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 April 1, 1995
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 44,358,931
as of May 5, 1995.
<TABLE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Millions of Dollars)
<CAPTION>
FIRST QUARTER
1995 1994
<S> <C> <C>
Net Sales $ 643.3 $ 585.7
Costs and Expenses
Cost of sales 437.6 394.4
Selling, general and
administrative 147.3 133.8
Interest - net 7.5 7.4
Other - net 4.6 8.8
------- -------
597.0 544.4
------- -------
Earnings Before Income Taxes 46.3 41.3
Income Taxes 17.6 15.7
------- -------
Net Earnings $ 28.7 $ 25.6
======= =======
Net Earnings Per Share of
Common Stock $ 0.65 $ 0.57
======= =======
Dividends per share $ 0.35 $ 0.34
Average shares outstanding 44,414 44,771
(in thousands)
<FN>
See notes to consolidated financial statements.
</TABLE>
-1-
<TABLE>
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Millions of Dollars)
<CAPTION>
April 1 Dec 31
1995 1994
ASSETS
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 40.5 $ 69.3
Accounts and notes receivable 428.7 410.3
Inventories 406.6 369.2
Other current assets 38.2 39.7
------ ------
Total Current Assets 914.0 888.5
Property, Plant and Equipment 1,148.4 1,128.6
Less: accumulated depreciation (588.5) (568.8)
------- -------
559.9 559.8
Goodwill and Other Intangibles 163.5 164.6
Other Assets 91.0 88.2
------- -------
$ 1,728.4 $ 1,701.1
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $ 113.4 $ 82.8
Current maturities of long-term debt 11.0 10.9
Accounts payable 106.2 125.3
Accrued expenses 194.1 202.5
------- -------
Total Current Liabilities 424.7 421.5
Long-Term Debt 406.2 387.1
Deferred Income Taxes 14.4 14.4
Other Liabilities 133.2 133.9
Shareholders' Equity
Common Stock 115.4 115.4
Capital in excess of par value 69.5 70.1
Retained earnings 951.8 937.8
Foreign currency translation adjustment (63.6) (56.3)
ESOP Debt (251.5) (253.7)
------- -------
821.6 813.3
Less: cost of common stock in treasury 71.7 69.1
------- -------
Total Shareholders' Equity 749.9 744.2
------- -------
$ 1,728.4 $ 1,701.1
======= =======
<FN>
See notes to consolidated financial statements.
-2-
</TABLE>
<TABLE>
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions of Dollars)
<CAPTION>
FIRST QUARTER
1995 1994
Operating Activities
<S> <C> <C>
Net Earnings $ 28.7 $ 25.6
Depreciation and amortization 21.9 21.2
Other non-cash items 6.2 5.3
Changes in operating assets
and liabilities (62.7) (58.0)
------ ------
Net cash used by
operating activities (5.9) (5.9)
Investing Activities
Capital expenditures (13.0) (13.2)
Proceeds from sales of assets 0.3 1.6
Other (5.1) (0.3)
------ ------
Net cash used by
investing activities (17.8) (11.9)
Financing Activities
Payments on long-term debt (0.3) (0.5)
Net short-term borrowings 29.1 38.2
Proceeds from issuance of common stock 0.5 0.3
Purchase of common stock for treasury (6.4)
Cash dividends on common stock (30.0) (29.9)
------ ------
Net cash provided (used) by
financing activities (7.1) 8.1
Effect of Exchange Rate Changes on Cash 2.0 2.5
------ ------
Decrease in Cash and Cash Equivalents (28.8) (7.2)
Cash and Cash Equivalents,
Beginning of Period 69.3 43.7
------ ------
Cash and Cash Equivalents,
End of First Quarter $ 40.5 $ 36.5
===== =====
<FN>
See notes to consolidated financial statements.
-3-
</TABLE>
<TABLE>
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
(Millions of Dollars)
<CAPTION>
THREE MONTHS
1995 1994
<S> <C> <C>
Balance at beginning of year $ 744.2 $ 680.9
Net earnings 28.7 25.6
Currency translation adjustment (7.3) (1.7)
Cash dividends declared (15.6) (15.2)
Net common stock activity (2.3) 2.6
ESOP debt 2.2 2.1
-------- --------
Balance at end of first quarter $ 749.9 $ 694.3
======== ========
<FN>
See notes to consolidated financial statements.
-4-
</TABLE>
THE STANLEY WORKS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 1, 1995
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 December 31, 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 1995
and at year-end 1994, in millions of dollars, is as follows:
April 1 December 31
1995 1994
------ ------
Finished products $ 262.1 $ 238.6
Work in process 77.1 68.4
Raw materials 64.1 59.4
Supplies 3.3 2.8
------ ------
$ 406.6 $ 369.2
====== ======
-5-
NOTE D - Cash Flow Information
Interest paid during the first quarter of 1995 and 1994 amounted to $4.4
million and $8.2 million, respectively.
