vary, however,  depending upon local market conditions and laws and
regulations.  Most of the  Corporation's  plumbing  products  sold in the United
States carry a lifetime  warranty with respect to function and finish,  pursuant
to which the consumer can return defective product in exchange for a replacement
product or repair at no cost to the consumer.
   The  Corporation's  product  offerings in the  Hardware and Home  Improvement
segment are sold primarily to retailers, wholesalers, distributors, and jobbers.
Certain security  hardware products are sold to commercial,  institutional,  and
industrial  customers.  Sales to The Home Depot, one of the segment's customers,
accounted for greater than 10% of the Corporation's consolidated sales for 2002,
2001, and 2000. Sales to Lowe's Home Improvement Warehouse, one of the segment's
customers,  accounted  for greater  than 10% of the  Corporation's  consolidated
sales for 2002. For additional information regarding sales to The Home Depot and
Lowe's  Home  Improvement  Warehouse,  see  Note  15 of  Notes  to  Consolidated
Financial Statements included in Item 8 of Part II of this report.
   The principal materials used in the manufacturing of products in the Hardware
and Home Improvement  segment are plastics,  aluminum,  steel, brass, zamak, and
ceramics.
   The materials  used in the various  manufacturing  processes are purchased on
the open market,  and the majority is available  through multiple sources and is
in  adequate  supply.  The  Corporation  has  experienced  no  significant  work
stoppages to date as a result of shortages of  materials.  The  Corporation  has
certain  long-term  commitments for the purchase of various  component parts and
raw  materials  and believes  that it is unlikely  that any of these  agreements
would be  terminated  prematurely.  Alternate  sources of supply at  competitive
prices  are  available  for most,  if not all,  materials  for  which  long-term
commitments exist. The Corporation believes that the termination of any of these
commitments would not have a material adverse effect on operations. From time to
time, the Corporation enters into commodity hedges on certain raw materials used
in the manufacturing process to reduce the risk of market price fluctuations. As
of December  31,  2002,  the amount of product  under  commodity  hedges was not
material to the Corporation.
   Principal  manufacturing  and  assembly  facilities  of the Hardware and Home
Improvement  segment  in the  United  States  are  located  in  Denison,  Texas;
Waynesboro, Georgia; and Bristow, Oklahoma.
   Principal  manufacturing  and  assembly  facilities  of the Hardware and Home
Improvement segment outside of the United States are located in Bruhl,  Germany;
Mexicali, Mexico; and Apeldoorn, Netherlands.
   For additional  information  with respect to these and other properties owned
or leased by the Corporation, see Item 2, "Properties."
   The  Corporation  holds various  patents and licenses on many of its products
and  processes in the  Hardware and Home  Improvement  segment.  Although  these
patents and licenses are important,  the Corporation is not materially dependent
on such patents or licenses with respect to its operations.


                                      -3-
<PAGE>

   The Corporation holds various  trademarks that are employed in its businesses
and operates  under  various trade names,  some of which are stated  above.  The
Corporation  believes that these trademarks and trade names are important to the
marketing and distribution of its products.
   A  significant  portion of the  Corporation's  sales in the Hardware and Home
Improvement  segment is derived from the  do-it-yourself  and home modernization
markets,  which  generally are not seasonal in nature,  but may be influenced by
trends in the residential and commercial  construction markets and other general
economic trends.
   The  Corporation  is one of the  world's  leading  producers  of  residential
security  hardware  and is one of the  leading  producers  of  faucets  in North
America.  Worldwide,  the markets in which the Corporation  sells these products
are highly competitive on the basis of price, quality, and after-sale service. A
number of competing domestic and foreign companies are strong,  well-established
manufacturers   that  compete  on  a  global  basis.  Some  of  these  companies
manufacture  products that are  competitive  with a number of the  Corporation's
product lines. Other competitors  restrict their operations to fewer categories,
and some offer only a narrow range of  competitive  products.  Competition  from
certain of these  manufacturers has been intense in recent years and is expected
to continue.

FASTENING AND ASSEMBLY SYSTEMS
The   Corporation's   Fastening  and  Assembly  Systems  segment  has  worldwide
responsibility  for the  manufacture  and sale of an extensive line of metal and
plastic fasteners and engineered fastening systems for commercial  applications,
including blind riveting,  stud welding,  assembly  systems,  specialty  screws,
prevailing  torque  nuts and  assemblies,  insert  systems,  metal  and  plastic
fasteners,  and  self-piercing  riveting  systems.  The  fastening  and assembly
systems  products are marketed  under a variety of  trademarks  and trade names,
including, without limitation, EMHART TEKNOLOGIES; EMHART FASTENING TEKNOLOGIES;
EMHART; DODGE; GRIPCO; GRIPCO ASSEMBLIES;  HELI-COIL;  NPR;  PARKER-KALON;  POP;
POP-LOK; POWERLINK;  T-RIVET; ULTRA-GRIP;  TUCKER; WARREN; DRIL-KWICK; JACK NUT;
KALEI;  PLASTIFAST;   PLASTI-KWICK;   POPMATIC;  POPNUT;  POP-SERT;   SWAGEFORM;
WELDFAST; SWS; SPLITFAST; NUT-FAST; WELL-NUT; F-SERIES; MENTOR; POINT & SET; and
ULTRASERT.    The   Fastening   and   Assembly    Systems    segment    provides
platform-management  services  in addition  to the  manufacture  and sale of the
products previously described.
   The composition of the Corporation's  sales by product groups for 2002, 2001,
and 2000 is included in Note 15 of Notes to  Consolidated  Financial  Statements
included in Item 8 of Part II of this report.  Within each product  group shown,
there existed no individual  product that  accounted for greater than 10% of the
Corporation's consolidated sales for 2002, 2001, or 2000.
   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.
   Products are marketed directly to customers and also through distributors and
representatives.  These products face  competition  from many  manufacturers  in
several countries. Product quality, performance,  reliability,  price, delivery,
and technical and application  engineering  services are the primary competitive
factors. There is little seasonal variation in sales.
   The  Corporation  owns  a  number  of  United  States  and  foreign  patents,
trademarks,  and license rights  relating to the fastening and assembly  systems
business. While the Corporation considers those patents, trademarks, and license
rights to be  valuable,  it is not  materially  dependent  upon such  patents or
license rights with respect to its operations.
   Principal  manufacturing  facilities of the  Fastening  and Assembly  Systems
segment in the United  States are located in Danbury,  Connecticut;  Montpelier,
Indiana; Campbellsville and Hopkinsville,  Kentucky; and Chesterfield, Michigan.
Principal  facilities  outside of the United  States are located in  Birmingham,
England; Giessen, Germany; and Toyohashi, Japan. For additional information with
respect to these and other properties  owned or leased by the  Corporation,  see
Item 2, "Properties."
   The raw materials used in the fastening and assembly systems business consist
primarily of ferrous and nonferrous  metals in the form of wire, bar stock,  and
strip and sheet  metals;  plastics;  and  rubber.  These  materials  are readily
available from a number of suppliers.

OTHER INFORMATION
The  Corporation's   product   development  program  for  the  Power  Tools  and
Accessories  segment  is  coordinated  from the  Corporation's  headquarters  in
Towson, Maryland. Additionally,  product development activities are performed at
facilities in Hampstead,  Maryland, in the United States; Maltby and Spennymoor,
England;  Brockville,  Canada;  Perugia, Italy; Suzhou, China; and Buchlberg and
Idstein, Germany.
   Product development  activities for the Hardware and Home Improvement segment
are performed at  facilities in Lake Forest,  California;  Bruhl,  Germany;  and
Apeldoorn, Netherlands.
   Product development activities for the Fastening and Assembly Systems segment
are  currently  performed at  facilities  in Danbury and  Shelton,  Connecticut;
Montpelier,  Indiana;  Campbellsville,  Kentucky;  Chesterfield  and  Farmington
Hills, Michigan; Birmingham, England; Geissen, Germany; and Toyohashi, Japan.


                                      -4-
<PAGE>

   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,  2002,  the  Corporation  employed  approximately  22,300
persons in its operations worldwide. Approximately 1,200 employees in the United
States  are  covered by  collective  bargaining  agreements.  During  2002,  two
collective  bargaining  agreements in the United States were negotiated  without
material disruption to operations. Four agreements are scheduled for negotiation
during 2003. Also, the Corporation has government-mandated collective bargaining
arrangements  or  union  contracts  with  employees  in  other  countries.   The
Corporation's  operations have not been affected significantly by work stoppages
and, in the opinion of  management,  employee  relations are good. As more fully
described under the caption "Restructuring  Actions" in Management's  Discussion
and Analysis of Financial  Condition and Results of Operations  included in Item
7, and in Note 17 of Notes to Consolidated Financial Statements included in Item
8 of Part II of this report, in 2002, the Corporation announced the closure of a
security  hardware  facility in  Waynesboro,  Georgia,  and the closure of power
tools and accessories facilities in Easton, Maryland, and Meadowfield,  England.
Additional  restructuring  actions taken by the Corporation  will also result in
the  transfer  of  production  from the United  States and  England to  low-cost
facilities  in Mexico,  China,  and the Czech  Republic.  Such  closures  and/or
production  transfers may result in a deterioration of employee relations at the
impacted locations or elsewhere in the Corporation.
   The  Corporation's  operations are subject to foreign,  federal,  state,  and
local  environmental  laws and regulations.  Many foreign,  federal,  state, and
local  governments  also have  enacted  laws and  regulations  that  govern  the
labeling and  packaging  of products  and limit the sale of products  containing
certain  materials  deemed  to be  environmentally  sensitive.  These  laws  and
regulations  not  only  limit  the  acceptable  methods  for  the  discharge  of
pollutants  and the disposal of products  and  components  that contain  certain
substances,  but also  require  that  products be designed in a manner to permit
easy recycling or proper disposal of environmentally  sensitive  components such
as nickel cadmium  batteries.  The Corporation  seeks to comply fully with these
laws and regulations. Although compliance involves continuing costs, the ongoing
costs of compliance with existing  environmental  laws and regulations  have not
had,  nor are  they  expected  to  have,  a  material  adverse  effect  upon the
Corporation's capital expenditures or financial position.
   Pursuant to authority granted under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (CERCLA), the United States Environmental
Protection  Agency (EPA) has issued a National  Priority  List (NPL) of sites at
which  action  is to be  taken to  mitigate  the risk of  release  of  hazardous
substances  into the  environment.  The  Corporation  is engaged  in  continuing
activities with regard to various sites on the NPL and other sites covered under
analogous state environmental laws. As of December 31, 2002, the Corporation had
been  identified as a  potentially  responsible  party (PRP) in connection  with
approximately  27 sites being  investigated  by federal or state  agencies under
CERCLA or analogous state environmental laws. The Corporation also is engaged in
site   investigations   and  remedial   activities   to  address   environmental
contamination   from  past  operations  at  current  and  former   manufacturing
facilities in the United States and abroad.
   To minimize  the  Corporation's  potential  liability  with  respect to these
sites,  management has undertaken,  when  appropriate,  active  participation in
steering  committees  established  at the  sites and has  agreed to  remediation
through  consent  orders  with  the  appropriate  government  agencies.  Due  to
uncertainty  as  to  the  Corporation's   involvement  in  some  of  the  sites,
uncertainty  over  the  remedial  measures  to be  adopted,  and the  fact  that
imposition  of joint and several  liability  with the right of  contribution  is
possible  under  CERCLA and other laws and  regulations,  the  liability  of the
Corporation  with respect to any site at which  remedial  measures have not been
completed cannot be established with certainty. On the basis of periodic reviews
conducted with respect to these sites,  however, the Corporation has established
appropriate  liability  accruals.   The  Corporation's  estimate  of  the  costs
associated with environmental exposures is accrued if, in management's judgment,
the  likelihood  of a loss  is  probable  and  the  amount  of the  loss  can be
reasonably  estimated.  As of December 31,  2002,  the  Corporation's  aggregate
probable exposure with respect to environmental liabilities,  for which accruals
have  been  established  in the  consolidated  financial  statements,  was $46.8
million. In the opinion of management,  the amount accrued for probable exposure
for  aggregate  environmental  liabilities  is adequate  and,  accordingly,  the
ultimate  resolution of these matters is not expected to have a material adverse
effect on the Corporation's  consolidated  financial statements.  As of December
31,  2002,  the  Corporation  had no known  probable but  inestimable  exposures
relating to  environmental  matters that are expected to have a material adverse
effect  on  the  Corporation.   There  can  be  no  assurance,   however,   that
unanticipated  events will not require the Corporation to increase the amount it
has accrued for any environmental  matter or accrue for an environmental  matter
that has not been previously accrued because it was not considered probable.

(d)  Financial Information About Geographic Areas
Reference  is made to Note 15 of Notes  to  Consolidated  Financial  Statements,
entitled "Business Segments and Geographic  Information",  included in Item 8 of
Part II of this report.


                                      -5-
<PAGE>

(e)  Available Information
The Corporation files annual,  quarterly, and current reports, proxy statements,
and other documents with the Securities and Exchange  Commission (SEC) under the
Securities Exchange Act of 1934 (the Exchange Act). The public may read and copy
any  materials  that the  Corporation  files  with the SEC at the  SEC's  Public
Reference Room at 450 Fifth Street,  NW,  Washington,  DC 20549.  The public may
obtain  information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. Also, the SEC maintains an Internet website that contains
reports,  proxy and  information  statements,  and other  information  regarding
issuers,  including the Corporation,  that file electronically with the SEC. The
public can  obtain  any  documents  that the  Corporation  files with the SEC at
http://www.sec.gov.
   The  Corporation  also  makes  available  free of  charge on or  through  its
Internet website  (http://www.bdk.com)  the Corporation's  Annual Report on Form
10-K,  Quarterly  Reports on Form 10-Q,  Current  Reports on Form 8-K,  and,  if
applicable,  amendments to those reports filed or furnished  pursuant to Section
13(a)  of  the  Exchange  Act  as  soon  as  reasonably  practicable  after  the
Corporation  electronically  files such  material  with, or furnishes it to, the
SEC.

(f) Executive Officers and Other Senior Officers of the Corporation
The current  Executive  Officers and Other Senior  Officers of the  Corporation,
their ages, current offices or positions,  and their business  experience during
the past five years are set forth below.

o  Nolan D. Archibald - 59
   Chairman, President, and Chief Executive Officer,
     January 1990 - present.

o  Paul A. Gustafson - 60
   Executive Vice President of the Corporation and
     President - Fastening and Assembly Systems Group,
     December 1996 - present.

o  Paul F. McBride - 46
   Executive Vice President of the Corporation and
     President - Power Tools and Accessories Group,
     April 1999 - present;

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

   President - GE Plastics Asia Pacific,
     August 1997 - January 1998.

o  Charles E. Fenton - 54
   Senior Vice President and General Counsel,
     December 1996 - present.

o  Barbara B. Lucas - 57
   Senior Vice President - Public Affairs and
     Corporate Secretary,
     December 1996 - present.

o  Michael D. Mangan - 46
   Senior Vice President and Chief Financial Officer,
     January 2000 - present;

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

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

o  Leonard A. Strom - 57
   Senior Vice President - Human Resources,
     December 1996 - present.

o  Ian R. Carter - 41
   Vice President of the Corporation and President -
     Europe, Power Tools and Accessories Group,
     July 2000 - present;

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

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

   President - General Electric Company,
     Specialty Chemicals,
     July 1995 - July 1998.

o  Les H. Ireland - 38
   Vice President of the Corporation and
     Managing Director - Commercial Operations,
     Europe, Power Tools and Accessories Group,
     November 2001 - present;

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

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

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

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

   Vice President - Sales, Industrial Construction Division,
     North American Power Tools,
     Power Tools and Accessories Group,
     October 1996 - November 1998.


                                      -6-
<PAGE>

o  Thomas D. Koos - 39
   Vice President of the Corporation and President -
     Black & Decker Consumer Products,
     Power Tools and Accessories Group,
     January 2001 - present;

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

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

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

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

   President - Bernzomatic, Division of
     Newell Rubbermaid Corporation,
     January 1997 - January 1998.

o  Carl C. Liebert - 55
   Vice President of the Corporation and Vice President -
     Six Sigma and Transportation,
     Power Tools and Accessories Group,
     December 2002 - present;

   Vice President of the Corporation and Vice President -
     Supply Chain, Power Tools and Accessories Group,
     October 2001 - December 2002;

   Vice President - Supply Chain, Power Tools
     and Accessories Group,
     November 1999 - October 2001;

   Vice President - Six Sigma,
     October 1998 - November 1999;

   General Manager - Manufacturing, GE Plastics,
     General Electric Company,
     August 1995 - October 1998.

o  Christina M. McMullen - 47
   Vice President and Controller,
     April 2000 - present;

   Controller,
     January 2000 - April 2000;

   Assistant Controller,
     April 1993 - January 2000.

o  Christopher T. Metz - 37
   Vice President of the Corporation and President -
     North American Hardware and Home Improvement,
     Hardware and Home Improvement Group,
     January 2001 - present;

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

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

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

o  Stephen F. Reeves - 43
   Vice President of the Corporation and Vice President -
     Finance, Power Tools and Accessories Group,
     April 2000 - present;

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

   Vice President and Controller,
     September 1996 - January 2000.

o  Mark M. Rothleitner - 44
   Vice President - Investor Relations and Treasurer,
     January 2000 - present;

   Vice President and Treasurer,
     March 1997 - January 2000.

o  Edward J. Scanlon - 48
   Vice President of the Corporation and President -
     Commercial Operations, North America,
     Power Tools and Accessories Group,
     May 1999 - present;

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

o  John W. Schiech - 44
   Vice President of the Corporation and President -
     DEWALT Professional Products, Power Tools
     and Accessories Group,
     January 2001 - present;

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

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

o  Robert B. Schwarz - 54
   Vice President of the Corporation and Vice President -
     Manufacturing, DEWALT Professional Products,
     Power Tools and Accessories Group,
     October 2001 - present;

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


                                      -7-
<PAGE>

(g)  Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 (the Reform Act) provides a
safe  harbor  for  forward-looking  statements  made  by or  on  behalf  of  the
Corporation.  The  Corporation and its  representatives  may, from time to time,
make  written  or  verbal  forward-looking   statements,   including  statements
contained  in  the  Corporation's  filings  with  the  Securities  and  Exchange
Commission and in its reports to stockholders.  Generally,  the inclusion of the
words  "believe,"  "expect,"  "intend,"  "estimate,"  "anticipate,"  "will," and
similar  expressions   identify  statements  that  constitute   "forward-looking
statements"  within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 and that are intended to come
within the safe harbor  protection  provided by those  sections.  All statements
addressing operating  performance,  events, or developments that the Corporation
expects or anticipates will occur in the future,  including  statements relating
to sales  growth,  earnings or earnings per share growth,  and market share,  as
well as  statements  expressing  optimism or pessimism  about  future  operating
results,  are  forward-looking  statements within the meaning of the Reform Act.
The  forward-looking   statements  are  and  will  be  based  upon  management's
then-current  views  and  assumptions  regarding  future  events  and  operating
performance,  and are applicable  only as of the dates of such  statements.  The
Corporation  undertakes no  obligation  to update or revise any  forward-looking
statements, whether as a result of new information, future events, or otherwise.
   By  their  nature,   all   forward-looking   statements   involve  risks  and
uncertainties.  Actual results may differ materially from those  contemplated by
the  forward-looking  statements  for a number  of  reasons,  including  but not
limited to:

o The strength of the retail economies in various parts of the world,  primarily
in the United  States and Europe and,  to a lesser  extent,  in Mexico,  Central
America,  the  Caribbean,  South  America,  Canada,  Asia,  and  Australia.  The
Corporation's  business is subject to economic  conditions in its major markets,
including  recession,   inflation,   deflation,   general  weakness  in  retail,
automotive, and housing markets, and changes in consumer purchasing power.

o The Corporation's  ability to maintain mutually beneficial  relationships with
key customers and to penetrate new channels of distribution. The Corporation has
a  number  of  significant  customers,  including  two  customers  that,  in the
aggregate, constituted approximately 30% of its consolidated sales for 2002. The
loss of either of these  significant  customers or a material negative change in
the Corporation's  relationships with these significant  customers could have an
adverse  effect  on  its  business.  The  Corporation's  inability  to  continue
penetrating  new  channels  of  distribution  may have a negative  impact on its
future sales and business.

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

o Market  acceptance  of the new products  introduced  in 2002 and scheduled for
introduction  in 2003,  as well as the level of sales  generated  from these new
products relative to expectations,  based on existing  investments in productive
capacity and  commitments  of the  Corporation to fund  advertising  and product
promotions in connections with the introduction of these new products.

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

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

o Increased competition.  Worldwide,  the markets in which the Corporation sells
products are highly competitive on the basis of price,  quality,  and after-sale
service.  A number of  competing  domestic  and  foreign  companies  are strong,
well-established  manufacturers that compete on a global basis. Competition from
certain of these  manufacturers has been intense in recent years and is expected
to continue.

o Changes in consumer preference or loyalties.

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

o The Corporation's ability to achieve projected levels of efficiencies and cost
reduction  measures  and to  avoid  delays  in or  unanticipated  inefficiencies
resulting  from  manufacturing  and  administrative  reorganization  actions  in
progress or contemplated.

o  Foreign   operations   may  be   affected   by  factors   such  as   tariffs,
nationalization,  exchange controls,  interest rate fluctuations,  civil unrest,
governmental  changes,  limitations on foreign  investment in local business and
other political, economic, and regulatory risks and difficulties.

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

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

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


                                      -8-
<PAGE>


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

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

o Interest rate fluctuations and other capital market conditions.

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

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

ITEM 2. PROPERTIES

The Corporation operates 39 manufacturing facilities around the world, including
20  located  outside of the United  States in 10  foreign  countries.  The major
properties  associated  with each  business  segment  are  listed in  "Narrative
Description of the Business" in Item 1(c) of Part I of this report.
   The  Corporation  owns  most of its  facilities  with  the  exception  of the
following major leased facilities:
   In the United States: Tampa,  Florida;  Chesterfield,  Michigan;  and Towson,
Maryland.
   Outside of the United States: Maltby, England; Tongeren, Belgium; Reynosa and
Mexicali, Mexico; and Usti nad Labem, Czech Republic.
   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 that is located on leased land in Suzhou, China.
   As more fully described in Item 7 of Part II of this report under the caption
"Restructuring  Actions",  during the fourth  quarter of 2001,  the  Corporation
commenced actions on a restructuring plan that will, among other matters, reduce
its manufacturing  footprint.  Additional  actions under that restructuring plan
were  initiated  during the second half of 2002.  The  Corporation  continues to
evaluate its worldwide manufacturing cost structure to identify opportunities to
improve  capacity  utilization and lower product costs and will take appropriate
action as deemed necessary.
   Management  believes  that its owned and leased  facilities  are suitable and
adequate to meet the Corporation's anticipated needs.

