SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported):October 20, 1999 The Stanley Works (Exact name of registrant as specified in charter) Connecticut 1-5224 06-058860 (State or other (Commission (IRS Employer jurisdiction of File Number) Identification No.) incorporation) 1000 Stanley Drive, New Britain, Connecticut 06053 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code:(860) 225-5111 Not Applicable (Former name or former address, if changed since last report) Exhibit Index is located on Page 4 Page 1 of 12 Pages Item 5. Other Events. 1. On October 20, 1999, the Registrant issued a press release announcing third quarter earnings and fourth quarter dividend. Attached as Exhibit (20)(i) is a copy of the Registrant's press release. Item 7. Financial Statements and Exhibits. (c) 20(i) Press release dated October 20, 1999 announcing third quarter results and fourth quarter dividend. 20(ii) Cautionary statements relating to forward looking statements included in Exhibit 20(i). Page 2 of 12 Pages SIGNATURE 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: October 20, 1999 By: Stephen S. Weddle Name: Stephen S. Weddle Title: Vice President, General Counsel and Secretary Page 3 of 12 Pages EXHIBIT INDEX Current Report on Form 8-K Dated October 20, 1999 Exhibit No. Page 20(i) 5 20(ii) 12 Page 4 of 12 Pages FOR IMMEDIATE RELEASE Exhibit (20)(i) STANLEY REPORTS 3rd QUARTER EARNINGS INCREASE AND FREE CASH FLOW AT RECORD LEVEL ALSO ANNOUNCES 4th QUARTER DIVIDEND New Britain, Connecticut, October 20, 1999: The Stanley Works (NYSE: "SWK") announced today that third quarter net income was $50 million, or $.56 per diluted share, versus "core" earnings of $49 million, or $.55 per diluted share in the same quarter last year. This exceeded consensus Wall Street analyst estimates of $.47 per diluted share. Operating margin was 11.3%, compared with 12.9% core operating margin in the third quarter of 1998. Core results in prior reporting periods excluded restructuring charges, restructuring-related transition costs and certain other non-recurring costs. As promised and beginning with this quarter the additional disclosures of restructuring-related costs and "core" earnings have ceased. Inclusive of such costs, the company earned $33.4 million, or $.37 per diluted share, in the third quarter of 1998. Net sales were $692 million, a slight increase over $690 million last year. Acquisitions accounted for a 2% increase, offset by a 1% decline from lower pricing and foreign currency translation. Unit volume from ongoing businesses declined only nominally, despite Hechinger's bankruptcy and a work stoppage, since resolved, in a European hand tools operation. Double-digit volume increases in residential doors and improvement in U.S. industrial mechanics tools and fastening systems were offset by declines primarily in Europe, Asia and Latin America. John M. Trani, Chairman and Chief Executive Officer, commented: "I am pleased with the efforts of our people to improve customer service. Coupled with an impressive array of new products highlighted at the recent Hardware Show, where Stanley was named Vendor of the Year, this improvement is enhancing our value proposition. As a result, order rates in the third quarter were solid (up 5% versus 1998) and particularly strong toward the end of the quarter. We are cautiously optimistic about fourth quarter performance." Gross margins were 35.4%, exceeding reported 1998 gross margins of 34.3% and "core" 1998 gross margins of 35%, despite the inclusion in the current quarter of certain costs excluded from core results in prior periods. The company attributed much of this improvement to productivity gains emanating from its extensive restructuring Page 5 of 12 Pages over the last two years and to the substantial reduction in transition costs. "During the quarter we made tremendous strides in managing our manufacturing cost base and implementing related control systems. We are pursuing productivity improvements vigorously, while implementing sales and marketing programs to increase retail sell-through," Mr. Trani added. Selling, general and administrative expenses were 24.1% of sales, compared with 25.0% reported and 22.1% on a core basis in the third quarter of 1998. This increase reflects costs related to new sales and marketing initiatives designed to drive sales growth at retail, the inclusion of residual Y2k costs and increases to accounts receivable reserves. Third quarter net interest expense was $7 million compared with $7.4 million in 1998, as higher borrowings for acquisition and working capital funding were more than offset by lower interest rates on borrowings. Other income was $6.2 million, resulting principally from a one-time cash gain upon the liquidation of a cross-currency financial instrument. Importantly, the company also reported that third quarter cash generated by operations improved to $92 million, as compared with a net