Management Report on Responsibility for Financial Reporting
The management of The Stanley Works is responsible for the preparation,
integrity and objectivity of the accompanying financial statements. The
statements were prepared in accordance with generally accepted accounting
principles. Preparation of financial statements and related data involves
our best estimates and the use of judgment. Management also prepared the
other information in the Annual Report and is responsible for its
accuracy and consistency with the financial statements.
The company maintains a system of internal accounting controls which is
designed to provide reasonable assurance, at appropriate cost, as to the
reliability of financial records and the protection of assets. This
system includes monitoring by a staff of internal auditors. It is further
characterized by care in the selection of competent financial managers,
by organizational arrangements that provide for delegation of authority
and division of responsibility and by disseminating policies and
procedures throughout the company.
The Stanley Works also recognizes its responsibility for fostering a
strong, ethical climate so that the company's affairs are conducted
according to the highest standards of personal and business conduct. This
responsibility is reflected in the company's Business Conduct Guidelines
which are publicized throughout the organization. The company has a
long-established reputation of integrity in business conduct and
maintains a systematic program to assess compliance with these policies.
The adequacy of Stanley's internal accounting controls, the accounting
principles employed in its financial reporting and the scope of
independent and internal audits are reviewed by the Audit Committee of
the Board of Directors, consisting solely of outside directors. Both the
independent auditors and our internal auditors have unrestricted access
to the Audit Committee, and they meet with it periodically, with and
without management present.
Richard H. Ayers Richard Huck
Chairman and Vice President, Finance and
Chief Executive Officer Chief Financial Officer
Report of Ernst & Young, Independent Auditors
The Shareholders
The Stanley Works
We have audited the accompanying consolidated balance sheets of The
Stanley Works and subsidiaries as of January 1, 1994 and January 2, 1993,
and the related consolidated statements of earnings, changes in
shareholders' equity, and cash flows for each of the three fiscal years
in the period ended January 1, 1994. These financial statements are the
responsibility of the company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
The Stanley Works and subsidiaries at January 1, 1994 and January 2,
1993, and the consolidated results of their operations and their cash
flows for each of the three fiscal years in the period ended January 1,
1994, in conformity with generally accepted accounting principles.
As discussed in Note J to the consolidated financial statements, the
company changed its method of accounting for postemployment benefits in
1993 and postretirement benefits other than pensions in 1991.
Hartford, Connecticut
January 31, 1994
Ernst & Young
Business Segment Information
The Stanley Works and Subsidiaries
Industry Segments
The company groups its sales and operating profit by three major
categories: Tools, Hardware and Specialty Hardware. Sales for Tools are
further divided into Consumer, Industrial and Engineered.
Geographic Areas
The company has manufacturing and distribution facilities and sales
offices in the United States, Europe and Other Areas. The company's
operations in Europe are principally located in the European Economic
Community. Other Areas principally include Canada, Australia, the Far
East and Latin America.
General Information
Intercompany sales between geographic areas and between business segments
were not significant. Segment information includes insignificant
allocations of expenses and assets shared by the segments.
Operating profit represents net sales less operating expenses. In
computing operating profit, the following have been excluded: net
corporate expenses, interest expense, income taxes and the cumulative
effect of accounting changes.
Identifiable assets are those assets used in the company's operations in
each segment or area.
Industry Segments
(Millions of Dollars) 1993 1992 1991
Net Sales
Tools
Consumer $726.0 $723.0 $624.0
Industrial 411.1 377.7 363.5
Engineered 568.5 540.0 497.2
_______ _______ _______
Total Tools 1,705.6 1,640.7 1,484.7
Hardware 299.4 297.2 225.3
Specialty Hardware 268.1 257.7 232.2
_______ _______ _______
Consolidated $2,273.1 $2,195.6 $1,942.2
======== ======== ========
Operating Profit
Tools $158.1 $171.7 $169.4
Hardware 32.9 25.6 28.9
Specialty Hardware 13.2 18.3 16.5
------- ------- ------
Total 204.2 215.6 214.8
Net corporate expenses (24.0) (24.5) (20.7)
Interest expense (32.2) (33.0) (37.6)
_______ _______ _______
Earnings before income taxes $148.0 $158.1 $156.5
======= ======= =======
Identifiable Assets
Tools $1,238.6 $1,199.3 $1,176.2
Hardware 173.3 171.0 178.0
Specialty Hardware 83.9 91.3 86.6
_______ _______ _______
1,495.8 1,461.6 1,440.8
General corporate assets 81.1 146.0 107.1
_______ _______ _______
Total $1,576.9 $1,607.6 $1,547.9
======== ======== ========
Capital Expenditures
Tools $53.6 $ 47.4 $51.7
Hardware 8.2 10.7 5.9
Specialty Hardware 3.8 3.8 4.6
Depreciation and Amortization
Tools 63.9 63.6 59.7
Hardware 10.6 10.7 8.4
Specialty Hardware 4.4 4.0 4.4
Geographic Areas
(Millions of Dollars) 1993 1992 1991
Net Sales
United States $1,680.0 $1,561.5 $1,361.6
Europe 317.3 354.0 324.2
Other Areas 275.8 280.1 256.4
________ _______ ________
Consolidated $2,273.1 $2,195.6 $1,942.2
======== ======== ========
Operating Profit
United States $153.5 $148.8 $145.3
Europe 27.4 38.5 42.8
Other Areas 23.7 27.3 28.9
Eliminations (.4) 1.0 (2.2)
_______ _______ ______
Total $204.2 $215.6 $214.8
======== ======== ========
Identifiable Assets
United States $1,017.6 $1,002.1 $941.0
Europe 270.0 259.9 290.4
Other Areas 247.4 223.1 231.2
Eliminations (39.2) (23.5) (21.8)
_______ _______ _______
Total $1,495.8 $1,461.6 $1,440.8
======== ======== ========
<FN>
Note: In 1993, net corporate expenses include a gain of $29.0 million
from the sale of the company's investment in Max Co., Ltd.
In 1992, net corporate expenses include a gain of $25.8 million from the
sale of a portion of the company's investment in Max Co., Ltd., expenses
of $14.1 million related to planned closings of certain company-owned
stores and reduction of the goodwill of the company's Taylor Rental
operation.
Certain 1992 and 1991 amounts were reclassified to conform with the 1993
presentation.
