UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended April 3, 1999.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from [ ] to [ ]
Commission file number 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)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: shares of the
company's Common Stock ($2.50 par value) were outstanding 88,741,069
as of May 14, 1999.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, Millions of Dollars Except Share and Per Share Amounts)
First Quarter
1999 1998
------ ------
Net Sales $ 683.7 $ 671.9
Costs and Expenses
Cost of sales 451.4 435.0
Selling, general and
administrative 173.1 171.1
Interest - net 7.2 4.8
Other - net 4.6 2.8
------ ------
636.3 613.7
------ ------
Earnings Before
Income Taxes 47.4 58.2
Income Taxes 17.1 21.8
------ ------
Net Earnings $ 30.3 $ 36.4
====== ======
Net Earnings Per Share
of Common Stock
Basic $ 0.34 $ 0.41
====== ======
Diluted $ 0.34 $ 0.40
====== ======
Dividends Per Share $ 0.215 $ 0.20
====== ======
Average Shares Outstanding
(in thousands)
Basic 89,446 89,483
====== ======
Diluted 89,642 90,520
====== ======
See notes to consolidated financial statements.
-1-
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, Millions of Dollars)
April 3 January 2
1999 1999
-------- --------
ASSETS
Current Assets
Cash and cash equivalents $ 80.5 $ 110.1
Accounts and notes receivable 552.9 517.0
Inventories 367.6 380.9
Other current assets 84.5 78.4
-------- --------
Total Current Assets 1,085.5 1,086.4
Property, plant and equipment 1,184.9 1,198.5
Less: accumulated depreciation (697.7) (687.1)
-------- --------
487.2 511.4
Goodwill and other intangibles 191.2 196.9
Other assets 137.5 138.2
-------- --------
$ 1,901.4 $ 1,932.9
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities
Short-term borrowings $ 248.6 $ 207.8
Current maturities of long-term debt 11.9 14.2
Accounts payable 166.6 172.1
Accrued expenses 284.7 308.0
-------- --------
Total Current Liabilities 711.8 702.1
Long-Term Debt 306.7 344.8
Other Liabilities 209.2 216.6
Shareowners' Equity
Common stock 230.9 230.9
Retained earnings 877.1 867.2
Accumulated other comprehensive loss (97.1) (84.6)
ESOP debt (210.5) (213.2)
-------- --------
800.4 800.3
Less: cost of common stock in treasury 126.7 130.9
-------- --------
Total Shareowners' Equity 673.7 669.4
-------- --------
$ 1,901.4 $ 1,932.9
======== ========
See notes to consolidated financial statements.
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THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, Millions of Dollars)
First Quarter
1999 1998
----- -----
Operating Activities
Net earnings $ 30.3 $ 36.4
Depreciation and amortization 24.1 19.8
Other non-cash items 4.4 0.6
Changes in operating assets
and liabilities (54.3) (78.2)
----- -----
Net cash provided (used) by
operating activities 4.5 (21.4)
Investing Activities
Capital expenditures (20.4) (7.4)
Capitalized software (4.6) -
Proceeds from sales of businesses - 3.0
Proceeds from sales of assets 5.4 0.8
Other (1.9) (1.6)
----- -----
Net cash used by
investing activities (21.5) (5.2)
Financing Activities
Payments on long-term borrowings (153.7) (36.5)
Proceeds from long-term borrowings 120.9 -
Net short-term borrowings 42.2 28.2
Proceeds from issuance of common stock 1.6 8.9
Purchase of common stock for treasury (2.2) (16.2)
Cash dividends on common stock (19.1) (17.8)
----- -----
Net cash used by
financing activities (10.3) (33.4)
Effect of Exchange Rate Changes on Cash (2.3) 1.0
----- -----
Decrease in Cash and
Cash Equivalents (29.6) (59.0)
Cash and Cash Equivalents,
Beginning of Period 110.1 152.2
----- -----
Cash and Cash Equivalents,
End of First Quarter $ 80.5 $ 93.2
===== =====
See notes to consolidated financial statements.
