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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended January 3, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
COMMISSION FILE 1-5224
THE STANLEY WORKS
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CONNECTICUT 06-0548860
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
1000 STANLEY DRIVE
NEW BRITAIN, CONNECTICUT 06053
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(860) 225-5111
(REGISTRANT'S TELEPHONE NUMBER)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock--Par Value $2.50 Per Share New York Stock Exchange
Pacific Exchange
9% Notes due 1998*
7 3/8% Notes Due December 15, 2002
*repaid February 1, 1998
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ].
The aggregate market value of Common Stock, par value $2.50 per share, held
by non-affiliates (based upon the closing sale price on the New York Stock
Exchange) on March 30, 1998 was approximately $4.8 billion. As of March 30,
1998, there were 89,109,513 shares of Common Stock, par value $2.50 per share,
outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended
January 3, 1998 are incorporated by reference into Parts I and II.
Portions of the definitive Proxy Statement dated March 9, 1998, filed with
the Commission pursuant to Regulation 14A, are incorporated by reference into
Part III.
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FORM 10-K
Part I
Item 1. Business
1(a) Introduction. (i) General. The Stanley Works ("Stanley" or the
"Company") was founded in 1843 by Frederick T. Stanley and incorporated in
1852. Stanley is a worldwide producer of tools, hardware and door products for
professional, industrial and consumer use. Stanley(R) is a brand recognized
around the world for quality and value.
In 1997, Stanley had net sales of $2.7 billion and employed approximately
18,000 people worldwide. The Company's principal executive office is located at
1000 Stanley Drive, New Britain, Connecticut 06053 and its telephone number is
(860) 225-5111.
(ii) July 1997 Restructuring Initiative. On July 18, 1997 the company
announced a major initiative to reallocate resources in order to deliver
profitable growth on a sustained basis. This growth will be fueled by increased
spending on new product development, new ventures to expand the Company's
markets and brand development with the savings achieved from streamlining
operations and reorganizing into a product management structure. The company
has moved from a portfolio company with 11 fully independent businesses to a
single operating company comprised of eight product groups, three geographic
regions and corporate leaders of brand development, operations, technology and
several support functions. The support functions such as finance, human
resources and information technology are being centralized. Manufacturing and
distribution operations are being rationalized. The company plans to move from
83 manufacturing plants to 45 and from 40 distribution facilities to 25. The
sales organization has been reorganized to reduce redundant coverage of key
customers and channels. Overall, these actions will change the composition of
the company's workforce and are expected to reduce net employment levels by
4,500 people.
1(b) Industry Segment Information. Financial information regarding the
Company's industry segments is incorporated herein by reference from page 29 of
the Company's Annual Report to Shareholders for the year ended January 3, 1998.
1(c) Narrative Description of Business. The Company's operations are
classified into three industry segments: Tools, Hardware and Specialty
Hardware.
Tools. The Tools segment manufactures and markets consumer, industrial and
engineered tools. Consumer tools includes hand tools such as measuring
instruments, planes, hammers, knives and
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blades, wrenches, sockets, screwdrivers, saws, chisels, boring tools, masonry,
tile and drywall tools, paint preparation and paint application tools.
Industrial tools includes industrial and mechanics hand tools, including
STANLEY-PROTO(R) industrial tools and MAC(R) mechanics tools, and high-density
industrial storage and retrieval systems. Engineered tools includes
STANLEY-BOSTITCH(R) fastening tools and fasteners used for commercial,
industrial, construction, packaging and consumer use; hydraulic tools (these
are hand-held hydraulic tools used by contractors, utilities, railroads and
public works as well as mounted demolition hammers and compactors designed to
work on skid steer loaders, mini-excavators, backhoes and large excavators);
and air tools (these are high performance, precision assembly tools,
controllers and systems for tightening threaded fasteners used chiefly by
vehicle manufacturers).
Hardware. The hardware segment manufactures and markets hardware products
ranging from hinges, hasps, shelf brackets, bolts and latches to a line of
closet organizing systems and mirrored closet doors, door hardware and wall
mirrors.
Specialty Hardware. The specialty hardware segment manufactures and markets
residential insulated steel and reinforced fiberglass entrance door systems and
automatic doors.
Competition. The Company competes on the basis of its reputation for
product quality, its well-known brands, its commitment to customer service and
strong customer relationships, the breadth of its product lines and its
emphasis on product innovation. The Company is also striving to find new
customers both within the markets that it currently serves and in new markets
around the world.
The Company encounters active competition in all of its businesses from
both larger and smaller companies that offer the same or similar products and
services or that produce different products appropriate for the same uses. In
1997, the Company invested approximately $84 million in facilities, new
equipment, technology and software in order to achieve enhanced customer
service, operational excellence in manufacturing and new product innovation.
In the Company's consumer hand tool and consumer hardware businesses, a
small number of competitors produce a range of products somewhat comparable to
the Company's, but the majority of its competitors compete only with respect to
one or more individual products within a particular line. The Company believes
that it is the largest manufacturer of consumer hand tools in the world and
that it offers the broadest line of such products. The Company believes that
its market position in the U.S. and Canada for consumer hardware is comparable
to or greater than that of its major competitors and that it offers the
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broadest line of hinges and home hardware, which represents the most important
part of its hardware product sales.
In the Company's industrial tool business in the U.S., the Company believes
that it is the leading manufacturer of high-density industrial storage
cabinets. In the Company's engineered tool business in the U.S., the Company
believes that it is the leader in the manufacture and sale of pneumatic
fastening tools and related fasteners to professional contractors and to the
furniture and pallet industries as well as the leading manufacturer of
hand-held hydraulic tools and a leading manufacturer of mounted hydraulic
tools. In 1997, there was significant price erosion for certain fastening tools
manufactured by the Company. Highly engineered fastening tools have
historically been protected from low-cost foreign sourced competition due to a
market preference for a higher quality U.S. made product. The introduction of
foreign sourced tools of an acceptable quality resulted in significant pricing
pressure on the market for these products. In addition, the Company reduced its
prices in Europe in a strategic response to market conditions.
In the Company's hardware business in the U.S., the Company believes that
it is a leading manufacturer of builders and architectural hardware products,
mirrored closet doors and hardware for sliding, folding and pocket doors and
the leading supplier of wall mirrors.
In the Company's specialty hardware business, the Company believes that it
is the leader in the U.S. with respect to the manufacture and sale of insulated
steel residential entrance doors as well as the leader in the U.S. in the
manufacture, sale and installation of power-operated sliding doors.
Customers. A substantial portion of the Company's products are sold through
home centers and mass merchant distribution channels in the U.S. In 1997,
approximately 12% of the Company's consolidated sales were to The Home Depot. A
consolidation of retailers in the home center and mass merchant distribution
channel is occurring. These customers constitute a growing percent of the
Company's sales and are important to the Company's operating results. While
this consolidation and the domestic and international expansion of these large
retailers provide the Company with opportunities for growth, the increasing
size and importance of individual customers creates a certain degree of
exposure to potential volume loss. The loss of Home Depot as well as certain of
the other larger home centers as customers would have a material adverse effect
on each of the Company's business segments until either such customers are
replaced or the Company makes the necessary adjustments to compensate for the
loss of business.
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Raw Materials. The Company's products are manufactured primarily of steel
and other metals, although some are of wood or plastic. The raw materials
required are available from a number of sources at competitive prices and the
Company has relationships of long standing with many of its suppliers. The
Company has experienced no difficulties in obtaining supplies in recent
periods.
Backlog. At February 7, 1998, the Company had $135 million in unfilled
orders compared with approximately $149 million in unfilled orders at February
1, 1997. All these orders are reasonably expected to be filled within the
current fiscal year. Most customers place orders for immediate shipment and as
a result, the Company produces primarily for inventory, rather than to fill
specific orders. The Company has begun implementation of demand flow
production, which aligns inventory levels with actual demand, in three of its
manufacturing facilities.
Patents and Trademarks. No business segment is dependent, to any
significant degree, on patents, licenses, franchises or concessions and the
loss of these patents, licenses, franchises or concessions would not have a
material adverse effect on any business segment. The Company owns numerous
patents, none of which are material to the Company's operations as a whole.
These patents expire from time to time over the next 17 years. The Company
holds licenses, franchises and concessions, none of which individually or in
the aggregate is material to the Company's operations as a whole. These
licenses, franchises and concessions vary in duration from one to 17 years.
The Company has numerous trademarks that are utilized in its businesses
worldwide. The STANLEY(R) and STANLEY (in a notched rectangle)(R) trademarks
are material to all three business segments. These well-known trademarks enjoy
a reputation for quality and value and are among the world's most trusted brand
names. In addition, in the Tools segment, the Bostitch(R), Powerlock(R), Tape
Rule Case Design (Powerlock)(R), LaBounty(R), MAC Tools(R), Proto(R),
Jensen(R), Goldblatt(R) and Vidmar(R) trademarks are material to the business.
Environmental Regulations. The Company is subject to various environmental
laws and regulations in the U.S. and foreign countries where it has operations.
Future laws and regulations are expected to be increasingly stringent and will
likely increase the Company's expenditures related to environmental matters.
The Company is involved with remedial and other environmental compliance
activities at some of its current and former sites. Additionally, the Company,
together with many other parties, has been named as a potentially responsible
party ("PRP") in a number of administrative proceedings for the
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remediation of various waste sites, including nine Superfund sites. Current
laws potentially impose joint and several liability upon each PRP. In assessing
its potential liability at these sites, the Company has considered the
following: the solvency of the other PRP's, whether responsibility is being
disputed, the terms of existing agreements, experience at similar sites, and
the fact that its volumetric contribution at these sites is relatively small.
The Company's policy is to accrue environmental investigatory and
remediation costs for identified sites when it is probable that a liability has
been incurred and the amount of loss can be reasonably estimated. The amount of
liability recorded is based on an evaluation of currently available facts with
respect to each individual site and includes such factors as existing
technology, presently enacted laws and regulations, and prior experience in
remediation of contaminated sites. The liabilities recorded do not take into
account any claims for recoveries from insurance or third parties. As
assessments and remediation progress at individual sites, the amounts recorded
are reviewed periodically and adjusted to reflect additional technical and
legal information that becomes available. As of January 3, 1998, the Company
had reserves of $32 million, primarily for remediation activities associated
with company-owned properties as well as for Superfund sites.
The amount recorded for identified contingent liabilities is based on
estimates. Amounts recorded are reviewed periodically and adjusted to reflect
additional technical and legal information that becomes available. Actual costs
to be incurred in future periods may vary from the estimates, given the
inherent uncertainties in evaluating environmental exposures. Subject to the
imprecision in estimating future environmental costs, the Company does not
expect that any sum it may have to pay in connection with environmental matters
in excess of the amounts recorded will have a materially adverse effect on its
financial position, results of operations or liquidity.
Power-generating Subsidiary. Under the General Statutes of Connecticut, the
Company is deemed to be a "holding company" that controls an electric company
as a result of its being the sole shareholder of Farmington River Power Co., a
power-generating subsidiary of the Company since 1916. Under such statute, no
organization or person may take any action to acquire control of such a holding
company without the prior approval of the Connecticut Department of Public
Utility Control.
Employees. During 1997, the Company had approximately 18,000 employees,
approximately 12,000 of whom were employed in the U.S. Of these U.S. employees,
approximately 20% are covered by collective bargaining agreements with
approximately 9 labor unions. The majority of the Company's hourly- and
weekly-paid
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employees outside the U.S. are covered by collective bargaining agreements. The
Company's labor agreements in the U.S. expire in 1998, 1999, 2000 and 2001.
There have been no significant interruptions or curtailments of the Company's
operations in recent years due to labor disputes. The Company believes that its
relationship with its employees is good.
Cautionary Statements. Certain risks and uncertainties are inherent in the
Company's ability to achieve operational excellence and deliver sustained,
profitable growth to its shareholders.
The Company's drive for operational excellence is focused on improving customer
service, consolidating multiple manufacturing and distribution facilities,
outsourcing non-core activities and converting to common systems. The ability
to implement the initiatives associated with these goals is dependent on the
Company's ability to manufacture products that meet customer requirements for
on-time delivery, quality and value and the ability to develop and execute
comprehensive plans for the facility consolidations; the ability of the
organization to complete the transition to a product management structure
without losing focus on the business; the availability of vendors to perform
the non-core functions; the successful recruitment and training of new
employees; the resolution of any labor issues related to closing facilities;
the need to respond to significant changes in product demand during the
transition; and unforeseen events.
The Company's ability to generate sustained, profitable growth is dependent on
successfully freeing up resources to fund new product and brand development and
new ventures to broaden its markets and to defend market share in the face of
intense price competition. Success at developing new products will depend on
the ability of the new product development process to foster creativity and
identify viable new product ideas as well as the Company's ability to attract
new product engineers. The achievement of growth through new ventures will
depend upon the ability to successfully identify, negotiate, consummate and
integrate into operations acquisitions, joint ventures and /or strategic
alliances.
The Company's ability to achieve and sustain the improvements resulting from
these initiatives will be dependent on the extent of pricing pressure within
the Company's markets and other changes in its competitive markets, the
continued consolidation of customers in consumer channels, increasing global
competition, changes in trade, monetary and fiscal policies and laws,
inflation, currency exchange fluctuations, the impact of currency exchange
rates on the competitiveness of the Company's products and recessionary or
expansive trends in the economies in which the Company operates.
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1(d) Financial information about foreign and domestic operations and export
sales. Geographic area information on page 29 of the Annual Report to
Shareholders for the year ended January 3, 1998 is incorporated herein by
reference.
Item 2. Properties.
As of January 3, 1998, Registrant and its subsidiaries owned or leased
facilities for manufacturing, distribution and sales offices in 31 states and
30 foreign countries. The Registrant believes that its facilities are suitable
and adequate for its business.
A summary of material locations (over 50,000 square feet) that are owned by
the Registrant and its subsidiaries are:
Tools
Phoenix, Arizona; Visalia, California; Clinton and New Britain,
Connecticut; Shelbyville, Indiana; Kansas City, Kansas; Two Harbors, Minnesota;
Hamlet, North Carolina; Columbus, Georgetown and Sabina, Ohio; Allentown,
Royersford and York, Pennsylvania; East Greenwich, Rhode Island; Cheraw, South
Carolina; Shelbyville, Tennessee; Dallas and Wichita Falls, Texas; Pittsfield
and Shaftsbury, Vermont; Heidelberg West and Ingleburn, Australia; Smiths
Falls, Canada; Pecky, Czech Republic; Ecclesfield, Hellaby, Manchester and
Sheffield, England; Besancon Cedex and Maxonchamp, France; Wieseth, Germany;
Chihuahua and Puebla, Mexico; Wroclaw, Poland; Taichung Hsien, Taiwan; and
Amphur Bangpakong, Thailand.
Hardware
Chatsworth and San Dimas, California; New Britain, Connecticut; Richmond,
Virginia; Brampton, Canada; Sheffield, England; and Marquette, France.
Specialty Hardware
Farmington, Connecticut and Troy, Michigan.
A summary of material locations (over 50,000 square feet) that are leased
by the Registrant and its subsidiaries are:
Tools
Costa Mesa, California; Covington, Georgia; Fernley, Nevada; Charlotte and
Kannapolis, North Carolina; Cleveland and Columbus, Ohio; Milwaukie, Oregon;
Carrollton, Texas; Burlington, Canada; and Northampton, England.
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Hardware
Tupelo, Mississippi; and Oakville, Ontario.
Specialty Hardware
Orlando, Florida; Winchester, Virginia; Langley and Montreal, Canada.
Item 3. Legal Proceedings.
On November 30, 1995, the U.S. Department of Justice ("DOJ") filed a civil
complaint against the Company and sixteen other defendants pursuant to the
Federal Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"). Under CERCLA, the DOJ can seek to impose strict liability and joint
and several liability on liable parties.
The DOJ is seeking recovery of past response costs of approximately $1.3
million incurred by the United States Environmental Protection Agency ("EPA")
at the Erie Coatings and Chemicals ("Erie") site in Erie, Michigan and a
declaratory judgment that the defendants are liable for future response costs.
The majority of the EPA's response costs were incurred in removing drums of
materials from the site. The EPA also conducted some limited soil removal. It
is the Company's understanding that it is unlikely that any additional
significant remediation work will be necessary.
On October 24, 1996, a group of eight defendants, including the Company
(the "settling defendants") filed a third party contribution claim against 23
parties and a counterclaim against various federal agencies that sent materials
to the site. On April 4, 1997, the settling defendants along with eleven
third-party defendants reached a settlement with the government for $900,000 to
resolve their respective liabilities for past response costs. The Company
agreed to pay $112,801. The court entered the consent order regarding the
settlement on August 11, 1997. The settlement does not resolve the government's
potential claims against the settling parties for response costs that are
incurred after the settlement date. However, the Company believes that it is
unlikely that any additional significant remediation work will be necessary. If
this is not the case, the government likely will bring claims against the
settling defendants, including the Company, to recover such costs.
In the normal course of business, the Company is involved in various
lawsuits and claims, including product liability and distributor claims. The
Company does not expect that the resolution of these matters will have a
materially adverse effect on the Company's consolidated financial position,
results of operations or liquidity.
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Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the fourth quarter of the Registrant's last
fiscal year to a vote of security holders.
Executive Officers. The following is a list of the executive officers of
the Registrant as of January 3, 1998:
Elected
Name, Age, Birth date Office to Office
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J.M. Trani (53) Chairman and Chief Executive Officer. 12/31/96
(3/15/45) Joined Stanley December 31, 1996;
1986 President and Chief Executive
Officer of GE Medical Systems.
J.A. Cosentino, Jr.(48) Vice President, Operations. Joined 10/29/97
(11/12/49) Stanley October 1997; 1997 President/
CEO Todd Combustion, Inc.; 1995 CEO,
Rau Fastener Company, L.L.C.; 1990
President, Otis Elevator Company -
N.A. Operations.
W.D. Hill (48) Vice President, Engineering. Joined 9/17/97
(9/18/49) Stanley August 1997; 1996 Director
Product Management - Tool Group,
Danaher Tool; 1994 Vice President,
Product Development Global
Accessories, The Black & Decker
Corporation; 1992 Vice President
Product Development - N.A. Power
Tools, The Black & Decker Corporation.
K.O. Lewis (44) Vice President, Marketing and Brand 11/3/97
(5/28/53) Management. Joined Stanley
November 1997; 1996 Executive Vice
President Strategic Alliances, Marvel
Entertainment Group; 1986 Director
Participant Marketing, Walt Disney
Attractions.
T.E. Mahoney (56) President, Consumer Sales Americas. 6/5/95
(3/20/42) Joined Stanley in 1965; 1995 Vice
President, Marketing Development
and President and General Manager
of Stanley Customer Support Division;
1992 President and General Manager,
Stanley Hardware.
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M.J. Mathieu (46) Vice President, Human Resources. 9/17/97
(2/20/52) Joined Stanley September 1997;
1996 Manager - Human Resources,
GE Motors & Industrial Systems
(Fort Wayne, Indiana); 1994
Consultant - Executive Staffing,
General Electric Company (Fairfield,
Connecticut); 1989 Consultant -
Union Relations, General Electric
Company.
P.W. Russo (44) Vice President, Strategy and 9/18/95
(5/23/53) Development. Joined Stanley
in 1995; 1991 Co-Chairman and
Co-Chief Executive Officer, SV
Corp. (formerly Smith Valve Corp.);
1988 Co-founder and Managing
Director, Cornerstone Partners
Limited.
J.E. Turpin (51) Vice President, Operational Excellence. 4/23/97
(6/9/46) Joined Stanley in 1970; 1995 Vice
President Operations, The Stanley
Works; 1992 President & General
Manager, Stanley Air Tools.
S.S. Weddle (59) Vice President, General Counsel 1/1/88
(11/9/38) and Secretary. Joined Stanley in 1978.
T.F. Yerkes (42) Vice President and Controller. Joined 7/1/93
(9/9/55) Stanley in 1989; 1990 Director of
Accounting and Financial Reporting.
Executive officers serve at the pleasure of the Board of Directors. Unless
otherwise indicated, each officer has had the same position with the Registrant
for five years.
Part II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters. Registrant incorporates by reference the line item "Shareholders of
record at end of year" from pages 22 and 23 and the material captioned
"Investor and Shareowner Information" on page 45 of its Annual Report to
Shareholders for the year ended January 3, 1998.
Item 6. Selected Financial Data. Registrant
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incorporates by reference pages 22 and 23 of its Annual Report to Shareholders
for the year ended January 3, 1998.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations. Registrant incorporates by reference pages 24 through 28
of its Annual Report to Shareholders for the year ended January 3, 1998.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Registrant incorporates by reference the material captioned "Market Risk" on
page 27 of its Annual Report to Shareholders for the year ended January 3,
1998.
Item 8. Financial Statements and Supplementary Data. The consolidated
financial statements and report of independent auditors included on pages 30 to
43 and page 21, respectively, of the Annual Report to Shareholders for the year
ended January 3, 1998 are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure. None.
Part III
Item 10. Directors and Executive Officers of the Registrant. Information
regarding the Company's Executive Officers appears in the "Executive Officers"
section at the end of Part I of this report. In addition, the Registrant
incorporates by reference pages 1 through 4 of its definitive Proxy Statement,
dated March 9, 1998.
Item 11. Executive Compensation. Registrant incorporates by reference the
last paragraph of "Information Concerning Directors Continuing in Office" on
page 4 and the material captioned "Executive Compensation" on pages 6 through
14 of its definitive Proxy Statement, dated March 9, 1998.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Registrant incorporates by reference the material captioned "Security
Ownership" on pages 5 and 6 of its definitive Proxy Statement, dated March 9,
1998.
Item 13. Certain Relationships and Related Transactions. None.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
14(a) Index to documents filed as part of this report:
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1. and 2. Financial Statements and Financial Statement Schedules.
The response to this portion of Item 14 is submitted as a separate section of
this report (see page F-1).
3. Exhibits
See Exhibit Index on page E-1.
14(b) The following reports on Form 8-K were filed during the last quarter
of the period covered by this report:
Date of Report Items Reported
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October 15, 1997 Press releases, dated October
15, 1997 announcing hiring of
new Vice President, Marketing
and Brand Development and
third quarter results.
October 29, 1997 Press release dated October
29, 1997 announcing the hiring
of a Vice President,
Operations.
November 10, 1997 Press release dated November
10, 1997 announcing the
acquisition of Atro
Industriale S.p.A.
December 15, 1997 Announcement that R. Alan
Hunter, President and Chief
Operating Officer was leaving
the company and designation of
"executive officers" and
"officers" as of January
1, 1998.
14(c) See Exhibit Index on page E-1.
14(d) The response to this portion of Item 14 is submitted as a separate
section of this report (see page F-1).
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
THE STANLEY WORKS
By John M. Trani
----------------------------
John M. Trani, Chairman
and Chief Executive Officer
February 25, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on February 25, 1998 by the following persons on
behalf of the Registrant and in the capacities indicated.
John M. Trani James G. Kaiser
- -------------------------------- ----------------------------
John M. Trani, Chairman, James G. Kaiser, Director
Chief Executive Officer and
Director
Theresa F. Yerkes Eileen S. Kraus
- -------------------------------- ----------------------------
Theresa F. Yerkes, Vice President Eileen S. Kraus, Director
and Controller (Chief Financial
Officer and Chief Accounting
Officer)
Stillman B. Brown Hugo E. Uyterhoeven
- -------------------------------- ----------------------------
Stillman B. Brown, Director Hugo E. Uyterhoeven, Director
Edgar R. Fiedler Walter W. Williams
- -------------------------------- ----------------------------
Edgar R. Fiedler, Director Walter W. Williams, Director
Mannie L. Jackson Kathryn D. Wriston
- -------------------------------- ----------------------------
Mannie L. Jackson, Director Kathryn D. Wriston, Director
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FORM 10-K--ITEM 14(a) (1) and (2)
THE STANLEY WORKS AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements and report of independent
auditors of The Stanley Works and subsidiaries, included in the Annual Report
of the Registrant to its Shareholders for the fiscal year ended January 3,
1998, are incorporated by reference in Item 8:
Report of Independent Auditors
Consolidated Statements of Operations--fiscal years ended January 3, 1998,
December 28, 1996 and December 30, 1995.
Consolidated Balance Sheets--January 3, 1998 and December 28, 1996.
Consolidated Statements of Cash Flows--fiscal years ended January 3, 1998,
December 28, 1996 and December 30, 1995.
Consolidated Statements of Changes in Shareholders' Equity--fiscal years
ended January 3, 1998, December 28, 1996 and December 30, 1995.
Notes to Consolidated Financial Statements.
The following consolidated financial statement schedule of The Stanley
Works and subsidiaries is included in Item 14(d):
F-4 Schedule II--Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.
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CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of The Stanley Works of our report dated January 29, 1998, included in the 1997
Annual Report to Shareholders of The Stanley Works.
Our audits also included the consolidated financial statement schedule of The
Stanley Works listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the following registration
statements of our report dated January 29, 1998, with respect to the
consolidated financial statements incorporated herein by reference, and our
report included in the preceding paragraph with respect to the consolidated
financial statement schedule included in this Annual Report (Form 10-K) of The
Stanley Works.
Registration Statement (Form S-8 No. 2-93025)
Registration Statement (Form S-8 No. 2-96778)
Registration Statement (Form S-8 No. 2-97283)
Registration Statement (Form S-8 No. 33-16669)
Registration Statement (Form S-3 No. 33-12853)
Registration Statement (Form S-3 No. 33-19930)
Registration Statement (Form S-8 No. 33-39553)
Registration Statement (Form S-8 No. 33-41612)
Registration Statement (Form S-3 No. 33-46212)
Registration Statement (Form S-3 No. 33-47889)
Registration Statement (Form S-8 No. 33-55663)
Registration Statement (Form S-8 No. 33-62565)
Registration Statement (Form S-8 No. 33-62567)
Registration Statement (Form S-8 No. 33-62575)
ERNST & YOUNG LLP
Hartford, Connecticut
March 26, 1998
F-2
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following registration
statements pertaining to The Stanley Works 401(k) Savings Plan of our report
dated March 13, 1998, with respect to the financial statements and schedules of
The Stanley Works 401(k) Savings Plan for the year ended December 31, 1997
included as Exhibit 99(i) to this Annual Report (Form 10-K) for the fiscal year
ended January 3, 1998.
Registration Statement (Form S-8 No. 2-97283)
Registration Statement (Form S-8 No. 33-41612)
Registration Statement (Form S-8 No. 33-55663)
ERNST & YOUNG LLP
Hartford, Connecticut
March 26, 1998
F-3
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
THE STANLEY WORKS AND SUBSIDIARIES
Fiscal years ended January 3, 1998, December 28, 1996 and December 30, 1995 (In
Millions of Dollars)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
COL. A | COL. B | COL. C | COL. D | COL. E
- --------------------------------------|----------|----------------------------------|----------|-------
| | Additions | |
|Balance at|----------------------------------| |Balance
Description |Beginning | (1) | (2) |Deductions|at End
|of Period |Charged to Costs|Charged to Other |-Describe |of Period
| | and Expenses |Accounts-Describe| |
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fiscal year ended January 3, 1998
Reserves and allowances deducted from
asset accounts:
Allowance for doubtful accounts:
Current $22.5 $20.2 ($6.8)(B) $16.1 (A) $19.8
Noncurrent 0.8 (0.2) 0.1 (B) 0.7
Fiscal year ended December 28, 1996
Reserves and allowances deducted from
asset accounts:
Allowance for doubtful accounts:
Current $18.2 $21.1 $16.8 (A) $22.5
Noncurrent 0.8 0.8
Fiscal year ended December 30, 1995
Reserves and allowances deducted from
asset accounts:
Allowance for doubtful accounts:
Current $20.9 $9.7 $0.4(B) $12.8 (A) $18.2
Noncurrent 0.5 0.3 0.8
</TABLE>
Notes: (A) Represents doubtful accounts charged off, less recoveries of
accounts previously charged off.
(B) Represents net transfers to/from other accounts, foreign currency
translation adjustments and acquisitions.
F-4
<PAGE>
EXHIBIT LIST
(3) (i) Restated Certificate of Incorporation
(incorporated by reference to Exhibit (3)(i) to
Quarterly Report on Form 10-Q for quarter ended
June 29, 1996)
(ii) By-laws
(4) (i) Indenture defining the rights of holders of 7-3/8%
Notes Due December 15, 2002 and 9% Notes due 1998
(incorporated by reference to Exhibit 4(a) to
Registration Statement No. 33-4344 filed March
27, 1986)
(ii) First Supplemental Indenture, dated as of June 15, 1992
between the Company and Shawmut Bank Connecticut,
National Association (formerly known as The Connecticut
National Bank) (incorporated by reference to Exhibit
(4)(c) to Registration Statement No. 33-46212 filed
July 21, 1992)
(a) Certificate of Designated Officers establishing
Terms of 9% Notes (incorporated by reference to
Exhibit (4)(i)(c) to Annual Report on Form 10-K for
year ended January 2, 1988)
(b) Certificate of Designated Officers establishing
Terms of 7-3/8% Notes Due December 15, 2002
(incorporated by reference to Exhibit (4)(ii) to
Current Report on Form 8-K dated December 7, 1992)
(iii) Rights Agreement, dated January 31, 1996 (incorporated
by reference to Exhibit (4)(i) to Current Report on
Form 8-K dated January 31, 1996)
(iv)(a) Amended and Restated Facility A (364 Day) Credit
Agreement, dated as of October 23, 1996, with the
banks named therein and Citibank, N.A. as agent
(incorporated reference to Exhibit 4(iv) to Annual
Report on Form 10-K for year ended December 28, 1996)
(b) Letter Agreement, dated October 22, 1997 regarding
the extension of the Amended and Restated Facility
A (364 Day) Credit Agreement.
E-1-
<PAGE>
(v) Amended and Restated Facility B (Five Year)
Credit Agreement, dated as of October 23, 1996,
with the banks named therein and Citibank, N.A.
as agent (incorporated reference to Exhibit 4(v)
to Annual Report on Form 10-K for year ended
December 28, 1996)
(10) (i) Executive Agreements (incorporated by reference
to Exhibit 10(i) to Annual Report on Form 10-K
for year ended January 3, 1987)*
(ii) Deferred Compensation Plan for Non-Employee
Directors as amended January 31, 1996 (incorporated
by reference to Exhibit 10(i) to Current Report
on Form 8-K dated January 31, 1996)*
(iii) 1988 Long-Term Stock Incentive Plan, as amended*
(iv) Management Incentive Compensation Plan effective
January 1, 1996 (incorporated by reference to
Exhibit 10(iv) to Annual Report on Form 10-K for
year ended December 30, 1995)*
(v) Deferred Compensation Plan for Participants in
Stanley's Management Incentive Plan effective
January 1, 1996 (incorporated by reference to
Exhibit 10(v) to Annual Report on Form 10-K
for year ended December 30, 1995)*
(vi) Supplemental Retirement and Savings Plan
for Salaried Employees of The Stanley Works
effective as of January 1, 1997*
(vii) Term Loan Agreement dated as of May 13, 1988
between the Savings and Retirement Trust for
Salaried Employees and Wachovia Bank and Trust
Company N.A. and related Guaranty dated as of May
13, 1988 from The Stanley Works to Wachovia Bank
and Trust Company, N.A. (incorporated by
reference to Exhibit 10(x) to Annual Report on
Form 10-K for year ended December 31, 1988)
(viii) Loan and Guarantee Agreement dated as of June 6,
1989 among The Stanley Works Savings Trust for
Hourly Paid Employees, The Stanley Works and
Wachovia Bank and Trust Company, N.A.,
Massachusetts Mutual Life Insurance Company and
The Lincoln National Life Insurance Company
(incorporated by reference to Exhibit 10(i) to
Quarterly Report on Form 10-Q for quarter ended
July 1, 1989)
* Management contract or compensation plan or arrangement
E-2-
<PAGE>
(a) First Amendment to Loan and Guarantee Agreement dated
as of February , 1993 (incorporated by reference to
Exhibit 10(viii)(a) to Annual Report on Form 10-K for
year ended December 31, 1994)
(ix) Loan and Guarantee Agreement dated as of June 6,
1989 among The Stanley Works Savings and Retirement Trust,
The Stanley Works and Wachovia Bank and Trust Company,
N.A., Massachusetts Mutual Life Insurance Company, The
Lincoln National Life Insurance Company, First Penn-
Pacific Life Insurance Company, Security-Connecticut Life
Insurance Company-Universal Life, Lincoln National Life
Reinsurance Company and American States Life Insurance
Company-Universal Life (incorporated by reference to
Exhibit (10)(ii) to Quarterly Report on Form 10-Q
for quarter ended July 1, 1989)
(a) First Amendment to Loan and Guarantee Agreement
dated as of February , 1993 (incorporated by reference
to Exhibit 10(ix)(a) to Annual Report on Form 10-K for
year ended December 31, 1994)
(x) Assignment and Assumption Agreement and Second
Amendment to Loan and Guarantee Agreements, dated
as of September 30, 1994, among The Stanley Works
Savings Trust for Hourly Paid Employees, The
Stanley Works Savings and Retirement Trust, The
Stanley Works and the Financial Institutions
named in Schedules I and II thereto (incorporated by
reference to Exhibit 10(x) to Annual Report on Form 10-K
for year ended December 31, 1994)
(xi) (a) Supplemental Executive Retirement Program effective May
20, 1997*
(b) Amendment to John M. Trani's Supplemental Executive
Retirement Program, dated September 17, 1997*
(xii)(a) The Stanley Works Non-Employee Directors' Benefit
Trust Agreement dated December 27, 1989 and amended
as of January 1, 1991 by and between The Stanley Works
and Connecticut National Bank (incorporated by reference
to Exhibit (10)(xvii)(a) to Annual Report on Form 10-K
for year ended December 29, 1990)
(b) The Stanley Works Employees' Benefit Trust Agreement
dated December 27, 1989 and amended as of January 1,
1991 by and between The Stanley
* Management contract or compensation plan or arrangement
E-3-
<PAGE>
Works and Connecticut National Bank (incorporated by reference
to Exhibit (10)(xvii)(b) to Annual Report on Form 10-K for year
ended December 29, 1990)
(xiii) Restated and Amended 1990 Stock Option Plan (incorporated by
reference to Exhibit 10 (xiii) to Annual Report on Form 10-K
for the year ended December 28, 1996)
(xiv) Term Note, dated as of June 7, 1991, by State Street Bank and
Trust Company, as Trustee for the Savings Plan for Salaried
Employees of The Stanley Works, to Stanley Works Funding
Corporation (incorporated by reference to Exhibit (10)(xxi) to
Current Report on Form 8-K dated June 7, 1991)
(xv) Term Note, dated as of June 7, 1991, by State Street Bank and
Trust Company, as Trustee for the Savings Plan for Hourly Paid
Employees of The Stanley Works, to Stanley Works Funding
Corporation (incorporated by reference to Exhibit (10)(xxii) to
Current Report on Form 8-K dated June 7, 1991)
(xvi) Master Leasing Agreement, dated September 1, 1992 between BLC
Corporation and The Stanley Works (incorporated by reference to
Exhibit (10)(i) to Quarterly Report on Form 10-Q for quarter
ended September 26, 1992)
(xvii) The Stanley Works Stock Option Plan for Non-Employee Directors,
as amended December 18, 1996
(xviii) Employment Agreement effective December 27, 1996 between The
Stanley Works and John M. Trani (incorporated by reference to
Exhibit 10(i) to Current Report on Form 8-K dated January 2,
1997)*
(xix) Employment Agreement effective December 31, 1996 between The
Stanley Works and Richard H. Ayers (incorporated by reference
to Exhibit 10(ii) to Current Report on Form 8-K dated January
2, 1997)*
(xx) Letter Agreement, dated April 30, 1996 between The Stanley
Works and Paul W. Russo *
(xxi) 1997 Long-Term Incentive Plan*
* Management contract or compensation plan or arrangement
E-4-
<PAGE>
(11) Statement re computation of per share earnings (the information
required to be presented in this exhibit appears in footnote J to
the Company's Consolidated Financial Statements set forth in the
Annual Report to Shareholders for the year ended January 3, 1998)
(12) Statement re computation of ratio of earnings to fixed charges
(13) Annual Report to Shareholders for year ended January 3, 1998
(21) Subsidiaries of Registrant
(23) Consents of Independent Auditors (at pages F-2 and F-3)
(27) Financial Data Schedule for 1997 Fiscal Year End
(i) Financial Data Schedule for 1997 interim periods and 1996 Fiscal
Year End
(ii) Financial Data Schedule for 1996 interim periods and 1995 Fiscal
Year End
(99) (i) Financial Statements and report of independent auditors for the
year ended December 31, 1997, of The Stanley Works 401(k) Savings
Plan
(ii) Policy on Confidential Proxy Voting and Independent Tabulation and
Inspection of Elections as adopted by The Board of Directors
October 23, 1991 (incorporated by reference to Exhibit (28)(i) to
Quarterly Report on Form 10-Q for quarter ended September 28,
1991)
E-5-
<PAGE>
As amended February 25, 1998
EXHIBIT 3(ii)
THE STANLEY WORKS
BYLAWS
ARTICLE I
SHAREHOLDERS' MEETINGS
1. ANNUAL MEETING. The Annual Meeting of the shareholders shall be held
at such time in the month of February, March or April in each year and
at such place within or without the State of Connecticut as the Board
of Directors may determine. Notice thereof shall be mailed to each
shareholder to his or her last known post office address not less than
twenty-five days nor more than fifty days before such Meeting.
