1
ORGANIZATION CHANGES
In May, Mannie L. Jackson was elected to the Board. Mr. Jackson is Chairman of
Harlem Globetrotters International, a division of MJA, Inc.
In February, Gerald Strecker, President and General Manager of Stanley Hydraulic
Tools announced his decision to retire from the company. Gerry helped mold
Stanley Hydraulic Tools into an industry leader, and we thank him for his
years of outstanding service to Stanley.
Dennis Bishop, formerly Vice President, Manufacturing at Stanley Fastening
Systems was appointed to succeed Mr. Strecker.
In May, Stanley-Vidmar announced a divisional name change to Stanley Storage
Systems in order to provide its growing world-wide customer base with instant
recognition of the core business of the division.
In June, Thomas E. Mahoney, formerly President and General Manager of Stanley
Hardware was appointed President and General Manager of the Stanley Customer
Support Division and Vice President of Marketing Development for The Stanley
Works. He replaced James S. Amtmann who left the company.
Henning N. Kornbrekke replaced Mr. Mahoney as President and General Manager of
Stanley Hardware. Mr. Kornbrekke had been President and General Manager of
Stanley Access Technologies.
Thomas N. Jones replaced Mr. Kornbrekke as President and General Manager of
Stanley Access Technologies. He had previously served as President of
Stanley Tools-Europe.
Also in June, the company announced the formation of its newest division,
Stanley Home Decor. This new business unit encompasses Stanley Acmetrack
closet doors and organizing products as well as Stanley Hardware's decorator
products and Stanley Monarch. Raymond J. Martino, formerly Vice President of
Operations at Stanley Hardware, was named President and General Manager of
Stanley Home Decor.
In August, Thomas K. Clarke, Stanley's Vice-President of Corporate Development,
announced his plans to retire from the company. Mr. Clarke's keen analytical
and negotiating skills in the area of acquisitions has helped Stanley provide
consistently good value for shareholders. In fact, more than half of Stanley's
sales and profits today come from businesses acquired under the direction of
Mr. Clarke. We appreciate his years of dedicated and thoughtful service.
On September 1, Robert L. Fletcher was appointed to the newly-created position
of Vice President, Purchasing. Mr. Fletcher came to Stanley with 30 years of
procurement experience with the Xerox Corporation. The focus of this new
position is consistent with our company-wide restructuring activities designed
to make us more efficient and effective by integrating and coordinating
certain critical activities - such as procurement - among all Stanley
divisions.
In September, the Board of Directors announced the election of Paul W. Russo as
an officer of the company with the title of Vice President, Strategy and
Development. This is a new position created to help lead Stanley's effort to
refocus its priorities and to guide planning and acquisition activity.
Also in September, John E. Turpin, formerly President and General Manager of
Stanley Air Tools, was appointed to the newly-created position of Vice
President, Operations. In his new capacity, Mr. Turpin is responsible for
identifying and implementing specific strategies and actions that will enable
the company to achieve its goals for restructuring and growth.
E. Wayne Foley succeeded Mr. Turpin as President and General Manager of Stanley
Air Tools. Prior to joining Stanley, Mr. Foley had been Chief Sales and
Marketing Manager at Beta Tech, Inc., a manufacturer of threaded fastening
control systems for industrial markets similar to those served by Stanley
Air Tools.
In November, C. Stewart Gentsch, President and General Manager of Stanley Tools,
announced his decision to retire from the company at the end of 1995. Mr.
Gentsch spent most of his 13 year career at Stanley leading our largest
division - the division for which our company and our brand are best known. He
accepted this critical responsibility with humility, talent and vision. Over
the years, he shaped a solid record of success at Stanley Tools, and we are
grateful for his truly outstanding service.
In December, the Board of Directors elected Jennifer O. Estabrook an officer of
the company with the title of Assistant General Counsel and Assistant
Secretary. Ms. Estabrook previously was Corporate Counsel for the company.
14 Stanley
2
OFFICERS
RICHARD H. AYERS THOMAS E. MAHONEY
Chairman and Chief Vice President Marketing
Executive Officer Development
(1972) President and General Manager,
Stanley Customer
BARBARA W. BENNETT
Support Division
Vice President Human Resources
(1965)
(1984)
PAUL W. RUSSO
JENNIFER O. ESTABROOK
Vice President Strategy
Assistant General Counsel
and Development
and Assistant Secretary
(1995)
(1992)
STEPHEN S. WEDDLE
JAMES B. GUSTAFSON
Vice President, General
Vice President
Counsel and Secretary
Information Systems
(1978)
(1977)
THOMAS J. WILLIAMS
RICHARD HUCK
Associate General Counsel
Vice President Finance and
and Assistant Secretary
Chief Financial Officer
(1981)
(1970)
THERESA F. YERKES
R. ALAN HUNTER
Vice President and Controller
President and Chief
(1989)
Operating Officer
(1974) (Joined Stanley)
BOARD OF DIRECTORS
RICHARD H. AYERS (1) GERTRUDE G. MICHELSON (1),(3),(5),(6)
Chairman and Chief Retired; former Senior Advisor and
Executive Officer Director
The Stanley Works R. H. Macy and Co., Inc.
STILLMAN B. BROWN (1),(2),(4),(6) JOHN S. SCOTT (1),(2),(5)
Managing General Partner Retired; former Chairman and
Harcott Associates-Investments Chief Executive Officer
Richardson-Vicks Inc., a
EDGAR R. FIEDLER (3),(4)
subsidiary of The Proctor and
Vice President and
Gamble Company
Economic Counselor
The Conference Board HUGO E. UYTERHOEVEN (3),(4)
Business Research Professor, Graduate School of
Business Administration
MANNIE L. JACKSON (2),(4)
Harvard University
Chairman, Harlem
Globetrotters International, WALTER W. WILLIAMS (3),(5),(6)
a division of MJA, Inc. Retired; former Chairman and
Chief Executive Officer
JAMES G. KAISER (2),(5)
Rubbermaid, Incorporated
Retired; former President and
Chief Executive Officer
Quanterra Incorporated,
a subsidiary of Corning, Inc. and
(1) Member of the Executive Committee
International Technology Inc.
(2) Member of the Audit Committee
EILEEN S. KRAUS (1),(2),(4)
(3) Member of the Board Affairs and
Chairman, Fleet Bank, N.A.
Public Policy Committee
(Connecticut)
(4) Member of the Finance and Pension
GEORGE A. LORCH (3),(5),(6) Committee
Chairman and Chief (5) Member of the Compensation and
Executive Officer Organization Committee
Armstrong World Industries, Inc.
(6) Member of the Ad Hoc Strategic
WALTER J. MCNERNEY (2),(4) Planning Committee
Professor of Health Policy
J.L. Kellogg Graduate School
of Management
Northwestern University
Stanley 15
3
The Stanley Works and Subsidiaries
MANAGEMENT REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
The management of The Stanley Works is responsible for the preparation,
integrity and objectivity of the accompanying financial statements. The
statements were prepared in accordance with generally accepted accounting
principles. Preparation of financial statements and related data involves our
best estimates and the use of judgment. Management also prepared the other
information in the Annual Report and is responsible for its accuracy and
consistency with the financial statements.
The company maintains a system of internal accounting controls which is
designed to provide reasonable assurance, at appropriate cost, as to the
reliability of financial records and the protection of assets. This system
includes monitoring by a staff of internal auditors. It is further characterized
by care in the selection of competent financial managers, by organizational
arrangements that provide for delegation of authority and divisions of
responsibility and by disseminating policies and procedures throughout the
company.
The Stanley Works also recognizes its responsibility for fostering a strong,
ethical climate so that the company's affairs are conducted according to the
highest standards of personal and business conduct. This responsibility is
reflected in the company's Business Conduct Guidelines which are publicized
throughout the organization. The company has a long-established reputation of
integrity in business conduct and maintains a systematic program to assess
compliance with these policies.
The adequacy of Stanley's internal accounting controls, the accounting
principles employed in its financial reporting and the scope of independent and
internal audits are reviewed by the Audit Committee of the Board of Directors,
consisting solely of outside directors. Both the independent auditors and our
internal auditors have unrestricted access to the Audit Committee, and they meet
with it periodically, with and without management present.
/s/ Richard H. Ayers /s/ Richard Huck
Richard H. Ayers Richard Huck
Chairman and Vice President, Finance and
Chief Executive Officer Chief Financial Officer
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Shareholders
The Stanley Works
We have audited the accompanying consolidated balance sheets of The Stanley
Works and subsidiaries as of December 30, 1995 and December 31, 1994, and the
related consolidated statements of earnings, changes in shareholders' equity,
and cash flows for each of the three fiscal years in the period ended December
30, 1995. These financial statements are the responsibility of the company'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 consolidated financial position of The Stanley Works
and subsidiaries at December 30, 1995 and December 31, 1994, and the
consolidated results of their operations and their cash flows for each of the
three fiscal years in the period ended December 30, 1995, in conformity with
generally accepted accounting principles.
As discussed in Note J to the consolidated financial statements, the company
changed its method of accounting for postemployment benefits in 1993.
/s/ Ernst & Young LLP
Hartford, Connecticut
January 31, 1996
16 Stanley
4
The Stanley Works and Subsidiaries
BUSINESS SEGMENT INFORMATION
INDUSTRY SEGMENTS
The company operates worldwide in three reportable segments: Tools, Hardware and
Specialty Hardware. Additional detail is provided for the Consumer, Industrial
and Engineered tool categories within the Tools segment.
GEOGRAPHIC AREAS
The company has manufacturing and warehouse facilities and sales offices in the
United States, Europe and Other Areas. The company's operations in Europe are
principally located in the European Economic Community. Other Areas principally
include Canada, Australia, the Far East and Latin America.