Summary of Selected Financial Information (A)
The Stanley Works and Subsidiaries
(Millions of Dollars, except per share amounts)
Continuing Operations B
1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983
Net Sales $2,273 $2,196 $1,942 $1,956 $1,951 $1,888 $1,744 $1,355 $ 992 $ 936 $ 804
Earnings 93 98 97 106 117 102 96 78 70 64 49
Earnings per share$ 2.06 $2.15 $2.24 $2.51 $2.70 $2.37 $2.22 $1.84 $1.70 $1.54 $1.20
Percent of Net Sales:
Cost of sales 68.3% 66.8% 66.0% 65.3% 64.8% 65.6% 64.7% 64.9% 63.2% 63.5% 64.5%
Selling, general
and administrative 22.5% 24.0% 23.8% 23.7% 23.0% 23.0% 23.4% 23.9% 24.3% 24.1% 25.1%
Interest-net 1.1% 1.2% 1.3% 1.3% 1.3% 1.7% 1.7% 1.4% .2% .1% .3%
Other-net 1.6% .8% .8% .9% 1.0% .6% .7% .1% .1% .4% -
Earnings before
income taxes 6.5% 7.2% 8.1% 8.8% 9.9% 9.1% 9.5% 9.7% 12.2% 11.9% 10.1%
Earnings 4.1% 4.5% 5.0% 5.4% 6.0% 5.4% 5.5% 5.8% 7.1% 6.8% 6.1%
-------------------------------------------------------------------------------------
Other Key Information
Total assets $1,577 $1,608 $1,548 $1,494 $1,491 $1,405 $1,388 $1,208 $ 755 $ 697 $ 686
Long-term debt 377 438 397 398 416 339 354 363 81 74 85
Shareholders'
equity $ 681 $ 696 $ 689 $ 679 $ 659 $ 684 $ 626 $ 555 $ 503 $ 444 $ 435
Ratios:
Current ratio 2.1 2.4 2.4 2.6 2.6 2.6 2.4 2.9 3.7 2.8 3.0
Total debt to
total capital 38.7% 40.1% 37.6% 38.7% 39.6% 35.0% 40.9% 43.4% 15.7% 19.4% 19.0%
Income tax rate 37.4% 37.9% 38.0% 38.4% 39.6% 40.8% 41.7% 40.7% 42.0% 42.5% 39.2%
Return on average
equity b 13.5% 14.1% 14.1% 15.8% 17.3% 15.5% 14.7% 14.9% 16.5% 16.5% 12.8%
Common Stock Data:
Dividends per
share $1.34 $ 1.28 $ 1.22 $ 1.14 $ 1.02 $ .92 $ .82 $ .73 $ .67 $ .60 $ .52
Equity per share
at year-end $15.23 $15.32 $15.22 $16.50 $15.32 $15.97 $14.59 $13.05 $12.03 $11.00 $10.35
Market price
- high 47 7/8 48 1/8 44 39 3/4 39 1/4 31 1/4 36 5/8 30 7/8 22 1/2 19 5/8 19
- low 37 7/8 32 1/2 26 26 5/8 27 1/2 24 3/8 21 1/4 20 1/2 16 3/8 13 13 1/2
Average shares
outstanding
(in thousands) 44,935 45,703 43,266 42,192 43,378 43,109 43,357 42,279 41,243 41,816 41,465
Other Information:
Earnings from
continuing
operations $ 93 $ 98 $ 97 $ 106 $ 117 $ 102 $ 96 $ 78 $ 70 $ 64 $ 49
Earnings from
discontinued
operations - - - - - - (10) 1 8 8 3
Cumulative effect
of accounting
change (9) - (12) - - (13) - - - - -
Net earnings $ 84 $ 98 $ 85 $ 106 $ 117 $ 89 $ 86 $ 79 $ 78 $ 72 $ 52
Net earnings
per share $ 1.87 $ 2.15 $ 1.95 $ 2.51 $ 2.70 $ 2.07 $ 2.00 $ 1.86 $ 1.90 $1.73 $1.28
Average number
of employees 18,988 18,650 17,420 17,784 18,464 18,988 19,142 16,128 13,069 12,788 12,396
Shareholders of
record at end
of year 20,018 20,661 21,297 22,045 22,376 23,031 23,051 21,752 22,870 23,238 22,656
<FN>
A)Certain amounts were reclassified to conform with the 1993 presentation.
B)Excluding the cumulative after-tax effect of accounting changes for
postemployment benefits of $8.5 million, or $.19 per share, in 1993;
postretirement benefits of $12.5 million, or $.29 per share, in 1991; and
income taxes of $13.1 million, or $.30 per share, in 1988.
Management's Discussion and Analysis
Results of Operations
Overview
Improved economic conditions, particularly in the United States,
resulted in record sales of $2.3 billion in 1993, or a 3.5% increase
over 1992. Earnings, excluding the effects of a change in accounting
principle and special charges related to a legal settlement, also
strengthened, increasing 4% over 1992.
Earnings were $93 million, or $2.06 per share, before the cumulative
effect of an accounting change. This compares with $98 million, or $2.15
per share, reported in 1992. Earnings were affected by a $15 million, or
$.21 per share, charge related to the settlement of lawsuits involving
the company's Mac Tools, Inc. subsidiary. The charge reflected these
settlements and the accrual of reserves to cover unsettled claims. In
addition, a stronger U.S. dollar had a negative effect on the
translation of foreign earnings for the year.
Revenues
Sales growth in 1993 was driven by unit volume increases of 4% in our
core businesses, which represented the most significant internal growth
generated since 1988. Acquisitions and minor price increases added 2% to
sales; however, the negative effect of translating foreign revenues
offset these incremental improvements.
The company's U.S. businesses experienced strong internal growth,
reflecting the improvement in U.S. industrial and construction related
markets and the company's efforts in introducing new products. Domestic
unit volume growth was 6% for 1993. While the company's consumer
businesses experienced only modest growth, engineered and industrial
businesses saw higher levels of sales increases. Many of the company's
businesses did not raise prices during the year; consequently, pricing
had no net effect on U.S. sales. The incremental effect of acquisitions
contributed 2% to sales.
European markets, especially continental Europe, remained depressed in
1993, resulting in a 3% volume decline. European currencies also
continued to weaken during the year resulting in an 11% decline in
sales, or approximately $40 million. A combination of small price
increases and acquisitions added 4% to sales. As a result, total
European sales were 10% lower than last year.
Net sales in Other Areas decreased 2% as a result of foreign currency
translation and weak sales in Canada. Sales increases in the Far East
and Latin America continued to exceed the growth rate experienced by the
company overall.
Net sales in 1992 of $2.2 billion were 13% higher than in 1991,
primarily due to the contributions of acquired companies. Excluding
acquisitions, the company achieved only minimal growth in domestic
markets and sales trends in the lagging European, Australian and
Canadian economies were stagnant or negative.
Factors contributing to the year-to-year change in net sales were:
Net Sales Change Comparison
1993 1992 1991
with with with
1992 1991 1990
Unit Volume:
Existing Operations 4.1% 2.1% (4.8)%
Acquisitions/Divestitures 1.7 10.2 2.4
Price Increase .7 1.1 2.7
Foreign Currency (3.0) (.4) (1.0)
----- ----- ------
3.5% 13.0% (.7)%
===== ===== ======
During 1993, the highly-inflationary conditions that affect the
company's Brazilian operation, while not material to overall operating
results and financial position, did affect the above price increase and
foreign currency percentages. Price increase and foreign currency
effects on the year-to-year sales change without the Brazilian
operations were .1% and (2.5%), respectively.
Gross Profit
Gross profit margin was 31.7% in 1993, compared with 33.2% in 1992. Much
of the margin decline in 1993 related to costs associated with the
transition from purchasing certain fastening tools from foreign sources
to U.S. in-house manufacture and to abnormally high wood prices
experienced in the company's Door Systems business and the associated
expenses of manufacturing process adjustments. The company has continued
to control costs and to realize productivity gains from its capital
investment programs. These efforts have helped relieve the adverse
margin pressures of a competitive pricing environment.
In 1992, margins were affected by the costs of integrating acquisitions
and the underutilization of the company's mechanics tool capacity which
resulted from the loss of sales to a major retail customer. A portion of
that sales volume has been replaced.
Operating and Other Expenses
Operating expenses were 22.5% of sales in 1993 compared with 24.0% in
1992 and 23.8% in 1991. The improvement in 1993 reflects increased
operating efficiencies, the integration of recent acquisitions and the
absence of non-recurring expenses. The increase in 1992 reflects
non-recurring legal costs and increases in product liability reserves,
both of which more than offset productivity improvements.
Interest-net expense of $25 million, reduced from $27 million in 1992
and $26 million in 1991, resulted from lower interest rates and the
company's active management of overall borrowing costs.
Other-net expense for 1993 included a $15 million charge for distributor
litigation issues at the company's Mac Tools, Inc. subsidiary. It also
included a gain on the sale of the company's investment in Max Co., Ltd.
of $29 million, which was substantially offset by additional charges for
contingency reserves related to product liability, restructuring
activities and environmental remediation.
Other-net expenses in 1992 included charges of $14 million related to
planned closings of certain company-owned Taylor Rental stores, a
reduction of the goodwill of the company's Taylor Rental business, and
$8 million for reserves for litigation pending at the company's Mac
Tools, Inc. subsidiary. These charges were offset by a $26 million gain
from the sale of a portion of the company's investment in Max Co., Ltd.
