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 June 30, 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: shares of the company's Common
Stock ($2.50 par value) were outstanding 84,726,261 as of August 10, 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)
Second Quarter Six Months
2001 2000 2001 2000
------- ------- --------- ---------
Net sales $ 676.5 $ 702.8 $ 1,302.7 $ 1,398.2
Costs and expenses
Cost of sales 437.3 447.1 835.8 885.1
Selling, general and
administrative 151.0 168.1 304.5 340.0
Interest - net 7.5 7.2 14.1 13.7
Other - net 5.0 3.7 (16.1) 9.7
Restructuring charge - - 18.3 -
------- ------- --------- ---------
600.8 626.1 1,156.6 1,248.5
------- ------- --------- ---------
Earnings before
income taxes 75.7 76.7 146.1 149.7
Income taxes 25.0 26.1 48.8 50.9
------- ------- --------- ---------
Net earnings $ 50.7 $ 50.6 $ 97.3 $ 98.8
======= ======= ========= =========
Net earnings per
share of common stock
Basic $ 0.59 $ 0.58 $ 1.13 $ 1.12
======= ======= ========= =========
Diluted $ 0.58 $ 0.58 $ 1.12 $ 1.12
======= ======= ========= =========
Dividends per share $ 0.23 $ 0.22 $ 0.46 $ 0.44
======= ======= ========= =========
Average shares outstanding
(in thousands)
Basic 85,838 87,614 85,856 88,293
======= ======= ========= =========
Diluted 87,517 87,827 87,293 88,526
======= ======= ========= =========
See notes to consolidated financial statements.
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THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED, MILLIONS OF DOLLARS)
June 30 December 30
2001 2000
-------- --------
ASSETS
Current assets
Cash and cash equivalents $ 162.2 $ 93.6
Accounts and notes receivable 538.0 531.9
Inventories 439.2 398.1
Other current assets 79.8 70.7
-------- --------
Total current assets 1,219.2 1,094.3
Property, plant and equipment 1,240.0 1,232.2
Less: accumulated depreciation (739.6) (728.5)
-------- --------
500.4 503.7
Goodwill and other intangibles 234.8 175.9
Other assets 152.2 110.9
-------- --------
$ 2,106.6 $ 1,884.8
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities
Short-term borrowings $ 395.4 $ 207.6
Current maturities of long-term debt 6.2 6.1
Accounts payable 237.0 239.8
Accrued expenses 247.6 253.8
-------- --------
Total current liabilities 886.2 707.3
Long-term debt 234.3 248.7
Other liabilities 188.7 192.3
Shareowners' equity
Common stock 230.9 230.9
Retained earnings 1,130.8 1,039.6
Accumulated other comprehensive loss (141.2) (124.5)
ESOP debt (191.3) (194.8)
-------- --------
1,029.2 951.2
Less: cost of common stock in treasury 231.8 214.7
-------- --------
Total shareowners' equity 797.4 736.5
-------- --------
$ 2,106.6 $ 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)
Second Quarter Six Months
2001 2000 2001 2000
------ ------ ------ ------
Operating activities
Net earnings $ 50.7 $ 50.6 $ 97.3 $ 98.8
Depreciation and amortization 19.9 20.4 42.2 44.1
Restructuring charges - - 18.3 -
Other non-cash items 6.8 (0.1) (23.6) 7.1
Changes in operating assets
and liabilities (21.4) (20.5) (99.4) (102.1)
------ ------ ------ ------
Net cash provided by
operating activities 56.0 50.4 34.8 47.9
Investing activities
Capital expenditures (13.1) (12.0) (26.4) (27.4)
Capitalized software (7.0) (0.8) (9.6) (1.4)
Proceeds from sales of assets 1.2 2.8 1.2 3.5
Business acquisitions (79.3) - (79.3) -
Other (1.6) (7.9) (3.5) (11.4)
------ ------ ------ ------
Net cash used in
investing activities (99.8) (17.9) (117.6) (36.7)
Financing activities
Payments on long-term borrowings (2.3) (28.9) (2.3) (32.6)
Net short-term borrowings 116.8 4.6 189.5 136.2
Proceeds from issuance of common stock 6.0 2.2 11.2 3.2
Purchase of common stock for treasury (0.1) (34.4) (0.2) (79.4)
Cash dividends on common stock (19.6) (19.2) (39.3) (38.7)
------ ------ ------ ------
Net cash provided by (used in)
financing activities 100.8 (75.7) 158.9 (11.3)
Effect of exchange rate changes on cash (6.2) (2.7) (7.5) (4.9)
