Savings Plan for Hourly Paid 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 Hourly Paid 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 Hourly Paid 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:
1,001,474 shares (cost
$33,098,825) $44,565,593 $ 44,565,593
1,555,538 shares
(cost $53,515,799) $ 69,221,441 69,221,441
Short-term investments 266,786 2,731 269,517
-----------------------------------------------
44,832,379 69,224,172 114,056,551
Dividends and interest
receivable 337,675 533,183 870,858
Loans to participants $ 3,327,218 3,327,218
Due from The Stanley Works 134,930 134,930
-----------------------------------------------
$45,304,984 $ 3,327,218 $69,757,355 $118,389,557
================================================
Liabilities and plan equity
Liabilities:
Due to Savings Plan for Salaried
Employees of The Stanley
Works $ 157,530 $ 157,530
Benefits payable 175,600 175,600
Debt $61,603,171 61,603,171
Plan forfeitures 45,652 45,652
------------------------------------------------
378,782 61,603,171 61,981,953
Plan equity 44,926,202 $3,327,218 8,154,184 56,407,604
------------------------------------------------
$45,304,984 $3,327,218 $69,757,355 $118,389,557
================================================
<FN>
See accompanying notes.
Savings Plan for Hourly Paid 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:
797,505 shares (cost
$25,502,826) $33,893,963 $ 33,893,963
1,669,556 shares
(cost $57,299,782) $70,956,130 70,956,130
Short-term investments 737,000 1,000 738,000
-----------------------------------------------
34,630,963 70,957,130 105,588,093
Cash 163 1,240 1,403
Dividends and interest
receivable 254,817 554,355 809,172
Loans to participants $2,558,968 2,558,968
Due from The Stanley Works 167,688 167,688
------------------------------------------------
$35,053,631 $2,558,968 $71,512,725 $109,125,324
===============================================
Liabilities and plan equity
Liabilities:
Due to broker for securities
purchased $ 396,147 $ 396,147
Due to Savings Plan for Salaried
Employees of The Stanley
Works 95,753 95,753
Benefits payable 31,338 31,338
Debt $63,831,676 63,831,676
Plan forfeitures 53,527 53,527
---------------------------------------------
576,765 63,831,676 64,408,441
Plan equity 34,476,866 $2,558,968 7,681,049 44,716,883
-----------------------------------------------
$35,053,631 $2,558,968 $71,512,725 $109,125,324
================================================
<FN>
See accompanying notes.
Savings Plan for Hourly Paid 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 $ 1,222,981 $ 2,155,635 $ 3,378,616
Interest 18,706 $ 230,786 10,999 260,491
-----------------------------------------------------
1,241,687 230,786 2,166,634 3,639,107
Net realized and unrealized
appreciation in The
Stanley Works
Common Stock 3,129,309 2,049,294 5,178,603
Contributions:
Employee 7,068,089 7,068,089
Employer 3,380,681 3,380,681
----------------------------------------------------
10,448,770 10,448,770
Withdrawals:
In cash (2,110,312) (2,110,312)
In The Stanley Works
Common Stock (229,570) (229,570)
Transfers to the
Savings Plan for
Salaried Employees
of The Stanley Works (139,047) (139,047)
------------------------------------------------------
(2,478,929) (2,478,929)
Administrative expenses (39,101) (39,101)
Plan forfeitures (45,652) (45,652)
Interest expense (5,012,077) (5,012,077)
Interfund transfers-net (1,806,748) 537,464 1,269,284 -
----------------------------------------------------
Net increase 10,449,336 768,250 473,135 11,690,721
Plan equity at
beginning of year 34,476,866 2,558,968 7,681,049 44,716,883
------------------------------------------------------
Plan equity at
end of year $44,926,202 $ 3,327,218 $ 8,154,184 $56,407,604
====================================================
<FN>
See accompanying notes.
Savings Plan for Hourly Paid 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 $ 913,144 $2,195,699 $3,108,843
Interest 17,918 $ 202,597 14,330 234,845
------------------------------------------------
931,062 202,597 2,210,029 3,343,688
Realized gain on sales of The Stanley
Works Common Stock:
Proceeds 853,000 853,000
Cost 748,677 748,677
-------------------------------------------------
104,323 104,323
Unrealized appreciation in The
Stanley Works Common Stock 1,914,173 1,932,962 3,847,135
Contributions:
Employee 6,104,979 6,104,979
Employer 2,957,081 2,957,081
-----------------------------------------------
9,062,060 9,062,060
Withdrawals:
In cash (2,003,174) (2,003,174)
In The Stanley Works Common
Stock (158,916) (158,916)
Transfers to the Savings Plan for
Salaried Employees of The
Stanley Works (359,926) (359,926)
-------------------------------------------------
(2,522,016) (2,522,016)
Administrative expenses (28,304) (28,304)
Plan forfeitures (53,527) (53,527)
Interest expense (5,141,425) (5,141,425)
Interfund transfers--net (1,216,172) 193,854 1,022,318 -
-------------------------------------------------
Net increase 8,191,599 396,451 23,884 8,611,934
Plan equity at
beginning of year 26,285,267 2,162,517 7,657,165 36,104,949
-------------------------------------------------
Plan equity at end of year $34,476,866 $ 2,558,968 $ 7,681,049 $44,716,883
=================================================
<FN>
See accompanying notes.
Savings Plan for Hourly Paid 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.
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 hourly paid employees of The Stanley Works.
