Savings Plan for Salaried Employees of The Stanley Works
Audited Financial Statements
and Supplemental Schedules
Years ended December 31, 1993 and 1992
Contents
Report of Independent Auditors 1
Audited Financial Statements
Statement of Financial Condition at December 31, 1993 2
Statement of Financial Condition at December 31, 1992 3
Statement of Income and Changes in Plan Equity for the Year Ended
December 31, 1993 4
Statement of Income and Changes in Plan Equity for the Year Ended
December 31, 1992 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
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
Savings Plan for Salaried Employees of The Stanley Works as of December
31, 1993 and 1992, 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, 1993 and 1992, and its income and changes in plan equity for
the years then ended, in conformity with generally accepted accounting
principles.
Our audits were made 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, 1993, 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 1993 financial statements and, in our
opinion, are fairly stated in all material respects in relation to the
1993 financial statements taken as a whole.
Ernst & Young
March 18, 1994
Savings Plan for Salaried Employees of The Stanley Works
Statement of Financial Condition
December 31, 1993
Stanley Unallocated
Stock Loan Stanley
Fund Fund Stock Fund Total
Assets
Investments, at current market
value:
The Stanley Works
Common Stock:
3,165,104 shares (cost
$77,647,302) $140,847,128 $140,847,128
5,044,086 shares
(cost $181,564,822) $224,461,827 224,461,827
Short-term investments 1,021,005 7,683 1,028,688
-------------------------------------------------
141,868,133 224,469,510 366,337,643
Dividends and
interest receivable 1,073,558 1,724,163 2,797,721
Loans to participants $5,500,195 5,500,195
Due from Savings Plan for
Hourly Paid Employees
of The Stanley Works 157,530 157,530
--------------------------------------------------
$143,099,221 $5,500,195 226,193,673 374,793,089
==================================================
Liabilities and plan equity
Liabilities:
Due to Retirement Plan for
Salaried Employees of
The Stanley Works $ 163,434 $ 163,434
Debt 199,879,591 199,879,591
Deferred employer
contributions 1,088,466 1,088,466
Plan forfeitures 206,022 206,022
Benefits payable 1,402,969 1,402,969
--------------------------------------------------
2,860,891 199,879,591 202,740,482
Plan equity 140,238,330 $ 5,500,195 26,314,082 172,052,607
---------------------------------------------------
$143,099,221 $ 5,500,195 226,193,673 374,793,089
===================================================
<FN>
See accompanying notes.
Savings Plan for Salaried Employees of The Stanley Works
Statement of Financial Condition
December 31, 1992
Stanley Unallocated
Stock Loan Stanley
Fund Fund Stock Fund Total
Assets
Investments, at current market
value:
The Stanley Works
Common Stock:
3,009,472 shares (cost
$70,556,560) $127,902,560 $127,902,560
5,352,255 shares
(cost $191,291,733) $227,470,838 227,470,838
Short-term investments 864,000 3,000 867,000
----------------------------------------------------
128,766,560 227,473,838 356,240,398
Cash (overdraft) 716 (165) 551
Dividends and interest
receivable 987,573 1,778,028 2,765,601
Loans to participants $ 5,569,694 5,569,694
Due from Savings Plan for
Hourly Paid Employees
of The Stanley Works 95,753 95,753
-----------------------------------------------------
$129,850,602 $ 5,569,694 $229,251,701 $364,671,997
=====================================================
Liabilities and plan equity
Liabilities:
Due to Retirement Plan for
Salaried Employees of
The Stanley Works $ 163,434 $ 163,434
Debt $204,922,630 204,922,630
Deferred employer
contributions 923,336 923,336
Plan forfeitures 210,772 210,772
Benefits payable 712,775 712,775
--------------------------------------------------
2,010,317 204,922,630 206,932,947
Plan equity 127,840,285 $ 5,569,694 24,329,071 157,739,050
----------------------------------------------------
$129,850,602 $ 5,569,694 229,251,701 364,671,997
====================================================
<FN>
See accompanying notes.
Savings Plan for Salaried Employees of The Stanley Works
Statement of Income and Changes in Plan Equity
Year ended December 31, 1993
Stanley Unallocated
Stock Loan Stanley
Fund Fund Stock Fund Total
Investment income:
Dividends $ 4,188,809 $ 6,921,604 $ 11,110,413
Interest 41,528 $ 384,173 33,853 459,554
----------------------------------------------------
4,230,337 384,173 6,955,457 11,569,967
Net realized and unrealized
appreciation in The Stanley
Works Common Stock 9,730,283 6,717,900 16,448,183
Contributions:
Employee 11,294,400 11,294,400
Employer 5,994,747 5,994,747
Transfers from Savings Plan for
Hourly Paid Employees of
The Stanley Works 139,047 139,047
----------------------------------------------------
17,428,194 17,428,194
Withdrawals:
In cash (10,437,951) (10,437,951)
In The Stanley Works Common
Stock (3,581,491 (3,581,491)
Transfers to Retirement Plan for
Salaried Employees of The
Stanley Works (284,789) (284,789)
---------------------------------------------------
(14,304,231) (14,304,231)
Administrative
expenses (120,533) (120,533)
Plan forfeitures (206,022) (206,022)
Interest expense (16,502,001) (16,502,001)
Interfund
transfers--net (4,359,983) (453,672) 4,813,655
---------------------------------------------------
Net
increase (decrease) 12,398,045 (69,499) 1,985,011 14,313,557
Plan equity at
beginning of year 127,840,285 5,569,694 24,329,071 157,739,050
-----------------------------------------------------
Plan equity at
end of year $140,238,330 $5,500,195 $ 26,314,082 $172,052,607
=====================================================
<FN>
See accompanying notes.
