SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 21, 1998
The Stanley Works
(Exact name of registrant as specified in charter)
Connecticut 1-5224 06-058860
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
1000 Stanley Drive, New Britain, Connecticut 06053
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(860) 225-5111
Not Applicable
(Former name or former address, if changed since last report)
Page 1 of 15 Pages
Exhibit Index is located on Page 4
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Item 5. Other Events.
1. On October 21, 1998, the Registrant issued a press release
announcing third quarter results and fourth quarter dividend. Attached as
Exhibit (20)(i) is a copy of the Registrant's press release.
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits.
(c) 20(i) Press Release dated October 21, 1998
announcing third quarter results and fourth
quarter dividend.
20(ii) Cautionary statements relating to forward
looking statements included in Exhibit 20(i).
Page 2 of 15 Pages
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE STANLEY WORKS
Date: October 21, 1998 By: Stephen S. Weddle
-----------------
Name: Stephen S. Weddle
Title: Vice President, General
Counsel and Secretary
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EXHIBIT INDEX
Current Report on Form 8-K
Dated October 21, 1998
Exhibit No. Page
20(i) 5
20 (ii) 14
Page 4 of 15 Pages
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Exhibit (20) (i)
THE STANLEY WORKS ANNOUNCES CORE EARNINGS UP SLIGHTLY
IN 3RD QUARTER; ALSO ANNOUNCES 4TH QUARTER DIVIDEND
New Britain, Connecticut, October 21, 1998: The Stanley Works (NYSE: "SWK")
announced that "core" earnings increased slightly in its third quarter ended
October 3, 1998 to $49.4 million, or $.55 per diluted share, from prior year
third quarter core earnings of $48.9 million, or $.54 per diluted share. Core
results exclude restructuring charges, restructuring-related transition costs
and certain other non-recurring costs as defined below.
Reported earnings were $33.4 million, or $.37 per diluted share, compared with
the prior year's third quarter net loss of $40.6 million, or $.46 per diluted
share. These amounts reflect $25.5 million, or $.18 per share, of restructuring-
related transition and other non-recurring costs incurred in the third quarter
this year and $105.9 million, or $.87 per share, of restructuring charges and
$18.7 million, or $.14 per share, of restructuring-related transition and other
non-recurring costs incurred in the third quarter last year.
Net sales were up 6% to $689.6 million from $650.5 million last year. These
results included a 2% positive impact from acquisitions and a 1% combined
negative effect of pricing and currency translation. Unit sales volume from
ongoing businesses was up 5%. This increase was led by the Mac Tools and U.S.
consumer components of mechanics tools, hand tools in the U.S. and Europe and
fastening systems in North America.
Core gross margin was 35.0%, versus 34.2% in 1997, as a result of higher unit
volumes and cost reduction efforts, including the savings generated by
company-wide productivity programs. This improvement was somewhat offset by
price decreases to maintain market share in certain industrial and engineered
tools businesses and a mix to lower-margin consumer products, particularly to
home centers. In addition, production and distribution inefficiencies offset
realized savings.
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Despite the increase in core gross margin, core operating margin was almost flat
at 12.9%. Selling, general and administrative expenses, excluding
restructuring-related transition costs and other non-recurring costs, were 22.1%
of sales, up from 21.2% in the third quarter last year. This increase resulted
from higher MacDirect selling costs, a doubling of engineering expenses, and
costs incurred to achieve the higher volume and improve customer service.
Interest expense increased to $7.4 million compared to $4.2 million last year,
reflecting working capital increases and funding of the August 5th acquisition
of ZAG Industries, Ltd. Core segment operating margin was 14.0% vs. 14.6% in
1997, as the tools segment declined to 14.7% from 16.5% last year, from the
aforementioned factors. Hardware operating margin increased to 12.1% from 11.6%
last year. Specialty Hardware operating margin improved to 11.0% from 5.6% in
1997, reflecting favorable pricing, savings generated in component procurement
and effects of the early-1998 divestiture of European access technologies
operations.
"This was the twelfth consecutive quarter in which core earnings grew, the last
seven while we have been undergoing fundamental changes in virtually every area
of our company," said John M. Trani, Chairman and Chief Executive Officer.
"Sales volumes for the quarter continued to show moderate growth, although we
experienced a relatively weak order rate in the month of September. We expect
improvement in customer service, the mitigation of costs associated with those
efforts, and revenues from new products to accelerate growth in sales and
operating margin by mid-1999."
