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 September 27, 1997.
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: (860) 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 89,268,693
as of November 10, 1997.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited, Millions of Dollars Except Per Share Amounts)
Third Quarter Nine Months
1997 1996 1997 1996
------ ------ ------- -------
Net Sales $ 650.5 $ 672.9 $ 1,970.7 $ 1,985.4
Costs and Expenses
Cost of sales 436.6 448.4 1,314.1 1,330.7
Selling, general and
administrative 148.2 151.7 455.2 453.8
Interest - net 4.2 5.2 12.9 17.1
Other - net 2.0 5.5 19.2 13.4
Restructuring and
asset write-offs 105.9 3.1 238.5 6.9
------ ------ ------- -------
696.9 613.9 2,039.9 1,821.9
------ ------ ------- -------
Earnings (Loss) before
income taxes (46.4) 59.0 (69.2) 163.5
Income Taxes ( 5.8) 21.3 (0.8) 63.6
------ ------ ------- ------
Net Earnings (Loss) $ (40.6) $ 37.7 $ (68.4) $ 99.9
====== ====== ======= ======
Net Earnings (Loss) Per
Share of Common Stock $ (0.46) $ 0.42 $ (0.77) $ 1.12
====== ====== ======= ======
Dividends per share $ 0.20 $ 0.185 $ 0.57 $ 0.545
====== ====== ======= ======
Average shares outstanding
(in thousands) 89,031 88,847 88,911 88,832
====== ====== ======= ======
See notes to consolidated financial statements.
-1-
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, Millions of Dollars)
Sept 27 Dec 28
1997 1996
-------- --------
ASSETS
Current Assets
Cash and cash equivalents $ 146.7 $ 84.0
Accounts receivable 483.2 446.3
Inventories 307.7 338.1
Other current assets 80.6 42.5
-------- --------
Total Current Assets 1,018.2 910.9
Property, plant and equipment 1,159.9 1,224.4
Less: accumulated depreciation (656.7) (654.0)
-------- --------
503.2 570.4
Goodwill and other intangibles 72.7 98.9
Deferred income taxes 36.8 -
Other assets 105.7 79.4
-------- --------
$ 1,736.6 $ 1,659.6
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $ 46.2 $ 4.9
Current maturities of long-term debt 52.4 15.1
Accounts payable 124.7 130.8
Accrued expenses 233.6 203.9
Accrued restructuring 118.8 26.9
-------- --------
Total Current Liabilities 575.7 381.6
Long-term debt 288.9 342.6
Other liabilities 231.9 155.3
Shareholders' Equity
Common stock 230.9 230.9
Retained earnings 799.0 919.0
Foreign currency translation adjustment (65.3) (45.5)
ESOP debt (227.3) (234.8)
-------- --------
737.3 869.6
Less: cost of common stock in treasury 97.2 85.4
-------- --------
Total Shareholders' Equity 640.1 780.1
-------- --------
$ 1,736.6 $ 1,659.6
======== ========
See notes to consolidated financial statements. -2-
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, Millions of Dollars)
Third Quarter Nine Months
1997 1996 1997 1996
------ ------ ------ ------
Operating Activities
Net earnings(loss) $(40.6) $ 37.7 $(68.4) $ 99.9
Depreciation and amortization 18.5 20.0 55.9 58.8
Restructuring and asset write-offs 105.9 3.1 238.5 6.9
Other non-cash items (31.7) 0.2 (45.8) 17.5
Changes in operating assets
and liabilities 22.4 (8.6) (54.4) 5.2
------ ------ ------ ------
Net cash provided by
operating activities 74.5 52.4 125.8 188.3
Investing Activities
Capital expenditures (18.8) (19.9) (55.3) (51.0)
Capitalized software (1.7) (5.7) (8.3) (16.5)
Proceeds from sales of businesses - 18.9 34.8 34.1
Investment in affiliated company (0.9) - (23.1) -
Other (3.0) (0.3) 0.3 (2.4)
------ ------ ------ ------
Net cash used by
investing activities (24.4) (6.4) (51.6) (35.8)
Financing Activities
Payments on long-term borrowings (1.2) (19.3) (4.6) (25.8)
Proceeds from long-term borrowings 0.5 - 2.8 -
Net short-term borrowings 20.4 (17.6) 41.8 (56.6)
Proceeds from issuance of common stock 9.8 4.8 25.2 31.9
Purchase of common stock for treasury (24.3) (9.0) (42.1) (56.0)
Cash dividends on common stock (16.5) - (33.0) (34.7)
------ ------ ------ ------
Net cash used by
financing activities (11.3) (41.1) (9.9) (141.2)
Effect of Exchange Rate Changes on Cash 0.3 0.6 (1.6) (1.7)
------ ------ ------ ------
Increase in Cash and
Cash Equivalents 39.1 5.5 62.7 9.6
Cash and Cash Equivalents,
Beginning of Period 107.6 79.5 84.0 75.4
------ ------ ------ ------
Cash and Cash Equivalents,
End of Third Quarter $146.7 $ 85.0 $146.7 $ 85.0
====== ====== ====== ======
See notes to consolidated financial statements.
