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 1, 2000.
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 87,632,691 as of May 12, 2000.
<PAGE>
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
2000 1999
------ ------
Net Sales $ 695.4 $ 683.7
Costs and Expenses
Cost of sales 438.0 451.4
Selling, general and
administrative 171.9 173.1
Interest - net 6.5 7.2
Other - net 6.0 4.6
------ ------
622.4 636.3
------ ------
Earnings Before
Income Taxes 73.0 47.4
Income Taxes 24.8 17.1
------ ------
Net Earnings $ 48.2 $ 30.3
====== ======
Net Earnings Per Share
of Common Stock
Basic $ 0.54 $ 0.34
====== ======
Diluted $ 0.54 $ 0.34
====== ======
Dividends Per Share $ 0.22 $ 0.215
====== ======
Average Shares Outstanding
(in thousands)
Basic 88,936 89,446
====== ======
Diluted 89,158 89,642
====== ======
See notes to consolidated financial statements.
-1-
<PAGE>
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, Millions of Dollars)
April 1 January 1
2000 2000
-------- --------
ASSETS
Current Assets
Cash and cash equivalents $ 128.9 $ 88.0
Accounts and notes receivable 584.4 546.1
Inventories 390.8 381.2
Other current assets 75.5 75.7
-------- --------
Total Current Assets 1,179.6 1,091.0
Property, plant and equipment 1,227.2 1,208.0
Less: accumulated depreciation (705.0) (687.4)
-------- --------
522.2 520.6
Goodwill and other intangibles 181.6 185.2
Other assets 84.3 93.8
-------- --------
$ 1,967.7 $ 1,890.6
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities
Short-term borrowings $ 278.7 $ 145.3
Current maturities of long-term debt 11.6 11.7
Accounts payable 223.2 225.0
Accrued expenses 295.4 311.0
-------- --------
Total Current Liabilities 808.9 693.0
Long-Term Debt 277.4 290.0
Other Liabilities 167.1 172.2
Shareowners' Equity
Common stock 230.9 230.9
Retained earnings 938.2 926.9
Accumulated other comprehensive loss (103.6) (99.2)
ESOP debt (200.4) (202.2)
-------- --------
865.1 856.4
Less: cost of common stock in treasury 150.8 121.0
-------- --------
Total Shareowners' Equity 714.3 735.4
-------- --------
$ 1,967.7 $ 1,890.6
======== ========
See notes to consolidated financial statements.
-2-
<PAGE>
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, Millions of Dollars)
First Quarter
2000 1999
----- -----
Operating Activities
Net earnings $ 48.2 $ 30.3
Depreciation and amortization 23.7 24.1
Other non-cash items 7.2 4.4
Changes in operating assets
and liabilities (81.6) (54.3)
----- -----
Net cash provided (used) by
operating activities (2.5) 4.5
Investing Activities
Capital expenditures (15.4) (20.4)
Capitalized software (0.6) (4.6)
Proceeds from sales of assets 0.7 5.4
Other (3.5) (1.9)
----- -----
Net cash used by
investing activities (18.8) (21.5)
Financing Activities
Payments on long-term borrowings (3.7) (153.7)
Proceeds from long-term borrowings - 120.9
Net short-term borrowings 131.6 42.2
Proceeds from issuance of common stock 1.0 1.6
Purchase of common stock for treasury (45.0) (2.2)
Cash dividends on common stock (19.5) (19.1)
----- -----
Net cash provided (used) by
financing activities 64.4 (10.3)
Effect of Exchange Rate Changes on Cash (2.2) (2.3)
----- -----
Increase (decrease) in Cash and
Cash Equivalents 40.9 (29.6)
Cash and Cash Equivalents,
Beginning of Period 88.0 110.1
----- -----
Cash and Cash Equivalents,
End of First Quarter $128.9 $ 80.5
===== =====
See notes to consolidated financial statements.
-3-
<PAGE>
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. 1, 2000 $230.9 $926.9 $(99.2) $(202.2) $(121.0) $735.4
Comprehensive income:
Net earnings 48.2
Foreign currency
translation (4.4)
Total comprehensive
income 43.8
Cash dividends
declared (19.5) (19.5)
Net common stock
activity (18.0) (29.8) (47.8)
ESOP debt 1.8 1.8
ESOP tax benefit 0.6 0.6
---------------------------------------------------------
Balance Apr. 1, 2000 $230.9 $938.2 $(103.6) $(200.4) $(150.8) $714.3
=========================================================
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
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
=========================================================
See notes to consolidated financial statements.
-4-
<PAGE>
THE STANLEY WORKS AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(Unaudited, Millions of Dollars)
First Quarter
2000 1999
------ ------
INDUSTRY SEGMENTS
Net Sales
Tools $ 543.7 $ 525.4
Doors 151.7 158.3
------ ------
Consolidated $ 695.4 $ 683.7
====== ======
Operating Profit
Tools $ 74.1 $ 66.5
Doors 11.4 12.9
------ ------
85.5 79.4
Restructuring-related
transition and other
non-recurring costs - (20.2)
Interest-net (6.5) (7.2)
Other-net (6.0) (4.6)
------ ------
Earnings Before
Income Taxes $ 73.0 $ 47.4
====== ======
GEOGRAPHIC NET SALES
United States $ 498.5 $ 484.8
Other Americas 49.9 46.5
Europe 123.1 129.2
Asia 23.9 23.2
------ ------
Consolidated $ 695.4 $ 683.7
====== ======
See notes to consolidated financial statements.