-3-
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREOWNERS' EQUITY
(Unaudited, Millions of Dollars)
Accumulated
Other Compre-
hensive Total
Common Retained Income ESOP Treasury Shareowners'
Stock Earnings (Loss) Debt Stock Equity
---------------------------------------------------------
Balance Jan. 2, 1999 $230.9 $867.2 $(84.6) $(213.2) $(130.9) $669.4
Comprehensive income:
Net earnings 30.3
Foreign currency
translation (12.5)
Total comprehensive
income 17.8
Cash dividends
declared (19.1) (19.1)
Net common stock
activity (2.0) 4.2 2.2
Tax benefit related
to stock options - -
ESOP debt 2.7 2.7
ESOP tax benefit 0.7 0.7
---------------------------------------------------------
Balance Apr. 3, 1999 $230.9 $877.1 $(97.1) $(210.5) $(126.7) $673.7
=========================================================
Accumulated
Other Compre-
hensive Total
Common Retained Income ESOP Treasury Shareowners'
Stock Earnings (Loss) Debt Stock Equity
---------------------------------------------------------
Balance Jan. 3, 1998 $230.9 $806.6 $(85.3) $(223.8) $(120.6) $607.8
Comprehensive income:
Net earnings 36.4
Foreign currency
translation 3.4
Total comprehensive
income 39.8
Cash dividends
declared (17.8) (17.8)
Net common stock
activity (5.1) (3.5) (8.6)
Tax benefit related
to stock options 2.5 2.5
ESOP debt 2.7 2.7
ESOP tax benefit 0.7 0.7
---------------------------------------------------------
Balance Apr. 4, 1998 $230.9 $823.3 $(81.9) $(221.1) $(124.1) $627.1
=========================================================
See notes to consolidated financial statements.
-4-
THE STANLEY WORKS AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(Unaudited, Millions of Dollars)
First Quarter
1999 1998
------ ------
INDUSTRY SEGMENTS
Net Sales
Tools $ 525.4 $ 512.5
Doors 158.3 159.4
------ ------
Consolidated $ 683.7 $ 671.9
====== ======
Operating Profit
Tools $ 66.5 $ 67.1
Doors 12.9 15.0
------ ------
79.4 82.1
Restructuring-related
transition and other
non-recurring costs (20.2) (16.3)
Interest-net (7.2) (4.8)
Other-net (4.6) (2.8)
------ ------
Earnings Before
Income Taxes $ 47.4 $ 58.2
====== ======
GEOGRAPHIC NET SALES
United States $ 484.8 $ 475.3
Other Americas 46.5 55.5
Europe 129.2 119.9
Asia 23.2 21.2
------ ------
Consolidated $ 683.7 $ 671.9
====== ======
See notes to consolidated financial statements.
-5-
THE STANLEY WORKS AND SUBSIDIARIES
NOTES TO (Unaudited) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 3, 1999
NOTE A - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial statements and with the instructions to Form 10-Q and
Article 10 of Regulation S-X and do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation of the results of operations for
the interim periods have been included. For further information, refer to the
consolidated financial statements and footnotes included in the company's
Annual Report on Form 10-K for the year ended January 2, 1999.
NOTE B - Earnings Per Share Computation
The following table reconciles the weighted average shares outstanding used to
calculate basic and diluted earnings per share.