- -3-
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(Unaudited, Millions of Dollars)
Nine Months
1997 1996
-------- -------
Balance at beginning of year $ 780.1 $ 734.6
Net earnings (loss) (68.4) 99.9
Currency translation adjustment (19.8) 10.0
Cash dividends declared (50.8) (48.7)
Net common stock activity (15.9) (23.9)
Tax benefit related to stock options 5.2 6.4
ESOP debt 7.5 7.1
ESOP tax benefit 2.2 2.3
-------- -------
Balance at end of third quarter $ 640.1 $ 787.7
======== =======
See notes to consolidated financial statements.
-4-
THE STANLEY WORKS AND SUBSIDIARIES
NOTES TO (Unaudited) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 27, 1997
NOTE A - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial statements and with the instructions to Form 10-Q and
Article 10 of Regulation S-X 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
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 28, 1996.
NOTE B - Earnings Per Share
Earnings per share are based upon the weighted average number of common
shares outstanding. The exercise of outstanding stock options would not
result in a material dilution of earnings per share. (See Exhibit 11)
In March 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share." This
Statement simplifies the computation of earnings per share (EPS) and
makes the computation more consistent with those of other countries.
The implementation will require the disclosure of basic and diluted EPS.
The company will adopt this Statement during the fourth quarter. The
company does not expect the adoption of this new standard to significantly
affect reported earnings per share amounts.
NOTE C - Inventories
The components of inventories at the end of the third quarter of 1997
and at year-end 1996, in millions of dollars, is as follows:
September 27 December 28
1997 1996
------ ------
Finished products $ 209.4 $ 223.2
Work in process 51.5 61.7
Raw materials 44.9 50.9
Supplies 1.9 2.3
------ ------
$ 307.7 $ 338.1
====== ======
-5-
NOTE D - Stock Option Charge
At the end of 1996, the company recruited a new chief executive officer. The
new CEO's employment agreement provided for stock option grants. These grants
included an option to purchase 1,000,000 shares of common stock at an exercise
price of $27.562. At the April 23, 1997 Annual Meeting, the shareholders
approved the stock option grants. As a result, 1997 operating results
included an $11 million, or $.07 per share, non-cash charge, representing the
difference between the exercise price for the 1,000,000 share option and the
fair market value of the option shares as of April 23, 1997.
NOTE E - Cash Flow Information
Interest paid during the third quarters of 1997 and 1996 amounted to $3.9
million and $4.4 million, respectively. Interest paid for the nine months of
1997 and 1996 amounted to $16.6 million and $18.6 million, respectively.
Income taxes paid during the third quarters of 1997 and 1996 were $13.9
million and $12.7 million, respectively. Income taxes paid for the nine months
of 1997 and 1996 were $70.6 million and $42.2 million, respectively.
NOTE F - Restructuring and Asset Write-offs
In 1997, the company announced plans to streamline its manufacturing, sales,
distribution and administrative operations, removing redundancies. The
company will reduce manufacturing and distribution facility locations from 123
to 72. Many of the closures will be effected by consolidating operations into
other Stanley facilities, others by outsourcing work to vendors. In addition,
the company reorganized its operations into a product management structure,
where eight product groups will be focusing on customers and sales growth
through development of new products and expanding market shares. In support
of this structure, manufacturing, engineering, sales and service, finance,
human resource and information technology functions will be centralized. This
will facilitate common systems and consolidation of redundant functions. The
implementation of these restructuring initiatives will also result in
additional transition costs which are expected to be incurred through mid-
1999. For the nine month period ended September 27, 1997, restructuring and
asset write-off charges of $239 million included the write-down of assets ($73
million), severance for the termination of 8,900 employees ($138 million),
other exit costs ($35 million) and gains on the divestiture of two businesses
($7 million). The restructuring reserves are expected to be utilized by the
end of 1999.
