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 March 30, 1996
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: (860) 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 44,424,477
as of May 3, 1996. On April 17, 1996, the Board of Directors of the
Registrant declared a two-for-one split of the Registrant's Common Stock to
be effected by the distribution of one additional share for each share
outstanding on June 3, 1996 to shareholders of record as of May 13, 1996.
(See Part II Item 2).
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited, Millions of Dollars Except per Share Data)
First Quarter
1996 1995
NET SALES $ 635.3 $ 643.3
COSTS AND EXPENSES
Cost of sales 429.3 437.6
Selling, general and administrative 149.0 147.3
Interest - net 6.5 7.5
Other - net 3.5 4.6
-------- --------
588.3 597.0
-------- --------
EARNINGS BEFORE INCOME TAXES 47.0 46.3
Income Taxes 17.4 17.6
-------- --------
NET EARNINGS $ 29.6 $ 28.7
======== ========
NET EARNINGS PER SHARE OF COMMON STOCK $ 0.33 $ 0.32
======== ========
DIVIDENDS PER SHARE $ 0.18 $ 0.175
======== ========
AVERAGE SHARES OUTSTANDING (in thousands) 88,815 88,828
======== ========
See notes to consolidated financial statements.
-1-
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, Millions of Dollars)
March 30 December 30
1996 1995
ASSETS
Current Assets
Cash and cash equivalents $ 39.3 $ 75.4
Accounts and notes receivable 454.9 438.7
Inventories 335.2 349.1
Other current assets 45.8 51.9
------ ------
Total Current Assets 875.2 915.1
Property, Plant and Equipment 1,147.0 1,140.7
Less: accumulated depreciation (620.3) (608.6)
------- -------
526.7 532.1
Goodwill and Other Intangibles 129.4 131.8
Other Assets 97.1 91.0
------- -------
$ 1,628.4 $ 1,670.0
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $ 52.3 $ 77.2
Current maturities of long-term debt 13.9 14.1
Accounts payable 84.2 112.7
Accrued expenses 198.0 183.7
------- -------
Total Current Liabilities 348.4 387.7
Long-Term Debt 384.0 391.1
Deferred Income Taxes 15.4 16.4
Other Liabilities 137.3 140.2
Shareholders' Equity
Common Stock 230.8 115.4
Capital in excess of par value - 68.4
Retained earnings 903.3 937.6
Foreign currency translation adjustment (66.7) (70.6)
ESOP debt (241.9) (244.3)
------- -------
825.5 806.5
Less: cost of common stock in treasury 82.2 71.9
------- -------
Total Shareholders' Equity 743.3 734.6
------- -------
$ 1,628.4 $ 1,670.0
======= =======
See notes to consolidated financial statements.
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THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, Millions of Dollars)
FIRST QUARTER
1996 1995
Operating Activities
Net Earnings $ 29.6 $ 28.7
Depreciation and amortization 20.1 21.9
Other non-cash items 5.0 6.2
Changes in operating assets
and liabilities (18.4) (62.7)
------ ------
Net cash provided (used) by
operating activities 36.3 (5.9)
Investing Activities
Capital expenditures (13.7) (13.0)
Proceeds from sales of assets 3.8 0.3
Proceeds from sale of businesses 1.9 -
Other (5.7) (5.1)
------ ------
Net cash used by
investing activities (13.7) (17.8)
Financing Activities
Payments on long-term debt (3.4) (0.3)
Net short-term borrowings (22.7) 29.1
Proceeds from issuance of common stock 22.9 0.5
Purchase of common stock for treasury (37.5) (6.4)
Cash dividends on common stock (18.7) (30.0)
------ ------
Net cash used by
financing activities (59.4) (7.1)
Effect of Exchange Rate Changes on Cash 0.7 2.0
------ ------
Decrease in Cash and Cash Equivalents (36.1) (28.8)
Cash and Cash Equivalents,
Beginning of Period 75.4 69.3
------ ------
Cash and Cash Equivalents,
End of First Quarter $ 39.3 $ 40.5
====== ======
See notes to consolidated financial statements.
-3-
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(Unaudited, Millions of Dollars)
THREE MONTHS
1996 1995
Balance at beginning of year $ 734.6 $ 744.2
Net earnings 29.6 28.7
Currency translation adjustment 3.9 (7.3)
Cash dividends declared (16.2) (15.6)
Net common stock activity, including tax benefit (11.0) (2.3)
ESOP debt 2.4 2.2
-------- -------
Balance at end of first quarter $ 743.3 $ 749.9
======= =======
See notes to consolidated financial statements.
-4-
THE STANLEY WORKS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 30, 1996
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 both normal and
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 30, 1995.
