UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 2001.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from [ ] to [ ]
Commission file number 1-5224
THE STANLEY WORKS
(Exact name of registrant as specified in its charter)
CONNECTICUT 06-0548860
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1000 Stanley Drive
New Britain, Connecticut 06053
(Address of principal executive offices) (Zip Code)
(860) 225-5111
(Registrant's telephone number)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 85,368,097 shares of the
company's Common Stock ($2.50 par value) were outstanding as of May 11, 2001.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, MILLIONS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
First Quarter
2001 2000
------- -------
Net Sales $ 626.2 $ 695.4
Costs and Expenses
Cost of sales 398.5 438.0
Selling, general and
administrative 153.5 171.9
Interest - net 6.6 6.5
Other - net (21.1) 6.0
Restructuring charge 18.3 -
------- -------
555.8 622.4
------- -------
Earnings before
income taxes 70.4 73.0
Income Taxes 23.8 24.8
------- -------
Net Earnings $ 46.6 $ 48.2
======= =======
Net Earnings Per
Share of Common Stock
Basic $ 0.54 $ 0.54
======= =======
Diluted $ 0.54 $ 0.54
======= =======
Dividends per share $ 0.23 $ 0.22
======= =======
Average shares outstanding
(in thousands)
Basic 85,897 88,936
======= =======
Diluted 87,113 89,158
======= =======
See notes to consolidated financial statements.
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THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED, MILLIONS OF DOLLARS)
March 31 December 30
2001 2000
-------- --------
ASSETS
Current Assets
Cash and cash equivalents $ 111.4 $ 93.6
Accounts and notes receivable 530.0 531.9
Inventories 417.6 398.1
Other current assets 78.1 70.7
-------- --------
Total Current Assets 1,137.1 1,094.3
Property, plant and equipment 1,236.0 1,232.2
Less: accumulated depreciation (739.2) (728.5)
-------- --------
496.8 503.7
Goodwill and other intangibles 170.6 175.9
Other assets 148.9 110.9
-------- --------
$ 1,953.4 $ 1,884.8
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities
Short-term borrowings $ 279.6 $ 207.6
Current maturities of long-term debt 6.1 6.1
Accounts payable 232.5 239.8
Accrued expenses 248.2 253.8
-------- --------
Total Current Liabilities 766.4 707.3
Long-Term Debt 240.4 248.7
Other Liabilities 187.5 192.3
Shareowners' Equity
Common stock 230.9 230.9
Retained earnings 1,069.5 1,039.6
Accumulated other comprehensive loss (137.2) (124.5)
ESOP debt (193.0) (194.8)
-------- --------
970.2 951.2
Less: cost of common stock in treasury 211.1 214.7
-------- --------
Total Shareowners' Equity 759.1 736.5
-------- --------
$ 1,953.4 $ 1,884.8
======== ========
See notes to consolidated financial statements.
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THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, MILLIONS OF DOLLARS)
First Quarter
2001 2000
------ ------
Operating Activities
Net earnings $ 46.6 $ 48.2
Depreciation and amortization 22.3 23.7
Restructuring charge 18.3 -
Other non-cash items (30.4) 7.2
Changes in working capital (46.0) (61.6)
Changes in other operating
assets and liabilities (32.0) (20.0)
------ ------
Net cash used by
operating activities (21.2) (2.5)
Investing Activities
Capital expenditures (13.3) (15.4)
Capitalized software (2.6) (0.6)
Other (1.9) (2.8)
------ ------
Net cash used by
investing activities (17.8) (18.8)
Financing Activities
Payments on long-term borrowings - (3.7)
Net short-term borrowings 72.7 131.6
Proceeds from issuance of common stock 5.2 1.0
Purchase of common stock for treasury (0.1) (45.0)
Cash dividends on common stock (19.7) (19.5)
------ ------
Net cash provided by
financing activities 58.1 64.4
Effect of Exchange Rate Changes on Cash (1.3) (2.2)
------ ------
Increase in Cash and Cash
Equivalents 17.8 40.9
Cash and Cash Equivalents,
Beginning of Period 93.6 88.0
------ ------
Cash and Cash Equivalents,
End of First Quarter $111.4 $128.9
====== ======
See notes to consolidated financial statements.