The 1997 restructuring initiatives, as well as the growth initiatives
announced in 1995 are progressing as planned. During the first nine months of
1997, the company made severance and other exit payments of $12 million. At
September 27, 1997, the reserve balance for the company's restructuring
activities was $186 million.
Note G - Subsequent Event
On November 10, 1997 the company completed the acquisition of the assets and
business operations of Atro Industriale, S.p.A., an Italian producer of
-6-
fastening systems and fasteners. The acquisition will be accounted for by the
the purchase method of accounting. This transaction is not expected to be
material to the company's financial position or results of operations.
-7-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The attached table, "Price/Volume Information" provides detail of the changes
in net sales by business segment and geographic region. In addition, the
attached tables, "Business Segment Information", provide clarification of
reported operating results for the third quarter and nine month periods of
1997 and 1996, reconciling them with normalized "core" results. Core results
exclude restructuring charges and restructuring-related transition costs
associated with the company's plan for sustained profitable growth announced
on July 18, 1997, the company's restructuring program that began in 1995 and a
one-time non-cash charge related to stock options granted to the company's new
chairman and chief executive officer. Restructuring-related transition costs
represent consulting, plant and equipment relocation, duplicate facility costs
and other operational expenses that in management's judgment are being
incurred directly as a result of the growth and restructuring initiatives.
This supplemental "core" information forms the basis for some of the following
commentary.
Net sales for the quarter were $651 million, down 3% from sales of $673
million in the same quarter of 1996. Business and product line divestitures,
primarily garage-related products, decreased U.S. sales by $32 million, or 5%.
Price declines and the effects of foreign currency translation decreased sales
by a combined 2%. Unit volume growth of 4% was experienced consistently across
all business segments. On a geographical basis, North American unit volume
increased 4%. European unit volume increased 3%, measured against a strong
third quarter 1996, but was more than offset by a 9%, or $9 million, decrease
in sales due to foreign currency translation effects. Net sales for the nine
month period in 1997 were $1,971 million down 1% from 1996 sales of $1,985
million. Business and product line divestitures decreased U.S. sales by $85
million, or 4%. Price declines net of foreign currency translation effects
decreased sales by a combined 2%. Ongoing businesses experienced unit volume
growth of 5% in the nine month period with strength in consumer tools,
fastening systems and mirrored closet doors.
Actual reported results were a net loss of $41 million, or $.46 per share in
the third quarter, compared with net income of $38 million, or $.42 per share
in the third quarter of 1996. For the nine month period, the net loss was $69
million, or $.77 per share, compared with net income of $100 million, or $1.12
per share for the same period last year. Restructuring charges,
restructuring-related transition costs and non-cash charges related to stock
options granted to the company's new chairman and chief executive officer
accounted for the reported losses. Restructuring charges of $106 million were
taken in the third quarter in connection with actions announced on July 18,
1997. These charges are in addition to the $137 million recorded in the
second quarter. The company also recorded $19 million, or $.14 per share, of
restructuring-related transition costs in the third quarter, comprised of $15
million related to initiatives announced in the third quarter of 1995 and $4
million related to growth initiatives announced in July 1997. These costs are
for moving, start-up and duplicative facility costs. As previously announced,
the company will incur approximately $100 million of restructuring -related
-8-
transition costs to through mid-1999 implement the 1997 growth initiatives.
For the nine month period, the restructuring-related transition costs and the
stock option charge were $52 million, or $.37 per share, compared with $22
million, or $.16 per share in the prior year.
Exclusive of restructuring and other transition-related charges, normalized or
"core" net income in the third quarter was $49 million, or $.55 per share, a
15% increase over prior year core earnings of $42 million, or $.48 per share.
Gross margins on a core basis were 34.2% of sales compared with 33.9% in the
prior year's quarter. The positive effects of restructuring initiatives
announced in 1995, including strong contributions from company-wide
procurement efforts, accounted for the improvement in gross margin.