1999 1998
---------- ----------
Net earnings -
basic and diluted $ 30.3 $ 36.4
========== ==========
Basic earnings per share -
weighted average shares 89,446,295 89,483,372
Dilutive effect of
employee stock options 195,499 1,036,763
---------- ==========
Diluted earnings per share -
weighted average shares 89,641,794 90,520,135
========== ==========
NOTE C - Inventories
The components of inventories at the end of the first quarter of 1999
and at year-end 1998, in millions of dollars, are as follows:
April 3 January 2
1999 1999
------ ------
Finished products $ 266.4 $ 273.3
Work in process 50.8 52.5
Raw materials 50.4 55.1
------ ------
$ 367.6 $ 380.9
====== ======
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NOTE D - Cash Flow Information
Interest paid during the first quarters of 1999 and 1998 amounted to $8.7
million and $6.9 million, respectively.
Income taxes paid during the first quarters of 1999 and 1998 were $8.0
million and $9.4 million, respectively.
NOTE E - New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting For Derivative
Instruments and Hedging Activities," which is effective in fiscal year 2000.
The adoption of this standard is not expected to have a material impact on the
company's balance sheet, operating results or cash flows.
NOTE F - Long-Term Debt
Strategic changes were made in the company's debt portfolio during the first
quarter of 1999. In 1998, funding for working capital and the acquisition of
ZAG Industries was provided by increased short-term borrowings. Short-term
sources of funds were used at that time with the intent of securing medium
term financing for the acquisition component of the requirement in the near
future. In the first quarter 1999, the company issued $120 million of 5 year
debt to capitalize on the current rate environment and reduce its reliance on
short-term sources of funds.
-7-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The company's goal is to become one of the world's Great Brands,
delivering sustained, profitable growth. To achieve this goal the company
has undertaken a major restructuring to consolidate manufacturing and
distribution operations, simplify the organizational structure and make
other changes to position itself as a low cost producer. The savings
associated with those changes are targeted for reinvestment in growth
initiatives such as new product and brand development. In the first
quarter of 1999, progress was visible, however, the company continues to
be hampered by fundamental operating inefficiencies in manufacturing and
distribution.
Net sales were $684 million, up 2% from $672 million in the same quarter
last year. ZAG Industries Ltd.("ZAG"), which was acquired in mid-1998,
contributed 3% to the sales growth. This growth was offset partially by a
1% reduction in sales from ongoing businesses. This decline was primarily
caused by weak economies in Europe and Latin America combined with
inefficiencies stemming from the closure of a European distribution
center, assimilating a new European sales organization, and pricing
competitiveness within the company's European fastening systems business.
Sales growth in several U.S. businesses -- mechanics tools, hand tools,
doors, and fastening systems partially offset this decline in ongoing
business. The net effect of pricing and foreign currency translation was
negligible.
The company's restructuring initiatives require expenditures which affect
the financial statements. Restructuring-related transition costs are
costs resulting from these initiatives that are classified as period
operating expenses within cost of sales or selling, general and
administrative expense. These include the costs of moving production
equipment, operating duplicate 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 uses
its judgment to determine which costs should be classified as transition
costs based on whether the costs are unusual in nature, incurred only
because of restructuring initiatives and are expected to cease when the
transition activities end. In addition, the company is incurring costs to
remediate its computer and related systems so that these systems will
function properly with regard to date issues related to the year 2000
("Y2K"). Because the presence of restructuring charges, restructuring-
related transition costs and non-recurring Y2K remediation costs obscure
the underlying trends within the company's business, the company also
provides information on its reported results excluding these identifiable
costs. These pro forma or "core" results are the basis of business
segment information. In addition, the narrative regarding results of
operations has been expanded to provide information as to the effects of
these items on each financial statement category.
The company reported gross profit of $232 million, or 34.0% of net sales.
This represented a decrease of 2.1% from $237 million, or 35.3% of net
sales, reported in the first quarter of 1998. Included in the first
quarter cost of sales for 1999 was $6 million of restructuring-related
transition costs, primarily for plant rationalization activities, as
-8-
compared with $4 million recorded in the first quarter of 1998. Core
gross profits were 34.8% of net sales, compared with 35.9% in the first
quarter of 1998. Productivity savings from restructuring and centralized
procurement activities were offset by production and distribution
inefficiencies. As a result of these inefficiencies, the company incurred
incremental costs in the first quarter of 1999 to improve customer
service.
