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 June 29, 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 88,844,942
as of August 2, 1996.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited, Millions of Dollars Except Per Share Amounts)
Second Quarter Six Months
1996 1995 1996 1995
-------- -------- -------- --------
Net Sales $ 677.2 $ 655.5 $ 1,312.5 $ 1,298.8
Costs and Expenses
Cost of sales 453.0 443.6 882.3 881.2
Selling, general and
administrative 153.1 148.6 302.1 295.9
Interest - net 5.4 8.1 11.9 15.6
Other - net 4.4 4.4 7.9 9.0
Restructuring 3.8 - 3.8 -
-------- -------- -------- --------
619.7 604.7 1,208.0 1,201.7
-------- -------- -------- --------
Earnings before
income taxes 57.5 50.8 104.5 97.1
Income Taxes 24.9 19.3 42.3 36.9
-------- -------- -------- --------
Net Earnings $ 32.6 $ 31.5 $ 62.2 $ 60.2
======== ======== ======== ========
Net Earnings Per Share
of Common Stock $ 0.37 $ 0.36 $ 0.70 $ 0.68
======== ======== ======== ========
Dividends per share $ 0.18 $ 0.175 $ 0.36 $ 0.35
======== ======== ======== ========
Average shares outstanding
(in thousands) 88,825 88,732 88,830 88,775
======== ======== ======== ========
See notes to consolidated financial statements.
-1-
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, Millions of Dollars)
June 29 December 30
1996 1995
------ ------
ASSETS
Current Assets
Cash and cash equivalents $ 79.5 $ 75.4
Accounts and notes receivable 454.2 438.7
Inventories 344.4 349.1
Other current assets 42.3 51.9
------ ------
Total Current Assets 920.4 915.1
Property, plant and equipment 1,147.1 1,140.7
Less: accumulated depreciation (623.2) (608.6)
------- -------
523.9 532.1
Goodwill and other intangibles 121.0 131.8
Other assets 103.3 91.0
------- -------
$ 1,668.6 $ 1,670.0
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $ 33.4 $ 77.2
Current maturities of long-term debt 13.8 14.1
Accounts payable 119.6 112.7
Accrued expenses 204.6 183.7
------- -------
Total Current Liabilities 371.4 387.7
Long-term debt 373.3 391.1
Deferred income taxes 15.0 16.4
Other liabilities 143.2 140.2
Shareholders' Equity
Common stock 230.9 115.4
Capital in excess of par value - 68.4
Retained earnings 919.2 937.6
Foreign currency translation adjustment (62.7) (70.6)
ESOP debt (239.6) (244.3)
------- -------
847.8 806.5
Less: cost of common stock in treasury 82.1 71.9
------- -------
Total Shareholders' Equity 765.7 734.6
------- -------
$ 1,668.6 $ 1,670.0
======= =======
See notes to consolidated financial statements.
-2-
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, Millions of Dollars)
SECOND QUARTER SIX MONTHS
1996 1995 1996 1995
------ ------ ------ ------
Operating Activities
Net earnings $ 32.6 $ 31.5 $ 62.2 $ 60.2
Depreciation and amortization 18.7 20.8 38.8 42.7
Restructuring 3.8 - 3.8 -
Other non-cash items 12.3 6.9 17.3 13.1
Changes in operating assets
and liabilities 32.2 (28.0) 13.8 (90.7)
------ ------ ------ ------
Net cash provided by
operating activities 99.6 31.2 135.9 25.3
Investing Activities
Capital expenditures (17.4) (14.2) (31.1) (27.2)
Capitalized software (5.6) (3.6) (10.8) (9.1)
Proceeds from sales of businesses 13.3 - 15.2 -
Other (6.0) (1.8) (2.7) (1.1)
------ ------ ------ ------
Net cash used by
investing activities (15.7) (19.6) (29.4) (37.4)
Financing Activities
Payments on long-term debt (3.1) (1.3) (6.5) (1.6)
Net short-term borrowings (16.3) 13.4 (39.0) 42.5
Proceeds from issuance of common stock 4.2 0.4 27.1 0.9
Purchase of common stock for treasury (9.5) (3.8) (47.0) (10.2)
Cash dividends on common stock (16.0) (15.6) (34.7) (45.6)
------ ------ ------ ------
Net cash used by
financing activities (40.7) (6.9) (100.1) (14.0)
Effect of Exchange Rate Changes on Cash (3.0) (0.4) (2.3) 1.6
------ ------ ------ ------
Increase (decrease) in Cash and
Cash Equivalents 40.2 4.3 4.1 (24.5)
Cash and Cash Equivalents,
Beginning of Period 39.3 40.5 75.4 69.3
------ ------ ------ ------
Cash and Cash Equivalents,
End of Second Quarter $ 79.5 $ 44.8 $ 79.5 $ 44.8
====== ====== ====== ======
See notes to consolidated financial statements.
