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 September 29, 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 85.353,211 as of November 5, 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)
Third Quarter Nine Months
2001 2000 2001 2000
------- ------- --------- ---------
Net sales $ 676.1 $ 684.4 $ 1,978.8 $ 2,082.6
Costs and expenses
Cost of sales 436.8 439.4 1,272.6 1,324.5
Selling, general and
administrative 152.1 162.2 456.6 502.2
Interest - net 6.7 7.2 20.8 20.9
Other - net 3.9 1.8 (12.2) 11.5
Restructuring charge - - 18.3 -
------- ------- --------- ---------
599.5 610.6 1,756.1 1,859.1
------- ------- --------- ---------
Earnings before
income taxes 76.6 73.8 222.7 223.5
Income taxes 22.1 25.1 70.9 76.0
------- ------- --------- ---------
Net earnings $ 54.5 $ 48.7 $ 151.8 $ 147.5
======= ======= ========= =========
Net earnings per
share of common stock
Basic $ 0.64 $ 0.56 $ 1.77 $ 1.68
======= ======= ========= =========
Diluted $ 0.62 $ 0.56 $ 1.74 $ 1.68
======= ======= ========= =========
Dividends per share $ 0.24 $ 0.23 $ 0.70 $ 0.67
======= ======= ========= =========
Average shares outstanding
(in thousands)
Basic 85,439 86,532 85,744 87,721
======= ======= ========= =========
Diluted 87,419 86,677 87,346 87,927
======= ======= ========= =========
See notes to consolidated financial statements.
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THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, Millions of Dollars)
September 29 December 30
2001 2000
-------- --------
ASSETS
Current assets
Cash and cash equivalents $ 152.2 $ 93.6
Accounts and notes receivable 559.9 531.9
Inventories 432.2 398.1
Other current assets 96.5 70.7
-------- --------
Total current assets 1,240.8 1,094.3
Property, plant and equipment 1,263.6 1,232.2
Less: accumulated depreciation (756.9) (728.5)
-------- --------
506.7 503.7
Goodwill and other intangibles 234.3 175.9
Other assets 157.0 110.9
-------- --------
$ 2,138.8 $ 1,884.8
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities
Short-term borrowings $ 364.2 $ 207.6
Current maturities of long-term debt 16.2 6.1
Accounts payable 237.8 239.8
Accrued expenses 271.9 253.8
-------- --------
Total current liabilities 890.1 707.3
Long-term debt 231.5 248.7
Other liabilities 187.1 192.3
Shareowners' equity
Common stock 230.9 230.9
Retained earnings 1,147.5 1,039.6
Accumulated other comprehensive loss (140.4) (124.5)
ESOP debt (189.5) (194.8)
-------- --------
1,048.5 951.2
Less: cost of common stock in treasury 218.4 214.7
-------- --------
Total shareowners' equity 830.1 736.5
-------- --------
$ 2,138.8 $ 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)
Third Quarter Nine Months
2001 2000 2001 2000
------ ------ ------ ------
Operating activities
Net earnings $ 54.5 $ 48.7 $151.8 $147.5
Depreciation and amortization 18.6 20.3 60.8 64.4
Restructuring charge
and other non-cash items (2.0) 2.8 (7.3) 9.9
Changes in other operating
assets and liabilities (2.0) 0.8 (101.4) (101.3)
------ ------ ------ ------
Net cash provided by
operating activities 69.1 72.6 103.9 120.5
Investing activities
Capital and software expenditures (20.0) (19.3) (56.0) (48.1)
Business acquisitions/dispositions 0.2 6.5 (77.9) 10.0
Other 1.5 (3.9) (2.0) (15.3)
------ ------ ------ ------
Net cash used by
investing activities (18.3) (16.7) (135.9) (53.4)
Financing activities
Net borrowings (32.8) 4.3 154.4 107.9
Proceeds from issuance of common stock 4.4 1.4 15.6 4.6
Purchase of common stock for treasury (10.8) (32.3) (11.0) (111.7)
Cash dividends on common stock (20.6) (19.8) (59.9) (58.5)
------ ------ ------ ------
Net cash used by
financing activities (59.8) (46.4) 99.1 (57.7)
Effect of exchange rate changes on cash (1.0) 0.8 (8.5) (4.1)
------ ------ ------ ------
Increase in cash and cash
equivalents (10.0) 10.3 58.6 5.3
Cash and cash equivalents,
beginning of period 162.2 83.0 93.6 88.0
------ ------ ------ ------
Cash and cash equivalents,
end of third quarter $152.2 $ 93.3 $152.2 $93.3
====== ====== ====== ======
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 151.8
Foreign currency
translation (15.9)
Total comprehensive
income 135.9
Cash dividends
declared (59.9) (59.9)
Net common stock
activity 12.3 (3.7) 8.6
Tax benefit related
to stock options 1.8 1.8
ESOP debt 5.3 5.3
ESOP tax benefit 1.9 1.9
---------------------------------------------------------
Balance Sept 29, 2001 $230.9 $1,147.5 $(140.4) $(189.5) $(218.4) $830.1
=========================================================
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 147.5
Foreign currency
translation (24.0)
Total comprehensive
income 123.5
Cash dividends
declared (58.5) (58.5)
Net common stock
activity (33.4) (71.8) (105.2)
Tax benefit related
to stock options 0.3 0.3
ESOP debt 3.3 3.3
ESOP tax benefit 2.0 2.0
---------------------------------------------------------
Balance Sep 30, 2000 $230.9 $984.8 $(123.2) $(198.9) $(192.8) $700.8
=========================================================
See notes to consolidated financial statements.