Savings Plan for Salaried Employees of The Stanley Works
Statement of Income and Changes in Plan Equity
Year ended December 31, 1992
Stanley Unallocated
Stock Loan Stanley
Fund Fund Stock Fund Total
Investment income:
Dividends $ 3,737,041 $ 7,059,682 $ 10,796,723
Interest 38,805 $ 388,759 46,182 473,746
---------------------------------------------------
3,775,846 388,759 7,105,864 11,270,469
Net realized and unrealized
appreciation in The
Stanley Works Common
Stock 9,277,986 4,452,040 13,730,026
Contributions:
Employee 11,061,742 11,061,742
Employer 5,099,206 5,099,206
Transfers from Savings
Plan for Hourly Paid
Employees of
The Stanley Works 359,926 359,926
----------------------------------------------------
16,520,874 16,520,874
Withdrawals:
In cash (8,748,952) (8,748,952)
In The Stanley Works
Common Stock (3,156,367) (3,156,367)
Transfers to Retirement
Plan for Salaried
Employees of The
Stanley Works (362,675) (362,675)
----------------------------------------------------
(12,267,994) (12,267,994)
Administrative expenses (83,734) (83,734)
Plan forfeitures (210,772) (210,772)
Interest expense (16,916,982) (16,916,982)
Interfund transfers--net(4,768,886) (53,186) 4,822,072 -
----------------------------------------------------
Net increase (decrease) 12,243,320 335,573 (537,006) 12,041,887
Plan equity at
beginning of year 115,596,965 5,234,121 24,866,077 145,697,163
-----------------------------------------------------
Plan equity at
end of year $127,840,285 $5,569,694 $24,329,071 $157,739,050
======================================================
<FN>
See accompanying notes.
Savings Plan for Salaried Employees of The Stanley Works
Notes to Financial Statements
December 31, 1993
1. Significant Accounting Policies
Investments
Plan investments consist primarily of shares of The Stanley
Works Common Stock (hereinafter referred to as Stanley Stock,
Common Stock or shares). The Stanley Works Common 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.
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 Stanley Works (the
Company) are paid by the Plan.
Reclassifications
Certain amounts for 1992 have been reclassified to conform to
1993 presentation.
2. Description of the Plan
The 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 Plan is a voluntary savings, defined contribution plan for
eligible United States salaried employees of The Stanley Works.
Participants may contribute, through pre-tax payroll
deductions, generally up to 12% of their salary. Participant
contributions are matched in an amount equal to 50% of a
participant's pre-tax contribution to a maximum of 3 1/2% of
the participant's salary.
Effective July 1, 1985, participant and Company matching
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, 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. This investment return
guarantee also is applicable to total cumulative retirement
account balances and cumulative employee savings account
balances at June 30, 1985.
Savings Plan for Salaried Employees of The Stanley Works
Notes to Financial Statements (continued)
2. Description of the Plan (continued)
The assets of the Plan are held in trust by an independent
corporate trustee (the Trustee) pursuant to the terms of a
written Trust Agreement between the Trustee and the Company.
State Street Bank and Trust Company has been selected by the
Board of Directors of the Company as Trustee.
Participants are vested in 100% of the value of 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.
Benefits generally are distributed upon termination of
employment from death, disability, retirement or other
termination. Normally, a lump-sum distribution is made in cash
or shares of Common Stock or, in certain cases, a combination
thereof, at the election of the participant.
During active employment, subject to financial hardship rules,
participants may withdraw, in cash only, all or a portion of
vested amounts in their accounts.
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. 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. Starting in 1989, a participant may take up to ten years
to repay the loan if the money is used to purchase a principal
residence. Only one loan per participant may be outstanding at
any time.
Effective for loans made after 1986, 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. 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 Plan with respect to the
participant's account value attributable to the outstanding
loan balance.
The Plan borrowed $54,500,000 from a group of financial
institutions and $153,500,000 from the Company (see Notes 3 and
4) to acquire 1,683,213 and 4,134,680 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 loan agreement with the financial
institutions, the Company guaranteed the loan and is obligated
to make annual contributions sufficient to enable the Plan to
repay the loan plus interest.