Other-net expenses in 1991 were relatively unchanged from 1990.
The effective income tax rates in 1993, 1992 and 1991 were 37.4%, 37.9%
and 38.0%, respectively. In 1993, the effect of an increase in the U.S.
statutory rate from 34% to 35% was largely offset by favorable tax
planning strategies and proportionally lower earnings in high-tax
foreign operations.
Accounting Changes
Net earnings for 1993 reflected an after-tax charge of $8.5 million, or
$.19 per share, for the adoption of Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits."
The new standard, which all companies must adopt no later than the first
quarter of 1994, requires accrual of postemployment benefits as they are
earned by employees rather than as they are paid. The one-time charge
represents the cumulative effect of the new accounting standard as of
the beginning of fiscal year 1993.
In 1991, the company adopted Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions." The after-tax effect of this standard was a one-time charge
to 1991 earnings of $12.5 million, or $.29 per share.
Business Segments
Tools segment sales of $1.7 billion were 4% higher than in 1992. Unit
volume gains of 4% were primarily the result of strong internal growth
in the industrial and engineered tools categories. Acquisitions, net of
divestitures, accounted for a 2% increase in sales. The net effect of
price increases in some tool categories and decreases in others resulted
in a net 1% increase in sales for the year. A 3% decline in sales due to
currency translation offset price and acquisition gains. Operating
profits of $158 million were down 8% from 1992 and included charges of
$15 million for distributor litigation and $4 million for a plant
closing for the company's Mac Tools, Inc. subsidiary. Profits were also
affected by costs related to the transition of certain fastening
products to in-house manufacture. As a result, operating margins were
9.3% for 1993, compared with 10.5% in 1992.
Tools segment sales in 1992 were $1.6 billion or 11% higher than in
1991. Acquisitions accounted for most of the increase. Operating profits
of $172 million were up 1% from the $169 million reported for this
segment in 1991.
Hardware segment sales increased 1% in 1993 to $299 million, as negative
currency effects partially offset 3% unit volume growth. Operating
profits increased 29% to $33 million and operating margins improved to
11.0% from 8.6% in the prior year. Margin improvements are attributable
primarily to greater operating efficiencies and the integration of
recent acquisitions.
Hardware segment sales in 1992 were $297 million, an increase of 32%
over 1991 results. The sales increase was substantially provided by
acquisitions, the integration costs of which reduced operating profits.
Specialty Hardware segment sales for 1993 were 4% higher than in 1992.
Virtually all of the increase was generated by internal growth, as the
effects of modest price increases were offset by the negative effect of
foreign currency translation. Operating profits were affected by
abnormally high raw material costs and the expenses of related
manufacturing process adjustments at the company's Door Systems
business.
Specialty Hardware segment sales in 1992 increased 11% from 1991 and
reflected unit volume gains in all geographic areas. Operating profits
in 1992 were up 11% for the year, increasing to $18 million with
resulting margins of 7.0%, the same as 1991.
Financial Condition
Liquidity, Sources and Uses of Capital
The company's strong balance sheet, operating cash flows and borrowing
capacity provide the financial flexibility necessary to continue its
record of annual dividend payments, to invest in the capital needs of
its businesses and to make appropriate acquisitions as those
opportunities arise.
Operating cash flows of $147 million generated in 1993 were lower than
in previous years as internal sales growth required additional working
capital. The company continues to place a significant emphasis on
working capital management as evidenced by the managed growth in
accounts receivable and inventories in relation to sales growth.
Borrowings at year-end 1993 were $429 million, down from $467 million at
the end of 1992. The reduction in overall debt
resulted from the
retirement of certain long-term obligations. Total debt as a percentage
of total capital decreased to 38.7% from 40.1% last year. The debt to
capital ratio, excluding the company's guarantee on its ESOP debt, was
31.2% in 1993 and 32.4% in 1992. The company continues to restructure
its overall debt portfolio, taking advantage of the availability of
lower short-term interest rates in the market. In addition, various
interest rate management strategies have been employed and include the
use of interest rate swap agreements. The company's overall financing
strategy does not expose it to significant market or credit risk.
The company has access to financial resources and borrowing capabilities
around the world. The company has $100 million of unissued debt
securities registered with the Securities and Exchange Commission. In
addition, the company had approximately $265 million of unused lines of
credit at year-end 1993.
Capital Expenditures
The company's capital investment program seeks to improve productivity,
customer service and responsiveness. Capital expenditures for the last
three years are listed below, in millions of dollars:
1993 1992 1991
Productivity $33 $39 $36
Increased capacity 27 20 19
Regulatory 2 2 2
Other 7 3 6
------ ------ -----
$69 $64 $63
Capital expenditures in 1994 are expected to be approximately $70
million. Productivity, as measured by net sales per employee in
constant 1993 dollars, increased by 2.3%. Net sales per employee in 1993
were $115,100 compared with $112,500 in 1992.
Other Matters
In the normal course of business the company becomes involved in various
lawsuits and claims. The company has estimated the potential cost of
these activities and has established appropriate reserves. This
litigation activity includes suits and claims associated with the
company's Mac Tools, Inc. subsidiary.
The results for 1993 include a fourth quarter charge of $15 million to
reflect both the late-January 1994 settlement of 132 filed and
threatened lawsuits by former distributors against Mac Tools, Inc. and
the accrual of reserves to cover unsettled claims. After these
settlements, there were four suits outstanding. The company has also
taken steps to improve its relationship with its current distributors
and an ombudsman program has been established to provide liaison with
former distributors. Management believes that these actions will reduce
the number and size of future settlements and expenses related to this
kind of litigation and that any such expenses will not have a material
adverse effect on the company's financial position, results of
operations or liquidity.
The company is subject to various environmental laws and regulations in
the U.S. and foreign countries where it has operations. Future laws and
regulations are expected to be increasingly stringent and will likely
increase the company's expenditures related to environmental matters.
The company is involved with remedial and other environmental compliance
activities at some of its current and former sites. Additionally, the
company, together with other parties, has been named a potentially
responsible party ("PRP") with respect to nine Superfund sites. Current
laws potentially impose joint and several liability upon each PRP. In
assessing its potential liability at these sites, the company has
considered the following: the solvency of the other PRPs, whether
responsibility is being disputed, the terms of existing agreements,
experience at similar sites, and the fact that its volumetric
contribution at these sites is relatively small.
The company's policy is to accrue environmental investigatory and
remediation costs for identified sites when it is probable that a
liability has been incurred and the amount of loss can be reasonably
estimated. The amount of liability recorded is based on an evaluation of
currently available facts with respect to each individual site and
includes such factors as existing technology, presently enacted laws and
regulations, and prior experience in remediation of contaminated sites.
The amounts recorded do not take into account any claims for recoveries
from insurance or third parties. As assessments and remediation progress
at individual sites, the amounts recorded are reviewed periodically and
adjusted to reflect additional technical and legal information which
becomes available. As of year-end 1993, the company had reserves of $18
million, primarily for remediation activities associated with
company-owned properties as well as for Superfund sites.
Actual costs to be incurred at identified sites in future periods may
vary from the estimates, given the inherent uncertainties in evaluating
environmental exposures. Subject to the imprecision in estimating future
environmental costs, the company does not expect that any sum it may
have to pay in connection with environmental matters in excess of the
amounts recorded will have a material adverse effect on its financial
position, results of operations or liquidity.