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THE STANLEY WORKS AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(UNAUDITED, MILLIONS OF DOLLARS)
Third Quarter Nine Months
2001 2000 2001 2000
------- ------- --------- ---------
INDUSTRY SEGMENTS
Net sales
Tools $ 514.4 $ 530.6 $ 1,530.7 $ 1,621.8
Doors 161.7 153.8 448.1 460.8
------- ------- --------- ---------
Consolidated $ 676.1 $ 684.4 $ 1,978.8 $ 2,082.6
======= ======= ========= =========
Operating profit
Tools $ 68.8 $ 68.7 $ 205.2 $ 219.2
Doors 18.4 14.1 44.4 36.7
------- ------- --------- ---------
87.2 82.8 249.6 255.9
Interest-net (6.7) (7.2) (20.8) (20.9)
Other-net (3.9) (1.8) 12.2 (11.5)
Restructuring charges - - (18.3) -
------- ------- --------- ----------
Earnings before
income taxes $ 76.6 $ 73.8 $ 222.7 $ 223.5
======= ======= ========= ==========
See notes to consolidated financial statements.
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THE STANLEY WORKS AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 29, 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.
Third Quarter Nine Months
2001 2000 2001 2000
---------- ---------- ---------- ----------
Net earnings -
basic and diluted $ 54.5 $ 48.7 $151.8 $147.5
========== ========== ========== ==========
Basic earnings per share -
weighted average shares 85,438,722 86,531,911 85,743,628 87,721,165
Dilutive effect of
employee stock options 1,980,268 145,386 1,602,176 205,838
---------- ---------- ----------- ----------
Diluted earnings per share -
weighted average shares 87,418,990 86,677,297 87,345,804 87,927,003
========== ========== =========== ==========
NOTE C - INVENTORIES
The components of inventories at the end of the third quarter of 2001 and at
year-end 2000, in millions of dollars, are as follows:
September 29 December 30
2001 2000
------ ------
Finished products $ 317.1 $ 281.4
Work in process 57.2 53.8
Raw materials 57.9 62.9
------ ------
$ 432.2 $ 398.1
====== ======
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NOTE D - OTHER-NET
Other-net for the nine months ended September 29, 2001 includes a pre-tax
nonrecurring pension curtailment gain that occurred in the first quarter of $29
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 - 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.
In August 2001, the FASB issued Statement No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. This Statement supercedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-lived Assets to
Be Disposed Of. This Statement retains the requirements of SFAS No. 121
regarding impairment loss recognition and measurement. In addition, it requires
that one accounting model be used for long-lived assets to be disposed of by
sale and broadens the presentation of discontinued operations to include more
disposal transactions. This Statement is effective for fiscal years beginning
after December 15, 2001. The Company has not determined the impact, if any, that
this statement will have on its financial statements.
NOTE F - SUBSEQUENT EVENT
In October 2001, the Company eliminated approximately 475 salaried positions and
identified several additional actions, primarily facility closures and
additional work force reductions. The Company expects to record a restructuring
charge in the fourth quarter totaling approximately $60 million.
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2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales were $676 million for the third quarter of 2001, as compared to $684
million in the third quarter of 2000, a 1% decrease. The primary reason for
lower sales is continued softness in the commercial and industrial markets that
serve as the Company's largest channel.
Net sales were $1,979 million for the nine months ended September 29, 2001 as
compared to $2,083 for the nine months ended September 30, 2001, representing a
decrease of 5%. The year to date decrease is driven by a unit volume decrease.
This unfavorable volume is a result of a weak industrial market and
repositioning initiatives in the Tools segment.