Restructuring-related transition costs incurred in the third quarter were $12.7
million and represented consulting, moving, start-up and duplicative facility
costs incurred in connection with the company's reallocation of resources
announced in mid- 1997. As previously announced, the company expects to incur a
total of $100 million of such transition costs throughout the two-year period
ending June 1999 and has incurred $46.4 million to date.
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In addition to restructuring-related transition costs, other non-recurring costs
excluded from "core" results include year- 2000 systems compliance costs. Such
costs were $12.7 million in the third quarter and, to date, are $25.2 million.
The company expects to incur approximately another $25 million of such year-2000
systems compliance costs through 1999. To a great extent, these expenditures are
being incurred for systems advances that move the company toward its important
objective of a single set of operating systems.
The attached table, "Business Segment Information", provides clarification of
reported results for the third quarters of and nine-month periods of 1998 and
1997, reconciling them with normalized core results.
The company also announced today that its Board of Directors approved a fourth
quarter regular dividend of $.215 per share on the company's common stock. The
dividend is payable on Monday, December 28, 1998 to shareholders of record at
the close of business on Friday, November 27, 1998.
Mr. Trani stated: " We are pleased to be able to announce this fourth quarter
dividend for our shareowners, and we are proud that 1998 dividend payments
extend our records for the longest consecutive annual and quarterly dividend
payments of any industrial company on the New York Stock Exchange."
The Stanley Works, an S&P 500 company, is a worldwide supplier of tools,
hardware and door systems for professional, industrial and consumer use.
Investors Gerard J. Gould Media Vance N. Meyer
Contact: Director, Investor Relations Contact: Director, Communication
(860) 827-3833 office & Public Affairs
(860) 658-2718 home (860) 827-3871 office
(203) 795-0581 home
This press release contains forward looking statements as to the anticipated
level of spending on Y2K compliance and the company's ability improve customer
service, to mitigate costs associated with those efforts, and to obtain revenues
from new products in order to accelerate sales growth and operating margin
improvement by mid 1999. Cautionary statements
Page 7 of 15 Pages
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accompanying these forward-looking statements are set forth, along with this
news release, in a Form 8-K filed with the Securities and Exchange Commission
today.
The Stanley Works corporate press releases are available through PR
Newswire's "Company News On-Call" service. By FAX: dial 1-800-758-5804,
ext. 874363 or on the internet at: http://www.prnewswire.com or
http://www.stanleyworks.com.
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THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, Millions of Dollars Except Per Share Amounts)
Third Quarter Nine Months
1998 1997 1998 1997
Net Sales $ 689.6 $ 650.5 $ 2,053.3 $ 1,970.7
Costs and Expenses
Cost of sales 453.2 436.6 1,337.1 1,314.1
Selling, general and
administrative 172.7 148.2 509.9 455.2
Interest - net 7.4 4.2 17.4 12.9
Other - net 2.7 2.0 9.6 19.2
Restructuring and
asset write-offs - 105.9 - 238.5
636.0 696.9 1,874.0 2,039.9
Earnings (Loss) before
income taxes 53.6 (46.4) 179.3 (69.2)
Income Taxes 20.2 (5.8) 67.3 (0.8)
Net Earnings (Loss) $ 33.4 $ (40.6) $ 112.0 $ (68.4)
Net Earnings (Loss) Per
Share of Common Stock
Basic $ 0.37 $ (0.46) $ 1.25 $ (0.77)
Diluted $ 0.37 $ (0.46) $ 1.24 $ (0.77)
Dividends per share $ 0.215 $ 0.20 $ 0.615 $ 0.57
Average shares outstanding
(in thousands)
Basic 89,367 89,571 89,413 89,468
Diluted 90,102 89,571 90,338 89,468
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THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, Millions of Dollars)
October 3 September 27
1998 1997
ASSETS
Cash and cash equivalents $ 65.2 $ 146.7
Accounts receivable 546.7 483.2
Inventories 388.9 307.7
Other current assets 83.9 80.6
Total current assets 1,084.7 1,018.2
Property, plant and equipment 509.4 503.2
Goodwill and other intangibles 202.9 72.7