2. SPECIAL MEETINGS. Special Meetings of the shareholders shall be called
by the Chairman, or the President or Secretary, or by the Chairman, or
the President or Secretary upon the written request of the holders of
not less than 35% of the voting power of all shares entitled to vote
on any issue proposed to be considered at such Meeting by mailing a
notice thereof to each shareholder to his or her last known post
office address not less than twenty-five days nor more than fifty days
before such Meeting.
3. QUORUM. At any Meeting of shareholders the holders of not less than a
majority of the shares outstanding and entitled to vote present
in person or by proxy shall constitute a quorum. The Directors may
establish a record date for voting or other purposes in accordance
with law.
4. BUSINESS TO BE CONDUCTED AT ANNUAL MEETING. No business may be
transacted at an Annual Meeting of shareholders (including any
adjournment thereof), other than business that is either (a)
specified in the notice of meeting (or any supplement thereto) given
by or at the direction of the Board of Directors (or any duly
authorized committee thereof), (b) otherwise properly brought before
the Annual Meeting by or at the direction of the Board of Directors
(or any duly authorized committee thereof) or (c) otherwise properly
brought before the Annual Meeting by any shareholder (i) who is a
shareholder of record on the date of the giving of the notice
provided for in this Section 4 and on the record date for the
determination of shareholders entitled to vote at such Annual Meeting
and (ii) who
<PAGE>
As amended February 25, 1998
complies with the notice procedures set forth in this Section 4.
In addition to any other applicable requirements, for business to be
properly brought before an Annual Meeting by a shareholder, such
shareholder must have given timely notice thereof in proper written
form to the Secretary.
To be timely, a shareholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices
of the Corporation not less than sixty (60) days nor more than ninety
(90) days prior to the anniversary of the date on which the
immediately preceding Annual Meeting of shareholders was convened;
provided, however, that in the event that the Annual Meeting is called
for a date that is not within thirty (30) days before or after such
anniversary date, notice by the shareholder in order to be timely must
be so received not later than the close of business on the tenth
(10th) day following the day on which such notice of the date of the
Annual Meeting was mailed or such public disclosure of the date of the
Annual Meeting was made, whichever first occurs.
To be in proper written form, a shareholder's notice to the Secretary
must set forth as to each matter such shareholder proposes to bring
before the Annual Meeting (i) a brief description of the business
desired to be brought before the Annual Meeting and the reasons for
conducting such business at the Annual Meeting, (ii) the name and
record address of such shareholder, (iii) the class or series and
number of shares of capital stock of the Corporation which are owned
beneficially or of record by such shareholder, (iv) a description of
all arrangements or understandings between such shareholder and any
other person or persons (including their names) in connection with the
proposal of such business by such shareholder and any material
interest of such shareholder in such business and (v) a representation
that such shareholder intends to appear in person or by proxy at the
Annual Meeting to bring such business before the meeting.
No business shall be conducted at the Annual Meeting of shareholders
except business brought before the Annual Meeting in accordance with
the procedures set forth in this Section 4, provided, however, that,
once business has been properly brought before the Annual Meeting in
accordance with such procedures, nothing in this Section 4 shall be
deemed to preclude discussion by any shareholder of any such business.
If the Chairman of an Annual Meeting determines that business was not
properly brought before the Annual Meeting in accordance with the
foregoing procedures, the Chairman shall declare to the meeting that
the business was not properly brought before the meeting and such
business shall not be transacted.
2
<PAGE>
As amended February 25, 1998
ARTICLE II
NOMINATIONS OF DIRECTOR CANDIDATES
1. ELIGIBILITY TO MAKE NOMINATIONS. Nominations of candidates for
election as directors of the Corporation at any meeting of
shareholders called for election of directors (an "Election Meeting")
may be made by the Board of Directors or by any shareholder entitled
to vote at such Election Meeting.
2. PROCEDURE FOR NOMINATIONS BY THE BOARD OF DIRECTORS. Nominations made
by the Board of Directors shall be made at a meeting of the
Board of Directors, or by written consent of directors in lieu of a
meeting, not less than 30 days prior to the date of the Election
Meeting, and such nominations shall be reflected in the minute books
for the Corporation as of the date made. At the request of the
Secretary of the Corporation each proposed nominee shall provide the
Corporation with such information concerning himself or herself as is
required, under the rules of the Securities and Exchange Commission,
to be included in the Corporation's proxy statement soliciting
proxies for his or her election as a director.
3. PROCEDURE FOR NOMINATIONS BY SHAREHOLDERS. Not less than 30 days prior
to the date of the Election Meeting, any shareholder who intends
to make a nomination at the Election Meeting shall deliver a notice
to the Secretary of the Corporation setting forth (i) the name, age,
business address and residence address of each nominee proposed in
such notice, (ii) the principal occupation or employment of each such
nominee, (iii) the number of shares of capital stock of the
Corporation which are beneficially owned by each such nominee and
(iv) such other information concerning each such nominee as would be
required, under the rules of the Securities and Exchange Commission,
in a proxy statement soliciting proxies for the election of such
nominees.
4. SUBSTITUTION OF NOMINEES. In the event that a person is validly
designated as a nominee in accordance with section 2 or 3 hereof and
shall thereafter become unable or unwilling to stand for election to
the Board of Directors, a substitute nominee may be designated as
follows:
(a) by those named as proxies in proxies solicited on behalf of
the Board of Directors if the person was designated as
nominee in accordance with section 2 hereof
(b) by the shareholder who proposed such nominee if the person was
designated as a nominee in accordance with section 3 hereof.
3
<PAGE>
As amended February 25, 1998
5. DETERMINATION OF COMPLIANCE WITH PROCEDURE.
If the chairman of the Election Meeting determines that a nomination
was not in accordance with the foregoing procedures, such nomination
shall be void.
ARTICLE III
DIRECTORS AND COMMITTEES
1. DIRECTORS. The business, property and affairs of this Corporation
shall be managed by or under the direction of the Board of
Directors consisting of not less than nine nor more than eighteen
Directors, the exact number to be determined by the Board of
Directors from time to time. All Directors shall be shareholders of
record. The Directors shall be divided into three classes designated
Class I, Class II and Class III. Such classes shall be as nearly
equal in number as the total number of Directors constituting the
entire Board of Directors permits. One class shall be chosen annually
at the Annual Meeting of shareholders and the members of such class
shall hold office until their successors be elected and qualified.
The Directors may increase the prescribed number of Directors by the
concurring vote of a majority of the prescribed number of Directors.
Any increase or decrease in the prescribed number of Directors shall
be so apportioned among the classes of Directors as to make all the
classes as nearly equal in number as possible. No reduction of the
number of Directors shall remove or shorten the term of any Director
in office. A majority of the number of Directors prescribed shall
constitute a quorum for the transaction of business.
2. MEETINGS. The Chairman or the President or any Vice Chairman may and
upon written application of any three Directors shall call a
meeting of the Board of Directors to be held at such time and place
as may be determined by the person calling said meeting and shall
cause notice thereof to be given. Unless waived in writing, three
days verbal or written (mail) notice shall be required provided,
however, that if in the judgment of any two officers an emergency
exists, a meeting may be called forthwith by telephone or telegram or
verbal notice and such notice shall be deemed sufficient notice
notwithstanding that some of the Directors may not have actual
notice.
The Annual Meeting of the Directors for the election of officers shall
be held without notice, immediately after the Annual Meeting of
shareholders. Regular meetings of the Directors shall be held at least
on a quarterly basis.
3. WRITTEN CONSENT. If all the Directors, or all members of a committee
of the Board of Directors, as the case may be, severally or
collectively consent in writing to any action taken or to be taken by
the Corporation, and the number of such Directors or members
4
<PAGE>
As amended February 25, 1998
constitutes a quorum for such action, such action shall be a valid
corporate action as though it had been authorized at a meeting of the
Board of Directors or committee, as the case may be. The Secretary
shall file such consents with the minutes of the Board of Directors or
of the committee, as the case may be.
4. PARTICIPATION BY TELEPHONE. A Director may participate in a meeting of
the Board of Directors or of a committee by any means of communication
by which all Directors participating in the meeting may simultaneously
hear one another during the meeting, and participation in a meeting
pursuant to this subsection shall constitute presence in person at
such meeting.
5. VACANCIES. In case any vacancy or vacancies shall exist in the Board
of Directors at any time the remaining members of the Board by
majority action may fill the vacancy or vacancies. The term of a
Director elected to fill a vacancy expires at the next shareholders
meeting at which Directors are elected.
6. COMMITTEES. The Board of Directors may from time to time appoint from
its membership such committees as it may deem necessary or
desirable for the best interests of the Corporation and may delegate
to any committee all needful authority to the extent permitted by
law.
Each committee shall fix its own rules as to procedure and calling of
meetings. It shall appoint a Secretary, who need not be a member of
the committee. Such Secretary shall call meetings of the committee on
the request of the Chair of the committee or any two members and shall
keep permanent record of all of its proceedings. A majority of the
members of any committee shall constitute a quorum.
7. EXECUTIVE COMMITTEE. The Directors shall appoint an Executive
Committee consisting of the Chairman, if any, the President and at
least three other Directors, but in no event shall the Committee
consist of less than five members. The Board of Directors may at any
time decrease (subject to the provisions of the preceding paragraph)
or increase the size of said Committee, may change the membership
thereof and may fill vacancies therein.
During intervals between meetings of the Board of Directors, the
Executive Committee shall possess and may exercise all the powers of
the Board of Directors in the management of the business and affairs
of the Corporation, but the Committee shall have no power to declare
dividends or do other things specially reserved by law to the
Directors. The Executive Committee shall have power to appoint such
subcommittees as it may deem necessary to report and make
recommendations to the Executive Committee. Any action taken by the
Executive Committee shall be subject to change, alteration and
5
<PAGE>
As amended February 25, 1998
revision by the Board of Directors, provided that no rights or acts of
others shall be affected by any such alteration or revision.
8. FINANCE AND PENSION COMMITTEE. A Finance and Pension Committee
consisting of at least five Directors shall be appointed by the
Board of Directors. The Committee shall advise and assist the Chief
Financial Officer and the Treasurer in major matters concerning the
finances of the Corporation and in matters of major policy decisions
in the purchase and sale of securities. In performance of this the
Committee shall regularly review the financial condition of the
Corporation so as to counsel these officers and the Board on the
total financial resources, strength and capabilities of the
Corporation. In this connection, the Committee shall analyze and
advise on fundamental corporate changes in capital structure (both
debt and equity); review the capital structure of the Corporation and
make recommendations with respect to management proposals concerning
financing, purchases of treasury stock, investments, and dividend
actions; review periodically the Corporation's risk management
program and its adequacy to safeguard the Corporation against
extraordinary liabilities or losses; and advise and assist in matters
such as short-term investments, credit liabilities, financings, and
hedges of foreign currency exposures.
The Committee shall oversee the Corporation's administration of its
pension plans and of the pension plans of its subsidiaries. The
Committee shall be responsible for setting (subject to the approval of
the Board of Directors) the retirement policies of the Corporation and
its subsidiaries; for amending pension plans, savings and retirement
plans, stock ownership plans or any similar plans or related trust
agreements; and for approving actuarial assumptions and investment
policies for the Corporation's pension plans. It shall report at least
annually to the Board of Directors. The Committee may delegate any or
all of these functions to such employees as it, in its judgment, deems
appropriate.
Specifically, the Committee shall approve retaining or terminating the
services of actuaries, lawyers, accountants or other professionals for
the plans; shall approve annually the amount of the contributions to
be made by the Corporation to the respective plans; and shall approve
appointing and terminating trustees and investment managers and
determine the allocation of the assets of the plans among one or more
trustees or investment managers.
9. AUDIT COMMITTEE. An Audit Committee consisting of at least three
Directors, none of whom shall be officers or employees of the
Corporation or any of its subsidiaries, shall be appointed by the
Board of Directors. The Committee shall nominate the public accounting
firm to conduct the annual audit and shall review fees for audit and
tax work and approve in advance management consulting services which
management may
6
<PAGE>
As amended February 25, 1998
propose be provided by the Corporation's public accounting firm. With
respect to such management consulting services, consideration shall be
given to the effect that performing such services might have on audit
independence. The Committee shall review with the auditors the scope
and timing of their audit examination, with particular emphasis on
those areas which either the Committee or the auditors believe warrant
special attention. The Committee is authorized to have the auditors
perform such supplemental reviews or audits as it deems desirable.
The Committee shall review the audited financial statements and the
auditors' report thereon, including consideration of all significant
disclosures required by the Securities and Exchange Commission, and
any proposed changes in accounting principles or practices which have
a significant impact on amounts reported for the current year (or will
have in the future) and shall discuss with the auditors any
significant problems encountered in the completion of the audit. The
Committee shall review with management and the independent auditors
the qualitative judgments about the appropriateness, not just the
acceptability, of accounting principles and financial disclosure
practices used or proposed to be adopted including the degree of
aggressiveness or conservatism of the accounting principles and
underlying estimates including significant liabilities and reserves
associated with those liabilities. The Committee shall review the
auditors' recommendations regarding internal control and their
comments, if any, relating to conflicts of interest, questionable
payments or other similar matters, and monitor with management the
consideration given and/or the corrective action taken with respect to
these comments and recommendations. The Committee shall review
management's evaluation of the Corporation's system of internal
accounting controls, including the independence, scope and results of
the internal audit function, and monitor the effectiveness of the
system with management, independent auditors and internal audit
management. The Committee shall review with management and independent
auditors and consider the impact on the Corporation of significant
recent or pending statements by the Financial Accounting Standards
Board, the Securities and Exchange Commission, the Auditing Standards
Executive Committee of the American Institute of Certified Public
Accountants and similar authoritative bodies. The Committee shall
review environmental liabilities and the reserves associated with
those liabilities.
In carrying out all of the foregoing responsibilities, the Committee
shall have direct and open access to Management, public accountants
and internal audit management (each of which shall have direct and
open access to the Committee); shall submit Committee reports,
recommendations, and minutes of meetings to the Board of Directors;
and shall provide opportunities to the other members of the Board to
have full and open access to the independent auditors.
7
<PAGE>
As amended February 25, 1998
10. COMPENSATION AND ORGANIZATION COMMITTEE. A Compensation and
Organization Committee consisting of at least three Directors,
none of whom shall be employees of the Corporation or any of its
subsidiaries, shall be appointed by the Board of Directors. The
Committee shall review and approve major organization and
compensation structure changes as recommended by Management. Although
the Board, itself, will review the performance of the chief executive
officer and fix his or her salary, the Committee shall approve the
performance and determine the salaries of the other executive
officers of the Corporation and of other senior executives whose base
salary exceeds an amount fixed by the Board of Directors; shall
determine the compensation of all executive officers and such senior
executives under the Corporation's senior executive compensation
plans; shall administer all of the Corporation's senior executive
compensation plans; and shall assure that there is a succession plan
in place.
11. COMMITTEE ON BOARD AFFAIRS AND PUBLIC POLICY. A Committee on Board
Affairs and Public Policy consisting of at least three directors,
none of whom shall be employees of the Corporation or any of its
subsidiaries shall be appointed by the Board of Directors. The
Committee shall consider and make recommendations to the Board of
Directors as to Board of Director membership with respect to names
generated by the Committee itself or submitted by shareholders. The
Committee shall consider and make recommendations to the Board of
Directors with respect to Board of Director committee membership and
chair assignments. (These will normally be acted upon by the Board of
Directors at its Annual Meeting held immediately after the Annual
Meeting of shareholders.) The Committee shall consider and make
recommendations to the Board of Directors with respect to the number
of members of the Board of Directors. (The Charter and Bylaws provide
for not less than nine nor more than eighteen as may be determined by
the Board). Annually, the Committee shall consider and recommend to
the Board of Directors the persons whom the Committee proposes that
the Board of Directors nominate for election as directors at the
Annual Meeting of shareholders. The Committee shall consider and make
recommendations to the Board of Directors with respect to
remuneration of directors.
The Committee shall provide guidance to the Management on major issues
in areas of corporate social responsibility, including environmental
issues and public affairs. The Committee shall review and approve
policy guidelines to be used by Management in making charitable
contributions and shall annually review all charitable contributions
made by the Corporation during the previous twelve months and
recommend to the Board the level of contributions to be set for the
ensuing year.
12. In the absence of any one or more members from a meeting of any of the
committees provided for in these Bylaws, the Chairman, or the
President, may in his or her discretion invite any member or members
of the Board (otherwise qualified to serve) to attend such
8
<PAGE>
As amended February 25, 1998
meeting. Temporary members thus appointed to attend for absentees
shall act as regular members and shall have the right to vote.
13. POWERS OF ALL COMMITTEES. The powers of all committees are at all
times subject to the control of the Directors, and any member of
any committee may be removed at any time at the pleasure of the
Board.
ARTICLE IV
OFFICERS
1. ELECTION OF OFFICERS. The Board of Directors shall have power to elect
from its own members or otherwise a Chairman, a President, one or more
Vice Chairmen and Vice Presidents, a Secretary, a Treasurer, one or
more Assistant Treasurers and Assistant Secretaries, and such other
officers, agents and employees as it may deem expedient, and to define
the duties and authority of all officers, employees and agents and to
delegate to them such lawful powers as may be deemed advisable.
The officers shall respectively perform all acts and duties required
of such officers by law, by the Charter and Bylaws of this
Corporation, or by the Board of Directors.
2. CHAIRMAN OF THE BOARD. If the Directors have elected a Chairman, the
Chairman shall preside at all meetings of the Board except that in the
Chairman's absence the Directors present shall designate a person to
preside. The Chairman shall have such additional duties as the Board
of Directors or the Executive Committee may assign.
3. PRESIDENT. The President shall be elected by the Directors and shall
have such duties as the Board of Directors or the Executive
Committee may assign.
4. CHIEF EXECUTIVE OFFICER. One of the officers shall be appointed Chief
Executive Officer of the Corporation by the Board of Directors.
Subject to the Board of Directors and the Executive Committee, the
Chief Executive Officer shall have general supervision and control of
the policies, business and affairs of the Corporation.
5. VICE CHAIRMEN. Each Vice Chairman shall have such powers and perform
such duties as may be conferred upon him or her or determined by
the Chief Executive Officer.
6. VICE PRESIDENTS. Each Vice President shall have such powers
and perform such duties as may be conferred upon him or her or
determined by the Chief Executive Officer.
9
<PAGE>
As amended February 25, 1998
7. TREASURER. The Treasurer shall have the oversight and control of the
funds of the Corporation and shall have the power and authority
to make and endorse notes, drafts and checks and other obligations
necessary for the transaction of the business of the Corporation
except as herein otherwise provided.
8. CONTROLLER. The Controller shall have the oversight and
control of the accounting records of the Corporation and shall
prepare such accounting reports and recommendations as shall be
appropriate for the operation of the Corporation.
9. SECRETARY. It shall be the duty of the Secretary to make and keep
records of the votes, doings and proceedings of all meetings of
the shareholders and Board of Directors of the Corporation, and of
its Committees, and to authenticate records of the Corporation.
10. ASSISTANT TREASURERS. The Assistant Treasurers shall have such duties
as the Treasurer shall determine.
11. ASSISTANT SECRETARIES. The Assistant Secretaries shall have such
duties as the Secretary shall determine.
12. POWERS OF ALL OFFICERS. The powers of all officers are at all times
subject to the control of the Directors, and any officer may be
removed at any time at the pleasure of the Board.
ARTICLE V
INDEMNIFICATION
To the extent properly permitted by law the Board of Directors shall
provide for the indemnification and reimbursement of, and advances of
expenses to, any person made a party to any action, suit or proceeding
by reason of the fact that he or she, or a person whose legal
representative or successor he or she is,
(a) is or was a Director, officer, employee or agent of the
Corporation, or
(b) served at the Corporation's request as a director, officer,
employee or agent of another corporation, for expenses,
including attorney's fees, and such amount of any judgment,
money decree, fine, penalty or settlement for which he or she
may have become liable as the Board of Directors deems
reasonable, actually incurred by him or her in connection
with the defense or reasonable settlement of any such action,
suit or
10
<PAGE>
As amended February 25, 1998
proceeding or any appeal therein, except in relation to
matters as to which he or she, or such person whose legal
representatives or successor he or she is, is finally
adjudged in such action, suit or proceeding to be liable for
negligence or misconduct in the performance of his or her
duties.
This provision of indemnification shall be in addition to any other
right or remedy which such person may have. The Corporation shall have
the right to intervene in and defend all such actions, suits or
proceedings brought against any such person.
ARTICLE VI
CORPORATE SEAL
The corporate seal shall be in the custody of the Secretary and either
the Secretary or any other officer shall have the power to affix the
same for the Corporation.
ARTICLE VII
STOCK CERTIFICATES
1. SIGNATURES. Certificates of stock shall be signed by the Chairman, the
President or a Vice President and by the Secretary or the Treasurer
(except that where any such certificate is signed by a transfer agent
or transfer clerk and by the registrar, the signatures of any such
Chairman, President, Vice President, Secretary or Treasurer may be
facsimiles, engraved or printed) and shall be sealed with the seal of
the corporation (or shall bear a facsimile of such seal).
2. LOST CERTIFICATES. No certificate for shares of stock in the
Corporation shall be issued in place of any certificate alleged to
have been lost, stolen or destroyed except upon production of such
evidence of such loss, theft or destruction as the Board of Directors
in its discretion may require and upon delivery to the Corporation of
a bond of indemnity in form and, unless such requirement is waived by
Resolution of the Board, with one or more sureties, satisfactory to
the Board in at least double the value of the stock represented by
said Certificate.
11
<PAGE>
As amended February 25, 1998
ARTICLE VIII
FISCAL YEAR
The Corporation's fiscal year shall close on the Saturday nearest
December 31st of each year.
ARTICLE IX
INDEPENDENT AUDIT
The Board of Directors shall provide for a yearly independent audit,
the form and scope of which shall be determined by the Board from time
to time.
ARTICLE X
AMENDMENTS
The Board of Directors of the Corporation may adopt, amend or repeal
the Bylaws of the Corporation, subject, however, to the power of the
shareholders to adopt, amend or repeal the same, provided that any
notice of a meeting of shareholders or of the Board of Directors at
which Bylaws are to be adopted, amended or repealed, shall include
notice of such proposed action.
ARTICLE XI
ACQUISITIONS OF STOCK
(a) Except as set forth in subsection (b) hereof, the
Corporation shall not acquire any of its voting equity
securities (as defined below) at a price per share above
the market price per share (as defined below) of such
securities on the date of such acquisition from any person
actually known by the Corporation to be the beneficial
owner (as determined pursuant to Rule 13d-3 under the
Securities Exchange Act of 1934, as amended, or any
successor rule or regulation) of more than three percent of
the Corporation's voting equity securities who has been the
beneficial owner of the Corporation's voting equity
securities for less than two years prior to the date of the
Corporation's acquisition thereof, unless such acquisition
(i) has been approved by a vote of a majority of the shares
entitled to vote, excluding shares owned by any beneficial
owner any of whose shares are proposed to be acquired
pursuant to the proposed acquisition that is the subject of
such vote or (ii) is pursuant to an offer made on the same
terms to all holders
12
<PAGE>
As amended February 25, 1998
of securities of such class. The determination of the Board
of Directors shall be conclusive in determining the price
paid per share for acquired voting equity securities if the
Corporation acquires such securities for consideration
other than cash.
(b) This provision shall not restrict the Corporation from: (i)
acquiring shares in the open market in transactions in
which there has been no prior arrangement with, or
solicitation of (other than a solicitation publicly made to
all holders), any selling holder of voting equity
securities or in which all shareholders desiring to sell
their shares have an equal chance to sell their shares;
(ii) offering to acquire shares of shareholders owning less
than 100 shares of any class of voting equity securities;
(iii) acquiring shares pursuant to the terms of a stock
option or similar plan that has been approved by a vote of
a majority of the Corporation's common shares represented
at a meeting of shareholders and entitled to vote thereon;
(iv) acquiring shares from, or on behalf of, any employee
benefit plan maintained by the Corporation or any
subsidiary or any trustee of, or fiduciary with respect to,
any such plan when acting in such capacity; or (v)
acquiring shares pursuant to a statutory appraisal right or
otherwise as required by law.
(c) Market price per share on a particular day means the highest
sale price on that day or during the period of five
trading days immediately preceding that day of a share of
such voting equity security on the Composite Tape for New
York Stock Exchange-Listed Stocks, or if such voting equity
security is not quoted on the Composite Tape on the New
York Stock Exchange or listed on such Exchange, on the
principal United States securities exchange registered
under the Securities Exchange Act of 1934 on which such
voting equity security is listed, or, if such voting equity
security is not listed on any such exchange, the highest
sales price or, if sales price is not reported, the highest
closing bid quotation with respect to a share of such
voting equity security on that day or during the period of
five trading days immediately preceding that day on the
National Association of Securities Dealers, Inc. Automated
Quotations System or any system then in use, or if no such
quotations are available, the fair market value on the date
in question of a share of such voting equity security as
determined by a majority of the Board of Directors.
(d) Voting equity securities of the Corporation means equity
securities issued from time to time by the Corporation
which by their terms are entitled to be voted generally in
the election of the directors of the Corporation.
(e) The Board of Directors shall have the power to interpret the
terms and provisions of, and make any determinations with
respect to, this Article XI, which interpretations and
determinations shall be conclusive.
13
<PAGE>
EXHIBIT 4(iv)(b)
October 22, 1997
The Stanley Works
1000 Stanley Drive
New Britain, CT 06053
Attention: Craig Douglas
Ladies and Gentlemen:
Reference is made to The Stanley Works' 364-Day Credit Agreement, dated as of
October 23, 1996 (as amended, modified or supplemented from time to time, the
"Credit Agreement," the terms defined therein being used herein as therein
defined), among the undersigned, certain Lenders parties thereto, and Citibank,
N.A., as agent for said Lenders.
This letter is to confirm on behalf of all the Lenders that, effective on
October 22, 1997, the Termination Date is extended to October 21, 1998. Except
as expressly provided herein, the Credit Agreement shall remain unchanged and
in full force and effect.
Very truly yours,
CITICORP SECURITIES, INC.
By: Anita J. Brickell
-----------------------
Title: Vice President
CITIBANK, N.A.
By: Steven R. Victorin
-----------------------
Title: Attorney-In-Fact
ACCEPTED AND AGREED
this 23rd day of October, 1997:
THE STANLEY WORKS
By: Craig A. Douglas
-----------------------
Title: Director, Corporate Finance
<PAGE>
EXHIBIT 10(iii)
As amended January 28, 1998
THE STANLEY WORKS
1988 LONG-TERM STOCK INCENTIVE PLAN
1. PURPOSE
The purpose of The Stanley Works (the "Company") 1988
Long-Term Stock Incentive Plan (the "Plan") are to enhance and reinforce the
Company's goals for profitable growth by providing senior management employees
with additional financial rewards for attainment of such growth and encouraging
their stock ownership through the payment of such rewards partly in Company
stock.
2. DEFINITIONS
(A) The following terms shall have the following meanings for purposes of
the Plan:
"Award Cycle" means the period over which the Target Incentive Award
is to be earned out.
"Board of Directors" means the Board of Directors of The Stanley Works.
"Committee" means the Compensation and Organization Committee of the Board
of Directors.
"Company" means The Stanley Works and each of its majority owned
subsidiaries.
"Earnings Per Share" means the earnings per common share (on a fully
diluted basis, if earnings per share are so reported) in the audited
consolidated earnings statement for the year included in the Company's
Annual Report to Stockholders.
"Net Earnings" means the net earnings in the audited consolidated
statements of earnings for the year included in the Company's Annual
Report to Stockholders.
"Participant" means any employee of the Company with respect to whom a
Target Incentive Award is made.
"Target Incentive Award" means an award, expressed as a percentage of base
salary,
<PAGE>
2
assigned to a Participant to be earned out during the Award Cycle.
(B) Except when otherwise indicated by the context, any masculine
terminology used herein shall also include the feminine and the definition
of any terms herein in the singular shall also include the plural.
3. ADMINISTRATION
The Plan shall be administered by the Compensation and Organization
Committee of the Board of Directors. The Committee is authorized to interpret
the Plan and may, from time to time, adopt such rules and regulations for
carrying out the Plan as it shall determine, provided the same are not
inconsistent with the Plan as written. Decisions of the Committee shall be
final, conclusive and binding on all parties.
4. PARTICIPATION
Participation in the Plan shall be limited to regular senior
management employees of the Company, including officers, as specified by the
Committee. The selection of Participants and their respective Target Incentive
Awards shall be determined by the Committee.
5. AWARD GRANTS
(A) The Plan shall have a duration of ten fiscal years of the Company
commencing January 3, 1988. Target Incentive Award grants will be made
annually. Such awards will be paid out in full or in part on the basis of
Company performance in terms of (i) in the case of Award Cycles commencing
prior to January 1, 1989, compound annual growth rate in Earnings Per Share
over a five-year Award Cycle, and (ii) in the case of Award Cycles commencing
on or after January 1, 1989, average annual growth rate in Net Earnings over a
five-year Award Cycle.
(B) Target Incentive Awards shall be expressed as a percentage of a
Participant's average annual base salary (or, at the discretion of the
Committee in the case of any or all Participants outside the United States, as
a percentage of an amount deemed by the Committee appropriate to the
Participant's position) during the Award Cycle with base salary calculated as
zero for any portion of the Award Cycle that the employee is not a participant.
In its discretion, the Committee may during an Award Cycle increase or decrease
on a pro rata basis a Participant's Target Incentive Award percentage for that
Award Cycle; if it does so, or if it establishes a Participant's Target
Incentive Award for an Award Cycle at a higher or lower percentage than it had
previously established for Award Cycles then underway, the Participant's Target
Incentive Award percentage for all Award Cycles then underway shall be
similarly
<PAGE>
3
adjusted on a pro rata basis unless the Committee declares otherwise.
Notwithstanding the foregoing sentence, there shall be no "decrease" nor "lower
percentage" with respect to any Participant's participation in any particular
Award Cycle except when such participation commenced on or after June 1, 1988.
Notwithstanding the two immediately preceding sentences, there shall be no
"decrease" nor "lower percentage" made by the Committee after any Change in
Control of the Company (as defined in paragraph 13 hereof) with respect to any
Participant's participation in any Award Cycle.
(C) Employees who become eligible to participate in the Plan during an
Award Cycle may, at the discretion of the Committee, either be given a Target
Incentive Award in such Award Cycle or be withheld from participation in the
Plan until the beginning of the next Award Cycle. When the Committee designates
an employee a Participant, such employee shall thereupon participate in all
Award Cycles then underway.
6. RIGHT TO PAYMENT OF AWARDS
(A) The Committee shall, subject to approval by the Board of
Directors, establish, prior to each Award Cycle, a targeted compound annual
growth rate in Earnings Per Share (in the case of Award Cycles commencing prior
to January 1, 1989) or in Net Earnings (in the case of Award Cycles commencing
on or after January 1, 1989) at which 100% of the Target Incentive Award shall
be earned. Such action by the Committee may be postponed until after the
commencement of the Award Cycle, but in no event shall the Committee act more
than six months after such commencement. The Committee shall also establish
performance levels above and below this targeted level at which greater or
lesser portions, respectively, of the Target Incentive Award shall be earned.
(B) Target Incentive Awards shall be earned and payable only if and to
the extent to which actual Company performance meets or exceeds the minimum
performance level established by the Committee.
(C) In an unusual circumstance, including but not limited to an
acquisition, disposition or merger, stock split or stock dividend, or changes
in accounting principles and methods, the Committee may make commensurate
adjustments in performance levels during the Award Cycle.
7. PAYMENT OF AWARDS
(A) Except as otherwise provided in paragraph 9 hereof, no payment of
Target Incentive Awards shall be made prior to the end of an Award Cycle.
(B) Payment of the Target Incentive Awards shall be made on the first
business day of
<PAGE>
4
April following the end of the last year of the Award Cycle, or such shorter
period with respect to which payment shall be made pursuant to paragraph 9
hereof.
(C) Target Incentive Awards earned shall be paid fifty-five percent
(55%) in cash and forty-five percent (45%) in shares of Company common stock
or, at the discretion of the Committee, solely in cash, solely in shares or in
any combination thereof. For purposes of determining the number of shares to be
issued, the value per share shall be deemed to be the average of the daily
closing prices of the common shares as reported for the New York Stock Exchange
Composite Transactions during the Award Cycle.
8. DEFERRAL OF PAYMENT OF AWARDS
(A) Election by Participant.
(i) A Participant can elect to defer all or none of the
Target Incentive Award payment. The election to defer by the
Participant must be made not later than the December
immediately preceding the last year of the Award Cycle whose
Target Incentive Award payment is being deferred.
(ii) Once made, an election may not be changed either as to
deferment or so as to accelerate the time of future payment,
except (a) with the approval of the Committee upon
demonstration of a financial hardship by the Participant, or
(b) upon forfeiture of a penalty equal to that percentage of
the amount of the payment equal to the Treasury Bill rate as
provided in paragraph 8(D)(vi) hereof.
(iii) The election must specify when or under what
circumstances the future lump-sum payment is to be made. The
circumstances which may be specified are limited to death,
retirement, or termination of employment.
Notwithstanding the specifics of the election, any deferred
amount and earnings thereon not paid out prior to the later
of the death of the Participant or the tenth anniversary of
the Participant's termination of employment by death,
retirement or otherwise will be paid out promptly after the
later of such death or such anniversary.
(B) Participant's Account. Amounts which a Participant has elected to
defer under the Plan shall be credited to the Participant's account in shares
of the Corporation's common stock (valued at the mean between the highest and
lowest sales prices of the common stock reported as New York Stock Exchange
Composite Transactions for the date such amount would otherwise have been
paid). The Participant shall not have any interest in the common stock until
distributed in accordance with the Plan. Shares credited to the Participant's
account shall accrue
<PAGE>
5
amounts equivalent to cash or stock dividends. Such amounts shall similarly be
credited to the Participant's account in shares of the Corporation's common
stock valued as described in the first sentence of this paragraph as of the
respective dividend payment dates.
(C) Distribution from Accounts.
(i) Distribution will be made from a Participant's account in January
of the year specified in the election, but not later than promptly
following the later of the death of the Participant or the tenth
anniversary of a Participant's termination of employment by death,
retirement or otherwise. Payment, subject to government withholding
requirements, will be in the form of a stock certificate evidencing
shares as follows:
(a) the number of shares (adjusted as provided in paragraph 8 (D)
(v) hereof for stock splits, etc.) the Participant would have
received if his or her Target Incentive Award payment had not
been deferred, plus
(b) the number of shares representing the balance of his or her
account (valued at the mean between the highest and lowest sales
prices of the common stock reported as New York Stock Exchange
Composite Transactions for the last trading day immediately
preceding the date of payment).
(ii) The Committee may distribute all of a Participant's account
prior to the date set forth in the Participant's election or
elections in the event of an extraordinary corporate event or
transaction.
(D) General.
(i) Dividends and other earnings credited on deferred amounts under
the Plan will not constitute earnings for pension plan purposes.
(ii) The right of a Participant to receive any amount in the
Participant's account shall not be transferable or assignable by the
Participant, except by will or by the laws of descent and
distribution, and no part of such amount shall be subject to
attachment or other legal process.
(iii) The Company shall not be required to reserve or otherwise set
aside shares of common stock for the payment of its obligations
hereunder. The Company shall make available as and when required a
sufficient number of shares of common stock to meet the needs of the
Plan. To the extent that registration of
<PAGE>
6
such shares under the Securities Act of 1933 shall be
required prior to their resale, the Company undertakes to
either file a registration statement relating to such shares
or include such shares in another registration statement to
be filed within a reasonable time.
(iv) Each Participant participating in the Plan will receive
an annual statement indicating the number of shares credited
to the Participant's account as of the end of the preceding
calendar year.
