<PAGE>
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 period ended April 2, 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: 44,777,086
shares of the company's Common Stock ($2.50 par value) were outstanding
as of May 6, 1994.
<PAGE>
<TABLE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Millions of Dollars)
<CAPTION>
FIRST QUARTER
1994 1993
<S> <C> <C>
Net Sales $ 585.7 $ 553.4
Costs and Expenses
Cost of sales 394.4 374.7
Selling, general and
administrative 133.8 130.1
Interest - net 7.4 7.3
Other - net 8.8 3.8
------- -------
544.4 515.9
------- -------
Earnings Before Income Taxes
and Cumulative Effect of
Accounting Change 41.3 37.5
Income Taxes 15.7 14.5
------- -------
Earnings Before Cumulative
Effect of Accounting Change 25.6 23.0
Cumulative Effect of Accounting
Change for Postemployment
Benefits (8.5)
------- -------
Net Earnings $ 25.6 $ 14.5
======= =======
Net Earnings Per Share of
Common Stock:
Before Cumulative Effect of
Accounting Change $ 0.57 $ 0.51
Cumulative Effect of
Accounting Change (0.19)
------- -------
Net Earnings Per Share of
Common Stock $ 0.57 $ 0.32
======= =======
Dividends per share $ 0.34 $ 0.33
Average shares outstanding 44,771 45,274
(in thousands)
<FN>
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Millions of Dollars)
<CAPTION>
April 2 January 1
1994 1994
ASSETS
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 36.5 $ 43.7
Accounts and notes receivable, net 389.6 371.2
Inventories 327.5 308.1
Other current assets 35.5 35.6
------ ------
Total Current Assets 789.1 758.6
Property, Plant and Equipment 1,128.4 1,119.0
Less: accumulated depreciation (567.4) (552.5)
------- -------
561.0 566.5
Goodwill and Other Intangibles 169.0 171.5
Other Assets 77.6 80.3
------- -------
$ 1,596.7 $ 1,576.9
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable $ 79.5 $ 42.3
Current maturities of long-term debt 9.6 9.8
Accounts payable 94.2 103.3
Accrued expenses 178.0 201.7
------- -------
Total Current Liabilities 361.3 357.1
Long-Term Debt 380.1 377.2
Deferred Income Taxes 35.3 36.0
Other Liabilities 125.7 125.7
Shareholders' Equity
Common stock 115.4 115.4
Capital in excess of par value 72.0 73.1
Retained earnings 882.3 871.1
Foreign currency translation adjustment (58.4) (56.7)
ESOP Debt (259.4) (261.5)
------- -------
751.9 741.4
Less: cost of common stock in treasury 57.6 60.5
Total Shareholders' Equity 694.3 680.9
------- -------
$ 1,596.7 $ 1,576.9
======= =======
<FN>
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions of Dollars)
<CAPTION>
FIRST QUARTER
1994 1993
Operating Activities
<S> <C> <C>
Net Earnings $ 25.6 $ 14.5
Depreciation and amortization 21.2 22.1
Provision for postemployment benefits 13.5
Net gain on sale of non-operating asset (24.0)
Other non-cash items 5.3 5.0
Changes in operating assets
and liabilities (58.0) (35.5)
------ ------
Net cash used by
operating activities (5.9) (4.4)
Investing Activities
Capital expenditures (13.2) (14.5)
Proceeds from sales of assets 1.6 1.1
Proceeds from sale of non-operating asset 32.9
Business acquisitions (0.9)
Other (0.3) 0.9
------ ------
Net cash provided (used) by
investing activities (11.9) 19.5
Financing Activities
Payments on long-term debt (0.5) (1.3)
Proceeds of long-term borrowings 0.1
Net short-term bank financing 38.2 24.8
Proceeds from issuance of common stock 0.3 0.4
Purchase of common stock for treasury (26.5)
Cash dividends on common stock (29.9) (15.0)
------ ------
Net cash provided (used) by
financing activities 8.1 (17.5)
Effect of exchange rate changes on cash 2.5 (0.8)
------ ------
Decrease in Cash and
Cash Equivalents (7.2) (3.2)
Cash and Cash Equivalents,
Beginning of Period 43.7 81.1
------ ------
Cash and Cash Equivalents,
End of First Quarter $ 36.5 $ 77.9
===== =====
<FN>
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(Millions of Dollars)
<CAPTION>
THREE MONTHS
1994 1993
<S> <C> <C>
Balance at beginning of year $ 680.9 $ 696.3
Net earnings 25.6 14.5
Currency translation adjustment (1.7) 0.1
Cash dividends declared (15.2) (15.0)
Net issuance of common stock 2.6 (24.9)
ESOP debt 2.1 2.0
------- ------
Balance at end of first quarter $ 694.3 $ 673.0
======= ======
<FN>
See notes to consolidated financial statements.