On a core basis, operating expenses as a percent of sales for the third
quarter were 21.2% compared with 22.0% in 1996 and for the nine month period
were 22.1% compared with 22.2% in 1996. These improvements reflected the
benefits of the 1995 restructuring initiatives implemented to date and other
cost reduction efforts.
Overall operating margin on a core basis increased to 13.0% versus 11.9% last
year. Continued positive effects of 1995 restructuring initiatives, including
strong contributions from company-wide purchasing efforts, accounted for most
of the improvement.
In the Tools segment overall, third quarter unit volume sales increased 4%
over last year. Consumer tools unit growth was 4% and industrial tools
increased 3%, primarily reflecting improved mechanics tools and storage
systems volume in the U.S. Engineered tools increased 4% in unit volume, with
strong results in the company's hydraulic tools business and a continuation of
sales strength of fastening tools and fasteners. The strong environment for
favorable pricing in the fastening business, particularly in Europe, was less
robust this quarter than in prior quarters. Core operating profits in the
Tools segment for the quarter increased to 16.5% of sales, from 13.4% a year
ago. This improvement resulted from savings from company-wide purchasing
efforts, other restructuring initiatives and continued performance
improvements in the mechanics tools operations.
The Hardware segment saw 3% unit volume growth in the quarter, with continued
strong demand for Home Decor products in the Americas and Europe. Demand in
the U. S. consumer market for traditional hardware products continued to
reflect the lower levels of demand experienced in the second quarter. Core
operating profits declined to 11.6% of sales, from 12.6% in the prior year
reflecting difficulties experienced in transition to a new automated
distribution warehouse.
The Specialty Hardware segment experienced 4% unit growth with residential
entry door volume more robust than in prior quarters. Core operating results
decreased to a 5.6% profit on sales, from a 8.7% operating profit last year.
This decrease was principally due to production inefficiencies and the
continuation of an extremely competitive pricing environment in which the
-9-
company continues to defend market share. Over the nine month period of 1997
and in this third quarter, the profits in this segment have exceeded last
1996's full-year profit of 4.2%, and have improved in each successive quarter.
Restructuring and Asset Write-offs
In July 1997, the company announced initiatives designed to deliver profitable
sales and earnings growth on a sustained basis. Increased expenditures will
be made on new product development and expansion into a number of "near-
neighbor" or related products. Considerably greater resources will be
allocated to brand development, including advertising, so that customers think
of Stanley first and are always informed about the company's new products. To
support this thrust, a corporate marketing and brand development function has
been established, whose focus will be the nurturing and leveraging of the
Stanley brand. The company expects that pricing concessions will also be
required, in order to compete for sales to existing customers.
Funding for these initiatives will come from streamlining manufacturing,
sales, distribution and administrative operations, all of which are expected to
generate approximately $145 million for reinvestment when completed.
Manufacturing and distribution facility locations will decrease from 123 to
72. In addition, the company reorganized its operations into a product
management structure, and centralized manufacturing, engineering, sales and
service, finance, human resource and information technology. These actions are
expected to change the composition of the company's workforce and reduce net
employment levels by 4,500 people, a 23% net reduction from July 1997
employment of 20,000. The net reduction will be accomplished by the
elimination of approximately 8,900 positions, primarily through the plant
rationalization process and in the functions being centralized, and the hiring
of approximately 4,400 employees both at the remaining plants and for new
positions created for product development and "near-neighbor" and related
ventures.
Restructuring charges and asset write-offs total $239 million, $73 million of
which represents non-cash charges relating to write-offs of non-productive
assets including goodwill and capitalized software, $138 million of severance
for the termination of 8,900 employees and $28 million for other exit costs.
In addition, $100 million of restructuring-related transition costs are
anticipated in connection with these actions and will be incurred through mid-
1999.
Liquidity and Sources of Capital
Net cash provided by operating activities for the first nine months of 1997
was $126 million, a decrease of $63 million from the prior year. Operating
cash flow in 1996 was unusually high and reflected a non-recurring income tax
refund and lower working capital levels. When compared to the nine month
periods of 1995 and 1994, 1997 operating cash flow improved over $50 million.