INDUSTRY SEGMENTS
(MILLIONS OF DOLLARS) 1995 1994 1993
===============================================================================
NET SALES
Tools
Consumer $ 738.9 $ 716.0 $ 676.8
Industrial 552.3 524.4 460.3
Engineered 678.3 643.5 568.5
- -------------------------------------------------------------------------------
Total Tools 1,969.5 1,883.9 1,705.6
Hardware 324.2 311.1 299.4
Specialty Hardware 330.6 315.9 268.1
- -------------------------------------------------------------------------------
Consolidated $2,624.3 $2,510.9 $2,273.1
===============================================================================
OPERATING PROFIT
Tools $ 154.9 $ 217.0 $ 158.1
Hardware 13.4 33.3 32.9
Specialty Hardware 17.8 24.0 13.2
- -------------------------------------------------------------------------------
Total 186.1 274.3 204.2
Net corporate expenses (37.6) (38.8) (24.0)
Interest expense (35.7) (33.7) (32.2)
- -------------------------------------------------------------------------------
Earnings before
income taxes $ 112.8 $ 201.8 $ 148.0
===============================================================================
IDENTIFIABLE ASSETS
Tools $1,287.5 $1,324.6 $1,238.6
Hardware 174.9 186.4 173.3
Specialty Hardware 99.5 92.5 83.9
- -------------------------------------------------------------------------------
1,561.9 1,603.5 1,495.8
General corporate assets 108.1 97.6 81.1
- -------------------------------------------------------------------------------
Total $1,670.0 $1,701.1 $1,576.9
===============================================================================
CAPITAL EXPENDITURES
Tools $ 53.1 $ 53.3 $ 53.6
Hardware 6.9 7.4 8.2
Specialty Hardware 5.1 5.7 3.8
DEPRECIATION AND
AMORTIZATION
Tools 63.6 65.6 63.9
Hardware 10.9 10.9 10.6
Specialty Hardware 4.1 3.8 4.4
===============================================================================
GENERAL INFORMATION
Intercompany sales between geographic areas and between business segments were
not significant. Segment information includes insignificant allocations of
expenses and assets shared by the segments.
Operating profit represents net sales less operating expenses. In computing
operating profit, the following have been excluded: net corporate expenses,
interest expense, income taxes and the cumulative effect of accounting changes.
Identifiable assets are those assets used in the company's operations in each
segment or area.
GEOGRAPHIC AREAS
(MILLIONS OF DOLLARS) 1995 1994 1993
===============================================================================
NET SALES
United States $1,884.9 $1,808.6 $1,649.5
Europe 413.4 357.6 317.3
Other Areas 326.0 344.7 306.3
- -------------------------------------------------------------------------------
Consolidated $2,624.3 $2,510.9 $2,273.1
===============================================================================
OPERATING PROFIT
United States $ 146.9 $ 215.4 $148.0
Europe 26.8 31.9 27.4
Other Areas 12.4 27.0 29.2
Eliminations (.4)
- -------------------------------------------------------------------------------
Total $ 186.1 $ 274.3 $ 204.2
===============================================================================
IDENTIFIABLE ASSETS
United States $1,028.5 $1,050.4 $1,004.8
Europe 314.1 319.4 270.0
Other Areas 255.9 274.4 260.2
Eliminations (36.6) (40.7) (39.2)
- -------------------------------------------------------------------------------
Total $1,561.9 $1,603.5 $1,495.8
===============================================================================
Note: In 1995, restructuring, asset write-offs and related charges of $70.0
million, $14.3 million, and $2.4 million were included in the Tools, Hardware,
and Specialty Hardware segments, respectively, and $8.3 million was included in
net corporate expenses. Restructuring, asset write-offs and related charges of
$62.0 million, $16.4 million and $8.3 million were included in the United
States, Europe and Other Areas, respectively.
In 1993, net corporate expenses included a gain of $29.0 million from the sale
of the company's investment in Max Co., Ltd.
Stanley 17
5
SUMMARY OF SELECTED FINANCIAL INFORMATION
(MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) 1995(A) 1994 1993 1992
=====================================================================================================
CONTINUING OPERATIONS(B)
Net sales $ 2,624 $ 2,511 $ 2,273 $ 2,196
Earnings 59 125 93 98
Earnings per share(C) $ 1.33 $ 2.80 $ 2.06 $ 2.15
Percent of Net Sales:
Cost of sales 68.2% 67.1% 68.3% 66.8%
Selling, general and administrative 22.5% 22.3% 22.5% 24.0%
Interest-net 1.2% 1.2% 1.1% 1.2%
Other-net .5% 1.4% 1.6% .8%
Restructuring and asset write-offs 3.3% - - -
Earnings before income taxes 4.3% 8.0% 6.5% 7.2%
Earnings 2.3% 5.0% 4.1% 4.5%
- -----------------------------------------------------------------------------------------------------
OTHER KEY INFORMATION
Total assets $ 1,670 $ 1,701 $ 1,577 $ 1,608
Long-term debt 391 387 377 438
Shareholders' equity $ 735 $ 744 $ 681 $ 696
Ratios:
Current ratio 2.4 2.1 2.1 2.4
Total debt to total capital 39.6% 39.2% 38.7% 40.1%
Income tax rate 47.6% 37.9% 37.4% 37.9%
Return on average equity (B),(C) 8.0% 17.6% 13.5% 14.1%
Common Stock Data:
Dividends per share $ 1.42 $ 1.38 $ 1.34 $ 1.28
Equity per share at year-end $ 16.55 $ 16.74 $ 15.23 $ 15.32
Market price-high 53 3/8 44 7/8 47 7/8 48 1/8
-low 35 5/8 34 7/8 37 7/8 32 1/2
Average shares outstanding (in thousands) 44,360 44,775 44,935 45,703
Other Information:
Earnings from continuing operations $ 59 $125 $ 93 $ 98
Earnings from discontinued operations - - - -
Cumulative effect of accounting change - - (9) -
- -----------------------------------------------------------------------------------------------------
Net earnings $ 59 $125 $ 84 $ 98
Net earnings per share(C) $ 1.33 $ 2.80 $ 1.87 $ 2.15
Average number of employees 19,784 19,445 18,988 18,650
Shareholders of record at end of year 16,919 17,599 20,018 20,661
=====================================================================================================
(A) Includes charges for restructuring and asset write-offs of $85.5 million,
or $1.44 per share, and other related non-recurring charges of $9.5
million, or $.13 per share.
(B) Excluding the cumulative after-tax effect of accounting changes for
postemployment benefits of $8.5 million, or $.19 per share, in 1993;
postretirement benefits of $12.5 million, or $.29 per share, in 1991; and
income taxes of $13.1 million, or $.30 per share, in 1988.
(C) EPS and Return on average equity for 1995 adjusted to exclude restructuring
charges, asset write-offs and related charges were $2.90 per share and
16.6%, respectively.
18 Stanley
6
The Stanley Works and Subsidiaries
(MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) 1991 1990 1989 1988 1987 1986 1985
============================================================================================================================
CONTINUING OPERATIONS(B)
Net sales $ 1,942 $ 1,956 $ 1,951 $ 1,888 $ 1,744 $ 1,355 $ 992
Earnings 97 106 117 102 96 78 70
Earnings per share(C) $ 2.24 $ 2.51 $ 2.70 $ 2.37 $ 2.22 $ 1.84 $ 1.70
Percent of Net Sales:
Cost of sales 66.0% 65.3% 64.8% 65.6% 64.7% 64.9% 63.2%
Selling, general and administrative 23.8% 23.7% 23.0% 23.0% 23.4% 23.9% 24.3%
Interest-net 1.3% 1.3% 1.3% 1.7% 1.7% 1.4% .2%
Other-net .8% .9% 1.0% .6% .7% .1% .1%
Restructuring and asset write-offs - - - - - - -
Earnings before income taxes 8.1% 8.8% 9.9% 9.1% 9.5% 9.7% 12.2%
Earnings 5.0% 5.4% 6.0% 5.4% 5.5% 5.8% 7.1%
- ----------------------------------------------------------------------------------------------------------------------------
OTHER KEY INFORMATION
Total assets $ 1,548 $ 1,494 $ 1,491 $ 1,405 $ 1,388 $ 1,208 $ 755
Long-term debt 397 398 416 339 354 363 81
Shareholders' equity $ 689 $ 679 $ 659 $ 684 $ 626 $ 555 $ 503
Ratios:
Current ratio 2.4 2.6 2.6 2.6 2.4 2.9 3.7
Total debt to total capital 37.6% 38.7% 39.6% 35.0% 40.9% 43.4% 15.7%
Income tax rate 38.0% 38.4% 39.6% 40.8% 41.7% 40.7% 42.0%
Return on average equity (B),(C) 14.1% 15.8% 17.3% 15.5% 14.7% 14.9% 16.5%
Common Stock Data:
Dividends per share $ 1.22 $ 1.14 $ 1.02 $ .92 $ .82 $ .73 $ .67
Equity per share at year-end $ 15.22 $ 16.50 $ 15.32 $ 15.97 $ 14.59 $ 13.05 $ 12.03
Market price-high 44 39 3/4 39 1/4 31 1/4 36 5/8 30 7/8 22 1/2
-low 26 26 5/8 27 1/2 24 3/8 21 1/4 20 1/2 16 3/8
Average shares outstanding (in thousands) 43,266 42,192 43,378 43,109 43,357 42,279 41,243
Other Information:
Earnings from continuing operations $ 97 $106 $ 117 $ 102 $ 96 $ 78 $ 70
Earnings from discontinued operations - - - - (10) 1 8
Cumulative effect of accounting change (12) - - (13) - - -
- ----------------------------------------------------------------------------------------------------------------------------
Net earnings $ 85 $ 106 $ 117 $ 89 $ 86 $ 79 $ 78
Net earnings per share(C) $ 1.95 $ 2.51 $ 2.70 $ 2.07 $ 2.00 $ 1.86 $ 1.90
Average number of employees 17,420 17,784 18,464 18,988 19,142 16,128 13,069
Shareholders of record at end of year 21,297 22,045 22,376 23,031 23,051 21,752 22,870
============================================================================================================================
(A) Includes charges for restructuring and asset write-offs of $85.5 million,
or $1.44 per share, and other related non-recurring charges of $9.5
million, or $.13 per share.