-3-
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(Unaudited, Millions of Dollars)
SIX MONTHS
1996 1995
-------- -------
Balance at beginning of year $ 734.6 $ 744.2
Net earnings 62.2 60.2
Currency translation adjustment 8.0 (7.2)
Cash dividends declared (32.3) (30.6)
Net common stock activity, including tax benefit (11.5) (5.0)
ESOP debt 4.7 5.3
-------- -------
Balance at end of second quarter $ 765.7 $ 766.9
======= =======
See notes to consolidated financial statements.
-4-
THE STANLEY WORKS AND SUBSIDIARIES
NOTES TO (Unaudited) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 29, 1996
NOTE A - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial statements and with the instructions to Form 10-Q and
Article 10 of Regulation S-X 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 was made on June 3, 1996 to shareholders of
record as of May 13, 1996. Accordingly, the stock split has been
recognized by reclassifying $115.5 million, the par value of the additional
shares resulting from the split, from capital in excess of par value and
retained earnings to common stock. All shares outstanding and per share
amounts have been restated to 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 components of inventories at the end of the second quarter of 1996
and at year-end 1995, in millions of dollars, is as follows:
June 29 December 30
1996 1995
------ ------
Finished products $ 222.0 $ 224.1
Work in process 68.9 63.1
Raw materials 51.2 59.4
Supplies 2.3 2.5
------ ------
$ 344.4 $ 349.1
====== ======
-5-
NOTE E - Cash Flow Information
Interest paid during the second quarter of 1996 and 1995 amounted to $7.3
million and $9.5 million, respectively. Interest paid for the six months
of 1996 and 1995 amounted to $14.2 million and $13.9 million, respectively.
Income taxes paid during the second quarter of 1996 and 1995 were $28.8
million and $32.5 million, respectively. Income taxes paid for the six
months of 1996 and 1995 were $29.5 and $42.1 million, respectively.
NOTE F - Restructuring
During the second quarter of 1996, the company recorded a $3.8 million
restructuring charge. The charge includes approximately $5.2 million in
gains from recent divestitures, offset by the write-off of assets
associated with product segments that the company is actively marketing.
During the first six months of 1996, the company made severance and other
exit cost payments of $7 million under the previously disclosed
restructuring program. At June 29, 1996, the reserve balance for the
company's restructuring activities was $13 million.
-6-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Consolidated net sales for the second quarter were $677 million, up 3% from
prior year sales of $656 million. Net earnings were reported at $33
million, or $.37 per share, and were reduced by $.12 per share related to
the company's restructuring program. Gains from recent divestitures were
offset by charges for the writedown of assets associated with the company's
active marketing of non-strategic product segments and resulted in a net
restructuring charge of $4 million (pre-tax), or $.06 per share. The
company also incurred $8 million (pre-tax), or $.06 per share, for
consulting and transition costs related to its various restructuring
activities. Excluding these restructuring charges and
restructuring-related transition costs, net earnings would have been $43
million, or $.49 per share, a 37% increase over the prior year earnings of
$31 million, or $.36 per share.