Deferred income taxes 37.2 36.8
Other assets 107.5 105.7
$ 1,941.7 $ 1,736.6
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings $ 211.3 $ 98.6
Accounts payable 160.7 124.7
Accrued expenses 238.4 233.6
Accrued restructuring 71.9 118.8
Total current liabilities 682.3 575.7
Long-term debt 343.7 288.9
Other long-term liabilities 257.9 231.9
Shareholders' equity 657.8 640.1
$ 1,941.7 $ 1,736.6
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THE STANLEY WORKS AND SUBSIDIARIES
PRICE/VOLUME INFORMATION
(Unaudited, Millions of Dollars)
NET SALES
Third Quarter
Unit ACQ/
1998 Price Volume DVT Currency 1997
INDUSTRY SEGMENTS
Tools
Consumer $ 205.5 - 8% 6% (2)% $ 183.8
Industrial 147.2 1% 9% - - 134.1
Engineered 182.4 (1)% 3% 5% (1)% 172.0
Total Tools 535.1 - 6% 4% (1)% 489.9
Hardware 81.6 (3)% (1)% - (1)% 85.5
Specialty Hardware 72.9 1% 3% (6)% (1)% 75.1
Consolidated $ 689.6 - 5% 2% (1)% $ 650.5
GEOGRAPHIC AREAS
United States $ 494.3 (1)% 7% - - $ 464.5
Europe 118.9 - 3% 16% 3% 97.8
Other Areas 76.4 2% (4)% - (11)% 88.2
Consolidated $ 689.6 - 5% 2% (1)% $ 650.5
Year to Date
Unit ACQ/
1998 Price Volume DVT Currency 1997
INDUSTRY SEGMENTS
Tools
Consumer $ 562.2 1% 4% 2% (3)% $ 542.7
Industrial 449.4 - 8% - - 415.6
Engineered 568.7 (2)% 5% 5% (1)% 530.5
Total Tools 1,580.3 - 5% 3% (2)% 1,488.8
Hardware 264.2 (2)% 3% - (1)% 264.8
Specialty Hardware 208.8 2% 3% (8)% (1)% 217.1
Consolidated $ 2,053.3 - 5% 1% (2)% $ 1,970.7
GEOGRAPHIC AREAS
United States $ 1,472.7 (1)% 7% (1)% - $ 1,400.0
Europe 348.4 1% 3% 10% (2)% 311.9
Other Areas 232.2 2% (2)% (1)% (9)% 258.8
Consolidated $ 2,053.3 - 5% 1% (2)% $ 1,970.7
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THE STANLEY WORKS AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(Unaudited, Millions of Dollars)
OPERATING PROFIT
Third Quarter 1998
Transition Core
Restrg & Other Profit
Reported Charges Costs Core Margin
INDUSTRY SEGMENTS
Tools $ 61.2 $ - $ 17.4 $ 78.6 14.7%
Hardware 6.5 - 3.4 9.9 12.1%
Specialty Hardware 3.3 - 4.7 8.0 11.0%
Total 71.0 - 25.5 96.5 14.0%
Net corporate
expenses (8.7) - - (8.7)
Interest expense (8.7) - - (8.7)
Earnings before
income taxes $ 53.6 $ - $ 25.5 $ 79.1
GEOGRAPHIC AREAS
United States $ 51.1 $ - $ 21.5 $ 72.6 14.7%
Europe 11.3 - 1.9 13.2 11.1%
Other Areas 8.6 - 2.1 10.7 14.0%
Total $ 71.0 $ - $ 25.5 $ 96.5 14.0%
Third Quarter 1997
Transition Core
Restrg & Other Profit
Reported Charges Costs Core Margin
INDUSTRY SEGMENTS
Tools $(15.7) $ 83.0 $ 13.6 $ 80.9 16.5%
Hardware (3.3) 9.9 3.3 9.9 11.6%
Specialty Hardware (6.2) 9.2 1.2 4.2 5.6%
Total (25.2) 102.1 18.1 95.0 14.6%
Net corporate
expenses (14.8) 3.8 0.6 (10.4)
Interest expense (6.4) - - (6.4)
Earnings (loss) before
income taxes $(46.4) $ 105.9 $ 18.7 $ 78.2
GEOGRAPHIC AREAS
United States $ 1.5 $ 56.8 $ 13.9 $ 72.2 15.5%
Europe (27.4) 37.3 2.1 12.0 12.3%
Other Areas 0.7 8.0 2.1 10.8 12.2%
Total $(25.2) $ 102.1 $ 18.1 $ 95.0 14.6%
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THE STANLEY WORKS AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(Unaudited, Millions of Dollars)
OPERATING PROFIT
Year to Date 1998
Transition Core
Restrg & Other Profit
Reported Chgs Costs Core Margin
INDUSTRY SEGMENTS
Tools $ 200.6 $ - $ 40.5 $ 241.1 15.3%
Hardware 26.6 - 7.7 34.3 13.0%
Specialty Hardware 6.2 - 9.9 16.1 7.7%
Total 233.4 - 58.1 291.5 14.2%
Net corporate
expenses (32.0) - - (32.0)
Interest expense (22.1) - - (22.1)
Earnings before
income taxes $ 179.3 $ - $ 58.1 $ 237.4
GEOGRAPHIC AREAS
United States $ 171.4 $ - $ 50.3 $ 221.7 15.1%
Europe 35.9 - 4.2 40.1 11.5%
Other Areas 26.1 - 3.6 29.7 12.8%
Total $ 233.4 $ - $ 58.1 $ 291.5 14.2%
Year to Date 1997
Transition Core
Restrg & Other Profit
Reported Chgs Costs* Core Margin
INDUSTRY SEGMENTS
Tools $ 2.0 $ 194.8 $ 31.6 $ 228.4 15.3%
Hardware 11.1 17.8 7.3 36.2 13.7%
Specialty Hardware (13.7) 23.5 1.4 11.2 5.2%
Total (0.6) 236.1 40.3 275.8 14.0%
Net corporate
expenses (50.2) 2.4 11.7 (36.1)
Interest expense (18.4) - - (18.4)
Earnings (loss) before
income taxes $(69.2) $ 238.5 $ 52.0 $ 221.3
GEOGRAPHIC AREAS
United States $ 35.7 $ 145.6 $ 30.0 $ 211.3 15.1%
Europe (28.1) 61.8 5.6 39.3 12.6%
Other Areas (8.2) 28.7 4.7 25.2 9.7%
Total $ (0.6) $ 236.1 $ 40.3 $ 275.8 14.0%
* Includes stock option charge.
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Exhibit (20) (ii)
CAUTIONARY STATEMENTS
Under the Private Securities Litigation Reform Act of 1995