Capital expenditures for the first nine months of 1997 and 1996 were $64
million and $68 million, respectively. For the current year, capital
expenditures are expected to be approximately $90 million. The company
anticipates that its operating cash flow and borrowing capacity will enable it
to fund its growth and restructuring initiatives, capital expenditures and
-10-
dividends.
At September 27, 1997, the reserve balance for the restructuring initiatives
was $186 million. Severance and other exit cost payments amounted to $12
million for the first nine months of 1997.
Accounting Change
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share."
This Statement simplifies the computation of earnings per share (EPS) and
makes the computation more consistent with those of other countries. The
implementation will require the disclosure of basic and diluted EPS. The
company will adopt this Statement during the fourth quarter. The company does
not expect the adoption of this new standard to significantly affect reported
earnings per share amounts.
Year 2000
The company has formed a cross-functional leadership team to make the
company's information systems Year 2000 compliant. The company does not yet
have a final estimate of the costs associated with this process, but it is
anticipated that the company will incur additional expenses during the
remainder of this year and throughout 1998.
Subsequent Event
On November 10, 1997 the company completed the acquisition of the assets and
business operations of Atro Industriale, S.p.A., an Italian producer of
fastening systems and fasteners. The acquisition will be accounted for by the
purchase method of accounting. This transaction is not expected to be
material to the company's financial position or results of operations.
- -11-
Cautionary Statements
Under the Private Securities Litigation Reform Act of 1995
Certain risks and uncertainties are inherent in the company's ability to
achieve the sustained profitable sales and earnings growth as outlined in the
"Restructuring and Asset Write-offs" section.
The company's ability to achieve this expected growth is dependent on several
factors. These factors include the ability to develop new products that will
be successful in the marketplace; to expand into "near neighbor" or related
products; to position Stanley(R) as a "Great Brand" in the marketplace; and to
position the company as a low cost producer.
These initiatives are in turn dependent on several factors. These include the
company's ability to generate the necessary cost savings to fund these
initiatives from a reallocation of resources, including the simplification of
the organization, the change in the composition of the workforce and the
standardization of the operating mechanisms. The success of the reallocation
is dependent upon the ability of the company's employees, with the help of
outside consultants, to develop and execute comprehensive plans to provide for
smooth transitions for all elements of the reallocation; the ability to retain
existing employees throughout the transition; the successful recruitment and
training of new employees for the positions that relate to the growth
initiatives; the need to respond to significant changes in product demand
during the transition; and unforeseen events. The company's ability to
achieve the expected cost savings is also dependent on the reallocation
generating internal efficiencies, and on the ability of the organization to
withstand pricing pressures; the continued consolidation of customers in
consumer channels; increasing global competition; changes in trade, monetary
and fiscal policies and laws; inflation and currency exchange fluctuations;
and recessionary or expansive trends in the economies of the world in which
the company operates. The achievement of "near neighbor" and related product
growth and the ability of the company to become a low cost producer will