Consolidated net sales for the first six months of 1996 were $1.3 billion,
up 1% from 1995 sales. Net earnings of $62 million, or $.70 per share,
included charges of $.17 per share related to the company's restructuring
program. Excluding restructuring charges of $.06 per share and
restructuring-related transition costs of $.11 per share, net earnings
would have been $77 million, or $.87 per share, a 28% increase over prior
year earnings of $60 million, or $.68 per share.
Initiatives announced last year as part of the company's "4x4"
restructuring program are now being implemented. While the company is
incurring some short-term transition costs related to these programs, the
planned reductions in its cost structure are beginning to be realized. The
progress to-date is very much on target. The company is especially pleased
with the success of its cross-divisional procurement teams.
Consolidated gross margins improved to 33.1% of sales from 32.3% for the
second quarter and to 32.8% from 32.1% for the first six months. The
positive effects of purchasing and other restructuring initiatives
contributed to the improvement in margins. In addition, prior year margins
had been adversely affected by manufacturing integration costs at the
Mechanics Tools division. Operating expenses included consulting and other
restructuring-related transition costs of $4 million and $8 million for the
second quarter and first six months, respectively. Excluding these
charges, operating expense as a percent of sales would have declined to
22.0% from 22.7% for the second quarter and to 22.4% from 22.8% for the
first six months. This improvement in core operating expense ratios
reflects aggressive cost containment efforts as well as the benefits
accruing from restructuring.
Net sales in the Tools segment for the second quarter were virtually flat
compared with last year and were down 1% for the six months. Consumer
sales reflected weak non-U.S. markets. Industrial sales, which were
slightly higher than the prior year quarter and virtually flat for the six
months, reflected strengthening in the quarter for the U.S. MAC business
offset by reduced volumes in the company's storage systems business.
Engineered tool sales were strongly influenced by gains in U.S. fastening
tools and fasteners. Restructuring related transition costs and
restructuring charges included in second quarter operating profit were $6
million and $1 million, respectively and in the six months operating profit
-7-
were $10 million and $1 million, respectively. Operating profit margins,
excluding these charges, would have improved to 13.3% of sales from 11.7%
for the second quarter and to 12.5% from 11.3% for the first six months.
The Hardware segment experienced 8% growth in the second quarter and 3% for
the first six months due to the strengthening of U.S. consumer markets.
Operating profits included $1 million and $2 million of
restructuring-related transition costs for the second quarter and first six
months, respectively. In addition to restructuring benefits, margins were
enhanced by increased factory utilization on higher volume and the
resolution of a legal matter.
Sales gains in the Specialty Hardware segment reflected significant growth
in the U.S. home center channel for the company's door products. The
recent strategic assessment of the door-related product lines has resulted
in an increased focus on growing the company's entry door business.
Operating profits, excluding restructuring-related transition costs, would
have been $7 million for the second quarter, or 7.7% of sales, compared
with 4.5% in the prior year and would have been $10 million for the six
month period, or 5.9% compared with 4.0% in the prior year. Improved
operating margins reflected lower manufacturing costs.
Consolidated operating profit margins, excluding restructuring charges and
restructuring-related transition costs, were significantly improved to
12.9% from 10.5% in the prior year period. For the six month period,
consolidated operating profit margins, excluding restructuring charges and
restructuring-related transition costs, were 11.9% compared with 10.3% in
the prior year.
Geographically, the largest sales gains were in the U.S. due to
strengthening in retail channels. Europe and Other Areas, with the
exception of Canada, continued to produce weak sales results. Operating
profits for the second quarter, excluding restructuring charges and
restructuring-related transition costs, would have been $71 million in the
U.S., $10 million in Europe, and $6 million in Other Areas. For the six
month period, operating profits, excluding restructuring charges and
restructuring-related transition costs, would have been $121 million in the
U.S., $22 million in Europe, and $14 million in Other Areas. Second
quarter operating profit reflected $3 million of restructuring charges in
net corporate expense and $1 million in Other Areas.