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THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREOWNERS' EQUITY
(UNAUDITED, MILLIONS OF DOLLARS)
Accumulated
Other Compre-
hensive Total
Common Retained Income ESOP Treasury Shareowners'
Stock Earnings (Loss) Debt Stock Equity
---------------------------------------------------------
Balance Dec 30, 2000 $230.9 $1,039.6 $(124.5) $(194.8) $(214.7) $736.5
Comprehensive income:
Net earnings 46.6
Foreign currency
translation & other (12.7)
Total comprehensive
income 33.9
Cash dividends
declared (19.7) (19.7)
Net common stock
activity 2.2 3.6 5.8
ESOP debt 1.8 1.8
ESOP & stock option
tax benefit 0.8 0.8
---------------------------------------------------------
Balance Mar 31, 2001 $230.9 $1,069.5 $(137.2) $(193.0) $(211.1) $759.1
=========================================================
Accumulated
Other Compre-
hensive Total
Common Retained Income ESOP Treasury Shareowners'
Stock Earnings (Loss) Debt Stock Equity
---------------------------------------------------------
Balance Jan 1, 2000 $230.9 $926.9 $(99.2) $(202.2) $(121.0) $735.4
Comprehensive income:
Net earnings 48.2
Foreign currency
translation (4.4)
Total comprehensive
income 43.8
Cash dividends
declared (19.5) (19.5)
Net common stock
activity (18.0) (29.8) (47.8)
ESOP debt 1.8 1.8
ESOP & stock option
tax benefit 0.6 0.6
---------------------------------------------------------
Balance Apr. 1, 2000 $230.9 $938.2 $(103.6) $(200.4) $(150.8) $714.3
=========================================================
See notes to consolidated financial statements.
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THE STANLEY WORKS AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(UNAUDITED, MILLIONS OF DOLLARS)
First Quarter
2001 2000
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INDUSTRY SEGMENTS
Net Sales
Tools $ 491.4 $ 543.7
Doors 134.8 151.7
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Consolidated $ 626.2 $ 695.4
======= =======
Operating Profit
Tools $ 62.7 $ 74.1
Doors 11.5 11.4
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74.2 85.5
Restructuring charge 18.3 -
Interest-net 6.6 6.5
Other-net (21.1) 6.0
------- -------
Earnings Before
Income Taxes $ 70.4 $ 73.0
======= =======
GEOGRAPHIC NET SALES
Americas $ 476.4 $ 548.4
Europe 125.4 123.1
Asia 24.4 23.9
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Consolidated $ 626.2 $ 695.4
======= =======
See notes to consolidated financial statements.
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THE STANLEY WORKS AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial statements and with the instructions to Form 10-Q and Article 10 of
Regulation S-X and do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments considered necessary for a fair
presentation of the results of operations for the interim periods have been
included. For further information, refer to the consolidated financial
statements and footnotes included in the company's Annual Report on Form 10-K
for the year ended December 30, 2000.
NOTE B - EARNINGS PER SHARE COMPUTATION
The following table reconciles the weighted average shares outstanding used to
calculate basic and diluted earnings per share.
First Quarter
2001 2000
---------- ----------
Net earnings -
basic and diluted $ 46.6 $ 48.2
========== ==========
Basic earnings per share -
weighted average shares 85,897,217 88,936,115
Dilutive effect of
employee stock options 1,215,773 221,778
---------- ----------
Diluted earnings per share -
weighted average shares 87,112,990 89,157,893
========== ==========
NOTE C - INVENTORIES
The components of inventories at the end of the first quarter of 2001 and at
year-end 2000, in millions of dollars, are as follows:
March 31 December 30
2001 2000
------ ------
Finished products $ 292.6 $ 281.4
Work in process 60.1 53.8
Raw materials 64.9 62.9
------ ------
$ 417.6 $ 398.1
====== ======
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NOTE D - CASH FLOW INFORMATION
Interest paid during the first quarter of 2001 and 2000 amounted to $9.5 million
and $12.3 million, respectively.
Income taxes paid during the first quarter of 2001 and 2000 were $13.3 million
and $11.9 million, respectively.
NOTE E - OTHER-NET
Other-net in the first quarter of 2001 included a pre-tax non-recurring pension
curtailment gain of $29.3 million, or $0.22 per share.
NOTE F - RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities", as amended by SFAS Nos. 137 and
138 establishes standards for recognition and measurement of derivatives and
hedging activities. The company adopted the statement in the first quarter of
2001 and it did not have a material financial statement impact.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
In the first quarter, the company recorded a pre-tax, non-recurring $29 million,
or $.22 per fully diluted share, pension curtailment gain pertaining to the U.S.
plans in accordance with SFAS Statement No. 88 "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits". When obligations under the curtailed pension plan are
settled, within 1 to 2 years, the company expects a reversion of cash.
Also during the quarter, the company undertook new initiatives for reduction of
its cost structure and executed several business repositionings intended to
improve its competitiveness, including continuing movement of production,
permanent reduction of the overhead cost structure in its manufacturing system
and a series of initiatives at Mac Tools. As a result, the company recorded an
$18 million charge for new restructuring-related severance obligations. In
addition, the company incurred $11 million of one-time charges associated with
the aforementioned repositionings, primarily in the Tools segment.
The net difference between the one-time pension gain and the one-time
restructuring and other charges was negligible.