(v) If adjustments are made to outstanding shares of common
stock or to the capital structure of the Company as a result
of stock dividends, stock splits or combinations,
recapitalizations, mergers, consolidations, exchange offers,
issuer tender offers, extraordinary cash dividends, or
similar events or transactions, an appropriate adjustment
will also be made in the number of shares credited to the
Participant's account.
(vi) The Treasury Bill rate means that interest rate equal to
the yield for 3- month U.S. Treasury Bills as reported for
the last business day of the preceding calendar quarter.
9. TERMINATION OF EMPLOYMENT
(A) If a Participant's employment is terminated before the end of an
Award Cycle for any reason other than death, total and permanent disability (as
determined under the Company's pension plan) or retirement (normal or early),
the rights of such Participant under the Plan shall terminate except as the
Committee may in its discretion otherwise determine.
(B) If a Participant's employment is terminated before the end of an
Award Cycle but not less than twelve (12) months after the start of such cycle
on account of death, total and permanent disability (as determined under the
Company's pension plan) or retirement (normal or early), or, if the Committee
in the exercise of its discretion under (A) above shall have determined that
the Participant's rights shall not terminate upon the termination of his
employment, such Participant shall be entitled to a pro rata portion of any
Target Incentive Award which would have been earned if the participant had
continued employment through the end of the Award Cycle. Such pro rata portion
shall be the arithmetic mean of the percentages of the Target Incentive Awards
paid in respect of the four Award Cycles most recently completed prior to
termination. The pro rata portion of the Award to which the Participant shall
be entitled shall be calculated by multiplying the Target Incentive Award which
would have been earned by a fraction, the numerator of which is the number of
full months of participation in the Award Cycle and the denominator of which is
the number of full months in the Award Cycle.
10. MISCELLANEOUS PROVISIONS
<PAGE>
7
(A) Nothing in this Plan shall be construed as giving an employee any
right to remain in the employ of the Company. The receipt of a Target Incentive
Award grant for any one Award Cycle shall not give an employee a right to
receive a Target Incentive Award grant for any subsequent Award Cycle.
(B) No right or interest of any Participant in the Plan shall be
assignable or transferable, or subject to any lien, directly, by operation of
law, or otherwise, including execution, levy, garnishment, attachment, pledge,
and bankruptcy. In the event of a Participant's death, payment shall be made to
the Participant's designated beneficiary, or in the absence of such
designation, to the Participant's estate.
(C) The Company shall have the right to deduct from all payments under
this Plan any Federal or state taxes required by law to be withheld with
respect to such payments.
(D) Payments under the Plan shall not constitute earnings for purposes of
the Company's pension plan.
(E) The number of shares which may be issued under this Plan subject to
appropriate adjustment in the event of a stock dividend or stock split shall
not exceed 1,400,000. In the event a greater number of shares would be required
to satisfy Target Incentive Awards previously made, payment of such Awards may
be made entirely in cash.
11. AMENDMENT AND TERMINATION
The Board of Directors may, at any time, terminate, modify or amend this
Plan except insofar as the maximum number of shares to be issued hereunder is
concerned. No termination, modification or amendment shall, without the consent
of the Participants, adversely affect the rights of such Participants.
12. EFFECTIVE DATE OF THE PLAN
Subject to the approval of the shareholders of the Company, the Plan shall
be effective as of January 3, 1988.
13. DEFINITION OF CHANGE IN CONTROL
For purposes of this Plan, a "Change in Control of the Company" shall be
deemed to have occurred if
<PAGE>
8
(A) Any "person", as such term is defined in Section 3 (a) (9)
and modified and used in Section 13 (d) and 14 (d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (other than the
Company, any trustee or other fiduciary holding securities under an
employee benefit plan of the Company (or of any subsidiary of the
Company), or any corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as
their ownership of stock of the Company), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 25%
or more of the combined voting power of the Company's then
outstanding securities;
(B) during any period of two consecutive years (not including
any period prior to the adoption of this amendment to this Plan),
individuals who at the beginning of such period constitute the Board,
and any new director (other than a director designated by a person
who has entered into an agreement with the Company to effect a
transaction described in clause (A), (C) or (D) of this definition)
whose election by the Board or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds
(2/3) of the directors then still in office who either were directors
at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to
constitute at least a majority thereof;
(C) the stockholders of the Company approve a merger or
consolidation of the Company with any other Corporation, other than
(1) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or be being
converted into voting securities of the surviving entity) more than
75% of the combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately after such
merger or consolidation or (2) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction
in which no "person" (with the exceptions specified in clause (A) of
this definition) acquires 25% or more of the combined voting power of
the Company's then outstanding securities; or
(D) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets.
For purposes of paragraph 16 of this Plan, a "Change in
Control of the Company" shall also be deemed to have occurred if the
Company consummates a merger, consolidation, stock dividend, stock
split or combination, extraordinary cash dividend, exchange offer,
issuer tender offer or other transaction effecting a recapitalization
of the Company (or similar transaction) (the "Transaction") and, in
connection with the Transaction, a Designated Downgrading occurs with
respect to the unsecured general obligations of the Company (the
"Securities"), as described below:
<PAGE>
9
(i) If the rating of the Securities by both Rating Agencies
(defined hereinafter) on the date 60 days prior to the public
announcement of the Transaction (a "Base Date") is equal to or higher
than BBB Minus (as hereinafter defined), then a "Designated
Downgrading" means that the rating of the Securities by either Rating
Agency on the effective date of the Transaction (or, if later, the
earliest date on which the rating shall reflect the effect of the
Transaction) (as applicable, the "Transaction Date") is equal to or
lower than BB Plus (as hereinafter defined); if the rating of the
Securities by either Rating Agency on a Base Date is lower than BBB
Minus, then a "Designated Downgrading" means that the rating of the
Securities by either Rating Agency on the Transaction Date has
decreased from the rating by such Rating Agency on the Base Date. In
determining whether the rating of the Securities has decreased, a
decrease of one gradation (+ and - for S&P and 1, 2 and 3 for
Moody's, or the equivalent thereof by any substitute rating agency
referred to below) shall be taken into account;
(ii) "Rating Agency" means either Standard & Poor's Corporation
or its successor ("S&P") or Moody's Investors Service, Inc. or its
successor ("Moody's");
(iii) "BBB Minus" means, with respect to ratings by S&P, a
rating of BBB and, with respect to ratings by Moody's, a rating of
Baa3, or the equivalent thereof by any substitute agency referred to
below; and
(iv) "BB Plus" means, with respect to ratings by S&P, a rating
of BB+ and, with respect to ratings by Moody's, a rating of BBB3, or
the equivalent thereof by any substitute agency referred to below.
(v) The Company shall take all reasonable action necessary to
enable each of the Rating Agencies to provide a rating for the
Securities, but, if either or both of the Rating Agencies shall not
make such a rating available, a nationally-recognized investment
banking firm shall select a nationally-recognized securities rating
agency or two nationally-recognized securities rating agencies to act
as substitute rating agency or substitute rating agencies, as the
case may be.
14 PRO-RATA PAYMENT FOLLOWING CHANGE IN CONTROL
Notwithstanding any of the preceding provisions of this Plan, upon the
occurrence of any Change in Control of the Company, it shall be deemed, solely
for purposes of this Plan, that each Participant's employment has terminated on
the date of such Change in Control by reason of retirement and that each Award
Cycle which was in progress on such date had begun at least 12 months before
such date. Each Participant shall thereupon be paid a pro-rata portion of any
pending Target Incentive Awards, in accordance with paragraph 9 hereof;
provided,
<PAGE>
10
however, that payment shall be calculated as if it were being paid solely in
shares of Company common stock in accordance with paragraph 7 (C), and then
actually shall be paid in cash with such shares valued at the higher of (i) the
closing price of such shares as reported on the New York Stock Exchange -
Composite Transactions on the date preceding and nearest the date the Change in
Control occurred or (ii) the highest per share price for the common stock of
the Corporation actually paid in connection with such Change in Control,
provided, however, that such value shall not exceed the amount necessary to
provide a fully equitable payment of such account, taking into consideration
any adjustments made pursuant to paragraph 8 (D) (v) of the Plan with respect
to any events or transactions constituting a Change in Control of the Company,
or a part thereof.
15. PAYMENT OF PREVIOUSLY UNPAID AMOUNTS FOLLOWING CHANGE IN
CONTROL
Notwithstanding any of the preceding provisions of this Plan, upon the
occurrence of any Change in Control of the Company, if any Target Incentive
Award amount which any Participant earned under this Plan during any Award
Cycle which ended prior to the Change in Control has neither been paid to such
Participant nor credited to such Participant's account under paragraph 8
hereof, such Target Incentive Award amount shall be paid to such Participant
immediately following the first date on which such Target Incentive Award can
be calculated and shall in no event be paid later than the later of (i) the
first business day of April following the final year of the Award Cycle with
respect to which such Target Incentive Award was earned, or (ii) the fifteenth
(15th) day following the Change in Control.
16. PAYMENT OF DEFERRED ACCOUNT FOLLOWING A CHANGE IN CONTROL
Notwithstanding any of the preceding provisions of this Plan, as soon as
possible following any Change in Control of the Company, payment shall be made,
in cash, of the entire account of each Participant under paragraph 8 hereof.
For purposes of calculating the amount of such payment, any shares of the
Company's common stock credited to, or accrued in, any Participant's account
shall be valued at the higher of (i) the closing price of such shares as
reported on the New York Stock Exchange - Composite Transactions on the date
preceding and nearest the date the Change in Control occurred or (ii) the
highest per share price for the common stock of the Company actually paid in
connection with such Change in Control; provided, however, that such value
shall not exceed the amount necessary to provide a fully equitable payment of
such account, taking into consideration any adjustments made pursuant to
paragraph 8 (D) (v) of the Plan with respect to any events or transactions
constituting a Change in Control of the Company, or a part thereof.
<PAGE>
EXHIBIT 10(vi)
AMENDED AND RESTATED OCTOBER 23, 1996 AND MAY 19, 1997
EFFECTIVE JANUARY 1, 1997
SUPPLEMENTAL RETIREMENT AND SAVINGS PLAN
FOR SALARIED EMPLOYEES OF THE STANLEY WORKS
BACKGROUND. A. The Stanley Works (together with its wholly-owned U.S.
subsidiaries, "Stanley") maintains certain retirement plans for its salaried
employees that are designed to meet the requirements of Section 401(a) of the
Internal Revenue Code (the "Code").
B. The benefits and contributions that may be provided under such
retirement plans are limited on account of Sections 401 and 415 of the Code and
certain other provisions of the Code.
C. Stanley maintains this Plan for Salaried Employees of The Stanley Works
(the "Supplemental Plan") to provide certain employees with benefits that may
not be provided under these retirement plans.
D. Stanley now desires to restate the Supplemental Plan.
TERMS OF THE SUPPLEMENTAL PLAN
1. EFFECTIVE DATE. This amendment and restatement shall be effective
January 1, 1997.
2. DEFINITIONS. The following terms have the meanings set forth below.
"APPLICABLE LIMITATION" means each of:
(a) the limitation under Sections 401(a)(30) and 402(g)(1) of the Code on
the amount of pre-tax elective contributions that may be made by an employee
under the Savings Plan;
(b) the limitation in Section 401(a)(17) of the Code on the amount of
compensation of an employee that may be taken into account under the Retirement
Plan or Savings Plan;
(c) the limitation under the Savings Plan on the amount of an employee's
pre-tax elective contributions or Stanley matching contributions imposed under
the nondiscrimination rules of Section 401 of the Code;
(d) the exclusion from the "Compensation" utilized under the Retirement
Plan of earnings deferred at the election of an employee pursuant to the
Deferred Compensation Plan for Participants in Stanley's Management Incentive
Plans; and
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<PAGE>
(e) the limitations in Section 415 of the Code on the maximum
contributions that may be made under the Savings Plan and the maximum benefits
that may be provided under the Retirement Plan.
"COMMITTEE" means the Finance and Pension Committee of the Board of
Directors of The Stanley Works.
"ELIGIBLE EMPLOYEE" means a Highly Compensated Employee who is a
participant in Stanley's Management Incentive Plans.
"401(K) DOLLAR LIMITS" means the dollar limitation described in paragraph
(a) of the definition of Applicable Limitation.
"HIGHLY COMPENSATED EMPLOYEE" means a salaried employee of Stanley who
during the applicable Plan Year is a highly compensated employee, as defined in
Section 414(q) of the Code (i.e., W2 income, including contributions to health
and dental plans, to flexible spending plans, and to the Savings Plan,
exceeding the indexed amount [$80,000 for 1997]).
"PLAN YEAR" means the plan year of a Qualified Plan.
"QUALIFIED PLAN" means each of the Savings Plan and the Retirement Plan.
"RETIREMENT PLAN" means The Stanley Works Retirement Plan.
"SAVINGS PLAN" means The Stanley Works 401(k) Savings Plan.
"SUPPLEMENTAL COMPANY CONTRIBUTION ACCOUNT" means the bookkeeping record
that reflects amounts credited under Section 4.2.
"SUPPLEMENTAL EMPLOYEE CONTRIBUTION ACCOUNT" means the bookkeeping record
that reflects amounts credited under Section 4.1.
"UNRESTRICTED QUALIFIED PLAN BENEFIT" means the benefit amount that would
be payable to an individual under the Retirement Plan but for an Applicable
Limitation.
3. PARTICIPATION IN THE SUPPLEMENTAL PLAN. 3.1. ELIGIBLE EMPLOYEE
PARTICIPATION. Each Eligible Employee shall become a participant in the
Supplemental Plan on the date as of which an amount is first credited on his or
her behalf under Section 4.
3.2. REMAINING A PARTICIPANT. Subject to Section 7, an Eligible Employee
shall remain a participant until all amounts to which he or she is entitled
have been distributed.
4. CREDITING OF BENEFITS; ELECTIONS TO DEFER. 4.1. SUPPLEMENTAL EMPLOYEE
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<PAGE>
CONTRIBUTIONS. (a) EMPLOYEE CONTRIBUTIONS EXCEEDING 401(K) DOLLAR LIMITS. If an
Eligible Employee's pre-tax elective contributions under the Savings Plan for a
Plan Year are limited by the 401(k) Dollar Limits, the Eligible Employee may
elect to defer a portion of compensation. The amount deferred for a Plan Year
under this Section 4.1(a), when added to the pre-tax elective contributions for
the Plan Year under the Savings Plan, shall not exceed 15% of compensation.
(b) EMPLOYEE CONTRIBUTIONS EXCEEDING OTHER LIMITS. If an Eligible
Employee may not make pre-tax elective contributions under the Savings Plan for
a Plan Year as a result of an Applicable Limitation (other than as described in
Section 4.1(a)), the Eligible Employee may elect to defer a portion of
compensation, up to the amount of such pre-tax elective contributions that
could not be made.
(c) CREDITING OF EMPLOYEE CONTRIBUTIONS. Any amount deferred under
this Section 4.1 shall be credited to a Supplemental Employee Contribution
Account.
4.2. SUPPLEMENTAL COMPANY CONTRIBUTIONS. (a) MATCHING CONTRIBUTIONS
FOR EMPLOYEE CONTRIBUTIONS EXCEEDING DOLLAR LIMITS. If an amount is credited to
a Supplemental Employee Contribution Account under Section 4.1, there shall
also be an amount credited to a Supplemental Company Contribution Account. This
amount shall equal the contribution that would have been made by Stanley under
the Savings Plan with respect to the amount credited under Section 4.1 if such
amount had been contributed to the Savings Plan.
(b) MATCHING CONTRIBUTIONS AFFECTED BY OTHER LIMITS. If a Stanley
contribution could not be made under the Savings Plan as a result of an
Applicable Limitation (other than as described in Section 4.2(a)), an amount
equal to such Stanley contribution that could not be made shall be credited to
a Supplemental Company Contribution Account.
4.3. SUPPLEMENTAL RETIREMENT PLAN BENEFITS. If an Eligible Employee's
Unrestricted Qualified Plan Benefit exceeds the benefit payable under the
Retirement Plan, the excess amount, to the extent vested under Section 5.1,
shall be provided under this Supplemental Plan.
4.4. CREDITING OF EARNINGS. A participant's Supplemental Employee
Contribution Account and Supplemental Company Contribution Account shall be
credited with the rate of return such accounts would have earned if they had
been invested under the Savings Plan. In addition, these accounts shall be
credited with any additional amount that would have been payable under the
Retirement Plan to reflect IPA benefits. For purposes of crediting the rate of
return, an amount shall be considered to be credited under Section 4.1 or 4.2
on the date on which it would have been allocated under the Savings Plan but
for an Applicable Limitation.
4.5. PROCEDURES FOR ELECTING EMPLOYEE CONTRIBUTIONS. An election to
defer compensation under Section 4.1 shall be made, and may be revoked, under
rules established by the Committee. Any election to defer compensation shall be
effective only as to compensation earned after the date of the election.
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<PAGE>
5. VESTING SCHEDULE. A participant's vested interest in a benefit
provided under this Plan shall be determined in accordance with the vesting
provisions of the particular Qualified Plan with respect to which the benefit
is determined.
6. DISTRIBUTIONS. 6.1. TIME FOR PAYING BENEFITS. Amounts credited to a
participant's Supplemental Employee Contribution Account or Supplemental
Company Contribution Account shall be distributed upon retirement, death,
disability or earlier separation from service with Stanley unless either the
rules of Section 7.3 apply or the participant elects to have payments made on a
later date specified in an election made under Section 6.3. Amounts payable
under Section 4.3 (relating to Supplemental Retirement Plan Benefits) shall be
distributed when benefit payments commence under the Retirement Plan.
6.2. FORM OF PAYMENT. Benefits attributable to an individual's
Supplemental Employee Contribution Account and Supplemental Company
Contribution Account shall be distributed in a cash lump sum payment. The
benefit determined under Section 4.3 (relating to Supplemental Retirement Plan
Benefits) shall be paid in a life annuity unless the participant elects a lump
sum payment under Section 6.3.
6.3. ELECTIONS BY PARTICIPANTS. An election to receive a lump sum
payment of the benefit payable under Section 4.3 (relating to Supplemental
Retirement Plan Benefits) or to defer distributions of the Supplemental
Employee Contribution and Supplemental Company Contribution Accounts may be
made by a participant in writing prior to the beginning of the one year period
that ends on the date on which the participant dies, becomes disabled, or
otherwise separates from service. An election may be made after the beginning
of such one year period only with the approval of the Committee.
6.4. ADJUSTMENTS TO DISTRIBUTIONS. Upon determining that a participant
is indebted to Stanley, the Committee shall be entitled to offset such
indebtedness, including any interest accruing thereon, against any payment that
would otherwise be made on behalf of the participant.
6.5. DEATH BENEFICIARY. Upon a participant's death, any benefit
payment shall be made to the beneficiary determined under the Qualified Plan to
which the benefit relates unless the participant designated in writing a
different beneficiary to receive such benefit. The benefit shall be paid in the
manner provided in Section 6.2.
6.6. WITHHOLDING. To the extent required by law, Stanley shall
withhold taxes from any payment due under the Plan.
7. INELIGIBILITY FOR COVERAGE. 7.1. BECOMING INELIGIBLE. Amounts shall
not be credited under Section 4.1 or 4.2 upon either (a) a participant ceasing
to be an Eligible Employee or (b) the Committee, in its sole discretion,
determining that an Eligible Employee may no longer actively participate in the
Plan.
7.2. RESUMING PARTICIPATION. An individual described in Section 7.1(a)
shall resume
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<PAGE>
active participation in the Supplemental Plan upon again becoming an Eligible
Employee. An individual described in Section 7.1(b) may again become an active
participant at the discretion of the Committee. Once an individual resumes
participation in the Supplemental Plan, amounts shall again be credited under
Section 4.1 upon the filing of an election pursuant to Section 4.5, and amounts
may also be credited under Section 4.2.
7.3. DISTRIBUTIONS TO INELIGIBLE INDIVIDUALS. An amount credited under
Section 4 on behalf of an individual for a Plan Year in which such individual
was not an Eligible Employee shall be distributed in a cash lump sum payment
upon the earliest of the following: (a) death, (b) disability, (c) other
separation from service with Stanley, or (d) the first day of the calendar year
in which the individual attains age 60. No additional amount shall be credited
to an account established in the name of an individual described in this
subsection unless such individual becomes an Eligible Employee. If the
individual becomes an Eligible Employee, amounts credited to an account
established in the name of the individual while an Eligible Employee shall be
distributed in accordance with Section 6, and other amounts shall be
distributed in the manner described above in this subsection.
8. MISCELLANEOUS. 8.1. AMENDMENT OR TERMINATION. The Committee may at
any time amend or terminate the Supplemental Plan without the consent of any
participant or beneficiary.
8.2. ADMINISTRATION OF THE SUPPLEMENTAL PLAN. The Supplemental Plan
shall be administered by the Committee. The Committee shall have the
discretionary authority to interpret the Supplemental Plan and to make all
determinations regarding eligibility for coverage and the benefits to be paid.
Any denial by the Committee of a claim for benefits under the Supplemental Plan
shall be stated in writing by the Committee and delivered or mailed to the
appropriate individual. Such notice shall set forth the specific reasons for
the denial. The Committee shall afford to any participant or beneficiary whose
claim for benefits has been denied a reasonable opportunity for a review of the
denial of the claim.
8.3. GOVERNING TEXT. The Supplemental Plan, including any amendments,
shall constitute the entire agreement between Stanley and any employee,
participant or beneficiary regarding the subject matter of the Supplemental
Plan. The Supplemental Plan, including any amendments, shall be binding on
Stanley, employees, participants, beneficiaries, and their respective heirs,
administrators, trustees, successors and assigns.
8.4. ENFORCEABILITY OF PLAN PROVISIONS. If any provision of the
Supplemental Plan shall, to any extent, be invalid or unenforceable, the
remainder of the Supplemental Plan shall not be affected, and each other
provision of the Supplemental Plan shall be valid and enforced to the fullest
extent permitted by law.
8.5. RIGHTS OF PARTICIPANT. Any person entitled to receive benefits
under the Supplemental Plan shall have the rights of an unsecured general
creditor of Stanley.
8.6. CLAIMS OF CREDITORS. The right of any participant or beneficiary
to a benefit under
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<PAGE>
the Supplemental Plan shall not be subject to attachment or other legal process
for the debts of such participant or beneficiary. Except as provided in Section
6.4, a benefit of a participant or beneficiary shall not be subject to
anticipation, alienation, sale, transfer, assignment or encumbrance.
8.7. SPECIAL DISTRIBUTIONS. Whenever, in the opinion of the Committee, a
person entitled to receive a benefit under the Plan is unable to manage his or
her financial affairs, the Committee may direct that payment be made to a legal
representative or relative of such person for his or her benefit.
Alternatively, the Committee may direct that any payment be applied for the
benefit of such person in such manner as the Committee considers advisable. Any
payment made in accordance with this Section shall be a complete discharge of
any liability for the making of such payment under the provisions of the
Supplemental Plan.
8.8. TERMS OF EMPLOYMENT. Participation in the Supplemental Plan shall not
give an individual any right to remain in the service of Stanley, and an
individual shall remain subject to discharge to the same extent as if the
Supplemental Plan had not been adopted.
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<PAGE>
EXHIBIT 10(xi)(a)
Effective--May 20, 1997
THE STANLEY WORKS
SUPPLEMENTAL EXECUTIVE RETIREMENT PROGRAM
The Supplemental Executive Retirement Program ("SERP")
provides a supplemental retirement benefit to its Participants. As explained
below, this supplemental benefit is a supplement to the defined benefit under
Stanley's pension plans.
1. TARGET BENEFIT. The "Target Benefit" for a Participant, expressed as a
life annuity equal to a percentage of Average Pay and subject to discount and
to certain Offsets, will be based on years of service according to the
following schedule.
3% for each of the first 5 years
2% for each of the next 15 years
1% for each of the 5 years thereafter
For example, upon a Participant's retiring at age 60 after 20 years of service,
the Participant's Target Benefit would be 45% of Average Pay.
2. TERMINATION PRIOR TO AGE 60.
(a) TERMINATION BEFORE AGE 54. No SERP benefit will be paid to any
Participant whose employment terminates before the age of 54.
(b) DISCOUNT FOR RETIREMENT PRIOR TO AGE 60. For each month prior to
age 60 that the Participant retires, the Target Benefit will be reduced
.167% (i.e., 2% per year). For example, a Participant who retires at age
55 after 20 years of service would have a benefit, before Offsets, equal
to 90% of the Target Benefit, or 40.5% (45% x 90% = 40.5%) of Average Pay.
3. OFFSETS. The benefit otherwise payable under the SERP as explained in
sections 1 and 2 will be reduced by the "Offsets" described in sections 3(a)
and 3(b)
(a) the benefit under Stanley's pension plan including pension
benefits restored by Stanley's excess benefit plan; and
1
<PAGE>
(b) the Participant's Social Security benefit;1
resulting in the benefit net of Offsets.
4. PARTICIPANTS. The Participants (the "Participants") in the SERP will be
Stanley's chief executive officer and such other executives not to exceed 24 as
shall be designated by the chief executive officer and whose names shall be
filed with the records of the Compensation and Organization Committee (the
"Committee") of Stanley's Board.
5. TIME FOR PAYING BENEFITS; FORM OF PAYMENT. Amounts payable under the
SERP will be distributed when benefit payments commence under Stanley's pension
plan. The form of payment of benefits under the SERP will be a life annuity
unless a timely election is made to receive a lump sum, in which case the form
of payment will be a lump sum computed in the same manner as under the Stanley
pension plan. To be timely, an election to receive a lump sum payment must be
made in writing prior to the beginning of the one-year period preceding the
date on which the Participant dies, becomes disabled, or otherwise separates
from service; an election made after the beginning of such one-year period will
be considered timely only with the approval of the Committee.
6. AVERAGE PAY. Average pay will be one-third of the Participant's highest
total pay (salary and management incentive) as measured for purposes of
Stanley's pension plan (including the restoration of pension benefits by
Stanley's excess benefit plan) for any consecutive 36-month period.
7. DEATH BENEFICIARY. Upon a Participant's death, any benefit payment will
be made to the beneficiary determined under Stanley's qualified pension plan
unless the Participant designated in writing a different beneficiary to receive
such benefit.
8. MISCELLANEOUS.
(a) AMENDMENT. The Committee may at any time amend the SERP so long
as the benefits of no one then a Participant are diminished as a result.
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1 If the Participant retires prior to being eligible for Social Security, the
Social Security benefit offset will not commence until the Participant is
eligible for Social Security. For example, for a retirement in 1997 by a
Participant who is 60 years old, there would be no Social Security offset until
the Participant is 62, the age of eligibility for Social Security.
2
<PAGE>
(b) ADMINISTRATION OF THE SERP. The SERP will be administered by the
Committee. The Committee is vested with full authority (including full
discretionary authority) to administer, interpret, and make rules
regarding the SERP as it may deem advisable and to make determinations in
its discretion that shall be final, binding, and conclusive upon all
persons. No member of the Board of Directors or the Committee will be
liable for any action or determination made in good faith with respect to
the SERP.
(c) GOVERNING TEXT. The SERP, including any amendments, will
constitute the entire agreement between Stanley and any Participant or
beneficiary regarding the subject matter of the SERP. The SERP, including
any amendments, will be binding on Stanley, Participants, beneficiaries,
and their respective heirs, administrators, trustees, successors, and
assigns.
(d) RIGHTS OF PARTICIPANT. Any person entitled to receive benefits
under the SERP will have the rights of an unsecured general creditor of
Stanley.
(e) CLAIMS OF CREDITORS. The right of any Participant or beneficiary
to a benefit under the SERP will not be subject to attachment or other
legal process for the debts of such Participant or beneficiary. A benefit
of a Participant or beneficiary will not be subject to anticipation,
alienation, sale, transfer, assignment, or encumbrance.
(f) SPECIAL DISTRIBUTIONS. Whenever, in the opinion of the Committee,
a person entitled to receive a benefit under the SERP is unable to manage
his or her financial affairs, the Committee may direct that payment be
made to a legal representative or relative of such person for his or her
benefit. Alternatively, the Committee may direct that any payment be
applied for the benefit of such person in such manner as the Committee
considers advisable. Any payment made in accordance with this section will
be a complete discharge of any liability for the making of such payment
under the provisions of the SERP.
(g) TERMS OF EMPLOYMENT. Participation in the SERP will not give an
individual any right to remain in the service of Stanley, and an
individual will remain subject to discharge to the same extent as if the
SERP had not been adopted.
3
<PAGE>
EXHIBIT 10(xi)(b)
September 17, 1997
John M. Trani
Chairman and Chief Executive Officer
The Stanley Works
1000 Stanley Drive
New Britain, CT 06053
Dear John:
You, along with 12 other Stanley executives, are covered under
Stanley's Supplemental Executive Retirement Program ("SERP"). Generally, the
SERP provides a benefit (in combination with Stanley's other pension plans) of
45% of average pay at age 60 after 20 years of service.
Regrettably, there is a shortfall between this Stanley SERP benefit
and the pension benefit you would have received from your former employer if,
(a) on or after your 60th birthday, you had retired from your former
employer, or
(b) prior to your 60th birthday, your employment with your former
employer had terminated at the request of your former employer.
Stanley's Board wishes to make you whole with respect to such
shortfall in pension benefit. Consequently Stanley agrees with you as follows:
1. If
(a) your Stanley employment terminates prior to March 15,
2005(1) (other than as a result of death), and
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(1) Your 60th birthday.
<PAGE>
2
(b) such termination is at the request of the Board (but is not
for "cause"(2)) or is because of your illness or disability,
then Stanley will(3) "top up" the SERP benefit so that, in
combination with Stanley's other pension plans, you will receive a
benefit not less than the product of
(i) your Average Pay (as defined in the SERP(4)), times
(ii) the number of 12-month periods (and fractions thereof) that
have elapsed from October 1, 1978(5) to the later of your last
day worked (and any following vacation period) and any period
during which severance is paid, times
(iii) 1.75%(6);
such benefit to be paid until March 15, 2005. After March 15, 2005,
Stanley will "top up" the SERP benefit so that, in combination with
Stanley's other pension plans, you will receive a benefit not less
than the product of 46.375%(7) times your Average Pay, reduced by
$83,280(8).
2. If your Stanley employment terminates on or after March 15, 2005 (other
than as a
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(2) Using the following definition of "cause" from your Employment
Agreement: "if (1) the Executive is convicted of a felony, including the entry
of a guilty or nolo contendere plea, or (2) the Executive engages in conduct
that constitutes willful gross neglect or willful gross misconduct in carrying
out his duties, resulting, in ei ther case, in material harm to the Company,
monetarily or otherwise, unless the Executive reasonably believed in good faith
that such act or non-act was in (or not opposed to) the best interests of the
Company."
(3) Stanley may, at the discretion of the Board, "top up" the SERP as
described, even if the conditions of this clause (b) are not met.
(4) "Average pay will be one-third of the Participant's highest total pay
(salary and management incentive) as measured for purposes of Stanley's pension
plan (including the restoration of pension benefits by Stanley's excess benefit
plan) for any consecutive 36-month period."
(5) Your date of hire with your former employer.
(6) The 12-month percentage multiplier used in your former employer's serp.
(7) 1.75% times 26.5 (the number of 12-month periods that would have elapsed
from October 1, 1978, your date of hire by your former employer, to March 15,
2005, your 60th birthday).
(8) The pension benefit to be paid to you by your former employer commencing
March 15, 2005.
<PAGE>
3
result of death), then Stanley will "top up" the SERP benefit so that, in
combination with Stanley's other pension plans, you will receive a benefit
not less than the product of 46.375% times your Average Pay, reduced by
$83,280.
THE STANLEY WORKS
/s/ Stillman B. Brown
--------------------------------------
Stillman B. Brown, Chairman
Compensation and Organization Committee
<PAGE>
EXHIBIT 10(xvii)
Adopted--September 28, 1994
Amended--March 1, 1995
Approved by shareholders--April 19, 1995
Amended--December 18, 1996
THE STANLEY WORKS
STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
1. PURPOSE.
The purpose of The Stanley Works Stock Option Plan for Non-Employee
Directors (the "Plan") is to promote the interests of The Stanley Works (the
"Company") and its shareholders by encouraging Non-Employee Directors of the
Company to have a direct and personal stake in the performance of the Company's
Common Stock.
2. DEFINITIONS.
Unless the context clearly indicates otherwise, the following terms have
the meanings set forth below. Whenever applicable, the masculine pronoun shall
include the feminine pronoun and the singular shall include the plural.
"Biennial Option" or "Biennial Option Grant" means an Option granted
to a Non-Employee Director in accordance with Section 7(a)(i) of the
Plan.
"Board of Directors" or "Board" means the Board of Directors of the
Company.
"Business Day" shall mean any day except Saturday, Sunday or a legal
holiday in the State of Connecticut.
"Code" means the Internal Revenue Code of 1986, as amended, now in
effect or as amended from time to time and any successor provisions
thereto.
"Common Stock" means the common stock, par value $2.50 per share, of
the Company.
"Fair Market Value" of a share of Common Stock on any particular date
means the mean average of the high and the low price of a share of
the Common Stock as quoted on the New York Stock Exchange Composite
Tape on the date as of which fair market value is to be determined
or, if there is
<PAGE>
no trading of Common Stock on such date, such mean average of the
high and the low price on the next preceding date on which there was
such trading.
"Grant Date", as used with respect to a particular Option, means the
date on which such Option is granted pursuant to Section 7(a) of the
Plan.
"Grantee" means the Non-Employee Director to whom an Option is
granted pursuant to the Plan.
"Immediate Family Members" shall mean the spouse, children and
grandchildren of a Grantee.
"Initial Option" or "Initial Option Grant" means the Option granted
to a Non-Employee Director who is first elected or appointed to the
Board after September 30, 1994 and prior to December 18, 1996 in
accordance with Section 7(a)(ii) of the Plan.
"Option" means an Initial Option or Biennial Option granted pursuant
to the Plan to purchase shares of Common Stock which shall be a
non-qualified stock option not intended to qualify as an incentive
stock option under Section 422 of the Code.
"Non-Employee Director" shall mean a member of the Board of Directors
who is not an employee of the Company or any Subsidiary.
"Plan" means The Stanley Works Stock Option Plan for Non-Employee
Directors as set forth herein and as amended from time to time.
"Retirement", as applied to a Non-Employee Director, shall mean when
such director ceases to serve as a member of the Board following
attaining sixty (60) years of age and having served as a member of
the Board for a period of at least sixty months.
"Subsidiary" shall mean a "subsidiary corporation" of the Company as
defined in Section 425(f) of the Code.
"1934 Act" means the Securities Exchange Act of 1934, as amended, now
in effect or as amended from time to time and any successor
provisions thereto.
3. ADMINISTRATION.
The Plan shall be administered by the Board, which shall have full power
and authority, subject to the provisions of the Plan, to supervise
administration of the Plan and interpret the provisions of the Plan and any
Options granted hereunder. Any decision by the Board shall be final and binding
on all parties.
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No member of the Board shall be liable for any determination, decision or
action made in good faith with respect to the Plan or any Option under
the Plan.
4. ELIGIBILITY.
The persons eligible to receive Options under the Plan are the
Non-Employee Directors.
5. EFFECTIVE DATE AND TERM OF THE PLAN.
The Plan shall become effective upon its adoption by the Board of
Directors, provided, that no Option granted pursuant to the Plan will vest or
shall be exercised prior to the approval of the Plan by the Company's
shareholders within twelve (12) months of its adoption by the Board. Unless
previously terminated by the Board, the term during which awards may be granted
under the Plan shall expire on the tenth anniversary of the adoption of the
Plan by the Board of Directors.
6. SHARES SUBJECT TO THE PLAN.
The shares of Common Stock that may be delivered upon the exercise of
Options under the Plan shall be shares of the Company's authorized Common Stock
and may be unissued shares or reacquired shares, as the Board of Directors may
from time to time determine. Subject to adjustment as provided in Section 13
hereof, the aggregate number of shares to be delivered under the Plan shall not
exceed 200,000 shares. If any shares are subject to an Option which for any
reason expires or terminates during the term of the Plan prior to the issuance
of such shares, the shares subject to but not delivered under such Option shall
be available for issuance under the Plan. If, on any Grant Date, the aggregate
number of shares of Common Stock subject to Option grants on that date exceeds
the remaining number of shares reserved for issuance under the Plan, the number
of Option shares awarded to each Non-Employee Director to whom an Option shall
be granted on such date shall be reduced pro rata so that the aggregate number
of Option shares awarded to such Non-Employee Directors equals the number of
reserved shares of Common Stock remaining under the Plan.
7. OPTIONS.
(a) Grant of Options.
(i) The 1994 and 1996 Option Grants. On September 30, 1994 and August 1,
1996, each Non-Employee Director on that date shall automatically be granted an
Option, upon the terms and conditions specified in the Plan, to purchase 1,000
shares of Common Stock.