Consolidated Statements of Earnings
The Stanley Works and Subsidiaries
Fiscal years ended January 1, 1994, January 2, 1993 and December 28, 1991
(Millions of Dollars, except per share amounts) 1993 1992* 1991*
Net Sales $2,273.1 $2,195.6 $1,942.2
Costs and Expenses
Cost of sales 1,553.0 1,466.0 1,281.0
Selling, general and administrative 512.3 526.7 462.3
Interest-net 25.2 26.5 25.9
Other-net 34.6 18.3 16.5
------- ------- -------
2,125.1 2,037.5 1,785.7
------- ------- -------
Earnings before Income Taxes and
Cumulative Effect of Accounting Changes 148.0 158.1 156.5
Income Taxes
Currently payable 61.0 72.2 52.3
Deferred (5.6) (12.2) 7.1
----- ----- ----
55.4 60.0 59.4
Earnings before Cumulative Effect
of Accounting Changes 92.6 98.1 97.1
Cumulative effect of accounting changes (8.5) (12.5)
------- ------- ------
Net Earnings $84.1 $98.1 $84.6
======= ======= ======
Earnings Per Share of Common Stock:
Before cumulative effect of accounting changes $2.06 $2.15 $2.24
Cumulative effect of accounting changes (.19) (.29)
------- ------- ------
Net Earnings Per Share of Common Stock $1.87 $2.15 $1.95
======== ======= ======
<FN>
See notes to consolidated financial statements.
* Reclassified to conform with the 1993 presentation.
Consolidated Balance Sheets
The Stanley Works and Subsidiaries
January 1, 1994 and January 2, 1993
(Millions of Dollars) 1993 1992
ASSETS
Current Assets
Cash and cash equivalents $43.7 $81.1
Accounts and notes receivable, net 371.2 354.9
Inventories 308.1 302.0
Other current assets 35.6 40.7
------ ------
Total Current Assets 758.6 778.7
Property, Plant and Equipment 566.5 566.6
Goodwill and Other Intangibles 171.5 175.3
Investments and Other Assets 80.3 87.0
------- --------
Total Assets $1,576.9 $1,607.6
======== ========
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities
Notes payable to banks $42.3 $20.2
Current maturities of long-term debt 9.8 8.4
Accounts payable 103.3 114.0
Accrued expenses 197.6 184.2
Income taxes 4.1 3.1
------ -----
Total Current Liabilities 357.1 329.9
Long-Term Debt 377.2 438.0
Deferred Income Taxes 36.0 54.8
Other Liabilities 125.7 88.6
Shareholders' Equity
Preferred Stock, without par value:
Authorized and unissued 10,000,000 shares
Common Stock, par value $2.50 per share:
Authorized 110,000,000 shares;
issued 46,171,705 shares in 1993 and 1992 115.4 115.4
Capital in excess of par value 73.1 75.8
Retained earnings 871.1 843.7
Foreign currency translation adjustment (56.7) (41.5)
ESOP debt (261.5) (268.8)
------- -------
741.4 724.6
Less: cost of common stock in treasury
(1,476,074 shares in 1993 and 732,851
shares in 1992) 60.5 28.3
------- -------
Total Shareholders' Equity 680.9 696.3
--------- ---------
Total Liabilities and Shareholders' Equity $1,576.9 $1,607.6
========= =========
<FN>
See notes to consolidated financial statements.
Consolidated Statements of Cash Flows
The Stanley Works and Subsidiaries
Fiscal years ended January 1, 1994, January 2, 1993 and December 28, 1991
(Millions of Dollars) 1993 1992 1991
Operating Activities:
Net earnings $84.1 $98.1 $84.6
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 80.7 78.5 74.9
Gain on sale of non-operating asset (29.0) (25.8)
Provision for postemployment and
postretirement benefits 13.6 20.6
Other non-cash items 9.4 16.0 (.6)
Changes in operating assets and liabilities:
Accounts and notes receivable (19.7) 13.1 9.8
Inventories (15.5) (6.6) .5
Accounts payable and accrued expenses 16.0 17.2 (6.1)
Income taxes 1.0 1.8 2.4
Other 5.9 (7.3) (6.1)
------ ------ ------
Net cash provided by operating activities 146.5 185.0 180.0
------ ------ ------
Investing Activities:
Capital expenditures (69.7) (65.1) (61.1)
Proceeds from sales of assets 6.6 8.2 11.8
Proceeds from sale of non-operating asset 38.9 35.2
Business acquisitions (13.3) (105.8) (54.7)
Proceeds from sale of businesses 2.9
Other (13.2) (10.6) (8.0)
------ ------ ------
Net cash used by investing activities (50.7) (138.1) (109.1)
------ ------ ------
Financing Activities:
Payments on long-term debt (133.8) (69.8) (256.3)
Proceeds from long-term borrowings 78.5 120.2 240.3
Loan to ESOP (180.0)
Net short-term bank financing 22.3 5.1 (2.6)
Proceeds from issuance of common stock 4.6 3.6 184.6
Purchase of common stock for treasury (42.3) (25.0) (37.2)
Cash dividends on common stock (60.5) (57.5) (52.3)
------ ------ ------
Net cash used by financing activities (131.2) (23.4) (103.5)
------ ------ ------
Effect of exchange rate changes on cash (2.0) (.7) (3.8)
------ ------ ------
Increase (decrease) in cash and cash equivalents (37.4) 22.8 (36.4)
Cash and cash equivalents, beginning of year 81.1 58.3 94.7
------ ------ ------
Cash and cash equivalents, end of year $43.7 $81.1 $58.3
====== ====== ======
<FN>
See notes to consolidated financial statements.
Consolidated Statements of Changes in Shareholders' Equity
The Stanley Works and Subsidiaries
Fiscal years ended January 1, 1994, January 2, 1993 and December 28, 1991
(Millions of Dollars)
Capital Trans-
In Excess lation Share-
Common of Par Retained Adjust- ESOP Treasury holders
Stock Value Earnings ments Debt Stock Equity
Bal December 30, 1990 $113.2 $59.3 $756.9 $(8.1) $(102.9) $(139.1) $679.3
Net earnings 84.6 84.6
Cash dividends declared
- $1.22 per share (53.8) (53.8)
Issuance of common stock 1.5 31.4 152.9 185.8
Purchase of common stock (37.2) (37.2)
ESOP debt (173.2) (173.2)
ESOP tax benefit 3.0 3.0
-----------------------------------------------------------
Bal Dec 28, 1991 114.7 90.7 790.7 (8.1) (276.1) (23.4) 688.5
Pooling of interests .7 (13.4) 9.8 12.7 9.8
-----------------------------------------------------------
Bal Dec 29, 1991 115.4 77.3 800.5 (8.1) (276.1) (10.7) 698.3
Net earnings 98.1 98.1
Currency translation adj (33.4) (33.4)
Cash dividends declared
- $1.28 per share (58.5) (58.5)
Issuance of common stock (1.5) 10.1 8.6
Purchase of common stock (27.7) (27.7)
ESOP debt 7.3 7.3
ESOP tax benefit 3.6 3.6
----------------------------------------------------------
Bal Jan 2, 1993 115.4 75.8 843.7 (41.5) (268.8) (28.3) 696.3
Net earnings 84.1 84.1
Currency translation adj (15.2) (15.2)
Cash dividends declared
- $1.34 per share (60.1) (60.1)
Issuance of common stock (2.7) 15.7 13.0
Purchase of common stock (47.9) (47.9)
ESOP debt 7.3 7.3
ESOP tax benefit 3.4 3.4
------------------------------------------------------------
Bal Jan 1, 1994 $115.4 $73.1 $871.1 $(56.7) $(261.5) $(60.5) $680.9
============================================================
<FN>
See notes to consolidated financial statements.
Notes to Consolidated Financial Statements
The Stanley Works and Subsidiaries
A Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the
company and all subsidiaries, after the elimination of intercompany
accounts and transactions.
Fiscal Year-End
The company's fiscal year ends on the Saturday nearest to December 31.
Fiscal years 1993 and 1991 were comprised of 52 weeks and fiscal year
1992 was comprised of 53 weeks.
Foreign Currency Translation
For most foreign operations, balance sheet accounts are translated at
the current year-end exchange rate and earnings statement items are
translated at the average exchange rate for the year. Resulting
translation adjustments are made directly to a separate component of
shareholders' equity. Translation adjustments for operations in
highly-inflationary countries and gains and losses on transactions are
included in earnings.
