QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended October 1, 1994
or
[ ] Transition Report Pursuant to Section 13 of 15(d) of
the Securities Exchange Act of 1934
For the transition period from
[ ] to [ ]
Commission file number 1-5224
I.R.S. Employer Identification Number 06-0548860
THE STANLEY WORKS
(a Connecticut Corporation)
1000 Stanley Drive
New Britain, Connecticut 06053
Telephone: (203) 225-5111
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 12 months, and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: shares of the
company's Common Stock ($2.50 par value) were outstanding 44,791,249
as of November 4, 1994.
<TABLE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Millions of Dollars)
<CAPTION>
THIRD QUARTER NINE MONTHS
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Net Sales $ 632.6 $ 576.3 $ 1,847.1 $ 1,694.9
Costs and Expenses
Cost of sales 425.7 396.8 1,238.7 1,155.0
Selling, general and
administrative 139.5 126.1 412.7 384.7
Interest - net 6.9 6.9 22.1 20.2
Other - net 9.1 3.6 26.9 11.4
------- ------- -------- --------
581.2 533.4 1,700.4 1,571.3
------- ------- -------- --------
Earnings Before Income Taxes
and Cumulative Effect of
Accounting Change 51.4 42.9 146.7 123.6
Income Taxes 19.2 17.9 55.2 48.6
------- ------- -------- --------
Earnings Before Cumulative
Effect of Accounting Change 32.2 25.0 91.5 75.0
Cumulative Effect of Accounting
Change for Postemployment
Benefits (8.5)
------- ------- -------- --------
Net Earnings $ 32.2 $ 25.0 $ 91.5 $ 66.5
======= ======= ======== ========
Earnings Per Share of
Common Stock:
Before Cumulative Effect of
Accounting Change $ 0.72 $ 0.56 $ 2.04 $ 1.67
Cumulative Effect of
Accounting Change (0.19)
------- ------- -------- --------
Net Earnings Per Share of
Common Stock $ 0.72 $ 0.56 $ 2.04 $ 1.48
======= ======= ======== ========
Dividends per share $ 0.35 $ 0.34 $ 1.03 $ 1.00
Average shares outstanding 44,838 44,754 44,810 45,007
(in thousands)
<FN>
See notes to consolidated financial statements.
</TABLE>
-1-
<TABLE>
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Millions of Dollars)
<CAPTION>
October 1 January 1
1994 1994
ASSETS
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 38.8 $ 43.7
Accounts and notes receivable, net 439.0 371.2
Inventories 370.7 308.1
Other current assets 33.9 35.6
------ ------
Total Current Assets 882.4 758.6
Property, Plant and Equipment 1,132.9 1,119.0
Less: accumulated depreciation (571.1) (552.5)
------- -------
561.8 566.5
Goodwill, Patents and Other Intangibles 168.0 171.5
Other Assets 86.2 80.3
------- -------
$ 1,698.4 $ 1,576.9
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable $ 93.6 $ 42.3
Current maturities of long-term debt 9.8 9.8
Accounts payable 102.0 103.3
Accrued expenses 217.7 201.7
------- -------
Total Current Liabilities 423.1 357.1
Long-Term Debt 386.4 377.2
Deferred Income Taxes 20.2 36.0
Other Liabilities 126.4 125.7
Shareholders' Equity
Common Stock 115.4 115.4
Capital in excess of par value 70.6 73.1
Retained earnings 918.8 871.1
Foreign currency translation adjustment (50.6) (56.7)
ESOP Debt (255.2) (261.5)
------- -------
799.0 741.4
Less: cost of common stock in treasury 56.7 60.5
------- -------
Total Shareholders' Equity 742.3 680.9
------- -------
$ 1,698.4 $ 1,576.9
======= =======
<FN>
See notes to consolidated financial statements.