(B) Excluding the cumulative after-tax effect of accounting changes for
postemployment benefits of $8.5 million, or $.19 per share, in 1993;
postretirement benefits of $12.5 million, or $.29 per share, in 1991; and
income taxes of $13.1 million, or $.30 per share, in 1988.
(C) EPS and Return on average equity for 1995 adjusted to exclude restructuring
charges, asset write-offs and related charges were $2.90 per share and
16.6%, respectively.
Stanley 19
7
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
OVERVIEW
The company reported net earnings of $59 million, or $1.33 per share, including
charges for restructuring and asset write-offs of $1.44 per share and other
non-recurring charges related to the company's restructuring initiatives of $.13
per share. Excluding these unusual charges, net earnings would have been $2.90
per share compared with $2.80 per share in 1994 and $2.06 per share in 1993*.
Net sales in 1995 reached a record $2.6 billion. This represented a 4.5%
increase over the prior year and reflected year to year unit volume growth of
3%, a net increase due to pricing of 1% and a .5% positive contribution from the
translation of foreign revenues. Net sales in 1994 increased 10% over 1993
primarily from unit volume growth of 9% along with a 1% increase due to pricing.
In July 1995, the company announced a multi-year restructuring program with
two major objectives. The first is to reduce the company's cost structure by
$150 million (half of which will be reinvested in the business) and to reduce
working capital and other assets by $250 million by the end of 1997. The second
is to achieve net sales of $4 billion in 1999. All of Stanley's businesses and
product lines are being evaluated to determine their full potential. The company
plans to divest businesses and product lines that do not meet its criteria for
revenue growth and profitability.
In 1995, the company recognized $86 million in restructuring charges and
asset write-offs in connection with its restructuring program. Restructuring
charges of $65 million were incurred for exiting three product categories;
closing six manufacturing plants, three distribution centers and two support
facilities; a comprehensive SKU reduction program; and a salaried workforce
reduction. An additional charge of $21 million was recorded for the reduction in
value of goodwill, intangibles and underutilized manufacturing equipment
impaired as a result of new operational strategies. The company also incurred $9
million in charges for non-recurring consulting costs related to the
restructuring initiatives and, in connection with the company's aggressive
program for reducing assets, charges for the elimination of excess inventory. In
the following table, reported results have been adjusted for these charges in
order to provide a more normalized review of 1995 results. The comments
regarding 1995 that follow the table reflect the year to year comparisons using
these adjusted amounts.
OPERATING RESULTS: COMPARATIVE ANALYSIS
==============================================================================================================================
ADJUSTMENTS
REPORTED RESTRUCTURING & RESTRUCTURING CORE CORE
(DOLLARS IN MILLIONS) 1995 ASSET WRITE-OFFS RELATED 1995 1995 1994 1993*
==============================================================================================================================
CONSOLIDATED
Net Sales $ 2,624 $2,624 $2,511 $2,273
Gross Profit 835 4 839 827 720
% of sales 31.8% 32.0% 32.9% 31.7%
Operating Expense 592 5 587 560 512
% of sales 22.5% 22.4% 22.3% 22.5%
Pre-tax Profit 113 86 9 208 202 148
EPS $ 1.33 $ 1.44 $.13 $ 2.90 $ 2.80 $ 2.06
==============================================================================================================================
INDUSTRY SEGMENTS
Operating Profit
Tools $ 155 $ 65 $ 5 $ 225 11.4% 11.5% 9.3%
Hardware 13 14 1 28 8.5% 10.7% 11.0%
Specialty Hardware 18 2 20 6.1% 7.6% 4.9%
- ------------------------------------------------------------------------------------------------------------------------------
Total 186 81 6 273 10.4% 10.9% 9.0%
Net corporate expenses (37) 5 3 (29)
Interest expense (36) (36)
- ------------------------------------------------------------------------------------------------------------------------------
Pre-tax Profit $ 113 $ 86 $ 9 $ 208
==============================================================================================================================
GEOGRAPHIC AREAS
Operating Profit
U.S. $ 147 $ 56 $ 6 $ 209 11.1% 11.9% 9.0%
Europe 27 16 43 10.4% 8.9% 8.6%
Other Areas 12 9 21 6.3% 7.8% 9.5%
- ------------------------------------------------------------------------------------------------------------------------------
Total $ 186 $ 81 $ 6 $ 273 10.4% 10.9% 9.0%
==============================================================================================================================
* 1993 EPS before the cumulative effect of an accounting change.
20 Stanley
8
The Stanley Works and Subsidiaries
Gross profit margins were 32.0% in 1995 compared with 32.9% in 1994. The
reduction was primarily due to costs associated with the closure and integration
of manufacturing facilities at Mechanics Tools. The margin improvement realized
in 1994 from 1993 resulted from manufacturing efficiencies from higher
production volume, process improvements and cost reduction efforts, especially
in connection with the successful transition of previously foreign-sourced
fastening tools to U.S. in-house manufacture.
Operating expenses were 22.4% of sales and were relatively consistent with
operating expense ratios in 1994 and 1993. Interest-net expense also remained
consistent year to year representing 1.2% of sales in 1995 and 1994 and 1.1% of
sales in 1993.
Other-net expense in 1995 was $14 million compared with $36 million in 1994
reflecting lower charges for environmental remediation, divestiture activity and
the 1994 write-down and sale of equipment, primarily for the Mechanics Tools
manufacturing integration. Other-net expense of $35 million in 1993 included a
$15 million charge for distributor litigation issues at the company's Mac Tools
business. Also included in 1993 was a gain on the sale of the company's
investment in Max Co., Ltd. of $29 million, which was offset by additional
charges for contingency reserves.
The effective income tax rate for 1995 excluding the effect of non-deductible
restructuring costs was 38.0% and compared with 37.9% in 1994 and 37.4% in 1993.
BUSINESS SEGMENT RESULTS
Net sales in the Tools segment increased 4% in 1995 reflecting 3% growth from
unit volume, 2% from pricing and a 1% decrease from divestiture activity.
Consumer tools sales grew 3% and were affected by slowing demand in the U.S.
market coupled with a loss of sales volume in Mexico. Industrial and Engineered
tools sales both increased 5% primarily from volume gains, although growth in
these categories had softened to some degree during the fourth quarter.
Operating profit margins were slightly below the prior year reflecting the
effects of Mechanics Tools' integration costs.
Sales in 1994 in the Tools Segment were 10% higher than 1993. The sales gain
was driven primarily by volume growth of 9% along with a 1% increase due to
pricing. Operating profits increased 25%, after excluding non-recurring charges
from 1993 results, the result of increased sales volume, operating efficiencies
and the successful transition of previously foreign-sourced fastening products
to in-house manufacture.
Net sales in the Hardware segment increased 4% in 1995, with 2% from pricing,
1% from volume and 1% from foreign currency translation. Operating profits
declined to $28 million from $33 million and reflected increases in certain raw
material costs, especially corrugated and steel, and the competitive pricing
environments in these markets. In addition, efforts to control inventories at a
time of weakening demand resulted in the underabsorption of factory overheads.
Sales in the Hardware segment increased 4% in 1994, reflecting volume growth
of 3% and price increases of 1%. Operating profit margins were reduced slightly
from 1993 due to operating inefficiencies in the Acmetrack facility located in
France.
Net sales in the Specialty Hardware segment increased 5% in 1995 due
primarily to a 4% gain in internal volume. The net effect of recent acquisitions
also added 1% to sales. Operating profits declined as a percent of sales,
reflecting a shift in product mix and increased promotional support in the entry
door business.
Sales in the Specialty Hardware segment in 1994 increased 18% with virtually
all of the increase from internal growth in the U.S. Operating profits increased
82% over 1993 and reflected efficiencies obtained from higher volumes and
process improvements.
GEOGRAPHIC AREA RESULTS
Net sales in the U.S. increased 4% in 1995 from internal volume growth. A 1%
gain from pricing was offset by the effects of recent divestitures. While
businesses generally realized unit volume gains, the lackluster demand in
consumer channels had a dampening effect on the year. Operating profit margins
declined from the prior year due to integration costs associated with the
Mechanics Tools business.
Stanley 21
9
MANAGEMENT'S DISCUSSION AND ANALYSIS
Net sales in 1994 in the U.S. increased 10% primarily from internal volume
gains. Price increases contributed 1% to sales but were offset by divestiture
activity. Operating profits increased 29%, after excluding non-recurring charges
from 1993 results, due to increased sales volume, process improvements and cost
reduction efforts.
Net sales in Europe increased 16% in 1995, with 5% from volume growth, 2%
from pricing, 1% from recent acquisitions and 8% from currency translation. On
the strength of this increased volume, operating profit margins increased to
10.4% from 8.9% in the prior year.
Net sales in Europe in 1994 increased 13% over 1993, with 7% contributed by
volume growth, 4% from acquisitions and 2% from the translation of foreign
currencies. Operating profits increased 16%.
Net sales in Other Areas in 1995 decreased 5% from the prior year primarily
from volume declines. All markets, with the exception of the Pacific Rim,
experienced weakness with the most notable declines occurring in Mexico and
Canada. Operating profits declined by 23% reflecting this weakness as well as
increased costs related to investments to expand the company's presence in some
of these markets.
Net sales in Other Areas in 1994 increased 12% over 1993, reflecting internal
growth of 8%, acquisitions adding 3% and a net 1% added from the effect of price
increases offset by the negative effects of currency. Despite the strong sales
performance, operating profits declined $2.2 million, or 8%, for the year.
Profitability increased in Canada and Australia due to sales growth; however,
these gains were offset by declines in the Pacific Rim as 1994 included the full
year results of a late 1993 acquisition in Japan along with the cost of other
investments made to expand our presence in Asia.
FINANCIAL CONDITION
LIQUIDITY, SOURCES AND USES OF CAPITAL
Cash flow from operations in 1995 was $178 million compared with $129 million in
1994 and continued to provide the primary source of funds to finance operating
needs and capital expenditures. The increase in operating cash flows was due to
improved core operating profitability, the absence of abnormally high cash
outlays for legal settlements as well as improvements in working capital
utilization.