Cash Equivalents
Highly liquid investments with original maturities of three months or
less are considered cash equivalents. Carrying amounts approximate fair
values.
Inventories
Inventories of the parent company and all significant inventories of its
United States subsidiaries are valued at the lower of last-in, first-out
cost or market. The remaining inventories are valued generally at the
lower of first-in, first-out cost or market.
Properties, Equipment and Related Depreciation
Property, plant and equipment are stated on the basis of cost.
Depreciation is provided using a combination of accelerated and
straight-line methods based upon the estimated useful lives of the
assets.
Income Taxes
Deferred taxes are determined based on the difference between the
financial statement and tax bases of assets and liabilities using
enacted tax rates in effect in the years in which the differences are
expected to reverse. Deferred tax expense represents the change in the
deferred tax asset and liability balances.
Earnings per Share
Earnings per share are based on the weighted average number of shares of
common stock outstanding during each year (44,935,000 shares, 45,703,000
shares and 43,266,000 shares in 1993, 1992 and 1991, respectively). The
issuance of additional shares under employee stock plans would not
result in a material dilution of earnings per share.
Reclassifications
Certain 1992 and 1991 amounts have been reclassified to conform with the
1993 presentation.
B Acquisitions and Divestitures
The company acquired businesses in 1993 for a total of $24.0 million.
The most significant of the businesses acquired were Friess & Co. KG, a
German manufacturer and marketer of paint rollers and brushes and
Rikkoh-Sha Co. Ltd., a mechanics tools distributor in Japan.
The company acquired several businesses in 1992 for $90.4 million. The
acquisitions included: Goldblatt Tool Co., a manufacturer of masonry,
tile and drywall tools; Mail Media (Jensen Tools, Inc. and Direct
Safety), known principally as a marketer of precision tool kits through
catalog sales; American Brush Co., Inc., a U.S. manufacturer of paint
brushes and decorator tools; and a controlling interest in Tona a.s.
Pecky, a major Czech manufacturer of mechanics tools.
The 1993 and 1992 consolidated statements of earnings include the
results of these operations, which were accounted for as purchases, from
the respective dates of their acquisitions. Pro forma results for 1993
and 1992 acquisitions have not been presented as they would not have
been significantly different.
On January 16, 1992, the company exchanged 642,940 shares of common
stock for all of the issued and outstanding common stock of LaBounty
Manufacturing, Inc., a manufacturer of large hydraulic tools. This
business combination was accounted for as a pooling of interests.
Periods prior to 1992 were not restated due to the immaterial effect of
the pooled company on the consolidated financial statements.
During 1991, the company acquired, for $69.6 million, the businesses of
Mosley Stone, Ltd., Sidchrome Tools, Monarch Mirror Door Company and
three smaller companies. These transactions were accounted for as
purchases. The operating results of these companies are included in the
consolidated statements of earnings from their respective dates of
acquisition in 1991.
In connection with the aforementioned purchase transactions, the fair
value of assets acquired and liabilities assumed aggregated $34.5
million and $10.5 million, respectively, for 1993, $115.8 million and
$25.4 million, respectively, for 1992 and $119.3 million and $49.7
million, respectively, for 1991.
On June 30, 1993, the company sold the franchise operations of its
wholly owned subsidiary Taylor Rental Corporation.
C Accounts and Notes Receivable
Trade receivables are dispersed among a large number of retailers,
distributors and industrial accounts in many countries. No individual
customer balance is material. Adequate provisions have been established
to cover anticipated credit losses. At January 1, 1994 and January 2,
1993, allowances for doubtful receivables of $24.8 million and $22.9
million, respectively, have been applied as a reduction of current
accounts and notes receivable. The company believes it had no
significant concentrations of credit risk as of January 1, 1994.
Throughout the year, the company sold, with recourse, certain domestic
accounts receivable under a revolving sales agreement. The proceeds for
these sales were $39 million in 1993, $64 million in 1992 and $43
million in 1991. At January 1, 1994 and January 2, 1993, the balance of
these receivables subject to recourse was approximately $62 million and
$70 million, respectively. Provisions have been made to cover
anticipated losses.
D Inventories
(Millions of Dollars)
1993 1992
Finished products $195.7 $190.9
Work in process 61.1 59.6
Raw materials 48.7 49.0
Supplies 2.6 2.5
______ ______
$308.1 $302.0
====== ======
Inventories in the amount of $158.9 million at January 1, 1994 and
$155.2 million at January 2, 1993 were valued at the lower of last-in,
first-out (LIFO) cost or market. If LIFO inventories had been valued at
FIFO costs, they would have been $118.5 million and $118.4 million
higher than reported at January 1, 1994 and January 2, 1993,
respectively.
E Property, Plant and Equipment
(Millions of Dollars)
1993 1992
Land $32.4 $30.7
Buildings 239.7 229.5
Machinery and equipment 846.9 828.6
_______ _______
1,119.0 1,088.8
Less: accumulated depreciation 552.5 522.2
_______ _______
$566.5 $566.6
======== ========
The provisions for depreciation for 1993, 1992 and 1991 were $63.1
million, $62.4 million and $61.4 million, respectively.
F Intangibles
Goodwill and other intangibles, net of accumulated amortization of $73.5
million and $62.8 million, respectively, at the end of each fiscal year
were as follows:
(Millions of Dollars) 1993 1992
Goodwill, amortized generally
over 40 years $130.9 $129.6
Tradenames and other intangibles
amortized over periods ranging
from 2 to 15 years 40.6 45.7
_______ _______
$171.5 $175.3
====== ======
G Accrued Expenses
(Millions of Dollars) 1993 1992
Salaries and wages $33.4 $33.2
Insurance 39.1 38.9
Taxes, other than income taxes 16.9 16.8
Dividends payable 14.6 15.0
Litigation 24.0 10.5
Other 69.6 69.8
_______ _______
$197.6 $184.2
====== ======
H Long-Term Debt and Financing Arrangements
(Millions of Dollars) 1993 1992
Notes payable in 2002 with interest
at 7.375% $100.0 $100.0
European Currency Unit (ECU) notes
payable in 1993 with interest at 7.75% 66.3
Sinking Fund Debentures due 2016,
with interest at 9.25% 65.5
Commercial Paper with interest at 3.4% 62.3
Dutch Guilder notes payable in 1996
with interest at 6.075% 51.5 55.0
Notes payable in 1998 with
interest at 9.00% 34.8 34.8
Industrial Revenue Bonds at various
interest rates from 5.75% to 7.5%
and due in varying amounts to 2010 30.5 31.1
Dutch Guilder notes payable in 1996
with interest at 6.125% 15.4
ESOP loan guarantees, payable in
varying monthly installments:
due 1993 with interest at 6.78% 1.8
due 2001 with interest at 7.71% 82.8 87.9
Other 9.7 4.0
--- ---
387.0 446.4
Less: current maturities 9.8 8.4
______ ______
$377.2 $438.0
====== ======
The company has entered into a variety of foreign currency and interest
rate exchange agreements. As of January 1, 1994, these agreements
established an effective interest rate of 6.97% on notional principal of
$253 million. The counterparties to these agreements are major
international financial institutions. The company is exposed to credit
risk to the extent of nonperformance by these counterparties, however,
the company considers the risk of default to be remote.
Commercial paper outstanding at January 1, 1994, of $62.3 million is
classified as non-current pursuant to the company's intention and
ability to continue to refinance this obligation on a long-term basis.
Commercial paper classified as current as of January 1, 1994 and January
2, 1993, was $36.5 million and $14.4 million, respectively.
In 1992 the company filed a shelf registration statement with the
Securities and Exchange Commission covering the issuance of up to $200
million of debt securities; as of January 1, 1994, $100 million remained
unissued. The company has unused long-term credit arrangements with
several banks to borrow up to $205 million at the lower of prime or
money market rates. Of these lines, $200 million is available to support
the company's commercial paper program. Commitment fees range from .125%
to .15%.