ITEM 3. LEGAL PROCEEDINGS

The  Corporation  is involved  in various  lawsuits  in the  ordinary  course of
business. These lawsuits primarily involve claims for damages arising out of the
use of the  Corporation's  products  and  allegations  of patent  and  trademark
infringement.  The Corporation also is involved in litigation and administrative
proceedings involving employment matters and commercial disputes.  Some of these
lawsuits  include  claims for  punitive  as well as  compensatory  damages.  The
Corporation, using current product sales data and historical trends, actuarially
calculates the estimate of its exposure for product  liability.  The Corporation
is insured for  product  liability  claims for amounts in excess of  established
deductibles and accrues for the estimated liability as described above up to the
limits of the  deductibles.  All other  claims  and  lawsuits  are  handled on a
case-by-case basis.
   As previously noted under Item 1(c) of Part I of this report, the Corporation
also is party to  litigation  and  administrative  proceedings  with  respect to
claims  involving the discharge of hazardous  substances  into the  environment.
Some  of  these   assert   claims  for  damages  and   liability   for  remedial
investigations  and  clean-up  costs with  respect to sites that have never been
owned or  operated  by the  Corporation  but at which the  Corporation  has been
identified as a PRP. Others involve current and former manufacturing facilities.
   The Corporation's estimate of costs associated with product liability claims,
environmental   matters,   and  other  legal   proceedings  is  accrued  if,  in
management's  judgment,  the  likelihood of a loss is probable and the amount of
the  loss  can be  reasonably  estimated.  These  accrued  liabilities  are  not
discounted.
   In the  opinion of  management,  amounts  accrued for  exposures  relating to
product liability claims, environmental matters, and other legal proceedings are
adequate  and,  accordingly,  the ultimate  resolution  of these  matters is not
expected to have a material  adverse  effect on the  Corporation's  consolidated
financial  statements.  As of December 31, 2002,  the  Corporation  had no known
probable  but  inestimable  exposures  relating  to  product  liability  claims,
environmental  matters,  or other legal  proceedings that are expected to have a
material adverse effect on the Corporation.  There can be no assurance, however,
that  unanticipated  events  will not require the  Corporation  to increase  the
amount it has  accrued  for any matter or accrue for a matter  that has not been
previously accrued because it was not considered probable.

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

Not applicable.


                                      -9-
<PAGE>

                                     PART II

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

(a)  Market Information
The Corporation's  Common Stock is listed on the New York Stock Exchange and the
Pacific Stock Exchange.
   The following table sets forth, for the periods  indicated,  the high and low
sale prices of the Common Stock as reported in the consolidated reporting system
for the New York Stock Exchange Composite Transactions:
--------------------------------------------------------------------------------
Quarter                                  2002                               2001
--------------------------------------------------------------------------------
January to March           $49.950 to $35.000                 $46.950 to $34.500
April to June              $50.500 to $45.320                 $42.500 to $36.310
July to September          $49.060 to $35.660                 $43.150 to $28.260
October to December        $48.210 to $37.000                 $39.880 to $29.740
--------------------------------------------------------------------------------

(b)  Holders of the Corporation's Capital Stock
As of January 24, 2003, there were 14,233 holders of record of the Corporation's
Common Stock.

(c)  Dividends
The Corporation  has paid  consecutive  quarterly  dividends on its Common Stock
since  1937.  Future  dividends  will depend  upon the  Corporation's  earnings,
financial  condition,  and other factors.  The Credit Facilities,  as more fully
described in Note 5 of Notes to Consolidated  Financial  Statements  included in
Item 8 of Part II of this report, do 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                                                         2002        2001
--------------------------------------------------------------------------------
January to March                                                $.12        $.12
April to June                                                    .12         .12
July to September                                                .12         .12
October to December                                              .12         .12
--------------------------------------------------------------------------------
                                                                $.48        $.48
================================================================================

Common Stock:
150,000,000 shares authorized,  $.50 par value, 79,604,786 and 79,829,641 shares
outstanding as of December 31, 2002 and 2001, respectively.

Preferred Stock:
5,000,000  shares  authorized,  without par value,  no shares  outstanding as of
December 31, 2002 and 2001.

(d)  Annual Meeting of Stockholders
The 2003 Annual Meeting of  Stockholders  of the  Corporation is scheduled to be
held on April 29, 2003, at 9:30 a.m. at the Sheraton  Baltimore North Hotel, 903
Dulaney Valley Road, Towson, Maryland 21204.

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
FIVE-YEAR SUMMARY
------------------------------------------------------------------------------------------------------------------------------------
(Millions of Dollars Except Per Share Data)                      2002 (b)(e)      2001 (b)      2000 (c)      1999          1998 (d)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>              <C>           <C>           <C>           <C>
Sales (a)                                                    $4,394.0         $4,245.6      $4,474.9      $4,448.8      $4,494.3
Net earnings (loss)                                             229.7            108.0         282.0         300.3        (754.8)
Net earnings (loss) per common share - basic                     2.86             1.34          3.37          3.45         (8.22)
Net earnings (loss) per common share - assuming dilution         2.84             1.33          3.34          3.40         (8.22)
Total assets                                                  4,130.5          4,014.2       4,089.7       4,012.7       3,852.5
Long-term debt                                                  927.6          1,191.4         798.5         847.1       1,148.9
Redeemable preferred stock of subsidiary (f)                    208.4            196.5         188.0            --            --
Cash dividends per common share                                   .48              .48           .48           .48           .48
------------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) As  more  fully  disclosed  in Note 1 of  Notes  to  Consolidated  Financial
    Statements included in Item 8 of Part II of this report, sales for the years
    ended  December 31, 1998  through  2001,  have been  restated to reflect the
    adoption, effective January 1, 2002, of Emerging Issues Task Force Issue No.
    01-9,  Accounting  for  Consideration  Given by a Vendor  to a  Customer  or
    Reseller of the Vendor's Products.
(b) As more  fully  disclosed  in Note 17 of  Notes  to  Consolidated  Financial
    Statements  included  in  Item  8  of  Part  II  of  this  report,  under  a
    restructuring  program developed by the Corporation in the fourth quarter of
    2001,  earnings  for 2002 and 2001 include a  restructuring  charge of $50.7
    million and $99.8 million  before  taxes,  respectively  ($31.7  million and
    $70.6 million after taxes, respectively).
(c) Earnings for 2000 include a  restructuring  charge of $39.1  million  before
    taxes  ($27.6  million  after taxes) and a gain on sale of business of $20.1
    million before taxes ($13.1 million after taxes).
(d) Earnings for 1998 include a  restructuring  charge of $164.7  million before
    taxes  ($117.3  million  after  taxes),  a gain on the sale of businesses of
    $114.5 million before taxes ($16.5 million after taxes),  and a write-off of
    goodwill of $900.0 million.
(e) As  more  fully  disclosed  in Note 1 of  Notes  to  Consolidated  Financial
    Statements  included in Item 8 of Part II of this report,  effective January
    1, 2002, the Corporation adopted Statement of Financial Accounting Standards
    (SFAS) No. 142, Goodwill and Other Intangible  Assets.  Effective January 1,
    2002,  goodwill is no longer amortized by the  Corporation.
(f) Included in other long-term liabilities.
</FN>
</TABLE>


                                      -10-
<PAGE>

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

Overview
The Corporation reported net earnings of $229.7 million, or $2.84 per share on a
diluted basis, for the year ended December 31, 2002, compared to net earnings of
$108.0  million,  or $1.33  per  share on a diluted  basis,  for the year  ended
December 31, 2001. Net earnings for the year ended December 31, 2001, would have
been  $134.4  million,  or $1.66  per share on a  diluted  basis,  using the new
accounting standard for goodwill.
   Net  earnings  for the year  ended  December  31,  2002,  included  a pre-tax
restructuring  charge of $50.7 million  ($31.7 million net of tax). Net earnings
for the year ended December 31, 2001, included a pre-tax restructuring charge of
$99.8 million ($70.6  million net of tax).  Excluding the impact of the 2002 and
2001 restructuring charges, and, for 2001, goodwill  amortization,  net earnings
for the year ended December 31, 2002,  would have been $261.4 million,  or $3.23
per share on a diluted  basis,  compared to net earnings of $205.0  million,  or
$2.53 per share on a diluted basis, for the year ended December 31, 2001.
   In the  discussion  and  analysis  of  financial  condition  and  results  of
operations that follows, the Corporation generally attempts to list contributing
factors in order of significance to the point being addressed.

Sales
The following  chart provides an analysis of the  consolidated  changes in sales
for the years ended December 31, 2002, 2001, and 2000.
--------------------------------------------------------------------------------
                                                  Year Ended December 31,
                                          --------------------------------------
(Dollars in millions)                         2002          2001          2000
--------------------------------------------------------------------------------
Total sales                               $4,394.0      $4,245.6      $4,474.9
--------------------------------------------------------------------------------
Unit volume                                      4%           (1)%           6%
Price                                           (2)%          (2)%          (2)%
Currency                                         1%           (2)%          (3)%
--------------------------------------------------------------------------------
Change in total sales                            3%           (5)%           1%
================================================================================
   Total  consolidated sales for the year ended December 31, 2002, were $4,394.0
million,  which  represented a 3% increase over 2001 sales of $4,245.6  million.
Total unit volume had a 4%  positive  impact on sales  during  2002  compared to
2001.  The  increase in unit volume was  primarily  attributable  to higher unit
volume in both the power tools and accessories and security hardware  businesses
in North  America  as well as unit  volume  increases  in  sales  to  automotive
customers by the Fastening and Assembly  Systems  segment.  These increases were
partially  offset by unit volume declines in the plumbing  products and European
security hardware businesses. Pricing actions, taken as a result of customer and
competitive pressure,  had a 2% negative effect on sales for 2002 as compared to
2001.  The effect of a weaker  U.S.  dollar  compared to certain  other  foreign
currencies,  particularly the euro and the pound sterling,  caused a 1% increase
in the Corporation's consolidated sales during 2002 over the prior year level.
   Total  consolidated sales for the year ended December 31, 2001, were $4,245.6
million,  which  represented a 5% decrease from 2000 sales of $4,474.9  million.
Total unit volume had a 1% negative  impact on sales during 2001 compared to the
prior year. Unit volume was negatively  affected by weak economic conditions and
inventory  reductions  by  retailers in the United  States.  The impact of these
negative  factors  was  partially  offset  by  incremental  sales of  businesses
acquired by the  Corporation.  Pricing actions taken in response to customer and
competitive pressures,  as well as to reduce the Corporation's inventory levels,
had a 2% negative  effect on sales for 2001 as compared  to 2000.  The  negative
effects of a stronger dollar compared to other foreign currencies,  particularly
the euro,  pound  sterling,  and  Brazilian  real,  caused a 2%  decrease in the
Corporation's consolidated sales during 2001 from the prior year level.

Earnings
The  Corporation  reported  consolidated  operating  income of $370.1 million on
sales of  $4,394.0  million  in 2002,  compared  to  operating  income of $247.8
million on sales of $4,245.6  million in 2001 and to operating  income of $503.3
million on sales of $4,474.9 million in 2000.
   Consolidated  operating  income  for 2002  included  a pre-tax  restructuring
charge of $50.7  million.  Consolidated  operating  income  for 2001  included a
pre-tax restructuring charge of $99.8 million. Consolidated operating income for
2000 included a pre-tax restructuring charge of $39.1 million and a pre-tax gain
on sale of business of $20.1  million.  That gain was  recognized  in connection
with the sale during 2000 of a $25.0  million  senior  increasing  rate discount
note,  payable by True  Temper  Corporation,  received  in  connection  with the
September  1998  recapitalization  of the  Corporation's  recreational  products
business, True Temper Sports, as well as the Corporation's remaining interest in
True Temper Corporation.  Operating income for the years ended December 31, 2001
and 2000,  included  goodwill  amortization  of $26.4 million and $25.4 million,
respectively.  No goodwill amortization is included in the 2002 results due to a
change  in  accounting   standards.   Excluding  these  unusual  items  and  the
amortization of goodwill in 2001 and 2000,  consolidated  operating  income as a
percentage  of sales  would have been 9.6% in 2002,  8.8% in 2001,  and 12.2% in
2000.
   Consolidated  gross  margin  as a  percentage  of sales for 2002 was 34.5% as
compared  to  33.0%  for  2001.  The  increase  in  gross  margin  in  2002  was
attributable to several positive factors that included: (i) higher productivity,
including Six Sigma productivity  initiatives;  (ii) higher production levels as
the Corporation returned to more normal production levels in its power tools and
accessories


                                      -11-
<PAGE>

business  in  2002,  after  lowering   production   levels  in  2001  to  reduce
inventories;  (iii) more favorable product mix; and (iv) savings associated with
restructuring  actions.  These  positive  factors  more than  offset the cost of
end-user   promotional  programs  as  well  as  pricing  actions  taken  by  the
Corporation as a result of customer and competitive pressure.
   Consolidated  gross  margin  as a  percentage  of sales  for  2001 was  33.0%
compared to 35.4% for 2000. While the results of the Corporation's Six Sigma and
other productivity  initiatives  positively impacted gross margin in 2001, other
negative factors offset that favorability.  Those negative factors included: (i)
pricing  actions  taken by the  Corporation  in  response to both  customer  and
competitive pressures,  as well as price reductions to increase sales of certain
inventories;  and (ii) lower  manufacturing  volumes,  as the  Corporation  took
actions  to  reduce  its  inventory   levels,   which  resulted  in  unfavorable
manufacturing overhead absorption as well as reduced productivity.
   Consolidated selling, general, and administrative expenses as a percentage of
sales were 25.0% in 2002,  compared to 24.8% in 2001 and 23.8% in 2000. Selling,
general,  and  administrative  expenses as a  percentage  of sales for the years
ended December 31, 2001 and 2000, would have been 24.1% and 23.2%, respectively,
using the new accounting standard for goodwill.  Excluding goodwill amortization
recognized in 2001, selling, general, and administrative expenses for 2002 rose,
as compared to 2001,  as the  Corporation  increased  its  reserves  for certain
environmental   remediation  matters  and  recognized  greater  employee-related
expenses.  The increase in selling,  general,  and administrative  expenses as a
percentage  of sales from 2000 to 2001 was primarily due to lower sales in 2001,
partially  offset by the favorable  impact of cost  containment  initiatives and
certain variable expenses.
   Consolidated net interest expense (interest expense less interest income) was
$57.8 million in 2002,  compared to $84.3 million in 2001 and $104.2  million in
2000. The lower net interest expense in 2002, as compared to 2001, resulted from
both lower  borrowing  levels and lower interest  rates.  The lower net interest
expense for 2001  compared to 2000 was  primarily  the result of lower  interest
rates.
   Other  expense  (income) was $4.9 million in 2002 compared to $8.2 million in
2001 and  $(5.5)  million in 2000.  The  increase  in other  expense in 2001 was
primarily  the result of dividends on a  subsidiary's  preferred  shares as more
fully described in Note 11 of Notes to Consolidated Financial Statements.
   Consolidated income tax expense of $77.7 million,  $47.3 million,  and $122.6
million was recognized on the  Corporation's  pre-tax income of $307.4  million,
$155.3  million,  and  $404.6  million  for 2002,  2001 and 2000,  respectively.
Excluding,  for 2002,  the income tax benefit of $19.0  million  relating to the
pre-tax  restructuring  charge of $50.7  million and,  for 2001,  the income tax
benefit of $29.2 million relating to the pre-tax  restructuring  charge of $99.8
million,  and, for 2000, the income tax benefits of $11.5 million related to the
pre-tax restructuring charge of $39.1 million and the income tax expense of $7.0
million  related to the pre-tax gain on sale of business of $20.1  million,  the
Corporation's  reported tax rate would have been 27% in 2002 and 30% in 2001 and
2000. The reduction in the effective tax rate during 2002,  excluding the income
tax benefit  associated with the 2002  restructuring  charge, is attributable to
the amortization of non-deductible goodwill in 2001. A further analysis of taxes
on earnings is included in Note 9 of Notes to Consolidated Financial Statements.
   The Corporation reported net earnings of $229.7 million,  $108.0 million, and
$282.0 million, or $2.84, $1.33, and $3.34 per share on a diluted basis, for the
years ended  December  31,  2002,  2001,  and 2000,  respectively.  Net earnings
include the effects of after-tax  restructuring  charge of $31.7 million,  $70.6
million,  and $27.6  million  in 2002,  2001,  and 2000,  respectively,  and the
after-tax  gain on sale of business of $13.1  million in 2000.  Net earnings for
the years ended  December 31, 2001 and 2000,  included  $26.4  million and $25.4
million,  respectively,  of goodwill  amortization.  No goodwill amortization is
included in the 2002 results due to a change in accounting standards.  Excluding
the restructuring  charges for 2002, 2001, and 2000,  goodwill  amortization for
2001 and 2000,  and the gain on sale of business in 2000,  net  earnings for the
year ended December 31, 2002, would have been $261.4 million, or $3.23 per share
on a diluted basis,  compared to $205.0 million, or $2.53 per share on a diluted
basis, and $321.9 million,  or $3.81 per share on a diluted basis, for the years
ended December 31, 2001 and 2000, respectively. In addition to the impact of the
operational  matters  previously  described,  earnings  per share  for 2001,  as
compared to 2000, also benefited from lower shares  outstanding as a result of a
stock repurchase program.

Business Segments
As  more  fully  described  in  Note  15  of  Notes  to  Consolidated  Financial
Statements,  the Corporation  operates in three  reportable  business  segments:
Power Tools and Accessories,  Hardware and Home  Improvement,  and Fastening and
Assembly Systems.

POWER TOOLS AND ACCESSORIES
Segment sales and profit for the Power Tools and Accessories segment, determined
on the basis described in Note 15 of Notes to Consolidated Financial Statements,
were as follows (in millions of dollars):
--------------------------------------------------------------------------------
Year Ended December 31,                         2002          2001          2000
--------------------------------------------------------------------------------
Sales to unaffiliated customers             $3,108.3      $3,008.9      $3,072.4
Segment profit                                 352.1         250.0         349.4
--------------------------------------------------------------------------------
   Sales to unaffiliated  customers in the Power Tools and  Accessories  segment
during  2002  increased  3% over the 2001  level.  In  North  America,  sales of
consumer power


                                      -12-
<PAGE>

tools and accessories and sales of professional power tools and accessories grew
at a mid-single-digit rate. The consumer business experienced double-digit rates
of  growth  in  sales  of  both  its  outdoor  and  home  products  lines  and a
low single-digit  rate of  growth in sales of  consumer  power  tools.  Both the
consumer and professional businesses in North America benefited from promotional
activities during 2002.
   Sales of power tools and accessories in Europe during 2002 decreased at a low
single-digit   rate  from  the  2001  level.   That   decrease   resulted  as  a
mid-single-digit  rate of  increase  in sales of  professional  power  tools and
accessories  was  offset  by a  mid-single-digit  rate of  decline  in  sales of
consumer products.  Lower sales in Germany and the United Kingdom were partially
offset by higher sales in most other European  countries.  The sales declines in
Germany and the United  Kingdom  were  mainly  driven by lower sales of consumer
products,  due to the exit of the lawnmower  product line in the United  Kingdom
and to the high level of private label Asian-sourced inventory held by retailers
early in 2002.
   Sales in other geographic areas increased at a mid-single-digit  rate in 2002
over the 2001 levels as sales of  professional  power tools and  accessories and
consumer power tools and accessories increased at a mid-single-digit rate.
   Segment  profit as a percentage of sales for the Power Tools and  Accessories
segment  was 11.3% for 2002  compared to 8.3% in 2001.  The  increase in segment
profit as a percentage  of sales during 2002 was driven by higher gross  margins
and by  slightly  lower  selling,  general,  and  administrative  expenses  as a
percentage of sales. The higher gross margins  principally  resulted from higher
production  levels in 2002 as compared to the lower  levels  experienced  in the
corresponding  period in 2001 when the business took actions to reduce inventory
levels,  savings gained through Six Sigma initiatives and restructuring actions,
more favorable  product mix, and a decrease in warranty costs.  Gross margins in
2001 were also depressed by price  reductions  taken by the business in order to
reduce  inventory  levels.  Segment  profit as a percentage of sales during 2002
also  increased  due to the  leverage of selling,  general,  and  administrative
expenses  over the higher sales volume.  Selling,  general,  and  administrative
expenses  increased in 2002 from the 2001 levels due to increased  marketing and
promotional  expenses and higher  employee-related  costs,  which were partially
offset by restructuring savings and other cost reduction initiatives.
   Sales to unaffiliated  customers in the Power Tools and  Accessories  segment
during 2001 decreased 2% from the 2000 level.  In North America,  sales of power
tools and accessories  during 2001 decreased at a low single-digit rate from the
2000 level,  with sales declines  experienced in both  professional and consumer
power tools and  accessories.  Those  declines were mainly driven by unfavorable
economic  conditions  in the United  States and actions  taken by certain  major
customers to reduce  inventory  levels.  These  negative  factors were partially
offset by incremental  sales of  professional  power tools  associated  with two
businesses acquired in June and December of 2000.
   Sales in Europe  during 2001  decreased at a  mid-single-digit  rate from the
2000 level,  driven by a  double-digit  rate of decline in sales of both outdoor
products and consumer power tools.  These  declines were  partially  offset by a
mid-single-digit  rate of growth in sales of professional  power tools. Sales of
outdoor  products and consumer power tools were negatively  impacted during 2001
by slowing economic conditions,  particularly in Germany and the United Kingdom,
coupled with  inventory  actions by retailers  with high levels of private label
Asian products.  The growth in professional power tools during 2001 resulted, in
part, from the transition from the ELU(R) to the DEWALT(R) brand in Europe.
   Sales in other geographic areas increased at a high single-digit rate in 2001
from the 2000 level, as higher sales were achieved in professional  power tools,
consumer power tools and outdoor products.
   Segment  profit as a percentage of sales for the Power Tools and  Accessories
segment  was 8.3% for 2001  compared to 11.4% in 2000.  The  declines in segment
profit  during 2001 were driven by lower gross  margins as a percentage of sales
resulting from the Corporation's  actions to reduce  inventory,  including price
reductions  and  lower   production   levels,   which  resulted  in  unfavorable
manufacturing   absorption   and   slightly   higher   selling,   general,   and
administrative  expenses  as a  percentage  of sales.  The higher  expenses as a
percentage of sales reflected  decreased  promotional  spending offset by higher
distribution, transportation, and information systems expenses.

HARDWARE AND HOME IMPROVEMENT
Segment  sales  and  profit  for the  Hardware  and  Home  Improvement  segment,
determined on the basis described in Note 15 of Notes to Consolidated  Financial
Statements, were as follows (in millions of dollars):
--------------------------------------------------------------------------------
Year Ended December 31,                         2002          2001          2000
--------------------------------------------------------------------------------
Sales to unaffiliated customers               $758.0        $766.2        $831.5
Segment profit                                  53.0          59.1         113.5
--------------------------------------------------------------------------------
   Sales to unaffiliated  customers in the Hardware and Home Improvement segment
for 2002 decreased 1% from the 2001 level.  Sales of security  hardware in North
America grew at a high  single-digit  rate over the 2001 level due  primarily to
the success of the brand and product repositioning  introduced in North American
home  centers in late 2001 and to other  customers  in 2002.  That  increase was
offset by a  double-digit  rate of decline in sales of  plumbing  products,  due
primarily to the effects of a loss of shelf space at The Home Depot, lower sales
in non-home center channels, and a high single-digit rate of decline in sales of
European security hardware.


