UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended July 1, 1995
or
[ ] Transition Report Pursuant to Section 13 of 15(d) of
the Securities Exchange Act of 1934
For the transition period from
[ ] to [ ]
Commission file number 1-5224
I.R.S. Employer Identification Number 06-0548860
THE STANLEY WORKS
(a Connecticut Corporation)
1000 Stanley Drive
New Britain, Connecticut 06053
Telephone: (203) 225-5111
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: shares of the company's Common
Stock ($2.50 par value) were outstanding 44,258,209 as of August 4, 1995.
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Millions of Dollars)
SECOND QUARTER SIX MONTHS
1995 1994 1995 1994
Net Sales $ 655.5 $ 628.8 $ 1,298.8 $ 1,214.5
Costs and Expenses
Cost of sales 443.6 418.6 881.2 813.0
Selling, general and
administrative 148.6 139.4 295.9 273.2
Interest - net 8.1 7.8 15.6 15.2
Other - net 4.4 9.0 9.0 17.8
------- ------- -------- --------
604.7 574.8 1,201.7 1,119.2
------- ------- -------- --------
Earnings Before Income Taxes 50.8 54.0 97.1 95.3
Income Taxes 19.3 20.3 36.9 36.0
------- ------- -------- --------
Net Earnings $ 31.5 $ 33.7 $ 60.2 $ 59.3
======= ======= ======== ========
Net Earnings Per Share of
Common Stock $ 0.71 $ 0.75 $ 1.36 $ 1.32
======= ======= ======== ========
Dividends per share $ 0.35 $ 0.34 $ 0.70 $ 0.68
Average shares outstanding 44,366 44,829 44,388 44,798
(in thousands)
See notes to consolidated financial statements.
-1-
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Millions of Dollars)
July 1 December 31
1995 1994
ASSETS
Current Assets
Cash and cash equivalents $ 44.8 $ 69.3
Accounts and notes receivable 436.6 410.3
Inventories 415.6 369.2
Other current assets 35.4 39.7
------ ------
Total Current Assets 932.4 888.5
Property, Plant and Equipment 1,160.3 1,128.6
Less: accumulated depreciation (603.3) (568.8)
------- -------
557.0 559.8
Goodwill and Other Intangibles 160.8 164.6
Other Assets 86.9 88.2
------- -------
$ 1,737.1 $ 1,701.1
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $ 127.2 $ 82.8
Current maturities of long-term debt 10.7 10.9
Accounts payable 98.5 125.3
Accrued expenses 184.8 202.5
------- -------
Total Current Liabilities 421.2 421.5
Long-Term Debt 396.3 387.1
Deferred Income Taxes 13.3 14.4
Other Liabilities 139.4 133.9
Shareholders' Equity
Common Stock 115.4 115.4
Capital in excess of par value 70.2 70.1
Retained earnings 969.0 937.8
Foreign currency translation adjustment (63.5) (56.3)
ESOP Debt (248.4) (253.7)
------- -------
842.7 813.3
Less: cost of common stock in treasury 75.8 69.1
------- -------
Total Shareholders' Equity 766.9 744.2
------- -------
$ 1,737.1 $ 1,701.1
======= =======
See notes to consolidated financial statements.
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THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions of Dollars)
SECOND QUARTER SIX MONTHS
1995 1994 1995 1994
Operating Activities
Net Earnings $ 31.5 $ 33.7 $ 60.2 $ 59.3
Depreciation and amortization 20.8 21.6 42.7 42.8
Other non-cash items 6.9 11.2 13.1 16.5
Changes in operating assets
and liabilities (28.0) (27.0) (90.7) (85.0)
------ ------ ------ ------
Net cash provided by
operating activities 31.2 39.5 25.3 33.6
Investing Activities
Capital expenditures (14.2) (17.9) (27.2) (31.1)
Proceeds from sales of assets 4.8 0.3 6.4
Business acquisitions (1.0) (5.1) (1.0) (5.1)
Other (4.4) (2.7) (9.5) (3.0)
------ ------ ------ ------
Net cash used by
investing activities (19.6) (20.9) (37.4) (32.8)
Financing Activities
Payments on long-term debt (1.3) (0.2) (1.6) (0.7)
Net short-term borrowings 13.4 (3.7) 42.5 34.5
Proceeds from issuance of common stock 0.4 0.3 0.9 0.6
Purchase of common stock for treasury (3.8) (0.8) (10.2) (0.8)
Cash dividends on common stock (15.6) (15.2) (45.6) (45.1)
------ ------ ------ ------
Net cash used by
financing activities (6.9) (19.6) (14.0) (11.5)
Effect of Exchange Rate Changes on Cash (0.4) (1.7) 1.6 0.8
------ ------ ------ ------
Increase (decrease) in Cash and
Cash Equivalents 4.3 (2.7) (24.5) (9.9)
Cash and Cash Equivalents,
Beginning of Period 40.5 36.5 69.3 43.7
------ ------ ------ ------
Cash and Cash Equivalents,
End of Second Quarter $ 44.8 $ 33.8 $ 44.8 $ 33.8
====== ====== ====== ======
See notes to consolidated financial statements.