</TABLE>
-2-
<TABLE>
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions of Dollars)
<CAPTION>
THIRD QUARTER NINE MONTHS
1994 1993 1994 1993
Operating Activities
<S> <C> <C> <C> <C>
Net Earnings $ 32.2 $ 25.0 $ 91.5 $ 66.5
Depreciation and amortization 19.7 19.3 62.5 59.1
Provision for postemployment benefits - - - 13.6
Net gain on sale of non-operating asset - (5.0) - (29.0)
Other non-cash items 7.0 9.9 23.5 15.2
Changes in operating assets
and liabilities (39.1) 8.1 (124.1) (62.5)
------ ------ ------ ------
Net cash provided by
operating activities 19.8 57.3 53.4 62.9
Investing Activities
Capital expenditures (17.5) (18.3) (48.6) (44.5)
Proceeds from sales of assets 1.0 2.8 7.4 4.8
Proceeds from sale of non-operating asset - 6.0 - 38.9
Business acquisitions - (12.4) (5.1) (13.3)
Other (1.9) (1.3) (4.9) (4.0)
------ ------ ------ ------
Net cash used by
investing activities (18.4) (23.2) (51.2) (18.1)
Financing Activities
Payments on long-term debt (1.2) (65.9) (1.9) (132.9)
Proceeds of long-term borrowings - 78.4 - 78.4
Net short-term bank financing 17.1 2.6 51.6 67.3
Proceeds from issuance of common stock 2.9 3.4 3.5 4.0
Purchase of common stock for treasury (1.2) (15.8) (2.0) (42.3)
Cash dividends on common stock (15.7) (15.2) (60.8) (59.9)
------ ------ ------ ------
Net cash provided (used) by
financing activities 1.9 (12.5) (9.6) (85.4)
Effect of Exchange Rate Changes on Cash 1.7 (1.1) 2.5 (1.5)
------ ------ ------ ------
Increase (decrease) in Cash and
Cash Equivalents 5.0 20.5 (4.9) (42.1)
Cash and Cash Equivalents,
Beginning of Period 33.8 18.5 43.7 81.1
------ ------ ------ ------
Cash and Cash Equivalents,
End of Third Quarter $ 38.8 $ 39.0 $ 38.8 $ 39.0
====== ====== ====== ======
<FN>
See notes to consolidated financial statements.
</TABLE>
-3-
<TABLE>
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(Millions of Dollars)
<CAPTION>
NINE MONTHS
1994 1993
<S> <C> <C>
Balance at beginning of year $ 680.9 $ 696.3
Net earnings 91.5 66.5
Currency translation adjustment 6.1 (16.8)
Cash dividends declared (46.2) (44.9)
Net issuance of Common Stock 3.7 (33.0)
ESOP debt 6.3 5.3
-------- -------
Balance at end of third quarter $ 742.3 $ 673.4
======== =======
<FN>
See notes to consolidated financial statements.
</TABLE>
-4-
THE STANLEY WORKS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 1, 1994
NOTE A - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of only normal recurring items)
considered necessary for a fair presentation of the results of operations
for the interim periods have been included. For further information, refer
to the consolidated financial statements and footnotes included in the
company's annual report on Form 10-K for the year ended January 1, 1994.
NOTE B - Computation of Earnings Per Share
Earnings per share are based upon the weighted average number of common
shares outstanding. The exercise of outstanding stock subscriptions and
options would not result in a material dilution of earnings per share.
(See Exhibit 11)
NOTE C - Inventories
The classification of inventories at the end of the third quarter of 1994
and at year-end 1993, in millions of dollars, is as follows:
October 1 January 1
1994 1994
------ ------
Finished products $ 242.2 $ 195.7
Work in process 68.9 61.1
Raw materials 56.6 48.7
Supplies 3.0 2.6
------ ------
$ 370.7 $ 308.1
====== ======
-5-
NOTE D - Cash Flow Information
Interest paid during the third quarter of 1994 and 1993 amounted to $ 10.6
million and $10.3 million, respectively. Interest paid for the nine months
of 1994 and 1993 amounted to $25.2 million and $25.6 million, respectively.
Income taxes paid during the third quarter of 1994 and 1993 were $29.0
million and $14.5 million, respectively. Income taxes paid for the nine
months of 1994 and 1993 were $71.2 million and $50.6 million, respectively.
NOTE E - Other-net Expenses
For the third quarter of 1993, Other-net includes a gain of $5.0 million
($.06 per share) from the sale of the company's investment in Max Co.,
Ltd. which was substantially offset by reserves established for the
closing of a manufacturing facility of the company's wholly owned
subsidiary, Mac Tools, Inc.
In the consolidated statement of earnings for nine months of 1993, Other-
net includes a gain of $29.0 million ($.39 per share) from the sale of the
company's investment in Max Co., Ltd. and charges for a fine levied
by U.S. District Court in Missouri for $5.0 million ($.07 per share). Also
included in Other-net were additional charges for contingency reserves of
$15.7 million ($.21 per share) related to product liability litigation,
restructuring activities and environmental clean-up.