                                      -13-
<PAGE>

   As a result of a line review in 2002,  the  Corporation's  plumbing  products
business lost significant  shelf space at The Home Depot.  After the transition,
which was  substantially  complete  by the end of 2002,  the  plumbing  products
business  retained  shelf space at The Home Depot  stores in the western  United
States but lost shelf space at The Home Depot  stores in the central and eastern
United States.  That loss of shelf space  negatively  impacted  plumbing product
sales by  approximately  $22 million in 2002. The  Corporation  expects that the
loss of shelf space at The Home Depot will negatively  impact  plumbing  product
sales by  approximately  $60  million  on an annual  basis.  While the  plumbing
products  business is taking  action to mitigate  the impact of this sales loss,
the Corporation  believes that  profitability of its plumbing  products business
will be adversely affected. Because the Corporation has goodwill associated with
the plumbing products business,  a sustained  reduction in the future cash flows
of that business  beyond that currently  anticipated  could result in a non-cash
write-down of goodwill.
   Segment profit as a percentage of sales for the Hardware and Home Improvement
segment  declined  to 7.0% in 2002 from 7.7% in 2001.  That  decrease in segment
profit as a percentage of sales was principally due to declines in gross margins
which were only partially offset by lower selling,  general,  and administrative
expenses as a percentage of sales. Those declines in gross margins resulted from
lower production levels at North American security hardware and plumbing product
plants,  as those  businesses took action to reduce inventory  levels,  and from
lower  production  volumes in European  security  hardware plants in response to
lower  sales.  In addition,  gross  margins  were  negatively  impacted by costs
related to restructuring  activities in the plumbing  products  business.  Lower
selling,  general, and administrative expenses as a percentage of sales for 2002
principally  resulted  from  restructuring  actions  that were  taken in 2001 to
reduce headcount and reduced promotional spending.
   Sales to unaffiliated  customers in the Hardware and Home Improvement segment
decreased  by 8% for 2001 from the 2000  level.  Sales of  security  hardware in
North America  decreased at a high  single-digit  rate, with sales decreasing in
both the retail and construction channels.  Sales of plumbing products decreased
at a low  double-digit  rate, with sales  decreasing more  significantly  in the
retail  channels.  Sales in the retail channels were impacted by the weak retail
environment  and  inventory  correction  actions  taken  by  retailers,  and the
continuing effects of a line review conducted in 2000 by a major customer. Sales
of security hardware in Europe were flat as compared to the prior year level.
   Segment profit as a percentage of sales for the Hardware and Home Improvement
segment  was 7.7% for 2001  compared  to 13.7%  for  2000.  Segment  profit as a
percentage  of sales  in 2001  was  negatively  impacted  by a  mid-single-digit
decline  in gross  margins  and a  slight  increase  in  selling,  general,  and
administrative  expenses as a percentage of sales. The decrease in gross margins
for 2001,  was  primarily  a result of  manufacturing  inefficiencies  and costs
associated with  manufacturing  transition issues in the North American security
hardware  business and with lower production  volumes of North American security
hardware and plumbing products. Selling, general, and administrative expenses in
the Hardware and Home Improvement  segment decreased slightly in 2001;  however,
these  expenses  increased as a percentage  of sales given the reduced  sales in
2001.

FASTENING AND ASSEMBLY SYSTEMS
Segment  sales and  profit  for the  Fastening  and  Assembly  Systems  segment,
determined on the basis described in Note 15 of Notes to Consolidated  Financial
Statements, were as follows (in millions of dollars):
--------------------------------------------------------------------------------
Year Ended December 31,                         2002          2001          2000
--------------------------------------------------------------------------------
Sales to unaffiliated customers               $502.4        $478.4        $489.3
Segment profit                                  72.1          68.4          80.4
--------------------------------------------------------------------------------
   Sales to unaffiliated customers in the Fastening and Assembly Systems segment
increased 5% in 2002 over 2001. Incremental sales associated with a distribution
business  acquired in April 2001  accounted  for 2  percentage  points of the 5%
sales growth  realized.  A double-digit  rate of increase in sales to automotive
customers,  including  the effect of the  business  acquired in April 2001,  was
partially  offset by a  mid-single-digit  rate of decline in sales to industrial
customers, particularly in Europe.
   Segment  profit as a  percentage  of sales  for the  Fastening  and  Assembly
Systems segment of 14.4% in 2002 approximated the 2001 level.
   Sales to unaffiliated customers in the Fastening and Assembly Systems segment
for 2001 declined 2%, as compared to 2000, due to a  double-digit  rate decrease
in sales to industrial customers offset by a high single-digit rate of growth in
automotive product sales, including incremental sales associated with a business
acquired in April 2001, and a mid-single-digit rate of growth of sales in Asia.
   Segment  profit as a  percentage  of sales  for the  Fastening  and  Assembly
Systems  segment was 14.3% for 2001  compared to 16.4% for 2000.  The decline in
segment profit as a percentage of sales for 2001 was principally due to declines
in gross margin as a percentage of sales resulting from  unfavorable mix, due to
lower margins in the distribution  business  acquired in April 2001, and pricing
pressure.


                                      -14-
<PAGE>

OTHER SEGMENT-RELATED MATTERS
Expenses   directly   related  to  reportable   business   segments   booked  in
consolidation  and,  thus,  excluded  from  segment  profit  for the  reportable
business  segments  were $8.6  million,  $.6 million,  and $14.1 million for the
years ended December 31, 2002, 2001, and 2000, respectively. The $8.6 million of
segment-related  expenses  excluded  from  segment  profit  in 2002  principally
related to reserves for employee-related matters associated with the Power Tools
and Accessories and Hardware and Home Improvement segments. The $14.1 million of
segment-related  expenses  excluded  from  segment  profit  in 2000  principally
related to reserves for certain  legal matters  associated  with the Power Tools
and  Accessories  and  Hardware  and  Home  Improvement  segments  and  for  the
elimination of the Power Tools and Accessories  segment's  recognition of profit
from a joint  venture  until such time as  inventory  purchased  from that joint
venture has been sold to external customers.
   Amounts  allocated  to  reportable  business  segments in arriving at segment
profit were less than Corporate center  operating  expenses,  eliminations,  and
other amounts, as identified in the second table included in Note 15 of Notes to
Consolidated  Financial Statements,  by $85.3 million,  $45.2 million, and $25.3
million for the years ended December 31, 2002, 2001, and 2000, respectively. The
increase in these  unallocated  Corporate center operating  expenses for 2002 as
compared  to 2001 was  primarily  due to an  increase  in  reserves  for certain
environmental  remediation  matters  and to  higher  employee-related  expenses,
including  certain  centrally  managed  expenses not  allocated  directly to the
Corporation's  business  segments.  The increase in these unallocated  Corporate
center  operating  expenses  for 2001 as compared to 2000 was  primarily  due to
higher employee-related  expenses,  including certain centrally managed expenses
not allocated directly to the Corporation's business segments.
   As  indicated  above  and in  Note  15 of  Notes  to  Consolidated  Financial
Statements,  the determination of segment profit excludes restructuring and exit
costs. Of the $50.7 million  pre-tax  restructuring  charge  recognized in 2002,
$26.3  million  related to the  businesses  in the Power  Tools and  Accessories
segment,  and $24.4 million  related to the  businesses in the Hardware and Home
Improvement   segment.  Of  the  $99.8  million  pre-tax   restructuring  charge
recognized in 2001,  $81.4 million  related to the businesses in the Power Tools
and Accessories segment, $17.5 million related to businesses in the Hardware and
Home Improvement segment, and $.9 million related to businesses in the Fastening
and Assembly Systems segment. Of the $39.1 million pre-tax  restructuring charge
recognized in 2000,  $29.6 million  related to businesses in the Power Tools and
Accessories  segment and $9.5 million  related to businesses in the Hardware and
Home Improvement segment.

Restructuring Actions
The  Corporation  is  committed  to  continuous  productivity   improvement  and
continues to evaluate  opportunities to reduce fixed costs,  simplify or improve
processes,  and eliminate  excess  capacity.  A tabular summary of restructuring
activity  during the three years ended December 31, 2002, is included in Note 17
of Notes to Consolidated Financial Statements.
   During the fourth quarter of 2001, the Corporation formulated a restructuring
plan designed to reduce its manufacturing footprint,  variable production costs,
and selling,  general, and administrative  expenses.  The Corporation  initially
anticipated  that the cost of the  total  restructuring  plan -  expected  to be
completed over a two- to three-year period - would be $190 million.  During 2001
and 2002, the  Corporation  has recognized  pre-tax  restructuring  charges that
total $150.5 million. The Corporation currently anticipates that the cost of the
total  restructuring  plan will  approximate  $170 million and is expected to be
completed during 2004.
   During 2001, the Corporation  commenced the first phase of that restructuring
plan and recorded a pre-tax  restructuring  charge of $99.8 million.  That $99.8
million  charge was net of $4.2  million of  reversals  of  previously  provided
restructuring   reserves  that  were  no  longer  required.   During  2002,  the
Corporation  continued to execute its restructuring plans and recorded a pre-tax
restructuring  charge of $50.7  million.  That $50.7  million  charge was net of
$11.0 million of reversals of previously  provided  restructuring  reserves that
were no longer required.
   The $50.7 million pre-tax  restructuring  charge  recognized in 2002 reflects
actions to reduce the Corporation's  manufacturing  cost base in its Power Tools
and Accessories and Hardware and Home Improvement  segments,  as well as actions
to reduce selling,  general, and administrative expenses through the elimination
of  administrative  positions,  principally  in  Europe.  Actions  to reduce the
Corporation's manufacturing cost base in the Power Tools and Accessories segment
include the  closure of one  facility  in the United  States,  the closure of an
accessories   packaging  facility  in  England,  and  the  transfer  of  certain
additional  power  tool  production  from a  facility  in  England to a low-cost
facility   in  the  Czech   Republic.   Actions  to  reduce  the   Corporation's
manufacturing cost base in the Hardware and Home Improvement segment include the
closure  of a  security  hardware  facility  in  the  United  States.  The  2002
restructuring  charge also includes  pension  curtailment  losses  stemming from
headcount reductions associated with the restructuring actions.


                                      -15-
<PAGE>

   The $99.8 million pre-tax  restructuring  charge recognized in 2001 reflected
actions to reduce the Corporation's  manufacturing  cost base in its Power Tools
and Accessories and Hardware and Home Improvement  segments,  as well as actions
to reduce selling,  general,  and administrative  expenses throughout all of its
businesses. Actions to reduce the Corporation's manufacturing cost base included
the closure of two facilities in the Power Tools and Accessories  segment in the
United  States  as well as the  closure  by the  Hardware  and Home  Improvement
segment of a plumbing  products  facility  in the United  States.  In  addition,
actions associated with the 2001  restructuring  charge included the transfer of
certain production and service operations in the Power Tools and Accessories and
Hardware and Home Improvement  segments from facilities in the United States and
England  to  low-cost  facilities  in Mexico  and  China  and to a new  low-cost
facility  in  the  Czech   Republic.   In  addition  to  these  changes  to  the
Corporation's manufacturing footprint, the 2001 restructuring plan also provided
for the outsourcing of certain manufactured items. The 2001 restructuring charge
provided for actions to reduce selling,  general,  and administrative  expenses,
principally in the United States and Europe,  including consolidation of certain
distribution locations and other administrative functions, as well as reductions
in selling and administrative headcount.
   As indicated in Note 17 of Notes to Consolidated  Financial  Statements,  the
severance  benefits  accrual,  included in the $50.7  million and $99.8  million
pre-tax restructuring charges taken in 2002 and 2001,  respectively,  related to
the  elimination of  approximately  3,500  positions in high-cost  manufacturing
locations and in certain  administrative  positions.  The Corporation  estimates
that, as a result of increases in manufacturing  employee  headcount in low-cost
locations,  approximately 3,200 replacement positions will be filled, yielding a
net  total  of 300  positions  eliminated  as a  result  of the  2002  and  2001
restructuring actions.
   As described above, the overall  restructuring  plan will be completed during
2004.  Accordingly,  the  remainder  of  that  overall  restructuring  plan,  as
currently  envisioned,  will be  implemented  in 2003  and  2004.  Restructuring
charges of  approximately  $20 million are  expected to be  recognized  in those
years - in addition to the $150.5 million recognized in 2001 and 2002. Given the
nature and duration of this restructuring plan, charges to be incurred in future
years  are  subject  to  varying  degrees  of  estimation  associated  with  key
assumptions,  such as actual  timing of  execution,  currency  impacts,  general
economic conditions, and other variables.
   In  addition  to  the  recognition  of  restructuring  and  exit  costs,  the
Corporation  also recognizes  related  expenses,  incremental to the cost of the
underlying  restructuring  actions, that do not qualify as restructuring or exit
costs under  generally  accepted  accounting  principles  (restructuring-related
expenses). Those restructuring-related expenses include items - directly related
to the underlying restructuring actions - that benefit ongoing operations,  such
as costs  associated with the transfer of equipment.  Operating  results for the
year ended December 31, 2002,  included  $17.0 million of  restructuring-related
expenses.
   The Corporation realized benefits of approximately $25.0 million in 2002, net
of  restructuring-related  expenses.  The Corporation  expects that  incremental
pre-tax  savings  associated with the  restructuring  plan will benefit 2003 and
2004   results,   by  $35  million  and  $40  million,   respectively,   net  of
restructuring-related  expenses.  Ultimate savings  realized from  restructuring
actions may be  mitigated by such  factors as  continued  economic  weakness and
competitive  pressures,  as well as decisions to increase costs in areas such as
promotion or research and development above levels that were otherwise assumed.
   During 2000, the Corporation  recognized pre-tax restructuring and exit costs
of $39.1 million. That restructuring charge provided for the transfer of certain
power tool production in England to low-cost manufacturing  facilities in China,
including  the  facility of the Corporation's 50%-owned joint  venture,  and for
manufacturing  rationalization in the Hardware and Home Improvement  segment. In
addition,   the  2000   restructuring   charge   provided  for   reductions   in
administrative functions, principally in the Power Tools and Accessories segment
in Europe, and for the integration of the accessories business in North America,
which  previously  operated on a stand-alone  basis,  into the  professional and
consumer power tools business in North America.
   As previously indicated, the pre-tax restructuring charges recognized in 2002
and 2001 of $50.7 million and $99.8 million, respectively, were net of reversals
in 2002 and 2001 of  previously  provided  restructuring  reserves  that were no
longer required of $11.0 million and $4.2 million, respectively.  Adjustments to
the severance component of restructuring reserves previously established related
to: (i) actual attrition  factors that differed from those initially  estimated;
(ii) more  cost-effective  methods of severing  employment that became probable,
typically  based  on  negotiations   with  trade  unions  or  local   government
institutions; and (iii) amendments to the initial plan that were approved by the
appropriate level of management, based primarily on changes in market conditions
that dictated a modification to the intended  course of action.  During 2002 and
2001, none of the adjustments to


                                      -16-
<PAGE>

the severance  obligations recorded in connection with restructuring actions was
individually  significant.  Adjustments  to the asset  write-down  component  of
restructuring reserves previously established related to the receipt of proceeds
in excess of carrying values of fixed assets that were disposed of in connection
with the  restructuring  actions.  Adjustments to the other charge  component of
restructuring reserves previously established  principally related to settlement
of operating lease  commitments at amounts less than initially  estimated or the
Corporation's  ability  to  sublease  certain  facilities  exited as part of the
restructuring actions.
   Asset  write-downs  taken as part of the 2002  restructuring  charge included
land, buildings, and manufacturing equipment. Asset write-downs taken as part of
the 2001 and 2000  restructuring  charges  principally  related to manufacturing
equipment.  The  carrying  values of land and  buildings to be sold were written
down to their  estimated fair values,  generally  based upon third party offers,
less  disposal  costs.  The  carrying  values  of  manufacturing  equipment  and
furniture  and  fixtures  were  written  down to their  fair  value  based  upon
estimated salvage values, which generally were negligible, less disposal cost.

Hedging Activities
The Corporation  has a number of  manufacturing  sites  throughout the world and
sells its  products in more than 100  countries.  As a result,  it is exposed to
movements in the exchange rates of various  currencies against the United States
dollar and against the  currencies  of countries in which it  manufactures.  The
major foreign  currencies in which  foreign  currency  risks exist are the euro,
pound sterling,  Canadian dollar, Swedish krona, Japanese yen, Chinese renminbi,
Australian  dollar,  Mexican peso, Czech koruna, and Brazilian real. Through its
foreign currency activities,  the Corporation seeks to reduce the risk that cash
flows resulting from the sales of products  manufactured in a currency different
from that of the  selling  subsidiary  will be  affected  by changes in exchange
rates.
   On January 1, 2002, the twelve participating member countries of the European
Monetary Union canceled their respective  legacy  currencies which were replaced
by the euro as legal tender.  The Corporation  believes that the introduction of
the euro has resulted in increased  competitive  pressures in continental Europe
due to the heightened transparency of intra-European pricing structures.
   From time to time, currency  devaluations may occur in countries in which the
Corporation  sells or manufactures its product.  While the Corporation will take
actions to mitigate the impacts of any future currency devaluations, there is no
assurance that such devaluations will not adversely affect the Corporation.
   Assets and liabilities of  subsidiaries  located outside of the United States
are  translated  at rates of exchange  at the  balance  sheet date as more fully
explained in Note 1 of Notes to Consolidated Financial Statements. The resulting
translation  adjustments  are included in the  accumulated  other  comprehensive
income  (loss)  component of  stockholders'  equity.  During  2002,  translation
adjustments,  recorded in the  accumulated  other  comprehensive  income  (loss)
component  of  stockholders'  equity,  increased  stockholders'  equity by $60.2
million compared to a decrease of $17.7 million in 2001.
   As  more  fully  explained  in  Note 7 of  Notes  to  Consolidated  Financial
Statements,  the Corporation seeks to issue debt  opportunistically,  whether at
fixed or variable rates, at the lowest possible costs. Based upon its assessment
of the future interest rate  environment  and its desired  variable rate debt to
total debt ratio,  the  Corporation  may elect to manage its interest  rate risk
associated with changes in the fair value of its indebtedness, or the cash flows
of its indebtedness, through the use of interest rate swap agreements.
   In  order  to meet  its  goal of  fixing  or  limiting  interest  costs,  the
Corporation  maintains  a  portfolio  of interest  rate hedge  instruments.  The
variable rate debt to total debt ratio,  after taking  interest rate hedges into
account, was 52% at December 31, 2002, compared to 51% at December 31, 2001, and
65% at December 31, 2000.  At December 31, 2002,  average debt  maturity was 7.2
years  compared to 7.9 years at December 31, 2001, and 5.4 years at December 31,
2000.

INTEREST RATE SENSITIVITY
The following  table  provides  information  as of December 31, 2002,  about the
Corporation's  derivative financial  instruments and other financial instruments
that are sensitive to changes in interest rates,  including  interest rate swaps
and debt obligations.  For debt obligations,  the table presents  principal cash
flows and related  average  interest rates by contractual  maturity  dates.  For
interest  rate  swaps,  the  table  presents  notional   principal  amounts  and
weighted-average  interest rates by contractual maturity dates. Notional amounts
are used to  calculate  the  contractual  payments  to be  exchanged  under  the
interest rate swaps.  Weighted-average variable rates are generally based on the
London  Interbank  Offered Rate (LIBOR) as of the reset dates. The cash flows of
these  instruments are denominated in a variety of currencies.  Unless otherwise
indicated, the information is presented in U.S. dollar equivalents, which is the
Corporation's reporting currency, as of December 31, 2002.


                                      -17-
<PAGE>

<TABLE>
<CAPTION>
Principal Payments and Interest Rate Detail by Contractual Maturity Dates
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                          Fair Value
                                                                                                                           (Assets)/
(U.S. Dollars in Millions)             2003        2004        2005        2006        2007    Thereafter       Total    Liabilities
------------------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>          <C>        <C>         <C>         <C>           <C>       <C>           <C>
LIABILITIES
Short-term borrowings
Variable rate (other currencies)     $  4.6       $  --      $   --      $   --      $   --        $   --    $    4.6      $    4.6
   Average interest rate               3.37%                                                                     3.37%
Long-term debt
Fixed rate (U.S. dollars)            $309.9       $  .4      $   .4      $154.8      $150.0        $550.0    $1,165.5      $1,277.0
   Average interest rate               7.50%       7.00%       7.00%       7.00%       6.55%         7.11%       7.13%
Fixed rate (other currencies)        $   .8       $  --      $   --      $   --      $   --        $   --    $     .8      $     .8
   Average interest rate               1.52%                                                                     1.52%
Other long-term liabilities
Fixed rate (U.S. dollars)            $   --       $  --      $188.0      $   --      $   --        $   --    $  188.0      $  208.4
   Average interest rate                                       5.69%                                             5.69%

INTEREST RATE DERIVATIVES
Fixed to Variable Rate Interest
Rate Swaps (U.S. dollars)            $125.0       $  --      $188.0      $125.0      $ 75.0        $275.0    $  788.0      $  (85.0)
   Average pay rate (a)
   Average receive rate                6.02%                   6.49%       6.03%       5.93%         5.70%       6.01%
------------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) The average pay rate is based upon 6-month forward LIBOR,  except for $350.0
    million in notional  principal  amount which matures in 2007 and  thereafter
    and is based upon 3-month forward LIBOR.
</FN>
</TABLE>


FOREIGN CURRENCY EXCHANGE RATE SENSITIVITY
As discussed  above,  the  Corporation  is exposed to market risks  arising from
changes in foreign  exchange rates. As of December 31, 2002, the Corporation has
hedged a portion  of its 2003  estimated  foreign  currency  transactions  using
forward exchange contracts.  The Corporation  estimated the effect on 2003 gross
profits,  based upon a recent  estimate  of  foreign  exchange  exposures,  of a
uniform 10% strengthening in the value of the United States dollar and a uniform
10% weakening in the value of the United States dollar. The larger loss computed
was that under an assumed uniform 10% strengthening of the United States dollar,
which the Corporation  estimated would have the effect of reducing gross profits
for 2003 by approximately $7 million.
   As previously  indicated,  the sensitivity analysis of the effects of changes
in foreign currency exchange rates on the  Corporation's  gross profits for 2003
were  estimated  based upon the larger loss  computed in the event of an assumed
uniform 10% strengthening or weakening in the value of the United States dollar.
That  analysis  assumes  that  certain  currencies,   particularly  the  Chinese
renminbi,  that have been  pegged in  relation  to the United  States  dollar in
recent  years,  move against the United  States dollar in the case of an assumed
10%  strengthening or weakening.  Were those currencies to continue to be pegged
against the value of the United States dollar, the estimated  reduction of gross
profits for 2003 of $7 million,  described  in the  preceding  paragraph,  would
increase.
   In addition to their direct  effects,  changes in exchange  rates also affect
sales volumes and foreign currency sales prices as competitors'  products become
more or less attractive.  The sensitivity  analysis of the effects of changes in
foreign  currency  exchange  rates  previously  described  does  not  reflect  a
potential  change in sales levels or local  currency  prices nor does it reflect
the  changes in  exchange  rates,  compared to those  experienced  during  2002,
inherent in the foreign exchange hedging portfolio at December 31, 2002.