</TABLE>
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<PAGE>
THE STANLEY WORKS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 2, 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 first quarter of 1994
and at year-end 1993, in millions of dollars, is as follows:
April 2 January 1
1994 1994
------ ------
Finished products $ 211.9 $ 195.7
Work in process 63.5 61.1
Raw materials 49.3 48.7
Supplies 2.8 2.6
------ ------
$ 327.5 $ 308.1
====== ======
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NOTE D - Cash Flow Information
Interest paid during the first quarter of 1994 and 1993 amounted to $8.2
million and $8.1 million, respectively.
Income taxes paid during the first quarter of 1994 and 1993 were $10.4
million and $9.0 million, respectively.
NOTE E - Other-net Expenses
In the consolidated statement of earnings for the first quarter of 1993,
Other-net included a gain of $24.0 million ($.33 per share) from the sale
of a portion of the company's investment in Max Co., Ltd. Also included
in Other-net were additional charges for a fine levied by U.S. District
Court in Missouri for $7.0 million ($.10 per share) and contingency
reserves of $15.7 million ($.21 per share) related to product liability
litigation, restructuring activities and environmental remediation.
NOTE F - Restatement
Certain 1993 amounts in the Business Segment Information were reclassified
to conform to the 1994 presentation.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
First quarter sales of $586 million were the highest first quarter
sales ever experienced by the company and represented a 6% increase
over the prior year. Net earnings of $26 million represented an
11% increase over first quarter 1993 and was slightly higher than
the record set in the first quarter 1989. These improvements are
the result not only of strengthening markets, but of the company's
continued focus on operational excellence.
Net sales growth was generated primarily by unit volume increases,
the most significant of which was in the U.S. Only minor price
increases were realized increasing sales by 1%; however, this
increase was offset by the negative effects of currency. The
incremental effect of acquisitions increased sales by an additional
1%.
First quarter earnings per share of $.57 represented a 12% increase
over comparable earnings per share of $.51 reported in 1993. The
$.51 per share reported for 1993 excludes the effects of the
accounting change for FAS 112.
Gross margins improved to 32.7% from 32.3% in the prior year
quarter. The improvement in margins was even more notable when
compared with 31.2% reported in the fourth quarter 1993.
Manufacturing efficiencies achieved from increased volume,
especially in the company's Mechanics Tools division, were
principally responsible for the improvement. Operating expenses
were also reduced, as a percent of sales, to 22.8% compared with
23.5% in the first quarter 1993.
Interest-net expenses of $7 million were 1.3% of first quarter
sales, generally consistent with the prior year. Other-net
expenses for the period were $9 million compared with $4 million in
the same quarter a year ago. Included in Other-net in 1993 was a
pretax gain of $24 million ($.33 per share) from the sale of a non-
operating asset and charges of $22.7 million ($.31 per share ) for
contingency reserves.
Net sales in the U.S. were up 6%, principally from internal growth.
The U.S. industrial, engineered and construction markets continued
to exhibit strong growth. Price increases of 1% were offset by
the net incremental effects of acquisitions and divestitures.