While capital expenditures of $67 million in 1995 were comparable to 1994 and
1993 levels, higher levels of investment in technology and software were
reflected in the increase in Investing - Other cash outflows. Expenditures in
1996 are anticipated to be $20 to $30 million higher than 1995 primarily due to
increased expenditures for consolidating distribution and order management as
well as additional strategic manufacturing investments to establish a more
competitive cost structure.
Consistent with its policy to mitigate any dilutive impact of its employee
benefit programs, the company purchased $13 million of its common stock on the
open market. Dividends paid in 1995 of $75 million reflected five dividend
payments compared with four payments in 1994 and 1993 due solely to the timing
of scheduled dividend payments.
The company's total borrowing level remained relatively consistent from 1994
to 1995. During the year the company refinanced approximately $80 million of
maturing Guilder notes with long-term borrowing arrangements that included a
variable rate note with final maturity in 2005 and commercial paper classified
as non-current. Substantially all of the new borrowings are effectively
denominated in Guilders and Swiss Francs as a result of swap agreements. The
company's total debt to capital ratio was 39.6% in 1995 compared with 39.2% in
1994. Excluding the company's guarantee of its ESOP debt, the debt to capital
ratio was 34.1% in 1995 and 33.1% in 1994.
The company manages its debt portfolio with the objectives of minimizing
interest expense and optimizing the leverage of foreign investments. In order to
achieve those objectives, the company utilizes selected derivative financial
instruments, primarily interest rate and interest rate/currency swaps. Infor-
22 Stanley
10
The Stanley Works and Subsidiaries
mation regarding the company's use of derivative financial instruments is
provided in the footnotes to the financial statements. The company's overall
financing strategy does not expose it to significant market or credit risk.
The company has access to financial resources and borrowing capabilities
around the world. As of December 30, 1995, the company had approximately $375
million of unused lines of credit. In recognition of increased business levels
over the past two years the company increased its commercial paper facility and
back-up credit facility by $100 million in 1995. The company also has $100
million of unissued debt securities registered with the Securities and Exchange
Commission. The company believes that its strong financial position, operating
cash flows and borrowing capacity will provide the financial flexibility
necessary to continue its record of annual dividend payments and to invest in
the capital needs of its businesses. Strategic acquisitions made in connection
with the company's revenue objectives may require external financing.
RESTRUCTURING ACTIVITIES
The company's restructuring activities in 1995 resulted in a total charge of $86
million of which $21 million related to the write-down of impaired assets; $44
million related to the write-down of assets from businesses or product lines to
be exited; $4 million related to cash payments, primarily employee termination
benefits; and $17 million related to reserves established for closing
facilities. The reserve balance, which is primarily severance related, is
anticipated to be adequate to cover the actions taken in 1995 and associated
cash outlays are expected to be substantially completed in 1996. The company
anticipates that these activities will reduce revenues by $30 million and will
also generate annualized savings of $30 million. Additional restructuring
charges are anticipated in 1996 and possibly beyond as the company continues the
evaluation of its businesses. While the company is unable to estimate the amount
of these charges currently, it is anticipated that they may approximate the
amounts recorded in 1995.
OTHER MATTERS
In the normal course of business the company becomes involved in various
lawsuits and claims. The company has estimated the potential cost of these
activities and has established appropriate reserves.
The company incurs costs related to environmental issues as a result of
various laws and regulations governing current operations as well as the
remediation of previously contaminated sites. Future laws and regulations are
expected to be increasingly stringent and will likely increase the company's
expenditures related to environmental matters.
The company accrues for anticipated costs associated with investigatory and
remediation efforts in accordance with appropriate accounting guidelines which
address probability and the ability to reasonably estimate future costs. The
liabilities are reassessed whenever environmental circumstances become better
defined or remediation efforts and their costs can be better estimated. Subject
to the imprecision in estimating future environmental costs, the company does
not expect that any sum it may have to pay in connection with environmental
matters in excess of the amounts recorded will have a material adverse effect on
its financial position, results of operations or liquidity.
In 1995 the company adopted the provisions of Financial Accounting Standards
Board Statement No. 121, "Accounting for the Impairment of Long-lived Assets".
The new standard, which is required to be adopted in 1996, requires companies to
evaluate whether long-lived assets have suffered a loss in value when indicators
of impairment are present. It also provides a standard methodology to value the
amount of impairment. This methodology formed the basis for determining the
write-downs necessary to reflect the impairment in the company's assets which
resulted from new operational plans developed as part of its restructuring
activities.
Stanley 23
11
The Stanley Works and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
Fiscal years ended December 30, 1995, December 31, 1994, and January 1, 1994
(MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) 1995 1994 1993
==========================================================================================================
NET SALES $2,624.3 $2,510.9 $2,273.1
COSTS AND EXPENSES
Cost of sales 1,789.7 1,684.0 1,553.0
Selling, general and administrative 591.7 560.4 512.3
Interest-net 30.3 29.0 25.2
Other-net 14.3 35.7 34.6
Restructuring and asset write-offs 85.5
- ----------------------------------------------------------------------------------------------------------
2,511.5 2,309.1 2,125.1
- ----------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 112.8 201.8 148.0
- ----------------------------------------------------------------------------------------------------------
INCOME TAXES 53.7 76.5 55.4
- ----------------------------------------------------------------------------------------------------------
EARNINGS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 59.1 125.3 92.6
Cumulative effect of accounting change
for postemployment benefits (8.5)
- ----------------------------------------------------------------------------------------------------------
NET EARNINGS $ 59.1 $ 125.3 $84.1
==========================================================================================================
EARNINGS PER SHARE OF COMMON STOCK:
Before cumulative effect of accounting change $ 1.33 $2.80 $2.06
Cumulative effect of accounting change (.19)
- ----------------------------------------------------------------------------------------------------------
NET EARNINGS PER SHARE OF COMMON STOCK $ 1.33 $2.80 $1.87
==========================================================================================================
See notes to consolidated financial statements.
24 Stanley
12
The Stanley Works and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 30, 1995 and December 31, 1994
(Millions of Dollars) 1995 1994
================================================================================
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 75.4 $ 69.3
Accounts and notes receivable 438.7 410.3
Inventories 349.1 369.2
Other current assets 51.9 39.7
- --------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 915.1 888.5
PROPERTY, PLANT AND EQUIPMENT 532.1 559.8
GOODWILL AND OTHER INTANGIBLES 131.8 164.6
OTHER ASSETS 91.0 88.2
- --------------------------------------------------------------------------------
TOTAL ASSETS $1,670.0 $1,701.1
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 77.2 $ 82.8
Current maturities of long-term debt 14.1 10.9
Accounts payable 112.7 125.3
Accrued expenses 183.7 202.5
- --------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 387.7 421.5
LONG-TERM DEBT 391.1 387.1
DEFERRED INCOME TAXES 16.4 14.4
OTHER LIABILITIES 140.2 133.9
SHAREHOLDERS' EQUITY
Preferred Stock, without par value:
Authorized and unissued 10,000,000 shares
Common Stock, par value $2.50 per share:
Authorized 110,000,000 shares;
issued 46,171,705 shares in 1995 and 1994 115.4 115.4
Capital in excess of par value 68.4 70.1
Retained earnings 937.6 937.8
Foreign currency translation adjustment (70.6) (56.3)
ESOP debt (244.3) (253.7)
- --------------------------------------------------------------------------------
806.5 813.3
Less: cost of common stock in treasury
(1,792,290 shares in 1995 and 1,722,330 shares in 1994) 71.9 69.1
- --------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 734.6 744.2
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,670.0 $1,701.1
================================================================================
See notes to consolidated financial statements.
Stanley 25
13
The Stanley Works and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal years ended December 30, 1995, December 31, 1994 and January 1, 1994
(MILLIONS OF DOLLARS) 1995 1994 1993
============================================================================================
OPERATING ACTIVITIES:
Net earnings $ 59.1 $ 125.3 $ 84.1
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 81.2 81.8 80.7
Restructuring and asset write-offs 85.5
Gain on sale of non-operating asset (29.0)
Provision for postemployment benefits 13.6
Other non-cash items 32.3 18.3 9.4
Changes in operating assets and liabilities:
Accounts and notes receivable (23.3) (46.2) (19.7)
Inventories (4.5) (69.8) (15.5)
Accounts payable and accrued expenses (27.8) 34.9 16.0
Income taxes (24.1) (11.9) 1.0
Other (.3) (3.9) 5.9
- --------------------------------------------------------------------------------------------
Net cash provided by operating activities 178.1 128.5 146.5
- --------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Capital expenditures (66.5) (66.4) (69.7)
Proceeds from sales of assets 4.3 11.0 6.6
Proceeds from sale of non-operating asset 38.9
Business acquisitions (3.3) (5.1) (13.3)
Other (19.8) (9.7) (13.2)
- --------------------------------------------------------------------------------------------
Net cash used by investing activities (85.3) (70.2) (50.7)
- --------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Payments on long-term debt (83.5) (2.9) (133.8)
Proceeds from long-term borrowings 86.0 78.5
Net short-term financing (5.1) 40.9 22.3
Proceeds from issuance of common stock 5.7 4.2 4.6
Purchase of common stock for treasury (13.2) (16.3) (42.3)
Cash dividends on common stock (75.2) (61.5) (60.5)
- --------------------------------------------------------------------------------------------
Net cash used by financing activities (85.3) (35.6) (131.2)
- --------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (1.4) 2.9 (2.0)
- --------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6.1 25.6 (37.4)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 69.3 43.7 81.1
- --------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 75.4 $ 69.3 $ 43.7
============================================================================================
See notes to consolidated financial statements.