Selling, general and administrative expenses were $173 million, or 25.3%
of net sales, in the first quarter of 1999, as compared with $171
million, or 25.5% of net sales in the first quarter of 1998. The increase
in spending can be fully attributed to a $2 million increase in
restructuring-related transition and other non-recurring costs, which
increased from $12 million in 1998 to $14 million in 1999. The increase
resulted from incremental spending on system conversions for the Y2K
remediation project and certain consulting costs incurred for structural
reorganization and administrative efficiency solutions. To the greatest
extent possible, the Y2K systems solutions are being designed to provide
a common computer platform to directly facilitate the centralization of
functions envisioned by the restructuring initiatives. Y2K costs were $6
million in the first quarter of 1999. On a core basis, selling, general
and administrative expenses declined to 23.2% in the first quarter of
1999 from 23.6% of sales in the first quarter of 1998. This decrease is
the result of savings from the restructuring and other productivity
initiatives but was partially offset by higher selling costs inherent in
the Mac Direct program.
Net interest expense increased to $7.2 million in the first quarter of
1999 from $4.8 million in the first quarter of 1998. This increase
primarily resulted from funding working capital needs and the acquisition
of ZAG.
The company's income tax rate was 36% in the first quarter of 1999,
versus 37.5% last year, reflecting the continued benefit of structural
changes implemented in late 1998.
Net earnings were $30 million, or $.34 per diluted share, compared
with the prior year's net income of $36 million, or $.40 per diluted
share. Net earnings on a core basis, would have been $43 million, or $.48
per diluted share in the first quarter of 1999 compared with $47 million,
or $.51 per diluted share in 1998.
Business Segment Results
In 1998 the company adopted Statement of Financial Accounting Standards
(SFAS) No. 131, "Disclosure about Segments of a Business Enterprise and
Related Information". As a result, the company changed its depiction of
operating segments to Tools and Doors. Prior year amounts have been
restated for comparability. The Tools segment includes carpenters,
mechanics, pneumatic and hydraulic tools as well as tool sets. The Doors
segment includes commercial and residential doors, both automatic and
manual, as well as closet doors and systems, home decor and door and
consumer hardware. The company assesses the performance of its business
segments using core operating profit, which excludes restructuring
charges, restructuring-related transition and other non-recurring costs.
Segment eliminations are also excluded.
As reflected in the table, "Business Segment Information", Tools sales in
the first quarter of 1999 increased to $525 million, or 2.5% over the
-9-
first quarter of 1998. This included the positive impact of the ZAG
acquisition and increases in the Mac Tools and consumer components of the
mechanics tools business. This increase was partially offset by lower
unit volume in hand tools in Europe and Latin America, fastening systems
in Europe and vehicle-assembly air tools. The Tools segment core
operating profit was 12.7% of net sales for the first quarter of 1999,
compared with 13.1% of net sales in the same period last year. The
strength of Mac Tools Mac Direct venture was offset by the effects of the
customer service related cost inefficiencies.
Doors segment sales decreased to $158 million, approximately 1% below
1998's first quarter. Double-digit sales unit volume increases in
residential entry doors and access technologies in North America, as well
as home decor products in Europe, were more than offset by declines in
U.S. hardware and Canadian home decor sales, combined with the negative
impact of the 1998 divestiture of Access Technologies' European business.
The Doors segment core operating profit decreased to 8.1% of net sales in
the first quarter of 1999, compared with 9.4% of net sales in the same
period last year, largely due to a continuing shift in the mix of product
to lower-margin retail channels.
Restructuring
Reserves established for restructuring activities at the end of 1998 were
$110 million, of which $73 million related to severance, and $37 million
to environmental remediation and other exit costs. Severance of $9
million was paid in the first quarter of 1999 and payments for other exit
costs of $1 million also reduced reserves. The reserve balances at the
end of the first quarter were $100 million, of which $64 million related
to severance, and $36 million to environmental remediation and other exit
costs.