NOTE F - Restatement
Certain 1993 amounts in the Business Segment Information were reclassified
to conform to the 1994 presentation.
-6-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Sales of $633 million in the third quarter were 10% higher than the prior year.
Net earnings were $32.2 million, or $.72 per share, representing a 29% increase
over the same quarter in 1993.
The 10% increase in third quarter sales was driven primarily by internal
growth of 9% spread across all businesses. Small price increases and net
acquisition and divestiture activity represented a 1% increase in sales
from the prior year. Currency had a positive but minor impact on
sales.
The company's operating results continue to benefit from increased sales volume
generated by its worldwide growth initiatives and favorable economic conditions.
While all business segments realized solid volume increases, the most notable
improvements were in the Specialty Hardware and Engineered Tools businesses.
Gross margins improved to 32.7% from 31.1% in the prior year, largely
the result of manufacturing efficiencies realized from increased volume,
especially in the company's Mechanics Tools business, and the successful
transition of previously foreign-sourced fastening tools to U.S.
in-house manufacture. Operating expenses were 22.1% of sales compared
with 21.9% in the previous year. Operating efficiencies achieved
through higher sales volume were offset by the costs of company
initiatives for long-term growth.
Interest-net expenses of $6.9 million were essentially unchanged from
last year despite higher interest rates in 1994. Other-net expenses of
$9.1 million included additional reserves established for environmental
remediation as well as the effects of divestiture activities in the
quarter. Other-net expenses of $3.6 million in the prior year included
a $5.0 million pre-tax gain from the sale of a non-operating asset which
was substantially offset by reserves established for the closing of a
manufacturing facility at the company's wholly-owned subsidiary, Mac Tools,
Inc.
The effective tax rate for the quarter was 37.5% compared with 41.7%
last year. The higher effective rate last year reflected the cumulative
effect of 1993 federal tax rate changes on the quarter.
Net sales for the first nine months of 1994 were $1.8 billion, an
increase of 9% over the $1.7 billion reported in the same period last
year. Net earnings for the period were $91.5 million, or $2.04 per
share, up 22% from net earnings of $75.0 million, or $1.67 per share
last year, before the effect of a change in accounting principle.
Net sales in the U.S. increased 8% for the quarter. The increase
resulted from strong internal growth of 9%, a 1% price increase, and
divestiture activity, which decreased sales by 2% from the prior year.
Net sales in Europe increased 13% from last year. Unit volume gains
generated a 4% increase in sales and the incremental effect of an
acquisition added 3%. The recent strengthening in European currencies
increased sales by 6% in the quarter. Price increases continued to have
little impact on sales.
Net sales in Other Areas increased 15% for the quarter. Internal growth
of 8% resulted from strengthening in the company's Canadian businesses
and its continuing growth in the Far East. Price increases, when offset
-7-
by the negative effects of currency, added 3% to sales. The net
incremental effect of acquisitions increased sales by 4%. Operating
profits of $7.9 million, or 8.6% of sales, were reduced from last year
as a result of increased expenses associated with the company's growth
initiatives throughout the Pacific Rim.
Net sales for the Tools segment increased 8% from the prior year.
Internal growth of 7% was the primary contributor. While all businesses
experienced solid unit volume gains, these gains were most notable in
the company's Fastening Systems business. Price increases for the segment
resulted in a 2% sales increase with currency having a negligible
impact. The net effect of acquisitions and divestitures decreased sales
by 1%. Operating profits increased 35% to $53.6 million and resulted in
operating margins of 11.5% compared with 9.3% in the prior year. The
improvement in operating profits is the result of increased sales
volume, operating efficiencies, and the successful transition of
previously foreign-sourced fastening products to in-house manufacture.
In addition, the third quarter last year included one-time charges
related to the closing of a Mac Tools, Inc. manufacturing facility.
For the nine months, net sales increased by 9% and operating profits
increased by 26% when compared with the same period last year.
Net sales for the Hardware segment increased 7% from the prior year,
reflecting internal growth of 6% plus price increases and currency
effects of 1%. Operating profits increased 26% to $7.7 million.
Operating margins improved to 9.7% from 8.3% last year. For the nine
months, net sales increased by 4% and operating profits increased by
13% when compared with the same period last year.
Net sales for the Specialty Hardware segment increased 21% from the
prior year, exclusively from internal growth. Operating profit of $8.1
million was 17% higher than last year. Operating margins of 9.2% were
slightly below last year's margins of 9.4%, the result of growth
initiatives, primarily in Europe, of the company's Access Technologies
business. For the nine months, net sales increased by 17% and operating
profits increased significantly to $15.4 million from $9.4 million
reported last year.