-5-
<PAGE>
THE STANLEY WORKS AND SUBSIDIARIES
NOTES TO (Unaudited) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 1, 2000
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 1, 2000.
NOTE B - Earnings Per Share Computation
The following table reconciles the weighted average shares outstanding used to
calculate basic and diluted earnings per share.
2000 1999
---------- ----------
Net earnings -
basic and diluted $ 48.2 $ 30.3
========== ==========
Basic earnings per share -
weighted average shares 88,936,115 89,446,295
Dilutive effect of
employee stock options 221,778 195,499
---------- ----------
Diluted earnings per share -
weighted average shares 89,157,893 89,641,794
========== ==========
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<PAGE>
NOTE C - Inventories
The components of inventories at the end of the first quarter of 2000 and at
year-end 1999, in millions of dollars, are as follows:
April 1 January 1
2000 2000
------ ------
Finished products $ 277.8 $ 269.0
Work in process 51.5 48.3
Raw materials 61.5 63.9
------ ------
$ 390.8 $ 381.2
====== ======
NOTE D - Cash Flow Information
Interest paid during the first quarters of 2000 and 1999 amounted to $12.3
million and $8.7 million, respectively.
Income taxes paid during the first quarters of 2000 and 1999 were $11.9 million
and $8.0 million, respectively.
-7-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales were $695 million, up 2% from $684 million in the same quarter last
year. The increase was driven by an overall unit volume increase of 3% which was
offset partially by a 1% reduction in sales from the effect of foreign currency
translation (primarily weakening European currencies). The company experienced
strong sales volume growth in the consumer hand tools, industrial and consumer
mechanics tools, fastening system operations, and the vehicle assembly air tools
business within the Americas. These increases were partially offset by the
lingering effects of a major U.S. retail customer's 1999 bankruptcy on the
Hardware business and temporary lower demand for doors in the Americas caused by
a high previous quarter program-driven demand.
Financial results presented for the first quarter of 1999 include transition
expenses related to the company's restructuring initiatives. These costs are
classified as period operating expenses within cost of sales or selling, general
and administrative expense. They 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 restructuring.
Management's judgment was used to determine which costs should be classified as
transition costs based on whether the costs were unusual in nature, were
incurred only because of restructuring initiatives and were expected to cease
when the transition activities ended. In addition, the company incurred costs to
remediate its computer and related systems so that these systems would 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 results for the
first quarter of 1999 excluding these identifiable costs. These pro forma or
"core" results are the basis of business segment information. The narrative
regarding results of operations has also been expanded to provide information as
to the effects of these items on each financial statement category. Effective in
the third quarter 1999, these costs were no longer disclosed separately as they
were essentially eliminated.
The company reported gross profit of $257 million, or 37.0% of net sales. This
represented an increase of 10.8% from $232 million, or 34.0% of net sales,
reported in the first quarter of 1999. Included in the first quarter cost of
sales for 1999 are $6 million of restructuring-related transition costs,
primarily for plant rationalization activities. Core gross profit as a percent
of sales for the first quarter of 1999 was 34.8%. This significant improvement
is attributable to a combination of improved cost controls in operations, the
benefits of the company's restructuring initiatives, higher unit volumes and
continued progress on purchased material costs despite inflationary pressures.
-8-
<PAGE>
Selling, general and administrative expenses were $172 million, or 24.7% of net
sales, in the first quarter of 2000, as compared with $173 million, or 25.3% of
net sales in the first quarter of 1999. Included in the first quarter expenses
for 1999 were $14 million in restructuring-related transition and other
non-recurring costs related to system conversions for Y2K remediation projects
and consulting costs for structural reorganization and administrative efficiency
solutions. On a core basis, selling, general and administrative expenses were
23.2% of net sales in the first quarter of 1999. The increase of $13 million in
2000 from the core 1999 selling, general and administrative expenses is
primarily the result of increased distribution costs, information management
infrastructure costs and selling and administrative costs related to an
increased number of sales representatives in the MacDirect program.
The company's income tax rate was 34% in the first quarter of 2000 compared with
36% in the first quarter 1999 and 35% in the fourth quarter of 1999. The
continued reduction in the effective tax rate is the result of structural
changes in the company's operations toward lower cost tax jurisdictions.
Net earnings were $48 million, or $.54 per diluted share, compared with the
prior year's net income of $30 million, or $.34 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.
Business Segment Results
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 performance of the company's business
segments in the first quarter of 1999 is presented using core operating profit,
which excludes restructuring charges, restructuring-related transition and other
non-recurring costs. Segment eliminations are also excluded from the business
segment results.