Critical Accounting Policies
The  Corporation's  accounting  policies  are more fully  described in Note 1 of
Notes to Consolidated  Financial Statements.  As disclosed in Note 1 of Notes to
Consolidated  Financial  Statements,  the preparation of financial statements in
conformity with generally accepted accounting  principles requires management to
make  estimates  and  assumptions  about  future  events that affect the amounts
reported in the financial  statements and accompanying  notes. Future events and
their effects  cannot be  determined  with absolute  certainty.  Therefore,  the
determination  of estimates  requires the exercise of judgment.  Actual  results
inevitably  will  differ  from  those  estimates,  and such  differences  may be
material to the financial statements.
   The Corporation  believes that of its significant  accounting  policies,  the
following  may involve a higher  degree of judgment,  estimation,  or complexity
than other accounting policies.
   As  more  fully  described  in  Note 1 of  Notes  to  Consolidated  Financial
Statements,  the Corporation  performs goodwill  impairment tests on at least an
annual  basis and more  frequently  in certain  circumstances.  The  Corporation
cannot predict the occurrence of certain events that might adversely  affect the
reported  value of goodwill  that totaled  $729.1  million at December 31, 2002.
Such events may include,  but are not limited to,  strategic  decisions  made in
response to economic  and  competitive  conditions,  the impact of the  economic
environment on the


                                      -18-
<PAGE>

Corporation's  customer base, or a material negative change in its relationships
with significant customers.
   Pension and other postretirement benefits costs and obligations are dependent
on  assumptions  used in calculating  such amounts.  These  assumptions  include
discount rates, expected return on plan assets, rate of salary increases, health
care cost trend rates,  mortality rates,  and other factors.  In accordance with
accounting  principles  generally accepted in the United States,  actual results
that differ from the actuarial  assumptions are accumulated and, if in excess of
a specified corridor,  amortized over future periods and,  therefore,  generally
affect recognized expense and the recorded  obligation in future periods.  While
the Corporation believes that the assumptions used are appropriate,  differences
in actual  experience or changes in the  assumptions  may materially  affect the
Corporation's  financial  position  or  results  of  operations.  For 2003,  the
Corporation  will lower the expected  long-term rate of return  assumption  from
9.5% to 9.0% and from 8.0% to 7.75% for  United  States  and  non-United  States
defined benefit pension plans,  respectively.  The Corporation  expects that its
pension and other  postretirement  benefits  costs in 2003 will exceed the costs
recognized in 2002 by  approximately  $30 million.  This increase is principally
attributable  to the  change  in  various  assumptions  including  the  expected
long-term  rate of return,  discount  rate, and health care cost trend rate, and
the effect of the amortization of certain actuarial losses.
   As more  fully  described  in  Note 17 of  Notes  to  Consolidated  Financial
Statements,  the Corporation  recognized pre-tax  restructuring charges of $50.7
million and $99.8  million  during 2002 and 2001,  respectively.  Those  pre-tax
restructuring  charges  in 2002 and 2001  were net of  reversals  of  previously
established  pre-tax  restructuring  reserves of $11.0 million and $4.2 million,
respectively.  The related restructuring  reserves reflect estimates,  including
those pertaining to separation  costs,  settlements of contractual  obligations,
and asset  valuations.  The Corporation  reassesses the reserve  requirements to
complete each  individual  plan within the  restructuring  program at the end of
each  reporting  period.  Actual  experience  has  been and may  continue  to be
different from the estimates used to establish the  restructuring  reserves.  At
December 31, 2002, the Corporation  had  liabilities  established in conjunction
with its restructuring activities that totaled $59.9 million.
   As more fully described in Item 3 of this report,  the Corporation is subject
to various  legal  proceedings  and  claims,  including  those  with  respect to
environmental  matters,  the  outcomes  of  which  are  subject  to  significant
uncertainty.  The  Corporation  evaluates,  among other  factors,  the degree of
probability of an unfavorable outcome, the ability to make a reasonable estimate
of the amount of loss, and in certain instances, the ability of other parties to
share costs. Also, in accordance with accounting  principles  generally accepted
in the United  States  when a range of probable  loss  exists,  the  Corporation
accrues  at the low end of the range when no other more  likely  amount  exists.
Unanticipated  events or changes in these factors may require the Corporation to
increase  the amount it has  accrued  for any matter or accrue for a matter that
has not been previously accrued because it was not considered probable. Selling,
general,  and administrative  expenses in 2002 increased by approximately  $23.8
million over the 2001 level due to increased  environmental  and legal  expenses
associated with changes in various factors related to matters for which reserves
had previously been established as well as to matters which arose during 2002.
   Further,  as  indicated  in  Note  18  of  Notes  to  Consolidated  Financial
Statements, insurance recoveries for environmental and certain general liability
claims have not been recognized  until realized.  Any insurance  recoveries,  if
realized in future periods,  could have a favorable impact on the  Corporation's
financial condition or results of operations in the periods realized.
   The  Corporation  is also  subject  to  income  tax  laws in many  countries.
Judgment is required in  assessing  the future tax  consequences  of events that
have been recognized in the Corporation's  financial  statements or tax returns.
During 2003, the  Corporation  expects that taxing  authorities may complete tax
audits currently underway in three significant  countries.  The final outcome of
these future tax  consequences,  tax audits,  and changes in regulatory tax laws
and rates could materially impact the Corporation's financial statements.

Impact of New Accounting Standards
As more fully described in Note 1 of Notes to Consolidated Financial Statements,
on January 1, 2003,  the  Corporation  is required  to adopt two new  accounting
standards. For a discussion of the impact of those new accounting standards upon
the Corporation, see Note 1.

Financial Condition
Operating  activities  generated  cash of  $451.6  million  for the  year  ended
December 31, 2002,  compared to $379.6  million of cash  generated  for the year
ended December 31, 2001.  The increase in cash provided by operating  activities
in 2002 over the 2001 levels was primarily the result of higher net earnings and
lower cash taxes and interest. This increase was partially offset by higher cash
spending on restructuring actions, including restructuring-related expenses.
   As part of its capital  management,  the Corporation  reviews certain working
capital metrics. For example, the Corporation  evaluates its accounts receivable
and inventory  levels  through the  computation  of days sales  outstanding  and
inventory turnover ratio, respectively.  The number of days sales outstanding as
of December 31, 2002,  improved slightly as compared to the number of days sales
outstanding  as of  December  31,  2001.  Average  inventory  turns  during 2002
improved  from the 2001 level due to lower average  inventory  levels in 2002 as
compared  to the  corresponding  periods in 2001.  At  December  31,  2002,  the
Corporation's inventory levels reflect planned


                                      -19-
<PAGE>

safety stock related to production  transfers  that will occur in 2003 under the
Corporation's  restructuring  program.  The  Corporation  anticipates  that this
safety stock will be eliminated from inventory during 2003.
   Investing activities for the year ended December 31, 2002, used cash of $90.6
million  compared  to  $153.0  million  of cash  used in 2001.  Cash  flow  from
investing  activities  benefited from lower capital  expenditures during 2002 as
compared to 2001. The Corporation  anticipates that its capital spending in 2003
will approximate $125 million.  Investing activities for the year ended December
31, 2001,  included a payment of $30.5 million in connection  with the April 30,
2001,  acquisition of the automotive  division of Bamal Corporation  (Bamal) for
$34.0  million.  The results of Bamal, a component of the Fastening and Assembly
Systems segment, were included in the consolidated financial statements from the
date of acquisition and were not material.
   Investing  activities  for the year ended  December  31,  2000,  included  an
aggregate payment of $35.5 million related to the purchases of two businesses by
the Power Tools and  Accessories  segment in the United  States.  The businesses
acquired  were Emglo  Products  (Emglo),  purchased in  mid-December  2000,  and
Momentum  Laser  (Momentum),  purchased  in June 2000.  The results of Emglo and
Momentum,  included in the  consolidated  financial  statements from the date of
acquisition, were not material.
   Financing  activities  used cash of $102.0 million in 2002,  compared to cash
used  of  $114.7  million  in  2001.  The  decrease  in cash  used in  financing
activities   was   primarily  the  result  of  lower  cash  expended  for  stock
repurchases.
   During 2002, the Corporation repurchased 1,008,101 shares of its common stock
at an aggregate cost of $43.1 million.  During 2001, the Corporation repurchased
525,050  shares of its common stock at an aggregate  cost of $25.5  million upon
the  termination  of its  equity  forward  purchase  agreements,  as more  fully
described in Note 12 of Notes to  Consolidated  Financial  Statements,  and also
repurchased  1,085,000  shares of its common stock at an aggregate cost of $33.5
million.
   During January 2003,  the  Corporation  repurchased  an additional  1,000,000
shares of its common stock at an aggregate  cost of $41.3  million.  After those
share repurchases, the Corporation had remaining authorization from its Board of
Directors to repurchase an additional 1,911,595 shares of its common stock.
   As discussed further in Note 6 of Notes to Consolidated Financial Statements,
the Corporation has long-term debt of $310.7 million that matures in 2003. Also,
as discussed  further in Note 5 of Notes to Consolidated  Financial  Statements,
the  Corporation's  $250 million  364-day  unsecured  revolving  credit facility
expires in April 2003. The 364-day  facility  provides for annual  renewals upon
request by the  Corporation  and approval by the lending banks.  The Corporation
anticipates  that it will  repay the  maturing  term  debt,  when due,  with its
existing cash and, if necessary, with proceeds from available credit facilities.
   As  discussed  further  in  Note  10  of  Notes  to  Consolidated   Financial
Statements,  in  accordance  with  Statement of Financial  Accounting  Standards
(SFAS) No. 87, Employers'  Accounting for Pensions,  the Corporation  recorded a
minimum  pension  liability  adjustment  at December 31, 2002 that resulted in a
charge to  stockholders'  equity of $369.7  million,  net of tax. That charge to
stockholders' equity did not impact the Corporation's  compliance with covenants
under its borrowing agreements,  net earnings in 2002, or cash flow in 2002. The
Corporation  anticipates that the expense recognized relating to its pension and
other  postretirement  benefit plans in 2003 will increase by approximately  $30
million from the 2002  levels.  The  Corporation  does not  anticipate  that the
funding  requirements  relating  to the  pension  benefit  plans in 2003 will be
material.
   In addition to measuring  its cash flow  generation  and usage based upon the
operating, investing, and financing classifications included in the Consolidated
Statement of Cash Flows,  the Corporation also measures its free cash flow. Free
cash flow, a measure commonly  employed by credit  providers,  is defined by the
Corporation as cash flow from operating  activities,  less capital expenditures,
plus  proceeds  from the disposal of assets  (excluding  proceeds  from business
sales).  During the year ended December 31, 2002, the Corporation generated free
cash  flow of $359.6  million  compared  to free  cash  flow of  $257.1  million
generated in 2001.
   The  ongoing  costs  of  compliance  with  existing  environmental  laws  and
regulations  have not had,  and are not  expected  to have,  a material  adverse
effect on the Corporation's capital expenditures or financial position.
   The Corporation  will continue to have cash  requirements to support seasonal
working  capital needs and capital  expenditures,  to pay  interest,  to service
debt,  and to complete  the  restructuring  actions  previously  described.  For
amounts available at December 31, 2002, under the Corporation's revolving credit
facilities and under  short-term  borrowing  facilities,  see Note 5 of Notes to
Consolidated Financial Statements.  In order to meet its cash requirements,  the
Corporation  intends to use internally  generated  funds and to borrow under its
existing and future unsecured  revolving  credit  facilities or under short-term
borrowing  facilities.  The  Corporation  believes that cash provided from these
sources will be adequate to meet its cash requirements over the next 12 months.
   The  following  table  provides  a summary of the  Corporation's  contractual
obligations by due date (in millions of dollars).  The Corporation's  short-term
borrowings,  long-term debt, other long-term obligations,  and lease commitments
are more fully  described in Notes 5, 6, 11, and 16,  respectively,  of Notes to
Consolidated Financial Statements.


                                      -20-
<PAGE>

--------------------------------------------------------------------------------
                                             Payments Due by Period
                                ------------------------------------------------
                                Less than   1 to 2   3 to 5     After
                                   1 Year    Years    Years   5 Years      Total
--------------------------------------------------------------------------------
Short-term borrowings (a)(b)(c)    $  4.6   $   --   $   --    $   --   $    4.6
Long-term debt                      310.7       .8    304.8     550.0    1,166.3
Operating leases                     54.5     66.3     32.5      15.5      168.8
Other long-term obligations            --    188.0       --        --      188.0
--------------------------------------------------------------------------------
Total contractual
   cash obligations                $369.8   $255.1   $337.3    $565.5   $1,527.7
================================================================================
(a) As  more  fully  described  in Note 5 of  Notes  to  Consolidated  Financial
    Statements, the Corporation has credit facilities of $250.0 million and $1.0
    billion  that  mature in April 2003 and April 2006,  respectively.  While no
    borrowings were outstanding under these facilities at December 31, 2002, the
    Corporation had borrowings  outstanding  under these facilities  during 2002
    and  anticipates  that  borrowings  will  occur in 2003.  The  Corporation's
    average borrowing  outstanding under these facilities during 2002 was $429.9
    million.
(b) As  more  fully  described  in Note 5 of  Notes  to  Consolidated  Financial
    Statements,  the Corporation has a $500.0 million  commercial paper program.
    While no borrowings were outstanding  under this commercial paper program at
    December 31, 2002, the  Corporation  had borrowings  outstanding  under this
    commercial  paper program during 2002 and  anticipates  that borrowings will
    occur in 2003.
(c) As  described  in Note 5 of  Notes  to  Consolidated  Financial  Statements,
    certain  subsidiaries of the  Corporation  outside of the United States have
    uncommitted  lines of credit of $306.5  million at December 31, 2002.  These
    uncommitted  lines of credit do not have termination  dates and are reviewed
    periodically.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information required under this Item is contained in Item 7 of this report under
the caption  "Hedging  Activities" and in Item 8 of this report in Notes 1 and 7
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, 2002,  2001, and
   2000.

Consolidated Balance Sheet - December 31, 2002 and 2001.

Consolidated Statement of Stockholders'  Equity - years ended December 31, 2002,
   2001, and 2000.

Consolidated  Statement of Cash Flows - years ended December 31, 2002, 2001, and
   2000.

Notes to Consolidated Financial Statements.

Report of Independent Auditors.


                                      -21-
<PAGE>

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

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Year Ended December 31,                                                     2002             2001             2000
-------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>              <C>              <C>
SALES                                                                   $4,394.0         $4,245.6         $4,474.9
   Cost of goods sold                                                    2,876.1          2,846.6          2,889.0
   Selling, general, and administrative expenses                         1,097.1          1,051.4          1,063.6
   Restructuring and exit costs                                             50.7             99.8             39.1
   Gain on sale of business                                                   --               --             20.1
-------------------------------------------------------------------------------------------------------------------
OPERATING INCOME                                                           370.1            247.8            503.3
   Interest expense (net of interest income of
      $26.5 for 2002, $34.7 for 2001, and $44.1 for 2000)                   57.8             84.3            104.2
   Other expense (income)                                                    4.9              8.2             (5.5)
-------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES                                               307.4            155.3            404.6
   Income taxes                                                             77.7             47.3            122.6
-------------------------------------------------------------------------------------------------------------------
NET EARNINGS                                                            $  229.7         $  108.0         $  282.0
===================================================================================================================


-------------------------------------------------------------------------------------------------------------------
NET EARNINGS PER COMMON SHARE -- BASIC                                  $   2.86         $   1.34         $   3.37
===================================================================================================================
NET EARNINGS PER COMMON SHARE --
   ASSUMING DILUTION                                                    $   2.84         $   1.33         $   3.34
===================================================================================================================
See Notes to Consolidated Financial Statements.
</TABLE>


                                      -22-
<PAGE>

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


<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
December 31,                                                                2002             2001
--------------------------------------------------------------------------------------------------
<S>                                                                     <C>              <C>
ASSETS
Cash and cash equivalents                                               $  517.1         $  244.5
Trade receivables, less allowances of
   $47.6 for 2002 and $51.9 for 2001                                       729.0            708.6
Inventories                                                                748.9            712.2
Other current assets                                                       198.9            227.0
--------------------------------------------------------------------------------------------------
   TOTAL CURRENT ASSETS                                                  2,193.9          1,892.3
--------------------------------------------------------------------------------------------------
PROPERTY, PLANT, AND EQUIPMENT                                             655.9            687.5
GOODWILL                                                                   729.1            710.4
OTHER ASSETS                                                               551.6            724.0
--------------------------------------------------------------------------------------------------
                                                                        $4,130.5         $4,014.2
==================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings                                                   $    4.6         $   12.3
Current maturities of long-term debt                                       312.0             33.7
Trade accounts payable                                                     343.2            312.7
Other accrued liabilities                                                  793.6            711.9
--------------------------------------------------------------------------------------------------
   TOTAL CURRENT LIABILITIES                                             1,453.4          1,070.6
--------------------------------------------------------------------------------------------------
LONG-TERM DEBT                                                             927.6          1,191.4
DEFERRED INCOME TAXES                                                      211.3            261.1
POSTRETIREMENT BENEFITS                                                    409.0            238.0
OTHER LONG-TERM LIABILITIES                                                529.6            502.1
STOCKHOLDERS' EQUITY
Common stock (outstanding:
   December 31, 2002 -- 79,604,786 shares;
   December 31, 2001 -- 79,829,641 shares)                                  39.8             39.9
Capital in excess of par value                                             550.1            566.6
Retained earnings                                                          524.3            333.2
Accumulated other comprehensive income (loss)                             (514.6)          (188.7)
--------------------------------------------------------------------------------------------------
   TOTAL STOCKHOLDERS' EQUITY                                              599.6            751.0
--------------------------------------------------------------------------------------------------
                                                                        $4,130.5         $4,014.2
==================================================================================================
See Notes to Consolidated Financial Statements.
</TABLE>


                                      -23-
<PAGE>

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                 The Black & Decker Corporation and Subsidiaries
                   (Dollars in Millions Except Per Share Data)



<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                         Accumulated
                                                         Outstanding           Capital in                      Other          Total
                                                              Common     Par    Excess of   Retained   Comprehensive   Stockholders'
                                                              Shares   Value    Par Value   Earnings   Income (Loss)         Equity
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>          <C>        <C>         <C>            <C>            <C>
BALANCE AT DECEMBER 31, 1999                              87,190,240   $43.6      $ 843.3     $ 21.9         $(107.7)       $ 801.1
Comprehensive income:
   Net earnings                                                   --      --           --      282.0              --          282.0
   Minimum pension liability adjustment (net of tax)              --      --           --         --            (1.2)          (1.2)
   Foreign currency translation adjustments,
      less effect of hedging activities (net of  tax)             --      --           --         --           (62.9)         (62.9)
------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income                                              --      --           --      282.0           (64.1)         217.9
------------------------------------------------------------------------------------------------------------------------------------
Cash dividends on common stock ($.48 per share)                   --      --           --      (39.9)             --          (39.9)
Purchase and retirement of common stock
   (net of 350,928 shares issued under
   forward purchase contracts)                            (7,103,072)   (3.5)      (266.3)        --              --         (269.8)
Common stock under equity forwards                                --      --        (25.1)        --              --          (25.1)
Common stock issued under employee benefit plans             255,926      .1          8.1         --              --            8.2
------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2000                              80,343,094    40.2        560.0      264.0          (171.8)         692.4
Comprehensive income:
   Net earnings                                                   --      --           --      108.0              --          108.0
   Cumulative effect of accounting change (net of tax)            --      --           --         --             (.7)           (.7)
   Net loss on derivative instruments (net of tax)                --      --           --         --             (.2)           (.2)
   Minimum pension liability adjustment (net of tax)              --      --           --         --             1.7            1.7
   Foreign currency translation adjustments,
      less effect of hedging activities (net of  tax)             --      --           --         --           (17.7)         (17.7)
------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income                                              --      --           --      108.0           (16.9)          91.1
------------------------------------------------------------------------------------------------------------------------------------
Cash dividends on common stock ($.48 per share)                   --      --           --      (38.8)             --          (38.8)
Purchase and retirement of common stock                   (1,085,000)    (.6)       (32.9)        --              --          (33.5)
Common stock retired under equity forwards                  (765,326)    (.4)          --         --              --            (.4)
Common stock issued under employee benefit plans           1,336,873      .7         39.5         --              --           40.2
------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2001                              79,829,641    39.9        566.6      333.2          (188.7)         751.0
Comprehensive income (loss):
   Net earnings                                                   --      --           --      229.7              --          229.7
   Net loss on derivative instruments (net of tax)                --      --           --         --           (16.4)         (16.4)
   Minimum pension liability adjustment (net of tax)              --      --           --         --          (369.7)        (369.7)
   Foreign currency translation adjustments,
      less effect of hedging activities (net of  tax)             --      --           --         --            60.2           60.2
------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss)                                       --      --           --      229.7          (325.9)         (96.2)
------------------------------------------------------------------------------------------------------------------------------------
Cash dividends on common stock ($.48 per share)                   --      --           --      (38.6)             --          (38.6)
Purchase and retirement of common stock                   (1,008,101)    (.5)       (42.6)        --              --          (43.1)
Common stock issued under employee benefit plans             783,246      .4         26.1         --              --           26.5
------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2002                              79,604,786   $39.8      $ 550.1     $524.3         $(514.6)       $ 599.6
====================================================================================================================================
See Notes to Consolidated Financial Statements.
</TABLE>


                                      -24-
<PAGE>

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


<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Year Ended December 31,                                                     2002             2001             2000
-------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>              <C>              <C>
OPERATING ACTIVITIES
Net earnings                                                             $ 229.7          $ 108.0          $ 282.0
Adjustments to reconcile net earnings to cash flow
   from operating activities:
   Gain on sale of business                                                   --               --            (20.1)
   Non-cash charges and credits:
      Depreciation and amortization                                        127.8            159.4            163.4
      Restructuring and exit costs                                          50.7             99.8             39.1
      Other                                                                 (8.6)            (4.4)            (9.2)
   Changes in selected working capital items
      (excluding the effects of acquired businesses):
      Trade receivables                                                     16.4             68.6             12.7
      Inventories                                                           (8.2)           126.8           (123.1)
      Trade accounts payable                                                19.3            (54.6)            13.6
   Restructuring spending                                                  (37.8)           (24.9)           (12.6)
   Other assets and liabilities                                             62.3            (99.1)             4.1
-------------------------------------------------------------------------------------------------------------------
   CASH FLOW FROM OPERATING ACTIVITIES                                     451.6            379.6            349.9
-------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from disposal of assets                                             4.6             12.3              4.8
Capital expenditures                                                       (96.6)          (134.8)          (200.2)
Proceeds from sale of business                                                --               --             25.0
Purchase of businesses                                                        --            (30.5)           (35.5)
Cash inflow from hedging activities                                           --               --            193.6
Cash outflow from hedging activities                                          --               --           (189.9)
Cash inflow from other investing activities                                  1.4               --               --
-------------------------------------------------------------------------------------------------------------------
   CASH FLOW FROM INVESTING ACTIVITIES                                     (90.6)          (153.0)          (202.2)
-------------------------------------------------------------------------------------------------------------------
   CASH FLOW BEFORE FINANCING ACTIVITIES                                   361.0            226.6            147.7
FINANCING ACTIVITIES
Net (decrease) increase in short-term borrowings                            (7.2)          (390.0)           225.6
Proceeds from long-term debt
   (net of debt issue cost of $3.1 in 2001)                                   --            393.8               --
Payments on long-term debt                                                 (33.9)           (48.6)          (213.8)
Issuance of preferred stock of subsidiary                                     --               --            188.0
Increase in long-term deposit                                                 --               --            (50.0)
Purchase of common stock                                                   (43.1)           (59.0)          (269.8)
Issuance of common stock                                                    20.8             27.9              9.9
Cash dividends                                                             (38.6)           (38.8)           (39.9)
-------------------------------------------------------------------------------------------------------------------
   CASH FLOW FROM FINANCING ACTIVITIES                                    (102.0)          (114.7)          (150.0)
Effect of exchange rate changes on cash                                     13.6             (2.4)           (10.0)
-------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                           272.6            109.5            (12.3)
Cash and cash equivalents at beginning of year                             244.5            135.0            147.3
-------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR                                 $ 517.1          $ 244.5          $ 135.0
===================================================================================================================
See Notes to Consolidated Financial Statements.
</TABLE>


                                      -25-
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 The Black & Decker Corporation and Subsidiaries


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

Reclassifications:  Certain prior years' amounts in the  Consolidated  Financial
Statements have been reclassified to conform to the presentation used in 2002.