cash reduction of $4 million in 1998. Changes in operating assets and liabilities, including working capital, generated $25 million compared with a $59 million requirement in last year's third quarter. Mr. Trani added: "This cash flow performance reflects a high quality of earnings, as well as the inherent cash-generating ability of the company. Stanley has positioned itself as a cash- generating versus a cash-absorptive company. With the bulk of the 1997 restructuring behind us, there is every expectation that this positioning will manifest itself. This will provide flexibility to pursue organic growth initiatives and other options to enhance shareowner value." Tools segment sales of $526 million were 2% lower than the third quarter of 1998. An increase of 2% from the ZAG acquisition was offset by lower unit volumes, primarily in hand tools and fastening systems in Europe. Tools segment operating margin was 12.8%, compared with 13.5% in the same period last year, due principally to the aforementioned sales and marketing initiatives, Y2k costs and accounts receivable reserve increases. Doors segment sales increased 8% to $166 million, led by double- digit percentage increases in unit volume sales of U.S. residential entry doors and home decor products. This was somewhat offset by decline in the company's hardware business, primarily associated with the loss of Hechinger. Doors segment operating profit decreased to 6.5% of sales, versus 11.1% in the same period last Page 6 of 12 Pages year, as the Hardware business was burdened with costs of relocating production to low-cost locations and meeting customer delivery requirements. The company also announced today that its Board of Directors approved a fourth quarter regular dividend of $.22 per share on the company's common stock. The dividend is payable on Monday, December 27, 1999 to shareholders of record at the close of business on Friday, November 26, 1999. Mr. Trani stated: "We are proud that 1999 dividend payments extend our records for the longest consecutive annual and quarterly dividend payments of any industrial company on the New York Stock Exchange." The Stanley Works, an S&P 500 company, is a worldwide supplier of tools and doors and related hardware products for professional, industrial and consumer use. Contact: Gerard J. Gould Vance N. Meyer Director, Investor Relations Director, Communications & Public Affairs (860) 827-3833 office (860) 827-3871 office (860) 658-2718 home (203) 795-0581 home ggould@stanleyworks.com This press release contains forward looking statements as to the company's ability: (i) to obtain earnings growth from the adjustment of its cost structure and implementation of related control systems, (ii) to obtain sales growth from the implementation of its new sales and marketing programs and (iii) to generate cash with which to pursue options to enhance shareowner value. Cautionary statements accompanying these forward-looking statements are set forth, along with this news release,in a Form 8-K filed with the Securities and Exchange Commission today. The Stanley Works corporate press releases are available on the company's internet web site at http://www.stanleyworks.com. Alternatively, they are available through PR Newswire's "Company News On-Call" service by FAX at 800-758-5804, ext. 874363 or on the internet at http://www.prnewswire.com. Page 7 of 12 Pages THE STANLEY WORKS AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, Millions of Dollars Except Per Share Amounts) Third Quarter Nine Months 1999 1998 1999 1998 Net Sales $ 692.0 $ 689.6 $ 2,061.2 $ 2,053.3 Costs and Expenses Cost of sales 446.9 453.2 1,353.4 1,337.1 Selling, general and administrative 166.9 172.7 522.2 509.9 Interest - net 7.0 7.4 21.9 17.4 Other - net (6.2) 2.7 0.8 9.6 614.6 636.0 1,898.3 1,874.0 Earnings before income taxes 77.4 53.6 162.9 179.3 Income Taxes 27.1 20.2 57.0 67.3 Net Earnings $ 50.3 $ 33.4 $ 105.9 $ 112.0 Net Earnings Per Share of Common Stock Basic $ 0.56 $ 0.37 $ 1.18 $ 1.25 Diluted $ 0.56 $ 0.37 $ 1.18 $ 1.24 Dividends per share $ 0.22 $ 0.215 $ 0.65 $ 0.615 Average shares outstanding (in thousands) Basic 89,687 89,367 89,532 89,413 Diluted 89,949 90,102 89,805 90,338 Page 8 of 12 Pages THE STANLEY WORKS AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited, Millions of Dollars) October 2 October 3 1999 1998 ASSETS Cash and cash equivalents $ 131.5 $ 65.2 Accounts receivable 576.0 546.7 Inventories 367.1 388.9 Other current assets 74.8 83.9 Total current assets 1,149.4 1,084.7 Property, plant and equipment 495.9 509.4 Goodwill and other intangibles 187.6 202.9 Other assets 129.0 144.7 $ 1,961.9 $ 1,941.7 LIABILITIES AND SHAREOWNERS' EQUITY Short-term borrowings $ 222.9 $ 211.3 Accounts payable 203.7 160.7 Accrued expenses 309.0 310.3 Total current liabilities 735.6 682.3 Long-term debt 299.2 343.7 Other long-term liabilities 213.5 257.9 Shareowners' equity 713.6 657.8 $ 1,961.9 $ 1,941.7 