The Company reported gross profit of $239 million, or 35.4% of net sales for the
third quarter of 2001 as compared to $245 million, or 35.8% of net sales for the
third quarter of 2000. 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 nine months ended September
29, 2001 totaled $706 million, or 35.6% of net sales compared to $758 million,
or 36.4%, for the nine months ended September 30, 2000. Excluding the impact of
$6 million of one-time charges (primarily business repositioning actions) that
were incurred in the first quarter of 2001, 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 $152 million for the
2001 third quarter. Excluding the impact of a $5 million one-time charge
(primarily additional severance charges), that were incurred in the 2001 third
quarter, SG&A expenses amounted to $147 million, as compared to $162 million for
the third quarter of 2000. S,G&A expenses were 21.8% of net sales for the 2001
third quarter as compared with 23.7% for the third quarter of 2000, an
improvement of 190 basis points. S,G&A expenses were $457 million for the first
nine months of 2001. Excluding the impact of $8 million of one-time business
repositioning charges that were incurred in the first and third quarters of
2001, year to date S,G&A expenses were $53 million, or 11%, below year to date
2000 levels. Excluding these special charges, S,G&A expenses as a percentage of
net sales improved 140 basis points from 24.1% for the first nine months of 2000
to 22.7% for the same period in 2001. Improvements in S,G&A expenses are
attributable to continued cost reductions achieved from changes made within the
information management infrastructure, downward adjustments to employment levels
in response to weak economic markets and the benefits attained from the
Company's restructuring and repositioning efforts.
Interest-net for the 2001 third quarter and year to date was relatively flat as
compared to the amounts reported for the comparable periods in 2000.
For the nine months ended September 29, 2001, other-net includes the gain
recorded in conjunction with the Company's curtailment of U.S. pension plans of
$29 million.
The Company's income tax rates for the third quarter and the nine months ended
September 29, 2001 were 28.9% and 31.8%, respectively, of pre-tax income. The
difference between the statutory rate of 34% and the Company's effective rates
for the third quarter and year to date 2001 are primarily from certain
nonrecurring tax transactions in the current quarter. Excluding these items, the
Company's effective tax rate was 33% in the quarter and year to date. The
Company's income tax rate for the third quarter and nine months ended September
30, 2000 was 34% for each period. The tax rate decreases from 34% to 33% reflect
the continued benefit of structural changes implemented within the Company's tax
structure and the nonrecurring tax transactions.
-8-
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 $531 million in 2000 to $514
million in 2001, a decrease of 3%. For the first nine months, Tools sales were
$1,531 million as compared to $1,622 million, a decrease of 6%. The sales
decrease for both the quarter and year to date is primarily the result of unit
volume declines by the Mac Tools repositioning in the first quarter of 2001 and
weak industrial markets in North America. Despite lower sales, Tools operating
profit as a percentage of net sales improved for the 2001 third quarter as
compared to the 2000 third quarter by 140 basis points from 12.9% to 14.3%
(excluding one-time charges). Year to date, Tools operating profit as a
percentage of sales (excluding one-time charges) improved from 13.5% to 14.3% or
80 basis points.
Doors sales were $162 million in the third quarter of 2001 as compared to $154
million in the third quarter of 2000 and $461 million in the first nine months
of 2001 versus $448 million for the same period in 2000. The third quarter
increase in sales is attributable to a new program launch with The Home Depot.
The decline in sales for the Doors segment year to date is a result of a
sluggish market in the Americas. Operating profit for Doors totaled 11.4% of net
sales in the third quarter of 2001 as compared to 9.2% for the third quarter of
2000 and was 9.9% of total net sales for the nine months ended September 29,
2001 as compared to 8.0% for the nine months ended September 30, 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 nine months of 2001, The Company charged $30.1 million against
these reserves; $24.0 million for severance and $6.1 million for asset
write-off's and other exit costs.
FINANCIAL CONDITION
LIQUIDITY AND SOURCES OF CAPITAL
For the nine months ended September 29, 2001, cash flows from operations of $104
million were $17 million lower than the nine months ended September 30, 2000.
The decline in cash flows from operations is a result of a decrease in cash
generated from net income as the Company recorded a noncash gain of $29 million
in 2001 for which the cash proceeds related to such gains will not be realized
until 2002. This gain was offset by the impact of an $18.3 million restructuring
charge recorded in the first quarter of 2001.
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PART II OTHER INFORMATION
ITEM 2. - CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) RECENT SALES OF UNREGISTERED SECURITIES
During the 2nd fiscal quarter of 2001, 33,102 shares of the Company's common
stock were issued to an individual shareowner and chief executive of Contact
East as part of that acquisition and said executive's continuing employment with
the Company. The shares were issued at $33.23 per share with an aggregate value
of $1,099,979.46 and were issued without registration based on the exemption
provided by Section 4(2) of the Securities Act of 1933.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
(10)(i) 2001 Long-Term Incentive Plan (incorporated by
reference to Exhibit 99.1 to Registration Statement No.
333-64326 filed July 2, 2001).
(B) REPORTS ON FORM 8-K.
(1) The Company filed a Current Report on Form 8-K, dated July
17, 2001, in respect of the Company's press release announcing
first quarter 2001 results.
-10-
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: November 13, 2001 By:/s/James M. Loree
-----------------
James M. Loree
Vice President, Finance and
Chief Financial Officer
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