As reflected in the table, "Business Segment Information", Tools sales in the
first quarter of 2000 increased to $544 million, or 3.5% over the first quarter
of 1999. This increase was driven by strong unit volume growth in the consumer
hand tools, industrial and consumer mechanic tools, fastening system operations,
and the vehicle assembly air tools business within the Americas. The Tools
segment core operating profit was 13.6% of net sales for the first quarter of
2000, compared with 12.7% of net sales in the same period last year. This
improvement is attributable to a combination of improved cost controls in
operations, the benefits of the company's restructuring initiatives, and higher
unit volumes.
Doors segment sales decreased to $152 million, approximately 4% below 1999's
first quarter, due to the lingering effects of a major U.S. retail customer's
1999 bankruptcy on the Hardware business and temporary lower demand for doors in
the Americas. The Doors segment core operating profit decreased to 7.5% of
-9-
<PAGE>
net sales in the first quarter of 2000, compared with 8.1% of net sales in the
same period last year, largely due to lower volume and a continuing shift in the
mix of product to lower-margin retail channels.
Restructuring
Restructuring reserves as of the beginning of 2000 were $58 million. These
reserves consisted of $42 million related to severance, $10 million related to
asset write-downs, and $6 million related to other exit costs. In the first
quarter of 2000, severance of $7 million, fixed asset write-downs of $4 million,
and payments for other exit costs of $1 million reduced these reserves to $46
million.
FINANCIAL CONDITION
Liquidity and Sources of Capital
In the first quarter of 2000, the company used $2 million in operating cash flow
compared with a net cash inflow in the first quarter of 1999 of $4 million.
Accounts receivable increased $38 million during the first quarter of 2000,
which is comparable to the prior year increase of $36 million, as a result of
normal seasonal monthly sales patterns. Inventories increased $10 million during
the first quarter of 2000, primarily in the U.S. consumer hand tools and
mechanics tools businesses.
In the first quarter of 2000, the company repurchased 2 million of its common
shares. The company plans to continue its share repurchase program from time to
time. Short-term borrowings were utilized to fund these repurchases as well as
increased levels of working capital. In 1999 the company issued $120 million of
5 year debt to capitalize on favorable interest rates and reduce its reliance on
short-term sources of funds which had been opportunistically used to fund the
ZAG acquisition.
-10-
<PAGE>
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 2000, 236 shares at $15.8834 per share
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 $3,748.48.
(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 Plan, 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.
-11-
<PAGE>
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
(1) See Exhibit Index on page 14.
(b) Reports on Form 8-K.
(1) Registrant filed a Current Report on Form 8-K, dated
January 27, 2000, in respect of the Registrant's
press release announcing fourth quarter 1999 results and
first quarter 2000 dividends and distributing supplemental
fourth quarter information to investors and analysts in
advance of a teleconference call.
(2) Registrant filed a Current Report on Form 8-K, dated
February 11, 2000, disclosing earnings guidance for the
first quarter and full year 2000 given at a presentation
to analysts.
-12-
<PAGE>
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 16, 2000 By: James M. Loree
James M. Loree
Vice President, Finance and
Chief Financial Officer
By: Theresa F. Yerkes
Theresa F. Yerkes
Vice President and
Controller (Chief Accounting
Officer)
-13-
<PAGE>
EXHIBIT INDEX
EXHIBIT LIST
(12) Computation of Ratio of Earnings to Fixed Charges
(27) Financial Data Schedule
-14-
Exhibit 12
THE STANLEY WORKS AND SUBSIDIAIRES
COMPUTATION OF EARNINGS TO FIXED CHARGES
(In Millions of Dollars)
FIRST QUARTER
2000 1999
------ ------
Earnings before income taxes $73.0 $47.4
Add:
Interest expense 7.8 8.7
Portion of rents representative of
interest factor 3.6 3.8
Amortization of expense on long-
term debt - 0.1
------ ------
Income as adjusted $84.4 $60.0
====== ======
Fixed charges:
Interest expense $7.8 $8.7
Portion of rents representative of
interest factor 3.6 3.8
Amortization of expense on long-
term debt - 0.1
------ ------
Fixed charges $11.4 $12.6
====== ======
Ratio of earnings to fixed charges 7.40 4.76
====== ======
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-2000
<PERIOD-END> APR-01-2000
<CASH> 128,900
<SECURITIES> 0
<RECEIVABLES> 584,400
<ALLOWANCES> 0
<INVENTORY> 390,800
<CURRENT-ASSETS> 1,179,600
<PP&E> 1,227,200
<DEPRECIATION> 705,000
<TOTAL-ASSETS> 1,967,700
<CURRENT-LIABILITIES> 808,900
<BONDS> 277,400
0
0
<COMMON> 230,900
<OTHER-SE> 483,400
<TOTAL-LIABILITY-AND-EQUITY> 1,967,700
<SALES> 695,400
<TOTAL-REVENUES> 695,400
<CGS> 438,000
<TOTAL-COSTS> 438,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,500
<INCOME-PRETAX> 73,000
<INCOME-TAX> 24,800
<INCOME-CONTINUING> 48,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,200
<EPS-BASIC> .54
<EPS-DILUTED> .54
</TABLE>