The company attributes the strong performance in the quarter and year-to-date
to a combination of factors. First, is its company-wide focus on profitable
growth, including geographic expansion and strategic investments in new
products and new markets. Second, is the company's long-term strategy to
ensure that its underlying structure remains modern and efficient, reflecting
the appropriate use of technology to provide a sound base from which it can
continue to grow. Finally, 1994 has provided improved economic conditions for
the company's businesses worldwide. Based on these factors, the company
believes it will achieve the significant full year sales and earnings growth
that it had predicted at the start of 1994.
Liquidity and Sources of Capital
Cash flow from operations in the third quarter and for the first nine
months was lower than the prior year as funds were utilized to provide
the increased working capital necessary to support internal sales
growth. The company continues to have adequate operating cash flow and
borrowing capacity to fund continued internal sales growth, capital
expenditures, dividends and take advantage of acquisition opportunities
as they arise.
Capital expenditures for the year are forecast at approximately $70
million.
-8-
<TABLE>
THE STANLEY WORKS AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(Millions of Dollars)
<CAPTION>
THIRD QUARTER NINE MONTHS
1994 1993 1994 1993
INDUSTRY SEGMENTS
Net Sales
Tools
<S> <C> <C> <C> <C>
Consumer $ 177.5 $ 172.8 $ 519.3 $ 499.6
Industrial 129.4 116.0 389.4 343.9
Engineered 158.2 140.5 472.7 427.7
-------- -------- -------- --------
Total Tools 465.1 429.3 1,381.4 1,271.2
Hardware 79.3 73.9 235.6 227.4
Specialty Hardware 88.2 73.1 230.1 196.3
-------- -------- -------- --------
Consolidated $ 632.6 $ 576.3 $ 1,847.1 $ 1,694.9
======== ======== ======== ========
Operating Profit
Tools $ 53.6 $ 39.8 $ 161.3 $ 127.6
Hardware 7.7 6.1 27.4 24.3
Specialty Hardware 8.1 6.9 15.4 9.4
-------- -------- -------- --------
Total 69.4 52.8 204.1 161.3
Net corporate expenses (10.6) (2.0) (32.3) (13.6)
Interest expense (7.4) (7.9) (25.1) (24.1)
-------- -------- -------- --------
Earnings before
income taxes $ 51.4 $ 42.9 $ 146.7 $ 123.6
======== ======== ======== ========
GEOGRAPHIC AREAS
Net Sales
United States $ 452.9 $ 418.9 $ 1,330.4 $ 1,225.2
Europe 87.4 77.4 261.8 240.6
Other Areas 92.3 80.0 254.9 229.1
-------- -------- -------- --------
Consolidated $ 632.6 $ 576.3 $ 1,847.1 $ 1,694.9
======== ======== ======== ========
Operating Profit
United States $ 53.9 $ 37.3 $ 156.1 $ 114.6
Europe 7.6 6.4 25.3 23.2
Other Areas 7.9 9.1 22.7 23.5
-------- -------- -------- --------
Total $ 69.4 $ 52.8 $ 204.1 $ 161.3
======== ======== ======== ========
<FN>
See notes to consolidated financial statements.
</TABLE>
-9-
PART II - OTHER INFORMATION
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits - See Exhibit Index on page 11
(b) Reports on Form 8-K.
Registrant filed a Current Report on Form 8-K, dated July 20,
1994, in respect of the Registrant's press release announcing second
quarter results.