Page 9 of 12 Pages THE STANLEY WORKS AND SUBSIDIARIES SUMMARY OF CASH FLOW ACTIVITY (Unaudited, Millions of Dollars) Third Quarter Nine Months 1999 1998 1999 1998 Operating Activities Net earnings $ 50.3 $ 33.4 $ 105.9 $ 112.0 Depreciation and amortization 20.9 20.0 66.2 58.1 Other non-cash items (4.0) 1.1 9.8 11.7 Changes in operating assets and liabilities 25.2 (58.5) (29.3) (196.0) Net cash provided (used) by operating activities 92.4 (4.0) 152.6 (14.2) Investing and Financing Activities Capital and software expenditures (31.1) (18.7) (81.8) (41.4) Proceeds from sales of assets 22.1 3.4 37.0 12.2 Business acquisitions - (99.9) - (99.9) Net borrowing activity (30.3) 135.4 (30.7) 133.8 Net stock transactions (2.5) (3.7) (6.4) (18.8) Proceeds from swap termination 13.9 - 13.9 - Cash dividends on common stock (19.6) (19.1) (57.9) (54.7) Other 1.8 (5.6) (5.3) (4.0) Net cash used by investing and financing activities (45.7) (8.2) (131.2) (72.8) Increase (Decrease) in Cash and and Cash Equivalents 46.7 (12.2) 21.4 (87.0) Cash and Cash Equivalents, Beginning of Period 84.8 77.4 110.1 152.2 Cash and Cash Equivalents, End of Third Quarter $ 131.5 $ 65.2 $ 131.5 $ 65.2 Page 10 of 12 Pages THE STANLEY WORKS AND SUBSIDIARIES BUSINESS SEGMENT INFORMATION (Unaudited, Millions of Dollars) Third Quarter Nine Months 1999 1998 1999 1998 INDUSTRY SEGMENTS Net Sales Tools $ 525.5 $ 535.1 $ 1,584.1 $ 1,580.3 Doors 166.5 154.5 477.1 473.0 Consolidated $ 692.0 $ 689.6 $ 2,061.2 $ 2,053.3 Operating Profit Tools $ 67.3 $ 72.0 $ 207.9 $ 218.3 Doors 10.9 17.2 32.6 46.1 78.2 89.2 240.5 264.4 Restructuring-related transition and other non-recurring costs - (25.5) (54.9) (58.1) Interest-net (7.0) (7.4) (21.9) (17.4) Other-net 6.2 (2.7) (0.8) (9.6) Earnings Before Income Taxes $ 77.4 $ 53.6 $ 162.9 $ 179.3 GEOGRAPHIC NET SALES United States $ 496.4 $ 493.8 $ 1,466.5 $ 1,471.2 Other Americas 51.3 51.1 150.5 163.6 Europe 119.0 118.9 372.7 348.4 Asia 25.3 25.8 71.5 70.1 Consolidated $ 692.0 $ 689.6 $ 2,061.2 $ 2,053.3 Page 11 of 12 Pages Exhibit (20)(ii) CAUTIONARY STATEMENTS Under the Private Securities Litigation Reform Act of 1995 The statements in the company's press release issued today regarding the company's ability (1) to obtain earnings growth from productivity improvements, (2) to obtain sales growth from the implementation of sales and marketing programs and (3) to generate cash with which to pursue options to enhance shareowner value are forward looking and inherently subject to risk and uncertainty. The company's ability to obtain earnings growth from productivity improvements is dependent on the success of various initiatives that are underway or that are being developed to improve manufacturing operations and to implement related control systems. The success of these initiatives is dependent on the company's ability to increase the efficiency of its routine business processes, to develop and implement process control systems, to develop and execute comprehensive plans for facility consolidations, the availability of vendors to perform outsourced functions, the successful recruitment and training of new employees, the resolution of any labor issues related to closing facilities, the need to respond to significant changes in product demand while any facility consolidation is in process and other unforeseen events. The company's ability to achieve sales growth through the implementation of sales and marketing programs designed to increase retail sell through is dependent upon a number of factors, including: (1) the ability to recruit and retain a sales force to implement the sales and marketing programs, (2) the ability of these programs to stimulate demand for products, (3) the ability of the current sales force to adapt to changes made in the sales organization and maintain adequate customer coverage and (4) the ability of the company to fulfill increased demand for its products. The company's ability to generate cash flow with which to pursue organic growth initiatives and other business opportunities to enhance shareowner value is dependent on the continued ability to deliver strong net income and manage working capital effectively. The Company's ability to achieve the objectives discussed above will also be affected by the installation and implementation of critical business transaction systems associated with its Year 2000 compliance program scheduled for the remainder of this year as well as by external factors. These external factors include pricing pressure and other changes within competitive markets, the continued consolidation of customers in consumer channels, increasing competition, changes in trade, monetary and fiscal policies and laws, inflation, currency exchange fluctuations,the impact of dollar/foreign currency exchange rates on the competitiveness of products and recessionary or expansive trends in the economies of the world in which the company operates. Page 12 of 12 Pages