depend upon the ability to successfully identify, negotiate, consummate and
integrate into operations joint ventures and/or strategic alliances.
- -12-
THE STANLEY WORKS AND SUBSIDIARIES
PRICE/VOLUME INFORMATION
(Unaudited, Millions of Dollars)
NET SALES
Third Quarter
----------------------------------------------------
Unit ACQ/
1997 Price Volume DVT Currency 1996
----------------------------------------------------
INDUSTRY SEGMENTS
Tools
Consumer $ 187.9 - 4% (3)% (3)% $ 191.7
Industrial 130.0 - 3% (2)% - 128.7
Engineered 172.0 (2)% 4% (1)% (2)% 173.3
------ ------
Total Tools 489.9 (1)% 4% (2)% (2)% 493.7
Hardware 85.5 (1)% 3% - (1)% 84.3
Specialty Hardware 75.1 - 4% (25)% - 94.9
------ ------
Consolidated $ 650.5 (1)% 4% (5)% (1)% $ 672.9
====== ======
GEOGRAPHIC AREAS
United States $ 464.5 (1)% 4% (6)% - $ 478.3
Europe 97.8 - 3% (1)% (9)% 105.1
Other Areas 88.2 1% 7% (6)% (3)% 89.5
------ ------
Consolidated $ 650.5 (1)% 4% (5)% (1)% $ 672.9
====== ======
Year to Date
----------------------------------------------------
Unit ACQ/
1997 Price Volume DVT Currency 1996
----------------------------------------------------
INDUSTRY SEGMENTS
Tools
Consumer $ 554.1 - 7% (4)% (2)% $ 548.2
Industrial 404.2 1% 1% (2)% - 403.5
Engineered 530.5 (1)% 6% - (2)% 514.6
------- -------
Total Tools 1,488.8 - 5% (2)% (1)% 1,466.3
Hardware 264.8 (1)% 6% - (1)% 255.4
Specialty Hardware 217.1 (1)% 5% (22)% - 263.7
------- -------
Consolidated $ 1,970.7 (1)% 5% (4)% (1)% $ 1,985.4
======= =======
GEOGRAPHIC AREAS
United States $ 1,400.0 (1)% 4% (5)% - $ 1,421.0
Europe 311.9 (1)% 6% - (6)% 314.2
Other Areas 258.8 1% 8% (4)% (1)% 250.2
------- -------
Consolidated $ 1,970.7 (1)% 5% (4)% (1)% $ 1,985.4
======= =======
-13-
THE STANLEY WORKS AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(Unaudited, Millions of Dollars)
OPERATING PROFIT
Third Quarter 1997
-----------------------------------------------------
Related Core
Restrg Transition Profit
Reported Charges Costs Core Margin
-----------------------------------------------------
INDUSTRY SEGMENTS
Tools $ (15.7) $ 83.0 $ 13.6 $ 80.9 16.5%
Hardware (3.3) 9.9 3.3 9.9 11.6%
Specialty Hardware (6.2) 9.2 1.2 4.2 5.6%
------ ----- ----- -----
Total (25.2) 102.1 18.1 95.0 14.6%
Net corporate
expenses (14.8) 3.8 0.6 (10.4)
Interest expense (6.4) - - (6.4)
------ ----- ----- -----
Earnings(loss)before
income taxes $ (46.4) $ 105.9 $ 18.7 $ 78.2
====== ===== ===== =====
GEOGRAPHIC AREAS
United States $ 1.5 $ 56.8 $ 13.9 $ 72.2 15.5%
Europe (27.4) 37.3 2.1 12.0 12.3%
Other Areas 0.7 8.0 2.1 10.8 12.2%
------ ----- ----- -----
Total $ (25.2) $ 102.1 $ 18.1 $ 95.0 14.6%
====== ===== ===== =====
Third Quarter 1996
----------------------------------------------------
Related Core
Restrg Transition Profit
Reported Charges Costs Core Margin
----------------------------------------------------
INDUSTRY SEGMENTS
Tools $ 56.7 $ 3.7 $ 5.8 $ 66.2 13.4%
Hardware 9.6 - 1.0 10.6 12.6%
Specialty Hardware 7.8 - 0.5 8.3 8.7%
----- ----- ----- -----
Total 74.1 3.7 7.3 85.1 12.6%
Net corporate
expenses (8.7) (0.6) 0.1 (9.2)
Interest expense (6.4) - - (6.4)
----- ----- ----- -----
Earnings before
income taxes $ 59.0 $ 3.1 $ 7.4 $ 69.5
===== ===== ===== =====
- -14-
GEOGRAPHIC AREAS
United States $ 59.3 $ 1.6 $ 5.5 $ 66.4 13.9%
Europe 10.2 1.8 0.4 12.4 11.8%
Other Areas 4.6 0.3 1.4 6.3 7.0%
----- ----- ----- -----
Total $ 74.1 $ 3.7 $ 7.3 $ 85.1 12.6%
===== ===== ===== =====
THE STANLEY WORKS AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(Unaudited, Millions of Dollars)
OPERATING PROFIT
Year to Date 1997
----------------------------------------------------
Related Core
Restrg Transition Profit
Reported Chgs Costs* Core Margin
----------------------------------------------------
INDUSTRY SEGMENTS
Tools $ 2.0 $ 194.8 $ 31.6 $ 228.4 15.3%
Hardware 11.1 17.8 7.3 36.2 13.7%
Specialty Hardware (13.7) 23.5 1.4 11.2 5.2%