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

Revenue  Recognition:  Revenue  from sales of product is  recognized  when title
passes, which generally occurs upon shipment.

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

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

Concentration  of  Credit:  The  Corporation  sells  products  and  services  to
customers in diversified  industries and geographic regions and, therefore,  has
no  significant  concentrations  of  credit  risk  other  than  with  two  major
customers. As of December 31, 2002, approximately 24% of the Corporation's trade
receivables were due from two large home improvement retailers.
   The Corporation  continuously evaluates the creditworthiness of its customers
and generally does not require collateral.

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

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

Goodwill and Other Intangible Assets: Effective January 1, 2002, the Corporation
adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and
Other  Intangible  Assets.  Under SFAS No. 142,  goodwill and intangible  assets
deemed to have indefinite lives are no longer  amortized,  but are subject to an
annual  impairment test.  Other intangible  assets continue to be amortized over
their useful lives. As of January 1, 2002, the  Corporation  performed the first
of the required  impairment  tests of goodwill.  Additionally,  the  Corporation
performed  its  annual  impairment  test  in the  fourth  quarter  of  2002.  No
impairment was present upon performing  either of the 2002 impairment  tests. At
December  31,  2002,  goodwill  associated  with  the  Corporation's  reportable
business  segments  was $25.8  million for Power Tools and  Accessories,  $434.6
million for Hardware and Home Improvement,  and $268.7 million for Fastening and
Assembly  Systems.  The  Corporation  cannot  predict the  occurrence of certain
events that might adversely  affect the reported value of goodwill.  Such events
may include,  but are not limited to,  strategic  decisions  made in response to
economic and competitive  conditions,  the impact of the economic environment on
the  Corporation's   customer  base,  or  a  material  negative  change  in  its
relationships with significant customers.
   The Corporation recognized goodwill amortization of $26.4 million in 2001 and
$25.4  million in 2000.  Net earnings for the years ended  December 31, 2001 and
2000, excluding goodwill amortization, would have been $134.4 million and $307.4
million, respectively. Basic earnings per share for the years ended December 31,
2001 and 2000, would have been $1.67 and $3.67, respectively, excluding goodwill
amortization.  Diluted  earnings per share for the years ended December 31, 2001
and 2000,  would  have been $1.66 and $3.64,  respectively,  excluding  goodwill
amortization.

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


                                      -26-
<PAGE>

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 $96.9 million in 2002,  $98.9 million in 2001, and $95.3
million in 2000.

Shipping  and  Handling  Costs:  Shipping and  handling  costs  represent  costs
associated  with  shipping  products to customers and handling  finished  goods.
Included in selling,  general,  and  administrative  expenses  are  shipping and
handling  costs of $222.2  million in 2002,  $214.0  million in 2001, and $205.6
million in 2000.

Advertising and Promotion:  Effective  January 1, 2002, the Corporation  adopted
Emerging Issues Task Force Issue No. 01-9, Accounting for Consideration Given by
a Vendor to a Customer or a Reseller of the Vendor's  Products (EITF 01-9). Upon
adoption of EITF 01-9, the Corporation was required to classify certain payments
to its customers as a reduction of sales. The Corporation  previously classified
certain of these payments as promotion expense, a component of selling, general,
and administrative  expenses in the Consolidated Statement of Earnings. Upon the
adoption of EITF 01-9,  prior  period  amounts  were  restated and resulted in a
reduction of sales (and an  offsetting  reduction of selling  expenses) of $87.5
million in 2001 and $85.9 million in 2000.
   Advertising and promotion expense,  which is expensed as incurred, was $136.4
million in 2002, $134.7 million in 2001, and $151.9 million in 2000.

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

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

Derivative  Financial  Instruments:  Effective  January 1, 2001, the Corporation
adopted  SFAS  No.  133,  Accounting  for  Derivative  Instruments  and  Hedging
Activities, as amended. SFAS No. 133 requires that the Corporation recognize all
derivatives  on the balance  sheet at fair value and  establishes  criteria  for
designation  and  effectiveness  of  hedging  relationships.  At the time of its
adoption  of SFAS No.  133 on January 1, 2001,  the  Corporation  recognized  an
after-tax  reduction  of $.7 million to other  comprehensive  income  (loss),  a
component of stockholders' equity, as a cumulative effect adjustment.
   The  Corporation  is exposed to market risks arising from changes in interest
rates.  With  products  and  services  marketed in over 100  countries  and with
manufacturing  sites in 11 countries,  the Corporation  also is exposed to risks
arising from changes in foreign currency rates. The Corporation uses derivatives
principally in the management of interest rate and foreign currency exposure. It
does not utilize  derivatives  that contain  leverage  features.  On the date on
which the Corporation enters into a derivative,  the derivative is designated as
a hedge of the  identified  exposure.  The  Corporation  formally  documents all
relationships  between  hedging  instruments  and hedged  items,  as well as its
risk-management   objective   and  strategy  for   undertaking   various   hedge
transactions. In this documentation, the Corporation specifically identifies the
asset, liability,  firm commitment,  forecasted  transaction,  or net investment
that  has  been  designated  as the  hedged  item  and  states  how the  hedging
instrument  is  expected  to reduce the risks  related to the hedged  item.  The
Corporation  measures  effectiveness of its hedging  relationships both at hedge
inception and on an ongoing basis.


                                      -27-
<PAGE>

   For each  derivative  instrument  that is designated  and qualifies as a fair
value  hedge,  the  gain  or loss on the  derivative  instrument  as well as the
offsetting  loss or gain on the hedged item  attributable to the hedged risk are
recognized in current  earnings  during the period of the change in fair values.
For each  derivative  instrument that is designated and qualifies as a cash flow
hedge, the effective portion of the gain or loss on the derivative instrument is
reported as a component of  accumulated  other  comprehensive  income (loss) and
reclassified into earnings in the same period or periods during which the hedged
transaction  affects  earnings.  The  remaining  gain or loss on the  derivative
instrument  in excess of the  cumulative  change in the present  value of future
cash flows of the hedged item, if any, is recognized in current  earnings during
the period of change.  For hedged forecasted  transactions,  hedge accounting is
discontinued  if the forecasted  transaction is no longer probable of occurring,
in which case previously  deferred  hedging gains or losses would be recorded to
earnings immediately.  For derivatives that are designated and qualify as hedges
of net investments in subsidiaries  located outside the United States,  the gain
or loss is reported in accumulated other comprehensive  income (loss) as part of
the cumulative translation adjustment to the extent the derivative is effective.
For derivative  instruments not designated as hedging  instruments,  the gain or
loss is recognized in current earnings during the period of change.

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

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

Accounting  Policy Prior to January 1, 2001:  The  Corporation's  interest  rate
derivatives  were afforded  hedge  accounting  treatment and were  designated as
hedges as they were effective in changing the tenor of outstanding  indebtedness
(e.g.,  from fixed to  variable  rate debt or from  variable  rate to fixed rate
debt).  The amounts to be paid or received under  interest rate swap  agreements
were accrued as interest rates changed and were  recognized over the life of the
swap agreements as an adjustment of interest expense.  Gains or losses resulting
from the early termination of interest rate swaps were deferred and amortized as
an  adjustment  to the yield of the related debt  instrument  over the remaining
period originally covered by the terminated swaps.
   The  Corporation's  derivative  financial  instruments  relating  to managing
foreign exchange risks were appropriately designated to the underlying exposures
and were  afforded  hedge  accounting  treatment.  Gains and  losses on  foreign
currency  transaction  hedges were recognized in earnings and offset the foreign
exchange  gains and losses on the  underlying  transactions.  Deferred  gains on
options  that hedged  forecasted  transactions  generally  related to  inventory
purchases,  and were recognized in cost of goods sold when the related inventory
was sold or when a hedged purchase was no longer expected to occur.

Stock-Based  Compensation:  As described in Note 14, the Corporation has elected
to follow the  accounting  provisions  of  Accounting  Principles  Board Opinion
(APBO)  No.  25,  Accounting  for Stock  Issued to  Employees,  for  stock-based
compensation  and to furnish the pro forma  disclosures  required under SFAS No.
148, Accounting for Stock-Based Compensation - Transition and Disclosure.

New Accounting Pronouncements:  In June 2001, the Financial Accounting Standards
Board  (the  FASB)  issued  SFAS  No.  143,   Accounting  for  Asset  Retirement
Obligations,  effective  January 2003.  SFAS No. 143 requires legal  obligations
associated  with the  retirement of long-lived  assets to be recognized at their
fair  value  at the  time  that  the  obligations  are  incurred.  Upon  initial
recognition  of a  liability,  that cost  should be  capitalized  as part of the
related long-lived asset and allocated to expense over the estimated useful life
of the asset.  The  Corporation  will adopt SFAS No. 143 on January 1, 2003, and
does not


                                      -28-
<PAGE>

believe  that  the  impact  of  adoption  will  have a  material  impact  on the
Corporation's financial position or results of operations.
   In July 2002, the FASB issued SFAS No. 146,  Accounting for Costs  Associated
with Exit or Disposal  Activities,  effective  for exit or  disposal  activities
initiated  after  December  31,  2002.  SFAS No.  146  addresses  the  financial
accounting  and  reporting for certain  costs  associated  with exit or disposal
activities,  including  restructuring  actions.  SFAS No. 146 excludes  from its
scope  severance  benefits that are subject to an on-going  benefit  arrangement
governed by SFAS No. 112, Employer's Accounting for Postemployment Benefits, and
asset  impairments  governed by SFAS No. 144,  Accounting  for the Impairment or
Disposal of Long-Lived Assets.
   The  Corporation  believes  that the  impact of SFAS No.  146 will  likely be
mitigated as  restructuring  charges  recognized by the Corporation to date have
principally  consisted  of  severance  benefits  that are subject to an on-going
benefit arrangement and asset impairments. Accordingly, the Corporation does not
believe  that  the  impact  of  adoption  will  have a  material  impact  on the
Corporation's financial position or results of operations.

NOTE 2: INVENTORIES
The  classification  of  inventories  at the end of each year,  in  millions  of
dollars, was as follows:
--------------------------------------------------------------------------------
                                                             2002          2001
--------------------------------------------------------------------------------
FIFO cost
Raw materials and work-in-process                          $186.1        $192.9
Finished products                                           553.9         527.0
--------------------------------------------------------------------------------
                                                            740.0         719.9
FIFO cost less than/(in excess of)
   LIFO inventory value                                       8.9          (7.7)
--------------------------------------------------------------------------------
                                                           $748.9        $712.2
================================================================================
   The cost of  United  States  inventories  stated  under the LIFO  method  was
approximately 50% and 54% of the value of total inventories at December 31, 2002
and 2001, respectively.

NOTE 3: PROPERTY, PLANT, AND EQUIPMENT
Property,  plant, and equipment at the end of each year, in millions of dollars,
consisted of the following:
--------------------------------------------------------------------------------
                                                             2002          2001
--------------------------------------------------------------------------------
Property, plant, and equipment at cost:
Land and improvements                                    $   50.3      $   48.4
Buildings                                                   278.6         279.1
Machinery and equipment                                   1,268.8       1,137.1
--------------------------------------------------------------------------------
                                                          1,597.7       1,464.6
Less accumulated depreciation                               941.8         777.1
--------------------------------------------------------------------------------
                                                         $  655.9      $  687.5
================================================================================

NOTE 4: OTHER ACCRUED LIABILITIES
Other  accrued  liabilities  at the end of each year,  in  millions  of dollars,
included the following:
--------------------------------------------------------------------------------
                                                             2002          2001
--------------------------------------------------------------------------------
Salaries and wages                                         $ 86.0        $ 52.6
Employee benefits                                            88.3          78.2
Trade discounts and allowances                              121.9         143.8
Advertising and promotion                                    63.0          65.6
Income taxes, including deferred taxes                       21.7          12.7
Accruals related to restructuring actions                    59.9          67.4
Warranty                                                     42.5          39.4
All other                                                   310.3         252.2
--------------------------------------------------------------------------------
                                                           $793.6        $711.9
================================================================================
   All other at December 31, 2002 and 2001,  consisted primarily of accruals for
interest, insurance, and taxes other than income taxes.

NOTE 5: SHORT-TERM BORROWINGS
Short-term  borrowings  in the  amounts  of $4.6  million  and $12.3  million at
December 31, 2002 and 2001,  respectively,  consisted  primarily  of  borrowings
under the terms of  uncommitted  lines of credit or other  short-term  borrowing
arrangements.  The  weighted-average  interest  rate  on  short-term  borrowings
outstanding was 3.4% and 4.8% at December 31, 2002 and 2001, respectively.
   In November 2002, the Corporation entered into a $500 million agreement under
which it may issue commercial paper at market rates with maturities of up to 365
days from the date of issue.  No  commercial  paper was  outstanding  under this
agreement at December 31, 2002.
   In April 2001,  the  Corporation  replaced an expiring  $1.0  billion  former
unsecured   revolving  credit  facility,   which  consisted  of  two  individual
facilities (the Former Credit Facility), with a $1.0 billion unsecured revolving
credit  facility  that  expires  in  April  2006 and a  $400.0  million  364-day
unsecured revolving credit facility. In April 2002, the Corporation entered into
a $250 million 364-day unsecured revolving credit facility (the Credit Facility)
replacing its expiring $400 million 364-day unsecured revolving credit facility.
The  Corporation  reduced the borrowing  availability  under the Credit Facility
based upon its anticipated  short-term  financing needs.  The 364-day  unsecured
revolving  credit  facility  provides  for annual  renewals  upon request by the
Corporation  and  approval  by the  lending  banks.  The  amount  available  for
borrowing  under  the two  individual  facilities  (the  Credit  Facilities)  at
December 31, 2002, was $1.25 billion.  While no amounts were  outstanding  under
the  Credit  Facilities  at  December  31,  2002  or  2001,  average  borrowings
outstanding  under these facilities during 2002 and 2001 were $429.9 million and
$769.5 million, respectively.


                                      -29-
<PAGE>

   Under the Credit  Facilities,  the Corporation has the option of borrowing at
the London  Interbank  Offered Rate (LIBOR) plus a specified  percentage,  or at
other variable rates set forth therein.  The Credit Facilities  provide that the
interest rate margin over LIBOR, initially set at .475% and .500%, respectively,
for each of the two individual facilities,  will increase or decrease based upon
changes in the ratings of the Corporation's  long-term senior unsecured debt. In
addition  to the  interest  payable  on the  principal  amount  of  indebtedness
outstanding  from time to time under the Credit  Facilities,  the Corporation is
required to pay an annual  facility fee to each bank,  initially  equal to .150%
and .125%, respectively,  of the amount of each bank's commitment,  whether used
or unused.  The Corporation is also required to pay a utilization fee under each
facility,  initially  equal to .125%,  applied to the  outstanding  balance when
borrowings under the respective facility exceeds 50% of the facility. The Credit
Facilities  provide  that both the  facility  fee and the  utilization  fee will
increase or  decrease  based upon  changes in the  ratings of the  Corporation's
senior unsecured debt.
   The  Credit  Facilities  include  various  customary  covenants.  Some of the
covenants  limit the ability of the  Corporation or its  subsidiaries  to pledge
assets or incur liens on assets.  Other  covenants  require the  Corporation  to
maintain a specified  interest  coverage  ratio and  certain  cash flow to fixed
expense  coverage  ratios.  As of December  31,  2002,  the  Corporation  was in
compliance with all terms and conditions of the Credit Facilities.
   Under the terms of uncommitted lines of credit at December 31, 2002,  certain
subsidiaries  outside of the United States may borrow up to an additional $306.5
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.
   Under the Former Credit Facility, the Corporation had the option of borrowing
at LIBOR  plus a  specified  percentage,  or at other  variable  rates set forth
therein.  The Former Credit Facility provided that the interest rate margin over
LIBOR,  initially  set at  .15%  and  .25%,  respectively,  for  each of the two
individual  facilities,  would  increase or decrease  based upon  changes in the
ratings of the  Corporation's  long-term  senior unsecured debt. The Corporation
was also able to borrow under the Former Credit Facility by means of competitive
bid rate loans made through an auction process at then-current market rates.


NOTE 6: LONG-TERM DEBT
The  composition  of  long-term  debt at the end of each year,  in  millions  of
dollars, was as follows:
--------------------------------------------------------------------------------
                                                             2002          2001
--------------------------------------------------------------------------------
Medium Term Notes due through 2002                        $    --      $   32.3
7.50% notes due 2003                                        309.5         309.5
7.0% notes due 2006                                         154.6         154.6
6.55% notes due 2007                                        150.0         150.0
7.125% notes due 2011
   (including discount of
   $2.6 in 2002 and $2.9 in 2001)                           397.4         397.1
7.05% notes due 2028                                        150.0         150.0
Other loans due through 2007                                  2.2           2.0
Fair value hedging adjustment                                75.9          29.6
Less current maturities of long-term debt                  (312.0)        (33.7)
--------------------------------------------------------------------------------
                                                          $ 927.6      $1,191.4
================================================================================
   As more  fully  described  in Note 7, at  December  31,  2002 and  2001,  the
carrying amount of long-term debt and current  maturities thereof includes $75.9
million and $29.6 million,  respectively,  relating to outstanding or terminated
fixed-to-variable rate interest rate swaps agreements.
   Indebtedness  of subsidiaries  in the aggregate  principal  amounts of $306.9
million and $314.4  million were included in the  Consolidated  Balance Sheet at
December 31, 2002 and 2001,  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:  $310.7  million in 2003,  $.4  million in 2004,  $.4 million in
2005,  $154.8 million in 2006, and $150.0 million in 2007.  Interest payments on
all indebtedness were $100.8 million in 2002, $122.2 million in 2001, and $145.1
million in 2000.


NOTE 7: DERIVATIVE FINANCIAL INSTRUMENTS
The  Corporation  is exposed to market  risks  arising  from changes in interest
rates.  With  products  and  services  marketed in over 100  countries  and with
manufacturing  sites in 11 countries,  the Corporation  also is exposed to risks
arising from changes in foreign exchange rates.

Credit  Exposure:  The  Corporation is exposed to  credit-related  losses in the
event of  non-performance  by  counterparties  to certain  derivative  financial
instruments. The Corporation monitors the creditworthiness of the counterparties
and  presently  does  not  expect  default  by any of  the  counterparties.  The
Corporation  does not  obtain  collateral  in  connection  with  its  derivative
financial instruments.
   The credit  exposure  that results from  interest  rate and foreign  exchange
contracts  is the fair value of contracts  with a positive  fair value as of the
reporting date. Some derivatives are not subject to credit  exposures.  The fair
value of all financial instruments is summarized in Note 8.

Interest Rate Risk Management:  The Corporation  manages its interest rate risk,
primarily through the use of interest rate swap agreements,  in order to achieve
a cost-


                                      -30-
<PAGE>

effective  mix of fixed and variable rate  indebtedness.  It seeks to issue debt
opportunistically,  whether at fixed or variable  rates,  at the lowest possible
costs.  The  Corporation  may, based upon its assessment of the future  interest
rate environment, elect to manage its interest rate risk associated with changes
in the fair value of its indebtedness,  or the future cash flows associated with
its indebtedness, through the use of interest rate swaps.
   The amounts exchanged by the  counterparties to interest rate swap agreements
normally are based upon the notional amounts and other terms,  generally related
to interest rates, of the  derivatives.  While notional amounts of interest rate
swaps form part of the basis for the amounts  exchanged  by the  counterparties,
the  notional  amounts  are not  themselves  exchanged  and,  therefore,  do not
represent a measure of the  Corporation's  exposure as an end user of derivative
financial instruments.
   The Corporation's portfolio of interest rate swap instruments at December 31,
2002 and 2001, consisted of $788.0 million notional amounts of fixed-to-variable
rate swaps with a weighted-average fixed rate receipt of 6.01%. The basis of the
variable rate paid is LIBOR.
   Credit exposure on the  Corporation's  interest rate  derivatives at December
31, 2002 and 2001,  was $85.0 million and $28.6  million,  respectively.  During
2001,  the  Corporation  terminated  interest  rate  swap  instruments  with  an
aggregate  notional  amount  of  $300.0  million.  Deferred  gains on the  early
termination  of  interest  rate swaps were $19.2  million  and $21.5  million at
December 31, 2002 and 2001.