-3-
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(Millions of Dollars)
SIX MONTHS
1995 1994
Balance at beginning of year $ 744.2 $ 680.9
Net earnings 60.2 59.3
Currency translation adjustment (7.2) 1.2
Cash dividends declared (30.6) (30.5)
Net common stock activity (5.0) 3.2
ESOP debt 5.3 4.2
-------- --------
Balance at end of second quarter $ 766.9 $ 718.3
======== ========
See notes to consolidated financial statements.
-4-
THE STANLEY WORKS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 1, 1995
NOTE A - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of only normal recurring items) considered necessary for
a fair presentation of the results of operations for the interim periods have
been included. For further information, refer to the consolidated financial
statements and footnotes included in the company's annual report on Form 10-K
for the year ended December 31, 1994.
NOTE B - Computation of Earnings Per Share
Earnings per share are based upon the weighted average number of common shares
outstanding. The exercise of outstanding stock subscriptions and options would
not result in a material dilution of earnings per share.
(See Exhibit 11)
NOTE C - Inventories
The classification of inventories at the end of the second quarter of 1995 and
at year-end 1994, in millions of dollars, is as follows:
July 1 December 31
1995 1994
------ ------
Finished products $ 270.6 $ 238.6
Work in process 79.2 68.4
Raw materials 62.6 59.4
Supplies 3.2 2.8
------ ------
$ 415.6 $ 369.2
====== ======
-5-
NOTE D - Cash Flow Information
Interest paid during the second quarter of 1995 and 1994 amounted to $9.5
million and $6.4 million, respectively. Interest paid for the six months of 1995
and 1994 amounted to $13.9 million and $14.6 million, respectively.
Income taxes paid during the second quarter of 1995 and 1994 were $32.5 million
and $31.8 million, respectively. Income taxes paid for the six months of 1995
and 1994 were $42.1 million and $42.2 million, respectively.
-6-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
A sudden decline in orders within U.S. consumer and construction related markets
affected the company's second quarter sales and earnings. This weakening order
activity appears to be the result of both soft retail sales and the effort by
some retailers to reduce inventory levels.
Net sales for the second quarter were $656 million, or 4% higher than the second
quarter last year. In contrast to the strong gains the company had been
experiencing in recent quarters across all business segments, unit volume growth
in the second quarter occurred principally in industrial markets and Europe.
Internal growth slowed to 3% compared with 9% growth experienced in the first
quarter. Price increases and foreign currency translation contributed 2% to
sales while divestiture activity resulted in a 1% decrease.
The company responded quickly to the lower volumes by adjusting factory activity
in order to manage inventory levels. This action resulted in lower gross margins
and earnings. The company also continued to experience a significant decline in
gross margins associated with the ongoing integration of its mechanics tools
manufacturing facilities.
Net earnings of $31.5 million, or $.71 per share, were 7% lower than prior year
net earnings of $33.7 million, or $.75 per share. Gross margins for the quarter
of 32.3% were below the margins of 33.4% reported in the second quarter last
year.
Operating expenses were 22.7% of sales compared with 22.2% last year. The
company has embarked on a program of growth initiatives which include an
assessment of its business and organizational strategies to optimize future
performance, as well as specific activities targeted at expanding its markets
and geographic reach. As these critical long-term initiatives were already
underway, the sudden weakening in sales growth resulted in higher ratios than
either planned or experienced in the prior year.
Interest-net expense for the second quarter was $8.1 million or 1.2% of sales,
generally consistent with the prior year. Other-net expenses were $4.4 million
compared with $9.0 million last year. Other-net in the prior year included
additional charges for environmental expenses and facility closings.
Net sales for the first six months of 1995 were $1.3 billion, up 7% from 1994
sales of $1.2 billion. Net earnings of $60.2 million, or $1.36 per share, were
2% higher than prior year earnings of $59.3 million, or $1.32 per share.
-7-
Net sales in the United States for the second quarter, up 2% from the prior
year, reflected the significant weakening in consumer and construction markets.
Unit volume growth, which had been 9% in the first quarter, added only 3% to
sales. Volume gains were primarily concentrated in the industrial category.
Price increases added 1% to sales. The effect of recent divestiture activity
reduced sales by 2%. The rationalization of mechanics tools manufacturing and
the falloff in volume in the quarter resulted in a decline in operating profits.