FINANCIAL CONDITION
Liquidity and Sources of Capital
In the first quarter of 1999, the company generated $5 million in
operating cash flow compared to a net cash outflow in the first quarter
of 1998 of $21 million. This 1999 first quarter inflow was driven by a
decrease in inventories of $13 million. This inventory decrease is
primarily attributed to recent SKU reductions combined with order fill
rates that are approaching customer-required levels in a number of the
company's business units. Dampening this positive cash inflow was an
increase in accounts receivable of $36 million, primarily the result of
Mac Tools and ZAG growth. In the first quarter of 1998, the net cash
outflow position was primarily generated by a $30 million increase in
inventory levels as the company experienced customer service and other
operational problems, in response to which it built inventory levels.
Capital expenditures were $20 million for the first quarter of 1999
representing a substantial increase over the first quarter of last year.
Investment in capital during 1998, especially the first quarter, was
lower than traditional levels and lower than depreciation and
amortization. Facility consolidations, continued outsourcing and the
Stanley Production System (which focuses on continuous improvement)
collectively reduced the requirement for operating capital on a temporary
basis. The level of spending has returned to more traditional levels
during the first quarter of 1999.
Strategic changes were made in the company's debt portfolio during the
first quarter of 1999. In 1998, funding for working capital and the
-10-
acquisition of ZAG Industries was provided by increased short-term
borrowings. Short-term sources of funds were used at that time with the
intent of securing medium term financing for the acquisition component of
the requirement in the near future. In the first quarter 1999, the
company issued $120 million of 5 year debt to capitalize on the current
rate environment and reduce its reliance on short-term sources of funds.
Year 2000 Update
Since many computer systems and other equipment with embedded chips or
processors use only two digits to represent the year, these business
systems may be unable to process accurately certain data before, during
or after the year 2000. As a result, business and governmental entities
are at risk for possible miscalculations or systems failures causing
disruptions in their business operations. This is commonly known as the
Year 2000 or Y2K issue. The Y2K issue can arise at any point in the
company's supply, manufacturing, distribution and financial chains.
A Y2K project office was established in September 1997 and is staffed
with internal managers who are responsible for oversight and
implementation of the comprehensive Y2K project. Approximately 60% of the
internal information technology resources were committed to Y2K
remediation efforts in the first quarter of 1999. The scope of the
project includes: ensuring the compliance of all applications, operating
systems and hardware on mainframe, PC and LAN platforms; addressing
issues related to software and non-IT embedded systems used in plant and
distribution facilities; and addressing the compliance of key suppliers
and customers. The project has four phases: inventory and assessment of
systems and equipment affected by the Y2K issue; definition of
strategies to address affected systems and equipment; remediation or
replacement of affected systems and equipment; and testing that each is
Y2K compliant.
With respect to ensuring the compliance of all applications, operating
systems and hardware (other than PCs) on the company's various computer
platforms, the assessment and definition of strategies phases have been
completed. It is estimated that 80% of the remediation or replacement
and testing phases have been completed with most of the major information
systems expected to be completed by mid 1999. The inventory of all PC's
and related equipment is 100% complete with assessment, remediation and
testing 50% complete and expected to be fully complete by October 1999.
With respect to addressing issues related to software and non-IT embedded
systems used in the company's manufacturing and distribution facilities,
the assessment and definition of strategies phases have been completed.
The remediation or replacement phase, as well as testing, are expected to
be completed by the end of third quarter 1999.
Based upon the completion dates indicated above, the company does not
anticipate the need to develop contingency plans for remediation projects
related to Y2K.
It is currently estimated that the aggregate cost of the company's Y2K
efforts, which include internal and incremental costs, will be
approximately $95 to $120 million. Approximately $46 million of
incremental costs has been spent to date. It is expected that no more
than 25% of the total cost will be capitalized.