26 Stanley
14
The Stanley Works and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Fiscal years ended December 30, 1995, December 31, 1994 and January 1, 1994
(MILLIONS OF DOLLARS)
===================================================================================================================================
Common Capital in Excess Retained Translation Treasury Shareholders'
Stock of Par Value Earnings Adjustments ESOP debt Stock Equity
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE JANUARY 2, 1993 $ 115.4 $ 75.8 $ 843.7 $ (41.5) $ (268.8) $ (28.3) $ 696.3
Net earnings 84.1 84.1
Currency translation adjustment (15.2) (15.2)
Cash dividends declared-$1.34 per share (60.1) (60.1)
Issuance of common stock (2.7) 15.7 13.0
Purchase of common stock (47.9) (47.9)
ESOP debt 7.3 7.3
ESOP tax benefit 3.4 3.4
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE JANUARY 1, 1994 115.4 73.1 871.1 (56.7) (261.5) (60.5) 680.9
Net earnings 125.3 125.3
Currency translation adjustment .4 .4
Cash dividends declared-$1.38 per share (61.9) (61.9)
Issuance of common stock (3.0) 13.3 10.3
Purchase of common stock (21.9) (21.9)
ESOP debt 7.8 7.8
ESOP tax benefit 3.3 3.3
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1994 115.4 70.1 937.8 (56.3) (253.7) (69.1) 744.2
Net earnings 59.1 59.1
Currency translation adjustment (14.3) (14.3)
Cash dividends declared-$1.42 per share (62.6) (62.6)
Issuance of common stock (1.7) 13.9 12.2
Purchase of common stock (16.7) (16.7)
ESOP debt 9.4 9.4
ESOP tax benefit 3.3 3.3
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 30, 1995 $ 115.4 $ 68.4 $ 937.6 $ (70.6) $ (244.3) $ (71.9) $ 734.6
===================================================================================================================================
See notes to consolidated financial statements.
Stanley 27
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(A) SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the company and
its majority-owned subsidiaries, after the elimination of intercompany accounts
and transactions. The company's fiscal year ends on the Saturday nearest to
December 31. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses, as well as certain financial statement disclosures. While
management believes that the estimates and assumptions used in the preparation
of the financial statements are appropriate, actual results could differ from
these estimates.
FOREIGN CURRENCY TRANSLATION
For most foreign operations, asset and liability accounts are translated at the
year-end exchange rate; income and expenses are translated at the average
exchange rate for the year. Resulting translation adjustments are made directly
to a separate component of shareholders' equity. Translation adjustments for
operations in highly inflationary countries and gains and losses on transactions
are included in earnings. These transactional gains and losses, together with
the translation adjustments related to foreign operations in highly inflationary
economies, amounted to net losses for 1995, 1994 and 1993 of $.7 million. $5.5
million and $6.0 million, respectively.
CASH EQUIVALENTS
Highly liquid investments with original maturities of three months or less
are considered cash equivalents.
INVENTORIES
U.S. inventories are valued at the lower of last-in, first-out cost or market.
Other inventories are valued generally at the lower of first-in, first-out cost
or market.
LONG-LIVED ASSETS
Property, plant and equipment are stated on the basis of historical cost less
accumulated depreciation. Depreciation is provided using a combination of
accelerated and straight-line methods over the estimated useful lives of the
assets.
Goodwill is amortized on a straight-line basis over periods not
exceeding forty years. The company periodically evaluates the existence of
goodwill impairment on the basis of whether amounts recorded are recoverable
from projected undiscounted cash flows of related businesses. Impairment losses
are valued by comparing the carrying value of the goodwill to its fair value,
generally determined by the discounted cash flow method.
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. The company adopted and applied the
provisions of this new standard in 1995 to value the impairment of assets
affected by restructuring, plant closings and exit plans and of assets impaired
by changes in operating plans initiated in the latter half of the year. The
resulting impairment losses were charged to operations in 1995 and were included
in Restructuring and asset write-offs on the income statement.
FINANCIAL INSTRUMENTS
To manage interest rate exposure, the company enters into interest rate swap
agreements. The net interest paid or received on the swaps is recognized as
interest expense. Gains resulting from the early termination of interest rate
swap agreements are deferred and amortized as adjustments to interest expense
over the remaining period originally covered by the terminated swap. The company
manages exposure to fluctuations in foreign exchange rates by creating
offsetting positions through the use of forward exchange contracts or purchased
currency options. The company enters into forward exchange contracts to hedge
firm commitments and enters into purchased foreign currency options to hedge
anticipated transactions. Purchased currency option premiums are recognized as
cost of sales over the life of the contract. Gains and losses resulting from
these foreign currency instruments are deferred and recognized in cost of sales
in the same period as the hedged transactions. Forward contracts related to
anticipated intercompany transactions are marked to market in Other-net expense.
The company does not use financial instruments for trading or speculative
purposes.
INCOME TAXES
Deferred taxes are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect in the years in which the differences are expected to reverse. Deferred
tax expense represents the change in the deferred tax asset and liability
balances.
EARNINGS PER SHARE
Earnings per share are based on the weighted average number of shares
of common stock outstanding during each year (44,360,000 shares,
44,775,000 shares and 44,935,000 shares in 1995, 1994 and 1993,
respectively). The issuance of additional shares under employee stock
plans would not result in a material dilution of earnings per share.
STOCK BASED COMPENSATION
The company grants stock options for a fixed number of shares to directors and
certain employees with an exercise price equal to the fair value of shares at
the date of grant. The company accounts for stock option grants in accordance
with APB No. 25 "Accounting for Stock Issued to Employees", and accordingly
recognizes no related compensation expense.
28 Stanley
16
(B) ACCOUNTS AND NOTES RECEIVABLE
Trade receivables are dispersed among a large number of retailers, distributors
and industrial accounts in many countries. No individual customer balance is
material. Adequate provisions have been established to cover anticipated credit
losses. At December 30, 1995 and December 31, 1994, allowances for doubtful
receivables of $18.2 million and $20.9 million, respectively, were applied as a
reduction of current accounts and notes receivable. The company believes it has
no significant concentrations of credit risk as of December 30, 1995.
The company sells, with recourse, certain domestic accounts receivable
under a revolving sales agreement. The proceeds from these sales were $72
million in 1995, $59 million in 1994 and $39 million in 1993. At December 30,
1995 and December 31, 1994, the balance of these receivables subject to recourse
was approximately $81 million and $69 million, respectively. Provisions have
been made to cover anticipated losses.
(C) INVENTORIES
(MILLIONS OF DOLLARS) 1995 1994
============================================================================================
Finished products $224.1 $238.6
Work in process 63.1 68.4
Raw materials 59.4 59.4
Supplies 2.5 2.8
- --------------------------------------------------------------------------------------------
$349.1 $369.2
============================================================================================
Inventories in the amount of $188.6 million at December 30, 1995 and
$203.6 million at December 31, 1994 were valued at the lower of last-in,
first-out (LIFO) cost or market. If LIFO inventories had been valued at FIFO
costs, they would have been $127.6 million and $120.2 million higher than
reported at December 30, 1995 and December 31, 1994, respectively.
(D) PROPERTY, PLANT AND EQUIPMENT
(MILLIONS OF DOLLARS) 1995 1994
============================================================================================
Land $ 35.7 $ 34.2
Buildings 241.5 245.2
Machinery and equipment 863.5 849.2
- --------------------------------------------------------------------------------------------
1,140.7 1,128.6
Less: accumulated depreciation 608.6 568.8
- --------------------------------------------------------------------------------------------
$ 532.1 $ 559.8
============================================================================================
The provisions for depreciation for 1995, 1994 and 1993 were $62.4
million, $63.3 million and $63.1 million, respectively.
(E) GOODWILL AND OTHER INTANGIBLES
Goodwill and other intangibles at the end of each fiscal year, net of
accumulated amortization of $74.3 million and $86.8 million, were as follows:
(MILLIONS OF DOLLARS) 1995 1994
============================================================================================
Goodwill $104.4 $128.7
Other 27.4 35.9
- --------------------------------------------------------------------------------------------
$131.8 $164.6
============================================================================================
(F) ACCRUED EXPENSES
(MILLIONS OF DOLLARS) 1995 1994
============================================================================================
Salaries and wages $ 38.8 $ 40.2
Insurance 28.6 30.3
Taxes, other than income taxes 19.9 19.2
Dividends payable 2.4 15.0
Other 94.0 97.8
- --------------------------------------------------------------------------------------------
$183.7 $202.5
============================================================================================
Stanley 29
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(G) LONG-TERM DEBT AND FINANCING ARRANGEMENTS
(MILLIONS OF DOLLARS) 1995 1994
============================================================================================
Notes payable in 2002 7.4% $100.0 $100.0
Commercial Paper 5.8% 107.0 62.3
Dutch Guilder notes payable in 1996 5.9% 75.0
Notes payable in 1998 9.0% 34.8 34.8
Notes payable due semiannually to 2005 5.9% 41.3
Industrial Revenue Bonds due in
varying amounts to 2011 5.5 - 6.8% 25.1 29.9
ESOP loan guarantees,
payable in varying
monthly installments
through 2001 7.7% 66.8 75.5
Other 30.2 20.5
- --------------------------------------------------------------------------------------------
405.2 398.0
Less: current maturities 14.1 10.9
- --------------------------------------------------------------------------------------------
$391.1 $387.1
============================================================================================
During the year the company refinanced approximately $80 million of
maturing Dutch Guilder notes with long-term borrowing arrangements that
included a variable rate note with final maturity in 2005 and commercial
paper classified as non-current.
Commercial paper outstanding at December 30, 1995 of $107.0 million
is classified as non-current pursuant to the company's intention and
ability to continue to finance this obligation on a long-term basis.
The company has on file with the Securities and Exchange Commission a
shelf registration statement covering the issuance of up to $200 million of debt
securities; as of December 30, 1995, $100 million remained unused. The company
has unused short and long-term credit arrangements with several banks to borrow
up to $300 million at the lower of prime or money market rates. Of this amount,
$150 million is long-term. Commitment fees range from .07% to .1%. In addition,
the company has short-term lines of credit with numerous foreign banks
aggregating $84.5 million of which $75.7 million was available at December 30,
1995. Short-term arrangements are reviewed annually for renewal. Of the
long-term and short-term lines, $300 million is available to support the
company's commercial paper program. The weighted average interest rates on
short-term borrowings at December 30, 1995 and December 31, 1994 were 6.3% and
6.4%, respectively.