----- ----- ----- -----
Total (0.6) 236.1 40.3 275.8 14.0%
Net corporate
expenses (50.2) 2.4 11.7 (36.1)
Interest expense (18.4) - - (18.4)
----- ----- ----- -----
Earnings(loss)before
income taxes $ (69.2) $ 238.5 $ 52.0 $ 221.3
===== ===== ===== =====
GEOGRAPHIC AREAS
United States $ 35.7 $ 145.6 $ 30.0 $ 211.3 15.1%
Europe (28.1) 61.8 5.6 39.3 12.6%
Other Areas (8.2) 28.7 4.7 25.2 9.7%
----- ----- ----- -----
Total $ (0.6) $ 236.1 $ 40.3 $ 275.8 14.0%
===== ===== ===== =====
Year to Date 1996
----------------------------------------------------
Related Core
Restrg Transition Profit
Reported Chgs Costs Core Margin
----------------------------------------------------
INDUSTRY SEGMENTS
Tools $ 167.4 $ 4.4 $ 16.3 $ 188.1 12.8%
Hardware 31.9 - 3.2 35.1 13.7%
Specialty Hardware 16.8 - 1.5 18.3 6.9%
----- ----- ----- -----
Total 216.1 4.4 21.0 241.5 12.2%
- -15-
Net corporate
expenses (31.6) 2.5 1.4 (27.7)
Interest expense (21.0) - - (21.0)
----- ----- ----- -----
Earnings before
income taxes $ 163.5 $ 6.9 $ 22.4 $ 192.8
===== ===== ===== =====
GEOGRAPHIC AREAS
United States $ 168.1 $ 1.7 $ 17.4 $ 187.2 13.2%
Europe 31.1 1.8 1.4 34.3 10.9%
Other Areas 16.9 0.9 2.2 20.0 8.0%
----- ----- ----- -----
Total $ 216.1 $ 4.4 $ 21.0 $ 241.5 12.2%
===== ===== ===== =====
* Includes stock option charge.
- -16-
PART II OTHER INFORMATION
Item 2. - Changes in Securities and Use of Proceeds
(c) Recent Sales of Unregistered Securities
(1) On June 30, 1997, options were granted to acquire 56,703 shares under the
U.K. and German Savings Related Share Plans (the "Savings Plans").
(2) Participation in the Savings Plans was offered to all employees of the
Company's subsidiaries in the United Kingdom and Germany respectively.
(3) The exercise price for the options is US$33.1333 per share.
(4) Neither the options nor the underlying shares have been registered in
reliance on an exemption from registration found in several no-action letters
issued by the Division of Corporation Finance of Securities and Exchange
Commission. Registration is not required because the Company is reporting
company under the Securities Exchange Act of 1934, its shares are actively
traded, the number of shares issuable under the Savings Plans is small
relative to the number of shares outstanding, all eligible employees are
entitled to participate, the shares are being issued in connection with the
employees' compensation not in lieu of it and there is no negotiation between
the Company and the employee regarding the grant.
(5) Under the Savings Plans, employees are given the right to buy a specified
number of shares with the proceeds of a "Save-as-You-Earn" savings contract.
Under the savings contract, the employee authorizes 60 monthly deductions from
his or her paycheck At the end of the five year period, the employee may
elect to (i) use all or a part of the accumulated savings to buy all or some
of the shares under the employee's options, (ii) leave the accumulated savings
with the financial institution that has custody of the funds for an additional
two years or (iii) take a cash distribution of the accumulated savings. The
option to purchase shares will lapse at the end of the five year period if not
exercised at that time.
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
(1) See Exhibit Index on page 18
(b) Reports on Form 8-K.
(1) Registrant filed a Current Report on Form 8-K, dated July 18,
1997, in respect of (i) statements made at a meeting with
industry analysts on July 18, 1997 and (ii) the issuance of four
press releases announcing the third quarter dividend payment,
second quarter earnings, production and workforce changes in
Central Connecticut and the closing of a manufacturing facility
in Georgetown, Ohio.
- -17-
(2) Registrant filed a Current Report on Form 8-K, dated August
22, 1997, in respect of the Registrant's press release
announcing the hiring of three new executives.