Income taxes paid during the first quarter of 1995 and 1994 were $9.6
million and $10.4 million, respectively.
-6-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
First quarter sales of $643 million were 10% higher than the $586 million
reported last year. Net earnings were $29 million compared with $26 million
last year. Earnings per share of $.65 represented a 14% increase over earnings
per share of $.57 reported for the first quarter 1994.
The company is pleased to report that 1995 has begun with a continuation of the
strong internal growth that it experienced last year. These volume gains,
which are spread across all businesses, added 9% to sales during the quarter.
This pattern reflects both the strength and diversity in the geographic markets
and industries the company serves as well as its aggressive initiatives to
increase sales. Price increases also contributed a modest 1% to the sales
total.
While sales performance in this quarter achieved the targeted goal, the company
is not as satisfied with its earnings improvement. However, the company
recognizes that its commitment to long-term growth necessitates sacrificing
some short-term profitability increases in order to accomplish strategic
manufacturing rationalization as well as to invest in marketing and sales
efforts to enhance future revenues.
Gross margins reported for the first quarter 1995 were 32.0%, compared with
32.7% reported in the same quarter last year. Much of the decline in margin
was attributable to costs incurred in connection with closing a manufacturing
plant and integrating production into existing facilities of the Mechanics
Tools division. While these expenses are expected to continue into the second
quarter, it is anticipated that the project will ultimately generate an overall
positive contribution to earnings and the division's future competitive cost
structure will be significantly enhanced. Operating expenses were 22.9% of
sales compared with 22.8% in the prior year. Efficiencies realized from the
increased sales volume were more than offset by planned expenditures targeted
at geographic and new market expansion.
Interest-net expense for the first quarter was 1.2% of sales, or $7 million,
compared with 1.3% in the prior year. Other-net expenses were $5 million, or
.7% of sales, compared with $9 million, or 1.5% of sales last year. Other-net
in the prior year included some small non-recurring charges as well as higher
foreign currency transaction losses.
Net sales in the United States for the first quarter increased 8%. Consistent
with prior year trends, internal growth of 9% accounted for substantially all
of the sales gain. Price increases contributed 1% to sales; however, this
increase was more than offset by a 2% decline in sales due to divestiture
activity. Operating margins of 10.3% reflected costs associated with the
Mechanics Tools plant rationalization.
-7-
Europe continued the performance improvements begun last year with sales
increasing 22% in the first quarter. Internal volume gains contributed 9% and
price increases contributed 2%. The translation of strengthening European
currencies increased sales by 11%. Operating margins improved to 11.5% from
11.0% in the prior year. Operating margin improvement would have improved
further if not for the continuing impact of operating inefficiencies at the
Acmetrack facility in France.
Net sales in Other Areas increased 5% over the prior year, reflecting internal
growth of 6% realized across most regions. The net effect of price increases
and currency translation decreased sales by 1%. Operating profits were $5.0
million compared with $5.9 million in the prior year.
Net sales for the Tools segment increased 10% for the quarter, primarily the
result of volume gains of 8% realized across all businesses. Price increases
added 2% to sales, however, this increase was partially offset by a 1% decrease
due to divestiture activity. The effect of foreign currency translation
increased sales by 1%. Operating profits of $53 million were 10% higher than
the prior year and operating margins of 11.0% were unchanged.
Net sales for the Hardware segment increased 9% with 8% contributed by internal
growth, primarily in the U.S. Foreign currency translation added 1%.
Operating margins of 10.0% declined from 11.5% reported in the first quarter
last year. While improvements in operating margins were realized over the
fourth quarter 1994, the operational issues being addressed in the Acmetrack
business in France continue to depress profits. Margins were also somewhat
negatively impacted by a delay in seating U.S. price increases in certain
product lines; however, these increases are now in place and should be
reflected in operating profits later in the year.
Specialty Hardware sales increased 13% over the previous year. Internal volume
increases in this segment continued to be substantial, with gains of 14% in the
first quarter. The net effect of discounting and price changes decreased
sales by 1%. Operating profits, which are generally lower in the first quarter
for this segment, were 3.5% compared with 4.7% in the prior year. The
decrease in margins reflects the timing of sales and marketing expenditures
targeted at increasing sales volume in the doors business.
The company is pleased that it achieved its targeted sales growth in the first
quarter. This increased volume was realized through aggressive competitive
efforts which provided good growth for the businesses despite weakness in the
U.S. at the retail level and a decline in new housing activity. The company's
actions are continuing to produce positive incoming business activity, backlogs
remain at high levels and the company expects to produce solid sales results in
the second quarter.