NOTE B - Common Stock Split
On April 17, 1996, the shareholders approved an increase in the number of
authorized common shares from 110,000,000 to 200,000,000. On that date,
the Board of Directors declared a two-for-one common stock split to be
effected by the distribution of one additional share for each share
outstanding. Such distribution will be made on June 3, 1996 to
shareholders of record as of May 13, 1996. Accordingly, the stock split
has been recognized by reclassifying $115.4 million, the par value of the
additional shares resulting from the split, from capital surplus and
retained earnings to common stock. All shares outstanding and per share
amounts have been restated to retroactively reflect the stock split.
NOTE C - Computation of Earnings Per Share
Earnings per share are based upon the weighted average number of common
shares outstanding. The exercise of outstanding stock options would not
result in a material dilution of earnings per share. (See Exhibit 11)
NOTE D - Inventories
The classification of inventories at the end of the first quarter of 1996
and at year-end 1995, in millions of dollars, is as follows:
March 30 December 30
1996 1995
------ ------
Finished products $ 212.0 $ 224.1
Work in process 66.8 63.1
Raw materials 54.1 59.4
Supplies 2.3 2.5
------ ------
$ 335.2 $ 349.1
====== ======
-5-
NOTE E - Cash Flow Information
Interest paid during the first quarter of 1996 and 1995 amounted to $6.9
million and $4.4 million, respectively.
Income taxes paid during the first quarter of 1996 and 1995 were $0.7
million and $9.6 million, respectively.
-6-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
First quarter net income of $30 million, or $.33 per share, reflected
transition costs associated with previously announced restructuring
initiatives. These costs totaled $7 million, or $.05 per share, and
included $.02 per share of consulting and $.03 per share of expenses
related to the consolidation of North American order management and
distribution and other facility closings. Excluding these costs, net
income would have been $34 million, or $.38 per share, an increase of 17%
from the prior year earnings of $29 million, or $.32 per share. This
improved profitability was achieved despite lower sales volume. First
quarter net sales were $635 million, a 1% reduction from the $643 million
reported last year.
The lower sales volume realized in the first quarter was reflective of
unusually strong sales in the same period last year; fourth quarter 1995
retail activity was weak leaving customers with excess inventory going
into 1996; and the company's business and product line divestitures in
1995 resulted in a $6 million reduction in sales this quarter. Order
patterns strengthened throughout the period and ended on a positive note,
with a 3.5% sales increase in March. Despite the lower sales volume and
the continued costs related to restructuring efforts the company was able
to deliver improved profits. The aggressive initiatives that were begun
in 1995 to realign the company's cost structure are beginning to pay off.
Gross margins reported for the quarter were 32.4% of sales compared with
32.0% last year. The improvement in margins, due largely to the absence
of prior year manufacturing integration costs, was offset somewhat by
underabsorption of factory overheads caused by lower sales volumes and
aggressive inventory management. Operating expenses were 23.4% of sales
and included approximately $4 million of consulting and other
restructuring related transition costs. Excluding these charges,
operating expense would have been 22.8% of sales compared with 22.9% in
the prior year.
Net sales in the Tools segment were reduced by $6 million as a result of
1995 restructuring related divestitures. Excluding this reduction, first
quarter net sales were virtually flat, with volume declines noted
particularly in the industrial tool category. Operating profits for this
segment included approximately $4 million in restructuring related
transition costs. Excluding these costs, operating profits would have
been $56 million, or 11.8% of sales, compared with $53 million, 11.0% of
sales in the prior year. The absence of manufacturing integration costs
in the Mechanics Tools business contributed to the improvement.
Net sales in the Hardware segment were 2% lower than the prior year,
primarily from volume declines in the U.S., although price increases
partially offset those reductions. Operating profits were improved from
the prior year, reflecting improved performance in the European Home
Decor business. Excluding restructuring related transition costs of $1
million, operating profits were $10 million, or 12.5% of sales compared
with $9 million, or 10% of sales in the prior year.
-7-
Net sales in the Specialty Hardware segment were flat compared to last
year as the effect of a recent acquisition offset unit volume declines.
Operating profits, excluding restructuring related transition costs of $1
million, were $3 million, or 3.7% of sales compared with 3.5% of sales in
the prior year.
Geographically, all regions experienced flat to lower sales for the
quarter. Operating profits excluding restructuring related transition
costs were $50 million in the U.S., $12 million in Europe and $7 million
in Other Areas.
The company is encouraged by strengthening North American business
conditions towards the end of the quarter and is optimistic that future
comparisons will prove to be easier. The first quarter comparisons
should, in fact, be the most difficult for the year. The company is on
schedule with its restructuring initiatives and has begun to see earnings
improvements as a result. Although no additional significant
restructuring initiatives were announced in the first quarter, there are
a number of important projects in the planning stages and the company
will remain focused and has made good progress on evaluating its product
categories and working toward the aggressive targets set for cost and
asset reduction. As a result of these efforts the company continues to
build value for its shareholders.