Operating results in the second quarter clearly benefited from the
company's restructuring efforts and stronger U.S. retail markets. While
market conditions are less predictable, the company believes that the
structural changes resulting from its restructuring initiatives will have
a sustainable impact on its future profitability. The strategic evaluation
of all of its business units and product segments has left the company
sharply focused on achieving the full potential of its most important
businesses. As a result, the company has recently begun actions to divest
the following product segments determined to be non-strategic:
garage-related products, office products, U.S. manufactured paint
applicators, mail order safety products and drywall tape products. The
sale of the U.S. manufactured paint applicator business has been completed
and the company expects the sale of the remainder of these product segments
to be completed by the end of the year.
-8-
The company's remaining businesses are pursuing plans and initiatives to
position themselves competitively for future growth. As the company
prepares to implement these plans, additional restructuring charges will be
reported. In addition, the company has begun to direct its efforts toward
achieving the growth goals established as part of the 4x4 program.
Liquidity and Sources of Capital
Cash flow provided by operations was $136 million for the first six months
of 1996 compared to $25 million for the same period in fiscal 1995. The
increase in cash flow reflects the company's significant focus on improving
working capital, specifically through aggressive reductions in inventory.
During the first six months of 1996, the company made severance and other
exit cost payments of $7 million as a result of previously disclosed
restructuring initiatives.
At June 29, 1996, the reserve balance for the restructuring initiatives
announced in 1995 was $13 million. The plant closings and exit activities
initiated in 1995 are progressing as planned. Additional restructuring
initiatives are currently being pursued and future restructuring charges and
restructuring-related transitions costs will likely result as these various
initiatives are implemented. Due to the complexity of these initiatives
and the preliminary stage of planning, the company is unable to estimate
the associated future charges and costs, however, it is anticipated that
potential restructuring charges will be material and may approximate the
amounts recorded in 1995. In addition, the restructuring related
transition costs, which include plant and equipment relocation, employee
training and start-up inefficiencies, may also be material and may
significantly exceed the restructuring related transition costs recorded to
date.
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 are not
expected to have a material effect on liquidity.
Capital expenditures for the year are forecast at approximately $100
million.
-9-
THE STANLEY WORKS AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(Unaudited, Millions of Dollars)
Second Quarter
----------------------------------------------------
Unit ACQ/ Curr-
1996 Price Volume DVT ency 1995
----------------------------------------------------
INDUSTRY SEGMENTS
NET SALES
Tools
Consumer $ 175.7 1 % (2)% (1)% (2)% $ 183.3
Industrial 142.5 3 % - - (1)% 140.3
Engineered 177.3 - 7 % (4)% - 172.9
-------- --------
Total Tools 495.5 1 % 2 % (2)% (1)% 496.5
Hardware 87.9 1 % 7 % - - 81.7
Specialty Hardware 93.8 (2)% 22 % 1 % - 77.3
-------- --------
Consolidated $ 677.2 1 % 4 % (1)% (1)% $ 655.5
======== ========
OPERATING PROFIT
Tools $ 58.8 $ 57.9
Hardware 12.7 7.7
Specialty Hardware 6.7 3.5