Savings Plan for Salaried Employees of The Stanley Works
Notes to Financial Statements (continued)
2. Description of the Plan (continued)
The Unallocated Fund makes monthly transfers of shares, in
accordance with Plan provisions, to the Stanley Stock Fund in
return for proceeds equivalent to the closing fair market value
of the shares on the day prior to the transfer date. These
proceeds, along with dividends received on allocated and
unallocated shares and additional Company contributions, if
necessary, are used to make monthly payments of principal and
interest on the debt. Remaining unallocated dividends, if any,
are applied to reduce the Company's matching contributions. As
dividends on the allocated shares are applied to the payment of
debt service, 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. Forfeitures of nonvested employee
accounts are used to reduce Company matching contributions.
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.
Each participant is entitled to exercise voting rights
attributable to the shares allocated to the participant's
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 Plan at any
time, subject to Plan provisions. Upon such termination of the
Plan, the interest of each participant in the trust fund will
be distributed to such participant at the time prescribed by
the Plan terms and the Internal Revenue Code.
The Plan sponsor has engaged The Wyatt Company to maintain
separate accounts for each participant. Such accounts are
credited with each participant's contributions, the allocated
portion of the Company's matching contribution, related gains,
losses and dividend income, and loan activity.
There were 4,547 and 4,532 participants (4,002 and 4,100 of
whom were active employees) in the Plan as of December 31, 1993
and 1992, respectively, of whom 1,127 and 1,128, respectively,
had loans outstanding.
Savings Plan for Salaried Employees of The Stanley Works
Notes to Financial Statements (continued)
3. Debt
Debt consisted of the following at December 31:
1993 1992
Note payable in monthly installments to 1993
with interest at 6.78% $1,750,000
Note payable in monthly installments to 2001
with interest at 7.71% $47,496,679 50,406,710
Note payable to the Company in monthly
installments to 2026
with interest at 8.3% 152,382,912 152,765,920
---------------------------
$199,879,591 $204,922,630
==========================
The scheduled maturities of debt for the next five years are as
follows: 1994--$4,981,000; 1995--$5,718,000; 1996--$5,470,000;
1997--$5,860,000 and 1998--$6,350,000.
The note payable to the Company is secured by shares held in
the Unallocated Stock Fund. The number of shares held as
security is reduced as shares are released to the Stanley Stock
Fund pursuant to principal and interest payments. During the
year, 112,610 shares were released and at December 31, 1993,
3,843,852 shares were pledged as security.
Payment of the Plan's debt has been guaranteed by the Company.
Should the principal and interest due exceed the dividends paid
on shares held 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 1993 and 1992 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 Stanley Works. Fees incurred and
paid by the Plan during 1993 and 1992 were $120,533 and
$83,734, respectively.
In 1991, the Plan borrowed $153,500,000 from The Stanley Works,
the proceeds of which were used to purchase 4,134,680 shares of
Company Stock from the Company. The Plan made $13,047,932 of
principal and interest payments related to such debt in 1993;
at December 31, 1993, $152,382,912 was outstanding on such
debt.
Savings Plan for Salaried Employees of The Stanley Works
Notes to Financial Statements (continued)
5. Income Tax Status
The Internal Revenue Service has ruled (letter dated August 10,
1990) that the 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 Plan is required to operate in conformity 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 Plan's qualified
status.
Plan participants are not subject to federal income taxes on
employer contributions, employee contributions to the extent
that they are below the IRS limitation, or on dividends
accruing to their accounts until taxable distributions are made
from the Plan. Lump-sum distributions are taxable to the extent
of realized appreciation of the participant's account,
employer's contributions and the employee's contributions.
Savings Plan for Salaried Employees of The Stanley Works
Assets Held for Investment
December 31, 1993
Description of Investment,
Identity of Issue, Including Maturity Date,
Borrower, Lessor Rate of Interest, Par or Current
or Similar Party Maturity Value Cost Value
Common Stock:
The Stanley Works* 8,209,190 shares of
Common Stock $259,212,124 $365,308,955
Trust Fund:
State Street Bank and Short-Term Investment
Trust Company* Fund--United States
(GSTIF) Government securities 1,006,073 1,006,073
State Street Bank and
Trust Company* Short-Term Investment
(STIF) Fund--Pooled Bank Fund 22,615 22,615
Loans to participants Promissory notes at prime rate
with maturities of not more
than five years 5,500,195 5,500,195
--------------------------
Total investments $265,741,007 $371,837,838
==========================
<FN>
* Indicates party-in-interest to the Plan.
Savings Plan for Salaried Employees of The Stanley Works
Transactions or Series of Transactions in Excess of 5% of the Current Value of Plan Assets
Year ended December 31, 1993 Current
Expenses Value of
Identity of Purchase Description Selling Lease Rental Incurred Asset on
Party Involved of Assets Price Price with Cost of Transaction Net Gain
Transaction Asset Date (Loss)
Category (iii)--series of transactions in excess of 5 percent of plan assets
State Street Short-Term Investment
Bank and Trust Fund--United States
Company* Government securities $22,618,301 $22,618,301
State Street Short-Term Investment
Bank and Trust Fund--United States
Company* Government securities $22,417,228 22,417,228 22,417,228
There were no category (i), (ii) or (iv) reportable transactions during 1993.
* Indicates party-in-interest to the Plan.