European sales and operating profits continued to improve. Net sales were 21%
above the prior year with unit volume growth adding 7% and price increases
adding 2%. The translation of strong European currencies increased sales by 12%.
Operating margins improved to 11.2% from 9.3%, primarily the effect of
efficiencies obtained from the increased volume.
Net sales in Other Areas decreased 1% over the prior year, the net effect of
price increases and currency translation effects. Unit volume, which was flat
overall, reflected decreases in Canada, Latin America (especially Mexico) and
Australia with only the Pacific Rim showing unit volume gains. Operating margins
of 8.1% were improved from the first quarter of this year, although below the
prior year level.
Net sales for the Tools segment were up 5% over the prior year with price
increases adding 2% and foreign currency adding 1%. Unit volume reflected a 4%
increase, coming almost entirely from the industrial tool category and Europe.
The net incremental effect of divestiture activity reduced sales by 2%. For the
six months, net sales increased by 7% and operating profits increased by 3% when
compared with the same period last year. Operating margins were reduced by the
continuing costs associated with closing and integrating mechanics tools
facilities and by the sudden downturn in U.S. consumer and construction demand.
A lower but continuing level of cost related to the mechanics tools changes is
expected into the fourth quarter of this year.
Net sales in the Hardware segment increased by 4%, with 2% from pricing and 2%
from foreign currency translation. For the six months, net sales increased by 7%
when compared with the same period last year and operating profits decreased to
$16.2 million from $19.7 million reported last year. Operating margins were
lower than the prior year, the result of flat unit volume, a competitive pricing
environment, and continuing operational changes and inefficiencies in the
company's French Acmetrack business.
Net sales in the Specialty Hardware segment increased 2% over the prior year
entirely from unit volume gains. For the six months, net sales increased by 7%
when compared with the same period last year and operating profits decreased to
$6.1 million from $7.3 million reported last year. Operating profits and margins
were less than reported last year because of lower than expected consumer demand
in the Doors business.
-8-
The company is encouraged by the prospect that lower interest rates will help
improve both consumer and construction markets but it does not expect growth
rates to return to the levels experienced in the first quarter. The company is
addressing costs that will help short-term results and provide full-year profit
gains over 1994. Continued growth in Europe and in the U.S. industrial tools
businesses, combined with the steps currently being taken, will provide improved
comparisons in the second half of this year.
Liquidity and Sources of Capital
Cash flow from operations in the second quarter and for the first six months was
lower than prior year as funds were utilized to provide the increased working
capital necessary to support internal sales growth and long-term growth
initiatives. The company continues to have adequate operating cash flow and
borrowing capacity to fund internal sales growth, capital expenditures, and
dividends and to take advantage of acquisition opportunities as they arise.
Capital expenditures for the year are forecast at approximately $80 million.
Recent Developments
The company recently announced strategic initiatives designed to improve
long-term growth and profitability and to reach targeted sales of $4 billion by
1999. To achieve this goal the company is focusing on four key areas: an
assessment of "full potential achievement" for all business units, global
expansion, new product development and enhanced customer relationships. To fuel
this growth the company plans to remove $150 million from its cost structure by
the end of 1997. In addition, the company plans to eliminate individual products
or groups of products that are a drain on performance, and to improve working
capital productivity in order to achieve a $250 million reduction in the working
capital and other assets by 1997.
The company anticipates that it will incur as yet unidentified restructuring
charges in connection with these initiatives. It is also possible that future
earnings will be affected, both favorably and unfavorably, as specific plans are
developed and implemented. The company is unable to quantify the impact of these
activities at this time; however, it is not currently anticipated that they will
have a material effect on liquidity.