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(ii) Initial Option Grants to Newly-Elected Non- Employee Directors. Any
person who is elected as a Non-Employee Director for the first time after
September 30, 1994 and prior to December 18, 1996 shall automatically be
granted an Initial Option, upon the terms and conditions specified in the Plan,
immediately following the first Annual Meeting of the Company's Shareholders at
which such person is first elected a Non-Employee Director by the Shareholders.
The number of shares of Common Stock subject to such Initial Option shall equal
the number of shares of Common Stock such Non-Employee Director would have
received under option grants under the Plan if such Non-Employee Director had
been a Non-Employee Director at all times between September 1, 1994 and the
date of such person's election as a Non-Employee Director.
(iii) Discretionary Option Grants. On and after December 18, 1996,
Non-Employee Directors may be granted Options, upon the terms and conditions
specified in the Plan, to purchase shares of Common Stock in amounts as may be
determined by the Board of Directors.
(b) Terms of Options. Each Option granted under the Plan shall have the
following terms and conditions:
(i) Price. The exercise price per share of each Option shall equal
the greater of one hundred percent (100%) of the Fair Market
Value of a share of Common Stock on the Grant Date or the par
value per share of the Common Stock on the date of exercise of
such option.
(ii) Term. The term of each Option shall be for a period of ten (10)
years from the Grant Date unless terminated earlier in
accordance with Section 12 of the Plan.
(iii) Time of Vesting and Exercise. An Option shall vest and become
nonforfeitable when, and only if, the Grantee continues to serve
as a Non-Employee Director for a period of six (6) months
following the Grant Date of such Option. Unless the time of its
exercisability is accelerated in accordance with the Plan, each
Option that has vested shall be exercisable in full on or after
the first anniversary of its Grant Date.
(iv) Acceleration of Exercisability. Notwithstanding the provisions
of subparagraph (iii) hereof, an Option that has vested shall
become fully exercisable upon the occurrence of the Grantee's
death or withdrawal from the Board of Directors by reason of
such Non-Employee Director's Retirement.
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(v) Option Agreement. Each Option shall be evidenced by an Option
Agreement substantially in the form attached to this Plan as
Appendix A.
8. EXERCISE OF OPTIONS.
(a) Each Option granted shall be exercisable in whole or in part at any
time, or from time to time, during the Option term as specified in the Plan,
provided that the election to exercise an Option shall be made in accordance
with applicable Federal laws and regulations. Each Option may be exercised by
delivery of a written notice to the Company stating the number of shares to be
exercised and accompanied by the payment of the Option exercise price therefor
in accordance with this Section. The Grantee shall furnish the Company, prior
to the delivery of any shares upon the exercise of an Option, with such other
documents and representations as the Company may require, to assure compliance
with applicable laws and regulations.
(b) No Option may at any time be exercised with respect to a fractional
share. In the event that shares are issued pursuant to the exercise of an
Option, no fractional shares shall be issued and cash equal to the Fair Market
Value of such fractional share on the date of the delivery of the exercise
notice shall be given in lieu of such fractional shares.
(c) No shares shall be delivered pursuant to the exercise of any Option,
in whole or in part, until qualified for delivery under such securities laws
and regulations as the Committee may deem to be applicable thereto and until
payment in full of the Option price is received by the Company in cash, by
check or in shares of Common Stock as provided in Section 9 hereof. Neither the
holder of an Option nor such holder's transferee, legal representative,
legatee, or distributee shall be or be deemed to be a holder of any shares
subject to such Option unless and until a certificate or certificates therefor
is issued in his or her name or a person designated by him or her.
9. STOCK AS FORM OF EXERCISE PAYMENT.
A Grantee who owns shares of Common Stock may elect to use the previously
acquired shares, valued at the Fair Market Value on the last Business Day
preceding the date of delivery of such shares, to pay all or part of the
exercise price of an Option, provided, however, that such form of payment shall
not be permitted unless at least one hundred shares of such previously acquired
shares are required and delivered for such purpose and the shares delivered
have been held by the Grantee for at least six months.
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10. WITHHOLDING TAXES FOR AWARDS.
Each Grantee exercising an Option as a condition to such exercise shall
pay to the Company the amount, if any, required to be withheld from
distributions resulting from such exercise under applicable Federal and State
income tax laws ("Withholding Taxes"). Such Withholding Taxes shall be payable
as of the date income from the award is includable in the Grantee's gross
income for Federal income tax purposes (the "Tax Date"). The Grantee may
satisfy this requirement by remitting to the Company in cash or by check the
amount of such Withholding Taxes or a number of previously owned shares of
Common Stock having an aggregate Fair Market Value as of the last Business Day
preceding the Tax Date equal to the amount of such Withholding Taxes. For the
purposes of this Section 10, the exercise of an Option by a transferee of such
Option pursuant to Section 11(b) hereof, shall be deemed to be an exercise of
the Option by the Grantee.
11. TRANSFER OF AWARDS.
(a) Options granted under the Plan may not be transferred except (i) by
will or the laws of descent and distribution (ii) pursuant to a qualified
domestic relations order, as defined in the Code, or (iii) pursuant to the
provisions of Subsection (b) below, and, except as provided in Subsection (b)
below, during the Grantee's lifetime, may be exercised only by said Grantee or
by said Grantee's guardian or legal representative.
(b) A Grantee may transfer all or a portion of the Options granted to the
Grantee to (i) an Immediate Family Member or Immediate Family Members, (ii) a
trust or trusts for the exclusive benefit of an Immediate Family Member or
Immediate Family Members, or (iii) a partnership or partnerships in which an
Immediate Family Member or Immediate Family Members is the only partner or are
the only partners, provided that (y) there shall be no consideration for such
transfer, and (z) subsequent transfers of transferred Options shall be
prohibited except those in accordance with subsection (a) above. Following a
transfer, any such transferred Options shall continue to be subject to the same
terms and conditions as were applicable immediately prior to transfer, provided
that for the purposes of Sections 9 and 15, hereof, the term "Grantee" shall be
deemed to refer to the transferee. The events of termination of director status
in Section 12 hereof shall continue to be applied with respect to the original
Grantee, following which the Options shall be exercisable by the transferee
only to the extent, and for the periods specified in Section 12. Neither the
Board, the Company nor any agent, employee or representative thereof shall be
under any duty under the Plan or otherwise to notify any transferee, pursuant
to the terms of either subsection (a) above or this subsection (b), of any
event which might have an impact on the value or exercisability of a
transferred Option, including,
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without limitation, early termination of the Option on account of termination
of the original Grantee's director status.
12. TERMINATION OF DIRECTOR STATUS.
Upon the termination of a Grantee's service as a member of the Board of
Directors for any reason other than death or Retirement, the Grantee may
exercise an Option that has vested to the full extent of the number of the
shares of Common Stock remaining under such Option, regardless of whether such
Option was previously exercisable, until the earlier of the expiration of its
original term or one year after the date of such termination. Upon the
termination of Board membership of any such Grantee due to Retirement, the
Grantee may purchase some or all of the shares covered by the Grantee's Options
that have vested prior to such termination, regardless of whether such Option
was previously exercisable, until the expiration of such Option's original
term. Upon the death of any such Grantee while serving on the Board or of any
retired Grantee, may exercise some or all of the Grantee's Options that have
vested prior to such termination of Board membership, regardless of whether
such Option was previously exercisable, until the expiration of such Option's
original term.
13. CHANGES IN COMMON STOCK.
In the event of a merger, consolidation, reorganization, recapitalization,
stock dividend, stock split, or other changes in corporate structure or
capitalization affecting the Common Stock, such appropriate adjustment shall be
made in the number, kind, option price, etc., of shares subject to Options
granted under the Plan, including appropriate adjustment in the maximum number
of shares referred to in Section 6 of the Plan, as may be determined by the
Board.
14. LEGAL RESTRICTIONS.
The Company will not be obligated to issue shares of Common Stock or make
any payment if counsel to the Company determines that such issuance or payment
would violate any law or regulation of any governmental authority or any
agreement between the Company and any national securities exchange on which the
Common Stock is listed. In connection with any stock issuance or transfer, the
person acquiring the shares shall, if requested by the Company, give assurances
satisfactory to counsel to the Company regarding such matters as the Company
may deem desirable to assure compliance with all legal requirements. The
Company shall in no event be obliged to take any action in order to cause the
exercise of any award under the Plan.
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15. NO RIGHTS AS SHAREHOLDERS.
No Grantee and no beneficiary or other person claiming through a Grantee
shall have any interest in any shares of Common Stock allocated for the
purposes of the Plan or subject to any award until such shares of Common Stock
shall have been transferred to the Grantee or such person. Furthermore, the
existence of awards under the Plan shall not affect: the right or power of the
Company or its stockholders to make adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure; the
dissolution or liquidation of the Company, or the sale or transfer of any part
of its assets or business; or any other corporate act, whether of a similar
character or otherwise.
16. BOARD MEMBERSHIP.
Nothing in the Plan or in any Option shall confer upon any Grantee any
right to continue as a director of the Company or interfere in any way with the
right of the Company's shareholders to remove a director at any time.
17. CHOICE OF LAW.
The validity, interpretation and administration of the Plan and of any
rules, regulations, determinations or decisions made thereunder, and the rights
of any and all persons having or claiming to have any interest therein or
thereunder, shall be determined exclusively in accordance with the laws of the
State of Connecticut.
18. AMENDMENT AND DISCONTINUANCE.
Subject to the limitation that the provisions of the Plan shall not be
amended more than once every six months other than to comport with changes in
the Code or regulations thereunder, the Board of Directors may alter, suspend,
or discontinue the Plan, but may not, without the approval of a majority of the
holders of the Common Stock, make any alteration or amendment thereof which
operates (a) to increase the total number of shares which may be granted under
the Plan, (b) to extend the term of the Plan or the option periods provided in
the Plan, (c) to decrease the option price provided in the Plan, or otherwise
materially increase the benefits accruing to Grantees through awards under the
Plan, or (d) to modify the eligibility requirements for participation in the
Plan.
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APPENDIX A
STOCK OPTION AGREEMENT
UNDER
THE STANLEY WORKS STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
Pursuant to Section 7 of The Stanley Works Stock Option Plan for
Non-Employee Directors (the "Plan"), The Stanley Works (the "Company"), this
day of , 199 , hereby grants to
("Director") a non-qualified stock option to purchase an aggregate of
[One Thousand (1,000) shares (in the case of a 1994 or 1996 Option)]
[ shares (in the case of an Initial Option)]
[ shares (in the case of a discretionary Option)] of
the Common Stock of the Company at $ per share, on the terms and
conditions hereinafter set forth and set forth in the Plan. This option
will expire at the Company's close of business on , 19 ,
unless sooner terminated in accordance with the terms of the Plan.
1. The Company hereby grants to Director a non-qualified stock option
(the "Option") to purchase on or before the expiration date indicated above, at
the purchase price stated above, the number of shares of the Company's Common
Stock set forth above. No option granted under the Plan shall be exercised or
will vest unless and until the Plan is approved by the Company's shareholders.
2. The term of this Option shall commence on the date of this
Agreement and shall terminate, unless sooner terminated by the terms of the
Plan, at the close of business on the day preceding the tenth anniversary of
the date of this Agreement as set forth above, if the Company is open for
business on such day, or the close of the Company's business on the next
preceding day that the Company is open for business. This Option shall vest and
become nonforfeitable when, and only if, the Grantee continues to serve as a
Non-Employee Director for a period of six (6) months following the Grant Date
of this Option set forth above. No stock may be purchased hereunder until one
year after the Grant Date of this Option set forth above. Thereafter, this
Option may be exercised in whole or in part in accordance with the terms of the
Plan during the term of the Option, unless sooner terminated by the terms of
the Plan. This Option shall become immediately exercisable under the
circumstances described in Section 7(b)(iv) of the Plan.
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3. This Option may be exercised, in whole or in part, by written
notification delivered in person or by mail to the Secretary of the Company at
its world headquarters at 1000 Stanley Drive, New Britain, Connecticut. Such
notification shall specify the number of shares with respect to which the
Option is being exercised and shall be accompanied by payment for such shares.
The Secretary of the Company will provide Director with a form of exercise
notice upon request. The Option may not be exercised with respect to a
fractional share. Payment is to be made by check payable to the order of the
Company or by one of the alternative methods of payment described in the Plan.
No shares shall be sold or delivered hereunder until full payment for such
shares has been made and all checks delivered in payment therefor have been
collected. Director shall not have any rights of a shareholder with respect to
any Common Stock received upon exercise of the Option until certificates for
such Common Stock have been actually issued to Director in accordance with the
terms hereof.
4. The Company shall not be required to issue or deliver any certificate
or certificates for shares of its Common Stock purchased upon the exercise of
any part of this Option prior to (i) the admission of such shares to listing on
any stock exchange on which the Common Stock may then be listed, (ii) the
completion of any registration or other qualification of such shares under any
applicable law, rule or regulation, (iii) the obtaining of any consent or
approval or other clearance from any governmental agency which the Company
determines to be necessary or advisable, and (iv) the payment to the Company,
upon its demand, of any amount requested by the Company for the purpose of
satisfying its liability, if any, to withhold federal, state or local income or
earnings tax or any other applicable tax or assessment (plus interest or
penalties thereon, if any, caused by a delay in making such payment) incurred
by reason of the exercise of this Option or the transfer of such shares
thereupon. The Option shall be exercised and shares of the Company's Common
Stock issued only upon compliance with the Securities Act of 1933, as amended
(the "Act"), and any other applicable securities laws, and Director agrees to
comply with any requirements imposed by the Committee.
5. This Option is not transferrable by Director otherwise than (a) by will
or by the laws of descent and distribution (b) pursuant to a qualified domestic
relations order, as defined in the Code, or (c) pursuant to the immediately
following sentence and is exercisable, except as provided in the immediately
following sentence, during Director's life, only by Director or by Director's
guardian or legal representative. The Director may transfer all or a portion of
this Option to (i) an Immediate Family Member or Immediate Family Members, (ii)
a trust or trusts for the exclusive benefit of such Immediate Family Member or
Immediate Family Members, or (iii) a partnership or partnerships in which such
Immediate Family Member or Immediate Family Members
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is the only partner or are the only partners, all in accordance with and
subject to the provisions of Section 11 of the Plan. Any attempted assignment,
transfer, pledge, hypothecation or other disposition of the Option contrary to
the provisions hereof shall be null and void. This Option does not confer upon
Director any right with respect to continuation of Director's service as a
director of the Company or any of its subsidiaries, and will not interfere in
any way with the right of the Company's shareholders or the shareholders of any
of its subsidiaries to terminate Director's service as a director.
6. Upon the termination of Director's service as a member of the Board of
Directors, the Director or his or her transferee may exercise this Option,
provided that it has vested, to the full extent of the number of the shares of
Common Stock remaining under such Option, regardless of whether such Option was
previously exercisable, in accordance with the conditions of Section 12 of the
Plan.
7. This Option shall be irrevocable during the Option period and its
validity and construction shall be governed by the laws of the State of
Connecticut. The terms and conditions herein set forth are subject in all
respects to the terms and conditions of the Plan, which shall be controlling.
You agree to execute such other agreements, documents or assignments as may be
necessary or desirable to effect the purposes of this Agreement.
8. The grant of this Option shall be binding and effective only if this
Agreement is executed by or on behalf of the Company and by you and a signed
copy is returned to the Company.
9. All capitalized terms used in this Agreement which are not defined
herein shall have the meaning given to them in the Plan unless the context
clearly requires otherwise.
THE STANLEY WORKS
By
----------------------------------
Its
- -----------------------------------------------------------------
I hereby acknowledge receipt of the Stock Option (the "Option") granted on
the date shown above, which has been issued
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to me under the terms and conditions of The Stanley Works Stock Option Plan for
Non-Employee Directors. I agree to conform to all of the terms and conditions
of the Option and the Plan.
Date: Your Signature:
--------------- --------------------------------
4
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EXHIBIT 10(xx)
April 30, 1996
Mr. Paul W. Russo
56 Pheasant Chase Road
West Hartford, CT 06117
Termination Protection Agreement and Related General Release
Dear Paul:
On April 17 I announced my plans for retirement as well as the Board's
decision to commence an external search to find my replacement.
I recognize that your situation is different from that of others at
Stanley with respect to job security inasmuch as you have been here at Stanley
only a short while. Moreover it is always possible that the new CEO may (a)
want to hire a person to head up strategic planning and development who is to
the liking of the new CEO, or (b) the new CEO may change the strategic
direction of Stanley (even though you accepted your position with Stanley based
in part on your understanding of Stanley's current strategic direction).
In recognition of these issues summarized in clauses (a) and (b) above,
Stanley is willing to provide you with certain financial protection as set
forth in this Termination Protection Agreement in the event either of these
situations occurs, in return for your making certain agreements as set forth
below and in return for your signing and delivering to Stanley the Agreement
and General Release attached as Exhibit A to this letter and your signing and
delivering the letter attached as Exhibit B to this letter. Subject to the
foregoing, you and Stanley agree as follows.
1. Termination on or before April 17, 2001. This Termination Protection
Agreement covers any "termination" of which the "termination date" is on or
before April 17, 2001.
2. "Termination" and "Termination Date". For purposes of this Termination
<PAGE>
Mr. Paul W. Russo -2- April 30, 1996
Protection Agreement your "termination" shall mean either of the following:
a. The actual termination of your employment by Stanley. In the
case of your "termination" as described in this section 2a, your
"termination date" will be the date your employment actually
terminates.
b. Stanley substantially changes its strategic direction from
the strategy summarized on pages 2-13 of Stanley's Annual Report for
1995, and you terminate your Stanley employment. In the case of your
"termination" as described in this section 2b, your "termination
date" will be the date your employment actually terminates. In the
event Stanley disagrees with your opinion that Stanley's strategic
direction has so changed it will promptly refer the matter to
Stillman B. Brown (or if he is unable to act, to the member of
Stanley's Board of Directors who is then chair of its Audit
Committee) for final determination in his sole discretion as to
whether or not Stanley's strategic direction has so changed.
3. Benefits Following Termination. Subject to the requirement
that on or before the 30th day following your "termination"you shall have
executed and delivered to Stanley the Agreement and General Release in the form
of Exhibit A to this letter and that not less than 7 days thereafter you shall
have signed and delivered to Stanley the letter in the form of Exhibit B to
this letter, in the event of your "termination" your "benefits" will be
continued until the first anniversary of your "termination date" (in the case
of "termination" covered by section 2b, your benefits will be continued until
the earlier of the first anniversary of your "termination date" or your having
become gainfully employed). Your "benefits" will consist of the following.
a. Monthly payments equal to your base salary, less lawful
deductions, as in effect at your "termination date". You agree that
such payments will be deemed to include any entitlement you may have
under Stanley's vacation and severance pay policies.
b. Coverage under the medical and dental plans in which you are
enrolled on your "termination date", subject to your contributions as
if you were an employee.
c. Coverage under Stanley's life and accidental death and
dismemberment insurance in which you are enrolled on your
"termination date", subject to your contributions as if you were an
employee.
d. Coverage under Stanley's short-term and long-term disability
plans in which you are enrolled on your "termination date", subject
to your contributions as if you were an employee.
<PAGE>
Mr. Paul W. Russo -3- April 30, 1996
e. Use of the company-provided automobile, if any, which you are
using immediately prior to your "termination date".
f. Participation in the Management Incentive Plan on a prorated
basis.
g. For purposes of the Stock Option Plan you will be deemed to
be an employee until such anniversary (in the case of "termination"
covered by section 2b, until the earlier of the first anniversary of
your "termination date" or your having become gainfully employed),
whereupon your employment will be deemed to have terminated for
purposes of the Stock Option Plan. You will receive no further stock
option grants after your "termination".
h. Out placement services, if they are needed, through Drake,
Beam, Morin until such anniversary.
i. For purposes of Stanley's pension and savings plans your
employment will cease as of your "termination date".
j. Stanley will not contest your receipt of unemployment
compensation benefits.
4. Notice to Stanley of Gainful Employment. You agree to promptly advise
Stanley by faxed notice sent to Stanley's General Counsel at 860-827-3911 if,
on or before the first anniversary of your "termination date", you become
gainfully employed.
If you are in agreement with the foregoing, please sign and return a copy
of this letter.
Sincerely yours,
Richard Ayers
Agreed:
Paul W. Russo
- -------------------------
Paul W. Russo
<PAGE>
Exhibit A
Agreement and General Release
I, Paul W. Russo, as a condition to my receiving the "benefits" provided
for in the Termination Protection Agreement (the "Termination Protection
Agreement"), dated March 25, 1998, between The Stanley Works ("Stanley") and
me, and in consideration therefor and for the performance of The Stanley Works
thereunder, agree with The Stanley Works as follows (all defined terms used
without definition have the meaning assigned to them in the Termination
Protection Agreement).
1. I understand that I would not receive the benefits specified in
sections 2a through 2j of the Termination Protection Agreement except for my
execution of this Agreement and General Release and my fulfillment of the
promises contained herein.
2. I understand that I may revoke this Agreement and General Release for a
period of 7 business days following the day I execute this Agreement and
General Release and this Agreement and General Release shall not become
effective or enforceable until the revocation period has expired. Any
revocation within this period must be submitted, in writing, to The Stanley
Works, to the attention of its General Counsel and state, "I hereby revoke my
acceptance of the Agreement and General Release." Such revocation must be
personally delivered to such General Counsel or mailed by certified or express
mail to such General Counsel at The Stanley Works, and postmarked within seven
7 business days of execution of this Agreement and General Release.
3. I, of my own free will, knowingly and voluntarily release and forever
discharge Stanley, of and from any and all actions or causes of action, suits,
claims, charges, complaints, contracts (whether oral or written, express or
implied from any source), and promises, whatsoever, in law or equity, which,
against Stanley, I, my heirs, executors, administrators, successors, and
assigns (referred to collectively throughout this Agreement as "PWR") ever had,
now have, may now have or hereafter can, shall or may have, as of my
"termination date", including all known, undisclosed and unanticipated losses,
wrongs, injuries, debts, claims, or damages to PWR, for, upon, or by reason of
any matter, cause or thing whatsoever including, but not limited to, any and
all matters arising out of my employment by Stanley or the cessation of such
employment, and including, but not limited to, any alleged violation of the
National Labor Relations Act, Title VII of the Civil Rights Act of 1964, the
Civil Rights Act of 1991, Sections 1981 through 1988 of Title 42 of the United
States Code, the Employee Retirement Income Security Act of 1974, The Americans
with Disabilities Act of 1990, the Age Discrimination in Employment Act of
1967, the Fair Labor Standards Act, the Connecticut Human Rights and
Opportunities Law, the Connecticut Minimum Wage Law, the Connecticut Equal Pay
Law, and any other federal, state or local civil or human rights law, or any
other alleged violation of any
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local, state, or federal law, regulation or ordinance, and/or public policy,
contract or tort or common-law and any allegations for costs, fees, or other
expenses, including attorneys' fees, incurred in these matters; provided that
nothing contained herein is intended to prevent me from enforcing the terms and
conditions of this Agreement or of the Termination Protection Agreement,
pursuing claims for unemployment compensation benefits, or pursuing claims
under any retirement, savings or other employee benefit programs to the extent
that I have any accrued rights (subject to any modification thereof by the
provisions of this Agreement or of the Termination Protection Agreement)
thereunder as of my "termination date".
4. I waive my right to file any charge or complaint nor will I accept any
relief or recovery from any charge or complaint before any federal, state, or
local administrative agency against Stanley, based on any claims, demands,
suits, charges, complaints, actions, causes of action, or legal proceedings
waived or released pursuant to this Agreement and General Release, except as
such waiver is prohibited by law. I further waive all rights to file any action
before any federal, state, or local court against Stanley based on any claims,
demands, suits, charges, complaints, actions, causes of action, or legal
proceedings waived or released pursuant to this Agreement and General Release.
I confirm that no such charge, complaint, or action exists in any forum or
form. Except as prohibited by law, in the event that any such claim is filed,
it shall be dismissed with prejudice upon presentation hereof and I shall
reimburse Stanley for the costs, including reasonable attorneys' fees, of
defending any such action.
5. I agree not only to release Stanley from any and all claims as stated
above which I could make on my own behalf, but also those which may be made by
any other person or organization on my behalf. I specifically waive any right
to become, and promise not to become, a member of any class in a case in which
a claim or claims against Stanley are made involving any events up to and
including my "termination date", except where such waiver is prohibited by law.
I further waive any right voluntarily to assist in any way any individual or
entity in commencing or prosecuting any action or proceeding including, but not
limited to, any administrative agency claims, charges, or complaints and/or any
lawsuit against Stanley, or in any way to participate or cooperate voluntarily
in any such action or proceeding.
6. With respect to any secret or confidential information obtained by me
during my employment at Stanley, except with the prior written agreement of
Stanley, as required by law, or as may be necessary to defend myself in a legal
proceeding (I agree to make every reasonable effort to have any such
information covered by a protective order of confidentiality before any such
disclosure not covered by the prior written agreement of Stanley), I will not
disclose or use for any purpose any such secret or confidential information.
For purposes hereof, secret or confidential information shall include, but not
be limited to, any process, technique, formula, recipe, drawing, apparatus,
method for or result of cost calculation, result of any investigation or
experiment made by or on behalf of Stanley, and any sales, production,
strategic, or other competitive information, acquired by me during the course
of my employment by Stanley and all other information that Stanley itself does
not disclose to the public.
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I further agree that any work, design, discovery, invention, or
improvement conceived, made, developed, or received by me during the period of
my employment with Stanley, which relates to the actual or anticipated (as of
my "termination date") business, operations, or research of Stanley, including
but not limited to any process, art, machine, manufacture, materials, or
composition of matter, which could be manufactured or used by Stanley, whether
patentable or not, is the sole and exclusive property of Stanley. The terms
invention and improvement as used herein, in addition to their customary
meaning, shall mean creative concepts and ideas relating to advertising,
marketing, promotional, and sales activities.
I further state that I have assigned or hereby do assign to Stanley or its
designee all right, title, and interest in any or to any idea, work, design,
discovery, invention, or improvement made or created during my employment at
Stanley and to any application for letters patent or for trademark registration
made thereon, and to any common law or statutory copyright therein. I further
agree that I will cooperate with Stanley in order to enable it to secure any
patent, trademark, copyright, or other property right therefor in the United
States or any foreign country, and any division, renewal, continuation, or
continuation-in-part thereof, or for any reissue of any patent issued thereon.
I also agree that Stanley has all rights to, possession of, and all title
in and to, all electronic files, papers, documents, and drawings, including
copies thereof, which I may have originated or which came into my possession
during my employment with Stanley and which related to the business of Stanley,
regardless of whether such electronic files, papers, documents, and drawings
are kept at my office, at my home, or somewhere else, without retaining any
copies thereof.
7. I agree that I shall not make any disparaging remarks or demeaning
comment, of any kind or nature, regarding Stanley or any of its officers,
directors, agents, or employees.
8. I agree not to disclose any information regarding the substance of this
Agreement and General Release. Notwithstanding this agreement of
non-disclosure, I may disclose the substance of this Agreement and General
Release to my spouse, my children, my accountant, and other financial advisers,
and to my attorney or other person with whom I choose to consult concerning the
execution of this Agreement and General Release (I agree that I will obtain for
the benefit of Stanley the agreement of any such person not to disclose such
substance); and I may disclose this Agreement and General Release in connection
with any claim I may file for unemployment compensation benefits, to defend
myself in a legal proceeding, or as otherwise required by law (I agree to make
every reasonable effort to have this Agreement and General Release covered by a
protective order of confidentiality before any such disclosure is made in
connection with any such defense, or any such requirement of law).
9. I shall not apply in the future for any employment with Stanley.
10. This Agreement and General Release is made in the State of Connecticut
and shall
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be interpreted under the laws of such state. If any portion of this Agreement
and General Release is declared illegal or unenforceable by any court of
competent jurisdiction and cannot be modified to be enforceable, including the
general release language, such portion shall immediately become null and void,
leaving the remainder of this Agreement and General Release in full force and
effect. However, if in any proceeding it is asserted by me or anyone else on my
behalf and with my approval that any portion of the general release language of
paragraphs 3, 4, or 5 is unenforceable and any portion of such language is, in
fact, ruled to be unenforceable in such proceeding for any reason, I shall
return to Stanley the consideration paid by Stanley under the Termination
Protection Agreement.
11. I agree that neither this Agreement and General Release nor the
furnishing of the consideration for this Agreement and General Release shall be
deemed or construed at any time for any purpose as an admission by Stanley of
any liability or unlawful conduct of any kind.
12. This Agreement and General Release may not be modified, altered, or
changed except upon express written consent of both Stanley and me wherein
specific reference is made to this Agreement and General Release.
13. This Agreement and General Release, together with the Termination
Protection Agreement, sets forth the entire agreement between Stanley and me
and fully supersedes any prior agreements or understandings between us.
I HAVE READ AND FULLY CONSIDERED THIS AGREEMENT AND GENERAL RELEASE AND I
AM DESIROUS OF ENTERING INTO THIS AGREEMENT AND GENERAL RELEASE. THE TERMS OF
THIS AGREEMENT AND GENERAL RELEASE ARE THE PRODUCT OF MUTUAL NEGOTIATION AND
COMPROMISE BETWEEN STANLEY AND ME AND I UNDERSTAND THAT THIS AGREEMENT AND
GENERAL RELEASE SETTLES, BARS, AND WAIVES CLAIMS THAT I HAVE OR COULD POSSIBLY
HAVE AGAINST STANLEY. I HAVE BEEN AFFORDED AT LEAST 21 DAYS TO CONSIDER THIS
AGREEMENT AND GENERAL RELEASE AND HAVE BEEN ADVISED IN WRITING TO CONSULT WITH
AN ATTORNEY PRIOR TO EXECUTION OF THIS AGREEMENT AND GENERAL RELEASE. HAVING
ELECTED TO EXECUTE THIS AGREEMENT AND GENERAL RELEASE, TO FULFILL THE PROMISES
SET FORTH HEREIN, AND TO RECEIVE THEREBY THE SUMS AND BENEFITS SET FORTH IN
PARAGRAPHS 2a THROUGH 2j OF THE TERMINATION PROTECTION
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AGREEMENT, I FREELY AND KNOWINGLY, AND AFTER DUE CONSIDERATION, ENTER INTO THIS
AGREEMENT AND GENERAL RELEASE INTENDING TO WAIVE, SETTLE, AND RELEASE CLAIMS I
HAVE OR MIGHT HAVE AGAINST STANLEY.
---------------------
Paul W. Russo
- -----------------------
Date
Signed and sworn before me this day of .
- ---------------------------------
(Notary Public)
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Exhibit B
56 Pheasant Chase Road
West Hartford, CT 06117
----------------------
Date
Mr. Stephen S. Weddle
Vice President and General Counsel
The Stanley Works
1000 Stanley Drive
New Britain, CT 06053
Agreement and General Release
Dear Steve:
On , I executed an Agreement and General Release in favor of
The Stanley Works. I was advised by The Stanley Works, in writing, to consult
with an attorney of my choosing prior to executing such Agreement and General
Release.
More than 7 days have elapsed since I executed such Agreement and General
Release. I have at no time revoked my acceptance or execution of such Agreement
and General Release and I reaffirm my acceptance of such Agreement and General
Release. Therefore, in accordance with the terms of such Agreement and General
Release, I request payment of the benefits described in paragraphs 2a through
2j of the Termination Protection Agreement referred to therein.
Very truly yours,
Paul W. Russo
<PAGE>
EXHIBIT 10(xxi)
Adopted by the Board of Directors September 17, 1997
Amended by the Board of Directors February 25, 1998
[Adopted by the shareholders April 15, 1998]
THE STANLEY WORKS
1997 LONG-TERM INCENTIVE PLAN
Section 1. Purpose
The purposes of this Long-Term Incentive Plan (the "Plan") are to
encourage selected salaried employees of The Stanley Works (together with any
successor thereto, the "Company") and its Affiliates (as defined below) to
acquire a proprietary interest in the growth and performance of the Company, to
generate an increased incentive to contribute to the Company's future success
and prosperity, thus enhancing the value of the Company for the benefit of its
shareholders, and to enhance the ability of the Company and its Affiliates to
attract and retain exceptionally qualified individuals upon whom, in large
measure, the sustained progress, growth and profitability of the Company
depend.
Section 2. Definitions
As used in the Plan, the following terms shall have the meanings set
forth below:
(a) "Affiliate" shall mean (i) any entity that, directly or
through one or more intermediaries, is controlled by the
Company and (ii) any entity in which the Company has a
significant equity interest, as determined by the Committee.
(b) "Award" shall mean any Option, Stock Appreciation Right,
Restricted Stock, Restricted Stock Unit, Performance Award,
Dividend Equivalent, or Other Stock-Based Award granted
under the Plan.
(c) "Award Agreement" shall mean any written agreement, contract,
or other instrument or document evidencing any Award granted
under the Plan.
(d) "Board of Directors" or "Board" shall mean the Board of
Directors of the Company.
(e) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
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(f) "Committee" shall mean the Compensation and
Organization Committee of the Board.
(g) "Dividend Equivalent" shall mean any right granted
under Section 6(e) of the Plan.
(h) "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended from time to time.
(i) "Fair Market Value" shall mean, with respect to any
property other than Shares, the fair market value of
such property determined by such methods or procedures
as shall be established from time to time by the
Committee, and with respect to Shares, shall mean the
mean average of the high and the low price of a Share
as quoted on the New York Stock Exchange Composite Tape
on the date as of which fair market value is to be
determined or, if there is no trading of Shares on such
date, such mean average of the high and the low price
on the next preceding date on which there was such
trading.
(j) "Immediate family members" of a Participant shall mean
the Participant's children, grandchildren and spouse.
(k) "Incentive Stock Option" shall mean an option granted under
Section 6(a) of the Plan that is intended to meet the
requirements of Section 422 of the Code, or any successor
provision thereto.
(l) "1990 Plan" shall mean the Company's 1990 Stock Option
Plan.
(m) "Non-Qualified Stock Option" shall mean an option granted
under Section 6(a) of the Plan that is not intended to be an
Incentive Stock Option.
(n) "Option" shall mean an Incentive Stock Option or a Non-
Qualified Stock Option.
(o) "Other Stock-Based Award" shall mean any right granted
under Section 6(f) of the Plan.
(p) "Participant" shall mean a Salaried Employee designated
to be granted an Award under the Plan.
(q) "Performance Award" shall mean any Award granted under
Section 6(d) of the Plan.
(r) "Person" shall mean any individual, corporation,
partnership, association, joint-stock company, trust,
unincorporated organization, or government or political
subdivision thereof.
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(s) "Released Securities" shall mean securities that were
Restricted Securities with respect to which all applicable
restrictions have expired, lapsed, or been waived.
(t) "Restricted Securities" shall mean securities covered by
Awards of Restricted Stock or other Awards under which issued
and outstanding Shares are held subject to certain
restrictions.
(u) "Restricted Stock" shall mean any Share granted under
Section 6(c) of the Plan.
(v) "Restricted Stock Unit" shall mean any right granted under
Section 6(c) of the Plan that is denominated in Shares.
(w) "Salaried Employee" shall mean any salaried Employee of
the Company or of any Affiliate.
(x) "Shares" shall mean shares of the common stock of the
Company, par value $2.50 per share, and such other securities
or property as may become the subject of Awards, or become
subject to Awards, pursuant to an adjustment made under
Section 4(b) of the Plan.
(y) "Stock Appreciation Right" shall mean any right granted
under Section 6(b) of the Plan.
Section 3. Administration
Except as otherwise provided herein, the Plan shall be administered by
the Committee. Subject to the terms of the Plan and applicable law, the
Committee shall have full power and authority to: (i) designate Participants;
(ii) determine the type or types of Awards to be granted to each Participant
under the Plan; (iii) determine the number of Shares to be covered by (or with
respect to which payments, rights, or other matters are to be calculated in
connection with) Awards; (iv) determine the terms and conditions of any Award;
(v) determine whether, to what extent, and under what circumstances Awards may
be settled or exercised in cash, Shares, other securities, other Awards, or
other property, or canceled, forfeited, or suspended, and the method or methods
by which Awards may be settled, exercised, canceled, forfeited, or suspended;
(vi) determine whether, to what extent, and under what circumstances cash,
Shares, other securities, other Awards, other property and other amounts
payable with respect to an Award under the Plan shall be deferred either
automatically or at the election of the holder thereof or of the Committee;
(vii) interpret and administer the Plan and any
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instrument or agreement relating to, or Award made under, the Plan; (viii)
establish, amend, suspend, or waive such rules and regulations and appoint such
agents as it shall deem appropriate for the proper administration of the Plan;
and (ix) make any other determination and take any other action that the
Committee deems necessary or desirable for the administration of the Plan.
Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations, and other decisions under or with respect to
the Plan or any Award shall be within the sole discretion of the Committee, may
be made at any time, and shall be final, conclusive, and binding upon all
Persons, including the Company, any Affiliate, any Participant, any holder or
beneficiary of any Award, any shareholder, and any employee of the Company or
of any Affiliate.
Section 4. Shares Available for Awards
(a) Shares Available. Subject to adjustment as provided in Section 4(b):
(i) Calculation of Number of Shares Available. The number of Shares
authorized to be issued in connection with the granting of
Awards under the Plan is four million (4,000,000), and the
number of Shares available for granting Awards under the Plan in
each fiscal year or, in the case of the years 1997 and 2007,
part thereof shall be two percent (2%) of the issued Shares
(including, without limitation, treasury Shares) as of the first
day of such year; provided, however, that the number of Shares
available for granting Awards in any year shall be increased in
any such year by the number of Shares available under the Plan
in previous years but not covered by Awards granted under the
Plan in such years. Further, if any Shares covered by an Award
granted under the Plan or by an award granted under the 1990
Plan, or to which such an Award or award relates, are forfeited,
or if an Award or award otherwise terminates without the
delivery of Shares or of other consideration, or if upon the
termination of the 1990 Plan there are Shares remaining that
were authorized for issuance under that Plan but with respect to
which no awards have been granted, then the Shares covered by
such Awards or award, or to which such Award or award relates,
or the number of Shares otherwise counted against the aggregate
number of Shares available under the Plan with respect to such
Award or award,
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to the extent of any such forfeiture or termination, or which
were authorized for issuance under the 1990 Plan but with
respect to which no awards were granted as of the termination of
the 1990 Plan shall again be, or shall become available for
granting Awards under the Plan. Notwithstanding the foregoing
but subject to adjustment as provided in Section 4(b), no more
than one million (1,000,000) Shares shall be cumulatively
available for delivery pursuant to the exercise of Incentive
Stock Options.
(ii) Accounting for Awards. For purposes of this Section 4,
(A) if an Award (other than a Dividend Equivalent) is
denominated in Shares, the number of Shares covered by such
Award, or to which such Award relates, shall be counted on
the date of grant of such Award against the aggregate
number of Shares available for granting Awards under the
Plan; and
(B) Dividend Equivalents and Awards not denominated in Shares
shall be counted against the aggregate number of Shares
available for granting Awards under the Plan, if at all,
only in such amount and at such time as the Committee shall
determine under procedures adopted by the Committee
consistent with the purposes of the Plan;
provided, however, that Awards that operate in tandem with (whether
granted simultaneously with or at a different time from), or that are
substituted for, other Awards or awards granted under the 1990 Plan
may be counted or not counted under procedures adopted by the
Committee in order to avoid double counting. Any Shares that are
delivered by the Company, and any Awards that are granted by, or
become obligations of, the Company through the assumption by the
Company or an Affiliate of, or in substitution for, outstanding
awards previously granted by an acquired company, shall not be
counted against the Shares available for granting Awards under the
Plan.
(iii) Sources of Shares Deliverable Under Awards. Any Shares delivered
pursuant to an Award may consist, in whole or in part, of authorized
and unissued Shares or of treasury Shares.
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(b) Adjustments. In the event that the Committee shall determine that any
dividend or other distribution (whether in the form of cash, Shares,
other securities, or other property), recapitalization, stock split,
reverse stock split, reorganization, merger, consolidation split-up,
spin-off, combination repurchase, or exchange of Shares or other
securities of the Company, issuance of warrants or other rights to
purchase Shares or other securities of the Company, or other similar
corporate transaction or event affects the Shares such that an
adjustment is determined by the Committee to be appropriate in order
to prevent dilution or enlargement of the benefits or potential
benefits intended to be made available under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any
or all of (i) the number and type of Shares (or other securities or
property) which thereafter may be made the subject of Awards, (ii)
the number and type of Shares (or other securities or property)
subject to outstanding Awards, (iii) the number and type of Shares
(or other securities or property) specified as the annual
per-participant limitation under Section 6(g)(vi), and (iv) the
grant, purchase, or exercise price with respect to any Award, or, if
deemed appropriate, make provision for a cash payment to the holder
of an outstanding Award; provided, however, in each case, that with
respect to Awards of Incentive Stock Options no such adjustment shall
be authorized to the extent that such authority would cause the Plan
to violate Section 422(b)(1) of the Code or any successor provision
thereto; and provided further, however, that the number of Shares
subject to any Award denominated in Shares shall always be a whole
number.
Section 5. Eligibility
Any Salaried Employee, including any officer or employee- director of
the Company or of any Affiliate, who is not a member of the Committee shall be
eligible to be designated a Participant.
Section 6. Awards
(a) Options. The Committee is hereby authorized to grant Options to
Participants with the following terms and conditions and with such
additional terms and conditions, in either case not inconsistent with
the provisions of the Plan, as the Committee shall determine:
(i) Exercise Price. The purchase price per Share
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<PAGE>
purchasable under an Option shall be determined by the
Committee; provided, however, that such purchase price shall not
be less than the Fair Market Value of a Share on the date of
grant of such Option (or, if the Committee so determines, in the
case of any Option retroactively granted in tandem with or in
substitution for another Award or any outstanding award granted
under any other plan of the Company, on the date of grant of
such other Award or award).
(ii) Option Term. The term of each Option shall be fixed by the
Committee.
(iii) Time and Method of Exercise. The Committee shall determine the
time or times at which an Option may be exercised in whole or in
part, and the method or methods by which, and the form or forms,
including, without limitation, cash, Shares, other Awards, or
other property, or any combination thereof, having a Fair Market
Value on the exercise date equal to the relevant exercise price,
in which, payment of the exercise price with respect thereto may
be made or deemed to have been made.
(iv) Incentive Stock Options. The terms of any Incentive Stock Option
granted under the plan shall comply in all respects with the
provisions of Section 422 of the Code, or any successor
provision thereto, and any regulations promulgated thereunder.
(v) Transferability. An Option shall not be transferable other than
by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order, as defined in the Code, and,
during the Participant's lifetime, shall be exercisable only by
the Participant, except that the Committee may:
(A) permit exercise, during the Participant's lifetime, by the
Participant's guardian or legal representative; and
(B) permit transfer, upon the Participant's death, to
beneficiaries designated by the Participant in a manner
authorized
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by the Committee, provided that the Committee determines
that such exercise and such transfer are consonant with
requirements for exemption from Section 16(b) of the
Exchange Act and, with respect to an Incentive Stock
Option, the requirements of Section 422(b)(5) of the Code;
and
(C) grant Non-Qualified Stock Options that are transferable, or
amend outstanding Non-Qualified Stock Options to make them
so transferable, without payment of consideration, to
immediate family members of the Participant or to trusts or
partnerships for such family members.
(b) Stock Appreciation Rights. The Committee is hereby authorized to
grant Stock Appreciation Rights to Participants. Subject to the
terms of the Plan and any applicable Award Agreement, a Stock
Appreciation Right granted under the Plan shall confer on the
holder thereof a right to receive, upon exercise thereof, the
excess of (i) the Fair Market Value of one Share on the date of
exercise or, if the Committee shall so determine in the case of
any such right other than one related to any Incentive Stock
Option, at any time during a specified period before or after
the date of exercise over (ii) the grant price of the right as
specified by the Committee, which shall not be less than the
Fair Market Value of one Share on the date of grant of the Stock
Appreciation Right (or, if the Committee so determines, in the
case of any Stock Appreciation Right retroactively granted in
tandem with or in substitution for another Award or any
outstanding award granted under any other plan of the Company,
on the date of grant of such other Award or award). Subject to
the terms of the Plan and any applicable Award Agreement, the
grant price, term, methods of exercise, methods of settlement,
and any other terms and conditions of any Stock Appreciation
Right shall be as determined by the Committee. The Committee may
impose such conditions or restrictions on the exercise of any
Stock Appreciation Right as it may deem appropriate.
(c) Restricted Stock and Restricted Stock Units.
(i) Issuance. The Committee is hereby authorized to grant
Awards of Restricted Stock and Restricted Stock Units to
Participants.
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(ii) Restrictions. Shares of Restricted Stock and Restricted
Stock Units shall be subject to such restrictions as the
Committee may impose (including, without limitation, any
limitation on the right to vote a Share of Restricted Stock
or the right to receive any dividend or other right or
property), which restrictions may lapse separately or in
combination at such time or times, in such installments or
otherwise, as the Committee may deem appropriate.
(iii) Registration. Any Restricted Stock granted under the Plan
may be evidenced in such manner as the Committee may deem
appropriate, including, without limitation, book-entry
registration or issuance of a stock certificate or
certificates. In the event any stock certificate is issued
in respect of Shares of Restricted Stock granted under the
Plan, such certificate shall be registered in the name of
the Participant and shall bear an appropriate legend
referring to the terms, conditions, and restrictions
applicable to such Restricted Stock.
(iv) Forfeiture. Except as otherwise determined by the
Committee, upon termination of employment (as determined
under criteria established by the Committee) for any reason
during the applicable restriction period, all Shares of
Restricted Stock and all Restricted Stock Units still, in
either case, subject to restriction shall be forfeited and
reacquired by the Company; provided, however, that the
Committee may, when it finds that a waiver would be in the
best interests of the Company, waive in whole or in part
any or all remaining restrictions with respect to Shares of
Restricted Stock or Restricted Stock Units. Unrestricted
Shares, evidenced in such manner as the Committee shall
deem appropriate, shall be delivered to the holder of
Restricted Stock promptly after such Restricted Stock shall
become Released Securities.
(d) Performance Awards. The Committee is hereby authorized to grant
Performance Awards to Participants. Subject to the terms of the Plan
and any applicable Award Agreement, a Performance Award granted under
the Plan (i) may be denominated or payable in cash, Shares
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(including without limitation, Restricted Stock), other securities,
other Awards, or other property and (ii) shall confer on the holder
thereof rights valued as determined by the Committee and payable to,
or exercisable by, the holder of the Performance Award, in whole or
in part, upon the achievement of such performance goals during such
performance periods as the Committee shall establish. Subject to the
terms of the Plan and any applicable Awards Agreement, the
performance goals to be achieved during any performance period, the
length of any performance period, the amount of any Performance Award
granted, and the amount of any payment or transfer to be made
pursuant to any Performance Award shall be determined by the
Committee.
(e) Dividend Equivalents. The Committee is hereby authorized to grant to
Participants Awards under which the holders thereof shall be entitled
to receive payments equivalent to dividends or interest with respect
to a number of Shares determined by the Committee, and the Committee
may provide that such amounts (if any) shall be deemed to have been
reinvested in additional Shares or otherwise reinvested. Subject to
the terms of the Plan and any applicable Awards Agreement, such
Awards may have such terms and conditions as the Committee shall
determine.
(f) Other Stock-Based Awards. The Committee is hereby authorized to grant
to Participants such other Awards that are denominated or payable in,
valued in whole or in part by reference to, or otherwise based on or
related to, Shares (including, without limitation, securities
convertible into Shares), as are deemed by the Committee to be
consistent with the purposes of the Plan, provided, however, that
such grants must comply with applicable law. Subject to the terms of
the Plan and any applicable Award Agreement, the Committee shall
determine the terms and conditions of such Awards. Shares or other
securities delivered pursuant to a purchase right granted under this
Section 6(f) shall be purchased for such consideration, which may be
paid by such method or methods and in such form or forms, including,
without limitation, cash, Shares, other securities, other Awards, or
other property, or any combination thereof, as the Committee shall
determine, the value of which consideration, as established by the
Committee, shall not be less than the Fair Market Value of such
Shares or other securities as of the date such purchase right is
granted (or, if the Committee so determines, in the case of any such
purchase right retroactively granted in tandem with or in
substitution for another Award or any outstanding award granted
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under any other plan of the Company, on the date of grant of such
other Award or award).
(g) General.
(i) No Cash Consideration for Awards. Awards shall be granted for no
cash consideration or for such minimal cash consideration as may
be required by applicable law.
(ii) Awards May Be Granted Separately or Together. Awards may, in the
discretion of the Committee, be granted either alone or in
addition to, in tandem with, or in substitution for any other
Award or any awards granted under any other plan of the Company
or any Affiliate. Awards granted in addition to or in tandem
with other Awards, or in addition to or in tandem with awards
granted under any other plan of the Company or any Affiliate,
may be granted either at the same time as or at a different time
from the grant of such other Awards or awards.
(iii) Forms of Payment Under Awards. Subject to the terms of the Plan
and of any applicable Award Agreement, payments or transfers to
be made by the Company or an Affiliate upon the grant, exercise,
or payment of an Award may be made in such form or forms as the
Committee shall determine, including, without limitation, cash,
Shares, other securities, other Awards, or other property, or
any combination thereof, and may be made in a single payment or
transfer, in installments, or on a deferred basis, in each case
in accordance with rules and procedures established by the
Committee. Such rules and procedures may include, without
limitation, provisions for the payment or crediting of
reasonable interest on installment or deferred payments or the
grant or crediting of Dividend Equivalents in respect of
installment or deferred payments.
(iv) Limits on Transfer of Awards. Except as provided in Section 6(a)
above regarding Options, no Award (other than Released
Securities), and no right under any such Award, shall be
assignable, alienable, saleable, or transferable by a
Participant otherwise than by will or by the laws of
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descent and distribution or pursuant to a qualified domestic
relations order, as defined in the Code (or, in the case of an
Award of Restricted Securities, to the Company); provided,
however, that, if so determined by the Committee, a Participant
may, in the manner established by the Committee, designate a
beneficiary or beneficiaries to exercise the rights of the
Participant, and to receive any property distributable, with
respect to any Award upon the demand of the Participant. Each
Award, and each right under any Award, shall be exercisable,
during the Participant's lifetime, only by the Participant or,
if permissible under applicable law, by the Participant's
guardian or legal representative. No Award (other than Released
Securities), and no right under any such Award, may be pledged,
alienated, attached, or otherwise encumbered, and any purported
pledge, alienation, attachment, or encumbrance thereof shall be
void and unenforceable against the Company or any Affiliate.
(v) Terms of Awards. The Term of each Award shall be for such period
as may be determined by the Committee; provided, however, that
in no event shall the term of any Incentive Stock Option exceed
a period of ten years from the date of its grant.
(vi) Per-Person Limitation on Options and SARs. The number of Shares
with respect to which Options and SARs may be granted under the
Plan to an individual Participant in any three-year period from
September 17, 1997 through the end of the term shall not exceed
3,000,000 Shares, subject to adjustment as provided in Section
4(b).
(vii) Share Certificates. All certificates for Shares or other
securities delivered under the Plan pursuant to any Award or the
exercise thereof shall be subject to such stop transfer orders
and other restrictions as the Committee may deem advisable under
the Plan or the rules, regulations, and other requirements of
the Securities and Exchange Commission, any stock exchange upon
which such
12
<PAGE>
Shares or other securities are then listed, and any applicable
Federal or state securities laws, and the Committee may cause a
legend or legends to be put on any such certificates to make
appropriate reference to such restrictions.
(viii) Maximum Payment Amount. The maximum fair market value of
payments to any executive officer made in connection with any
long-term performance awards (except for payments made in
connection with Options or Stock Appreciation Rights) granted
under the 1997 Plan shall not, during any three-year period,
exceed two percent of Stanley's shareholders' equity as of the
end of the year immediately preceding the commencement of such
three-year period.
Section 7. Amendment and Termination
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Award Agreement or in the Plan:
(a) Amendments to the Plan. The Board of Directors of the Company may
amend, alter, suspend, discontinue, or terminate the Plan, including,
without limitation, any amendment, alteration, suspension,
discontinuation, or termination that would impair the rights of any
Participant, or any other holder or beneficiary of any Award
theretofore granted, without the consent of any shareholder,
Participant, other holder or beneficiary of an Award, or other
Person; provided, however, that, notwithstanding any other provision
of the Plan or any Award Agreement, without the approval of the
shareholders of the Company no such amendment, alteration,
suspension, discontinuation, or termination shall be made that would:
(i) increase the total number of Shares available for Awards under
the Plan, except as provided in Section 4 hereof; or
(ii) permit Options, Stock Appreciation Rights, or other Stock-Based
Awards encompassing rights to purchase Shares to be granted with
per Share grant, purchase, or exercise prices of less than the
Fair Market Value of a Share on the date of grant thereof,
except to the extent permitted under Sections 6(a), 6(b),
or 6(f) hereof.
13
<PAGE>
(b) Adjustments of Awards Upon Certain Acquisitions. In the event the
Company or any Affiliate shall assume outstanding employee awards or
the right or obligation to make future such awards in connection with
the acquisition of another business or another corporation or
business entity, the Committee may make such adjustments, not
inconsistent with the terms of the Plan, in the terms of Awards as it
shall deem appropriate in order to achieve reasonable comparability
or other equitable relationship between the assumed awards and the
Awards granted under the Plan as so adjusted.
(c) Adjustments of Awards Upon the Occurrence of Certain Unusual or
Nonrecurring Events. The Committee shall be authorized to make
adjustments in the terms and conditions of, and the criteria included
in, Awards in recognition of unusual or nonrecurring events
(including, without limitation, the events described in Section 4(b)
hereof) affecting the Company, any Affiliate, or the financial
statements of the Company or any Affiliate, or of changes in
applicable laws, regulations, or accounting principles, whenever the
Committee determines that such adjustments are appropriate in order
to prevent dilution or enlargement of the benefits or potential
benefits to be made available under the Plan.
(d) Correction of Defects, Omissions and Inconsistencies. The Committee
may correct any defect, supply any omission, or reconcile any
inconsistency in the Plan or any Award in the manner and to the
extent it shall deem desirable to carry the Plan into effect.
Section 8. General Provisions
(a) No Rights to Awards. No Salaried Employee, Participant or other
Person shall have any claim to be granted any Award under the Plan,
and there is no obligation for uniformity of treatment of Salaried
Employees, Participants, or holders or beneficiaries of Awards under
the Plan. The terms and conditions of Awards need not be the same
with respect to each recipient.
(b) Delegation. The Committee may delegate to one or more officers or
managers of the Company or any Affiliate, or a committee of such
officers or managers, the authority, subject to such terms and
limitations as the Committee shall determine, to grant Awards to, or
to cancel, modify, waive rights with respect to, alter,
14
<PAGE>
discontinue, suspend or terminate Awards held by, Salaried Employees
who are not officers of the Company for purposes of Section 16 of the
Exchange Act.
(c) Withholding. The Company or any Affiliate shall be authorized to
withhold from any Award granted or any payment due or transfer made
under any Award or under the Plan the amount (in cash, Shares, other
securities, other Awards, or other property) of withholding taxes due
in respect of an Award, its exercise, or any payment or transfer
under such Awards or under the Plan and to take such other action as
may be necessary in the opinion of the Company or Affiliate to
satisfy all obligations for the payment of such taxes.
(d) No Limit on Other Compensation Arrangements. Nothing contained in the
Plan shall prevent the Company or any Affiliate from adopting or
continuing in effect other or additional compensation arrangements,
and such arrangements may be either generally applicable or
applicable only in specific cases.
(e) No Right to Employment. The grant of an Award shall not be construed
as giving a Participant the right to be retained in the employ of the
Company or any Affiliate. Further, the Company or an Affiliate may at
any time dismiss a Participant from employment, free from any
liability, or any claim under the Plan, unless otherwise expressly
provided in the Plan or in any Award Agreement.
(f) Governing Law. The validity, construction, and effect of the Plan and
any rules and regulations relating to the Plan shall be determined in
accordance with the laws of the State of Connecticut and applicable
Federal law.
(g) Severability. If any provision of the Plan or any Award is or becomes
or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction, or as to any Person or Award, or would disqualify the
Plan or any Award under any law deemed applicable by the Committee,
such provision shall be construed or deemed amended to conform to
applicable laws, or if it cannot be so construed or deemed amended
without, in the determination of the Committee, materially altering
the intent of the Plan or the Award, such provision shall be stricken
as to such jurisdiction, Person, or Award, and the remainder of the
Plan and any such Award shall remain in full force and effect.
(h) No Trust or Fund Created. Neither the Plan nor any
15
<PAGE>
Award shall create or be construed to create a trust or separate fund
of any kind or a fiduciary relationship between the Company or any
Affiliate and a Participant or any other Person. To the extent that
any Person acquires a right to receive payments from the Company or
any Affiliate pursuant to an Award, such right shall be no greater
than the right of any unsecured general creditor of the Company or
any Affiliate.
(i) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee shall
determine whether cash, other securities, or other property shall be
paid or transferred in lieu of any fractional Shares, or whether such
fractional Shares or any rights thereto shall be canceled,
terminated, or otherwise eliminated.
(j) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings
shall not be deemed in any way material or relevant to the
construction or interpretation of the Plan or any provision thereof.
Section 9. Change in Control
(a) Upon the occurrence of a Change in Control (as hereinafter defined);
(i) all Options and Stock Appreciation Rights, whether granted as
performance awards or otherwise, shall become immediately
exercisable in full for the remainder of their terms, and
Grantees shall have the right to have the Company purchase all
or any number of such Options or Stock Appreciation Rights for
cash for a period of thirty (30) days following a Change in
Control at the Option Acceleration Price (as hereinafter
defined); and
(ii) all restrictions applicable to all RestrictedStock and
Restricted Stock Units, whether such Restricted Stock and
Restricted Stock Units were granted as performance awards or
otherwise, shall immediately lapse and have no effect, and
Grantees shall have the right to have the Company purchase all
or any number of such Restricted Stock Units and shares of
Restricted Stock for cash for a period of thirty (30) days
following a Change in Control at the Restricted Stock
Acceleration Price (as hereinafter defined).
16
<PAGE>
(b) (i) The "Restricted Stock Acceleration Price" is the highest of the
following on the date of a Change in Control:
(A) the highest reported sales price of a share of the Common
Stock within the sixty (60) days preceding the date of a
Change in Control, as reported on any securities exchange
upon which the Common Stock is listed,
(B) the highest price of a share of the Common Stock reported
in a Schedule 13D or an amendment thereto as paid within
the sixty (60) days preceding the date of the Change in
Control,
(C) the highest tender offer price paid for a share of the
Common Stock, and
(D) any cash merger or similar price paid for a share of the
Common Stock.
(ii) The "Option Acceleration Price" is the excess of the Restricted
Stock Acceleration Price over the exercise price of the award,
except that for Incentive Stock Options, the Option Acceleration
Price is limited to the spread between the Fair Market Value on
the date of exercise and the option price.
(c) A "Change in Control" is the occurrence of any one of the following
events:
(i) any "person," as such term is defined in Section 3(a)(9) and
modified and used in Sections 13(d) and 14(d) of the Exchange
Act (other than a Grantee, the Company, any trustee or other
fiduciary holding securities under an employee benefit plan of
the Company (or of any subsidiary of the Company), or any
corporation owned, directly or indirectly, by the stockholders
of the Company in substantially the same proportions as their
ownership of stock of the Company), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of the
Company's then outstanding securities;
17
<PAGE>
(ii) during any period of two consecutive years individuals who at
the beginning of such period constitute the Board, and any new
director (other than a director designated by a person who has
entered into an agreement with the Company to effect a
transaction described in clause (i), (iii), (iv) or (v) of this
definition) whose election by the Board or nomination for
election by the Company's shareholders was approved by a vote of
at least two-thirds (2/3) of the directors then still in office
who either were directors at the beginning of the period or
whose election or nomination for election was previously so
approved, cease for any reason to constitute at least a majority
thereof;
(iii) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other
than (A) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding
or by being converted into voting securities of the surviving
entity) more than 75% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation or (B) a merger
or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no "person" (with the
exceptions specified in clause (i) of this definition) acquires
25% or more of the combined voting power of the Company's then
outstanding securities;
(iv) the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets; or
(v) the Company consummates a merger, consolidation, stock dividend,
stock split or combination, extraordinary cash dividend,
exchange offer, issuer tender offer or other transaction
effecting a recapitalization of the Company (or similar
transaction) (the "Transaction") and, in connection with the
Transaction, a Designated Downgrading occurs with respect to the
unsecured general obligations of the Company (the
"Securities"), as described below:
18
<PAGE>
(A) If the rating of the Securities by both Rating Agencies
(defined hereinafter) on the date 60 days prior to the
public announcement of the Transaction (a "Base Date") is
equal to or higher than BBB Minus (as hereinafter defined),
then a "Designated Downgrading" means that the rating of
the Securities by either Rating Agency on the effective
date of the Transaction (or, if later, the earliest date on
which the rating shall reflect the effect of the
Transaction) (as applicable, the "Transaction Date") is
equal to or lower than BB Plus (as hereinafter defined); if
the rating of the Securities by either Rating Agency on a
Base Date is lower than BBB Minus, then a "Designated
Downgrading" means that the rating of the Securities by
either Rating Agency on the Transaction Date has decreased
from the rating by such Rating Agency on the Base Date. In
determining whether the rating of the Securities has
decreased, a decrease of one gradation (+ and - for S&P and
1, 2 and 3 for Moody's, or the equivalent thereof by any
substitute rating agency referred to below) shall be taken
into account;
(B) "Rating Agency" means either Standard & Poor's Corporation
or its successor ("S&P") or Moody's Investor Service, Inc.
or its successor ("Moody's");
(C) "BBB Minus" means, with respect to ratings by S&P, a rating
of BBB- and, with respect to ratings by Moody's, a rating
of Baa3, or the equivalent thereof by any substitute agency
referred to below;
(D) "BB Plus" means, with respect to ratings by S&P, a rating
of BB+ and, with respect to ratings by Moody's, a rating of
BBB3, or the equivalent thereof by any substitute agency
referred to below;
(E) The Company shall take all reasonable action necessary to
enable each of the Rating Agencies to provide a rating for
the Securities, but, if either or both of the Rating
Agencies shall not make such a rating available, a
19
<PAGE>
nationally-recognized investment banking firm shall select
a nationally-recognized securities rating agency or two
nationally-recognized securities rating agencies to act as
substitute rating agency or substitute rating agencies, as
the case may be.
Section 10. Effective Date of the Plan
The Plan shall be effective as of September 17, 1997.
Section 11. Term of the Plan
No Award shall be granted under the Plan after September 16, 2007.
However, unless otherwise expressly provided in the plan or in an applicable
Award Agreement, any Award theretofore granted may extend beyond such date, and
the authority of the Committee to amend, alter, or adjust any such Award, or to
waive any conditions or rights under any such Award, and the authority of the
Board of Directors of the Company to amend the Plan, shall extend beyond such
date.
20
<PAGE>
Exhibit 12
THE STANLEY WORKS AND SUBSIDIARIES
COMPUTATION OF EARNINGS TO FIXED CHARGES
(in Millions of Dollars)
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------------------------------------
January 3 December 28 December 30 December 31 January 1
1998 1996 1995 1994 1994
--------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Earnings (loss) before income taxes and
cumulative adjustment for accounting change ($18.6) $174.2 $112.8 $201.8 $148.0
Add:
Portion of rents representative of
interest factor $11.6 $ 12.2 $ 13.4 $ 12.7 $ 11.7
Interest expense 24.2 27.6 35.2 33.1 31.4
Amortization of expense on
long-term debt 0.2 0.2 0.3 0.2 0.4
Amortization of capitalized interest 0.3 0.3 0.3 0.4 0.4
------ ------ ------ ------ ------
Income as adjusted $17.7 $214.5 $162.0 $248.2 $191.9
====== ====== ====== ====== ======
Fixed charges:
Interest expense $24.2 $ 27.6 $ 35.2 $ 33.1 $ 31.4
Amortization of expense
on long-term debt 0.2 0.2 0.3 0.2 0.4
Capitalized interest -- 0.2 0.1 -- 0.1
Portion of rents representative of
interest factor 11.6 12.2 13.4 12.7 11.7
------ ------ ------ ------ ------
Fixed charges $36.0 $40.2 $49.0 $46.0 $43.6
====== ====== ====== ====== ======
Ratio of earnings to fixed charges 0.49 5.34 3.31 5.40 4.40
====== ====== ====== ====== ======
</TABLE>
<PAGE>
STANLEY 1997 ANNUAL REPORT
MANAGEMENT REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
The management of The Stanley Works is responsible for the preparation,
integrity and objectivity of the accompanying financial statements. The
statements were prepared in accordance with generally accepted accounting
principles. Preparation of financial statements and related data involves our
best estimates and the use of judgment. Management also prepared the other
information in the Annual Report and is responsible for its accuracy and
consistency with the financial statements.
The company maintains a system of internal accounting controls which is
designed to provide reasonable assurance, at appropriate cost, as to the
reliability of financial records and the protection of assets. This system
includes monitoring by a staff of internal auditors. It is further
characterized by care in the selection of competent financial managers, by
organizational arrangements that provide for delegation of authority and
divisions of responsibility and by the dissemination of policies and procedures
throughout the company.
Management is also responsible for fostering a strong, ethical climate so
that the company's affairs are conducted according to the highest standards of
personal and business conduct. This responsibility is reflected in the
company's Business Conduct
Guidelines which are publicized throughout the organization. The company
has a long-established reputation of integrity in business conduct and
maintains a systematic program to assess compliance with these policies.
The adequacy of Stanley's internal accounting controls, the accounting
principles employed in its financial reporting and the scope of independent and
internal audits are reviewed by the Audit Committee of the Board of Directors,
consisting solely of outside directors. Both the independent auditors and our
internal auditors have unrestricted access to the Audit Committee, and they
meet with it periodically, with and without management present.
January 29, 1998
John M. Trani Theresa F. Yerkes
------------------------------ -------------------------------
John M. Trani Theresa F. Yerkes
Chairman and Vice President, Controller
Chief Executive Officer
- -------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Shareholders
The Stanley Works
We have audited the accompanying consolidated balance sheets of The
Stanley Works and subsidiaries as of January 3, 1998 and December 28, 1996, and
the related consolidated statements of operations, changes in shareholders'
equity, and cash flows for each of the three fiscal years in the period ended
January 3, 1998. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The Stanley
Works and subsidiaries at January 3, 1998 and December 28, 1996, and the
consolidated results of their operations and their cash flows for each of the
three fiscal years in the period ended January 3, 1998, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Hartford, Connecticut
January 29, 1998
21
<PAGE>
SUMMARY OF SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Millions of Dollars, (except per
share amounts) 1997(A) 1996(B) 1995(C) 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONTINUING OPERATIONS(D)
Net sales $ 2,670 $ 2,671 $ 2,624 $ 2,511 $ 2,273 $ 2,196 $ 1,942 $ 1,956
Earnings (loss) (42) 97 59 125 93 98 97 106
Earnings (loss) per share(E)
Basic $ (.47) $ 1.09 $ .66 $ 1.40 $ 1.03 $ 1.07 $ 1.12 $ 1.26
Diluted $ (.47) $ 1.08 $ .66 $ 1.38 $ 1.01 $ 1.06 $ 1.11 $ 1.25
Percent of Net Sales:
Cost of sales 66.8% 67.2% 68.2% 67.1% 68.3% 66.8% 66.0% 65.3%
Selling, general and administrative 23.5% 22.8% 22.5% 22.3% 22.5% 24.0% 23.8% 23.7%
Interest-net .6% .8% 1.2% 1.2% 1.1% 1.2% 1.3% 1.3%
Other-net .8% .8% .5% 1.4% 1.6% .8% .8% 9%
Restructuring and asset write-offs 8.9% 1.8% 3.3% - - - - -
Earnings (loss) before income taxes (.7%) 6.5% 4.3% 8.0% 6.5% 7.2% 8.1% 8.8%
Earnings (loss) (1.6%) 3.6% 2.3% 5.0% 4.1% 4.5% 5.0% 5.4%
- -------------------------------------------------------------------------------------------------------------------------------
OTHER KEY INFORMATION
Total assets $ 1,759 $ 1,660 $ 1,670 $ 1,701 $ 1,577 $ 1,608 $ 1,548 $ 1,494
Long-term debt 284 343 391 387 377 438 397 398
Shareholders' equity $ 608 $ 780 $ 735 $ 744 $ 681 $ 696 $ 689 $ 679
Ratios:
Current ratio 1.6 2.4 2.4 2.1 2.1 2.4 2.4 2.6
Total debt to total capital 40.5% 31.7% 39.6% 39.2% 38.7% 40.1% 37.6% 38.7%
Income tax rate (125.4%) 44.4% 47.6% 37.9% 37.4% 37.9% 38.0% 38.4%
Return on average equity(D),(E) (6.0)% 12.8% 8.0% 17.6% 13.5% 14.1% 14.1% 15.8%
Common Stock Data:
Dividends per share $ .77 $ .73 $ .71 $ .69 $ .67 $ .64 $ .61 $ .57
Equity per share at year-end $ 6.85 $ 8.79 $ 8.28 $ 8.37 $ 7.62 $ 7.66 $ 7.61 $ 8.25
Market price--high 47 3/8 32 13/16 26 11/16 22 7/16 23 15/16 24 1/16 22 19 7/8
--low 28 23 5/8 17 13/16 17 7/16 18 15/16 16 1/4 13 13 5/16
(TABLE RESTUBBED FROM ABOVE)
<CAPTION>
Millions of Dollars, (except per
share amounts) 1989 1988 1987
- ----------------------------------------------------------------------
<S> <C> <C> <C>
CONTINUING OPERATIONS(D)
Net sales $ 1,951 $ 1,888 $ 1,744
Earnings (loss) 117 102 96
Earnings (loss) per share(E)
Basic $ 1.35 $ 1.18 $ 1.11
Diluted $ 1.34 $ 1.18 $ 1.11
Percent of Net Sales:
Cost of sales 64.8% 65.6% 64.7%
Selling, general and administrative 23.0% 23.0% 23.4%
Interest-net 1.3% 1.7% 1.7%
Other-net 1.0% .6% .7%
Restructuring and asset write-offs - - -
Earnings (loss) before income taxes 9.9% 9.1% 9.5%
Earnings (loss) 6.0% 5.4% 5.5%
- ----------------------------------------------------------------------
OTHER KEY INFORMATION
Total assets $ 1,491 $ 1,405 $ 1,388
Long-term debt 416 339 354
Shareholders' equity $ 659 $ 684 $ 626
Ratios:
Current ratio 2.6 2.6 2.4
Total debt to total capital 39.6% 35.0% 40.9%
Income tax rate 39.6% 40.8% 41.7%
Return on average equity(D),(E) 17.3% 15.5%
Common Stock Data:
Dividends per share $ .51 $ .46 $ .41
Equity per share at year-end $ 7.66 $ 7.99 $ 7.30
Market price--high 19 5/8 15 5/8 18 5/16
--low 13 3/4 12 3/16 10 5/8
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Millions of Dollars, (except per
share amounts) 1997(A) 1996(B) 1995(C) 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average shares outstanding (in thousands)
Basic 89,470 89,152 89,043 89,550 89,871 91,405 86,532 84,384
Diluted 89,470 89,804 89,839 90,656 91,296 92,842 87,552 84,770
Other Information:
Earnings (loss) from continuing
operations $ (42) $ 97 $ 59 $ 125 $ 93 $ 98 $ 97 $ 106
Loss from discontinued operations - - - - - - - -
Cumulative effect of accounting change - - - - (9) - (12) -
- --------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ (42) $ 97 $ 59 $ 125 $ 84 $ 98 $ 85 $ 106
Net earnings (loss) per share(E)
Basic $ (.47) $ 1.09 $ .66 $ 1.40 $ .94 $ 1.07 $ .98 $ 1.26
Diluted $ (.47) $ 1.08 $ $ 1.38 $ .92 $ 1.06 $ .97 $ 1.25
.66
Average number of employees 18,377 18,903 19,784 19,445 18,988 18,650 17,420 17,784
Shareholders of record at end of year 18,503 17,823 16,919 17,599 20,018 20,661 21,297 22,045
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Millions of Dollars, (except per
share amounts) 1989 1988 1987
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Average shares outstanding (in thousands)
Basic 86,756 86,217 86,714
Diluted 87,194 86,662 87,130
Other Information:
Earnings (loss) from continuing
operations $ 117 $ 102 $ 96
Loss from discontinued operations - - (10)
Cumulative effect of accounting change - (13)
- ---------------------------------------------------------------------------
Net earnings (loss) $ 117 $ 89 $ 86
Net earnings (loss) per share(E)
Basic $ 1.35 $ 1.03 $ 1.00
Diluted $ 1.34 $ 1.03 $ .99
Average number of employees 18,464 18,988 19,142
Shareholders of record at end of year 22,376 23,031 23,051
- ---------------------------------------------------------------------------
</TABLE>
A Includes charges for restructuring and asset write-offs of $238.5 million,
or $2.00 per share, related transition costs of $71.0 million, or $.51 per
share, and a non-cash charge of $10.6 million, or $.07 per share, for a
stock option grant as specified in the company's employment contract with
its chief executive officer.
