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EXHIBIT 99(i)
AUDITED FINANCIAL STATEMENTS
AND SUPPLEMENTAL SCHEDULES
THE STANLEY WORKS 401 (k) SAVINGS PLAN
YEARS ENDED DECEMBER 31, 1995 AND 1994
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THE STANLEY WORKS 401(k) SAVINGS PLAN
AUDITED FINANCIAL STATEMENTS
AND SUPPLEMENTAL SCHEDULES
YEARS ENDED DECEMBER 31, 1995 AND 1994
CONTENTS
Report of Independent Auditors 1
Audited Financial Statements
Statement of Financial Condition at December 31, 1995 2
Statement of Financial Condition at December 31, 1994 3
Statement of Income and Changes in Plan Equity for the
Year Ended December 31, 1995 4
Statement of Income and Changes in Plan Equity for the
Year Ended December 31, 1994 5
Notes to Financial Statements 6
Supplemental Schedules
Assets Held for Investment 12
Transactions or Series of Transactions in Excess of
5% of the Current Value of Plan Assets 13
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REPORT OF INDEPENDENT AUDITORS
Pension Committee of The Board of Directors
The Stanley Works
We have audited the accompanying statements of financial condition of The
Stanley Works 401(k) Savings Plan as of December 31, 1995 and 1994, and the
related statements of income and changes in plan equity for the years then
ended. These financial statements are the responsibility of the Plan'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 financial condition of the Plan at December 31, 1995
and 1994, and its income and changes in plan equity for the years then ended, in
conformity with generally accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedules of assets
held for investment as of December 31, 1995, and transactions or series of
transactions in excess of 5% of the current value of plan assets for the year
then ended, are presented for purposes of complying with the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974, and are not a required part of the
financial statements. The supplemental schedules have been subjected to the
auditing procedures applied in our audit of the 1995 financial statements and,
in our opinion, are fairly stated in all material respects in relation to the
1995 financial statements taken as a whole.
Ernst & Young LLP
Hartford, Connecticut
March 22, 1996
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THE STANLEY WORKS 401(k) SAVINGS PLAN
STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1995
STANLEY UNALLOCATED
STOCK LOAN STANLEY
FUND FUND STOCK FUND TOTAL
------------------ ------------------- ------------------- ------------------
ASSETS
Investments, at current market value:
The Stanley Works
Common Stock:
4,864,308 shares (cost
$140,995,052) $250,511,862 $250,511,862
5,831,063 shares (cost
$208,984,854) $300,299,745 300,299,745
Short-term investments 1,092,286 1,535,453 2,627,739
------------------ ------------------- ------------------
251,604,148 301,835,198 553,439,346
Dividends and interest receivable 1,762,357 568,340 2,330,697
Loans to participants $11,671,739 11,671,739
------------------ ------------------- ------------------- ------------------
$253,366,505 $11,671,739 $302,403,538 $567,441,782
================== =================== =================== ==================
LIABILITIES AND PLAN EQUITY
Liabilities:
Due to Retirement Plan for
Salaried Employees of The
Stanley Works $262,146 $ 262,146
Debt 244,296,925 244,296,925
------------------ ------------------- ------------------- ------------------
262,146 244,296,925 244,559,071
Plan equity 253,104,359 11,671,739 58,106,613 322,882,711
------------------ ------------------- ------------------- ------------------
$253,366,505 $11,671,739 $302,403,538 $567,441,782
================== =================== =================== ==================
See accompanying notes.