The company will continue with its efforts to improve operations and business
systems and to invest in developing new markets. While these expenditures may
well impact quarterly comparisons, the company's expectations are for solid
improvement and a record year in 1995.
-8-
Liquidity and Sources of Capital
During the first quarter, the company experienced a $28.8 million decrease in
its cash position. Operating cash flow in the first quarter is typically lower
than subsequent quarters. 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 $80 million.
-9-
<TABLE>
THE STANLEY WORKS AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(Millions of Dollars)
<CAPTION>
FIRST QUARTER
1995 1994
INDUSTRY SEGMENTS
Net Sales
Tools
<S> <C> <C>
Consumer $ 173.5 $ 162.6
Industrial 143.8 130.5
Engineered 166.5 148.6
-------- --------
Total Tools 483.8 441.7
Hardware 84.7 77.6
Specialty Hardware 74.8 66.4
-------- --------
Consolidated $ 643.3 $ 585.7
======== ========
Operating Profit
Tools $ 53.0 $ 48.4
Hardware 8.5 8.9
Specialty Hardware 2.6 3.1
-------- --------
Total 64.1 60.4
Net corporate expenses (8.9) (11.0)
Interest expense (8.9) (8.1)
-------- --------
Earnings before
income taxes $ 46.3 $ 41.3
======== ========
GEOGRAPHIC AREAS
Net Sales
United States $ 454.6 $ 420.2
Europe 107.8 88.4
Other Areas 80.9 77.1
-------- --------
Consolidated $ 643.3 $ 585.7
======== ========
Operating Profit
United States $ 46.7 $ 44.8
Europe 12.4 9.7
Other Areas 5.0 5.9
-------- --------
Total $ 64.1 $ 60.4
======== ========
<FN>
See notes to consolidated financial statements.
-10-
</TABLE>
PART II - OTHER INFORMATION
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits - See Exhibit Index on page 12
(b) Reports on Form 8-K.
Registrant filed a Current Report on Form 8-K, dated January 31,
1995, in respect of the Registrant's press release announcing 1994 year-end
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: May 15, 1995 By: Richard Huck
Richard Huck
Vice President, Finance
and Chief Financial Officer
Date: May 15, 1995 By: Theresa F. Yerkes
Theresa F. Yerkes
Vice President and
Controller (Chief Accounting
Officer)
-11-
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
-12-
<TABLE>
Exhibit 11
THE STANLEY WORKS AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(dollars and shares in thousands
except per share amounts)
<CAPTION>
FIRST QUARTER ENDED
APRIL 1 APRIL 2
1995 1994
Earnings per common share:
<S> <C> <C>
Weighted average shares outstanding 44,414 44,771
====== ======
Net earnings $28,736 $25,593
====== ======
Per share amounts $0.65 $0.57
====== ======
PRIMARY:
Weighted average shares outstanding 44,414 44,771
Dilutive common stock equivalents -
based on the treasury stock method
using average market price 480 646
------ ------
44,894 45,417
====== ======
Per share amounts $0.64 $0.56
====== ======
FULLY DILUTED:
Weighted average shares outstanding 44,414 44,771
Dilutive common stock equivalents -
based on the treasury stock method
using the quarter end market price
if higher than average market price 480 646
------ ------
44,894 45,417
====== ======
Per share amounts $0.64 $0.56
====== ======
<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>
FIRST QUARTER
1995 1994
<S> <C> <C>
Earnings before income taxes $46.3 $41.3
Add:
Portion of rents representative of
interest factor 3.3 2.9
Interest expense 8.8 8.0
Amortization of capitalized interest 0.1 0.1
----- -----
Income as adjusted $58.5 $52.3
===== =====
Fixed charges:
Interest expense $8.8 $8.0
Portion of rents representative of
interest factor 3.3 2.9
----- -----
Fixed charges $12.1 $10.9
===== =====
Ratio of earnings to fixed charges 4.83 4.80
===== =====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE STANLEY WORKS AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AND
STATMENTS OF EARNINGS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> APR-01-1995
<CASH> 40,500
<SECURITIES> 0
<RECEIVABLES> 428,700
<ALLOWANCES> 0
<INVENTORY> 406,600
<CURRENT-ASSETS> 914,000
<PP&E> 1,148,400
<DEPRECIATION> 588,500
<TOTAL-ASSETS> 1,728,400
<CURRENT-LIABILITIES> 424,700
<BONDS> 406,200
<COMMON> 115,400
0
0
<OTHER-SE> 634,500
<TOTAL-LIABILITY-AND-EQUITY> 1,728,400
<SALES> 643,300
<TOTAL-REVENUES> 643,300
<CGS> 437,600
<TOTAL-COSTS> 437,600
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,500
<INCOME-PRETAX> 46,300
<INCOME-TAX> 17,600
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,700
<EPS-PRIMARY> .65
<EPS-DILUTED> 0
</TABLE>