------ ------ ------ ------
Increase (decrease) in cash and
cash equivalents 50.8 (45.9) 68.6 (5.0)
Cash and cash equivalents,
beginning of period 111.4 128.9 93.6 88.0
------ ------ ------ ------
Cash and cash equivalents,
end of second quarter $162.2 $ 83.0 $162.2 $ 83.0
====== ====== ====== ======
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 97.3
Foreign currency
translation (16.7)
Total comprehensive
income 80.6
Cash dividends
declared (39.3) (39.3)
Net common stock
activity 30.8 (17.1) 13.7
Tax benefit related
to stock options 1.1 1.1
ESOP debt 3.5 3.5
ESOP tax benefit 1.3 1.3
---------------------------------------------------------
Balance June 30, 2001 $230.9 $1,130.8 $(141.2) $(191.3) $(231.8) $ 797.4
=========================================================
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 98.8
Foreign currency
translation (17.5)
Total comprehensive
income 81.3
Cash dividends
declared (38.7) (38.7)
Net common stock
activity (14.7) (63.3) (78.0)
Tax benefit related
to stock options 0.1 0.1
ESOP debt 3.7 3.7
ESOP tax benefit 0.6 0.6
---------------------------------------------------------
Balance July 1, 2000 $230.9 $973.0 $(116.7) $(198.5) $(184.3) $704.4
=========================================================
See notes to consolidated financial statements.
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THE STANLEY WORKS AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(UNAUDITED, MILLIONS OF DOLLARS)
Second Quarter Six Months
2001 2000 2001 2000
------- ------- --------- ---------
INDUSTRY SEGMENTS
Net sales
Tools $ 524.9 $ 547.5 $ 1,016.3 $ 1,091.2
Doors 151.6 155.3 286.4 307.0
------- ------- --------- ---------
Consolidated $ 676.5 $ 702.8 $ 1,302.7 $ 1,398.2
======= ======= ========= =========
Operating profit
Tools $ 73.7 $ 76.4 $ 136.4 $ 150.5
Doors 14.5 11.2 26.0 22.6
------- ------- --------- ---------
88.2 87.6 162.4 173.1
Restructuring charge - - (18.3) -
Interest-net (7.5) (7.2) (14.1) (13.7)
Other-net (5.0) (3.7) 16.1 (9.7)
------- ------- --------- ----------
Earnings before
income taxes $ 75.7 $ 76.7 $ 146.1 $ 149.7
======= ======= ========= ==========
GEOGRAPHIC NET SALES
Americas $ 538.8 $ 562.9 $ 1,015.3 $ 1,111.3
Europe 113.9 113.9 239.3 237.0
Asia 23.8 26.0 48.1 49.9
------- ------- --------- ----------
Consolidated $ 676.5 $ 702.8 $ 1,302.7 $ 1,398.2
======= ======= ========= ==========
See notes to consolidated financial statements.
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THE STANLEY WORKS AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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.
Second Quarter Six Months
2001 2000 2001 2000
---------- ---------- ---------- ----------
Net earnings -
basic and diluted $ 50.7 $ 50.6 $ 97.3 $ 98.8
========== ========== ========== ==========
Basic earnings per share -
weighted average shares 85,838,839 87,613,634 85,855,588 88,292,523
Dilutive effect of
employee stock options 1,678,487 213,273 1,437,848 233,508
---------- ---------- ----------- ----------
Diluted earnings per share -
weighted average shares 87,517,326 87,826,907 87,293,436 88,526,031
========== ========== =========== ==========
NOTE C - INVENTORIES
The components of inventories at the end of the second quarter of 2001 and at
year-end 2000, in millions of dollars, are as follows:
June 30 December 30
2001 2000
------ ------
Finished products $ 312.7 $ 281.4
Work in process 60.0 53.8
Raw materials 66.5 62.9
------ ------
$ 439.2 $ 398.1
====== ======
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NOTE D - OTHER-NET
Other-net for the six months ended June 30, 2001 includes a pre-tax nonrecurring
pension curtailment gain that occurred in the first quarter of $29.3 million, or
$0.22 per share, net of taxes. This gain was recorded in accordance with SFAS
No. 88 "Employers' Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits".