Foreign  Currency  Management:  The  Corporation  enters  into  various  foreign
currency  contracts in managing its foreign currency  exchange risk.  Generally,
the foreign currency contracts have maturity dates of less than eighteen months.
The contractual  amounts of foreign currency  derivatives,  principally  forward
exchange  contracts  and  purchased  options,  generally  are  exchanged  by the
counterparties.  The Corporation's  foreign currency  derivatives are designated
to,  and  generally  are  denominated  in  the  currencies  of,  the  underlying
exposures.  To minimize the volatility of reported  equity,  the Corporation may
hedge,  on a limited  basis,  a portion of its net  investment  in  subsidiaries
located  outside the United States through the use of foreign  currency  forward
contracts and purchased foreign currency options.
   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 forward exchange  contracts and options.  Some of the contracts  involve
the  exchange  of two  foreign  currencies  according  to the local needs of the
subsidiaries.  Some  natural  hedges also are used to mitigate  transaction  and
forecasted exposures.
   The following table  summarizes the contractual  amounts of forward  exchange
contracts  as of December 31, 2002 and 2001,  in millions of dollars,  including
details by major currency as of December 31, 2002. Foreign currency amounts were
translated  at  current  rates  as of the  reporting  date.  The  "Buy"  amounts
represent  the United  States  dollar  equivalent  of  commitments  to  purchase
currencies, and the "Sell" amounts represent the United States dollar equivalent
of commitments to sell currencies.
--------------------------------------------------------------------------------
As of December 31, 2002                                       Buy          Sell
--------------------------------------------------------------------------------
United States dollar                                     $  967.5     $  (744.5)
Pound sterling                                              690.2        (199.6)
Canadian dollar                                                --         (53.6)
Euro                                                        392.2        (872.5)
Australian dollar                                            14.1         (39.1)
Japanese yen                                                  6.5         (52.4)
Swedish krona                                                24.0         (63.0)
Other                                                        33.9        (120.2)
--------------------------------------------------------------------------------
Total                                                    $2,128.4     $(2,144.9)
================================================================================

As of December 31, 2001
--------------------------------------------------------------------------------
Total                                                    $1,818.5     $(1,803.5)
================================================================================
   No purchased  options to buy or sell currencies were  outstanding at December
31,  2002.  The  contractual  amounts of  purchased  options to buy  currencies,
predominantly  the euro,  pound sterling,  and United States dollar,  were $47.1
million at December 31, 2001. The  contractual  amounts of purchased  options to
sell various currencies were $46.0 million at December 31, 2001.
   Credit exposure on foreign  currency  derivatives as of December 31, 2002 and
2001, was $6.6 million and $16.4 million, respectively.
   Hedge ineffectiveness and the portion of derivative gains and losses excluded
from the assessment of hedge  effectiveness  related to the  Corporation's  cash
flow  hedges  that  were  recorded  to  earnings  during  2002 and 2001 were not
significant.  The amounts of gains and  losses,  reclassified  from  accumulated
other  comprehensive  income (loss) to earnings during 2001, that related to the
January 1, 2001 transition adjustment were not significant.
   Amounts deferred in accumulated other comprehensive income (loss) at December
31,  2002,  that are  expected  to be  reclassified  into  earnings  during 2003
represent  an  after-tax  loss of  $13.6  million.  The  amount  expected  to be
reclassified  into earnings in the next twelve months includes  unrealized gains
and losses related to open foreign currency contracts.  Accordingly,  the amount
that is ultimately reclassified into earnings may differ materially.

NOTE 8: 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.

                                      -31-
<PAGE>

   The  following  methods  and  assumptions  were  used by the  Corporation  in
estimating fair value disclosures for financial instruments:

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

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

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

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

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

   The following table sets forth, in millions of dollars,  the carrying amounts
and fair values of the  Corporation's  financial  instruments,  except for those
noted above for which carrying amounts approximate fair values:
--------------------------------------------------------------------------------
Assets (Liabilities)                                     Carrying          Fair
As of December 31, 2002                                    Amount         Value
--------------------------------------------------------------------------------
Non-derivatives:
   Long-term debt                                         $(927.6)      $(965.8)
   Other long-term liabilities                             (208.4)       (208.4)
--------------------------------------------------------------------------------
Derivatives relating to:
   Debt
     Assets                                                  63.8          63.8
   Other long-term liabilities
     Assets                                                  21.2          21.2
   Foreign currency
     Assets                                                   6.6           6.6
     Liabilities                                            (21.1)        (21.1)
--------------------------------------------------------------------------------

Assets (Liabilities)                                     Carrying          Fair
As of December 31, 2001                                    Amount         Value
--------------------------------------------------------------------------------
Non-derivatives:
   Long-term debt                                       $(1,191.4)    $(1,192.8)
   Other long-term liabilities                             (196.5)       (196.5)
--------------------------------------------------------------------------------
Derivatives relating to:
   Debt
     Assets                                                  19.7          19.7
     Liabilities                                             (6.8)         (6.8)
   Other long-term liabilities
     Assets                                                   8.9           8.9
   Foreign currency
     Assets                                                  16.4          16.4
     Liabilities                                             (1.4)         (1.4)
--------------------------------------------------------------------------------

NOTE 9: INCOME TAXES
Earnings  before  income  taxes for each year,  in millions of dollars,  were as
follows:
--------------------------------------------------------------------------------
                                               2002          2001          2000
--------------------------------------------------------------------------------
United States                                $186.2        $ 93.0        $209.3
Other countries                               121.2          62.3         195.3
--------------------------------------------------------------------------------
                                             $307.4        $155.3        $404.6
================================================================================
   Significant  components of income taxes (benefits) for each year, in millions
of dollars, were as follows:
--------------------------------------------------------------------------------
                                               2002          2001          2000
--------------------------------------------------------------------------------
Current:
   United States                              $58.7        $ 26.8        $ 93.7
   Other countries                             16.1          18.7          29.3
--------------------------------------------------------------------------------
                                               74.8          45.5         123.0
--------------------------------------------------------------------------------
Deferred:
   United States                                3.8          16.1           3.5
   Other countries                              (.9)        (14.3)         (3.9)
--------------------------------------------------------------------------------
                                                2.9           1.8           (.4)
--------------------------------------------------------------------------------
                                              $77.7        $ 47.3        $122.6
================================================================================
   Income tax expense  recorded  directly as an adjustment to equity as a result
of hedging  activities was not significant in 2002,  2001, and 2000.  Income tax
benefits  recorded  directly as an  adjustment to equity as a result of employee
stock options were $5.4 million,  $8.8 million,  and $.9 million in 2002,  2001,
and 2000, respectively.
   Income tax payments  were $47.0 million in 2002,  $74.3 million in 2001,  and
$98.8 million in 2000.
   Deferred  tax  (liabilities)  assets at the end of each year,  in millions of
dollars, were composed of the following:
--------------------------------------------------------------------------------
                                                             2002          2001
--------------------------------------------------------------------------------
Deferred tax liabilities:
   Fixed assets                                           $  (8.1)      $  (8.2)
   Employee and postretirement benefits                    (189.8)       (232.7)
   Other                                                    (18.2)        (24.2)
--------------------------------------------------------------------------------
Gross deferred tax liabilities                             (216.1)       (265.1)
--------------------------------------------------------------------------------
Deferred tax assets:
   Tax loss carryforwards                                   110.2          77.1
   Tax credit and capital loss
     carryforwards                                           82.4          82.8
   Postretirement benefits                                  123.8            --
   Other                                                    109.1         102.3
--------------------------------------------------------------------------------
Gross deferred tax assets                                   425.5         262.2
--------------------------------------------------------------------------------
Deferred tax asset valuation allowance                      (86.8)        (60.0)
--------------------------------------------------------------------------------
Net deferred tax assets (liabilities)                     $ 122.6       $ (62.9)
================================================================================
   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, 2002,  the deferred tax asset  valuation
allowance increased by $26.8 million. The increase was principally the result of
tax losses generated by a subsidiary that cannot be utilized in the consolidated
United States tax return.
   Tax basis  carryforwards  at December  31, 2002,  consisted of net  operating
losses expiring from 2003 to 2008.
   At December  31, 2002,  unremitted  earnings of  subsidiaries  outside of the
United States were approximately


                                      -32-
<PAGE>


$1.2  billion,  on  which  no  United  States  taxes  had  been  provided.   The
Corporation's  intention  is  to  reinvest  these  earnings  permanently  or  to
repatriate the earnings only when 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.
   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:
--------------------------------------------------------------------------------
                                               2002          2001          2000
--------------------------------------------------------------------------------
Income taxes at federal
   statutory rate                            $107.6        $ 54.4        $141.6
Lower effective taxes on
   earnings in other countries                (31.8)        (17.2)        (28.7)
Amortization of goodwill                         --           8.9           9.0
Other -- net                                    1.9           1.2            .7
--------------------------------------------------------------------------------
Income taxes                                 $ 77.7        $ 47.3        $122.6
================================================================================

NOTE 10: POSTRETIREMENT BENEFITS
The following  table sets forth the funded status of the defined benefit pension
and  postretirement  plans, and amounts  recognized in the Consolidated  Balance
Sheet,  in millions of dollars.  Assets of the  defined  benefit  pension  plans
consist  principally of investments in equity securities,  debt securities,  and
cash equivalents.  Defined  postretirement  benefits consist of several unfunded
health care plans that provide certain postretirement medical,  dental, and life
insurance benefits for most United States employees.  The postretirement medical
benefits are contributory  and include certain  cost-sharing  features,  such as
deductibles and co-payments.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                          Pension Benefits           Pension Benefits          Other Postretirement
                                                            Plans in the           Plans outside of the              Benefits
                                                            United States             United States                  All Plans
                                                      ------------------------------------------------------------------------------
                                                         2002          2001          2002          2001          2002          2001
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>          <C>            <C>            <C>          <C>           <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year               $ 810.7      $  762.8       $ 410.0        $401.5       $ 158.2       $ 150.5
Service cost                                             15.0          14.1          11.3          11.0           1.2           1.1
Interest cost                                            56.7          54.4          24.9          23.4          10.8          10.5
Plan participants' contributions                           --            --           1.9           2.0           4.3           4.6
Actuarial (gains) losses                                 72.1          49.4          34.3          (8.0)         10.1          20.6
Foreign currency exchange rate changes                     --            --          52.9          (1.9)           .1           (.2)
Benefits paid                                           (60.3)        (61.1)        (22.4)        (20.9)        (22.6)        (29.8)
Plan amendments                                           1.3            --           1.4           2.9            --            .9
Divestitures                                               --          (8.9)           --            --            --            --
------------------------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year                       895.5         810.7         514.3         410.0         162.1         158.2
------------------------------------------------------------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year          836.7       1,027.3         340.5         420.7            --            --
Actual return on plan assets                            (54.1)       (112.3)        (36.6)        (61.9)           --            --
Expenses                                                 (7.4)         (5.9)          (.7)          (.6)           --            --
Benefits paid                                           (60.3)        (61.1)        (21.7)        (20.3)        (22.6)        (29.8)
Employer contributions                                    2.9           3.0           3.2           2.3          18.3          25.2
Contributions by plan participants                         --            --           1.9           2.0           4.3           4.6
Divestitures                                               --         (14.3)           --            --            --            --
Effects of currency exchange rates                         --            --          32.5          (1.7)           --            --
------------------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year                717.8         836.7         319.1         340.5            --            --
------------------------------------------------------------------------------------------------------------------------------------
Funded status                                          (177.7)         26.0        (195.2)        (69.5)       (162.1)       (158.2)
Unrecognized net actuarial loss                         456.2         230.6         207.4          89.5          43.1          34.5
Unrecognized prior service cost                           6.0           6.2           9.7          17.2          (9.2)        (17.7)
Unrecognized net obligation (asset)
   at date of adoption                                     --            --            .3           (.8)           --            --
Contributions subsequent to measurement date               --            --            .8            --            --            --
------------------------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost                        $ 284.5      $  262.8       $  23.0        $ 36.4       $(128.2)      $(141.4)
====================================================================================================================================
AMOUNTS RECOGNIZED IN THE
   CONSOLIDATED BALANCE SHEET
Prepaid benefit cost                                  $  36.7      $  300.4       $    --        $101.9       $    --       $    --
Accrued benefit cost                                   (140.9)        (46.9)       (165.4)        (65.7)       (128.2)       (141.4)
Intangible asset                                          5.8           3.5          10.0            --            --            --
Accumulated other comprehensive income                  382.9           5.8         178.4            .2            --            --
------------------------------------------------------------------------------------------------------------------------------------
Net amount recognized                                 $ 284.5      $  262.8       $  23.0        $ 36.4       $(128.2)      $(141.4)
====================================================================================================================================
</TABLE>


                                      -33-
<PAGE>

   The funded  status of the  Corporation's  defined  benefit  pension  plans at
December 31, 2002,  reflects the effects of negative returns  experienced in the
global  capital  markets and a decline in the discount rate used to estimate the
pension liability.  As a result,  the accumulated  benefit obligation of certain
plans in the United  States and outside of the United  States  exceeded the fair
value of plan assets. As required by accounting principles generally accepted in
the United States,  the  Corporation  reflected a minimum  pension  liability of
approximately  $563.5 million in the Consolidated  Balance Sheet at December 31,
2002. The effect of the funded status of the plan also resulted in a decrease in
prepaid  benefit costs by $391.5  million,  increase in accrued benefit costs by
$172.0 million,  increase in intangible assets by $12.6 million, and increase in
accumulated other comprehensive income (loss) by $(369.7) million, net of tax.
   The total accumulated benefit obligation for unfunded defined benefit pension
plans as of December  31, 2002 and 2001,  was $52.0  million and $45.4  million,
respectively,  for  plans in the  United  States  and  $77.0  million  and $60.3
million,  respectively,  for  plans  outside  of the  United  States.  The total
projected  benefit  obligation for unfunded  defined benefit pension plans as of
December 31, 2002 and 2001, was $56.3 million and $52.1  million,  respectively,
for  plans  in  the  United  States  and  $86.4   million  and  $66.5   million,
respectively, for plans outside of the United States.
   The net periodic  (benefit) cost related to the defined benefit pension plans
included the following components, in millions of dollars:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                  Pension Benefits                        Pension Benefits
                                                            Plans in the United States           Plans outside of the United States
                                                       -----------------------------------------------------------------------------
                                                         2002          2001          2000          2002          2001          2000
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>           <C>           <C>           <C>           <C>           <C>
Service cost                                           $ 15.8        $ 15.3        $ 14.2        $ 11.3        $ 11.0        $ 10.9
Interest cost                                            56.7          54.4          53.4          24.9          23.4          23.0
Expected return on plan assets                          (94.3)        (91.1)        (85.9)        (30.8)        (29.0)        (28.5)
Amortization of the unrecognized
   transition obligation or asset                          --            .3           (.1)         (1.2)         (1.5)         (1.7)
Amortization of prior service cost                        1.1           1.1           1.1           2.3           2.2           2.2
Curtailment loss                                          1.1            --            --           7.6           1.6            .2
Amortization of net actuarial loss                         .8            .9           1.1            .7           1.2           1.9
------------------------------------------------------------------------------------------------------------------------------------
Net periodic (benefit) cost                            $(18.8)       $(19.1)       $(16.2)       $ 14.8        $  8.9        $  8.0
====================================================================================================================================
WEIGHTED-AVERAGE ASSUMPTIONS
AS OF DECEMBER 31:
Discount rate                                            6.75%         7.25%         7.50%         5.50%         6.00%         6.00%
Expected return on plan assets                           9.50%         9.50%         9.50%         8.00%         8.00%         8.00%
Rate of compensation increase                            4.50%         5.00%         5.00%         3.90%         3.90%         3.90%
====================================================================================================================================
</TABLE>

   The net periodic cost (benefit) related to the defined benefit postretirement
plans included the following components, in millions of dollars:
--------------------------------------------------------------------------------
                                               2002          2001          2000
--------------------------------------------------------------------------------
Service cost                                  $ 1.2         $ 1.1         $  .8
Interest cost                                  10.8          10.5           9.1
Amortization of
   prior service cost                          (8.3)         (8.3)         (8.3)
Amortization of
   net actuarial gain                           1.4            --            --
--------------------------------------------------------------------------------
Net periodic cost (benefit)                   $ 5.1         $ 3.3         $ 1.6
================================================================================
Weighted-average discount
   rate as of December 31                      7.00%         7.50%         7.25%
================================================================================
   The health care cost trend rate used to determine the postretirement  benefit
obligation was 12.0% for 2002. This rate decreases gradually to an ultimate rate
of 5.0% in 2009,  and  remains  at that  level  thereafter.  The trend rate is a
significant factor in determining the amounts reported.  A  one-percentage-point
change in these  assumed  health care cost trend rates would have the  following
effects, in millions of dollars:
--------------------------------------------------------------------------------
One-Percentage-Point                                     Increase     (Decrease)
--------------------------------------------------------------------------------
Effect on total of service and
   interest cost components                                 $  .6        $  (.5)
Effect on postretirement
   benefit obligation                                         8.9          (8.0)
--------------------------------------------------------------------------------
   Expense  for  defined  contribution  plans  amounted  to $9.6  million,  $8.9
million, and $10.1 million in 2002, 2001, and 2000, respectively.

NOTE 11: OTHER LONG-TERM LIABILITIES
In December 2000, a subsidiary of the  Corporation  issued  preferred  shares to
private investors.  The preferred shares are redeemable in five years,  although
redemption may be accelerated under certain  conditions,  principally related to
changes in tax laws.  Holders of the subsidiary's  preferred shares are entitled
to  annual  cash  dividends  of  $10.7  million.  Included  in  other  long-term
liabilities in the Consolidated  Balance Sheet at December 31, 2002 and 2001, is
$208.4  million and $196.5  million,  respectively,  related to those  preferred
shares. The carrying value of the subsidiary's  preferred shares at December 31,
2002 and 2001  includes the effect of the fair value of the  interest  rate swap
agreement related to this obligation.


                                      -34-
<PAGE>

   Other  expense  (income) in the  Consolidated  Statement  of Earnings for the
years ended  December  31, 2002 and 2001,  included  $10.7  million of dividends
related to those preferred shares.
   At December 31, 2002 and 2001, other long-term liabilities included a reserve
of $235.9 million and $231.3 million, respectively,  associated with various tax
matters in a number of jurisdictions.

NOTE 12: STOCKHOLDERS' EQUITY
During 1999, the  Corporation  executed two agreements  (the  Agreements)  under
which the Corporation could enter into forward purchase  contracts on its common
stock. The Agreements provided the Corporation with two purchase alternatives: a
standard forward purchase  contract and a forward purchase contract subject to a
cap (a capped forward contract).
   The settlement  methods  generally  available  under the  Agreements,  at the
Corporation's  option,  were net  settlement,  either in cash or in  shares,  or
physical settlement.
   During 2000, the Corporation  elected net share  settlements,  resulting in a
net issuance of 350,928 shares of its common stock. During 2001, the Corporation
terminated the capped forward contracts and standard forward purchase contracts,
electing  full  physical  settlement  through its purchase of the final  525,050
shares subject to the Agreements for $25.5 million.  Previously during 2001, the
Corporation  had received  240,276  shares of its common stock through net share
settlements under the Agreements.
   The Corporation repurchased 1,008,101,  1,085,000 and 7,103,072 shares of its
common stock (net of 350,928 shares issued under forward  purchase  contracts in
2000) during 2002,  2001, and 2000 at an aggregate cost of $43.1 million,  $33.5
million, and $269.8 million, respectively.
   SFAS No. 130, Reporting Comprehensive Income, defines comprehensive income as
non-stockholder changes in equity. Accumulated other comprehensive income (loss)
at the end of each year, in millions of dollars, included the following:
--------------------------------------------------------------------------------
                                                             2002          2001
--------------------------------------------------------------------------------
Foreign currency translation adjustments                  $(123.7)      $(183.9)
Net loss on derivative instruments,
   net of tax                                               (17.3)          (.9)
Minimum pension liability adjustment,
   net of tax                                              (373.6)         (3.9)
--------------------------------------------------------------------------------
                                                          $(514.6)      $(188.7)
================================================================================
   Foreign  currency  translation  adjustments  are not  generally  adjusted for
income taxes as they relate to indefinite  investments in foreign  subsidiaries.
The minimum  pension  liability  adjustment  as of December 31, 2002,  is net of
taxes of $187.7 million.


NOTE 13: EARNINGS PER SHARE
The  computations of basic and diluted  earnings per share for each year were as
follows:
--------------------------------------------------------------------------------
(Amounts in Millions
Except Per Share Data)                         2002          2001          2000
--------------------------------------------------------------------------------
Numerator:
   Net earnings                              $229.7        $108.0        $282.0
================================================================================
Denominator:
   Denominator for basic
     earnings per share --
     weighted-average shares                   80.4          80.7          83.7
   Employee stock options and
     stock issuable under
     employee benefit plans                      .5            .4            .7
--------------------------------------------------------------------------------
   Denominator for diluted
     earnings per share --
     adjusted weighted-
     average shares and
     assumed conversions                       80.9          81.1          84.4
================================================================================
Basic earnings per share                     $ 2.86        $ 1.34        $ 3.37
Diluted earnings per share                   $ 2.84        $ 1.33        $ 3.34
================================================================================
   The  following  options to purchase  shares of common stock were  outstanding
during each year, but were not included in the  computation of diluted  earnings
per share because the effect would be anti-dilutive. The options indicated below
were  anti-dilutive  because the  related  exercise  price was greater  than the
average market price of the common shares for the year.
--------------------------------------------------------------------------------
                                               2002          2001          2000
--------------------------------------------------------------------------------
Number of options
   (in millions)                                4.4           6.9           6.4
Weighted-average
   exercise price                            $49.47        $46.15        $46.73
--------------------------------------------------------------------------------

NOTE 14: STOCK-BASED COMPENSATION
The Corporation  has elected to follow APBO No. 25,  Accounting for Stock Issued
to Employees,  and related  interpretations  in accounting  for its  stock-based
compensation.  In addition,  the  Corporation  provides pro forma  disclosure of
stock-based compensation,  as measured under the fair value requirements of SFAS
No. 123,  Accounting for Stock-Based  Compensation.  These pro forma disclosures
are  provided  as  required  under  SFAS No.  148,  Accounting  for  Stock-Based
Compensation - Transition and Disclosure.
   APBO No. 25 requires no recognition of  compensation  expense for most of the
stock-based  compensation  arrangements  provided  by the  Corporation,  namely,
broad-based  employee  stock purchase plans and option grants where the exercise
price is equal to the market  value at the date of grant.  However,  APBO No. 25
requires  recognition of compensation  expense for variable award plans over the
vesting periods of such plans, based upon the then-current  market values of the
underlying stock. In contrast, SFAS No. 123 requires recognition of compensation
expense for grants of stock,  stock options,  and other equity  instruments over
the vesting  periods of such  grants,  based on the  estimated  grant-date  fair
values of those grants.