The company has short-term lines of credit with numerous foreign banks
aggregating $60.8 million. At January 1, 1994, the unused portion of
these credit lines was $56.2 million. The arrangements are reviewed
annually for renewal.
The company has guaranteed the long-term notes payable to banks of its
employee stock ownership plans (ESOPs). The notes are secured by shares
of the company's common stock held by the ESOPs. The guarantee is
reflected in the consolidated balance sheets as long-term debt with a
corresponding reduction in shareholders' equity.
Aggregate annual maturities of long-term debt for the years 1995 to 1998
are $9.4 million, $77.9 million, $10.7 million and $112.8 million,
respectively. Interest paid during 1993, 1992 and 1991 amounted to $34.0
million, $33.9 million and $40.0 million, respectively.
The fair values of long-term debt are estimated using discounted cash
flow analysis based on the company's incremental borrowing rates. The
fair values of foreign currency and interest rate swaps are based on
current settlement values. The fair value of long-term debt and
debt-related financial instruments was $393 million and $12 million,
respectively, as of January 1, 1994.
I Capital Stock
Common Stock Share Activity
The activity in common shares for each year, net of treasury stock, was
as follows:
1993 1992 1991
Outstanding, beginning
of year 45,438,854 45,240,591 41,176,312
Issued For:
Employee stock plans 387,196 263,805 5,070,247
Acquisitions 642,940
Purchased (1,130,419) (708,482) (1,005,968)
__________ __________ __________
Outstanding, end of year 44,695,631 45,438,854 45,240,591
========== ========== ==========
Common Stock Reserved
At January 1, 1994 and January 2, 1993, the number of shares of common
stock reserved for future issuance under various employee stock plans
was as follows:
1993 1992
Employee Stock Purchase Plan 3,061,462 3,200,472
Stock Option Plan 2,316,805 2,542,229
Long-Term Stock Incentive Plan 1,507,945 1,950,312
__________ __________
6,886,212 7,693,013
========== ==========
Long-Term Stock Incentive Plan
The Long-Term Stock Incentive Plan, effective through 1997, provides for
the granting of awards to senior management employees on the basis of
company performance. The Plan is administered by a committee of the
Board of Directors consisting of non-employee directors. Awards are
payable 55% in cash and 45% in shares of common stock or 100% in shares
of common stock. The amounts of $.5 million, $2.2 million and $.3
million were charged to expense in 1993, 1992 and 1991, respectively.
Shares totaling 10,092, 33,067 and 15,782 were issued in 1993, 1992 and
1991, respectively.
Preferred Stock Purchase Rights
Each outstanding share of common stock has two-thirds of a share
purchase right, which, under certain conditions, may be exercised to
purchase one two-hundredth of a share of Series A Junior Participating
Preferred Stock at an exercise price of $125.00, subject to adjustment
to prevent dilution. The rights, which do not have voting rights, expire
on March 10, 1996, and may be redeemed by the company at a price of $.05
per right at any time prior to their expiration or within 30 days
following the acquisition of 10 percent of the company's common stock.
In the event that the company were acquired in a merger or other
business combination transaction, provision shall be made so that each
holder of a right (other than a holder who is 10%-or-more shareholder)
shall have the right to receive, upon exercise thereof, that number of
shares of common stock of the surviving company having a market value
equal to two times the exercise price of the right. Similarly, if anyone
becomes the beneficial owner of more than 10% of the then outstanding
shares of common stock, provision will be made so that each holder of a
right (other than a holder who is a 10%-or-more shareholder) shall
thereafter have the right to receive, upon exercise thereof, common
stock (or, in certain circumstances, cash, property or other securities
of the company) having a market value equal to two times the exercise
price of the right. At January 1, 1994, there were 44,695,631
outstanding rights. There are 175,000 shares of Series A Junior
Participating Preferred Stock reserved for issuance in connection with
these rights.
Stock Options
The company has a stock option plan to provide nonqualified and
incentive stock options to officers and key employees. Options are
generally for a ten-year term and are granted at the market price of the
common stock on the date of grant. Outstanding options are subject to a
two-year transfer restriction on at least half the shares issued upon
exercise. In the event of a change of control in the company, all
outstanding stock options become immediately exercisable, all transfer
restrictions lapse and optionees have the right to sell options to the
company at market-related values.
Information relative to the stock option plan is summarized as follows:
1993 1992 1991
At end of year:
Options outsanding 1,827,936 2,006,305 2,152,076
Options exercisable 1,716,936 1,929,805 2,079,076
Shares available for grants 488,869 535,924 505,000
During the year:
Options granted 111,000 76,500 73,000
Options exercised 225,424 114,847 17,924
Options cancelled 63,945 107,424 17,000
Average price per share:
Options outstanding $31.27 $30.64 $30.36
Options granted 40.25 37.13 37.06
Options exercised 30.47 30.15 30.13
J Employee Benefit Plans
Employee Stock Purchase Plan
The Employee Stock Purchase Plan enables substantially all employees in
the United States and Canada to subscribe to shares of common stock on
annual offering dates at a purchase price of 85% of the fair market
value of the shares on the offering date or, if lower, 85% of the fair
market value of the shares on the exercise date. A maximum of 4,000,000
shares are authorized for subscription over a ten year period. During
1993, 1992 and 1991, shares totaling 139,010, 106,738 and 179,062,
respectively, were issued under the Plan at average prices of $33.07,
$33.31 and $25.75 per share, respectively. At January 1, 1994,
subscriptions were outstanding for 113,620 shares at $35.59 per share.
Employee Stock Ownership Plans (ESOPs)
The Savings Plans for both Salaried Employees and Hourly-Paid Employees
provide opportunities for tax-deferred savings, enabling eligible U.S.
employees to acquire a proprietary interest in the company. Such
employees may contribute from 1% to 12% of their salary to the Plans.
The company contributes an amount equal to one-half of the first 7% of
employee contributions up to a maximum of 3 1/2%.
Shares of the company's common stock held by the ESOPs were purchased
with the proceeds of external borrowings in 1989 and borrowings from the
company in 1991. The external ESOP borrowings are guaranteed by the
company and are included in long-term debt. Shareholders' equity
reflects both the internal and the external borrowing arrangements.
The company recognizes ESOP activity and makes contributions each year
based on total debt service and share purchase requirements less
employee contributions and dividends on ESOP shares. The company's net
ESOP activity resulted in income of $5.6 million in 1993, $6.1 million
in 1992 and $3.7 million in 1991.
Dividends on ESOP shares were $14.2 million, $13.7 million and $11.9
million for 1993, 1992 and 1991, respectively. Interest costs incurred
by the Plans on external debt for 1993, 1992 and 1991 were $6.7 million,
$7.2 million and $7.6 million, respectively.
Pension Plans
The company sponsors non-contributory defined benefit and defined
contribution plans covering substantially all employees. Upon
retirement, participants in the U.S. generally receive the greater of
their defined contribution account or a guaranteed benefit as calculated
in the defined benefit plan.
Defined benefits for salaried and non-union hourly employees are
generally based on salary and years of service, while those for
collective bargaining employees are based on a stated amount for each
year of service. The company's funding policy is to contribute amounts
determined annually on an actuarial basis that provide for current and
future benefits in accordance with federal law and other regulations.
Plan assets are invested in equity securities, bonds, real estate and
money market instruments. If the plans are terminated or merged with
another plan within three years following a change in control of the
company, any excess plan assets are to be applied to increase the
benefits of all participants.
The company funds the defined contribution plan which covers U.S.
salaried and certain hourly employees, based on 2%, 4% or 6% of an
employee's salary, depending on the employee's length of service.
Additionally, the company contributes to several union-sponsored
multi-employer plans which provide defined benefits.