The company has guaranteed the long-term notes payable to banks of its
employee stock ownership plan (ESOP). The guarantee is reflected in the
consolidated balance sheets as long-term debt with a corresponding reduction in
shareholders' equity.
To manage interest costs and foreign exchange risk, the company
maintains a portfolio of interest rate swap agreements. The portfolio includes
currency swaps maturing in 1998-1999 that convert $89.3 million of commercial
paper debt into Swiss Franc debt (5.8% weighted average rate). The company also
has a currency swap that converts $41.3 million of variable rate United States
dollar debt to variable rate Dutch Guilder debt (4.2% weighted average rate).
See Note H for more information regarding the company's interest rate swap
agreements.
Aggregate annual maturities of long-term debt for the years 1997 to 2000
are $15.1 million, $50.6 million, $16.9 million and $124.8 million,
respectively. Interest paid during 1995, 1994 and 1993 amounted to $33.9
million, $45.1 million and $34.0 million, respectively.
Commercial paper, utilized to support working capital requirements,
classified as current was $67.9 million and $61.7 million, as of December 30,
1995 and December 31, 1994, respectively.
(H) FINANCIAL INSTRUMENTS
The company's objectives in using debt related financial instruments are
to obtain the lowest cost source of funds within an acceptable range of variable
to fixed rate debt proportions (30% to 40%), and to minimize the foreign
exchange risk of obligations. To meet these objectives the company enters into
interest rate swaps, currency swaps and interest rate cap agreements. A summary
of instruments and weighted average interest rates follows. The weighted average
variable pay and receive rates are based on rates in effect at the balance sheet
dates. Variable rates are generally based on LIBOR with no leverage features.
(MILLIONS OF DOLLARS) 1995 1994
=============================================================================
Interest rate swaps
Receive fixed-pay variable rates $ 62.2 $157.6
pay rate 3.9% 5.6%
receive rate 5.5% 6.5%
maturity dates 1996 1996-02
Receive variable-pay fixed rates $130.0 $174.1
pay rate 7.8% 7.8%
receive rate 5.1% 6.0%
maturity dates 1996-99 1996-98
Currency swaps $301.6 $125.4
pay rate 6.3% 7.9%
receive rate 7.0% 8.3%
maturity dates 1996-2005 1996-1998
=============================================================================
The company uses purchased currency options and forward contracts to
hedge a portion of the currency risk in cross border trade flows expected to
occur over the next one year period. In addition, the company enters into
forward exchange contracts to hedge firm commitments. The objective
30 Stanley
18
of these practices is to minimize the impact of foreign currency fluctuations
on operating results. At December 30, 1995 and December 31, 1994, the company
had forward contracts hedging firm commitments totaling $70.7 million and $2.7
million, respectively. At December 30, 1995 and December 31, 1994, purchased
currency options hedging anticipated transactions totaled $47.1 million and
$32.6 million, respectively. Forward contracts relating to anticipated
intercompany transactions amounted to $6.0 million at December 30, 1995. The
forward contracts and options are primarily denominated in Canadian dollars,
Australian dollars, and major European currencies and generally mature within
the next one year period.
The counterparties to these interest rate and currency financial
instruments are major international financial institutions. The company is
exposed to credit risk for net coupon exchanges under these agreements, but not
for the notional amounts. The company considers the risk of default to be
remote.
A summary of the carrying values and fair values of the company's
financial instruments at December 30, 1995 and December 31, 1994 is as follows:
(MILLIONS OF DOLLARS) 1995 1994
====================================================================================================
Carrying Fair Carrying Fair
Value Value Value Value
Long-term debt,
including current portion $381.3 $395.0 $384.1 $377.9
Currency and
interest rate swaps 23.9 33.1 14.5 25.8
- ----------------------------------------------------------------------------------------------------
$405.2 $428.1 $398.6 $403.7
====================================================================================================
Generally, the carrying value of the debt related financial instruments
is included in the balance sheet in long-term debt. The fair values of long-term
debt are estimated using discounted cash flow analysis, based on the company's
marginal borrowing rates. The fair values of foreign currency and interest rate
swap agreements are based on current settlement values. The carrying amount of
cash equivalents and short-term borrowings approximates fair value.
(I) CAPITAL STOCK
COMMON STOCK SHARE ACTIVITY
The activity in common shares for each year, net of treasury stock, was as
follows:
1995 1994 1993
===================================================================================
Outstanding, beginning
of year 44,449,375 44,695,631 45,438,854
Issued for employee
stock plans 349,298 323,739 387,196
Purchased (419,256) (569,995) (1,130,419)
- -----------------------------------------------------------------------------------
Outstanding, end of year 44,379,415 44,449,375 44,695,631
===================================================================================
COMMON STOCK RESERVED
At December 30, 1995 and December 31, 1994, the number of shares of
common stock reserved for future issuance under various employee and
director stock plans was as follows:
1995 1994
==================================================================
Employee Stock Purchase Plan 2,859,676 2,938,052
Stock Option Plans 5,506,171 5,741,078
Long-Term Stock Incentive Plan 1,454,659 1,478,526
- ------------------------------------------------------------------
9,820,506 10,157,656
==================================================================
LONG-TERM STOCK INCENTIVE PLAN
The Long-Term Stock Incentive Plan provides for the granting of awards to senior
management employees for achieving company performance measures over five year
cycles. The final cycle of this plan is payable in 1998. The Plan is
administered by the Compensation and Organization Committee of the Board of
Directors consisting of non-employee directors. Awards are payable 55% in cash
and 45% in shares of common stock or 100% in shares of common stock. The amounts
of $.4 million, $.3 million and $.5 million were charged to expense in 1995,
1994 and 1993, respectively. Shares totaling 23,867, 8,267 and 10,092 were
issued in 1995, 1994 and 1993, respectively. The Compensation and Organization
Committee determined in late 1994 not to make any further awards under this
plan. Accordingly, there will be no further payments under this plan subsequent
to the 1992-1996, 1993-1997 and 1994-1998 award cycles.
PREFERRED STOCK PURCHASE RIGHTS
Under the existing Rights Plan, each outstanding share of common stock has
two-thirds of a share purchase right, which, under certain conditions, may be
exercised to purchase one two-hundredth of a share of Series A Junior
Participating Preferred Stock at an exercise price of $125.00, subject to
adjustment to prevent dilution. The rights, which do not have voting rights,
expire on March 10, 1996. On January 31, 1996, the Board of Directors extended
the benefits offered by the existing rights by the execution of the Rights
Agreement, dated as of January 31, 1996, between the company and the Rights
Agent named therein and by declaring a dividend of one share purchase right for
each outstanding share of common stock. Each new share purchase right, under
certain conditions, may be exercised to purchase one two-hundredth of a share of
Series A Junior Participating Preferred Stock at an exercise price of $220.00,
subject to adjustment. In the event that the company is acquired in a merger or
other business combination transaction, provision shall be made so that each
holder of a right (other than a holder who is a 10%-or-more shareholder) shall
have the right to receive, upon exercise thereof, that number of shares of
common stock of the surviving company having a market value equal to two times
the exercise price of the right. Similarly, if anyone becomes the beneficial
owner of more than 10% of the then outstanding shares of common stock (except
pursuant to an offer for all outstanding
Stanley 31
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
shares of common stock which the independent directors have deemed to be fair
and in the best interest of the company), provision will be made so that each
holder of a right (other than a holder who is a 10%-or-more shareholder) shall
thereafter have the right to receive, upon exercise thereof, common stock (or,
in certain circumstances, cash, property or other securities of the company)
having a market value equal to two times the exercise price of the right. At
December 30, 1995, there were 44,379,415 outstanding rights. There are 250,000
shares of Series A Junior Participating Preferred Stock reserved for issuance in
connection with the new rights (an increase from 175,000 shares previously
reserved for issuance in connection with the prior rights).
STOCK OPTIONS
The company has a stock option plan for officers and key employees that provides
for nonqualified and incentive stock option grants. The company also has a stock
option plan that provides for an automatic, biennial option grant to each
outside director of the company. Options are generally for a ten year term and
are granted at the market price of the common stock on the date of grant.
Outstanding incentive stock options are subject to a two year transfer
restriction on half the shares issued upon exercise. Non-qualified stock options
are not subject to transfer restrictions. In the event of a change of control in
the company, all outstanding stock options held by employees become immediately
exercisable, all transfer restrictions lapse and optionees have the right to
sell options to the company at market-related values.
Information relative to the stock option plans is summarized as follows:
1995 1994 1993
=============================================================================
At end of year:
Options outstanding 2,410,597 2,130,801 1,827,936
Options exercisable 1,861,297 1,597,054 1,716,936
Shares available
for grants 3,095,574 3,610,277 488,869
During the year:
Options granted 549,300 533,747 111,000
Options exercised 234,907 175,727 225,424
Options canceled 34,597 55,155 63,945
Average price per share:
Options outstanding $36.68 $33.67 $31.27
Options granted 46.00 40.37 40.25
Options exercised 31.77 30.13 30.47
=============================================================================
(J) EMPLOYEE BENEFIT PLANS
EMPLOYEE STOCK PURCHASE PLAN
The Employee Stock Purchase Plan enables substantially all employees in the
United States and Canada to subscribe at any time to purchase shares of common
stock on a monthly basis at the lower of 85% of the fair market value of the
shares on the first day of the plan year ($39.21 per share in 1995), or 85% of
the fair market value of the shares on the last business day of each month. A
maximum of 3,000,000 shares are authorized for subscription. During 1995, 1994
and 1993, shares totaling 78,376, 123,410 and 139,010, respectively, were issued
under the Plan at average prices of $34.57, $34.30 and $33.07 per share,
respectively.