Certain statements contained in the company's press release filed as Exhibit
20(i) to this Form 8-K regarding the costs of year-2000 compliance, improvements
in customer service, mitigation of the costs of those improvements and
achievement of revenues from new products are forward looking and are,
therefore, inherently subject to risk and uncertainty.
The estimates of the costs of year-2000 compliance are based on the company's
current plans for the remediation or replacement of its operating systems and
computer hardware. These plans may change based on future events, including the
failure of software vendors to implement new operating systems or deliver
upgrades and repairs as promised and the lack of availability of new computer
hardware and consultants to meet the company's planned needs. In addition, the
company's year- 2000 assessment is based in part on information obtained from
third parties, including customers, suppliers and consultants hired to assist in
the year-2000 compliance program. Although the company believes that its
reliance on these third parties is reasonable, there can be no assurance that
the information supplied by these third parties is accurate, complete or will
not be subject to change in the future.
The operating changes currently underway to improve customer service include a
sku reduction program to eliminate low- selling items, better integration of
production and sales planning, improving delivery to customers and the
continuing reallocation of resources that is aimed at simplifying the
organization, changing the workforce composition and standardizing operating
mechanisms. The company's failure to make these changes or to achieve the
benefits expected from these changes in accordance with current plans may
adversely affect the levels of sales growth and operating margin improvement
expected in future quarters.
The benefits expected from the sku reduction program are decreased complexity
and cost in operations. In order to achieve these benefits, however, the
reduction must be effectively managed so that the margin on discontinued
products is preserved as the remaining inventories are sold off. In addition,
the company's ability to better integrate
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production and sales planning in order to meet customer requirements for on-time
delivery, quality and value will depend on the implementation of the necessary
process improvements in its manufacturing operations in accordance with the
current plan. The ability to improve customer deliveries will depend on the
implementation of procedures and policies to manage better the distribution
process.
The ability of the resource reallocation to provide additional cost savings is
dependent upon the development and execution of 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 ability to recruit, train and retain high level employees to
execute the necessary changes; the availability of vendors to perform non-core
functions on a cost effective basis; the need to respond to significant changes
in product demand during the transition; the complexity and ultimate extent of
year-2000 compliance efforts; and unforeseen events.
The company's ability to generate revenues from new products will depend on the
ability of the new product development process to foster creativity and identify
new products that will be successful in the marketplace as well as the
successful development of the Stanley(R) brand. The success of the company's
brand development efforts will depend on the effectiveness of the Stanley:Make
Something Great(TM) campaign and other actions being planned to enhance the
image of the Stanley(R) brand and increase sales.
The estimated level of year-2000 costs and the company's ability to achieve
revenue growth and improvement in operating margins will also be affected by
external factors. These include pricing pressures within the company's markets
and the need to defend market share in the face of intense price competition;
other changes in the company's 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 and the impact of dollar/foreign currency exchange rates on the
competitiveness of products; and recessionary or expansive trends in the
economies of the world in which the company operates.
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