B Includes charges for restructuring and asset write-offs of $47.8 million,
or $.43 per share, related transition costs of $32.9 million, or $.23 per
share, and a non-cash charge of $7.6 million, or $.08 per share, for
elements of the company's employment contract with its chief executive
officer.
C Includes charges for restructuring and asset write-offs of $85.5 million,
or $.72 per share, and related transition costs of $9.5 million, or $.06
per share.
D Excluding the cumulative after-tax effect of accounting changes for
postemployment benefits of $8.5 million, or $.09 per share, in 1993;
postretirement benefits of $12.5 million, or $.14 per share, in 1991; and
income taxes of $13.1 million, or $.15 per share, in 1988.
E Earnings per share and return on average equity excluding restructuring
charges, asset write-offs, related transition costs and the charges related
to recruitment of a new chief executive officer would have been $2.11 per
share and 19.9% in 1997, $1.83 per share and 18.9% in 1996 and $1.45 per
share and 16.6% in 1995.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
On July 18, 1997 the company announced a major initiative to deliver
sustained, profitable growth funded by the reallocation of resources. This
initiative and the company's prior restructuring program (called "4X4") have
resulted in restructuring charges and restructuring-related transition costs.
Restructuring charges include the severance associated with employment
reductions, write-downs of assets either disposed of or impaired as a result of
the initiatives or other business factors, environmental costs of remediating
facilities to be closed or vacated and other similar exit costs. The
restructuring-related transition costs are additional costs resulting from
these major initiatives that are classified as period operating expenses within
cost of sales or selling, general and administrative expense categories. These
include the costs of moving production equipment, operating duplicative
facilities while transferring production or distribution, consulting costs
incurred in planning and implementing changes and other types of costs that
have been incurred to facilitate the changes encompassed by the restructuring
initiatives. Management judgmentally determines which costs should be
classified as transition costs based on the criteria of whether the costs are
unusual in nature and are expected to cease when the transition activities
related to these initiatives end. Because the presence of restructuring charges
and transition costs makes it difficult to see the underlying trends within the
company's businesses, the company also presents its results on a pro forma or
"core" basis, which excludes these as well as other non-recurring charges
incurred in the period. The table provided with this discussion reconciles
reported results with pro forma core results and reflects the amount of
transition costs and non-recurring charges included in operating results.
SALES
Net sales in 1997 of $2,670 million were slightly lower than 1996 sales of
$2,671 million. The loss of sales from low-margin businesses that were divested
as part of restructuring activities reduced sales by $107 million or 4%. The
negative effects of pricing and foreign currency translation combined to reduce
sales by 2%. Volume from ongoing business grew 6% from last year. All of the
company's businesses achieved volume growth over the prior year with the
overall increase being led by gains in fastening products, doors and carpenters
tools. Strong performance was also achieved in the industrial and consumer
mechanics tools businesses. Generally strong markets in North America and
Europe provided the basis for the sales gains. Net sales increased 2% from 1995
to 1996 despite business and product line divestitures, primarily due to
strength in the fastening systems and doors businesses.
GROSS PROFIT
The company reported gross profit of $886 million in 1997, up $11 million
from 1996. Gross profit, as a percent of sales, increased to 33.2% from 32.8%
in 1996 and 31.8% in 1995. These improvements reflect manufacturing
efficiencies achieved from higher production volumes and the savings from
reduced material costs primarily resulting from the company's centralized
procurement activities. These gains were offset by price erosion, particularly
in the fastening and hardware businesses; the negative foreign currency
translation impact of a stronger dollar; and higher levels of
restructuring-related transition costs. Transition costs included in cost of
sales increased to $31 million in 1997 from $16 million in 1996 and $4 million
in 1995. In 1997 and 1996, these costs primarily related to the implementation
of demand flow manufacturing in several facilities and the plant
rationalization activities for the tools and fastening systems businesses
undertaken as part of the 4X4 initiative.
<PAGE>
NET SALES ANALYSIS
<TABLE>
<CAPTION>
1997 Net Sales Changes 1996 Net Sales Changes
Unit Aquis/ Unit Aquis/
1997 Price Volume Divest Currency 1996 Price Volume Divest Currency 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Industry Segments
Tools
Consumer $ 754.0 - 6% (3)% (3)% $ 751.1 - 1% (1)% (1)% $ 756.5
Industrial 552.2 1% 3% (1)% - 538.7 3% (1)% (1)% - 534.7
Engineered 717.4 (1)% 7% 1% (2)% 686.4 - 5% (4)% - 678.3
- -----------------------------------------------------------------------------------------------------------------------------------
Total Tools 2,023.6 - 5% (1)% (2)% 1,976.2 1% 2% (2)% (1)% 1,969.5
Hardware 352.2 (2)% 6% - - 340.4 1% 4% - - 324.2
Specialty Hardware 293.7 (1)% 7% (23)% - 354.2 (2)% 8% 1% - 330.6
- -----------------------------------------------------------------------------------------------------------------------------------
Consolidated $2,669.5 (1)% 6% (4)% (1)% $2,670.8 - 3% (1)% - $2,624.3
- -----------------------------------------------------------------------------------------------------------------------------------
GEOGRAPHIC AREAS
United States $1,900.6 (1)% 5% (5)% - $1,911.5 - 3% (2)% - $1,884.9
Europe 423.6 (1)% 6% 1% (6)% 421.8 1% 2% 1% (2)% 413.4
Other Areas 345.3 1% 9% (5)% (3)% 337.5 1% 3% - - 326.0
- -----------------------------------------------------------------------------------------------------------------------------------
Consolidated $2,669.5 (1)% 6% (4)% (1)% $2,670.8 - 3% (1)% - $2,624.3
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
In addition, in 1997 the company incurred $2 million in costs related to task
forces that were established for the facility rationalization and outsourcing
initiatives announced in July. Excluding transition costs, on a core basis,
gross profit margin as a percent of sales increased to 34.4% in 1997 from 33.4%
in 1996 and 32.0% in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $628 million in
1997 from $609 million in 1996 and $592 million in 1995. These expenses were
23.5% of sales in 1997, 22.8% in 1996 and 22.5% in 1995. The increases in
expense were primarily in distribution and administration. Distribution costs
were higher reflecting consulting expenses and duplicative facility costs
associated with the consolidation of North American order entry and
distribution. The increases in administrative expenses include consulting
expense for reorganization activities and the excess recruitment and relocation
costs associated with significant changes in senior management. In addition,
1997 includes approximately $11 million related to the 1997 announced
initiatives, primarily for consulting, contract labor and other temporary
resources used to plan and implement the administrative functional
consolidation. Total transition costs were $40 million in 1997, $17 million in
1996 and $5 million in 1995. On a core basis excluding these transition costs,
selling, general and administrative expenses would have been 22.0% of sales in
1997 as compared with 22.1% in 1996 and 22.4% in 1995.
INTEREST AND NON-OPERATING EXPENSES
Net interest expense (interest expense less interest income) was $17
million in 1997, $23 million in 1996 and $30 million in 1995. The decrease
between 1997 and 1996 reflected lower average debt levels, lower effective
borrowing rates and higher interest income. The decrease from 1995 to 1996 was
due to lower levels of borrowing and effective interest rates. Net other
expense (other non-operating expense less other non-operating income) was $22
million in both 1997 and 1996 and $14 million in 1995. Included in 1997 and
1996 are non-cash charges related to the recruitment of the company's chief
executive officer. These include an $11 million charge taken in the second
quarter of 1997 to reflect the value of stock options granted and $8 million in
1996 reflecting the value of stock rights awarded under the terms of a
three-year employment contract. Although both awards were granted in December
1996, recognition of the option value was required as of the date of
shareholder approval. Excluding those non-recurring charges, Other-net expense
on a core basis was $11 million in 1997 compared with $15 million in 1996 and
$14 million in 1995.
The company's effective tax rate was significantly affected by non-
deductible restructuring charges in 1997, 1996 and 1995 and by the non-
deductibility of the 1996 charges for CEO benefits. Excluding these charges
the effective rate would have been 37.5% in 1997 and 38% in both 1996 and 1995.
BUSINESS SEGMENT RESULTS
The following discussion on the company's business segment results is
presented on a pro forma or core basis. The discussion of core results is
intended to provide insight into the underlying business and marketplace
conditions that would otherwise be obscured by the increasing levels of
transition costs. The accompanying table reconciles reported results with core
results and indicates the amount of transition costs and restructuring charges
associated with each segment.
Net sales in the Tools segment increased 2%, with a 5% increase in ongoing
business volume offset by negative foreign currency translation. All businesses
reflected volume gains with particular strength noted in fastener tools and
fasteners. While there was no net effect of price changes, increases in the
industrial businesses offset the significant erosion experienced by the
fastening systems business which resulted from two factors. Highly engineered
fastening tools
<PAGE>
OPERATING RESULTS: PRO FORMA COMPARATIVE ANALYSIS
<TABLE>
<CAPTION>
Pro
1997 Pro Forma 1996 Forma
Restruct- Related Core Restruct- Related Core
uring Transition Pro Forma Profit uring Transition Pro Forma Profit
Reported Charges Costs* Core Margin Reported Charges Costs* Core Margin
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INDUSTRY SEGMENTS
Tools $ 61.1 $194.8 $ 51.9 $307.8 15.2% $ 196.6 $ 44.6 $ 24.1 $ 265.3 13.4%
Hardware 16.4 17.8 12.4 46.6 13.2% 42.4 - 4.4 46.8 13.7%
Specialty Hardware (12.3) 23.5 3.3 14.5 4.9% 12.2 0.3 2.3 14.8 4.2%
- -----------------------------------------------------------------------------------------------------------------------------------
Total 65.2 236.1 67.6 368.9 13.8% 251.2 44.9 30.8 326.9 12.2%
Net corporate (59.1) 2.4 14.0 (42.7) (48.9) 2.9 9.7 (36.3)
expenses
Interest expense (24.7) - - (24.7) (28.1) - - (28.1)
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings (loss)
before
income taxes $ (18.6) $238.5 $ 81.6 $301.5 $ 174.2 $ 47.8 $ 40.5 $ 262.5
- -----------------------------------------------------------------------------------------------------------------------------------
GEOGRAPHIC AREAS
United States $ 83.1 $145.6 $ 53.4 $282.1 14.8% $ 212.5 $ 17.2 $ 26.2 $ 255.9 13.4%
Europe (18.5) 61.8 7.6 50.9 12.0% 24.8 17.1 2.5 44.4 10.5%
Other Areas 0.6 28.7 6.6 35.9 10.4% 13.9 10.6 2.1 26.6 7.9%
- -----------------------------------------------------------------------------------------------------------------------------------
Total $ 65.2 $236.1 $ 67.6 $368.9 13.8% $ 251.2 $ 44.9 $ 30.8 $ 326.9 12.2%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Included in Net corporate expenses is a charge of $10.6 million and $7.6
million for 1997 and 1996, respectively, for items specified in the company's
employment contract with its chief executive officer.
25
<PAGE>
have historically been protected from low-cost foreign sourced competition due
to a market preference for a higher quality U.S. made product. The recent
availability of foreign sourced tools of an acceptable quality resulted in
significant pricing pressure for these products. In addition, a strategic price
reduction was implemented in Europe in response to marketplace conditions.
Despite this competitive pricing environment, core operating profits as a
percent of sales increased to 15.2% from 13.4% in 1996 and 11.4% in 1995 due to
manufacturing efficiencies from higher production volumes and cost savings
realized from restructuring initiatives, primarily the company's centralized
procurement activities.
Net sales in the Hardware segment were up 4% overall, despite a 2% decline
in price. Pricing in the U.S. was very competitive. Core operating profits were
13.2% of sales, down from 13.7% in 1996. Gains in productivity from volume and
restructuring activities, particularly in the Doors business, were more than
offset by lower profitability in the Hardware business resulting from the
transfer of its distribution to a new consolidated warehouse. Significant
start-up difficulties were encountered resulting in both lower volume and
higher freight cost. Most of these difficulties were overcome by the end of
1997. Core operating margins of 13.7% in 1996 improved significantly from the
8.5% margin reported in 1995 due to the absence of operational problems in the
Home Decor facility in France.
Net sales in the Specialty Hardware segment decreased 23% as a result of
the sale of the garage related products business in early 1997. Growth from
ongoing businesses in this segment was strong, with a net 6% increase. Core
operating margins were 4.9% of sales as compared with 4.2% in 1996 and 6.1% in
1995. The severe competitive pricing environment in the automated door products
market, which accounted for the decline in profitability experienced in 1996,
has stabilized and 1997 benefited from gains realized from several
restructuring initiatives.
GEOGRAPHIC RESULTS
Unit volume gains in sales were realized in all geographic areas. The US
and European economies were strong and provided a solid basis for growth.
Canada and Latin America both experienced double digit volume gains, however,
Asia experienced disappointing declines. Core operating profits were up in all
regions.
RESTRUCTURING ACTIVITIES
The company recorded restructuring charges and charges for the write-down
of impaired assets associated with its multiple restructuring initiatives of
$239 million in 1997, $48 million in 1996 and $86 million in 1995. The 1997
restructuring charge, approximately half of which is severance, is associated
with the comprehensive reallocation of resources announced in mid-1997. The
amount of the charge is net of $7 million in gains resulting from businesses
divested under the 4X4 restructuring initiative. The objective of the 1997
restructuring initiative is to deliver profitable sales growth on a sustained
basis. This growth, fueled by increased spending on new product development,
expansion into new ventures and brand development, will be funded by the
savings achieved from streamlining operations and reorganizing into a product
management structure. The company is transitioning from a portfolio company
with 11 fully independent businesses to a single operating entity.
Administrative functions such as finance, human resources and information
technology are being centralized. Manufacturing and distribution operations are
being rationalized. The company plans to reduce facilities: from 83
manufacturing plants to 45 and from 40 distribution centers to 25. The sales
organization has been reorganized to eliminate redundant coverage of key
customers and channels. Overall, these actions will change the composition of
the company's workforce and are expected to reduce net employment levels by
approximately 4,500 people.
The total costs anticipated to accomplish these initiatives are $340
million, of which $240 million are restructuring charges, recorded in 1997, and
$100 million are transition costs that will be included in operating earnings
through mid-1999. The restructuring is expected to yield approximately $145
million in annual savings all of which will be reinvested in new product
development, new ventures, brand development and other areas to stimulate
growth. Most of the 1997 initiative projects are targeted to be complete by
1999. Since several projects depend on achieving common systems, which has been
delayed due to year 2000 compliance efforts, it is possible that some of these
initiatives will not be completed until the end of 2000. However, the delay in
timing is not expected to seriously affect the anticipated results of the 1997
restructuring.
Restructuring charges recorded in 1996 and 1995 were associated with the
4X4 initiative. The goal of 4X4 was to reduce the company's cost structure by
$150 million (half of which was to be reinvested) and to reduce working capital
and other assets by $250 million by the end of 1997. The second objective of
that program was to achieve net sales of $4 billion in 1999. The company did
achieve the cost and asset reduction targets, however, the objectives for
revenue growth were not fully realized. Under that program, seven businesses
were divested; four product categories were exited; eleven manufacturing
plants, three distribution centers and two support facilities closed; and a
salaried workforce reduction occurred.
<PAGE>
Reserves recorded for restructuring activities were $27 million at the
beginning of 1997. During 1997 payments of $28 million were made, primarily for
severance. Other than the restructuring charges recorded in 1997, no other
significant changes were made to the restructuring accruals, and the ending
balance in 1997 was $167 million of which $128 million related to severance,
$13 million to environmental costs of remediating facilities to be closed or
vacated and $26 million to other exit costs. Future cash outlays for severance
and other payments in any one year are not expected to materially affect the
company's liquidity.
26
<PAGE>
FINANCIAL CONDITION
LIQUIDITY, SOURCES AND USES OF CAPITAL
Management has established aggressive growth plans as well as committed
the company to funding significant restructuring activities. The company's
historically strong cash generating ability, its ample debt capacity and its
access to equity markets provide substantial flexibility in meeting both its
routine operational needs and its growth and restructuring objectives. Cash
flow from operations in 1997 was $241 million, slightly less than in 1996 but
over 25% higher than the prior average ten year period. This operating cash
flow was used to reinvest in the business and to pay shareholder dividends.
Capital expenditures were higher than depreciation and amortization for
1997 due partially to the investment in the North American common distribution
and order entry system. Capital expenditures in 1998, other than expenditures
required for Year 2000 compliance, are expected to equal depreciation and
amortization charges of approximately $80 million.
Stanley has one of the longest records among industrial companies of
paying quarterly dividends to shareholders. The company's objective is to
increase dividends at the rate of one-half of the company's earnings growth
rate, ultimately reaching a dividend payout ratio (dividends divided by
earnings per share) of 25%. Dividends of $.77 per share paid in 1997
represented a 5% increase over 1996 dividends of $.73 per share.
The company's policy is to offset the dilutive impact of its employee
benefit programs (stock awards, options, etc.) through the purchase of shares
in the open market. The net activity related to the share repurchase programs
was to reduce equity by $45 million in 1997 and $29 million in 1996. This
activity has increased over the last several years as a result of increases in
the amount of options and other awards and the appreciated market price of the
stock. It is anticipated that this activity will continue at similar levels.
Business acquisition and divestiture activity during the year resulted in
a net $24 million cash outflow. As described in the restructuring program,
several businesses were sold, the largest of which was the garage related
products business in 1997. During 1997 the company also acquired the assets of
a European fastener business, Atro Industriale, SpA.
Debt activities consisted of paydowns of scheduled maturities as well as
an increase in short term debt to fund working capital needs. In addition,
short term debt and cash were higher at the end of the year due to the timing
of cash flows from organizational restructuring which will be eliminated in
early 1998 as well as some year end interest arbitrage. Overall, the company's
borrowing capacity remains very strong. The debt to total capital ratio of
40.5% was inflated due to the recent restructuring charges.
MARKET RISK
Market risk is the potential economic loss that may result from adverse
changes in the fair value of financial instruments. The company is exposed to
market risk from changes in foreign currency exchange rates and interest rates.
Exposure to foreign currency risk results because the company, through its
global businesses, enters into transactions and makes investments denominated
in multiple currencies. The company's predominant exposures are in European and
Canadian currencies. All cross-currency trade flows arising from sales and
procurement activities are consolidated and netted prior to obtaining risk
protection, primarily purchased basket options. The company is able to take
advantage of its global positioning by using naturally offsetting exposures to
reduce the cost of purchasing protection. From time to time, the company also
enters into forward exchange contracts to reduce the earnings and cash flow
impact of non-functional currency denominated receivables and payables,
predominately intercompany transactions. Gains and losses from these hedging
instruments offset the gains or losses on the underlying net exposures, assets
and liabilities being hedged. The company has also entered into several
cross-currency interest rate swaps, primarily to reduce overall borrowing
costs, but also providing a partial hedge of the net investments in certain
subsidiaries. Sensitivity to foreign currency exposure risk from these
financial instruments at the end of fiscal 1997 would have been immaterial
based on the potential loss in fair value from a hypothetical 10% adverse
movement in all currencies.
<PAGE>
The company's exposure to interest rate risk results from its outstanding
debt obligations, short term investments and derivative financial instruments
employed in the management of its debt portfolio. The debt portfolio is managed
to achieve capital structure targets and reduce the overall cost of borrowing
by using a combination of fixed and floating rate debt as well as interest rate
swaps, caps and cross-currency interest rate swaps. The company's primary
exposure to interest risk comes from its floating rate debt in the US, Canada
and Europe and is fairly represented by changes in local LIBOR rates. At
January 3, 1998, the result of a hypothetical 1% increase in short term LIBOR
rates would not have resulted in a material impact on the pretax profit of the
company.
The company has access to financial resources and borrowing capabilities
around the world. As of year end 1997, the company had approximately $381
million of unused lines of credit and $100 million of unissued debt securities
registered with the Securities and Exchange Commission. The company believes
that its strong financial position, operating cash flows and borrowing capacity
provide the financial flexibility necessary to continue its record of annual
dividend payments, to invest in the routine needs of its businesses, to make
strategic acquisitions and to fund the restructuring and other initiatives
encompassed by its growth strategy.
27
<PAGE>
OTHER MATTERS
ENVIRONMENTAL
The company incurs costs related to environmental issues as a result of
various laws and regulations governing current operations as well as the
remediation of previously contaminated sites. Future laws and regulations are
expected to be increasingly stringent and will likely increase the company's
expenditures related to routine environmental matters.
The company accrues for anticipated costs associated with investigatory
and remediation efforts in accordance with appropriate accounting guidelines
which address probability and the ability to reasonably estimate future costs.
The liabilities are reassessed whenever circumstances become better defined or
remediation efforts and their costs can be better estimated. Subject to the
imprecision in estimating future environmental costs, the company believes that
any sum it may pay in connection with environmental matters in excess of the
amounts recorded will not have a materially adverse effect on its financial
position, results of operations or liquidity.
YEAR 2000 SYSTEMS ISSUES
The company has determined that it will need to modify or replace
significant portions of its software and some hardware so that its computer
systems will function properly with respect to dates in the year 2000 and
beyond. The company also has initiated discussion with its significant
suppliers, customers and financial institutions to ensure that those parties
have appropriate plans to remediate Year 2000 issues where their systems
interface with the company's systems or otherwise impact its operations. The
company is assessing the extent to which its operations are vulnerable should
those organizations fail to properly remediate their computer systems.
The company's comprehensive Year 2000 initiative is being managed
internally by a team of experienced professionals. The team's activities are
designed to ensure that there is no adverse effect on the company's core
business operations and that transactions with customers, suppliers, and
financial institutions are fully supported. The initiative encompasses all
business systems, including administrative, manufacturing and distribution
equipment that utilize microprocessors. Project completion is expected by mid
1999. While the company believes its plans are adequate to address its Year
2000 concerns, many factors could affect its ultimate success including, but
not limited to, the continued availability of outside resources. The project is
not expected to exceed $40 to $50 million in cost, some of which is potentially
capitalizable. This cost range is based on management's best estimates, which
were derived utilizing assumptions about future events. The results could
differ materially from those anticipated subject to uncertainties regarding the
availability of resources and the impact of the issue on key suppliers and
customers among others.
NEW ACCOUNTING PRONOUNCEMENTS
The FASB issued Statement of Financial Accounting Standards (SFAS) No.
130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," in June of 1997. These
standards establish new disclosures for comprehensive income and segments and
will be effective for fiscal 1998. New disclosures will include a comprehensive
income number and reporting operating segments in accordance with internal
management structure.
CAUTIONARY STATEMENTS
Certain risks and uncertainties are inherent in the company's ability to
achieve operational excellence and deliver sustained, profitable growth to its
shareholders as outlined in this Annual Report to Shareholders.
The company's drive for operational excellence is focused on improving
customer service, consolidating multiple manufacturing and distribution
facilities, outsourcing non-core activities and converting to common systems.
The ability to implement the initiatives associated with these goals is
dependent on the company's ability to implement the Stanley Production System
and to develop and execute comprehensive plans for facility consolidations, the
ability of the organization to complete the transition to a product management
structure without losing focus on the business, the availability of vendors to
perform non-core functions being outsourced, the successful recruitment and
training of new employees, the resolution of any labor issues related to
closing facilities, the need to respond to significant changes in product
demand during the transition and other unforeseen events.
The company's ability to generate sustained, profitable growth is
dependent on successfully freeing up resources to fund new product and brand
development and new ventures to broaden its markets and to defend market share
in the face of intense price competition. Success at developing new products
will depend on the ability of the new product development process to foster
creativity and identify viable new product ideas as well as the company's
ability to attract new product engineers. The achievement of growth through new
ventures will depend upon the ability to successfully identify, negotiate,
consummate and integrate into operations acquisitions, joint ventures and/or
strategic alliances.
<PAGE>
The company's ability to achieve and sustain the improvements resulting
from these initiatives will be dependent on the extent of pricing pressure and
other changes in its competitive markets, the continued consolidation of
customers in consumer channels, increasing global competition, changes in
trade, monetary and fiscal policies and laws, inflation, currency exchange
fluctuations, the impact of currency exchange rates on the competitiveness of
products and recessionary or expansive trends in the economies in which the
company operates.
28
<PAGE>
BUSINESS SEGMENT INFORMATION
INDUSTRY SEGMENTS
The company operates worldwide in three reportable segments: Tools,
Hardware and Specialty Hardware. Additional sales detail is provided for the
Consumer, Industrial and Engineered tool categories within the Tools segment.
GEOGRAPHIC AREAS
The company has manufacturing and warehouse facilities and sales offices
in the United States, Europe and Other Areas. The company's operations in
Europe are principally located in the European Economic Community. Other Areas
principally include Canada, Australia, the Far East and Latin America
INDUSTRY SEGMENTS
<TABLE>
<CAPTION>
(Millions of Dollars) 1997 1996 1995
- ----------------------------------------------------
<S> <C> <C> <C>
NET SALES
Tools
Consumer $ 754.0 $ 751.1 $756.5
Industrial 552.2 538.7 534.7
Engineered 717.4 686.4 678.3
- ----------------------------------------------------
Total Tools 2,023.6 1,976.2 1,969.5
Hardware 352.2 340.4 324.2
Specialty Hardware 293.7 354.2 330.6
- ----------------------------------------------------
Consolidated $ 2,669.5 $ 2,670.8 $ 2,624.3
- ----------------------------------------------------
OPERATING PROFIT (LOSS)
Tools $61.1 $196.6 $154.9
Hardware 16.4 42.4 13.4
Specialty Hardware (12.3) 12.2 17.8
- ----------------------------------------------------
Total 65.2 251.2 186.1
Net corporate expenses (59.1) (48.9) (37.6)
Interest expense (24.7) (28.1) (35.7)
- ----------------------------------------------------
Earnings (loss) before
income taxes $ (18.6) $174.2 $ 112.8
- ----------------------------------------------------
IDENTIFIABLE ASSETS
Tools $ 1,381.2 $ 1,268.2 $ 1,287.5
Hardware 185.7 178.3 174.9
Specialty Hardware 93.8 105.2 99.5
- ----------------------------------------------------
1,660.7 1,551.7 1,561.9
General corporate assets 98.0 107.9 108.1
- ----------------------------------------------------
Total $ 1,758.7 $ 1,659.6 $ 1,670.0
- ----------------------------------------------------
Capital Expenditures
Tools $ 67.6 $81.0 $ 65.4
Hardware 7.0 11.8 9.9
Specialty Hardware 6.0 8.3 7.2
DEPRECIATION AND
AMORTIZATION
Tools 58.0 58.7 63.6
Hardware 9.4 9.6 10.9
Specialty Hardware 2.6 4.1 4.1
- ----------------------------------------------------
</TABLE>
GENERAL INFORMATION
Intercompany sales between geographic areas and between business segments
were not significant. Segment information includes allocations of expenses and
assets shared by the segments.
In 1997, sales to a major customer were approximately 12% of consolidated
sales but were less than 10% in previous years.
Operating profit represents net sales less operating expenses. In
computing operating profit, the following have been excluded: net corporate
expenses, interest expense and income taxes.
Identifiable assets are those assets used in the company's operations in
each segment or area.
<PAGE>
<TABLE>
<CAPTION>
GEOGRAPHIC AREAS
(Millions of Dollars) 1997 1996 1995
- -----------------------------------------------------
<S> <C> <C> <C>
NET SALES
United States $ 1,900.6 $ 1,911.5 $ 1,884.9
Europe 423.6 421.8 413.4
Other Areas 345.3 337.5 326.0
- -----------------------------------------------------
Consolidated $ 2,669.5 $ 2,670.8 $ 2,624.3
- -----------------------------------------------------
OPERATING PROFIT (LOSS)
United States $ 83.1 $ 212.5 $ 146.9
Europe (18.5) 24.8 26.8
Other Areas .6 13.9 12.4
- -----------------------------------------------------
Total $ 65.2 $ 251.2 $186.1
- -----------------------------------------------------
IDENTIFIABLE ASSETS
United States $ 1,001.6 $ 996.0 $1,028.5
Europe 389.1 321.6 314.1
Other Areas 315.6 277.2 255.9
Eliminations (45.6) (43.1) (36.6)
- -----------------------------------------------------
Total $ 1,660.7 $ 1,551.7 $1,561.9
- -----------------------------------------------------
</TABLE>
Note: In 1997, 1996 and 1995, restructuring charges of $194.8 million,
$44.6 million, and $64.2 million, respectively, were included in the Tools
segment; charges of $17.8 million in 1997 and $13.6 million in 1995 were
included in the Hardware segment; charges of $23.5 million, $.3 million, and
$2.0 million, respectively, were included in the Specialty Hardware segment;
and charges of $2.4 million, $2.9 million, and $5.7 million, respectively, were
included in Net corporate expenses.
In 1997, 1996 and 1995, restructuring charges of $145.6 million, $17.2
million and $55.2 million, respectively, were included in the United States;
charges of $61.8 million, $17.1 million and $16.3 million, respectively, were
included in Europe; and charges of $28.7 million, $10.6 million and $8.3
million, respectively, were included in Other Areas.
Included in Net corporate expenses for 1997 and 1996 were charges of $10.6
million and $7.6 million, respectively, for items specified in the company's
employment contract with its chief executive officer.
The "Operating Results: Pro Forma Comparative Analysis" included in the
Management's Discussion and Analysis section of this report provides further
analysis of the restructuring charges, asset write-offs and related transition
costs.
29
<PAGE>
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal years ended January 3, 1998, December 28, 1996 and December 30, 1995
(Millions of Dollars, except per share amounts) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 2,669.5 $ 2,670.8 $ 2,624.3
COSTS AND EXPENSES
Cost of sales 1,783.4 1,795.5 1,789.7
Selling, general and administrative 627.7 608.5 591.7
Interest-net 16.6 22.5 30.3
Other-net 21.9 22.3 14.3
Restructuring and asset write-offs 238.5 47.8 85.5
- ----------------------------------------------------------------------------------------------------------------------------------
2,688.1 2,496.6 2,511.5
- ----------------------------------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) BEFORE INCOME TAXES (18.6) 174.2 112.8
INCOME TAXES 23.3 77.3 53.7
- ----------------------------------------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS) $ (41.9) $ 96.9 $ 59.1
- ----------------------------------------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS) PER SHARE OF COMMON STOCK
BASIC $ (.47) $ 1.09 $ .66
DILUTED $ (.47) $ 1.08 $ .66
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
30
<PAGE>
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 3, 1998 and December 28, 1996
(Millions of Dollars) 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 152.2 $ 84.0
Accounts and notes receivable 472.5 446.3
Inventories 301.2 338.1
Deferred taxes 51.1 14.0
Other current assets 28.3 28.5
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,005.3 910.9
PROPERTY, PLANT AND EQUIPMENT 513.2 570.4
GOODWILL AND OTHER INTANGIBLES 104.1 98.9
OTHER ASSETS 136.1 79.4
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,758.7 $ 1,659.6
- ----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 80.8 $ 4.9
Current maturities of long-term debt 50.0 15.1
Accounts payable 155.5 130.8
Accrued expenses 336.4 230.8
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 622.7 381.6
LONG-TERM DEBT 283.7 342.6
RESTRUCTURING RESERVES 67.6 -
OTHER LIABILITIES 176.9 155.3
SHAREHOLDERS' EQUITY
Preferred stock, without par value:
Authorized and unissued 10,000,000 shares
Common stock, par value $2.50 per share:
Authorized 200,000,000 shares;
issued 92,343,410 shares in 1997 and 1996 230.9 230.9
Retained earnings 806.6 919.0
Foreign currency translation adjustment (85.3) (45.5)
ESOP debt (223.8) (234.8)
- ----------------------------------------------------------------------------------------------------------------------------------
728.4 869.6
Less: cost of common stock in treasury
(3,555,329 shares in 1997 and 3,623,618 shares in 1996) 120.6 89.5
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 607.8 780.1
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,758.7 $ 1,659.6
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
31
<PAGE>
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal years ended January 3, 1998, December 28, 1996 and December 30, 1995
(Millions of Dollars) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings (loss) $ (41.9) $ 96.9 $ 59.1
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization 72.4 74.7 81.2
Restructuring and asset write-offs 238.5 47.8 85.5
Other non-cash items (17.9) 38.5 32.3
Changes in operating assets and liabilities:
Accounts and notes receivable (38.7) (28.9) (23.3)
Inventories 8.6 (10.5) (4.5)
Accounts payable and accrued expenses (.7) 9.5 (27.8)
Income taxes 21.8 24.3 (24.1)
Other (.9) 7.6 (.3)
Net cash provided by operating activities 241.2 259.9 178.1
- ----------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Capital expenditures (73.3) (78.7) (66.5)
Capitalized software (10.8) (25.0) (20.2)
Proceeds from sales of businesses 34.8 36.4 -
Business acquisitions (58.4) (5.3) (3.3)
Investment in affiliated company (23.1) - -
Other 5.4 10.8 4.7
Net cash used by investing activities (125.4) (61.8) (85.3)
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Payments on long-term debt (7.4) (26.0) (83.5)
Proceeds from long-term borrowings 2.8 2.0 86.0
Net short-term financing 75.3 (72.3) (5.1)
Proceeds from issuance of common stock 40.5 36.5 5.7
Purchase of common stock for treasury (83.0) (65.7) (13.2)
Cash dividends on common stock (68.6) (67.6) (75.2)
Net cash used by financing activities (40.4) (193.1) (85.3)
- ----------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (7.2) 3.6 (1.4)
- ----------------------------------------------------------------------------------------------------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 68.2 8.6 6.1
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 84.0 75.4 69.3
- ----------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 152.2 $ 84.0 $ 75.4
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
32
<PAGE>
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Fiscal years ended January 3, 1998, December 28, 1996 and December 30, 1995
Foreign
Capital Currency
(Millions of Dollars, Common In Excess Retained Translation Treasury Shareholders'
except per share amounts) Stock of Par Value Earnings Adjustment ESOP Debt Stock Equity
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1994 $ 115.4 $ 70.1 $ 937.8 $ (56.3) $ (253.7) $ (69.1) $ 744.2
Net earnings 59.1 59.1
Currency translation adjustment (14.3) (14.3)
Cash dividends declared--$.71 per share (62.6) (62.6)
Issuance of common stock (1.7) 13.9 12.2
Purchase of common stock (16.7) (16.7)
ESOP debt 9.4 9.4
ESOP tax benefit 3.3 3.3
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 30, 1995 115.4 68.4 937.6 (70.6) (244.3) (71.9) 734.6
Two-for-one stock split 115.5 (66.9) (48.6) -
Net earnings 96.9 96.9
Currency translation adjustment 25.1 25.1
Cash dividends declared--$.73 per share (65.2) (65.2)
Issuance of common stock (6.2) (5.1) 53.4 42.1
Purchase of common stock (71.0) (71.0)
Tax benefit related to stock options 4.7 .3 5.0
ESOP debt 9.5 9.5
ESOP tax benefit 3.1 3.1
- -------------------------------------------------------------------------------------------------------------------------------
Balance December 28, 1996 230.9 - 919.0 (45.5) (234.8) (89.5) 780.1
Net loss (41.9) (41.9)
Currency translation adjustment (39.8) (39.8)
Cash dividends declared--$.77 per share (68.6) (68.6)
Issuance of common stock (13.4) 61.1 47.7
Purchase of common stock (92.2) (92.2)
Tax benefit related to stock options 8.7 8.7
ESOP debt 11.0 11.0
ESOP tax benefit 2.8 2.8
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE JANUARY 3, 1998 $ 230.9 $ - $ 806.6 $ (85.3) $ (223.8) $ (120.6) $ 607.8
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
33
<PAGE>
STANLEY 1997 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the company
and its majority-owned subsidiaries which require consolidation, after the
elimination of intercompany accounts and transactions. The company's fiscal
year ends on the Saturday nearest to December 31. There were 53 weeks in fiscal
year 1997 and 52 weeks in fiscal years 1996 and 1995.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses, as well as certain financial statement disclosures. While
management believes that the estimates and assumptions used in the preparation
of the financial statements are appropriate, actual results could differ from
these estimates.
FOREIGN CURRENCY TRANSLATION
For most foreign operations, asset and liability accounts are translated
at current exchange rates; income and expenses are translated using weighted
average exchange rates. Resulting translation adjustments, as well as gains and
losses from certain intercompany transactions, are reported in a separate
component of shareholders' equity. Translation adjustments for operations in
highly inflationary economies and exchange gains and losses on transactions are
included in earnings.
CASH EQUIVALENTS
Highly liquid investments with original maturities of three months or less
are considered cash equivalents.