NOTE E - CONTACT EAST ACQUISITION
During the second quarter of 2001, the Company completed the acquisition of
Contact East, a leading business to business distributor of mission critical
tools and supplies for assembling, testing and repairing electronics in the
United States, at a total cost of $79.3 million.
The transaction was accounted for using the purchase method of accounting.
Results of operations of Contact East have been included in the Company's
consolidated financial statements from the date of purchase. Pro forma amounts
are not presented because the impact on the Company's results are not material.
The Company is currently in the process of finalizing the purchase accounting
related to the Contact East acquisition, specifically the allocation of
intangible assets in relation to the purchase price. The Company does not expect
material differences to its consolidated balance sheet and consolidated
statement of operations as a result of any final adjustments.
NOTE F - NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("SFAS") No.'s 141, "Business
Combinations" and 142, "Goodwill and Other Intangibles". FASB 141 requires all
business combinations initiated after June 30, 2001 to be accounted for using
the purchase method. Under FASB 142, goodwill is no longer amortized over its
estimated useful life but is subject to at least an annual assessment for
impairment applying a fair-value based test. Additionally, an acquired
intangible asset should be separately recognized if the benefit of the
intangible asset is obtained through contractual or other legal rights or if the
intangible asset can be sold, transferred, licensed, rented or exchanged,
regardless of the acquirer's intent to do so. The statements are effective for
the company's fiscal year 2002 and the company is in the process of determining
the impact of these pronouncements on its financial position and results of
operations.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS Net sales were $677 million for the second quarter of
2001, representing a decrease of 4% from the $703 million reported for the same
quarter in the prior year. The decrease was primarily a result of unit volume in
the industrial channel within the Tools segment. Unfavorable pricing of 1.5% and
unfavorable foreign currency devaluation of 1.5% generated the remainder of the
quarterly decline in net sales. This decline was offset by the favorable impact
generated by the acquisition of Contact East that increased sales by 2% in the
second quarter of 2001 versus the same quarter in the prior year. Net sales were
$1,303 million for the six months ended June 30, 2001 as compared to $1,398 for
the six months ended July 1, 2000, representing a decrease of 7%. The year to
date decrease was driven by a unit volume decrease of 5%. This unfavorable
volume was a result of a weak market in the Tools segment, specifically the
consumer and industrial channels in the Americas. The Mac Tools repositioning
initiatives accounted for a substantial portion of the Tools segment volume
decline. Unfavorable pricing and foreign currency was consistent with that of
the second quarter percentages of 1.5%.
The Company reported gross profit of $239 million, or 35.4% of net sales for the
second quarter of 2001 as compared to $256 million, or 36.4% of net sales for
the second quarter of 2000. This represents a decrease in gross profit of $17
million, or 7%, and in gross margin (gross profit as a % of sales) by 100 basis
points. The decline in gross margin is due to a shift in product mix to the
retail channels as solid productivity gains were not adequate to offset this
unfavorable shift. Gross profit for the six months ended June 30, 2001 totaled
$467 million, or 35.8% of net sales compared to $513 million, or 36.7 %, for the
six months ended July 1, 2000. Excluding the impact of $6 million of special
charges (primarily one-time business repositioning actions) that were incurred
in the first quarter of 2001, year to date gross profit for 2001 declined $40
million, or 8%, from the prior year. In addition, gross margin declined 40 basis
points from 36.7% to 36.3%. The drivers for the year to date gross profit and
gross margin declines were consistent with those of the quarterly period.
Selling, general and administrative ("S,G&A") expenses were $151 million, as
compared with $168 million, for the 2000 second quarter, representing a decrease
of $17 million, or 10%. As a percentage of net sales, S,G&A expenses were 22.3%
for the 2001 second quarter as compared with 23.9% for the second quarter of
2000, an improvement of 160 basis points. S,G&A expenses were $305 million for
the first six months of 2001 as compared to $340 million for the same period in
2000. Excluding the impact of $3 million of one-time business repositioning
charges that were incurred in the first quarter of 2001, year to date S,G&A
expenses were $38 million, or 11%, below year to date 2000 levels. Excluding
these special charges, S,G&A expenses as a percentage of net sales improved 120
basis points from 24.3% for the first six months of 2000 to 23.1% for the same
period in 2001. Improvements in S,G&A expenses are attributable to cost
reductions achieved from changes made within the information management and
administrative infrastructure, downward adjustments to employment levels in
response to weak economic markets and the benefits attained from the Company's
restructuring and supplier management efforts.