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THE STANLEY WORKS 401(k) SAVINGS PLAN
STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1994
STANLEY UNALLOCATED
STOCK LOAN STANLEY
FUND FUND STOCK FUND TOTAL
------------------ ------------------- ------------------- ------------------
ASSETS
Investments, at current market value:
The Stanley Works
Common Stock:
4,477,105 shares (cost
$123,673,967) $160,056,504 $160,056,504
6,200,196 shares (cost
$221,522,506) $221,657,007 221,657,007
Short-term investments 4,282,565 1,386 4,283,951
------------------ ------------------- ------------------
164,339,069 221,658,393 385,997,462
Dividends and interest receivable 1,573,695 2,192,646 3,766,341
Loans to participants $ 8,863,783 8,863,783
------------------ ------------------- ------------------- ------------------
$165,912,764 $ 8,863,783 $223,851,039 $398,627,586
================== =================== =================== ==================
LIABILITIES AND PLAN EQUITY
Liabilities:
Due to Retirement Plan for
Salaried Employees of The
Stanley works $ 159,553 $ 159,553
Debt $253,018,883 253,018,883
Deferred employer contributions 822,907 822,907
Other 150,082 150,082
------------------ ------------------- ------------------
1,132,542 253,018,883 254,151,425
Plan equity/(deficit) 164,780,222 $ 8,863,783 (29,167,844) 144,476,161
------------------ ------------------- ------------------- ------------------
$165,912,764 $ 8,863,783 $223,851,039 $398,627,586
================== =================== =================== ==================
See accompanying notes.
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THE STANLEY WORKS 401(k) SAVINGS PLAN
STATEMENT OF INCOME AND CHANGES IN PLAN EQUITY
YEAR ENDED DECEMBER 31, 1995
STANLEY UNALLOCATED
STOCK LOAN STANLEY
FUND FUND STOCK FUND TOTAL
---------------- ----------------- ------------------- ------------------
Investment income:
Dividends $ 6,727,064 $ 8,521,529 $ 15,248,593
Interest 97,704 $ 379,698 38,082 515,484
---------------- ----------------- ------------------- ------------------
6,824,768 379,698 8,559,611 15,764,077
Net realized and unrealized
appreciation in The Stanley
Works Common Stock 75,850,892 91,180,389 167,031,281
Contributions:
Employee 20,019,947 20,019,947
Employer 14,425,522 14,425,522
---------------- ------------------
34,445,469 34,445,469
Withdrawals:
Cash (15,517,219) (15,517,219)
The Stanley Works Common
Stock (4,627,524) (4,627,524)
---------------- ------------------
(20,144,743) (20,144,743)
Transfers to the Retirement Plan
for Salaried Employees of The
Stanley Works (102,594) (102,594)
Administrative expenses (51,639) (51,639)
Interest expense (18,535,301) (18,535,301)
Interfund transfers - net (8,498,016) 2,428,258 6,069,758 -
---------------- ----------------- ------------------- ------------------
Net increase 88,324,137 2,807,956 87,274,457 178,406,550
Plan equity/(deficit) at beginning of year 164,780,222 8,863,783 (29,167,844) 144,476,161
---------------- ----------------- ------------------- ------------------
Plan equity at end of year $ 253,104,359 $ 11,671,739 $ 58,106,613 $ 322,882,711
================ ================= =================== ==================
See accompanying notes.
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THE STANLEY WORKS 401(k) SAVINGS PLAN
STATEMENT OF INCOME AND CHANGES IN PLAN EQUITY
YEAR ENDED DECEMBER 31, 1994
STANLEY UNALLOCATED
STOCK LOAN STANLEY
FUND FUND STOCK FUND TOTAL
----------------- ------------------- ------------------- ------------------
Investment income:
Dividends $ 4,864,710 $ 7,270,720 $ 12,135,430
Interest 94,012 $ 386,968 49,083 530,063
----------------- ------------------- ------------------- ------------------
4,958,722 386,968 7,319,803 12,665,493
Net realized and unrealized
depreciation in The Stanley
Works Common Stock (32,663,095) (51,684,810) (84,347,905)
Contributions:
Employee 13,509,551 13,509,551
Employer 9,501,416 9,501,416
----------------- ------------------
23,010,967 23,010,967
Withdrawals:
Cash (10,884,570) (10,884,570)
The Stanley Works Common
Stock (5,150,919) (5,150,919)
----------------- ------------------
(16,035,489) (16,035,489)
Transfers from Savings Plan for
Hourly Paid Employees of The
Stanley Works - net 914,625 914,625
Merger of the Savings Plan for
Hourly Paid Employees of
The Stanley Works 47,986,494 3,661,748 592,742 52,240,984
Transfer from Monarch Mirror
Door, Inc. 324,081 6,824 330,905
Transfers to the Retirement Plan
for Salaried Employees of The
Stanley Works (332,808) (332,808)
Administrative expenses (111,805) (111,805)
Interest expense (17,314,382) (17,314,382)
Interfund transfers - net (4,912,769) (691,952) 5,604,721
----------------- ------------------- ------------------- ------------------
Net increase/(decrease) 23,138,923 3,363,588 (55,481,926) (28,979,415)
Plan equity at beginning of year 141,641,299 5,500,195 26,314,082 173,455,576
----------------- ------------------- ------------------- ------------------
Plan equity/(deficit) at end of year $ 164,780,222 $ 8,863,783 $ (29,167,844) $ 144,476,161
================= =================== =================== ==================
See accompanying notes.