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
The Savings Plan provides opportunities for tax-deferred savings, enabling
eligible U.S. employees to acquire a proprietary interest in the company. Such
employees may contribute from 1% to 15% of their salary to the Plan. The company
contributes an amount equal to one-half of the first 7% of employee
contributions. The amounts in 1995, 1994 and 1993 under this matching
arrangement were $8.3 million, $8.3 million and $7.8 million, respectively.
Shares of the company's common stock held by the ESOP were purchased
with the proceeds of external borrowings in 1989 and borrowings from the company
in 1991. The external ESOP borrowings are guaranteed by the company and are
included in long-term debt. Shareholders' equity reflects both the internal and
the external borrowing arrangements.
Shares are released to participant accounts based on principal and
interest payments of the underlying debt. These shares along with allocated
dividends and shares purchased on the open market are assigned to fund share
requirements of the employee contribution, the associated employer match and the
dividends earned on participant account balances.
Net ESOP activity recognized is based on total debt service and share
purchase requirements less employee contributions and dividends on ESOP shares.
The company's net ESOP activity resulted in income of $2.6 million in 1995, $2.3
million in 1994 and $5.6 million in 1993.
Dividends on ESOP shares, which are charged to shareholders' equity as
declared, were $14.8 million, $14.5 million and $14.2 million in 1995, 1994 and
1993, respectively. Interest costs incurred by the Plan on external debt for
1995, 1994 and 1993 were $5.5 million, $6.1 million and $6.7 million,
respectively. ESOP shares not yet allocated to participants are treated as
outstanding for purposes of computing earnings per share. As of December 30,
1995, the number of ESOP shares allocated to participant accounts was 4,707,730
and the number of unallocated shares was 5,831,063.
PENSION PLANS
The retirement benefit for U.S. salaried and non-union hourly employees was
changed effective January 1, 1995. Previously, benefits were provided by both a
defined benefit plan and a defined contribution plan. The defined contribution
plan provided for benefits as a varying percentage of
32 Stanley
20
payroll and the defined benefit plan provided a benefit based on salary
and years of service. Upon retirement, plan participants received the
greater of the two benefits. Effective January 1, 1995, the two plans were
merged and restated as a defined benefit plan. The assets of both plans
were combined in order to fund the plan's guaranteed benefit which is
based on salary and years of service. If the plans are terminated or
merged with another plan within three years following a change in control
of the company, any excess plan assets are to be applied to increase the
benefits of all participants.
The company also sponsors defined benefit plans for its non-U.S.
employees and U.S. collective bargaining employees. Benefits generally are based
on salary and years of service for non-U.S. employees, while those for
collective bargaining employees are based on a stated amount for each year of
service.
The company's funding policy is to contribute amounts determined
annually on an actuarial basis to provide for current and future benefits in
accordance with federal law and other regulations. Plan assets are invested in
equity securities, bonds, real estate and money market instruments.
Additionally, the company contributes to several union-sponsored
multi-employer plans which provide defined benefits.
Total pension expense includes the following components:
(MILLIONS OF DOLLARS) 1995 1994 1993
===================================================================================
Defined benefit plans:
Service cost $16.7 $ 9.6 $ 9.0
Interest cost 29.8 21.0 20.3
Actual return on plan assets (39.5) 10.6 (25.3)
Net amortization and deferral 6.5 (35.1) 1.0
- -----------------------------------------------------------------------------------
Net pension expense 13.5 6.1 5.0
Defined contribution plan 8.1 8.0
Multi-employer plans .8 .6 .5
- -----------------------------------------------------------------------------------
Total pension expense $ 14.3 $ 14.8 $ 13.5
===================================================================================
The funded status of the company's defined benefit plans, adjusted for
the merger of the plans covering U.S. salaried and non-union hourly
employees, at the end of each fiscal year was as follows:
(MILLIONS OF DOLLARS) 1995 1994
====================================================================================================
Plans Plans Plans Plans
Where Where Where Where
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
- ----------------------------------------------------------------------------------------------------
Actuarial present value
of benefit obligations:
Vested $320.5 $ 11.5 $296.8 $ 10.4
Non-vested 3.7 2.0 1.3 2.7
- ----------------------------------------------------------------------------------------------------
Accumulated
benefit obligation 324.2 13.5 298.1 13.1
Additional amounts
related to projected
pay increases 68.2 4.1 38.7 5.9
- ----------------------------------------------------------------------------------------------------
Total projected benefit
obligation (PBO) 392.4 17.6 336.8 19.0
Plan assets at fair
value 425.2 6.5 369.4 6.8
- ----------------------------------------------------------------------------------------------------
Assets in excess of
(less than) PBO 32.8 (11.1) 32.6 (12.2)
Unrecognized net
(gain) or loss at
transition (8.1) .2 (9.8) .3
Unrecognized net
(gain) or loss (12.5) .9 2.3
Unrecognized prior
service cost 10.8 2.9 5.3 3.1
Adjustment required to
recognize minimum
liability (2.8) (2.3)
- ----------------------------------------------------------------------------------------------------
Prepaid (accrued)
pension expense
(long-term) $ 23.0 $ (9.9) $ 28.1 $ (8.8)
====================================================================================================
Stanley 33
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Assumptions used for significant defined benefit plans were as follows:
1995 1994 1993
===================================================================================
Discount rate 7.0% 8.25% 7.5%
Average wage increase 4.5% 5.0% 5.0%
Long-term rate of return
on assets 9.0% 9.0% 9.0%
===================================================================================
POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The company provides medical and dental benefits for certain retired
employees in the United States. In addition, domestic employees who
retire from active service are eligible for life insurance benefits.
The status of the company's plans at the end of each fiscal year was
as follows:
(MILLIONS OF DOLLARS) 1995 1994
===================================================================================
Accumulated postretirement benefit obligation:
Retirees $20.3 $ 19.2
Fully eligible active plan participants 1.6 1.4
Active plan participants 5.5 3.7
- -----------------------------------------------------------------------------------
Accumulated obligation 27.4 24.3
Unrecognized net loss (10.7) (7.5)
- -----------------------------------------------------------------------------------
Accrued postretirement benefit expense $16.7 $ 16.8
===================================================================================
Net periodic postretirement benefit expense was $2.9 million in 1995.
$3.0 million in 1994 and $3.3 million in 1993.
The weighted average annual assumed rate of increase in the per-capita
cost of covered benefits (i.e. health care cost trend rate) is assumed to be
9.0% for 1996 reducing gradually to 6% by 2010 and remaining at that level
thereafter. A one percentage point increase in the assumed health care cost
trend rate would have increased the accumulated benefit obligation by $1.6
million at December 30, 1995 and net periodic postretirement benefit expense for
fiscal year 1995 by $.1 million. Weighted average discount rates of 7.0% in 1995
and 8.25% in 1994 were used in determining the accumulated benefit obligations.
The company provides certain postemployment benefits to eligible
employees and, in some cases, their dependents. These benefits include
severance, continuation of medical coverage and other benefits when employees
leave the company for reasons other than retirement.
In 1993, the company adopted Statement of Financial Accounting Standards
No. 112, "Employers' Accounting for Postemployment Benefits." Prior to 1993,
postemployment benefits were recognized as expense when paid. The cumulative
effect of adopting this new standard was a one-time charge to 1993 earnings of
$8.5 million ($13.6 million less related deferred income taxes of $5.1 million)
or $.19 per share. The effect of this change on 1993 operating results was
immaterial.
(K) OTHER COSTS AND EXPENSES
Interest-net for 1995, 1994 and 1993 included interest income of $5.3
million, $4.6 million and $6.8 million, respectively.
Other-net in 1993 includes a gain of $29.0 million ($.39 per share) from
the sale of the company's investment in Max Co., Ltd. and a charge of $15.0
million ($.21 per share) related to the settlement of lawsuits involving the
company's Mac Tools business. Also included in Other-net were additional charges
for a fine levied by U.S. District Court in Missouri for $5.0 million ($.07 per
share) and contingency reserves of $23.3 million ($.32 per share) related to
product liability litigation, restructuring activities and environmental
remediation.
Advertising costs are expensed as incurred and amounted to $54.3 million
in 1995, $53.4 million in 1994 and $46.5 million in 1993.
(L) RESTRUCTURING AND ASSET WRITE-OFFS
In order to create a more competitive cost base and to fuel long-term growth,
the company initiated a multi-year restructuring program in 1995. The program
encompasses all Stanley businesses and focuses on the profitability potential of
each product category. Businesses or product lines that do not meet the
company's criteria for revenue growth and profitability will be divested.
Restructuring activities will be directed at creating a more competitive cost
structure for the company's business units. Restructuring activities are also
being focused on enhancing the company's relationships with its customers in
order to create a strategic competitive advantage. This initiative involves the
consolidation of distribution and order management for North American key
customers.
Restructuring charges of $64.8 million included the write-down of
assets, severance and other costs totaling $53.4 million for exiting three
product categories, closing six manufacturing plants, three distribution
centers and two support facilities. These actions are expected to ultimately
result in a workforce reduction of 550 employees. Restructuring charges
also included $5.3 million for severance related to a workforce reduction
of 350 employees and $6.1 million for a comprehensive SKU reduction
program. Of the total severance recorded of $9.2 million, approximately
$6.0 million is reflected as a liability at the end of 1995 and is expected
to be paid in 1996.
A charge of $20.7 million was also recognized for losses on assets
that were identified as being impaired in conjunction with the company's
restructuring initiatives and strategy changes.
The plant closings and exit activities initiated in 1995 are expected to
be completed in 1996 while the consolidation of distribution and order
management is targeted for completion in 1997. Additional restructuring
alternatives are currently being evaluated and future restructuring charges
34 Stanley
22
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; however, it is likely that
those charges will be material and may approximate the amount of charges already
incurred in 1995.
(M) OPERATIONS BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA
Industry Segment and Geographic Area information included on page 17
of this report is an integral part of the financial statements.