Signature
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, 1997 By: Theresa F. Yerkes
Theresa F. Yerkes
Vice President and
Controller (Chief Financial
Officer, Chief Accounting
Officer and Authorized
Signatory of the Registrant)
- -18-
EXHIBIT INDEX
(11) Statement re Computation of Per Share Earnings
(12) Statement re Computation of Ratios
(27) Financial Data Schedule
- -19-
Exhibit 11
THE STANLEY WORKS AND SUBSIDIARIES
STATEMENT OF PER SHARE EARNINGS
(dollars and shares in thousands except per share amounts)
THIRD QUARTER ENDED
NINE MONTHS ENDED
Sept 27
Sept 28
Sept 27
Sept 28
1997
1996
1997
1996
-------
-------
-------
-------
Earnings per common share:
Weighted average shares outstanding
89,031
88,847
88,911
88,832
========
=======
========
=======
Net Earnings (Loss)
($40,591)
$37,677
($68,397)
$99,867
========
=======
========
=======
Per share amounts
($0.46)
$0.42
($0.77)
$1.12
========
=======
========
=======
PRIMARY:
Weighted average shares outstanding
89,031
88,847
88,911
88,832
Dilutive common stock equivalents -
based on the treasury stock method
using average market price
1,645
1,296
1,607
1,327
-------
-------
-------
-------
90,676
90,143
90,518
90,159
=======
=======
=======
=======
Per share amounts
($0.45)
$0.42
($0.76)
$1.11
=======
=======
=======
=======
FILLY DILUTED:
Weighted average shares outstanding
89,031
88,847
88,911
88,832
Dilutive common stock equivalents -
based on the treasury stock method
using average market price
1,645
1,296
1,645
1,348
-------
-------
-------
-------
90,776
90,143
90,556
90,180
=======
=======
=======
=======
Per share amounts
($0.45)
$0.42
($0.76)
$1.11
=======
=======
=======
=======
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%.
- -20-
Exhibit 12
THE STANLEY WORKS AND SUBSIDIARIES
COMPUTATION OF EARNINGS TO FIXED CHARGES
(In Millions of Dollars)
THIRD QUARTER
NINE MONTHS
1997
1996
1997
1996
-------
-------
-------
-------
Earnings (loss) before income taxes
($46.4)
$59.0
($69.2)
$163.5
Add:
Portion of rents representative
of interest factor
3.1
3.3
9.3
10.0
Interest expense
6.4
6.3
18.1
20.6
Amortization of expense on
long-term debt
- -
0.1
0.1
0.2
Capitalized interest
0.1
- -
0.2
0.2
- -------
- -------
- -------
- -------
Income (loss) as adjusted
($36.8)
$68.7
($41.5)
$194.5
=======
=======
=======
=======
Fixed charges:
Interest expense
6.4
6.3
18.1
20.6
Amortization of expense
on long-term debt
- -
0.1
0.1
0.2
Capitalized interest
0.1
0.1
0.2
0.2
Portion of rents representative
of interest factor
3.1
3.3
9.3
10.0
- -------
- -------
- -------
- -------
Fixed charges
$9.6
$9.8
$27.7
$31.0
=======
=======
=======
=======
Ratio of earnings to fixed charges(A)
N/A
7.0
N/A
6.3
=======
=======
=======
=======
(A)Due to significant restructuring charges and asset write-offs recorded in
1997, income as computed above, was inadequate to cover fixed charges. The
deficiency was $46.4 for the third quarter and $69.2 for the first nine
nine months of 1997.
- -21-
[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
<TABLE>
<S> <C>
[PERIOD-TYPE] 9-MOS
[FISCAL-YEAR-END] JAN-03-1998
[PERIOD-END] SEP-27-1997
[CASH] 146,700
[SECURITIES] 0
[RECEIVABLES] 483,200
[ALLOWANCES] 0
[INVENTORY] 307,700
[CURRENT-ASSETS] 1,018,200
[PP&E] 1,159,900
[DEPRECIATION] 656,700
[TOTAL-ASSETS] 1736,600
[CURRENT-LIABILITIES] 575,700
[BONDS] 288,900
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 230,900
[OTHER-SE] 409,200
[TOTAL-LIABILITY-AND-EQUITY] 1,736,600
[SALES] 1,970,700
[TOTAL-REVENUES] 1,970,700
[CGS] 1,314,100
[TOTAL-COSTS] 1,314,100
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 12,900
[INCOME-PRETAX] (69,200)
[INCOME-TAX] (800)
[INCOME-CONTINUING] (68,400)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (68,400)
[EPS-PRIMARY] (.76)
[EPS-DILUTED] 0
</TABLE>