Interest-net for the 2001 second quarter and year to date was relatively flat as
compared to the amounts reported for the comparable periods in 2000. This was a
result of an increase in interest expense due to increased debt balances almost
entirely offset by a decrease in interest expense from lower rates.
-8-
Other-net for the six months ended June 30, 2001 includes the gain recorded in
conjunction with the Company's curtailment of U.S. pension plans, totaling $29
million.
The Company's income tax rates for the second quarter and the six months ended
June 30, 2001 were 33.0% and 33.4%, respectively, of pre-tax income. The
Company's income tax rate for the second quarter and six months ended July 1,
2000 was 34% for each period. These tax rate decreases reflect the continued
benefit of structural changes implemented within the Company's tax structure.
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 declined in the second quarter from $548 million in 2000 to $525
million in 2001, a decrease of 4%. For the first six months, Tools sales were
down almost 7% from $1,091 million in 2000 to $1,016 million 2001. The decrease
in sales for the Tools segment for both the quarter and year to date is
primarily the result of unit volume declines caused by the Mac Tools
repositioning in the first quarter of 2001 and weak industrial markets in North
America. Lower sales were also a result of weakening currencies, primarily in
Europe. Despite weaker sales, Tools operating profit as a percentage of net
sales remained stable for the 2001 second quarter when compared to the 2000
second quarter at 14%. Excluding the effect of one-time charges incurred in the
first quarter of 2001 totaling approximately $11 million, Tools operating profit
for the six months ended June 30, 2001 was 14.5% of sales as compared to 13.8%
for the same period in 2000.
Doors sales were $152 million in the second quarter of 2001 as compared to $155
million in the second quarter of 2000 and $286 million in the first six months
of 2001 versus $307 million for the same period in 2000. The decline in sales
for the Doors segment for the quarterly period and year to date is also a result
of a sluggish market in the Americas and weakening European currencies.
Operating profit for Doors totaled 9.6% of net sales in the second quarter of
2001 as compared to 7.2% for the second quarter of 2000 and was 9.1% of total
net sales for the six months ended June 30, 2001 as compared to 7.4% for the six
months ended July 1, 2001.
The improvements in operating profit, as a percentage of sales, for both
segments are attributable to improved productivity and the continued reduction
of selling, general and administrative expenses.
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.
The Company also recorded additional restructuring reserves of $18 million
during the first quarter of 2001 for new initiatives pertaining to the further
reduction of its cost structure and executed several business repositionings
intended to improve its competitiveness, primarily for severence-related
obligations. These actions have resulted in a net employment reduction of
approximately 800 people and the closure of five facilities.
For the first six months of 2001, The Company charged $21 million against these
reserves; $16 million for severance and $5 million for asset write-off's and
other exit costs.
-9-
FINANCIAL CONDITION
LIQUIDITY AND SOURCES OF CAPITAL
For the quarter ended June 30, 2001, cash flows from operations of $56 million
improved 11% as compared to the $50 million generated in the quarter ended July
1, 2000. The improvement was a result of an increase in non-cash expenses, as
net income, depreciation and amortization and the change in operating assets and
liabilities remained consistent year over year.
-10-
PART II OTHER INFORMATION
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
The Company's Annual Meeting was held on April 18, 2001.
(i) The following directors were elected:
Shares Voted Shares
For Withheld Non-Votes
John G. Breen 63,657,692 3,939,688 0
John D. Opie 61,111,158 6,486,222 0
Hugo E. Uyterhoeven 63,376,301 4,221,079 0
(ii) Ernst & Young LLP was approved as the Company's independent auditors by
the following vote:
FOR 65,569,695 AGAINST 1,550,946
ABSTAIN 476,739 NOT VOTED 0
(iii) The 2001 Long-Term Incentive Plan was approved by the following vote:
FOR 39,541,995 AGAINST 16,920,796
ABSTAIN 1,342,772 NOT VOTED 9,791,817
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
None.
(B) REPORTS ON FORM 8-K.
(1) Company filed a Current Report on Form 8-K, dated April 18, 2001,
in respect of the Company's press release announcing first quarter
2001 results.
-11-
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: August 14, 2001 By: James M. Loree
James M. Loree
Vice President, Finance and
Chief Financial Officer
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