Participants may contribute, through pre-tax payroll deductions, generally up
to 12% of their compensation. 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 compensation.
Participant and Company contributions are invested in the Stanley Stock Fund
with a guarantee, which, if necessary, is satisfied by the Pension Plan for
Hourly Paid 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.
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.
Savings Plan for Hourly Paid Employees of The Stanley Works
Notes to Financial Statements (continued)
2. Description of the Plan (continued)
Employees are fully vested as to amounts in their savings accounts
attributable to their own contributions and amounts transferred from the other
qualified plans on their behalf. Participants with three or more years of
service on January 1, 1987 who terminated employment before January 1, 1989
are vested in the portion of their savings account attributable to the Company
matching contributions as follows: 0% during the first through fourth years of
service, 40% after four years of service, 10% additional for each of the next
six years, to 100% after ten years of service. All other participants are
vested in 100% of the value of the 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 resulting
from death, disability, retirement or other termination. Normally, a lump-sum
distribution is made in cash or shares of Common Stock, at the election of the
participant, from the Stanley Stock Fund.
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 such 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, participants are allowed ten years to repay the
loan if the proceeds are 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.
Savings Plan for Hourly Paid Employees of The Stanley Works
Notes to Financial Statements (continued)
2. Description of the Plan (continued)
The Plan borrowed $40,500,000 in 1989 from a group of financial institutions
and $26,500,000 in 1991 from the Company (see Notes 3 and 4) to acquire
1,250,831 and 713,804 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 1989 loan agreement, the Company guaranteed the
loan and is obligated to make annual contributions sufficient to enable the
Plan to repay the loan plus interest.
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, a number of 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 future 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 as an additional allocation of Stanley Stock
for that year, a pro rata portion of such excess value.
Each participant is entitled to exercise voting rights attributable to the
shares allocated to their 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 or his
or her beneficiary at the time prescribed by the Plan terms and the Internal
Revenue Code.
Savings Plan for Hourly Paid Employees of The Stanley Works
Notes to Financial Statements (continued)
2. Description of the Plan (continued)
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 contributions,
related gains, losses and dividend income and loan activity.
There were 4,662 and 4,219 participants (4,405 and 4,058 of whom were active
employees) in the plan as of December 31, 1993 and 1992, respectively, and
1,234 and 1,073, respectively, of whom had loans outstanding.
3. Debt
Debt consisted of the following at December 31:
1993 1992
Note payable in monthly installments to 2001
with interest at 7.71% $ 35,295,697 $ 37,458,202
Note payable to the Company in monthly
installments to 2026 with interest at 8.3% 26,307,474 26,373,474
-------------------------
$61,603,171 $63,831,676
=========================
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 Stanley Stock Fund pursuant to principal and interest payments.
During the year 19,436 shares were released and at December 31, 1993, 663,610
shares are pledged as security.
The scheduled maturities of debt for the next five years are as follows:
1994--$3,483,000; 1995--$3,830,000; 1996--$4,026,000; 1997--$4,352,000 and
1998--$4,716,000.
Payment of the Plan's debt has been guaranteed by the Company. Should the
principal and interest due exceed the dividends paid on shares in the Stanley
Stock and Unallocated Stock Funds, and employee and Company matching
contributions, the Company is responsible for funding such shortfall.
Savings Plan for Hourly Paid Employees of The Stanley Works
Notes to Financial Statements (continued)
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 Company. Fees incurred
and paid by the Plan during 1993 and 1992 were $39,101 and $28,304,
respectively.
In 1991, the Plan borrowed $26,500,000 from the Company, the proceeds of which
were used to purchase 713,804 shares of stock from the Company. The Plan made
$2,252,476 of principal and interest payments related to such debt in 1993; at
December 31, 1993, $26,307,474 was outstanding on such debt.
5. Income Tax Status
The Internal Revenue Service has ruled (September 13, 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 accordance 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 or employee contributions, to the extent that such amounts meet
IRC guidelines, or on dividends accruing to their accounts until 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 which have not already been subject to tax.
Savings Plan for Hourly Paid 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* 2,557,012 shares of
Common Stock $86,614,624 $113,787,034
Trust Fund:
State Street Bank Short-Term Investment
and Trust Fund--United States
Company* (GSTIF) Government securities 266,786 266,786
State Street Bank
and Trust Short-Term Investment
Company* (STIF) Fund--Pooled Bank Fund 2,731 2,731
Loans to participants Promissory notes at prime rate
with maturities of not more
than five years 3,327,218 3,327,218
--------------------------
Total investments $90,211,359 $117,383,769
=========================
<FN>
* Indicates party-in-interest to the Plan.
Savings Plan for Hourly Paid 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
Incurred Asset on
Identity of Purchase Description Selling Lease with Cost of Transaction Net Gain
Party Involved of Assets Price Price Rental Transaction Asset Date (Loss)
Category (iii)--series of transactions in excess of 5 percent of plan assets
State Street Bank Short-Term Investment
and Trust Fund-U.S. Government
Company* Securities $11,333,552 $11,333,552
State Street Bank Short-Term Investment
and Trust Fund-U.S. Government
Company* Securities $11,803,766 11,803,766 11,803,766
The Stanley Works* 109,077 shares of The
Stanley Works Common
Stock 4,447,121 4,447,121
<FN>
There were no category (i), (ii) or (iv) reportable transactions during 1993.
* Indicates party-in-interest to the Plan.