Liquidity and Sources of Capital
Cash flow from operations was $36.3 million. Operating cash flow
increased over the prior year reflecting the increased working capital
levels necessary in the prior year to fund internal sales growth.
Aggressive actions to reduce inventories as part of the company's overall
asset reduction plans also had a postive effect on operating cash flows
for the quarter.
During the first quarter 1996, the company made severance and other exit
cost payments of $3 million under the previously disclosed restructuring
program. At March 30, 1996, the reserve balance for the restructuring
initiatives announced in 1995 was $15 million. The plant closings and
exit activities initiated in 1995 are progressing as planned. Additional
restructuring alternatives are currently being evaluated and future
restructuring charges and restructuring related costs will likely result
as the various initiatives under consideration are developed and specific
operating plans are designed, approved and implemented. Due to the
complexity of these initiatives and the early stage of planning, the
company is currently unable to estimate the future charges and costs;
however, it is likely that those charges and costs will be material and
may approximate the amount of charges and costs already incurred in 1995.
The company anticipates that its operating cash flow and borrowing
capacity will enable it to fund its growth and restructuring initiatives,
capital expenditures, and dividends. The restructuring activities the
company has implemented to date as well as future restructuring
initiatives will not have a material effect on liquidity.
Capital expenditures for the year are forecast at approximately $100
million.
-8-
THE STANLEY WORKS AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(Unaudited, Millions of Dollars)
First Quarter
-------------------------------------------
Unit ACQ/
1996 Price Volume DVT Currency 1995
-------- ------ ------ ------ ------ --------
INDUSTRY SEGMENTS
NET SALES
Tools
Consumer $ 172.7 2% (2)% - - $ 173.5
Industrial 140.4 2% (4)% - - 143.8
Engineered 164.0 - 1 % (3)% - 166.5
------- -------
Total Tools 477.1 1% (1)% (1)% - 483.8
Hardware 83.2 2% (4)% - - 84.7
Specialty Hardware 75.0 - (2)% 2 % - 74.8
------- -------
Consolidated $ 635.3 1% (1)% (1)% - $ 643.3
======= =======
OPERATING PROFIT
Tools $ 51.9 $ 53.0
Hardware 9.6 8.5
Specialty Hardware 2.3 2.6
-------- --------
Total 63.8 64.1
Net corporate
expenses (9.2) (8.9)
Interest expense (7.6) (8.9)
-------- --------
Earnings before
income taxes $ 47.0 $ 46.3
======== ========
GEOGRAPHIC AREAS
NET SALES
United States $ 449.5 1% (1)% (1)% - $ 454.6
Europe 108.1 2% (3)% 1 % - 107.8
Other Areas 77.7 1% (4)% - (1)% 80.9
------- -------
Consolidated $ 635.3 1% (1)% (1)% - $ 643.3
======= =======
OPERATING PROFIT
United States $ 45.4 $ 46.7
Europe 11.6 12.4
Other Areas 6.8 5.0
------- -------
Total $ 63.8 $ 64.1
======= =======
See notes to consolidated financial statements.
-9-
PART II - OTHER INFORMATION
Item 2. - Change in Securities
(a) On April 17, 1996, the shareholders of the company approved
an amendment to the Restated Certificate of Incorporation to increase
the number of authorized shares of the company's common stock, par value
$2.50 per share, from 110,000,000 to 200,000,000. On that date, the
Board of Directors declared a two-for-one split of the company's common
stock, $2.50 par value, to be effected by the distribution of one
additional share for each share outstanding. Such distribution will be
made on June 3, 1996 to shareholders of record as of May 13, 1996.
Accordingly, the stock split has been recognized by reclassifying $115.4
million, the par value of the additional shares resulting from the
split, from capital surplus and retained earnings to common stock. The
stock split will not change the rights of the holders of the company's
common stock.
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
(1) See Exhibit Index on page 11
(b) Reports on Form 8-K.
(1) Registrant filed a Current Report on Form 8-K, dated
January 31, 1996, in respect of the following items reported by the
Registrant:
(i) Press release reporting 1995 year-end results.
(ii) Amended terms of the Deferred Compensation Plan for Non-
Employee Directors.
(iii) Extended benefits offered by the Rights Agreement dated
as of January 31, 1996, between The Stanley Works and
State Street Bank and Trust Company, as Rights Agent.
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: May 14, 1996 By: Richard Huck
Richard Huck
Vice President, Finance
and Chief Financial Officer
Date: May 14, 1996 By: Theresa F. Yerkes
Theresa F. Yerkes
Vice President and
Controller (Chief Accounting
Officer)
-10-
EXHIBIT INDEX
(1) 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
-11-