Signatures
Pursuant to the requirements 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 STANLEY WORKS
Date: November 11, 1994 By: Richard Huck
Richard Huck
Vice President, Finance
and Chief Financial Officer
Date: November 11, 1994 By: Theresa F. Yerkes
Theresa F. Yerkes
Vice President and
Controller (Chief Accounting
Officer)
-10-
EXHIBIT INDEX
(11) Statement re computation of earnings per share
(12) Statement re computation of ratio of earnings to fixed charges
(27) Financial Data Schedule
-11-
<TABLE>
Exhibit 11
THE STANLEY WORKS AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(dollars and shares in thousands
except per share amounts)
<CAPTION>
THIRD QUARTER ENDED NINE MONTHS ENDED
OCT 1 OCT 2 OCT 1 OCT 2
1994 1993 1994 1993
Earnings per common share:
<S> <C> <C> <C> <C>
Weighted average shares outstanding 44,838 44,754 44,810 45,007
====== ====== ====== ======
Earnings before cumulative effect of
accounting change $32,153 $24,990 $91,483 $75,018
Cumulative effect of accounting change
for Postemployment Benefits (8,489)
------- ------- ------- -------
Net earnings $32,153 $24,990 $91,483 $66,529
======= ======= ======= =======
Per share amounts:
Before cumulative effect of
accounting change $0.72 $0.56 $2.04 $1.67
Cumulative effect of accounting change
for Postemployment Benefits (0.19)
------- ------- ------- -------
Net earnings $0.72 $0.56 $2.04 $1.48
======= ======= ======= =======
PRIMARY:
Weighted average shares outstanding 44,838 44,754 44,810 45,007
Dilutive common stock equivalents -
based on the treasury stock method
using average market price 557 655 580 733
------- ------- ------- -------
45,395 45,409 45,390 45,740
======= ======= ======= =======
Per share amounts:
Before cumulative effect of
accounting change for $0.71 $0.55 $2.02 $1.64
Cumulative effect of accounting change
for Postemployment Benefits (0.19)
------- ------- ------- -------
Net earnings $0.71 $0.55 $2.02 $1.45
======= ======= ======= =======
FULLY DILUTED:
Weighted average shares outstanding 44,838 44,754 44,810 45,007
Dilutive common stock equivalents -
based on the treasury stock method
using the quarter end market price
if higher than average market price 557 655 585 759
------ ------ ------ ------
45,395 45,409 45,395 45,766
====== ====== ====== ======
Per share amounts:
Before cumulative effect of
accounting change $0.71 $0.55 $2.02 1.64
Cumulative effect of accounting change
for Postemployment Benefits (0.19)
------ ------ ------ ------
Net earnings $0.71 $0.55 $2.02 $1.45
====== ====== ====== ======
<FN>
Note: This calculation is submitted in accordance with Regulation S-K
item 601(b)(11) although not required by footnote 2 to paragraph 14
of APB Opinion No. 15 because it results in dilution of less than 3%.
</TABLE>
<TABLE>
Exhibit 12
THE STANLEY WORKS AND SUBSIDIARIES
COMPUTATION OF EARNINGS TO FIXED CHARGES
(in Millions of Dollars)
<CAPTION>
THIRD QUARTER NINE MONTHS
1994 1993 1994 1993
Earnings before income taxes and cumulative
effect of accounting change for
<S> <C> <C> <C> <C>
postemployment benefits $51.4 $42.9 $146.7 $123.6
Add:
Portion of rents representative of
interest factor 2.9 3.2 8.7 9.4
Interest expense 7.3 7.7 24.7 23.5
Amortization of expense on
long-term debt 0.1 0.1 0.3
Amortization of capitalized interest 0.1 0.2 0.3
----- ----- ----- -----
Income as adjusted $61.6 $54.0 $180.4 $157.1
===== ===== ===== =====
Fixed charges:
Interest expense $7.3 $7.7 $24.7 $23.5
Amortization of expense
on long-term debt 0.1 0.1 0.3
Capitalized interest 0.2 0.1
Portion of rents representative of
interest factor 2.9 3.2 8.7 9.4
----- ----- ----- -----
Fixed charges $10.2 $11.2 $33.5 $33.3
===== ===== ===== =====
Ratio of earnings to fixed charges 6.04 4.82 5.39 4.72
===== ===== ===== =====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE STANLEY WORKS AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AND
STATEMENTS OF EARNINGS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> OCT-01-1994
<CASH> 38,800
<SECURITIES> 0
<RECEIVABLES> 439,000
<ALLOWANCES> 0
<INVENTORY> 370,700
<CURRENT-ASSETS> 882,400
<PP&E> 1,132,900
<DEPRECIATION> 571,100
<TOTAL-ASSETS> 1,698,400
<CURRENT-LIABILITIES> 423,100
<BONDS> 386,400
<COMMON> 115,400
0
0
<OTHER-SE> 626,900
<TOTAL-LIABILITY-AND-EQUITY> 1,698,400
<SALES> 1,847,100
<TOTAL-REVENUES> 1,847,100
<CGS> 1,238,700
<TOTAL-COSTS> 1,238,700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,100
<INCOME-PRETAX> 146,700
<INCOME-TAX> 55,200
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 91,500
<EPS-PRIMARY> 2.04
<EPS-DILUTED> 0
</TABLE>