Total pension expense includes the following components:
(Millions of Dollars) 1993 1992 1991
Defined benefit plans:
Service cost $ 9.0 $ 9.2 $ 8.6
Interest cost 20.3 20.5 19.7
Actual return on plan assets (25.3) (25.9) (50.2)
Net amortization and deferral 1.0 .6 26.4
_______ ______ _______
Net pension expense 5.0 4.4 4.5
Defined contribution plan 8.0 7.8 6.3
Multi-employer plans .5 .5 .5
_______ _______ _______
Total pension expense $ 13.5 $ 12.7 $ 11.3
======== ======= =======
The funded status of the company's defined benefit plans at the end of
each fiscal year was as follows:
(Millions of Dollars) 1993 1992
Plans Plans Plans Plans
Where Where Where Where
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
Actuarial Present
value of benefit
obligations:
Vested $203.7 $ 9.6 $181.1 $ 12.3
Non-vested 1.5 2.2 1.0 2.3
Accumulated benefit ----- ---- ----- ----
obligation 205.2 11.8 182.1 14.6
Additional amounts
related to projected
pay increases 52.8 3.3 49.0 3.1
Total projected ----- ---- ----- -----
benefit obligation
(PBO) 258.0 15.1 231.1 17.7
Funded assets at
fair value 306.8 7.0 279.1 8.6
Assets in excess of ----- ---- ----- -----
(less than) PBO 48.8 (8.1) 48.0 (9.1)
Unrecognized net
(gain) or loss at
transition (11.2) .4 (13.0) .3
Unrecognized net
(gain) or loss (26.9) .1 (24.1) (.5)
Unrecognized prior
service cost 17.8 1.0 18.9 1.1
Adjustment required
to recognize minimum
liability (1.8) (1.8)
Prepaid (accrued)
pension expense
(long-term) ------ ------ ------ ------
$ 28.5 $ (8.4) $ 29.8 $(10.0)
====== ====== ====== ======
Assumptions used for significant defined benefit plans were as follows:
1993 1992 1991
Discount rate 7.5% 8.0% 8.0%
Average wage increase 5.0% 5.7% 5.7%
Long-term rate of return
on assets 9.0% 9.0% 9.0%
Postretirement and Postemployment Benefits
The company provides medical and dental benefits for certain retired
employees in the United States. In addition, domestic employees who
retire from active service are eligible for life insurance benefits.
In 1991, the company adopted Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions." The standard requires companies to recognize the estimated
future cost of providing health and other postretirement benefits on an
accrual basis. These benefits had previously been recognized as expense
when paid. The cumulative effect of this accounting change reduced 1991
net earnings by $12.5 million ($20.6 million less related deferred
income taxes of $8.1 million) or $.29 per share.
The status of the company's plans at the end of each fiscal year was as
follows:
(Millions of Dollars) 1993 1992
Accumulated postretirement
benefit obligation:
Retirees $19.9 $12.5
Fully eligible active
plan participants 2.6 1.0
Other active plan participants 4.7 5.2
----- -----
Accumulated obligation 27.2 18.7
Unrecognized net loss (10.7) (1.8)
Accrued postretirement ----- -----
benefit expense $16.5 $16.9
===== =====
Net periodic postretirement benefit expense was $3.3 million in 1993 and
$2.2 million in both 1992 and 1991.
The weighted average annual assumed rate of increase in the per-capita
cost of covered benefits (i.e. health care cost trend rate) is assumed
to be 12% reducing to 9% by 1996 and 6% over 20 years. A one percentage
point increase in the assumed health care cost trend rate would have
increased the accumulated benefit obligation by $4.2 million at January
1, 1994 and $1.3 million at January 2, 1993, and net periodic
postretirement benefit expense for fiscal years 1993 and 1992 by $.4
million and $.2 million, respectively. Weighted average discount rates
of 7.5% in 1993 and 8.0% in 1992 were used in determining the
accumulated benefit obligations.
The company provides certain postemployment benefits to eligible
employees and, in some cases, their dependents. These benefits include
severance, continuation of medical coverage and other benefits when
employees leave the company for reasons other than retirement.
In 1993, the company adopted, effective January 3, 1993, Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits." Prior to 1993, postemployment benefits were
recognized as expense when paid. The cumulative effect of adopting this
new standard was a one-time charge to 1993 earnings of $8.5 million
($13.6 million less related deferred income taxes of $5.1 million) or
$.19 per share. The effect of this change on 1993 operating results was
immaterial.
K Other Costs and Expenses
Interest-net for 1993, 1992 and 1991 included interest income of $6.8
million, $7.2 million and $12.2 million, respectively.
Other-net in 1993 includes a gain of $29.0 million ($.39 per share) from
the sale of the company's investment in Max Co., Ltd. and a charge of
$15.0 million ($.21 per share) related to the settlement of lawsuits
involving a subsidiary, Mac Tools, Inc. Also included in Other-net were
additional charges for a fine levied by U.S. District Court in Missouri
for $5.0 million ($.07 per share) and contingency reserves of $23.3
million ($.32 per share) related to product liability litigation,
restructuring activities and environmental remediation.
Other-net in 1992 includes a gain of $25.8 million ($.35 per share) from
the sale of a portion of the company's investment in Max Co., Ltd.,
expenses of $14.1 million ($.21 per share) related to planned closings
of certain company-owned stores and reduction of the goodwill of the
company's Taylor Rental operation, and expense of $7.8 million ($.11 per
share) for reserves for litigation pending at the company's Mac Tools,
Inc. subsidiary.
Fluctuations in foreign currency rates affect the company's financial
statements in several ways. Adjustments resulting from the translation
of most foreign subsidiary financial statements are included as a
separate component of shareholders' equity. The revenues and expenses of
foreign operations are included in U.S. dollar reported results
translated at the average exchange rates for the year.
In addition to the above, the company engages in activities denominated
in currencies other than its own. Fluctuations in the exchange rates of
those currencies expose the company to gains and losses. These
transactional gains and losses, together with the translation
adjustments related to foreign operations in highly-inflationary
economies, amounted to net losses for 1993, 1992 and 1991 of $6.0
million ($.08 per share), $8.5 million ($.12 per share) and $5.9 million
($.08 per share), respectively.
Research and development expenses amounted to $14.6 million in 1993,
$15.2 million in 1992 and $13.9 million in 1991.
L Operations by Industry Segment and Geographic Area
Industry Segment and Geographic Area information included on page 15 of
this report is an integral part of the financial statements.
M Income Taxes
Significant components of the company's deferred tax liabilities and
assets as of the end of each fiscal year were as follows:
(Millions of Dollars) 1993 1992 1991
Depreciation $73.1 $68.8 $67.8
Amortization 2.6 3.8 2.5
Capitalized interest 1.8 1.9 2.2
Deferred state tax liabilities 5.4 6.8 7.8
Other 3.1 3.5 11.8
------ ------ -----
Total deferred tax liabilities 86.0 84.8 92.1
------ ------ -----
Employee benefit plans (20.4) (12.9) (12.5)
Doubtful accounts (6.9) (7.9) (5.6)
Inventories (4.1) (6.7) (7.7)
Benefit of deferred state taxes (1.9) (2.3) (2.5)
Other (24.6) (13.6) (5.7)
------ ------ -------
Total deferred tax assets (57.9) (43.4) (34.0)
------ ------ -------
Net deferred tax liabilities $28.1 $41.4 $58.1
====== ====== ======
Income tax expense consisted of the following:
(Millions of Dollars) 1993 1992 1991
Current:
Federal $40.2 $47.1 $22.9
Foreign 13.6 18.0 23.8
State 7.2 7.1 5.6
---- ---- ----
Total current 61.0 72.2 52.3
---- ---- ----
Deferred:
Federal (4.8) (12.3) 7.1
Foreign .6 1.2 .4
State (1.4) (1.1) (.4)
----- ----- -----
Total deferred (5.6) (12.2) 7.1
----- ----- -----
Total $55.4 $60.0 $59.4
====== ====== ======
Income taxes paid during 1993, 1992 and 1991 were $63.4 million, $64.4
million and $56.7 million, respectively.