                                      -35-
<PAGE>

   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,  2002,  9,373,414   non-qualified  stock  options  were
outstanding  under domestic  plans.  There were 7,000 stock options  outstanding
under the United Kingdom plan.
   Under all plans,  there were  944,670  shares of common  stock  reserved  for
future grants as of December 31, 2002. Transactions are summarized as follows:
--------------------------------------------------------------------------------
                                                                      Weighted-
                                                                        Average
                                                                       Exercise
                                                    Stock Options         Price
--------------------------------------------------------------------------------
Outstanding at December 31, 1999                        6,604,790        $39.38
Granted                                                 3,892,450         42.77
Exercised                                                 155,278         23.59
Forfeited                                                 784,837         46.69
--------------------------------------------------------------------------------
Outstanding at December 31, 2000                        9,557,125         40.42
Granted                                                 1,276,450         34.01
Exercised                                               1,263,275         21.57
Forfeited                                                 482,814         44.71
--------------------------------------------------------------------------------
Outstanding at December 31, 2001                        9,087,486         41.91
Granted                                                 1,279,300         48.13
Exercised                                                 773,297         26.91
Forfeited                                                 213,075         45.17
--------------------------------------------------------------------------------
Outstanding at December 31, 2002                        9,380,414        $43.92
================================================================================
Shares exercisable at
   December 31, 2000                                    3,637,612        $32.07
================================================================================
Shares exercisable at
   December 31, 2001                                    3,201,321        $39.85
================================================================================
Shares exercisable at
   December 31, 2002                                    3,780,183        $44.35
================================================================================
   Exercise prices for options  outstanding as of December 31, 2002, ranged from
$20.50 to $61.00. The following table provides certain  information with respect
to stock options outstanding at December 31, 2002:
--------------------------------------------------------------------------------
                                                                      Weighted-
                                                        Weighted-       Average
                                                          Average     Remaining
Range of                              Stock Options      Exercise   Contractual
Exercise Prices                         Outstanding         Price          Life
--------------------------------------------------------------------------------
Under $30.75                              1,028,662        $29.68           7.1
$30.75-$46.13                             4,510,065         41.34           6.9
Over $46.13                               3,841,687         50.77           7.4
--------------------------------------------------------------------------------
                                          9,380,414        $43.92           7.1
================================================================================
   The  following  table  provides  certain  information  with  respect to stock
options exercisable at December 31, 2002:
--------------------------------------------------------------------------------
                                                                      Weighted-
Range of                              Stock Options                     Average
Exercise Prices                         Exercisable              Exercise Price
--------------------------------------------------------------------------------
Under $30.75                                469,537                      $29.30
$30.75-$46.13                             1,425,623                       39.35
Over $46.13                               1,885,023                       51.88
--------------------------------------------------------------------------------
                                          3,780,183                      $44.35
================================================================================
   In  electing  to  continue  to  follow  APBO No. 25 for  expense  recognition
purposes,  the  Corporation  is  obliged  to provide  the  expanded  disclosures
required under SFAS No. 148 for stock-based compensation granted,  including, if
materially different from reported results, disclosure of pro forma net earnings
and earnings per share had compensation expense relating to grants been measured
under the fair value recognition provisions of SFAS No. 123.
   The weighted-average  fair values at date of grant for options granted during
2002, 2001, and 2000 were $18.17,  $11.96,  and $16.50,  respectively,  and were
estimated  using the  Black-Scholes  option  valuation  model with the following
weighted-average assumptions:
--------------------------------------------------------------------------------
                                               2002          2001          2000
--------------------------------------------------------------------------------
Expected life in years                          6.3           6.2           5.9
Interest rate                                  4.91%         4.70%         6.50%
Volatility                                     33.0%         32.4%         32.2%
Dividend yield                                  .99%         1.44%         1.12%
--------------------------------------------------------------------------------
   A reconciliation of the Corporation's net earnings to pro forma net earnings,
and the  related  pro forma  earnings  per share  amounts,  for the years  ended
December 31, 2002, 2001 and 2000, is provided  below.  For purposes of pro forma
disclosure,  stock-based  compensation  expense is recognized in accordance with
the  provisions of SFAS No. 123.  Further,  pro forma  stock-based  compensation
expense  is  amortized  to  expense on a  straight-line  basis over the  vesting
period.
--------------------------------------------------------------------------------
(Dollars in Millions
Except Per Share Data)                         2002          2001          2000
--------------------------------------------------------------------------------
Net earnings                                 $229.7        $108.0        $282.0
Adjustment to net earnings for:
   Stock-based compensation
     income (expense) included
     in net earnings, net of tax                 --           2.3          (1.0)
   Pro forma stock-based
     compensation expense,
     net of tax                                18.5          13.8          19.7
--------------------------------------------------------------------------------
Pro forma net earnings                       $211.2        $ 91.9        $263.3
================================================================================
Pro forma net earnings
   per common share -- basic                 $ 2.63        $ 1.14        $ 3.15
================================================================================
Pro forma net earnings
   per common share --
     assuming dilution                       $ 2.62        $ 1.13        $ 3.12
================================================================================


                                      -36-
<PAGE>

NOTE 15: BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION
The Corporation has elected to organize its businesses  based  principally  upon
products and  services.  In certain  instances  where a business does not have a
local  presence in a  particular  country or  geographic  region,  however,  the
Corporation has assigned responsibility for sales of that business's products to
one of its other businesses with a presence in that country or region.
   The Corporation  operates in three reportable business segments:  Power Tools
and  Accessories,  Hardware and Home  Improvement,  and  Fastening  and Assembly
Systems.  The Power Tools and Accessories  segment has worldwide  responsibility
for the  manufacture  and sale of  consumer  and  professional  power  tools and
accessories,  electric  cleaning and lighting  products,  and electric  lawn and
garden tools, as well as for product service.  In addition,  the Power Tools and
Accessories  segment has  responsibility  for the sale of  security  hardware to
customers in Mexico, Central America, the Caribbean,  and South America; for the
sale of plumbing products to customers outside the United States and Canada; and
for sales of household  products.  The Hardware and Home Improvement segment has
worldwide  responsibility  for the  manufacture  and sale of  security  hardware
(except  for the sale of  security  hardware  in Mexico,  Central  America,  the
Caribbean, and South America). It also has responsibility for the manufacture of
plumbing  products  and for the sale of plumbing  products to  customers  in the
United  States and  Canada.  The  Fastening  and  Assembly  Systems  segment has
worldwide  responsibility for the manufacture and sale of fastening and assembly
systems.

<TABLE>
<CAPTION>
Business Segments
(Millions of Dollars)
------------------------------------------------------------------------------------------------------------------------------------
                                            Reportable Business Segments
                                    ----------------------------------------------------
                                          Power      Hardware     Fastening                   Currency      Corporate,
                                        Tools &        & Home    & Assembly                Translation    Adjustments,
Year Ended December 31, 2002        Accessories   Improvement       Systems        Total   Adjustments  & Eliminations  Consolidated
------------------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>            <C>            <C>        <C>            <C>            <C>           <C>
Sales to unaffiliated customers        $3,108.3       $ 758.0        $502.4     $4,368.7       $  25.3        $     --      $4,394.0
Segment profit (loss)
   (for Consolidated, operating
   income before restructuring
   and exit costs)                        352.1          53.0          72.1        477.2           1.2           (57.6)        420.8
Depreciation and amortization              78.8          30.7          13.8        123.3           1.2             3.3         127.8
Income from equity method
   investees                               20.8            --            --         20.8            --             3.0          23.8
Capital expenditures                       69.5          11.2          13.6         94.3           1.5              .8          96.6
Segment assets
   (for Consolidated, total assets)     1,570.4         416.2         311.0      2,297.6          82.4         1,750.5       4,130.5
Investment in equity method
   investees                               25.4            --            .1         25.5            --            (1.7)         23.8

Year Ended December 31, 2001
------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers        $3,008.9        $766.2        $478.4     $4,253.5        $ (7.9)       $     --      $4,245.6
Segment profit (loss)
   (for Consolidated, operating
   income before restructuring
   and exit costs)                        250.0          59.1          68.4        377.5            .4           (30.3)        347.6
Depreciation and amortization              85.2          33.7          14.3        133.2            .4            25.8         159.4
Income from equity method
   investees                               13.2            --            --         13.2            --             2.1          15.3
Capital expenditures                       85.1          33.1          15.4        133.6            .4              .8         134.8
Segment assets
   (for Consolidated, total assets)     1,577.2         517.6         296.5      2,391.3         (18.1)        1,641.0       4,014.2
Investment in equity method
   investees                               36.9            --            .1         37.0           (.4)           (2.7)         33.9

Year Ended December 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers        $3,072.4        $831.5        $489.3     $4,393.2         $81.7        $     --      $4,474.9
Segment profit (loss)
   (for Consolidated, operating
   income before restructuring
   and exit costs and gain on
   sale of business)                      349.4         113.5          80.4        543.3           8.4           (29.4)        522.3
Depreciation and amortization              83.4          34.3          15.9        133.6           3.4            26.4         163.4
Income from equity method
   investees                               15.6            --            --         15.6            --             (.1)         15.5
Capital expenditures                      138.6          30.8          25.6        195.0           4.4              .8         200.2
Segment assets
   (for Consolidated, total assets)     1,771.2         537.5         266.5      2,575.2          16.5         1,498.0       4,089.7
Investment in equity method
   investees                               25.6            --            .1         25.7            .1            (1.7)         24.1
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>



                                      -37-
<PAGE>

   The Corporation  assesses the performance of its reportable business segments
based upon a number of factors,  including segment profit. In general,  segments
follow the same  accounting  policies as those  described in Note 1, except with
respect to foreign currency  translation and except as further  indicated below.
The financial  statements of a segment's  operating units located outside of the
United States,  except those units operating in highly  inflationary  economies,
are generally measured using the local currency as the functional currency.  For
these units located outside of the United States, segment assets and elements of
segment profit are translated  using budgeted rates of exchange.  Budgeted rates
of exchange are  established  annually and, once  established,  all prior period
segment  data is  restated  to reflect  the  current  year's  budgeted  rates of
exchange.  The  amounts  included  in the  preceding  table  under the  captions
"Reportable Business Segments", and "Corporate, Adjustments, & Eliminations" are
reflected at the Corporation's  budgeted rates of exchange for 2002. The amounts
included  in  the  preceding  table  under  the  caption  "Currency  Translation
Adjustments"  represent the difference between  consolidated  amounts determined
using those budgeted rates of exchange and those determined based upon the rates
of exchange  applicable under accounting  principles  generally  accepted in the
United States.
   Segment profit excludes interest income and expense, non-operating income and
expense,  adjustments to eliminate intercompany profit in inventory,  income tax
expense,  and,  for  2001  and  2000,  goodwill  amortization  (except  for  the
amortization of goodwill associated with certain  acquisitions made by the Power
Tools and Accessories and Fastening and Assembly Systems segments). In addition,
segment  profit  excludes  restructuring  and exit costs and the gain on sale of
business. In determining segment profit,  expenses relating to pension and other
postretirement benefits are based solely upon estimated service costs. Corporate
expenses,  as well as certain centrally managed expenses,  are allocated to each
reportable  segment  based upon  budgeted  amounts.  While  sales and  transfers
between segments are accounted for at cost plus a reasonable profit, the effects
of  intersegment  sales are excluded  from the  computation  of segment  profit.
Intercompany  profit  in  inventory  is  excluded  from  segment  assets  and is
recognized as a reduction of cost of goods sold by the selling  segment when the
related inventory is sold to an unaffiliated  customer.  Because the Corporation
compensates  the  management of its various  businesses on, among other factors,
segment  profit,  the  Corporation  may elect to record certain  segment-related
expense items of an unusual or non-recurring nature in consolidation rather than
reflect such items in segment profit. In addition, certain segment-related items
of  income or  expense  may be  recorded  in  consolidation  in one  period  and
transferred to the various segments in a later period.
   Segment  assets  exclude  pension  and tax  assets,  intercompany  profit  in
inventory,  intercompany  receivables,  and, for 2001 and 2000, goodwill (except
for the goodwill  associated with certain  acquisitions  made by the Power Tools
and Accessories and Fastening and Assembly Systems segments).
   Amounts in the preceding  table under the caption  "Corporate,  Adjustments &
Eliminations" on the lines entitled  "Depreciation and  amortization"  represent
depreciation of Corporate property and, for 2001 and 2000, goodwill amortization
(except for the  amortization of goodwill  associated with certain  acquisitions
made by the Power Tools and  Accessories  and  Fastening  and  Assembly  Systems
segments).  The reconciliation of segment profit to consolidated earnings before
income taxes for each year, in millions of dollars, is as follows:
--------------------------------------------------------------------------------
                                               2002          2001          2000
--------------------------------------------------------------------------------
Segment profit for
   total reportable
   business segments                         $477.2        $377.5        $543.3
Items excluded from segment profit:
   Adjustment of budgeted
     foreign exchange rates
     to actual rates                            1.2            .4           8.4
   Depreciation of Corporate
     property and amortization
     of certain goodwill                       (1.3)        (25.8)        (26.4)
   Adjustment to businesses'
     postretirement benefit
     expenses booked
     in consolidation                          37.6          41.3          36.4
   Other adjustments booked
     in consolidation directly
     related to reportable
     business segments                         (8.6)          (.6)        (14.1)
Amounts allocated to
   businesses in arriving at
   segment profit in excess of
   (less than) Corporate center
   operating expenses,
   eliminations, and other
   amounts identified above                   (85.3)        (45.2)        (25.3)
--------------------------------------------------------------------------------
Operating income before
   restructuring and exit costs,
   and gain on sale of business               420.8         347.6         522.3
Restructuring and exit costs                   50.7          99.8          39.1
Gain on sale of business                         --            --          20.1
--------------------------------------------------------------------------------
   Operating income                           370.1         247.8         503.3
Interest expense,
   net of interest income                      57.8          84.3         104.2
Other expense (income)                          4.9           8.2          (5.5)
--------------------------------------------------------------------------------
Earnings before income taxes                 $307.4        $155.3        $404.6
================================================================================


                                      -38-
<PAGE>

   The  reconciliation of segment assets to the consolidated total assets at the
end of each year, in millions of dollars, is as follows:
--------------------------------------------------------------------------------
                                               2002          2001          2000
--------------------------------------------------------------------------------
Segment assets for
   total reportable
   business segments                       $2,297.6      $2,391.3      $2,575.2
Items excluded from
   segment assets:
   Adjustment of budgeted
     foreign exchange rates
     to actual rates                           82.4         (18.1)         16.5
   Goodwill                                   673.0         656.2         690.2
   Pension assets                              36.7         406.2         380.0
Other Corporate assets                      1,040.8         578.6         427.8
--------------------------------------------------------------------------------
                                           $4,130.5      $4,014.2      $4,089.7
================================================================================
   Other Corporate assets principally consist of cash and cash equivalents,  tax
assets, property, and other assets.
   Sales to The Home Depot,  a customer of the Power Tools and  Accessories  and
Hardware and Home  Improvement  segments,  accounted for $857.9 million,  $841.6
million,  and $851.9  million of the  Corporation's  consolidated  sales for the
years ended  December 31, 2002,  2001, and 2000,  respectively.  Sales to Lowe's
Home  Improvement  Warehouse  (Lowe's),  a  customer  of  the  Power  Tools  and
Accessories  and Hardware and Home  Improvement  segments,  accounted for $467.5
million of the Corporation's  consolidated sales for the year ended December 31,
2002.  Sales to Lowe's for the years ended  December 31, 2001 and 2000,  did not
exceed 10% of the Corporation's consolidated sales in either of those years.
   The composition of the Corporation's sales by product group for each year, in
millions of dollars, is set forth below:
--------------------------------------------------------------------------------
                                               2002          2001          2000
--------------------------------------------------------------------------------
Consumer and professional
   power tools and
   product service                         $2,308.4      $2,227.2      $2,304.1
Consumer and professional
   accessories                                317.8         311.1         337.9
Electric lawn and
   garden products                            285.4         279.3         300.1
Electric cleaning and
   lighting products                          157.6         122.8         124.5
Household products                             36.8          45.1          47.7
Security hardware                             563.2         531.3         573.2
Plumbing products                             221.6         252.3         281.4
Fastening and assembly
   systems                                    503.2         476.5         506.0
--------------------------------------------------------------------------------
                                           $4,394.0      $4,245.6      $4,474.9
================================================================================
   The  Corporation  markets its products and services in over 100 countries and
has manufacturing  sites in 11 countries.  Other than in the United States,  the
Corporation  does not conduct business in any country in which its sales in that
country  exceed 10% of  consolidated  sales.  Sales are  attributed to countries
based on the location of customers.  The composition of the Corporation's  sales
to unaffiliated  customers between those in the United States and those in other
locations for each year, in millions of dollars, is set forth below:
--------------------------------------------------------------------------------
                                               2002          2001          2000
--------------------------------------------------------------------------------
United States                              $2,824.0      $2,715.6      $2,843.1
Canada                                        138.6         136.5         146.1
--------------------------------------------------------------------------------
   North America                            2,962.6       2,852.1       2,989.2
Europe                                      1,089.0       1,055.9       1,136.7
Other                                         342.4         337.6         349.0
--------------------------------------------------------------------------------
                                           $4,394.0      $4,245.6      $4,474.9
================================================================================
   The composition of the Corporation's  property,  plant, and equipment between
those in the United  States and those in other  countries  as of the end of each
year, in millions of dollars, is set forth below:
--------------------------------------------------------------------------------
                                               2002          2001          2000
--------------------------------------------------------------------------------
United States                                $384.1        $425.2        $466.4
United Kingdom                                 72.2          72.1         100.5
Other countries                               199.6         190.2         181.2
--------------------------------------------------------------------------------
                                             $655.9        $687.5        $748.1
================================================================================

NOTE 16: 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 2002,  2001,  and 2000  amounted  to $83.6  million,  $84.9
million,  and $83.6 million,  respectively.  Capital  leases were  immaterial in
amount.  Future minimum  payments  under  non-cancelable  operating  leases with
initial or remaining  terms of more than one year as of December  31,  2002,  in
millions of dollars, were as follows:
--------------------------------------------------------------------------------
2003                                                                     $ 54.5
2004                                                                       38.7
2005                                                                       27.6
2006                                                                       19.0
2007                                                                       13.5
Thereafter                                                                 15.5
--------------------------------------------------------------------------------
                                                                         $168.8
================================================================================


                                      -39-
<PAGE>

NOTE 17: RESTRUCTURING ACTIONS
A summary of  restructuring  activity  during the three years ended December 31,
2002, is set forth below (in millions of dollars).
--------------------------------------------------------------------------------
                                                Write-Down
                                                    to Net
                                                Realizable
                                                  Value of
                                                   Certain
                                  Severance     Long-Lived       Other
                                   Benefits         Assets     Charges    Total
--------------------------------------------------------------------------------
Restructuring reserve at
   December 31, 1999                 $ 18.7         $   --       $ 3.7   $ 22.4
Reserves established
   in 2000                             21.4           13.9         3.8     39.1
Utilization of reserves:
   Cash                               (10.4)            --        (2.2)   (12.6)
   Non-cash                              --          (13.9)        (.9)   (14.8)
--------------------------------------------------------------------------------
Restructuring reserve at
   December 31, 2000                   29.7             --         4.4     34.1
Reserves established
   in 2001                             49.3           38.9        15.8    104.0
Reversal of reserves                   (3.8)            --         (.4)    (4.2)
Utilization of reserves:
   Cash                               (21.5)            --        (3.4)   (24.9)
   Non-cash                              --          (38.9)       (2.7)   (41.6)
--------------------------------------------------------------------------------
Restructuring reserve at
   December 31, 2001                   53.7             --        13.7     67.4
Reserves established
   in 2002                             23.7           18.5        19.5     61.7
Reversal of reserves                   (5.7)          (2.7)       (2.6)   (11.0)
Utilization of reserves:
   Cash                               (30.6)            --        (7.2)   (37.8)
   Non-cash                              --          (15.8)       (8.7)   (24.5)
Foreign currency translation            4.0             --          .1      4.1
--------------------------------------------------------------------------------
Restructuring reserve at
   December 31, 2002                 $ 45.1         $   --       $14.8   $ 59.9
================================================================================
   During 2002, the Corporation recorded a restructuring charge of $50.7 million
under the restructuring  plan that was formulated in the fourth quarter of 2001.
That $50.7  million  charge was net of $11.0  million of reversals of previously
provided  restructuring reserves that were no longer required. The $50.7 million
pre-tax  restructuring  charge recognized in 2002 reflects actions to reduce the
Corporation's  manufacturing  cost base in its Power Tools and  Accessories  and
Hardware and Home  Improvement  segments,  as well as actions to reduce selling,
general,  and administrative  expenses through the elimination of administrative
positions,  principally in Europe.  The 2002 actions to reduce the Corporation's
manufacturing  cost base in the Power Tools and Accessories  segment include the
closure of one  facility in the United  States,  the  closure of an  accessories
packaging facility in England, and the transfer of certain additional power tool
production  from a  facility  in England  to a  low-cost  facility  in the Czech
Republic.  Actions to reduce the  Corporation's  manufacturing  cost base in the
Hardware and Home Improvement segment include the closure of a security hardware
facility in the United States.
   The  principal  component  of the 2002  restructuring  charge  related to the
elimination of manufacturing positions, primarily in high-cost locations, and of
certain administrative  positions.  As a result, a severance benefits accrual of
$23.7 million, principally related to the Power Tools and Accessories segment in
North America and Europe ($18.3  million) and the Hardware and Home  Improvement
segment  in North  America  and  Europe  ($5.4  million),  was  included  in the
restructuring  charge.  The 2002  restructuring  charge also  included  non-cash
pension  curtailment  losses of $8.9 million stemming from headcount  reductions
associated  with  the  restructuring   actions,   principally   related  to  the
Corporation's  defined  benefit  pension  plan in the United  Kingdom.  The 2002
restructuring   action   will  also  result  in  the  closure  of  a  number  of
manufacturing  facilities,  transferring production to low-cost facilities,  and
outsourcing  certain  manufactured  items. As a result,  the 2002  restructuring
charge  also  included  an $18.5  million  write-down  to fair value - less,  if
applicable,  cost to sell - of certain long-lived assets. The write-down to fair
value was comprised of $4.8 million  related to the Power Tools and  Accessories
segment in Europe and $13.7 million related to the Hardware and Home Improvement
segment in North America. The balance of the 2002 restructuring charge, or $10.6
million,  related to the accrual of future expenditures,  principally consisting
of lease and other contractual obligations,  for which no future benefit will be
realized.
   During  2001,  the  Corporation  recorded  a  restructuring  charge  of $99.8
million. That restructuring charge reflected actions to reduce the Corporation's
manufacturing cost base in its Power Tools and Accessories and Hardware and Home
Improvement  segments,  as well as  actions  to  reduce  selling,  general,  and
administrative expenses throughout all of its businesses. The 2001 restructuring
plan  includes the transfer of  production  and service  operations in the Power
Tools and Accessories and Hardware and Home Improvement segments from facilities
in the United States and the United Kingdom to low-cost facilities in Mexico and
China and to a new low-cost facility in the Czech Republic.
   The  principal  component  of the 2001  restructuring  charge  related to the
elimination of manufacturing positions, primarily in high-cost locations, and of
certain administrative  positions.  As a result, a severance benefits accrual of
$45.8 million,  principally related to the Power Tool and Accessories segment in
North  America and Europe  ($36.3  million),  the Hardware and Home  Improvement
segment in the United  States ($8.6  million),  and the  Fastening  and Assembly
Systems  segment in Europe ($.9  million),  was  included  in the  restructuring
charge. The 2001 restructuring actions will result in the closure of a number of
manufacturing  and  service  facilities,  transferring  production  to  low-cost
facilities, and outsourcing certain manufactured items. As a result, the 2001


                                      -40-
<PAGE>

restructuring  charge also included a $38.9  million  write-down to fair value -
less, if applicable, cost to sell - of certain equipment. The write-down to fair
value was comprised of $34.0 million  related to long-lived  assets in the Power
Tools and  Accessories  segment in Europe  and North  America  and $4.9  million
related to the Hardware and Home Improvement  segment in the United States.  The
2001 restructuring  charge also included $9.6 million,  primarily related to the
accrual  of  future  expenditures,  principally  consisting  of lease  and other
contractual  obligations,  for which no future  benefit  will be  realized.  The
balance of the 2001 restructuring charge, or $5.5 million,  primarily related to
non-cash charges associated with the impairment of an equity method investee and
non-cash pension expense.
   During 2001, the Corporation  also  recognized $4.2 million of  restructuring
and exit costs  principally  related to severance  benefits  associated with its
Power  Tools  and  Accessories  segment  in  Europe  and its  Hardware  and Home
Improvement  segment.  The $4.2  million  charge  was  offset,  however,  by the
reversal of $4.2 million of severance  accruals and other exit costs established
as part of the 2000 restructuring charge, which were no longer required.
   The  severance  benefits  accrual,  included  in the $50.7  million and $99.8
million  pre-tax  restructuring  charges  taken in 2002 and 2001,  respectively,
related  to the  elimination  of  approximately  3,500  positions  in  high-cost
manufacturing locations and in certain administrative functions. The Corporation
estimates that, as a result of increases in manufacturing  employee headcount in
low-cost locations,  approximately  3,200 replacement  positions will be filled,
yielding  a net total of 300  positions  eliminated  as a result of the 2002 and
2001 restructuring actions.
   During  2000,  the  Corporation  recorded  a  restructuring  charge  of $39.1
million.  The 2000  restructuring  charge  included $9.5 million to  rationalize
manufacturing   in  its  Hardware  and  Home  Improvement   segment.   The  2000
restructuring  charge also included  $29.6 million  related to actions to reduce
costs in its  Power  Tools  and  Accessories  segment.  Included  in these  cost
reduction initiatives were the transfer of certain production from manufacturing
facilities in the United Kingdom to lower-cost  facilities in China,  reductions
in administrative  functions,  principally in Europe, and the integration of the
accessories  business in North America into the  professional and consumer power
tools businesses.
   The major  component  of the 2000  restructuring  charge  related  to the net
elimination of  approximately  400 positions.  As a result,  an accrual of $21.4
million,  principally  related  to the Power  Tools and  Accessories  segment in
Europe,  was included in the  restructuring  charge.  The Corporation  also took
action to  rationalize  manufacturing  and  reduce  administrative  costs.  As a
result,  the  restructuring  charge  recognized  in 2000 also  included  a $13.9
million  write-down of machinery and  equipment to fair value.  This  write-down
primarily related to the Hardware and Home Improvement  segment's  operations in
the United States and to the European and United States  businesses of the Power
Tools and Accessories segment. The balance of the 2000 restructuring  charge, or
$3.8  million,   primarily  related  to  the  accrual  of  future  expenditures,
principally consisting of lease and other contractual obligations,  for which no
future benefit will be realized.
   During 2002,  2001, and 2000, the  Corporation  paid severance and other exit
costs of $37.8 million, $24.9 million, and $12.6 million, respectively.
   As of December 31, 2002, all facilities  exited as part of the  Corporation's
restructuring actions undertaken in 2001 and prior had been sold. As of December
31,  2002,  the  carrying  value  of  facilities  to be  exited  as  part of the
Corporation's restructuring actions that commenced in 2002 was not significant.