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The Stanley Works 401(k) Savings Plan
Notes to Financial Statements
December 31, 1995
1. DESCRIPTION OF THE PLAN
The Stanley Works 401(k) Savings Plan (the "Savings Plan") operates as a
leveraged employee stock ownership plan, is designed to comply with the Internal
Revenue Code of 1986, as amended, and is subject to the applicable provisions of
the Employee Retirement Income Security Act of 1974, as amended. The Savings
Plan is a defined contribution plan for eligible United States salaried and
hourly paid employees of The Stanley Works (the "Company").
Effective October 1, 1994, the Savings Plan for Hourly Paid Employees of The
Stanley Works (the "Hourly Plan") was merged into the Salaried Plan and renamed
The Stanley Works 401(k) Savings Plan. The Savings Plan assumed all assets and
obligations of the Hourly Plan.
Each year, participants may contribute, through pre-tax payroll deductions,
generally up to 12% of their compensation, as defined in the Savings Plan
Agreement. Such contributions are matched by the Company in an amount equal to
50% of the participant's contribution up to a maximum of 3 1/2% of the
participant's compensation. Effective January 1, 1995 the Savings Plan was
amended to allow participants to contribute up to 15% of their compensation, as
defined.
Participant and Company contributions are invested in the Stanley Stock Fund
with a guarantee, which, if necessary, is satisfied by the Retirement Plan for
Salaried Employees of The Stanley Works or by the Pension Plan for Hourly Paid
Employees of The Stanley Works, that the investment return on such stock
acquired with employee contributions will not be less than an investment return
based on two-year U.S. Treasury notes.
Employees are fully vested as to amounts in their savings accounts attributable
to their own contributions and earnings thereon and amounts transferred from the
other qualified plans on their behalf. All participants are vested in 100% of
the value of the Company matching contributions made on their behalf after five
years of service, with no vesting in the matching contributions during the first
through fifth years of service.
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The Stanley Works 401(k) Savings Plan
Notes to Financial Statements (continued)
1. DESCRIPTION OF THE PLAN (CONTINUED)
The assets of the Savings Plan are held in trust by an independent corporate
trustee, State Street Bank and Trust Company (the "Trustee") pursuant to the
terms of a written Trust Agreement between the Trustee and the Company.
Benefits generally are distributed upon termination of employment. Normally, a
lump-sum distribution is made in cash or shares of the Company's Common Stock
(hereinafter referred to as Common Stock, Stanley Stock, or shares), at the
election of the participant, from the Stanley Stock Fund.
During active employment, subject to financial hardship rules, participants may
withdraw, in cash only, all or a portion of vested amounts in their accounts.
Participants may borrow from their savings account up to an aggregate amount
equal to the lesser of $50,000 or 50% of the value of their vested interest in
such accounts with a minimum loan of $1,000. The $50,000 loan amount limitation
is reduced by the participant's highest outstanding loan balance during the 12
months preceding the date the loan is made. Each loan is evidenced by a
negotiable promissory note bearing a rate of interest equal to the prime rate as
reported in The Wall Street Journal on the first business day of the month
immediately preceding the calendar quarter during which the loan was made, which
is payable, through payroll deductions, over a term of not more than five years.
Participants are allowed ten years to repay the loan if the proceeds are used to
purchase a principal residence. Only one loan per participant may be outstanding
at any time.
If a loan is outstanding at the time a distribution becomes payable to a
participant (or beneficiary), the distribution is made net of the loan
outstanding, and the distribution shall fully discharge the Savings Plan with
respect to the participant's account value attributable to the outstanding loan
balance.