The reconciliation of the statutory federal income tax rate to the
effective rate was as follows:
1993 1992 1991
Statutory federal income tax rate 35.0% 34.0% 34.0%
State income taxes,
net of federal benefit 2.7 2.9 2.0
Difference between foreign
and federal income tax rates .6 1.0
Other - net (.3) .4 1.0
------ ------ ------
Effective tax rate 37.4% 37.9% 38.0%
====== ====== ======
The components of earnings before income taxes consisted of the
following:
(Millions of Dollars) 1993 1992 1991
United States $110.5 $108.1 $101.0
Foreign 37.5 50.0 55.5
------- ------ ------
Total pre-tax earnings $148.0 $158.1 $156.5
======= ====== ======
Undistributed foreign earnings of approximately $201 million as of
January 1, 1994 are considered to be invested indefinitely or will be
remitted substantially free of additional tax. Accordingly, no provision
has been made for taxes that might be payable upon remittance of such
earnings, nor is it practicable to determine the amount of this
liability.
N Leases
The company leases certain facilities, vehicles, machinery and equipment
under long-term operating leases with varying terms and expiration
dates.
Future minimum lease payments under noncancelable operating leases, in
millions of dollars, as of January 1, 1994, were $28.5 in 1994, $23.3 in
1995, $18.9 in 1996, $12.8 in 1997, $10.4 in 1998 and $28.3 thereafter.
Rental expense for operating leases amounted to $35.0 million in 1993,
$36.7 million in 1992 and $34.5 million in 1991.
O Contingencies
The company is a party to a number of proceedings before federal and
state regulatory agencies relating to environmental remediation. Also,
the company, along with many other companies, has been named as a
potentially responsible party in a number of administrative proceedings
for the remediation of various waste sites, including nine Superfund
sites. Current laws potentially impose joint and several liability upon
each PRP. In assessing its potential liability at these sites, the
company has considered the following: the solvency of the other PRPs,
whether responsibility is being disputed, the terms of existing
agreements, experience at similar sites, and the fact that the company's
volumetric contribution at these sites is relatively small.
In the normal course of business, the company is also involved in
various lawsuits and claims. The amount recorded for identified
contingent liabilities is based on estimates. Amounts recorded are
reviewed periodically and adjusted to reflect additional technical and
legal information which becomes available. Actual costs to be incurred
in future periods may vary from the estimates, given the inherent
uncertainties in evaluating certain exposures. Subject to the
imprecision in estimating future contingent liability costs, the company
does not expect that any sum it may have to pay in connection with these
matters in excess of the amounts recorded will have a materially adverse
effect on its financial position, results of operations or liquidity.
P Foreign Exchange Contracts
The company enters into forward exchange contracts and options to hedge
certain foreign currency exposures. The options and forward exchange
contracts are used to minimize the impact of foreign currency
fluctuations on the company's revenues and costs and are not used to
engage in speculation. Such contracts generally have maturities of one
year or less and the counterparties are typically major international
financial institutions. Gains and losses on these contracts resulting
from exchange rate movements generally are deferred and included as a
component of the related transaction. At January 1, 1994, the contract
value and fair value of forward exchange contracts and options
outstanding aggregated $44 million and $2 million, respectively. Fair
values were estimated based on quoted market prices of comparable
contracts.
Quarterly Results Of Operations (Unaudited)
(Millions of Dollars,
except per share amounts) Quarter Year
1993 First Second Third Fourth
------ ------ ------ ------ --------
Net Sales $553.4 $565.2 $576.3 $578.2 $2,273.1
Gross Profit 178.7 181.7 179.5 180.2 720.1
Selling, General
and Administrative
Expenses 130.1 128.5 126.1 127.6 512.3
Earnings Before
Cumulative Effect of
Accounting Change 23.0 27.0 25.0 17.6 92.6
Net Earnings 14.5 27.0 25.0 17.6 84.1
Per Share:
Earnings Before
Cumulative Effect of
Accounting Change $.51 $.60 $.56 $.39 $2.06
Net Earnings .32 .60 .56 .39 1.87
-----------------------------------------------------------------
1992
Net Sales $497.1 $555.5 $550.4 $592.6 $2,195.6
Gross Profit 165.5 187.7 184.6 191.8 729.6
Selling, General
and Administrative
Expenses 126.8 129.8 132.3 137.8 526.7
Net Earnings 17.5 28.8 25.4 26.4 98.1
Net Earnings Per Share $.38 $.63 $.56 $.58 $2.15
-----------------------------------------------------------------
[FN]
Note: The first quarter of 1993 has been restated to reflect the
cumulative effect of adopting Statement of Financial Accounting
Standards No. 112. The first quarter of 1993 includes a gain of $24.0
million ($.33 per share) from the sale of a portion of the company's
investment in Max Co., Ltd., and additional charges for a fine levied by
U.S. District Court in Missouri for $7.0 million ($.10 per share) and
contingency reserves of $15.7 million ($.21 per share) related to
product liability litigation, restructuring activities and environmental
remediation. The third quarter includes a gain of $5.0 million ($.06
per share) from the sale of the company's investment in Max Co., Ltd.,
which was substantially offset by reserves established for the closing
of a manufacturing facility of the company's subsidiary, Mac Tools, Inc.
The fourth quarter of 1993 includes a charge of $15.0 million ($.21 per
share) related to the settlement of lawsuits involving a subsidiary, Mac
Tools, Inc. The fourth quarter of 1992 includes a gain of $25.8 million
($.35 per share) from the sale of a portion of the company's investment
in Max Co., Ltd., expenses of $14.1 million ($.21 per share) related to
planned closings of certain company-owned stores and reduction of the
goodwill of the company's Taylor Rental operation, and expense of $7.8
million ($.11 per share) for reserves for litigation pending at the
company's subsidiary, Mac Tools, Inc.
Certain 1992 amounts in the consolidated statements of earnings were
reclassified to conform with the 1993 presentation.
Investor Information
The ultimate measure of our success is our ability to provide consistently
strong results for shareholders. Stanley's long-term stock performance
record is an enviable one. Dividends were increased in each of the past
27 years; and, in that same 27-year period, an investment in Stanley
stock grew at a compound annual rate of 13.2%. We have the longest record
of annual dividend payments of any industrial company of the New York Stock
Exchange, and the second longest quarterly dividend payment record.
Annual Meeting
The annual shareholders' meeting of The Stanley Works will be held 9:30 a.m.
on Wednesday, Apirl 20, 1994, in New Britain, Connecticut at the Stanley
Center, 1255 Corbin Avenue.
Common Stock (Dollars per Share)
Price Dividends
1993 1992 1993 1992
High Low High Low
First Quarter 45 7/8 39 1/8 48 1/8 40 $ .33 $ .31
Second Quarter 47 7/8 39 1/8 45 1/2 38 1/2 .33 .31
Third Quarter 43 1/2 37 7/8 43 1/2 37 7/8 .34 .33
Fourth Quarter 44 1/2 38 3/4 42 5/8 32 1/2 .34 .33
$1.34 $1.28
Stock Listing
The Stanley Works is listed on the New York and Pacific Stock Exchanges with
the symbol SWK.
Transfer Agent and Registrar
All shareholder inquiries, including transfer-related matters, should be
directed to Mellon Securities:
Mellon Securities Trust Company
85 Challenger Road, Overpeck Center
Ridgefield Park, NJ 07660
1-800-288-9541
1-800-231-5649 (TTY - for the hearing impaired)
For More Information
If you would like a copy of Form 10-K filed with the Securities and Exchange
Commission, or additional information about Stanley, please write:
Patricia R. McLean, Mgr., Corp. Communications
The Stanley Works
1000 Stanley Drive
New Britain, CT 06053