Net sales in Europe for the first quarter were 6% higher than last
year, reflecting a 3% unit volume increase primarily within the
consumer tools businesses. Recent acquisitions increased sales by
5%. Minor price increases added 1% to sales, while the currency
effects of a stronger dollar decreased sales by 3%.
Net sales in Other Areas increased 5% for the quarter compared with
the same period a year ago. Strong internal growth in the Pacific
Rim more than offset continued weakness in Canada and Australia and
resulted in a net 3% increase in unit sales. In addition, the
incremental effect of acquisitions increased sales by 3%. The net
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<PAGE>
effect of currency and price was a 1% decrease in sales.
Operating profits of $6 million were lower than the prior year as
a result of the integration costs associated with a recent
acquisition.
Net sales in the Tools segment increased 6% for the quarter
primarily the result of internal growth in the company's industrial
and engineered tools categories. Consumer tool businesses
continued to experience only modest growth. Price increases of 1%
were offset by the negative effects of currency. The incremental
effect of acquisitions added 1% to sales. Operating profits
increased 28% from the first quarter 1993 to $48 million.
Operating profits reported in 1993 included approximately $4
million of restructuring charges. Operating margins of 11% were
much improved over prior year margins reported of 9.1% (10.0%
without the one-time charges).
Hardware segment net sales were 2% lower than first quarter sales
reported a year ago. Unit volume declined by 2% and was the result
of weak consumer activity in Canada and Europe and, to a lesser
extent, in the U.S. Net price increases of 1% were offset by the
negative effects of currency. Operating profits of $9 million
included costs associated with an earthquake that damaged the
Chatsworth, California mirror manufacturing facility. Operating
margins of 11.5% would have been 13.2% excluding the incurred
property losses related to the earthquake. Operating margins in
the first quarter 1993 were 13.6%.
Specialty Hardware sales for the first quarter 1994 were 13% higher
than the first quarter of 1993. The gain was almost entirely the
result of higher unit volume in the U.S. Operating margins, which
are generally lower in the first quarter for this segment, were
4.7%, representing a significant improvement over margins of 1.2%
reported last year. Prior year margins were depressed due to raw
material cost increases, especially in wood, and manufacturing
process problems.
The company considers the first quarter results to be early
confirmation that optimism for 1994 is well founded. Strength in
the industrial and construction markets in the U.S. should continue
to contribute to the company's results. The company expects
improving conditions in its consumer markets as the year progresses
assuming that the interest rate environment remains favorable for
homeowners and consumers. The company continues to feel positive
about the outlook for 1994.
Liquidity and Sources of Capital
During the first quarter of 1994, the company experienced a $7.2
million decrease in its cash position, primarily the result of
increased working capital needs associated with growth in its
businesses. Temporary short-term borrowings helped fund capital
expenditures and the payment of dividends.
Capital expenditures for the year are forecast at approximately
$70 million.
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<PAGE>
<TABLE>
THE STANLEY WORKS AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(Millions of Dollars)
<CAPTION>
FIRST QUARTER
1994 1993
INDUSTRY SEGMENTS
Net Sales
Tools
<S> <C> <C>
Consumer $ 162.6 $ 158.9
Industrial 130.5 115.2
Engineered 148.6 141.8
-------- --------
Total Tools 441.7 415.9
Hardware 77.6 78.9
Specialty Hardware 66.4 58.6
-------- --------
Consolidated $ 585.7 $ 553.4
======== ========
Operating Profit
Tools $ 48.4 $ 37.9
Hardware 8.9 10.7
Specialty Hardware 3.1 0.7
-------- --------
Total 60.4 49.3
Net corporate expenses (11.0) (3.5)
Interest expense (8.1) (8.3)
-------- --------
Earnings before
income taxes $ 41.3 $ 37.5
======== ========
GEOGRAPHIC AREAS
Net Sales
United States $ 420.2 $ 396.7
Europe 88.4 83.2
Other Areas 77.1 73.5
-------- --------
Consolidated $ 585.7 $ 553.4
======== ========
Operating Profit
United States $ 44.8 $ 33.7
Europe 9.7 8.6
Other Areas 5.9 7.0
-------- --------
Total $ 60.4 $ 49.3
======== ========
<FN>
See notes to consolidated financial statements.