(N) INCOME TAXES
Significant components of the company's deferred tax liabilities and
assets as of the end of each fiscal year were as follows:
(MILLIONS OF DOLLARS) 1995 1994 1993
===================================================================================
Deferred Tax Liabilities:
Depreciation $75.4 $74.1 $73.1
Other 12.9 6.0 12.9
- -----------------------------------------------------------------------------------
Total Deferred Tax Liabilities 88.3 80.1 86.0
- -----------------------------------------------------------------------------------
Deferred Tax Assets:
Employee benefit plans 19.8 20.6 20.4
Restructuring charges 19.2
Amortization of intangibles 15.1 14.5
Accruals 18.0 24.4 25.6
Other 12.4 13.2 11.9
- -----------------------------------------------------------------------------------
Total Deferred Tax Assets 84.5 72.7 57.9
- -----------------------------------------------------------------------------------
Net Deferred Tax Liabilities $ 3.8 $ 7.4 $28.1
===================================================================================
Income tax expense consisted of the following:
(MILLIONS OF DOLLARS) 1995 1994 1993
===================================================================================
Current:
Federal $26.0 $59.3 $40.2
Foreign 21.1 18.8 13.6
State 7.5 12.2 7.2
- -----------------------------------------------------------------------------------
Total Current 54.6 90.3 61.0
- -----------------------------------------------------------------------------------
Deferred:
Federal 1.2 (8.4) (4.8)
Foreign .3 (1.0) .6
State (2.4) (4.4) (1.4)
- -----------------------------------------------------------------------------------
Total Deferred (.9) (13.8) (5.6)
- -----------------------------------------------------------------------------------
Total $53.7 $76.5 $55.4
===================================================================================
Income taxes paid during 1995, 1994 and 1993 were $74.1 million,
$79.8 million and $63.4 million, respectively.
The reconciliation of the statutory federal income tax rate to the effective
rate was as follows:
1995 1994 1993
===================================================================================
Statutory federal income
tax rate 35.00% 35.00% 35.00%
State income taxes,
net of federal benefits 2.64 2.50 2.70
Difference between foreign
and federal income tax rates 1.25 (.30)
Nondeductible
restructuring charges 9.60
Other-Net (.89) .70 (.30)
- -----------------------------------------------------------------------------------
Effective Tax Rate 47.60% 37.90% 37.40%
===================================================================================
The components of earnings before income taxes consisted of the following:
(MILLIONS OF DOLLARS) 1995 1994 1993
===================================================================================
United States $ 78.5 $159.4 $110.5
Foreign 34.3 42.4 37.5
- -----------------------------------------------------------------------------------
Total pre-tax earnings $112.8 $201.8 $148.0
===================================================================================
Undistributed foreign earnings of approximately $183 million at December
30, 1995 are considered to be invested indefinitely or will be remitted
substantially free of additional tax. Accordingly, no provision has been
made for taxes that might be payable upon remittance of such earnings,
nor is it practicable to determine the amount of this liability.
(O) LEASES
The company leases certain facilities, vehicles, machinery and equipment
under long-term operating leases with varying terms and expiration dates.
Future minimum lease payments under noncancelable operating leases, in
millions of dollars, as of December 30, 1995 were $37.6 in 1996, $28.3 in 1997,
$21.6 in 1998, $14.5 in 1999, $10.0 in 2000 and $14.4 thereafter. Minimum
payments have not been reduced by minimum sublease rentals of $28.4 million due
in the future under noncancelable subleases. Rental expense for operating leases
amounted to $40.3 million in 1995, $38.1 million in 1994 and $35.0 million in
1993.
Stanley 35
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(P) CONTINGENCIES
In the normal course of business, the company is involved in various law-suits
and claims. In addition, the company is a party to a number of proceedings
before federal and state regulatory agencies relating to environmental
remediation. Also, the company, along with many other companies, has been named
as a potentially responsible party (PRP) in a number of administrative
proceedings for the remediation of various waste sites, including nine Superfund
sites. Current laws potentially impose joint and several liability upon each
PRP. In assessing its potential liability at these sites, the company has
considered the following: the solvency of the other PRPs, whether responsibility
is being disputed, the terms of existing agreements, experience at similar
sites, and the fact that the company's volumetric contribution at these sites is
relatively small.
The company's policy is to accrue environmental investigatory and
remediation costs for identified sites when it is probable that a liability has
been incurred and the amount of loss can be reasonably estimated. The amount of
liability recorded is based on an evaluation of currently available facts with
respect to each individual site and includes such factors as existing
technology, presently enacted laws and regulations, and prior experience in
remediation of contaminated sites. The liabilities recorded do not take into
account any claims for recoveries from insurance or third parties. As
assessments and remediation progress at individual sites, the amounts recorded
are reviewed periodically and adjusted to reflect additional technical and legal
information which becomes available. As of December 30, 1995, the company had
reserves of $24 million, primarily for remediation activities associated with
company-owned properties as well as for Superfund sites.
The amount recorded for identified contingent liabilities is based on
estimates. Amounts recorded are reviewed periodically and adjusted to reflect
additional technical and legal information which becomes available. Actual costs
to be incurred in future periods may vary from the estimates, given the inherent
uncertainties in evaluating certain exposures. Subject to the imprecision in
estimating future contingent liability costs, the company does not expect that
any sum it may have to pay in connection with these matters in excess of the
amounts recorded will have a materially adverse effect on its financial
position, results of operations or liquidity.
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) QUARTER YEAR
====================================================================================================================
1995 First Second Third Fourth
- --------------------------------------------------------------------------------------------------------------------
Net Sales $643.3 $655.5 $655.7 $669.8 $2,624.3
Gross profit 205.7 211.9 207.7 209.3 834.6
Selling, general and administrative
expenses 147.3 148.6 148.0 147.8 591.7
Restructuring and asset write-offs - - 41.5 44.0 85.5
Net Earnings (Loss) 28.7 31.5 (1.7) .6 59.1
Net Earnings (Loss) Per Share $.65 $.71 $(.04) $.01 $1.33
- --------------------------------------------------------------------------------------------------------------------
1994
- --------------------------------------------------------------------------------------------------------------------
Net Sales $585.7 $628.8 $632.6 $663.8 $2,510.9
Gross profit 191.3 210.2 206.9 218.5 826.9
Selling, general and administrative
expenses 133.8 139.4 139.5 147.7 560.4
Net Earnings 25.6 33.7 32.2 33.8 125.3
Net Earnings Per Share $.57 $.75 $.72 $.76 $2.80
====================================================================================================================
Note: The third quarter of 1995 includes charges for restructuring of $41.5
million, or $.71 per share, and other related non-recurring charges of $2.6
million, or $.04 per share. The fourth quarter of 1995 includes charges for
restructuring and asset write-offs of $44.0 million, or $.73 per share, and
other related non-recurring charges of $6.9 million, or $.09 per share.
The design of the Powerlock(R) tape
rule case, Contractor Grade(TM), and
Sharpshooter(TM) are trademarks of
The Stanley Works.
36 Stanley
24
AN IMPORTANT CHANGE FOR SHAREHOLDERS IN 1996...MORE TIMELY RELEASE OF
QUARTERLY INFORMATION
Beginning with First Quarter results for 1996, The Stanley Works will make
quarterly news releases available on-line on the Internet - on the day that
results are released to the news media, Stanley releases will be found at the
following address on the World Wide Web:
http://www.prnewswire.com Click on "Company News On-Call"
Stanley shareholders will also be able to call toll-free 1-800-499-9202 to
request a copy of the most recent quarterly news release.
These enhancements to our quarterly communications are designed to replace
traditional printed quarterly reports and provide shareholders with information
faster and more efficiently. For your records, results are scheduled for
release in 1996 on the following dates:
First Quarter - April 17, 1996
Second Quarter - July 17, 1996
Third Quarter - October 16, 1996
INVESTOR INFORMATION
The Stanley Works has provided excellent, long-term value for shareholders.
Without ever jeopardizing our strong balance sheet and without sacrificing our
ability to invest in new technologies and new growth opportunities for our
company, we have maintained an impressive and truly unique dividend record over
the long haul:
- - Our record of annual dividend payments is unmatched by any industrial
company listed on the New York Stock Exchange - 119 CONSECUTIVE YEARS.
- - Our quarterly dividend record is the longest of any industrial company
listed on the New York Stock Exchange - 403 CONSECUTIVE QUARTERS.
- - We have increased dividends in each of the past 29 YEARS, and in that same
period, an investment in Stanley stock grew at a compound annual rate of
13.0%.
Common Stock (Dollars per Share)
Price Dividends
------------------------------------ -------------
1995 1994 1995 1994
--------------- ---------------- ---- ----
High Low High Low
First Quarter 41 5/8 35 5/8 44 7/8 38 5/8 $.35 $.34
Second Quarter 41 7/8 36 5/8 42 5/8 36 1/4 .35 .34
Third Quarter 46 5/8 37 1/4 43 7/8 38 1/2 .36 .35
Fourth Quarter 53 3/8 43 41 3/4 34 7/8 .36 .35
$1.42 $1.38
ANNUAL MEETING
The annual shareholders' meeting of The Stanley Works will be held at 9:30 a.m.
on Wednesday, April 17, 1996, in New Britain, Connecticut at the Stanley
Center, 1255 Corbin Avenue.
STOCK LISTING
The Stanley Works is listed on the New York and Pacific Stock Exchanges with
the symbol SWK.
INCREASED DIVIDENDS EVERY YEAR SINCE 1968
[Graph showing dividends paid by the Company each year from 1968 to 1995]
TRANSFER AGENT AND REGISTRAR
All shareholder inquiries, including transfer-related matters, should be
directed to:
Boston EquiServe, Servicing Agent for
State Street Bank and Trust Company
P.O. Box 8200
Boston, MA 02266-8200
1-800-426-5523
FOR MORE INFORMATION
If you would like a copy of Form 10-K filed with the Securities and Exchange
Commission, or additional information about Stanley, please write:
Richard Huck, Vice President, Finance
and Chief Financial Officer
The Stanley Works
1000 Stanley Drive
New Britain, CT 06053