RESULTS OF OPERATIONS
Net sales were $626 million, a decrease of 10% from $695 million in the first
quarter last year, on weakness across consumer and industrial channels in the
Americas. Sales declined 7% from unit volume, 2% from foreign currency
translation and 1% from price. Over one-third of the volume decline occurred in
Mac Tools due to the repositioning initiatives. Weak U.S. and Canadian economies
and the continuation of inventory corrections at major U.S. retailers and
industrial customers caused the remaining volume decline. The reduction in sales
from foreign currency translation occurred in all businesses outside the U.S.,
however, the most significant decline was due to weaker European currencies.
The company reported gross profit of $228 million, or 36.4% of net sales in the
first quarter compared to 37.0% of net sales in 2000. Included in the cost of
sales in 2001 were $6 million of one-time business repositioning charges. Gross
profit, excluding these special credits and charges, was 37.3% for 2001, an
increase of 30 basis points over prior year. The negative impacts of price and
inflation pressure were more than offset by higher productivity from a variety
of sources.
The selling, general and administrative expenses reported by the company were
$153 million, or 24.5% of net sales, in the first quarter of 2001, compared to
$172 million, or 24.7% of net sales, in the prior year. Included in the
selling, general and administrative expenses were $3 million of one-time
business repositioning charges. Excluding these costs, selling, general and
administrative expenses decreased $22 million or 70 basis points below first
quarter 2000 levels and declined $4 million sequentially from the fourth quarter
of 2000. Resulting operating margin was 13.4%, up 110 basis points from 12.3%
last year. These decreases in selling, general and administrative expenses are
primarily the result of costs reductions achieved pertaining to information
management infrastructure and overall adjustments to employment levels in
anticipation of weak economic markets.
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Net interest expense of $7 million was relatively flat to first quarter 2000.
Other-net, excluding the $29 million pension curtailment gain offset by $2
million of one-time business repositioning charges, was $6 million, relatively
flat to the prior year.
The company's income tax rate, excluding the effect of special credits and
charges, was 33% in the first quarter this year compared to 34% in the prior
year, which reflects the continued benefit of structural changes.
Net earnings for the first quarter were $47 million, or $.54 per diluted share,
compared with the prior year's net income of $48 million, or $.54 per diluted
share.
BUSINESS SEGMENT RESULTS
The Tools segment includes carpenters, mechanics, pneumatic and hydraulic tools
as well as tool sets. The Doors segment includes commercial and residential
doors, both automatic and manual, as well as closet doors and systems, home
decor and door and consumer hardware. Segment eliminations are excluded.
Tools sales in the first quarter of 2001, excluding one-time charges, decreased
to $492 million, or 9% from the first quarter of 2000. The decrease was
primarily the result of unit volume declines caused by the business
repositionings, weak economies in North America, and weakening European
currencies. The Tools segment operating profit, excluding special credits and
charges, was 14.6% of net sales for the first quarter compared with 13.6% in the
same period last year. Doors segment sales decreased to $135 million, 11% below
2000's first quarter, due to unit volume declines caused by the weak economies
in North America. The Doors segment operating profit increased to 8.8% of net
sales in the first quarter compared with 7.5% of net sales in the same period
last year. The improvements in operating profit for both segments are
attributable to improved productivity and continued selling, general and
administrative expense reductions.
RESTRUCTURING
Restructuring reserves as of the beginning of 2001 were $19 million. These
reserves consisted of $13 million related to severance, $3 million related to
asset write-downs, and $3 million related to other exit costs. In the first
three months of 2001, severance of $7 million reduced these reserves to $12
million.
The company recorded additional restructuring reserves of $18 million during the
quarter for new initiatives pertaining to the further reduction of its cost
structure and executed several business repositionings intended to improve its
competitiveness, primarily for severance-related obligations of which $3 million
was expended by the end of the quarter. These actions are expected to result in
a net employment reduction of approximately 800 people and the closure of five
facilities.
FINANCIAL CONDITION
LIQUIDITY AND SOURCES OF CAPITAL
In the first quarter of 2001, the company's cash used for operating activities
increased from the prior year. The company used $21 million in operating cash
flow in the first quarter of 2001 compared to $2 million in the first quarter of
2000. Inventories increased $20 million during the first quarter of 2001, which
is comparable to the prior year increase of $10 million, as a result of normal
seasonal patterns.
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PART II OTHER INFORMATION
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
(1) See Exhibit Index on page 13.
(B) REPORTS ON FORM 8-K.
(1) Registrant filed a Current Report on Form 8-K, dated January
25, 2001, in respect of the Registrant's press release
announcing fourth quarter 2000 results and first quarter
2001 dividends and announcement of strategic alliance with
Wal-Mart Stores, Inc. to significantly expand Stanley tool
and toolbox offerings.
(2) Registrant filed a Current Report on Form 8-K, dated February
9, 2001, disclosing earnings guidance for the first quarter
and full year 2001 given at a presentation to analysts.
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Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE STANLEY WORKS
Date: May 16, 2001 By: James M. Loree
James M. Loree
Vice President, Finance and
Chief Financial Officer
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EXHIBIT INDEX
EXHIBIT LIST
(12) Computation of Ratio of Earnings to Fixed Charges
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