-11-
The company relies on numerous third party suppliers in the operation of
its business. Interruption in the operations of any material supplier
due to Y2K issues could affect company operations. The company has
initiated efforts to evaluate the status of its most critical suppliers'
progress and this process is expected to be complete by mid 1999.
In addition, interruptions in customers' operations due to Y2K issues
could result in reduced sales, increased inventory or receivable levels
and cash flow reductions. While these events are possible, the company's
customer base is broad enough to minimize the impact of the failure of
any single customer interface. The company is currently assessing its
customer interfaces and expects to begin testing by mid 1999.
Risk/Cautionary Statements
The statements contained in this Quarterly Report on Form 10Q for the quarter
ended April 3, 1999 regarding the Company's ability to achieve operational
excellence and deliver sustained, profitable growth, (e.g., sales growth at
twice the industry rate, earnings growth in the low to mid teens and dividend
growth), are forward looking and inherently subject to risk and uncertainty.
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 increase the effectiveness of its
routine business processes 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 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 and to design and implement strategies to effectively
commercialize the new product ideas. 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 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.
Many statements contained in the discussion of the state of the company's
Y2K readiness are forward looking and are inherently subject to risk and
-12-
uncertainty. The nature, scope and cost of the company's Y2K project is
based on management's best estimates. These estimates are based in part
on information obtained from third parties (including customers,
suppliers and consultants hired to assist in the Y2K compliance program)
and in part on numerous assumptions regarding future events (including
the ability of software vendors to implement new operating systems or
deliver upgrades and repairs as promised, the availability of new
computer hardware and consultants to meet the company's planned needs).
Due to the general level of uncertainty inherent in Y2K analysis, the
company is unable to determine conclusively whether the consequences of
potential Y2K failures by either the company or its customers and key
suppliers will have a material impact on the company's results of
operations, liquidity or financial condition. It is likely, however,
that if the company is unable to complete its Y2K project as planned or
if the company's key suppliers and customers or a sizable number of its
smaller suppliers and customers fail to remediate their systems, this
will have a material adverse impact on the company's results of
operations, liquidity and financial condition. The company's Y2K project
is expected to significantly reduce the company's level of uncertainty
about the Y2K problem, and to reduce the likelihood of risk of
interruptions to routine business operations.
-13-
PART II OTHER INFORMATION
Item 2. - Changes in Securities and Use of Proceeds
(c) Recent Sales of Unregistered Securities
(1) During the first fiscal quarter of 1999, 1,799 shares were issued under
the Company's U.K. Savings Related Share Plan (the "Savings Plan"). Under the
Saving Plan, shares are issued to employees who elect at the end of the five
year savings period or upon termination of employment to receive the
accumulated savings in the form of shares of the Company's stock rather than
cash.
(a) Participation in the Savings Plan is offered to all employees of the
Company's subsidiaries in the United Kingdom.
(b) The total dollar value of the shares issued during the quarter was
$30,362.43.
Under the Savings Plan:
176 shares were issued at $18.15 per share with an aggregate value of
$3,194.40.
514 shares were issued at $15.5334 per share with an aggregate value
of $7,984.17.
942 shares were issued at $15.8834 per share with an aggregate value
of $14,962.16.
146 shares were issued at $24.15 per share with an aggregate value of
$3,525.90.
21 shares were issued at $33.1333 per share with an aggregate value of
$695.80.
(c) Neither the options nor the underlying shares have been registered in
reliance on an exemption from registration found in several no-action
letters issued by the Division of Corporation Finance of the
Securities and Exchange Commission. Registration is not required
because the Company is a reporting company under the Securities
Exchange Act of 1934, its shares are actively traded, the number of
shares issuable under the Savings Plans is small relative to the
number of shares outstanding, all eligible employees are entitled to
participate, the shares are being issued in connection with the
employees' compensation, not in lieu of it and there is no
negotiation between the Company and the employee regarding the grant.