NOTE 18: LITIGATION AND CONTINGENT LIABILITIES
The  Corporation  is involved  in various  lawsuits  in the  ordinary  course of
business. These lawsuits primarily involve claims for damages arising out of the
use of the  Corporation's  products  and  allegations  of patent  and  trademark
infringement.  The Corporation also is involved in litigation and administrative
proceedings  relating to employment  matters and  commercial  disputes.  Some of
these  lawsuits  include  claims for punitive as well as  compensatory  damages.
Using  current  product  sales  data  and  historical  trends,  the  Corporation
actuarially  calculates  the  estimate  of  its  current  exposure  for  product
liability.  The Corporation is insured for product  liability claims for amounts
in excess of established  deductibles and accrues for the estimated liability up
to the limits of the deductibles.  The Corporation  accrues for all other claims
and lawsuits on a case-by-case basis.
   The Corporation  also is party to litigation and  administrative  proceedings
with respect to claims involving the discharge of hazardous  substances into the
environment.  Some of these assert claims for damages and liability for remedial
investigations  and  clean-up  costs with  respect to sites that have never been
owned or  operated  by the  Corporation  but at which the  Corporation  has been
identified  as  a  potentially   responsible   party  under  federal  and  state
environmental  laws and  regulations.  Other matters  involve current and former
manufacturing facilities.
   For  sites  never  operated  by the  Corporation,  the  Corporation  makes an
assessment  of  the  costs  involved  based  on  environmental   studies,  prior
experience at similar  sites,  and the  experience of other named  parties.  The
Corporation  also  considers  the ability of other  parties to share costs,  the
percentage of the Corporation's  exposure relative to all other parties, and the
effects of inflation  on these  estimated  costs.  For matters  associated  with
properties


                                      -41-
<PAGE>

currently operated by the Corporation, the Corporation makes an assessment as to
whether an  investigation  and  remediation  would be required under  applicable
federal and state laws. For matters  associated with properties  previously sold
or operated by the Corporation,  the Corporation  considers any applicable terms
of sale  and  applicable  federal  and  state  laws to  determine  if it has any
remaining  liability.  If it is determined  that the  Corporation  has potential
liability for properties currently owned or previously sold, an estimate is made
of the total costs of  investigation  and  remediation and other potential costs
associated with the site.
   The  Corporation's  estimate of the costs  associated with product  liability
claims,  environmental  exposures, and other legal proceedings is accrued if, in
management's  judgment,  the  likelihood of a loss is probable and the amount of
the  loss  can be  reasonably  estimated.  These  accrued  liabilities  are  not
discounted.
   Insurance  recoveries for  environmental and certain general liability claims
have not been recognized until realized.
   In the  opinion of  management,  amounts  accrued for  exposures  relating to
product liability claims, environmental matters, and other legal proceedings are
adequate  and,  accordingly,  the ultimate  resolution  of these  matters is not
expected to have a material  adverse  effect on the  Corporation's  consolidated
financial  statements.  As of December 31, 2002,  the  Corporation  had no known
probable  but  inestimable  exposures  relating  to  product  liability  claims,
environmental  matters,  or other legal  proceedings that are expected to have a
material adverse effect on the Corporation.  There can be no assurance, however,
that  unanticipated  events  will not require the  Corporation  to increase  the
amount it has  accrued  for any matter or accrue for a matter  that has not been
previously accrued because it was not considered probable.


NOTE 19: QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Millions Except Per Share Data)                                First           Second            Third           Fourth
Year Ended December 31, 2002                                             Quarter          Quarter          Quarter          Quarter
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>            <C>              <C>              <C>
Sales                                                                     $951.7         $1,125.3         $1,085.2         $1,231.8
Gross margin                                                               306.9            378.5            380.7            451.8
Net earnings                                                                33.0             66.1             54.9             75.7
====================================================================================================================================
Net earnings per common share -- basic                                    $  .41         $    .82         $    .68         $    .94
====================================================================================================================================
Net earnings per common share -- assuming dilution                        $  .41         $    .81         $    .68         $    .94
====================================================================================================================================

Year Ended December 31, 2001
------------------------------------------------------------------------------------------------------------------------------------
Sales                                                                     $962.0         $1,049.7         $1,039.2         $1,194.7
Gross margin                                                               325.6            339.5            342.8            391.1
Net earnings (loss)                                                         33.1             41.7             46.2            (13.0)
====================================================================================================================================
Net earnings (loss) per common share -- basic                             $  .41         $    .52         $    .57         $   (.16)
====================================================================================================================================
Net earnings (loss) per common share -- assuming dilution                 $  .40         $    .51         $    .57         $   (.16)
====================================================================================================================================
</TABLE>
   Results  for the third  quarter of 2002  included a  restructuring  charge of
$38.4 million ($22.3 million net of tax). Results for the fourth quarter of 2002
included a restructuring charge of $12.3 million ($9.4 million net of tax).
   Results for the fourth  quarter of 2001  included a  restructuring  charge of
$99.8 million ($70.6 million net of tax).
   As more fully described in Note 1, effective January 1, 2002, the Corporation
adopted EITF 01-9. Upon the adoption of EITF 01-9,  previously  reported amounts
were restated and resulted in a reduction of sales (and an offsetting  reduction
of selling expenses) of $17.0 million,  $20.7 million,  $23.8 million, and $26.0
million for the first, second, third, and fourth quarters of 2001, respectively.
   As more fully described in Note 1, effective January 1, 2002, the Corporation
adopted SFAS No. 142. Results for the first, second,  third, and fourth quarters
of 2001 each include goodwill amortization of $6.6 million. Net earnings (loss),
adjusted to exclude  goodwill  amortization  in the first,  second,  third,  and
fourth  quarters of 2001,  would have been $39.7 million,  $48.3 million,  $52.8
million, and $(6.4) million,  respectively. Net earnings (loss) per common share
- basic,  adjusted to exclude goodwill amortization in the first, second, third,
and fourth  quarters  of 2001,  would have been $.49,  $.60,  $.65,  and $(.08),
respectively. Net earnings (loss) per common share - assuming dilution, adjusted
to  exclude  goodwill  amortization  in the  first,  second,  third,  and fourth
quarters of 2001, would have been $.48, $.59, $.65, and $(.08), respectively.
   Earnings per common share are computed independently for each of the quarters
presented.  Therefore, the sum of the quarters may not be equal to the full year
earnings per share amounts.


                                      -42-
<PAGE>

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

We have  audited  the  accompanying  consolidated  balance  sheet of The Black &
Decker  Corporation  and  Subsidiaries as of December 31, 2002 and 2001, and the
related  consolidated  statements of earnings,  stockholders'  equity,  and cash
flows for each of the three years in the period ended  December  31,  2002.  Our
audits also included the  financial  statement  schedule  listed in the Index at
Item 15(a).  These financial  statements and schedule are the  responsibility of
the  Corporation's  management.  Our  responsibility is to express an opinion on
these financial statements and schedule based on our audits.
   We conducted  our audits in  accordance  with  auditing  standards  generally
accepted in the United States.  Those standards require that we plan and perform
the audit to obtain reasonable  assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.
   In our  opinion,  the  consolidated  financial  statements  referred to above
present fairly, in all material respects, the consolidated financial position of
The Black & Decker  Corporation and  Subsidiaries at December 31, 2002 and 2001,
and the  consolidated  results of their operations and their cash flows for each
of the three years in the period ended  December 31, 2002,  in  conformity  with
accounting  principles  generally  accepted in the United  States.  Also, in our
opinion,  the related financial statement schedule,  when considered in relation
to the  basic  financial  statements  taken as a whole,  presents  fairly in all
material respects the information set forth therein.
   As  discussed in Note 1 to the  financial  statements,  effective  January 1,
2001, the Corporation changed its method of accounting for derivative  financial
instruments. Also, as discussed in Note 1 to the financial statements, effective
January 1, 2002, the  Corporation  changed its method of accounting for goodwill
and other intangible assets and for certain sales incentives to its customers.




/s/ ERNST & YOUNG LLP
Baltimore, Maryland
January 29, 2003


                                      -43-
<PAGE>


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 29, 2003,  under the  captions  "Election  of  Directors",  "Board of
Directors", and "Section 16(a) Beneficial Ownership Reporting Compliance" and is
incorporated herein by reference.
   Information  required  under this Item with respect to Executive  Officers of
the Corporation is included in Item 1 of Part I of this report.

ITEM 11.        EXECUTIVE COMPENSATION

Information  required  under this Item is contained in the  Corporation's  Proxy
Statement  for the Annual  Meeting of  Stockholders  to be held April 29,  2003,
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 29,  2003,
under the captions "Voting Securities",  "Security Ownership of Management", and
"Equity Compensation Plan Information" and is incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information  required  under this Item is contained in the  Corporation's  Proxy
Statement  for the Annual  Meeting of  Stockholders  to be held April 29,  2003,
under  the  caption  "Executive  Compensation"  and is  incorporated  herein  by
reference.

ITEM 14. CONTROLS AND PROCEDURES

(a) Within 90 days prior to the date of this report, the Corporation carried out
an  evaluation  - under  the  supervision  and  with  the  participation  of the
Corporation's  management,  including the Corporation's  Chief Executive Officer
and Chief Financial  Officer - of the  effectiveness of the design and operation
of the Corporation's disclosure controls and procedures pursuant to Exchange Act
Rule 13a-5. Based on that evaluation,  the Corporation's Chief Executive Officer
and Chief  Financial  Officer have concluded that the  Corporation's  disclosure
controls and procedures are effective.
   (b) There  have been no  significant  changes in the  Corporation's  internal
controls or in other  factors that could  significantly  affect  these  controls
subsequent to the date of the evaluation described in the preceding paragraph.

                                     PART IV

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

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

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

   Consolidated Statement of Earnings - years ended December 31, 2002, 2001, and
2000.

   Consolidated Balance Sheet - December 31, 2002 and 2001.

   Consolidated  Statement of  Stockholders'  Equity - years ended  December 31,
2002, 2001, and 2000.

   Consolidated  Statement of Cash Flows - years ended December 31, 2002,  2001,
and 2000.

   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.


                                      -44-
<PAGE>

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

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

Exhibit 3(b)
Bylaws of the Corporation,  as amended,  included in the Corporation's Quarterly
Report on Form 10-Q for the quarter ended  September 29, 2002, are  incorporated
herein by reference.

Exhibit 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.

Exhibit 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.

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

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

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

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

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

Exhibit 4(h)
Credit  Agreement,  dated as of April 4, 2002,  among the  Corporation,  Black &
Decker Holdings,  Inc., as Initial Borrowers, the initial lenders named therein,
as Initial Lenders,  Citibank,  N.A., as  Administrative  Agent,  JPMorgan Chase
Bank, as Syndication Agent, and Bank of America,  N.A., Commerzbank AG, New York
and Grand  Cayman  Branches,  and HSBC  Bank,  USA,  as  Co-Syndication  Agents,
included  in the  Corporation's  Quarterly  Report on Form 10-Q for the  quarter
ended June 30, 2002, is incorporated herein by reference.

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

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

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

Exhibit 10(a)
The  Black & Decker  Corporation  Deferred  Compensation  Plan for  Non-Employee
Directors, as amended,  included in the Corporation's Annual Report on Form 10-K
for the year ended December 31, 2000, is incorporated herein by reference.

Exhibit 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.

Exhibit 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),  is
incorporated herein by reference.


                                      -45-
<PAGE>

Exhibit 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.

Exhibit 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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


                                      -46-
<PAGE>

Exhibit 10(p)(6)
Amendment No. 5 to The Black & Decker Supplemental Retirement Savings Plan dated
as of October 17, 2002.

Exhibit 10(p)(7)
Amendment No. 6 to The Black & Decker Supplemental Retirement Savings Plan dated
as of December 12, 2002.

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

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

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

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

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

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

Exhibit 10(w)
Form  of  Severance  Benefits  Agreement  by and  between  the  Corporation  and
approximately 17 of its key employees.

Exhibit 10(x)
Severance  Benefits  Agreement,  dated  December  12,  2002,  by and between the
Corporation and Nolan D. Archibald.

Exhibit 10(y)
Severance  Benefits  Agreement,  dated  December  12,  2002,  by and between the
Corporation and Paul F. McBride.

Exhibit 10(z)
Severance  Benefits  Agreement,  dated  December  12,  2002,  by and between the
Corporation and Charles E. Fenton.

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

Exhibit 10(bb)
Severance  Benefits  Agreement,  dated  December  12,  2002,  by and between the
Corporation and Michael D. Mangan.

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

Exhibit 10(cc)(2)
Severance  Benefits  Agreement,  dated  December  12,  2002,  by and between the
Corporation and Paul A. Gustafson.

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

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

Items 10(a) through 10(dd)(2)  constitute  management contracts and compensatory
plans and arrangements required to be filed as exhibits under Item 15(c) of this
report.

Exhibit 21
List of Subsidiaries.

Exhibit 23
Consent of Independent Auditors.

Exhibit 24
Powers of Attorney.

Exhibit 99(a)
Chief Executive Officer's  Certification  Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.

Exhibit 99(b)
Chief Financial Officer's  Certification  Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.

Exhibit 99(c)
Code of Ethics for Senior Financial Officers.

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


                                      -47-
<PAGE>

(b)  Reports on Form 8-K
The Corporation  filed the following reports on Form 8-K during the three months
ended December 31, 2002:
   On October 23, 2002, the Corporation  filed a Current Report on Form 8-K with
the Securities and Exchange  Commission.  This Current Report on Form 8-K, filed
pursuant to Item 5 of that Form,  stated that the  Corporation  had reported its
earnings for the three and nine months ended September 29, 2002.
   All other items are "not applicable" or "none".

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

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

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
The Black & Decker Corporation and Subsidiaries
(Millions of Dollars)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                               Balance       Additions                         Other
                                                                    at      Charged to                       Changes        Balance
                                                             Beginning       Costs and                           Add         at End
Description                                                  of Period        Expenses      Deductions      (Deduct)      of Period
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>             <C>             <C>            <C>           <C>
Year Ended December 31, 2002
Reserve for doubtful accounts and cash discounts                 $51.9           $70.6           $77.4 (a)      $2.5 (b)      $47.6
------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2001
Reserve for doubtful accounts and cash discounts                 $51.8           $71.2           $70.5 (a)      $(.6)(b)      $51.9
------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2000
Reserve for doubtful accounts and cash discounts                 $53.3           $64.8           $65.4 (a)      $(.9)(b)      $51.8
------------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Accounts written off during the year and cash discounts taken by customers.
(b) Primarily includes currency translation adjustments.
</FN>
</TABLE>


                                      -48-
<PAGE>

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

                                                THE BLACK & DECKER CORPORATION

Date:  February 14, 2003                        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 14, 2003, 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 14, 2003
----------------------                                         -----------------
    Nolan D. Archibald         Chairman, President, and
                               Chief Executive Officer


Principal Financial Officer

/s/ MICHAEL D. MANGAN                                          February 14, 2003
---------------------                                          -----------------
    Michael D. Mangan          Senior Vice President and
                               Chief Financial Officer


Principal Accounting Officer

/s/ CHRISTINA M. MCMULLEN                                      February 14, 2003
-------------------------                                      -----------------
    Christina M. McMullen      Vice President and Controller
--------------------------------------------------------------------------------



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

        Nolan D. Archibald                           Manuel A. Fernandez
        Barbara L. Bowles                            Benjamin H. Griswold, IV
        M. Anthony Burns                             Anthony Luiso
        Malcolm Candlish


By /s/ NOLAN D. ARCHIBALD                               Date:  February 14, 2003
   ----------------------                                      -----------------
       Nolan D. Archibald
       Attorney-in-Fact


                                      -49-
<PAGE>

                         THE BLACK & DECKER CORPORATION
                                 CERTIFICATIONS


I, Nolan D. Archibald, certify that:

1. I have  reviewed  this  annual  report  on Form  10-K of The  Black &  Decker
   Corporation;

2. Based on my  knowledge,  this  annual  report  does not  contain  any  untrue
   statement of a material  fact or omit to state a material  fact  necessary to
   make the  statements  made,  in light of the  circumstances  under which such
   statements  were made, not  misleading  with respect to the period covered by
   this annual report;

3. Based  on  my  knowledge,  the  financial  statements,  and  other  financial
   information  included in this annual  report,  fairly present in all material
   respects the financial condition, results of operations and cash flows of the
   registrant as of, and for, the periods presented in this annual report;

4. The  registrant's  other  certifying  officers  and  I  are  responsible  for
   establishing and maintaining  disclosure  controls and procedures (as defined
   in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

   a) designed such disclosure  controls and  procedures to ensure that material
      information  relating  to  the  registrant,   including  its  consolidated
      subsidiaries,  is  made  known  to us by  others  within  those  entities,
      particularly  during  the  period  in which  this  annual  report is being
      prepared;

   b) evaluated the  effectiveness of the registrant's  disclosure  controls and
      procedures  as of a date  within 90 days prior to the filing  date of this
      annual report (the "Evaluation Date"); and

   c) presented in this annual report our conclusions about the effectiveness of
      the disclosure  controls and procedures  based on our evaluation as of the
      Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
   most recent evaluation,  to the registrant's auditors and the audit committee
   of  registrant's  board of directors (or persons  performing  the  equivalent
   function):

   a) all  significant  deficiencies  in the  design or  operation  of  internal
      controls which could adversely affect the registrant's  ability to record,
      process,  summarize and report  financial data and have identified for the
      registrant's auditors any material weaknesses in internal controls; and

   b) any fraud,  whether or not  material,  that  involves  management or other
      employees  who  have  a  significant  role  in the  registrant's  internal
      controls; and

6. The  registrant's  other  certifying  officers  and I have  indicated in this
   annual report whether there were significant  changes in internal controls or
   in other factors that could significantly affect internal controls subsequent
   to the date of our most recent  evaluation,  including any corrective actions
   with regard to significant deficiencies and material weaknesses.




   /s/ NOLAN D. ARCHIBALD
   ----------------------
       Nolan D. Archibald
       Chairman, President, and Chief Executive Officer
       February 14, 2003


                                      -50-
<PAGE>

                         THE BLACK & DECKER CORPORATION
                                 CERTIFICATIONS


I, Michael D. Mangan, certify that:

1. I have  reviewed  this  annual  report  on Form  10-K of The  Black &  Decker
   Corporation;

2. Based on my  knowledge,  this  annual  report  does not  contain  any  untrue
   statement of a material  fact or omit to state a material  fact  necessary to
   make the  statements  made,  in light of the  circumstances  under which such
   statements  were made, not  misleading  with respect to the period covered by
   this annual report;

3. Based  on  my  knowledge,  the  financial  statements,  and  other  financial
   information  included in this annual  report,  fairly present in all material
   respects the financial condition, results of operations and cash flows of the
   registrant as of, and for, the periods presented in this annual report;

4. The  registrant's  other  certifying  officers  and  I  are  responsible  for
   establishing and maintaining  disclosure  controls and procedures (as defined
   in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

   a) designed such  disclosure  controls and procedures to ensure that material
      information  relating  to  the  registrant,   including  its  consolidated
      subsidiaries,  is  made  known  to us by  others  within  those  entities,
      particularly  during  the  period  in which  this  annual  report is being
      prepared;

   b) evaluated the  effectiveness of the registrant's  disclosure  controls and
      procedures  as of a date  within 90 days prior to the filing  date of this
      annual report (the "Evaluation Date"); and

   c) presented in this annual report our conclusions about the effectiveness of
      the disclosure  controls and procedures  based on our evaluation as of the
      Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
   most recent evaluation,  to the registrant's auditors and the audit committee
   of  registrant's  board of directors (or persons  performing  the  equivalent
   function):

   a) all  significant  deficiencies  in the  design or  operation  of  internal
      controls which could adversely affect the registrant's  ability to record,
      process,  summarize and report  financial data and have identified for the
      registrant's auditors any material weaknesses in internal controls; and

   b) any fraud,  whether or not  material,  that  involves  management or other
      employees  who  have  a  significant  role  in the  registrant's  internal
      controls; and

6. The  registrant's  other  certifying  officers  and I have  indicated in this
   annual report whether there were significant  changes in internal controls or
   in other factors that could significantly affect internal controls subsequent
   to the date of our most recent  evaluation,  including any corrective actions
   with regard to significant deficiencies and material weaknesses.





/s/ MICHAEL D. MANGAN
---------------------
    Michael D. Mangan
    Senior Vice President and Chief Financial Officer
    February 14, 2003


                                      -51-
<PAGE>