-------- --------
Total 78.2 69.1
Net corporate
expenses (13.7) (9.0)
Interest expense (7.0) (9.3)
-------- --------
Earnings before
income taxes $ 57.5 $ 50.8
======== ========
GEOGRAPHIC AREAS
NET SALES
United States $ 493.2 1 % 7 % (2)% - $ 466.0
Europe 101.0 1 % - 1 % (5)% 104.5
Other Areas 83.0 1 % (2)% - (1)% 85.0
-------- --------
Consolidated $ 677.2 1 % 4 % (1)% (1)% $ 655.5
======== ========
OPERATING PROFIT
United States $ 63.4 $ 50.5
Europe 9.3 11.7
Other Areas 5.5 6.9
-------- --------
Total $ 78.2 $ 69.1
======== ========
-10-
THE STANLEY WORKS AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(Unaudited, Millions of Dollars)
Year to Date
----------------------------------------------------
Unit ACQ/ Curr-
1996 Price Volume DVT ency 1995
----------------------------------------------------
INDUSTRY SEGMENTS
NET SALES
Tools
Consumer $ 348.4 1 % (2)% - (1)% $ 356.8
Industrial 282.9 3 % (3)% - - 284.1
Engineered 341.3 - 5 % (4)% - 339.4
-------- --------
Total Tools 972.6 1 % - (1)% (1)% 980.3
Hardware 171.1 2 % 1 % - - 166.4
Specialty Hardware 168.8 (1)% 10 % 2 % - 152.1
-------- --------
Consolidated $ 1,312.5 1 % 2 % (1)% (1)% $ 1,298.8
======== ========
OPERATING PROFIT
Tools $ 110.7 $ 110.9
Hardware 22.3 16.2
Specialty Hardware 9.0 6.1
-------- --------
Total 142.0 133.2
Net corporate
expenses (22.9) (17.9)
Interest expense (14.6) (18.2)
-------- --------
Earnings before
income taxes $ 104.5 $ 97.1
======== ========
GEOGRAPHIC AREAS
NET SALES
United States $ 942.7 1 % 3 % (2)% - $ 920.6
Europe 209.1 1 % (2)% 1 % (2)% 212.3
Other Areas 160.7 1 % (3)% - (1)% 165.9
-------- --------
Consolidated $ 1,312.5 1 % 2 % (1)% (1)% $ 1,298.8
======== ========
OPERATING PROFIT
United States $ 108.8 $ 97.2
Europe 20.9 24.1
Other Areas 12.3 11.9
-------- --------
Total $ 142.0 $ 133.2
======== ========
See notes to consolidated financial statements.
-11-
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 17,
1996.
(c)(i) The following directors were elected:
Shares Voted Shares
For Withheld Non-Votes
---------- ---------- ----------
Walter J. McNerney 31,737,290 3,268,316 0
Gertrude G. Michelson 31,749,638 3,255,968 0
John S. Scott 31,769,032 3,236,575 0
George A. Lorch 31,709,305 3,296,301 0
Stillman B. Brown 31,836,711 3,168,895 0
Edgar R. Fiedler 31,770,311 3,235,295 0
Mannie L. Jackson 31,614,486 3,391,120 0
Kathryn D. Wriston 31,755,511 3,250,095 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
------------ ------------ ------------ ----------
32,212,399 2,504,580 288,426 200
(iii) 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
------------ ------------ ------------ ----------
34,453,429 372,426 179,475 277
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
(1) See Exhibit Index on page 14
(b) Reports on Form 8-K.
(1) Registrant filed a Current Report on Form 8-K, dated April 17,
1996, in respect of the following items reported by the
Registrant:
(i) Press release announcing first quarter results.
(ii) Press release announcing the retirement of the CEO.
(iii) Press release announcing the board of directors vote for a
2-for-1 stock split.
(iv) Amendment of the bylaws to reflect various minor changes.
(2) Registrant filed a Current Report on Form 8-K, dated April 17,
1996, in respect of the Registrant's press release announcing the
election of a new director.
-12-
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 12, 1996 By: Richard Huck
Richard Huck
Vice President, Finance
and Chief Financial Officer
Date: August 12, 1996 By: Theresa F. Yerkes
Theresa F. Yerkes
Vice President and
Controller (Chief Accounting
Officer)
-13-
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
-14-