(d) Under the Savings Plans, employees are given the right to buy a
specified number of shares with the proceeds of a "Save-as-You-Earn"
savings contract. Under the savings contract, the employee
authorizes 60 monthly deductions from his or her paycheck At the end
of the five year period, the employee may elect to (i) use all or a
part of the accumulated savings to buy all or some of the shares
under the employee's options, (ii) leave the accumulated savings with
the financial institution that has custody of the funds for an
additional two years or (iii) take a cash distribution of the
accumulated savings. The option to purchase shares will lapse at the
end of the five year period if not exercised at that time.
-14-
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
(1) See Exhibit Index on page 16.
(b) Reports on Form 8-K.
(1) Registrant filed a Current Report on Form 8-K, dated January
19, 1999, in respect of the Registrant's press release
announcing an agreement with the Federal Trade Commission
relating to Made in USA labeling.
(2) Registrant filed a Current Report on Form 8-K, dated January
28, 1999, in respect of the Registrant's press release
announcing fourth quarter and year end results.
(3) Registrant filed a Current Report on Form 8-K, dated February
24, 1999, which contained an Underwriting Agreement, Terms
Agreement between the Registrant and Goldman, Sachs &
Co. and Salomon Smith Barney Inc., and Note relating to the
offer and sale of debt in the principal amount of $120,000,000
at an interest rate of 5.75%.
(4) Registrant filed a Current Report on Form 8-K, dated March 15,
1999, discussing the Registrant's new business segment
presentation and the restated Business Segment Information for
fiscal years 1998, 1997, 1996 and quarterly Business Segment
Information for fiscal year 1998.
-15-
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: May 18, 1999 By: Theresa F. Yerkes
Theresa F. Yerkes
Vice President and
Controller (Chief Financial
Officer, Chief Accounting
Officer and Authorized
Signatory of the Registrant)
-16-
EXHIBIT INDEX
EXHIBIT LIST
(12) Computation of Ratio of Earnings to Fixed Charges
(27) Financial Data Schedule
-17-
THE STANLEY WORKS AND SUBSIDIAIRES
COMPUTATION OF EARNINGS TO FIXED CHARGES
(In Millions of Dollars)
FIRST QUARTER
1999 1998
------ ------
Earnings before income taxes $47.4 $58.2
Add:
Interest expense 8.7 6.8
Portion of rents representative of
interest factor 3.8 2.9
Amortization of expense on long-
term debt 0.1 -
------ ------
Income as adjusted $60.0 $67.9
====== ======
Fixed charges:
Interest expense $8.7 $6.8
Portion of rents representative of
interest factor 3.8 2.9
Amortization of expense on long-
term debt 0.1 -
------ ------
Fixed charges $12.6 $9.7
====== ======
Ratio of earnings to fixed charges 4.76 7.00
====== ======
<TABLE> <S> <C>
<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> 3-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> APR-03-1999
<CASH> 80,500
<SECURITIES> 0
<RECEIVABLES> 552,900
<ALLOWANCES> 0
<INVENTORY> 367,600
<CURRENT-ASSETS> 1,085,500
<PP&E> 1,184,900
<DEPRECIATION> 697,700
<TOTAL-ASSETS> 1,901,400
<CURRENT-LIABILITIES> 711,800
<BONDS> 306,700
0
0
<COMMON> 230,900
<OTHER-SE> 442,800
<TOTAL-LIABILITY-AND-EQUITY> 1,901,400
<SALES> 683,700
<TOTAL-REVENUES> 683,700
<CGS> 451,400
<TOTAL-COSTS> 451,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,200
<INCOME-PRETAX> 47,400
<INCOME-TAX> 17,100
<INCOME-CONTINUING> 30,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,300
<EPS-PRIMARY> .34
<EPS-DILUTED> .34
</TABLE>