INVENTORIES
U.S. inventories are valued at the lower of last-in, first-out (LIFO) cost
or market. Other inventories are valued generally at the lower of first-in,
first-out (FIFO) cost or market.
LONG-LIVED ASSETS
Property, plant and equipment are stated on the basis of historical cost
less accumulated depreciation. Depreciation is provided using a combination of
accelerated and straight-line methods over the estimated useful lives of the
assets.
Goodwill is amortized on a straight-line basis over periods not exceeding
forty years. The company periodically evaluates the existence of goodwill
impairment on the basis of whether amounts recorded are recoverable from
projected undiscounted cash flows of related businesses. Impairment losses are
valued by comparing the carrying value of the goodwill to its fair value,
generally determined by the discounted cash flow method.
Impairment losses are recorded on long-lived assets used in operations
when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets' carrying
amount. Impairment losses were charged to operations in 1997, 1996 and 1995
and were included in Restructuring and asset write-offs on the statement of
operations.
FINANCIAL INSTRUMENTS
To manage interest rate exposure, the company enters into interest rate
swap agreements. The net interest paid or received on the swaps is recognized
as interest expense. Gains resulting from the early termination of interest
rate swap agreements are deferred and amortized as adjustments to interest
expense over the remaining period originally covered by the terminated swap.
The company manages exposure to fluctuations in foreign exchange rates by
creating offsetting positions through the use of forward exchange contracts or
currency options. The company enters into forward exchange contracts to hedge
intercompany loans and enters into purchased foreign currency options to hedge
anticipated transactions. Gains and losses on forward exchange contracts are
deferred and recognized as part of the underlying transactions. Changes in the
fair value of options, representing a basket of foreign currencies purchased to
hedge anticipated cross-currency cash flows, are included in Other-net expense.
The company does not use financial instruments for trading or speculative
purposes.
INCOME TAXES
Income tax expense is based on reported earnings (loss) before income
taxes. Deferred income taxes reflect the impact of temporary differences
between assets and liabilities recognized for financial reporting purposes and
such amounts recognized for tax purposes, and are measured by applying enacted
tax rates in effect in years in which the differences are expected to reverse.
EARNINGS PER SHARE
In 1997, the company adopted Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings per Share". This statement specifies the computation,
presentation and disclosure requirements for earnings per share. Under SFAS No.
128, basic earnings per share equals net earnings divided by weighted average
shares outstanding during the year. Diluted earnings per share includes the
impact of common stock equivalents using the treasury stock method when the
effect is dilutive. All per share data has been retroactively restated in
accordance with SFAS No. 128.
34
<PAGE>
STOCK-BASED COMPENSATION
The company accounts for its employee stock compensation plans under
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees." Accordingly, no compensation cost is recognized for stock-based
compensation unless the quoted market price of the stock at the grant date is
in excess of the amount the employee must pay to acquire the stock. Pro forma
disclosures of net earnings and earnings per share, as if the fair value based
method of accounting had been applied, are presented in Note J.
RECLASSIFICATIONS
Certain prior years amounts have been reclassified to conform with the
current year presentation.
B. ACQUISITIONS
In November 1997, the company acquired the assets of Atro Industriale, a
manufacturer and distributor of pneumatic fastening tools, collated nails, and
staples for $50.8 million. The acquisition was accounted for under the purchase
method of accounting, and accordingly, the 1997 consolidated statement of
operations includes the operating results from the acquisition date. The fair
value of assets acquired and liabilities assumed was $77.7 million and $26.9
million, respectively. The acquisition did not have a material pro forma impact
on operations.
C. ACCOUNTS AND NOTES RECEIVABLE
Trade receivables are dispersed among a large number of retailers,
distributors and industrial accounts in many countries. Adequate provisions
have been established to cover anticipated credit losses. At January 3, 1998
and December 28, 1996, allowances for doubtful receivables of $19.8 million and
$22.5 million, respectively, were applied as a reduction of current accounts
and notes receivable. The company believes it has no significant concentrations
of credit risk as of January 3, 1998.
The company sells certain domestic accounts receivable under a revolving
sales agreement. The proceeds from these sales were $61.9 million in 1997,
$73.1 million in 1996 and $71.7 million in 1995.
D. INVENTORIES
<TABLE>
<CAPTION>
(Millions of Dollars) 1997 1996
- ---------------------------------------------------
<S> <C> <C>
Finished products $ 203.7 $ 223.2
Work in process 51.9 61.7
Raw materials 43.8 50.9
Supplies 1.8 2.3
- ---------------------------------------------------
$ 301.2 $ 338.1
- ---------------------------------------------------
</TABLE>
Inventories in the amount of $160.8 million at January 3, 1998 and $185.2
million at December 28, 1996 were valued at the lower of LIFO cost or market.
If LIFO inventories had been valued at FIFO costs, they would have been $120.3
million higher than reported at both January 3, 1998 and December 28, 1996.
E. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
(Millions of Dollars) 1997 1996
- ---------------------------------------------------
<S> <C> <C>
Land $ 34.7 $ 39.2
Buildings 239.7 245.1
Machinery and equipment 833.4 872.4
Computer software 58.3 67.7
- ---------------------------------------------------
1,166.1 1,224.4
Less: accumulated depreciation
and amortization 652.9 654.0
- ---------------------------------------------------
$513.2 $570.4
- ---------------------------------------------------
</TABLE>
The provisions for depreciation and amortization for 1997, 1996 and 1995
were $65.2 million, $65.9 million and $68.3 million, respectively.
<PAGE>
F. GOODWILL AND OTHER INTANGIBLES
Goodwill and other intangibles at the end of each fiscal year, net of
accumulated amortization of $72.2 million and $69.9 million, were as follows:
<TABLE>
<CAPTION>
(Millions of Dollars) 1997 1996
- ---------------------------------------------------
<S> <C> <C>
Goodwill $ 79.0 $ 78.0
Other 25.1 20.9
- ---------------------------------------------------
$104.1 $ 98.9
- ---------------------------------------------------
</TABLE>
G. ACCRUED EXPENSES
<TABLE>
<CAPTION>
(Millions of Dollars) 1997 1996
- ---------------------------------------------------
<S> <C> <C>
Payroll and related taxes $ 66.3 $ 68.2
Insurance 25.9 28.7
Restructuring 99.7 26.9
Income taxes 34.1 21.4
Other 110.4 85.6
- ---------------------------------------------------
$336.4 $230.8
- ---------------------------------------------------
</TABLE>
35
<PAGE>
H. LONG-TERM DEBT
AND FINANCING ARRANGEMENTS
<TABLE>
<CAPTION>
(Millions of Dollars) 1997 1996
- ------------------------------------------------------------
<S> <C> <C> <C>
Notes payable in 2002 7.4% $ 100.0 $ 100.0
Commercial Paper 5.7% 89.3 89.3
Notes payable in 1998 9.0% 34.8 34.8
Notes payable due
semiannually to 2005 6.2% 34.3 38.2
Industrial Revenue Bonds due
in varying amounts to 2010 5.8-6.8% 19.6 21.9
ESOP loan guarantees,
payable in varying
monthly installments
through 2001 7.7% 46.5 57.5
Other 9.2 16.0
- ------------------------------------------------------------
333.7 357.7
Less: current maturities 50.0 15.1
- ------------------------------------------------------------
$ 283.7 $ 342.6
- ------------------------------------------------------------
</TABLE>
Commercial paper outstanding at January 3, 1998 of $89.3 million is
classified as non-current pursuant to the company's intention and ability to
continue to finance this obligation on a long-term basis.
The company has on file with the Securities and Exchange Commission a
shelf registration statement covering the issuance of up to $200.0 million of
debt securities; as of January 3, 1998, $100.0 million remained unused. The
company has unused short and long-term credit arrangements with several banks
to borrow up to $300.0 million at the lower of prime or money market rates. Of
this amount, $150.0 million is long-term. Commitment fees range from .05% to
.07%. In addition, the company has short-term lines of credit with numerous
foreign banks aggregating $80.9 million of which $80.7 million was available at
January 3, 1998. Short-term arrangements are reviewed annually for renewal. Of
the long-term and short-term lines, $300.0 million is available to support the
company's commercial paper program. The weighted average interest rates on
short-term borrowings at January 3, 1998 and December 28, 1996 were 6.4% and
15.6%, respectively.
The company has guaranteed the long-term notes payable to banks of its
employee stock ownership plan (ESOP). The guarantee is reflected in the
consolidated balance sheets as long-term debt with a corresponding reduction in
shareholders' equity.
To manage interest costs and foreign exchange risk, the company maintains
a portfolio of interest rate swap agreements. The portfolio includes currency
swaps maturing in 1999 that convert $89.3 million of commercial paper debt into
Swiss Franc debt (5.3% weighted average rate). The company also has a currency
swap that converts $34.3 million of variable rate United States dollar debt to
variable rate Dutch Guilder debt (4.0% weighted average rate). See Note I for
more information regarding the company's interest rate and currency swap
agreements.
Aggregate annual maturities of long-term debt for the years 1999 to 2002
are $17.1 million, $18.0 million, $104.7 million and $119.3 million,
respectively. Interest paid during 1997, 1996 and 1995 amounted to $22.7
million, $26.0 million and $33.9 million, respectively.
Commercial paper, utilized to support working capital requirements,
classified as current was $26.9 million and $1.1 million, as of January 3, 1998
and December 28, 1996, respectively.
I. FINANCIAL INSTRUMENTS
The company's objectives in using debt related financial instruments are
to obtain the lowest cost source of funds within an acceptable range of
variable to fixed rate debt proportions, and to minimize the foreign exchange
risk of obligations. To meet these objectives the company enters into interest
rate swap and currency swap agreements. A summary of instruments and weighted
average interest rates follows. The weighted average variable pay and receive
rates are based on rates in effect at the balance sheet dates. Variable rates
are generally based on LIBOR or commercial paper rates with no leverage
features.
<PAGE>
<TABLE>
<CAPTION>
(Millions of Dollars) 1997 1996
- ---------------------------------------------------
<S> <C> <C>
Interest rate swaps
Receive fixed-pay variable rates $ 50.0 $ 50.0
pay rate 5.7% 5.5%
receive rate 6.2% 6.2%
maturity dates 2002 2002
Receive variable-pay fixed rates $ 88.0 $ 23.1
pay rate 4.4% 4.4%
receive rate 5.8% 5.5%
maturity dates 1999 1999
Currency swaps $ 105.5 $149.7
pay rate 4.2% 4.5%
receive rate 5.9% 5.8%
maturity dates 1999-2005 1999-2005
- ---------------------------------------------------
</TABLE>
The company uses purchased currency options to reduce exchange risks
arising from cross-border cash flows expected to occur over the next one year
period. In addition, the company enters into forward exchange contracts to
hedge intercompany loans. The objective of these practices is to minimize the
impact of foreign currency fluctuations on operating results. At January 3,
1998 and December 28, 1996, the company had forward contracts hedging
intercompany loans totaling $15.6 million and $14.5 million, respectively. At
January 3, 1998 and December 28, 1996, currency basket options hedged
anticipated transactions totaling $166.0 million and $131.4 million,
respectively. The forward contracts and options are primarily denominated in
Canadian dollars, Australian dollars, Taiwanese dollars, and major European
currencies and generally mature within the next one year period.
The counterparties to these interest rate and currency financial
instruments are major international financial institutions. The company is
exposed to credit risk for net exchanges under these agreements, but not for
the notional amounts. The company considers the risk of default to be remote.
36
<PAGE>
A summary of the carrying values and fair values of the company's
financial instruments at January 3, 1998 and December 28, 1996 is as follows:
<TABLE>
<CAPTION>
(Millions of Dollars) 1997 1996
- ------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
- ------------------------------------------------------
<S> <C> <C> <C> <C>
Long-term debt,
including
current portion $334.3 $336.6 $350.4 $355.4
Currency and
interest rate swaps (.6) (.8) 7.3 8.3
- ------------------------------------------------------
$333.7 $335.8 $357.7 $363.7
- ------------------------------------------------------
</TABLE>
Generally, the carrying value of the debt related financial instruments is
included in the balance sheet in long-term debt. The fair values of long-term
debt are estimated using discounted cash flow analysis, based on the company's
marginal borrowing rates. The fair values of foreign currency and interest rate
swap agreements are based on current settlement values. The carrying amount of
cash equivalents and short-term borrowings approximates fair value.
J. CAPITAL STOCK
STOCK SPLIT
On April 17, 1996, the shareholders approved an increase in the number of
authorized common shares from 110,000,000 to 200,000,000. On that date, the
Board of Directors declared a two-for-one common stock split to be effected by
the distribution of one additional share for each share outstanding. Such
distribution was made on June 3, 1996 to shareholders of record as of May 13,
1996. Accordingly, the stock split was recognized by reclassifying $115.5
million, the par value of the additional shares resulting from the split, from
capital in excess of par value and retained earnings to common stock. All
shares outstanding and per share amounts were restated to reflect the stock
split.
EARNINGS PER SHARE COMPUTATION
The company adopted SFAS No. 128 in 1997 (see note A). The following table
reconciles the weighted average shares outstanding used to calculate basic and
diluted earnings per share.
<TABLE>
<CAPTION>
(Millions of dollars, except share
and per share amounts) 1997 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings (loss)-
basic and diluted $ (41.9) $ 96.9 $ 59.1
- -----------------------------------------------------------------------
Basic earnings per share-
weighted average shares 89,469,849 89,151,668 89,043,185
Dilutive effect of
employee stock options - 652,349 795,454
- -----------------------------------------------------------------------
Diluted earnings per share-
weighted average shares 89,469,849 89,804,017 89,838,639
- -----------------------------------------------------------------------
Earnings (loss) per share:
Basic $ (.47) $ 1.09 $ .66
Diluted $ (.47) $ 1.08 $ .66
</TABLE>
The effect of employee stock options for 1997 was 1,002,456 shares. These
shares are not included in the calculations since they are antidilutive.
COMMON STOCK SHARE ACTIVITY
The activity in common shares for each year, net of treasury stock, was as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding,
beginning of year 88,719,792 88,758,830 88,898,750
Issued for employee
stock plans 2,239,606 2,465,416 698,592
Purchased (2,171,317) (2,504,454) (838,512)
- -------------------------------------------------------------------
Outstanding, end of year 88,788,081 88,719,792 88,758,830
- -------------------------------------------------------------------
</TABLE>
<PAGE>
COMMON STOCK RESERVED
At January 3, 1998 and December 28, 1996, the number of shares of common
stock reserved for future issuance under various employee and director stock
plans was as follows:
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------
<S> <C> <C>
Employee Stock Purchase Plan 4,666,251 5,400,288
Stock Option Plans 7,673,877 9,039,112
Long-Term Stock Incentive Plan 2,833,335 2,895,066
- ----------------------------------------------------------
15,173,463 17,334,466
- ----------------------------------------------------------
</TABLE>
PREFERRED STOCK PURCHASE RIGHTS
Each outstanding share of common stock has one half of a share purchase
right. Each purchase right may be exercised to purchase one two-hundredth of a
share of Series A Junior Participating Preferred Stock at an exercise price of
$220.00, subject to adjustment. The rights, which do not have voting rights,
expire on March 10, 2006, and may be redeemed by the company at a price of $.01
per right at any time prior to the 10th day following the public announcement
that a person has acquired beneficial ownership of 10% or more of the
outstanding shares of common stock.
In the event that the company is acquired in a merger or other business
combination transaction, provision shall be made so that each holder of a right
(other than a holder who is a 10%-or-more shareholder) shall have the right to
receive, upon exercise thereof, that number of shares of common stock of the
surviving company having a market value equal to two times the exercise price
of the right. Similarly, if anyone becomes the beneficial owner of more than
10% of the then outstanding shares of common stock (except pursuant to an offer
for all outstanding shares of common stock which the independent directors have
deemed to be fair and in the best interest of the company), provision will be
made so that each holder of a right (other than a holder who is a 10%-or-more
shareholder) shall thereafter have the right to receive, upon exercise thereof,
common stock (or, in certain circumstances, cash, property or other securities
of the company) having a market value equal to two times the exercise price of
the right. At January 3, 1998, there were 44,394,041 outstanding rights. There
are 250,000 shares of Series A Junior Participating Preferred Stock reserved
for issuance in connection with the rights.
37
<PAGE>
STOCK OPTIONS AND AWARDS
The company has a stock option plan for officers and key employees that
provides for nonqualified and incentive stock option grants. The company also
has a stock option plan that provides for option grants to outside directors of
the company. Options are granted at the market price of the company's stock on
the date of grant and have a maximum term of 10 years.
In December 1996, the company recruited a new Chairman and Chief Executive
Officer pursuant to a three year employment agreement. In addition to a base
salary, bonus and other annual benefits, 200,000 common stock equivalent share
units, and an option grant to purchase 1,000,000 shares at $27.562 (the market
value on the date of issuance) were awarded under the employment agreement.
Each share unit had a market value of $27.75 on the date of the grant and
represents the right to receive one share of common stock. The share units will
be distributed in three equal annual installments beginning in 2000. In fiscal
year 1996, the fair market value of the share units at their grant date was
charged to operations and included in Other-net expense in the Statement of
Operations. The option, which was approved by shareholders on April 23, 1997 at
the Annual Meeting, has a ten year term and is exercisable after June 1997.
Fiscal year 1997 includes a charge to operations representing the difference
between the exercise price and the fair market value as of the shareholder
approval date (effective grant date).
Information regarding the company's stock option plans is summarized
below:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
beginning
of year 3,784,738 $21.68 4,821,194 $18.34 4,261,602 $16.84
Granted 1,966,000 35.34 973,450 27.95 1,098,600 23.00
Exercised (1,365,235) 20.13 (1,973,230) 16.61 (469,814) 15.88
Forfeited (141,490) 22.21 (36,676) 21.29 (69,194) 16.33
- ----------------------------------------------------------------------------
Outstanding,
end of year 4,244,013 $28.49 3,784,738 $21.68 4,821,194 $18.34
- ----------------------------------------------------------------------------
Options
exercisable,
end of year 3,285,513 $24.13 2,811,288 $19.51 3,722,594 $16.96
- ----------------------------------------------------------------------------
</TABLE>
Options outstanding as of January 3, 1998 had exercised prices as follows:
899,153 options ranging from $15.06 to $20.19, 2,378,860 options ranging from
$23.00 to $28.88 and 966,000 options ranging from $38.25 to $44.41. The
weighted average remaining contractual life of these options is 8.6 years.
EMPLOYEE STOCK PURCHASE PLAN
The Employee Stock Purchase Plan enables substantially all employees in
the United States and Canada to subscribe at any time to purchase shares of
common stock on a monthly basis at the lower of 85% of the fair market value of
the shares on the first day of the plan year ($37.19 per share for fiscal year
1998 purchases) or 85% of the fair market value of the shares on the last
business day of each month. A maximum of 6,000,000 shares are authorized for
subscription. During 1997, 1996 and 1995 shares totaling 734,037, 442,960 and
156,752, respectively, were issued under the plan at average prices of $23.69,
$19.61 and $17.29 per share, respectively.
LONG-TERM STOCK INCENTIVE PLAN
The Long-Term Stock Incentive Plan provides for the granting of awards to
senior management employees for achieving company performance measures over
five year cycles. The Plan is administered by the Compensation and Organization
Committee of the Board of Directors consisting of non-employee directors.
Awards are payable in shares of common stock as directed by the Committee. The
amounts of $3.5 million, $2.5 million and $.4 million were charged to expense
in 1997, 1996 and 1995, respectively. Shares totaling 61,731, 14,252 and 47,734
were issued in 1997, 1996 and 1995, respectively. The Compensation and
Organization Committee determined in 1994 not to make any further awards under
this plan. Accordingly, there will be no further payments under this plan
subsequent to the 1993-1997 and 1994-1998 award cycles.
STOCK COMPENSATION PLANS
The company accounts for stock option grants under its two stock-based
compensation plans and stock purchases under the Employee Stock Purchase Plan
in accordance with APB No. 25. Accordingly, no compensation cost has been
recognized for the majority of stock option grants since the options have
exercise prices equal to the market value of the company's common stock at the
date of grant. If compensation cost for the company's stock-based compensation
plans had been determined based on the fair value at the grant dates consistent
with the method prescribed by SFAS No. 123, "Accounting for Stock-Based
Compensation", the company's net earnings (loss) and earnings (loss) per share
would have been adjusted to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------
<S> <C> <C> <C>
Pro forma net earnings (loss)
(in millions) $ (56.1) $ 90.4 $ 55.9
Pro forma earnings (loss) per share:
Basic $ (.63) $ 1.01 $ .63
Diluted $ (.63) $ 1.01 $ .62
- --------------------------------------------------------------------
</TABLE>
38
<PAGE>
During the initial phase-in period, as required by SFAS No. 123, the pro
forma amounts were determined based on the stock option grants and employee
stock purchases subsequent to January 1, 1995. Therefore, the pro forma amounts
may not be indicative of the effects of compensation cost on net earnings
(loss) and earnings (loss) per share in future years. Pro forma compensation
cost relating to the stock options is recognized over the six month vesting
period, while Employee Stock Purchase Plan compensation cost is recognized on
the first day of the plan year. The fair value of each stock option grant was
estimated on the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions used for grants in 1997, 1996
and 1995, respectively: dividend yield of 1.8%, 2.6% and 3.1%; expected
volatility of 25% for all years; risk-free interest rates of 6.0%, 6.1% and
6.2%; and expected lives of 7 years. The weighted average fair value of stock
options granted in 1997, 1996 and 1995 was $15.39, $8.02 and $6.18,
respectively. The fair value of the employees' purchase rights under the
Employee Stock Purchase Plan was estimated using the following assumptions for
1997, 1996 and 1995, respectively: dividend yield of 1.8%, 2.6% and 3.1%;
expected volatility of 25% for all years; risk-free interest rates of 6.0%,
5.6% and 5.8%; and expected lives of 1.2 years. The weighted average fair value
of those purchase rights granted in 1997, 1996 and 1995 was $8.53, $6.44 and
$5.65, respectively.
K. EMPLOYEE BENEFIT PLANS
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
The Savings Plan provides opportunities for tax-deferred savings, enabling
eligible U.S. employees to acquire a proprietary interest in the company. Such
employees may contribute from 1% to 15% of their salary to the Plan. The
company contributes an amount equal to one-half of the first 7% of employee
contributions. The amounts in 1997, 1996 and 1995 under this matching
arrangement were $8.2 million, $8.4 million and $8.3 million, respectively.
Shares of the company's common stock held by the ESOP were purchased with
the proceeds of external borrowings in 1989 and borrowings from the company in
1991. The external ESOP borrowings are guaranteed by the company and are
included in long-term debt. Shareholders' equity reflects both the internal and
the external borrowing arrangements.
Shares are released to participant accounts based on principal and
interest payments of the underlying debt. These shares along with allocated
dividends and shares purchased on the open market are assigned to fund share
requirements of the employee contributions, the associated employer match and
the dividends earned on participant account balances.
Net ESOP activity recognized is based on total debt service and share
purchase requirements less employee contributions and dividends on ESOP shares.
The company's net ESOP activity resulted in income of $15.2 million in 1997,
$8.6 million in 1996 and $2.6 million in 1995.
Dividends on ESOP shares, which are charged to shareholders' equity as
declared, were $15.2 million, $15.1 million and $14.8 million in 1997, 1996 and
1995, respectively. Interest costs incurred by the ESOP on external debt for
1997, 1996 and 1995 were $4.0 million, $4.8 million and $5.5 million,
respectively. ESOP shares not yet allocated to participants are treated as
outstanding for purposes of computing earnings per share. As of January 3,
1998, the number of ESOP shares allocated to participant accounts was 8,954,931
and the number of unallocated shares was 10,007,568.
PENSION PLANS
The company sponsors non-contributory defined benefit pension plans
covering substantially all employees. Benefits for salaried and non-union
hourly employees are generally based on salary and years of service, while
those for collective bargaining employees are based on a stated amount for each
year of service. Additionally, the company contributes to several
union-sponsored multi-employer plans which provide defined benefits.
The company's funding policy is to contribute amounts determined annually
on an actuarial basis to provide for current and future benefits in accordance
with federal law and other regulations. Plan assets are invested in equity
securities, bonds, real estate and money market instruments. If the plans are
terminated or merged with another plan within three years following a change in
control of the company, any excess plan assets are to be applied to increase
the benefits of all participants.
Total pension expense includes the following components:
<TABLE>
<CAPTION>
(Millions of Dollars) 1997 1996 1995
- -------------------------------------------------------------
<S> <C> <C> <C>
Defined benefit plans:
Service cost $ 22.5 $ 20.8 $ 16.7
Interest cost 31.2 31.1 29.8
Actual return on plan assets (84.0) (51.2) (39.5)
Net amortization and deferral 48.5 17.8 6.5
Curtailment loss 5.7 - -
- -------------------------------------------------------------
Net pension expense 23.9 18.5 13.5
Multi-employer plans .8 .8 .8
- -------------------------------------------------------------
Total pension expense $ 24.7 $ 19.3 $ 14.3
- -------------------------------------------------------------
</TABLE>
<PAGE>
In 1997 the company recognized a $5.7 million pension curtailment loss as
part of restructuring charges. This curtailment arose from plant
rationalization initiatives as well as the sale of the company's garage related
products business.
39
<PAGE>
The funded status of the company's defined benefit plans at the end of
each fiscal year was as follows:
<TABLE>
<CAPTION>
(Millions of Dollars) 1997 1996
- ------------------------------------------------------------------------
Plans Plans Plans Plans
Where Where Where Where
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value
of benefit obligations:
Vested $ 326.5 $ 12.9 $ 351.4 $ 13.3
Non-vested 40.1 6.7 6.0 2.7
- ------------------------------------------------------------------------
Accumulated
benefit obligation 366.6 19.6 357.4 16.0
Additional amounts
related to projected
pay increases 72.5 6.1 69.6 6.8
- ------------------------------------------------------------------------
Total projected benefit
obligation (PBO) 439.1 25.7 427.0 22.8
Plan assets at fair value 518.5 7.1 463.1 7.1
- ------------------------------------------------------------------------
Assets in excess of
(less than) PBO 79.4 (18.6) 36.1 (15.7)
Unrecognized net
(gain) or loss at
transition (4.7) .1 (6.5) .1
Unrecognized net
(gain) or loss (61.9) 2.6 (16.4) 4.2
Unrecognized prior
service cost 8.2 5.8 11.3 2.7
Adjustment required to
recognize minimum
liability - (4.2) - (2.5)
- ------------------------------------------------------------------------
Prepaid (accrued)
pension expense $ 21.0 $ (14.3) $ 24.5 $(11.2)
- ------------------------------------------------------------------------
</TABLE>
Assumptions used for significant defined benefit plans were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.0% 7.0% 7.0%
Average wage increase 4.5% 4.5% 4.5%
Long-term rate of return
on assets 9.0% 9.0% 9.0%
- -------------------------------------------------------
</TABLE>
POSTRETIREMENT BENEFITS
The company provides medical and dental benefits for certain retired
employees in the United States. In addition, domestic employees who retire from
active service are eligible for life insurance benefits.
The status of the company's plans at the end of each fiscal year was as
follows:
<TABLE>
<CAPTION>
(Millions of Dollars) 1997 1996
- --------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $11.5 $13.3
Fully eligible active plan participants 1.9 1.8
Other active plan participants 4.1 3.1
- --------------------------------------------------------------
17.5 18.2
Unrecognized net loss (1.9) (2.0)
- --------------------------------------------------------------
Accrued postretirement benefit expense $15.6 $16.2
- --------------------------------------------------------------
</TABLE>
Net periodic postretirement benefit expense was $1.9 million in 1997, $2.0
million in 1996 and $2.9 million in 1995.
The weighted average annual assumed rate of increase in the per-capita
cost of covered benefits (i.e. health care cost trend rate) is assumed to be 9%
for 1998 reducing gradually to 6% by 2010 and remaining at that level
thereafter. A one percentage point increase in the assumed health care cost
trend rate would have increased the accumulated benefit obligation by $.9
million at January 3, 1998 and net periodic postretirement benefit expense for
fiscal year 1997 by $.1 million. A weighted average discount rate of 7% was
used in measuring the accumulated benefit obligations in both 1997 and 1996.
L. OTHER COSTS AND EXPENSES
Interest-net for 1997, 1996 and 1995 included interest income of $8.1
million, $5.5 million and $5.3 million, respectively.
Other-net in 1997 includes a non-cash charge of $10.6 million ($.07 per
share), representing the difference between the exercise price and the fair
market value of a 1,000,000 share option grant under terms of the company's
employment contract with its chief executive officer. This contract resulted in
a 1996 charge of $7.6 million ($.08 per share) for the issuance of 200,000
common stock equivalent share units and other immediately vested benefits.
Advertising costs are expensed as incurred and amounted to $48.2 million
in 1997, $52.5 million in 1996 and $54.3 million in 1995.
40
<PAGE>
M. RESTRUCTURING AND ASSET WRITE-OFFS
In 1997, the company announced a restructuring initiative to streamline
its manufacturing, sales, distribution and administration operations, reducing
its overall cost structure. The company will reduce manufacturing and
distribution facilities locations from 123 to 70. Many of the closures will be
effected by consolidating operations into other company facilities, others by
outsourcing work to vendors. In addition, the company reorganized its
operations into a product management structure, in which 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. The implementation of
these restructuring initiatives will also result in additional transition
costs, which are expected to be incurred through mid-1999. In 1997,
restructuring and asset write-off charges of $238.5 million included the
write-down of assets ($73.6 million), severance for the termination of
approximately 8,900 employees ($139.3 million), other exit costs ($32.2
million) and gains on the divestiture of two businesses ($6.6 million).
Pursuant to this restructuring plan, the company terminated 892 employees in
1997. Severance and other exit payments of $14.2 million were made during the
year. At January 3, 1998, reserve balances related to the 1997 restructuring
activities were $201.0 million, of which $40.9 million relate to the write-down
of impaired assets.
In 1996, the company recorded restructuring and asset write-off charges of
$47.8 million for the write-down of assets, severance for approximately 695
employees and other costs associated with a previous restructuring initiative
announced in fiscal 1995. Such costs and asset write-offs were primarily
related to transfers of production among existing manufacturing facilities,
plant closures and resulting workforce reductions ($35.4 million), and
impairment of assets related to restructuring initiatives and strategy changes
($9.4 million). The company also divested five businesses during 1996 and
recognized an associated net loss of $3.0 million which was included in 1996
restructuring charges.
In 1995, restructuring and asset write-off charges of $85.5 million
included the write-off of assets, severance for approximately 900 employees and
other costs. Such costs and asset write-offs were primarily related to exiting
three product categories, closing six manufacturing plants, three distribution
centers and two support facilities ($53.4 million), and impairment of assets
related to restructuring initiatives and strategy changes ($20.7 million).
Restructuring charges also included $5.3 million for severance related to a
workforce reduction and $6.1 million for a comprehensive SKU reduction program.
The 1996 and 1995 restructuring initiatives are nearing completion. During
1997 and 1996, payments of $13.7 million and $17.9 million, respectively, were
made for severance and other exit costs. At January 3, 1998, the reserve
balance for these initiatives was $7.2 million, and is expected to be utilized
by the end of 1998.
41
<PAGE>
N. OPERATIONS BY INDUSTRY SEGMENT
AND GEOGRAPHIC AREA
Industry Segment and Geographic Area information included on page 19 of
this report is an integral part of the financial statements.
O. INCOME TAXES
Significant components of the company's deferred tax liabilities and
assets as of the end of each fiscal year were as follows:
<TABLE>
<CAPTION>
(Millions of Dollars) 1997 1996 1995
- ------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax liabilities:
Depreciation $ 74.3 $ 78.6 $ 75.4
Other 2.0 10.1 12.9
Total deferred tax liabilities 76.3 88.7 88.3
- ------------------------------------------------------------
Deferred tax assets:
Employee benefit plans 36.5 23.8 19.8
Doubtful accounts 9.7 6.7 5.1
Inventories 5.0 5.4 5.6
Amortization of intangibles 22.8 24.4 15.1
Accruals 18.3 18.6 18.0
Restructuring charges 71.1 15.1 19.2
Other - 6.1 1.7
Total deferred tax assets 163.4 100.1 84.5
- ------------------------------------------------------------
Net deferred tax
assets (liabilities) $ 87.1 $ 11.4 $ (3.8)
- ------------------------------------------------------------
</TABLE>
Income tax expense consisted of the following:
<TABLE>
<CAPTION>
(Millions of Dollars) 1997 1996 1995
- ------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $48.5 $ 49.4 $ 26.0
Foreign 28.7 19.5 21.1
State 8.8 12.6 7.5
Total current 86.0 81.5 54.6
- ------------------------------------------------------
Deferred (benefit):
Federal (36.9) 2.0 1.2
Foreign (21.6) (3.7) .3
State (4.2) (2.5) (2.4)
Total deferred (benefit) (62.7) (4.2) (0.9)
- ------------------------------------------------------
Total $ 23.3 $ 77.3 $ 53.7
- ------------------------------------------------------
</TABLE>
Income taxes paid during 1997, 1996 and 1995 were $69.1 million, $64.4
million and $74.1 million, respectively.
The reconciliation of the federal income tax at the statutory federal rate
to the income tax at the effective rate was as follows:
<TABLE>
<CAPTION>
(Millions of Dollars) 1997 1996 1995
- ---------------------------------------------------
<S> <C> <C> <C>
Tax at statutory rate $ (6.5) $ 61.0 $ 39.5
State income taxes,
net of federal benefits 3.8 6.9 5.5
Difference between foreign
and federal income tax 1.9 .7 1.4
Restructuring reserves 24.3 7.1 8.0
Other-net (.2) 1.6 (.7)
- ---------------------------------------------------
Income taxes $ 23.3 $ 77.3 $ 53.7
- ---------------------------------------------------
</TABLE>
The components of earnings (loss) before income taxes consisted of the
following:
<TABLE>
<CAPTION>
(Millions of Dollars) 1997 1996 1995
- --------------------------------------------------------
<S> <C> <C> <C>
United States $ 11.1 $ 156.6 $ 78.5
Foreign (29.7) 17.6 34.3
- --------------------------------------------------------
Total pretax earnings (loss) $(18.6) $ 174.2 $ 112.8
- --------------------------------------------------------
</TABLE>
Undistributed foreign earnings of $169.5 million at January 3, 1998 are
considered to be invested indefinitely or will be remitted substantially free
of additional tax. Accordingly, no provision has been made for taxes that might
be payable upon remittance of such earnings, nor is it practicable to determine
the amount of this liability.
P. LEASES
The company leases certain facilities, vehicles, machinery and equipment
under long-term operating leases with varying terms and expiration dates.
Future minimum lease payments under noncancelable operating leases, in
millions of dollars, as of January 3, 1998 were $22.4 in 1998, $18.3 in 1999,
$15.2 in 2000, $11.1 in 2001, $7.3 in 2002 and $29.5 thereafter. Minimum
payments have not been reduced by minimum sublease rentals of $15.7 million due
in the future under noncancelable subleases. Rental expense for operating
leases amounted to $34.9 million in 1997, $36.6 million in 1996 and $40.3
million in 1995.
42
<PAGE>
Q. CONTINGENCIES
In the normal course of business, the company is involved in various
lawsuits and claims. In addition, the company is a party to a number of
proceedings before federal and state regulatory agencies relating to
environmental remediation. Also, the company, along with many other companies,
has been named as a potentially responsible party (PRP) in a number of
administrative proceedings for the remediation of various waste sites,
including nine Superfund sites. Current laws potentially impose joint and
several liability upon each PRP. In assessing its potential liability at these
sites, the company has considered the following: the solvency of the other
PRPs, whether responsibility is being disputed, the terms of existing
agreements, experience at similar sites, and the fact that the company's
volumetric contribution at these sites is relatively small.
The company's policy is to accrue environmental investigatory and
remediation costs for identified sites when it is probable that a liability has
been incurred and the amount of loss can be reasonably estimated. The amount of
liability recorded is based on an evaluation of currently available facts with
respect to each individual site and includes such factors as existing
technology, presently enacted laws and regulations, and prior experience in
remediation of contaminated sites. The liabilities recorded do not take into
account any claims for recoveries from insurance or third parties. As
assessments and remediation progress at individual sites, the amounts recorded
are reviewed periodically and adjusted to reflect additional technical and
legal information that becomes available. As of January 3, 1998, the company
had reserves of $31.9 million, primarily for remediation activities associated
with company-owned properties as well as for Superfund sites.
The amount recorded for identified contingent liabilities is based on
estimates. Amounts recorded are reviewed periodically and adjusted to reflect
additional technical and legal information that becomes available. Actual costs
to be incurred in future periods may vary from the estimates, given the
inherent uncertainties in evaluating certain exposures. Subject to the
imprecision in estimating future contingent liability costs, the company does
not expect that any sum it may have to pay in connection with these matters in
excess of the amounts recorded will have a materially adverse effect on its
financial position, results of operations or liquidity.