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The Stanley Works 401(k) Savings Plan
Notes to Financial Statements (continued)
1. DESCRIPTION OF THE PLAN (CONTINUED)
The Savings Plan borrowed $95,000,000 in 1989 from a group of financial
institutions and $180,000,000 in 1991 from the Company (see Notes 3 and 4) to
acquire 2,934,044 and 4,848,484 shares, respectively, of Common Stock from the
Company's treasury and previously unissued shares. The shares purchased from the
proceeds of the loans were placed in the Unallocated Stanley Stock Fund (the
"Unallocated Fund"). Under the 1989 loan agreement, the Company guaranteed the
loan and is obligated to make annual contributions sufficient to enable the Plan
to repay the loan plus interest.
The Unallocated Fund makes monthly transfers of shares, in accordance with The
Savings Plan provisions, to the Stanley Stock Fund in return for proceeds
equivalent to the average fair market value of the shares for the month
subsequent to the last transfer. These proceeds, along with dividends received
on allocated and unallocated shares and additional employee and Company
contributions, if necessary, are used to make monthly payments of principal and
interest on the debt. As dividends on the allocated shares are applied to the
payment of debt service, a number of shares having a fair market value at least
equal to the amount of the dividends so applied are allocated to the savings
accounts of participants who would otherwise have received cash dividends. The
excess of unallocated dividends over the amount necessary for principal and
interest along with forfeitures of nonvested employee accounts are used to
reduce future Company matching contributions.
The fair market value of shares released from the Unallocated Fund pursuant to
loan repayments made during any year may exceed the total of employee
contributions and Company matching contributions for that year. If that occurs,
all participants who made contributions at any time during that year and who are
employed by the Company on the last day of that year receive, on a pro rata
basis, such excess value as an additional allocation of Stanley Stock for that
year.
Each participant is entitled to exercise voting rights attributable to the
shares allocated to their account. The Trustee is not permitted to vote
participant shares for which instructions have not been given by the
participant. Shares in the Unallocated Fund are voted by the Trustee in the same
proportion as allocated shares.
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The Stanley Works 401(k) Savings Plan
Notes to Financial Statements (continued)
1. DESCRIPTION OF THE PLAN (CONTINUED)
The Company reserves the right to terminate the Savings Plan at any time,
subject to its provisions. Upon such termination of the Savings Plan, the
interest of each participant in the trust fund will become vested and be
distributed to such participant or his or her beneficiary at the time prescribed
by the Savings Plan terms and the Internal Revenue Code.
The Savings Plan sponsor has engaged William Mercer, Inc., to maintain separate
accounts for each participant. Such accounts are credited with each
participant's contributions, the allocated portion of the Company's matching
contributions, related gains, losses and dividend income, and loan activity.
William Mercer, Inc. replaced The Wyatt Company effective October 1, 1994.
There were 11,358 and 9,111 participants (10,648 and 8,508 of whom were
active employees) in the plan as of December 31, 1995 and 1994, respectively, of
whom 2,616 and 2,234, respectively, had loans outstanding.
At December 31, 1995 and 1994, benefits payable to terminated vested
participants amounted to $6,801,190 and $2,008,532, respectively.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS
The Savings Plan investments consist primarily of shares of Stanley Stock.
Stanley Stock is traded on a national exchange and is valued at the last
reported sales price on the last business day of the plan year. Short-term
investments consist of short-term bank-administered trust funds which earn
interest daily at rates approximating U.S. Government securities; cost
approximates market value.
DIVIDEND INCOME
Dividend income is accrued on the ex-dividend date.
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The Stanley Works 401(k) Savings Plan
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GAINS OR LOSSES ON SALES OF INVESTMENTS
Gains or losses realized on the sales of investments are determined based on
average cost.
EXPENSES
Administrative expenses not paid by the Company are paid by the Savings Plan.
RECLASSIFICATIONS
Certain amounts in the 1994 financial statements have been reclassified to
conform to the 1995 presentation.
3. DEBT
Debt consisted of the following at December 31:
1995 1994
---- ----
Notes payable in monthly installments to 2001 with
interest at 7.71% $ 66,841,290 $ 74,777,497
Notes payable to the Company in monthly installments
to 2026 with interest at 8.3% 177,455,635 178,241,386
---------------- ------------
$ 244,296,925 $253,018,883
================ ============
The scheduled maturities of debt for the next five years are as follows:
1996--$9,496,000; 1997--$10,211,000; 1998--$11,067,000; 1999--$11,994,000;
and 2000--$13,000,000.