</TABLE>
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<PAGE>
PART II - OTHER INFORMATION
Item 1. - Legal Proceedings
On May 6, 1994, the U.S. government withdrew its appeal of a
decision by the Court of International Trade issued on December 20,
1993 dismissing an action instituted by the U.S. government against the
Company. The action had alleged that National Hand Tool Corporation
(formerly a wholly owned subsidiary and presently a division of the
company) ("NHT") had engaged in the intentional removal of country-of-
origin marks from imported screwdrivers, mallets and prybars and failed
to place country-of-origin marking on forgings that it imported for
manufacture into sockets and other socket wrench components. The U.S.
government alleged that this activity began prior to the company's
acquisition of NHT in 1986 and continued to August 1988.
Item 6. - Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K.
Registrant filed a Current Report on Form 8-K, dated January 31,
1994, in respect of the Registrant's press release announcing year end
results.
Registrant filed a Current Report on Form 8-K, dated March 2,
1994, in respect of the Registrant's press release announcing its
first quarter dividend.
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: May 17, 1994 By: R. Huck
R. Huck
Vice President, Finance
and Chief Financial Officer
Date: May 17, 1994 By: T. F. Prime
T. F. Prime
Vice President and
Controller (Chief Accounting
Officer)
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<TABLE>
THE STANLEY WORKS AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(dollars and shares in thousands
except per share amounts)
<CAPTION>
FIRST QUARTER ENDED
APRIL 2 APRIL 3
1994 1993
Earnings per common share:
<S> <C> <C>
Weighted average shares outstanding 44,771 45,274
====== ======
Earnings before cumulative effect of
accounting change $25,593 $23,041
Cumulative effect of accounting change
for postemployment benefits (8,489)
------ ------
Net earnings $25,593 $14,552
====== ======
Per share amounts:
Before cumulative effect of
accounting change $0.57 $0.51
Cumulative effect of accounting change
for postemployment benefits (0.19)
------ ------
Net earnings $0.57 $0.32
====== ======
PRIMARY:
Weighted average shares outstanding 44,771 45,274
Dilutive common stock equivalents -
based on the treasury stock method
using average market price 646 731
------ ------
45,417 46,005
====== ======
Per share amounts:
Before cumulative effect of
accounting change $0.56 $0.50
Cumulative effect of accounting change
for postemployment benefits (0.18)
------ ------
Net earnings $0.56 $0.32
====== ======
FULLY DILUTED:
Weighted average shares outstanding 44,771 45,274
Dilutive common stock equivalents -
based on the treasury stock method
using the quarter end market price
if higher than average market price 646 808
------ ------
45,417 46,082
====== ======
Per share amounts:
Before cumulative effect of
accounting change $0.56 $0.50
Cumulative effect of accounting change
for postemployment benefits (0.18)
------ ------
Net earnings $0.56 $0.32
====== ======
<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>
<PAGE>
<TABLE>
Exhibit 12
THE STANLEY WORKS AND SUBSIDIARIES
COMPUTATION OF EARNINGS TO FIXED CHARGES
(in Millions of Dollars)
<CAPTION>
FIRST QUARTER
1994 1993
Earnings before income taxes and cumulative
effect of accounting change for postemployment
<S> <C> <C>
benefits $41.3 $37.5
Add:
Portion of rents representative of
interest factor $2.9 $3.1
Interest expense 8.0 8.1
Amortization of expense on
long-term debt 0.1
Amortization of capitalized interest 0.1 0.1
----- -----
Income as adjusted $52.3 $48.9
===== =====
Fixed charges:
Interest expense $8.0 $8.1
Amortization of expense
on long-term debt 0.1
Capitalized interest
Portion of rents representative of
interest factor 2.9 3.1
----- -----
Fixed charges $10.9 $11.3
===== =====
Ratio of earnings to fixed charges 4.80 4.33
===== =====
</TABLE>