-9-
THE STANLEY WORKS AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(Millions of Dollars)
SECOND QUARTER SIX MONTHS
1995 1994 1995 1994
INDUSTRY SEGMENTS
Net Sales
Tools
Consumer $ 183.3 $ 179.2 $ 356.8 $ 341.8
Industrial 140.3 129.5 284.1 260.0
Engineered 172.9 165.9 339.4 314.5
-------- -------- -------- --------
Total Tools 496.5 474.6 980.3 916.3
Hardware 81.7 78.7 166.4 156.3
Specialty Hardware 77.3 75.5 152.1 141.9
-------- -------- -------- --------
Consolidated $ 655.5 $ 628.8 $ 1,298.8 $ 1,214.5
======== ======== ======== ========
Operating Profit
Tools $ 57.9 $ 59.3 $ 110.9 $ 107.7
Hardware 7.7 10.8 16.2 19.7
Specialty Hardware 3.5 4.2 6.1 7.3
-------- -------- -------- --------
Total 69.1 74.3 133.2 134.7
Net corporate expenses (9.0) (10.7) (17.9) (21.7)
Interest expense (9.3) (9.6) (18.2) (17.7)
-------- -------- -------- --------
Earnings before
income taxes $ 50.8 $ 54.0 $ 97.1 $ 95.3
======== ======== ======== ========
GEOGRAPHIC AREAS
Net Sales
United States $ 466.0 $ 457.3 $ 920.6 $ 877.5
Europe 104.5 86.0 212.3 174.4
Other Areas 85.0 85.5 165.9 162.6
-------- -------- -------- --------
Consolidated $ 655.5 $ 628.8 $ 1,298.8 $ 1,214.5
======== ======== ======== ========
Operating Profit
United States $ 50.5 $ 57.4 $ 97.2 $ 102.2
Europe 11.7 8.0 24.1 17.7
Other Areas 6.9 8.9 11.9 14.8
-------- -------- -------- --------
Total $ 69.1 $ 74.3 $ 133.2 $ 134.7
======== ======== ======== ========
See notes to consolidated financial statements.
-10-
PART II - OTHER INFORMATION
Item 4. - Submission of Matters to a Vote of Security-Holders
(a) The company's annual meeting of shareholders was held on April 19,
1995.
(c)(i) The following directors were elected:
Shares Voted Shares
For Withheld Non-Votes
---------- ---------- ----------
Walter J. McNerney 33,455,382 1,140,836 0
James G. Kaiser 33,492,106 1,140,112 0
Hugo E. Uyterhoeven 33,480,955 1,115,263 0
Walter W. Williams 33,475,250 1,120,968 0
(ii) The amendments to the Restated Certificate of Incorporation were
approved by the following vote:
Shares Voted Shares Voted Shares Voted
For Against Abstaining Non-Votes
------------ ------------ ------------ ----------
33,940,298 367,224 288,696 0
(iii) Amendments to the 1990 Stock Option Plan and the authorization of
3,500,000 shares for issuance thereunder were approved by the
following vote:
Shares Voted Shares Voted Shares Voted
For Against Abstaining Non-Votes
------------ ------------ ------------ ----------
23,400,048 8,587,103 354,918 2,254,149
(iv) The Employee Stock Purchase Plan and the authorization of 3,000,000
shares for issuance thereunder were approved by the following vote:
Shares Voted Shares Voted Shares Voted
For Against Abstaining Non-Votes
------------ ------------ ------------ ----------
29,622,303 2,477,613 242,151 2,254,151
(v) The Stock Option Plan for Non-Employee Directors and the
authorization of 100,000 shares for issuance thereunder were approved
by the following vote:
Shares Voted Shares Voted Shares Voted
For Against Abstaining Non-Votes
------------ ------------ ------------ ----------
27,307,170 4,441,991 591,904 2,255,153
(vi) Ernst & Young LLP was approved as the company's independent auditors
by the following vote:
Shares Voted Shares Voted Shares Voted
For Against Abstaining Non-Votes
------------ ------------ ------------ ----------
27,307,170 4,441,991 591,904 0
-11-
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
(1) See Exhibit Index on page 13
(2) Upon the request of the Securities and Exchange Commission, the
company hereby agrees to file a copy of any instrument with respect to
long-term debt that has not been registered where the total amount of
securities authorized thereunder does not exceed 10% of the total assets of
the company and its subsidiaries on a consolidated basis.
(b) Reports on Form 8-K.
(1) Registrant filed a Current Report on Form 8-K, dated April 19,
1995, in respect of the Registrant's press release reporting on first quarter
sales and earnings.
(2) Registrant filed a Current Report on Form 8-K, dated May 31, 1995,
in respect of the Registrant's press release and organizational announcement
as follows:
(i) Press release reporting on the second quarter dividend.
(ii) Press release announcing the election of Mannie L. Jackson to
the Registrant's Board of Directors.
(iii) Organizational announcement announcing the appointment of
Thomas E. Mahoney as Vice President Marketing Development.
(3) Registrant filed a Current Report on Form 8-K, dated June 15, 1995,
in respect of the Registrant's press release reporting on the Company's
weakening demand.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE STANLEY WORKS
Date: August 9, 1995 By: Richard Huck
Richard Huck
Vice President, Finance
and Chief Financial Officer
Date: August 9, 1995 By: Theresa F. Yerkes
Theresa F. Yerkes
Vice President and
Controller (Chief Accounting
Officer)
-12-
EXHIBIT INDEX
(3)(i) Restated Certificate of Incorporation
(11) Statement re computation of earnings per share
(12) Statement re computation of ratio of earnings to fixed charges
(27) Financial Data Schedule
-13-