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
(Millions of Dollars, except per share amounts) Quarter Year
- -----------------------------------------------------------------------------------------------------------------------
1997 First Second Third Fourth
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 646.6 $ 673.6 $ 650.5 $ 698.8 $2,669.5
Gross profit 215.2 227.5 213.9 229.5 886.1
Selling, general and administrative expenses 153.2 153.8 148.2 172.5 627.7
Restructuring and asset write-offs (4.6) 137.2 105.9 - 238.5
Net earnings (loss) $ 36.7 $ (64.5) $ (40.6) $ 26.5 $ (41.9)
Net earnings (loss) per share:
Basic $ .41 $ (.72) $ (.46) $ .30 $ (.47)
Diluted $ .41 $ (.72) $ (.46) $ .29 $ (.47)
- -----------------------------------------------------------------------------------------------------------------------
1996
Net sales $ 635.3 $ 677.2 $ 672.9 $ 685.4 $2,670.8
Gross profit 206.0 224.2 224.5 220.6 875.3
Selling, general and administrative expenses 149.0 153.1 151.7 154.7 608.5
Restructuring and asset write-offs - 3.8 3.1 40.9 47.8
Net earnings (loss) $ 29.6 $ 32.6 $ 37.7 $ (3.0) $ 96.9
Net earnings (loss) per share:
Basic $ .33 $ .37 $ .42 $ (.03) $ 1.09
Diluted $ .33 $ .36 $ .42 $ (.03) $ 1.08
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: The second quarter of 1997 includes a charge of $10.6 million, or $.07
per share, for a stock option grant as specified in the company's employment
contract with its chief executive officer. The fourth quarter of 1996 includes
a charge of $7.6 million, or $.08 per share, for other elements of this
contract.
43
<PAGE>
CORPORATE INFORMATION
- -------------------------------------------------------------------------------
BOARD OF DIRECTORS
John M. Trani 1
Chairman and
Chief Executive Officer
The Stanley Works
Mannie L. Jackson 2, 5
Chairman
Harlem Globetrotters International, a division of MJA, Inc.
Hugo E. Uyterhoeven 3, 4
Professor, Graduate School
of Business Administration
Harvard University
Stillman B. Brown 1, 4, 5
Managing General Partner Harcott Associates
Investments
James G. Kaiser 2, 5
Retired; former President
and Chief Executive Officer Quanterra Incorporated,
a subsidiary of Corning Incorporated and
International Technology Inc.
Walter W. Williams 3, 5
Retired; former Chairman
and Chief Executive Officer
Rubbermaid, Incorporated
Edgar R. Fiedler 3, 4
Retired; former
Vice President and
Economic Counselor
The Conference Board
Eileen S. Kraus 1, 2, 4
Chairman, Connecticut
Fleet National Bank
Kathryn D. Wriston 1, 2, 3
Director of various
organizations
CORPORATE OFFICERS
JOHN A. COSENTINO, JR.
Vice President, Operations
(1997)
WILLIAM D. HILL
Vice President, Engineering and Technology
(1997)
KENNETH O. LEWIS
Vice President, Marketing and Brand Development
(1997)
MARK J. MATHIEU
Vice President, Human Resources
(1997)
THOMAS E. MAHONEY
President, Consumer Sales Americas
(1965)
PAUL W. RUSSO
Vice President, Strategy and Development
(1995)
JOHN M. TRANI
Chairman and Chief Executive Officer
(1997)
STEPHEN S. WEDDLE
Vice President, General Counsel and Secretary
(1978)
THERESA F. YERKES
Vice President and Controller
(1989)
(Joined Stanley)
1 Member of the Executive Committee
2 Member of the Audit Committee
3 Member of the Board Affairs and Public Policy Committee
4 Member of the Finance and Pension Committee
5 Member of the Compensation and Organization Committee
44
<PAGE>
INVESTOR AND SHAREOWNER INFORMATION
COMMON STOCK
- -------------------------------------------------------------------------------
The Stanley Works common stock is listed on the New York and Pacific Stock
Exchanges under the abbreviated ticker symbol "SWK."
Stock (Dollars per Share)
- ----------------------------------------------------------------------------
Price Dividends
- ----------------------------------------------------------------------------
1997 1996 1997 1996
- ----------------------------------------------------------------------------
High Low High Low
First Quarter 41 28 28 5/8 24 1/16 $.185 $.18
Second Quarter 44 3/8 35 1/2 32 13/16 27 1/8 .185 .18
Third Quarter 47 3/8 39 1/4 30 3/4 23 5/8 .20 .185
Fourth Quarter 47 3/16 39 15/16 30 1/2 26 3/8 .20 .185
- ----------------------------------------------------------------------------
$.77 $.73
- ----------------------------------------------------------------------------
DIVIDENDS
The Stanley Works has an impressive and truly unique dividend record over the
long haul:
o Our record of annual dividend payments is unmatched by any industrial
company listed on the New York Stock Exchange-- 121 consecutive years.
o Our quarterly dividend record is the longest of any industrial company
listed on the New York Stock Exchange-- 411 consecutive quarters.
o We have increased dividends in each of the past 30 years,
and in that same period, an investment in Stanley stock grew at a compound
annual rate of 14.4%.
INCREASED DIVIDENDS EVERY YEAR SINCE 1968
Dividend per share in Dollars $.77 per share
[GRAPIC LINE CHART SHOWING INCREASED DIVIDENDS EVERY YEAR SINCE 1968]
TRANSFER AGENT AND REGISTRAR
All shareowner inquiries, including transfer-related matters, should be
directed to:
Boston EquiServe, Servicing Agent for
State Street Bank and Trust Company
P.O. Box 8200
Boston, MA 02266-8200
800-426-5523
CORPORATE OFFICES
The company's principal corporate offices are located at:
1000 Stanley Drive, New Britain,
Connecticut 06053.
Telephone 860-225-5111.
ANNUAL MEETING
The annual shareowners' meeting of The Stanley Works will be held at 9:30 a.m.
on Wednesday, April 15, 1998, in New Britain, Connecticut at the Stanley
Center, 1255 Corbin Avenue. A formal notice of the meeting together with a
proxy statement has been mailed to shareowners with this annual report.
INDEPENDENT AUDITORS
Ernst & Young LLP, 225 Asylum Street,
Hartford, Connecticut 06103
FINANCIAL & INVESTOR COMMUNICATIONS
The Stanley Works investor relations department provides information to
shareowners and the financial community. We encourage inquiries and will provide
services which include:
o fulfilling requests for annual reports, proxy statements, form 10-Q, form
10-K, copies of press releases and other company information.
o meetings with securities analysts and fund managers.
Contact The Stanley Works investor relations department at our corporate
offices by calling Gerard J. Gould, Director, Investor Relations at (860)
827-3833. We make quarterly news releases available on-line on the Internet on
the day that results are released to the news media. The Stanley Works releases
will be found at the following address on the World Wide Web:
http://www.prnewswire.com. Click on "Company News On-Call." Shareowners may
also visit our Internet home page at: http://www.stanleyworks.com. Stanley
shareowners are also able to call toll-free 800-499-9202 to request a copy of
the most recent quarterly release.
[PHOTOGRAPH OF JOHN M. TRANI AND THE DIRECTORS AT THE NEW YORK STOCK EXCHANGE]
In recognition of Stanley's outstanding dividend record, including its 30th
consecutive annual dividend increase, the New York Stock Exchange invited
John M. Trani, Chairman and Chief Executive Officer, to ring the opening bell
on July 18, 1997.
Use of (R) or (TM) in this annual report indicates trademarks owned by The
Stanley Works and its subsidiaries except that Coca-Cola(R) is a registered
trademark of the Coca-Cola Company.
45
<PAGE>
Page 1 of 4 pages
EXHIBIT 21
(All subsidiaries are included in the Consolidated Financial Statements of
The Stanley Works)
Jurisdiction of
Corporate Name Incorporation
- -------------- -------------
The Stanley Works Connecticut
The Farmington River Power Company Connecticut
Stanley Germany Inc. Delaware
Stanley International Sales, Inc. Delaware
Stanley Foreign Sales Corporation Virgin Islands
Stanley Home Automation, Inc. Delaware
Stanley Real Estate Holdings Corp. Florida
Jensen Tools, Inc. Delaware
Stanley-Bostitch, Inc. Delaware
Stanley-Bostitch Holding Corporation Delaware
The Stanley Works Funding Corporation Delaware
Stanley Mail Media, Inc. Delaware
Stanley Logistics, Inc. Delaware
Stanley Fastening Systems, L.P. Delaware
Stanley Receivables Corp. Delaware
Stanley European Holdings, L.L.C. Delaware
Stanley Canada Inc. Ontario, Canada
Stanley Tools (N.Z.) Ltd. New Zealand
Ferramentas Stanley Ltda. Brazil
Herramientas Stanley
S.A. de C.V. Mexico
Stanley-Bostitch, S.A. de C.V. Mexico
Stanley Tools SpA Italy
<PAGE>
Page 2 of 4 pages
EXHIBIT 21
Jurisdiction of
Corporate Name Incorporation
- -------------- -------------
(The Stanley Works)
Stanley Atlantic, Inc. Delaware
The Stanley Works Ltd. U.K.
Mosley-Stone Ltd. U.K.
R.J. Lendrum Limited U.K.
Stanley Works
(Nederland) B.V. Netherlands
Stanley Magic-Door
Netherlands B.V. Netherlands
Placements et Rangements
Nirva S.a.R.L. France
S.I.C.F.O.-Stanley S.A. France
Stanley Bostitch S.A. France
Soc. de Fab. Bostitch
S.A.(Simax) France
Societe Civile Immobiliere WAT France
Stanley Iberica S.A. Spain
Stanley Vaerktoej ApS Denmark
Stanley Svenska A.B. Sweden
Suomen Stanley OY Finland
Bostitch G.m.b.H. Germany
Friess G.m.b.H. Germany
Bostitch (Europe) AG Switzerland
Bostitch AG Switzerland
S.A. Stanley Works Belgium N.V. Belgium
The Stanley Works C.V. Netherlands
<PAGE>
Page 3 of 4 pages
EXHIBIT 21
Jurisdiction of
Corporate Name Incorporation
- -------------- -------------
(The Stanley Works)
Stanley International
Holdings Inc. Delaware
Stanley Pacific Inc. Delaware
Stanley-Bostitch
Pty. Limited Australia
The Stanley Works Pty. Ltd. Australia
Stanley Works Asia Pacific Pte. Ltd. Singapore
The Stanley Works
(Hong Kong) Ltd. Hong Kong
The Stanley Works Sales
(Philippines), Inc. Philippines
Stanley Tools Ltd. Taiwan
Chiro Tool Manufacturing Corporation Taiwan
The Stanley Works
(Bermuda) Ltd. Bermuda
The Stanley Works Japan K.K. Japan
Stanley Works Ltd. Thailand
Stanley Tools Poland Ltd. Poland
Tona a.s. (LTD) (86%) Czech Republic
P.T. Stanley Works Indonesia Indonesia
Stanley Works Malaysia Sdn. Bhd. Malaysia
Stanley Fastening Systems Poland Ltd. Poland
Stanley de Chihuahua, S. de R.L. de C.V. Mexico
Stanley Works China Investments Ltd. (65%) Virgin Islands
Stanley (Zhongshan) Hardware
Co. Ltd. (65%) China
Stanley U.K. Holding Limited U.K.
<PAGE>
Page 4 of 4 pages
EXHIBIT 21
Jurisdiction of
Corporate Name Incorporation
- -------------- -------------
(The Stanley Works)
Stanley Chiro International Ltd. Taiwan
Stanley Italia S.r.l. Italy
ATRO Ltd. U.K.
DIMAC S.a.r.l. France
International Staple & Machine Co. n.v. Belgium
FIPADUE S.r.l. Italy
Beijing Daxing Stanley-Bostitch Metal
Industries Company Limited (98%) China
The names of certain subsidiaries have been omitted because such subsidiaries,
considered in the aggregate as a single subsidiary, would not constitute a
significant subsidiary.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from The Stanley
Works and Subsidiaries Consolidated Balance Sheets and Statements of Operations
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> JAN-03-1998
<CASH> 152,200
<SECURITIES> 0
<RECEIVABLES> 429,300
<ALLOWANCES> 19,800
<INVENTORY> 301,200
<CURRENT-ASSETS> 1,005,300
<PP&E> 1,166,100
<DEPRECIATION> 652,900
<TOTAL-ASSETS> 1,758,700
<CURRENT-LIABILITIES> 622,700
<BONDS> 283,700
0
0
<COMMON> 230,900
<OTHER-SE> 376,900
<TOTAL-LIABILITY-AND-EQUITY> 1,758,700
<SALES> 2,669,500
<TOTAL-REVENUES> 2,669,500
<CGS> 1,783,400
<TOTAL-COSTS> 1,783,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,600
<INCOME-PRETAX> (18,600)
<INCOME-TAX> 23,300
<INCOME-CONTINUING> (41,900)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (41,900)
<EPS-PRIMARY> (.47)
<EPS-DILUTED> (.47)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
Exhibit 27(i)
THE STANLEY WORKS AND SUBSIDIARIES
RESTATED FINANCIAL DATA SCHEDULE
This schedule contains summary financial information extracted from The Stanley
Works and Subsidiaries Consolidated Balance Sheets and Statements of Operations
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS YEAR
<FISCAL-YEAR-END> JAN-03-1998 JAN-03-1998 JAN-03-1998 DEC-28-1996
<PERIOD-END> SEP-27-1997 JUN-28-1997 MAR-29-1997 DEC-28-1996
<CASH> 146,700 107,600 76,400 84,000
<SECURITIES> 0 0 0 0
<RECEIVABLES> 483,200 457,100 453,300 468,800
<ALLOWANCES> 0 0 0 22,500
<INVENTORY> 307,700 323,400 329,200 338,100
<CURRENT-ASSETS> 1,018,200 940,900 899,200 910,900
<PP&E> 1,159,900 1,160,300 1,206,300 1,224,400
<DEPRECIATION> 656,700 652,000 644,700 654,000
<TOTAL-ASSETS> 1,736,600 1,666,800 1,633,500 1,659,600
<CURRENT-LIABILITIES> 575,700 490,200 387,000 381,600
<BONDS> 288,900 295,800 298,900 342,600
0 0 0 0
0 0 0 0
<COMMON> 230,900 230,900 230,900 230,900
<OTHER-SE> 409,200 485,800 561,000 549,200
<TOTAL-LIABILITY-AND-EQUITY> 1,736,600 1,666,800 1,633,500 1,659,600
<SALES> 1,970,700 1,320,200 646,600 2,670,800
<TOTAL-REVENUES> 1,970,700 1,320,200 646,600 2,670,800
<CGS> 1,314,100 877,500 431,400 1,795,500
<TOTAL-COSTS> 1,314,100 877,500 431,400 1,795,500
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 12,900 8,700 4,300 22,500
<INCOME-PRETAX> (69,200) (22,800) 58,700 174,200
<INCOME-TAX> (800) 5,000 22,000 77,300
<INCOME-CONTINUING> (68,400) (27,800) 36,700 96,900
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (68,400) (27,800) 36,700 96,900
<EPS-PRIMARY> (.77)<F1> (.31)<F1> .41<F1> 1.09<F1>
<EPS-DILUTED> (.77)<F1> (.31)<F1> .41<F1> 1.08<F1>
<FN>
<F1>In December 1997, the company adopted Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings per Share". All per share data on
the above Financial Data Schedule has been retroactively restated in
accordance with SFAS No. 128.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from The Stanley
Works and Subsidiaries Consolidated Balance Sheets and Statements of Operations
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS YEAR
<FISCAL-YEAR-END> DEC-28-1996 DEC-28-1996 DEC-28-1996 DEC-30-1995
<PERIOD-END> SEP-28-1996 JUN-29-1996 MAR-30-1996 DEC-30-1995
<CASH> 85,000 79,500 39,300 75,400
<SECURITIES> 0 0 0 0
<RECEIVABLES> 473,800 454,200 454,900 456,900
<ALLOWANCES> 0 0 0 18,200
<INVENTORY> 342,400 344,400 335,200 349,100
<CURRENT-ASSETS> 941,000 920,400 875,200 915,100
<PP&E> 1,219,100 1,202,000 1,196,400 1,186,200
<DEPRECIATION> 656,500 646,000 641,700 629,700
<TOTAL-ASSETS> 1,689,600 1,668,600 1,628,400 1,670,000
<CURRENT-LIABILITIES> 397,300 371,400 348,400 387,700
<BONDS> 350,600 373,300 384,000 391,100
0 0 0 0
0 0 0 0
<COMMON> 230,900 230,900 230,800 115,400
<OTHER-SE> 556,800 534,800 512,500 619,200
<TOTAL-LIABILITY-AND-EQUITY> 1,689,600 1,668,600 1,628,400 1,670,000
<SALES> 1,985,400 1,312,500 635,300 2,624,300
<TOTAL-REVENUES> 1,985,400 1,312,500 635,300 2,624,300
<CGS> 1,330,700 882,300 429,300 1,789,700
<TOTAL-COSTS> 1,330,700 882,300 429,300 1,789,700
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 17,100 11,900 6,500 30,300
<INCOME-PRETAX> 163,500 104,500 47,000 112,800
<INCOME-TAX> 63,600 42,300 17,400 53,700
<INCOME-CONTINUING> 99,900 62,200 29,600 59,100
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 99,900 62,200 29,600 59,100
<EPS-PRIMARY> 1.12<F1> .70<F1> .33<F1> .66<F1>
<EPS-DILUTED> 1.11<F1> .69<F1> .33<F1> .66<F1>
<FN>
<F1>In December 1997, the company adopted Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings per Share". All per share data on
the above Financial Data Schedule has been retroactively restated in
accordance with SFAS No. 128.
</FN>
</TABLE>
<PAGE>
AUDITED FINANCIAL STATEMENTS
AND SUPPLEMENTAL SCHEDULES
THE STANLEY WORKS 401(k) SAVINGS PLAN
Years ended December 31, 1997 and 1996
<PAGE>
The Stanley Works 401(k) Savings Plan
Audited Financial Statements
and Supplemental Schedules
Years ended December 31, 1997 and 1996
CONTENTS
Report of Independent Auditors............................................ 1
Audited Financial Statements
Statement of Financial Condition at December 31, 1997..................... 2
Statement of Financial Condition at December 31, 1996..................... 3
Statement of Income and Changes in Plan Equity for the Year Ended
December 31, 1997...................................................... 4
Statement of Income and Changes in Plan Equity for the Year Ended
December 31, 1996...................................................... 5
Notes to Financial Statements............................................. 6
Supplemental Schedules
Assets Held for Investment................................................ 11
Transactions or Series of Transactions in Excess of 5% of the Current
Value of Plan Assets................................................... 12
<PAGE>
Report of Independent Auditors
Pension Committee of The Board of Directors
The Stanley Works
We have audited the accompanying statements of financial condition of The
Stanley Works 401(k) Savings Plan as of December 31, 1997 and 1996, and the
related statements of income and changes in plan equity for the years then
ended. These financial statements are the responsibility of the Plan's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial condition of the Plan at December 31, 1997
and 1996, and its income and changes in plan equity for the years then ended in
conformity with generally accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the
financial statements taken as a whole. The accompanying supplemental schedules
of assets held for investment as of December 31, 1997, and transactions or
series of transactions in excess of 5% of the current value of plan assets for
the year then ended, are presented for purposes of complying with the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974, and are not a required
part of the financial statements. The supplemental schedules have been
subjected to the auditing procedures applied in our audit of the 1997 financial
statements and, in our opinion, are fairly stated in all material respects in
relation to the 1997 financial statements taken as a whole.
Ernst & Young LLP
Hartford, Connecticut
March 13, 1998 1
<PAGE>
The Stanley Works 401(k) Savings Plan
Statement of Financial Condition
December 31, 1997
<TABLE>
<CAPTION>
UNALLOCATED
STANLEY STOCK STANLEY STOCK
FUND LOAN FUND FUND TOTAL
-------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments, at current market value:
The Stanley Works
Common Stock:
8,997,264 shares
(cost $132,445,673) $424,558,395 $424,558,395
10,007,568 shares
(cost $181,101,634) $472,232,116 472,232,116
Short-term investments 2,515,153 2,515,153
------------ ------------ ------------
427,073,548 472,232,116 899,305,664
Contributions receivable 3,062,065 3,062,065
Dividends and interest receivable 45,195 1,594,244 1,639,439
Loans to participants $ 12,323,967 12,323,967
------------ ------------ ------------ ------------
$430,180,808 $ 12,323,967 $473,826,360 $916,331,135
============ ============ ============ ============
LIABILITIES AND PLAN EQUITY
Liabilities:
Due to Retirement Plan
for Salaried Employees
of The Stanley Works $ 262,146 $ 262,146
Debt $224,647,020 224,647,020
------------ ------------ ------------
262,146 224,647,020 224,909,166
Plan equity 429,918,662 $ 12,323,967 249,179,340 691,421,969
------------ ------------ ------------ ------------
$430,180,808 $ 12,323,967 $473,826,360 $916,331,135
============ ============ ============ ============
</TABLE>
See accompanying notes.
2
<PAGE>
The Stanley Works 401(k) Savings Plan
Statement of Financial Condition
December 31, 1996
<TABLE>
<CAPTION>
UNALLOCATED
STANLEY STOCK STANLEY STOCK
FUND LOAN FUND FUND TOTAL
--------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments, at current market
value:
The Stanley Works
Common Stock:
9,449,808 shares
(cost $137,198,542) $255,144,816 $255,144,816
10,800,908 shares
(cost $194,540,603) $291,624,516 291,624,516
Short-term investments 4,089,979 284,230 4,374,209
------------ ------------ ------------
259,234,795 291,908,746 551,143,541
Dividends and interest receivable 7,557 1,240 8,797
Loans to participants $11,495,638 11,495,638
------------ ----------- ------------ ------------
$259,242,352 $11,495,638 $291,909,986 $562,647,976
============ =========== ============ ============
LIABILITIES AND PLAN EQUITY
Liabilities:
Due to Retirement Plan
for Salaried Employees
of The Stanley Works $ 262,146 $ 262,146
Debt $234,789,748 234,789,748
------------ ------------ ------------
262,146 234,789,748 235,051,894
Plan equity 258,980,206 $11,495,638 57,120,238 327,596,082
------------ ----------- ------------ ------------
$259,242,352 $11,495,638 $291,909,986 $562,647,976
============ =========== ============ ============
</TABLE>
See accompanying notes.
3
<PAGE>
The Stanley Works 401(k) Savings Plan
Statement of Income and Changes in Plan Equity
Year ended December 31, 1997
<TABLE>
<CAPTION>
UNALLOCATED
STANLEY STOCK STANLEY STOCK
FUND LOAN FUND FUND TOTAL
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:
Dividends $ 7,197,351 $ 7,993,754 $ 15,191,105
Interest 91,621 $ 881,528 15,600 988,749
------------ ----------- ------------ ------------
7,288,972 881,528 8,009,354 16,179,854
Net realized and unrealized
appreciation in The
Stanley Works Common Stock 194,715,441 194,046,566 388,762,007
Employee contributions 20,080,006 20,080,006
Withdrawals:
Cash (36,544,886) (36,544,886)
The Stanley Works Common
Stock (5,316,015) (5,316,015)
------------ ------------
(41,860,901) (41,860,901)
Administrative expenses (537,601) (845) (538,446)
Interest expense (18,796,633) (18,796,633)
Interfund transfers - net (8,747,461) (53,199) 8,800,660
------------ ----------- ------------ ------------
Net increase 170,938,456 828,329 192,059,102 363,825,887
Plan equity at beginning of year 258,980,206 11,495,638 57,120,238 327,596,082
------------ ----------- ------------ ------------
Plan equity at end of year $429,918,662 $12,323,967 $249,179,340 $691,421,969
============ =========== ============ ============
</TABLE>
See accompanying notes.
4
<PAGE>
The Stanley Works 401(k) Savings Plan
Statement of Income and Changes in Plan Equity
Year ended December 31, 1996
<TABLE>
<CAPTION>
UNALLOCATED
STANLEY STOCK STANLEY STOCK
FUND LOAN FUND FUND TOTAL
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:
Dividends $ 6,909,565 $ 8,160,284 $ 15,069,849
Interest 93,635 $ 680,930 6,224 780,789
------------ ----------- ------------ ------------
7,003,200 680,930 8,166,508 15,850,638
Net realized and unrealized
appreciation in The
Stanley Works Common Stock 16,422,570 5,764,892 22,187,462
Contributions:
Employee 19,968,699 19,968,699
Employer 6,232,568 6,232,568
------------ ------------
26,201,267 26,201,267
Withdrawals:
Cash (34,756,301) (34,756,301)
The Stanley Works Common
Stock (4,783,322) (4,783,322)
------------ ------------
(39,539,623) (39,539,623)
Administrative expenses (435,997) (435,997)
Interest expense (19,550,376) (19,550,376)
Interfund transfers - net (3,775,570) (857,031) 4,632,601
------------ ----------- ------------ ------------
Net increase (decrease) 5,875,847 (176,101) (986,375) 4,713,371
Plan equity at beginning of year 253,104,359 11,671,739 58,106,613 322,882,711
------------ ----------- ------------ ------------
Plan equity at end of year $258,980,206 $11,495,638 $ 57,120,238 $327,596,082
============ =========== ============ ============
</TABLE>
See accompanying notes.
5
<PAGE>
The Stanley Works 401(k) Savings Plan
Notes to Financial Statements
December 31, 1997
1. DESCRIPTION OF THE PLAN
The Stanley Works 401(k) Savings Plan (the "Savings Plan") operates as a
leveraged employee stock ownership plan, is designed to comply with the
Internal Revenue Code of 1986, as amended, and is subject to the applicable
provisions of the Employee Retirement Income Security Act of 1974, as amended.
The Savings Plan is a defined contribution plan for eligible United States
salaried and hourly paid employees of The Stanley Works (the "Company").
Each year, participants may contribute, through pre-tax payroll deductions up
to 15% of their compensation, as defined in the Savings Plan Agreement. Such
contributions are matched by the Company in an amount equal to 50% of the
participant's contribution up to a maximum matching contribution of 3 1/2% of
the participant's compensation.
Participant and Company contributions are invested in the Stanley Stock Fund
with a guarantee, which, if necessary, is satisfied by the Retirement Plan for
Salaried Employees of The Stanley Works or by the Pension Plan for Hourly Paid
Employees of The Stanley Works, that the investment return on such stock
acquired with employee contributions will not be less than an investment return
based on two-year U.S. Treasury notes.
Employees are fully vested as to amounts in their savings accounts attributable
to their own contributions and earnings thereon and amounts transferred from
the other qualified plans on their behalf. All participants are vested in 100%
of the value of the Company matching contributions made on their behalf after
five years of service, with no vesting in the matching contributions during the
first through fifth years of service.
The assets of the Savings Plan are held in trust by an independent corporate
trustee, State Street Bank and Trust Company (the "Trustee") pursuant to the
terms of a written Trust Agreement between the Trustee and the Company.
Benefits generally are distributed upon termination of employment. Normally, a
lump-sum distribution is made in cash or shares of the Company's Common Stock
(hereinafter referred to as Common Stock, Stanley Stock, or shares), at the
election of the participant, from the Stanley Stock Fund.
During active employment, subject to financial hardship rules, participants may
withdraw, in cash only, all or a portion of vested amounts in their accounts.
6
<PAGE>
The Stanley Works 401(k) Savings Plan
Notes to Financial Statements (continued)
1. DESCRIPTION OF THE PLAN (CONTINUED)
Participants may borrow from their savings account up to an aggregate amount
equal to the lesser of $50,000 or 50% of the value of their vested interest in
such accounts with a minimum loan of $1,000. The $50,000 loan amount limitation
is reduced by the participant's highest outstanding loan balance during the 12
months preceding the date the loan is made. Each loan is evidenced by a
negotiable promissory note bearing a rate of interest equal to the prime rate
as reported in The Wall Street Journal on the first business day of the month
immediately preceding the calendar quarter during which the loan was made,
which is payable, through payroll deductions, over a term of not more than five
years. Participants are allowed ten years to repay the loan if the proceeds are
used to purchase a principal residence. Only one loan per participant may be
outstanding at any time.
If a loan is outstanding at the time a distribution becomes payable to a
participant (or beneficiary), the distribution is made net of the loan
outstanding, and the distribution shall fully discharge the Savings Plan with
respect to the participant's account value attributable to the outstanding loan
balance.
The Savings Plan borrowed $95,000,000 in 1989 from a group of financial
institutions and $180,000,000 in 1991 from the Company (see Notes 3 and 4) to
acquire 5,868,088 and 9,696,968 shares, respectively, of Common Stock from the
Company's treasury and previously unissued shares. The shares purchased from
the proceeds of the loans were placed in the Unallocated Stanley Stock Fund
(the "Unallocated Fund"). Under the 1989 loan agreement, the Company guaranteed
the loan and is obligated to make annual contributions sufficient to enable the
Plan to repay the loan plus interest.
The Unallocated Fund makes monthly transfers of shares, in accordance with The
Savings Plan provisions, to the Stanley Stock Fund in return for proceeds
equivalent to the average fair market value of the shares for the month
subsequent to the last transfer. These proceeds, along with dividends received
on allocated and unallocated shares and additional employee and Company
contributions, if necessary, are used to make monthly payments of principal and
interest on the debt. As dividends on the allocated shares are applied to the
payment of debt service, a number of shares having a fair market value at least
equal to the amount of the dividends so applied are allocated to the savings
accounts of participants who would otherwise have received cash dividends. The
excess of unallocated dividends over the amount necessary for principal and
interest along with forfeitures of nonvested employee accounts are used to
reduce future Company matching contributions. During 1997, these excess funds
fully offset the Company's matching contribution.
7
<PAGE>
The Stanley Works 401(k) Savings Plan
Notes to Financial Statements (continued)
1. DESCRIPTION OF THE PLAN (CONTINUED)
The fair market value of shares released from the Unallocated Fund pursuant to
loan repayments made during any year may exceed the total of employee
contributions and Company matching contributions for that year. If that occurs,
all participants who made contributions at any time during that year and who
are employed by the Company on the last day of that year receive, on a pro rata
basis, such excess value as an additional allocation of Stanley Stock for that
year.
Each participant is entitled to exercise voting rights attributable to the
shares allocated to their account. The Trustee is not permitted to vote
participant shares for which instructions have not been given by the
participant. Shares in the Unallocated Fund are voted by the Trustee in the
same proportion as allocated shares.
The Company reserves the right to terminate the Savings Plan at any time,
subject to its provisions. Upon such termination of the Savings Plan, the
interest of each participant in the trust fund will become vested and be
distributed to such participant or his or her beneficiary at the time
prescribed by the Savings Plan terms and the Internal Revenue Code.
The Savings Plan sponsor has engaged William Mercer, Inc., to maintain separate
accounts for each participant. Such accounts are credited with each
participant's contributions, the allocated portion of the Company's matching
contributions, related gains, losses and dividend income, and loan activity.
There were 10,501 and 10,805 participants ( 9,612 and 10,131 of whom were
active employees) in the plan as of December 31, 1997 and 1996, respectively,
of whom 2,324 and 2,537, respectively, had loans outstanding.
At December 31, 1997 and 1996, benefits payable to terminated vested
participants amounted to $6,864,864 and $1,800,388, respectively.
8
<PAGE>
The Stanley Works 401(k) Savings Plan
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS
The Savings Plan investments consist primarily of shares of Stanley Stock.
Stanley Stock is traded on a national exchange and is valued at the last
reported sales price on the last business day of the plan year. On April 17,
1996, the Board of Directors of the Company declared a two-for-one common stock
split. All share amounts have been restated to reflect the stock split.
Short-term investments consist of short-term bank-administered trust funds
which earn interest daily at rates approximating U.S. Government securities;
cost approximates market value.
DIVIDEND INCOME
Dividend income is accrued on the ex-dividend date.
GAINS OR LOSSES ON SALES OF INVESTMENTS
Gains or losses realized on the sales of investments are determined based on
average cost.
EXPENSES
Administrative expenses not paid by the Company are paid by the Savings Plan.
3. DEBT
Debt consisted of the following at December 31:
1997 1996
---- ----
Notes payable in monthly installments to 2001
with interest at 7.71% $ 47,352,052 $ 57,488,780
Notes payable to the Company in monthly
installments to 2026 with interest at 8.3% 177,294,968 177,300,968
------------ ------------
$224,647,020 $234,789,748
============ ============
The scheduled maturities of debt for the next five years are as follows:
1998--$11,067,000; 1999--$11,994,000; 2000--$13,000,000; 2001--$10,433,000;
and 2002--$1,852,000.
9
<PAGE>
The Stanley Works 401(k) Savings Plan
Notes to Financial Statements (continued)
3. DEBT (CONTINUED)
The notes payable to the Company are secured by shares held in the Unallocated
Stock Fund. The number of shares held as security is reduced as shares are
released to Stanley Stock Fund pursuant to principal and interest payments.
During the year, 254,094 shares were released and at December 31, 1997,
7,972,316 shares are pledged as security.
Payment of the Savings Plan's debt has been guaranteed by the Company. Should
the principal and interest due exceed the dividends paid on shares in the
Stanley Stock and Unallocated Stock Funds, and employee and Company matching
contributions, the Company is responsible for funding such shortfall.
4. TRANSACTIONS WITH PARTIES-IN-INTEREST
Fees paid during 1997 and 1996 for management and other services rendered by
parties-in-interest were based on customary and reasonable rates for such
services. The majority of such fees were paid by the Savings Plan. Fees
incurred and paid by the Savings Plan during 1997 and 1996 were $538,446 and
$435,997, respectively.
In 1991, the Savings Plan borrowed $180,000,000 from the Company, the proceeds
of which were used to purchase 9,696,968 shares of stock from the Plan. The
Savings Plan made $14,721,703 and $14,875,901 of principal and interest
payments related to such debt in 1997 and 1996, respectively; at December 31,
1997, $177,294,968 was outstanding on such debt.
5. INCOME TAX STATUS
The Internal Revenue Service has ruled that the Savings Plan and the trust
qualify under Sections 401(a) and 401(k) of the Internal Revenue Code (IRC) and
are therefore not subject to tax under present income tax law. Once qualified,
the Savings Plan is required to operate in accordance with the IRC to maintain
its qualification. The Pension Committee is not aware of any course of action
or series of events that have occurred that might adversely affect the Savings
Plan's qualified status.
10
<PAGE>
The Stanley Works 401(k) Savings Plan
Assets Held for Investment
December 31, 1997
<TABLE>
<CAPTION>
DESCRIPTION OF INVESTMENT,
INCLUDING MATURITY DATE,
IDENTITY OF ISSUE, RATE OF INTEREST, PAR OR
BORROWER, OR SIMILAR PARTY MATURITY VALUE COST CURRENT VALUE
- --------------------------- ---------------------------- -------- -------------
<S> <C> <C> <C>
Common Stock:
The Stanley Works* 19,004,832 shares of
Common Stock; par
value $2.50 per share $313,547,307 $896,790,511
Trust Funds:
State Street Bank and Short-Term Investment
Trust Company* Fund-United States
(GSTIF) Government securities 2,513,141 2,513,141
State Street Bank and Short-Term Investment
Trust Company* (STIF) Fund-Pooled Bank Fund 2,012 2,012
Loans to participants Promissory notes at
prime rate with
maturities of five
years or ten years 12,323,967 12,323,967
------------ ------------
Total investments $328,386,427 $911,629,631
============ =============
</TABLE>
* Indicates party-in-interest to the Plan.
11
<PAGE>
The Stanley Works 401(k) Savings Plan
Transactions or Series of Transactions in Excess of 5% of the
Current Value of Plan Assets
Year Ended December 31, 1997
<TABLE>
<CAPTION>
CURRENT
VALUE OF
IDENTITY OF PURCHASE ASSET ON
PARTY DESCRIPTION OF SELLING COST OF TRANSACTION NET GAIN
INVOLVED ASSETS PRICE ASSET DATE (LOSS)
- -------------- ------------------- ------------ ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Category (iii) - Series of transactions in excess of 5 percent of plan assets
State Street Short-Term
Bank and Investment
Trust Fund-United $34,879,685 $34,879,685
Company* States
Government
Securities
State Street Short-Term
Bank and Investment
Trust Fund-United $36,454,499 36,454,499
Company* States
Government
Securities
</TABLE>
There were no category (i), (ii) or (iv) reportable transactions during 1996.
* Indicates party-in-interest to the Plan.
12