The notes payable to the Company are secured by shares held in the Unallocated
Stock Fund. The number of shares held as security is reduced as shares are
released to Stanley Stock Fund pursuant to principal and interest payments.
During the year, 134,833 shares were released and at December 31, 1995,
4,240,904 shares are pledged as security.
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The Stanley Works 401(k) Savings Plan
Notes to Financial Statements (continued)
3. DEBT (CONTINUED)
Payment of the Savings Plan's debt has been guaranteed by the Company. Should
the principal and interest due exceed the dividends paid on shares in the
Stanley Stock and Unallocated Stock Funds, and employee and Company matching
contributions, the Company is responsible for funding such shortfall.
4. TRANSACTIONS WITH PARTIES-IN-INTEREST
Fees paid during 1995 and 1994 for management and other services rendered by
parties-in-interest were based on customary and reasonable rates for such
services. The majority of such fees were paid by the Company. Fees incurred and
paid by the Savings Plan during 1995 and 1994 were $51,639 and $111,805,
respectively.
In 1991, the Savings Plan borrowed $180,000,000 from the Company, the proceeds
of which were used to purchase 4,848,484 shares of stock from the Company. The
Savings Plan made $14,297,365 and $15,263,135 of principal and interest payments
related to such debt in 1995 and 1994, respectively; at December 31, 1995,
$177,455,635 was outstanding on such debt.
5. INCOME TAX STATUS
The Internal Revenue Service has ruled that the Savings Plan and the trust
qualify under Sections 401(a) and 401(k) of the Internal Revenue Code (IRC) and
are therefore not subject to tax under present income tax law. Once qualified,
the Savings Plan is required to operate in accordance with the IRC to maintain
its qualification. The Pension Committee is not aware of any course of action or
series of events that have occurred that might adversely affect the Savings
Plan's qualified status.
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THE STANLEY WORKS 401(k) SAVINGS PLAN
ASSETS HELD FOR INVESTMENT
DECEMBER 31, 1995
IDENTITY OF ISSUE, DESCRIPTION OF INVESTMENT,
BORROWER, INCLUDING MATURITY DATE,
OR SIMILAR PARTY RATE OF INTEREST, PAR OR MATURITY VALUE COST CURRENT VALUE
- --------------------------------------- --------------------------------------------- --------------------- --------------------
Common Stock:
The Stanley Works* 10,695,371 shares of Common Stock; par
value $2.50 per share $349,979,906 $550,811,607
Trust Funds:
State Street Bank and
Trust Short-Term Investment Fund-
Company* United States Government
(GSTIF) securities 1,092,286 1,092,286
State Street Bank and
Trust Company* (STIF) Short-Term Investment Fund-
Pooled Bank Fund 1,535,453 1,535,453
Loans to participants Promissory notes at prime rate
with maturities of five years or
ten years 11,671,739 11,671,739
--------------------- --------------------
Total Investments $385,605,916 $565,111,085
===================== ====================
* Indicates party-in-interest to the Plan.
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THE STANLEY WORKS 401(k) SAVINGS PLAN
TRANSACTIONS OR SERIES OF TRANSACTIONS IN EXCESS OF 5% OF THE CURRENT VALUE
OF PLAN ASSETS
YEAR ENDED DECEMBER 31, 1995
CURRENT VALUE
OF ASSET ON
IDENTITY OF PURCHASE DESCRIPTION SELLING COST OF TRANSACTION NET GAIN
PARTY INVOLVED OF ASSETS PRICE ASSET DATE (LOSS)
- ------------------------ ---------------------------------- ------------------- --------------- ---------------- -----------
Category (iii) - Series of transactions in excess of 5 percent of plan
assets
- -----------------------------------------------------------------------------
State Street Bank and Short-Term Investment Fund-
Trust Company* United States Government
Securities $23,907,016 $23,907,016
State Street Bank and Short-Term Investment Fund-
Trust Company* United States Government
Securities $26,771,147 $26,771,147
There were no category (i), (ii) or (iv) reportable transactions during
1995.
* Indicates party-in-interest to the Plan.
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