SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 17, 2002
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The Stanley Works
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(Exact name of registrant as specified in charter)
Connecticut 1-5244 06-0548860
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification
incorporation) No.)
1000 Stanley Drive, New Britain, Connecticut 06053
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (860) 225-5111
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Not Applicable
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(Former name or former address, if changed since last report)
Exhibit Index is located on Page 4
Page 1 of 15 Pages
Item 5. Other Events.
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In a Press Release issued on July 17, 2002, the Registrant
announced that it will acquire Senior Technologies, Inc. and
assets of Avnet Inc.'s Production Supplies and Test division.
Attached as Exhibit 20(i) is a copy of the Registrant's Press
Release containing the announcement of the two acquisitions.
Item 7. Financial Statements and Exhibits.
----------------------------------
(c) 20(i) Press Release dated July 17, 2002.
20(ii) Cautionary Statements relating to forward looking statements
included in Exhibit 20(i) and made today in a conference call
with industry analysts, shareowners and other participants.
Item 9. Regulation FD Disclosure.
-------------------------
In a Press Release attached to this 8-K, the company provided
earnings guidance for the third quarter and full year 2002. In
a conference call with industry analysts, shareowners and
other participants, the company reviewed the earnings
guidance.
Page 2 of 15 Pages
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: July 17, 2002 By: /s/ Bruce H. Beatt
---------------- ----------------------------------------------------
Name: Bruce H. Beatt
Title: Vice President, General
Counsel and Secretary
Page 3 of 15 Pages
EXHIBIT INDEX
Current Report on Form 8-K
Dated July 17, 2002
Exhibit No. Page
----------- ----
20(i) 5
20(ii) 14
Page 4 of 15 Pages
Exhibit 20(i)
FOR IMMEDIATE RELEASE
STANLEY REPORTS 2ND QUARTER E.P.S. UP 24%; OPERATING CASH FLOW SOARS TO 133% OF
NET INCOME
Operating Margin of 15% Highest Since Early 1950s
New Britain, Connecticut, July 17, 2002: The Stanley Works (NYSE: "SWK")
announced that second quarter net income was $63 million (72 cents per fully-
diluted share) achieving the First Call consensus estimate of Wall Street
analysts, and up 24% over net earnings of $51 million or 58 cents per
fully-diluted share in 2001.
Operating cash flow was $84 million, up 50% over the second quarter a year-ago,
and free cash flow (cash from operations less capital expenditures and
dividends) was $51 million, more than three times higher than $16 million last
year. On a year-to-date basis, operating cash flow was $105 million, also three
times higher than last year. The company's debt was reduced by $18 million, and
debt to capital dropped to 34%.
Net sales were $649 million, 3% lower than last year, from continued weakness
across industrial tool channels and inventory reductions at major retail
customers. Sales were reduced by $6 million in the second quarter of 2002 and $5
million in the second quarter of 2001 with the reclassification of cooperative
advertising expenses out of selling, general and administrative expenses and
into net sales, as required by EITF 00-25.
John M. Trani, Chairman and Chief Executive Officer, commented: "We are clearly
benefiting from recent retail share gains. However, consumer volume was slower
than expected as major customers reduced inventory levels despite continuing
strong sell-through of Stanley products. Implementations of major rollouts under
previously announced share gains were also slower than anticipated as customers
worked through the sale of existing stock.
"As a consequence, our consumer business was up a low single digit percent,
versus the mid-to-high single digit expected. Industrial revenues were
consistent with expectations, given depressed market conditions, down a high
single digit percent."
Page 5 of 15 Pages
Gross margin was 34.4%, versus 34.9% in the second quarter of 2001 from lower
industrial sales. Continuing solid productivity was insufficient to offset the
mix shift to the retail channel.
Selling, general and administrative ("SG&A") expenses of $135 million included
$8 million pre-tax, $6 million after-tax, or $.06 per fully-diluted share, for
severance and related expenses associated with further SG&A reductions. Aside
from that amount, recurring SG&A expenses of $127 million (19.5% of sales) were
$19 million or 230 basis points below second quarter 2001 levels.
In response to continuing weak markets, over 300 positions were eliminated,
following 600 in the first quarter. Accordingly, management believes these
lowered SG&A spending levels to be sustainable.
Operating margin, aside from the above-noted severance expense, was 14.9%, up
180 basis points from 13.1% last year. This represents the highest operating
margin percent since the early 1950s.
Mr. Trani continued: "This was a landmark quarter, as both profitability and
cash generation soared. This operating margin increase represents a
step-function change to a new level of nearly 15% from the 10%-11% level just a
few years ago. As a result, earnings per share experienced a similar
step-function change to a level 20%-25% above that achieved in recent quarters,
and operating cash flow rose to 133% of net income, validating the high quality
of the earnings increase."
Other items resulted in a net credit of $21 million, including an $18 million
pre-tax gain associated with the final settlement of a defined benefit plan.
After excise and income taxes, the company will receive over $60 million in a
reversion of cash from that pension plan, with the majority of it coming in the
third quarter. After excise and income taxes, the pension gain added
approximately $6 million after-tax, or $.06 per fully-diluted share, to net
income.
Other items included no goodwill amortization in 2002, in accordance with SFAS
142, versus $1.9 million or $.02 per fully-diluted share in 2001. The company's
income tax rate was 32% versus 33% last year reflecting the continued benefit of
structural changes.
Tools sales decreased 5% from the second quarter of 2001 to $497 million.
Operating margin was 14.8% versus 14.1% in the same period last year. Doors
segment sales increased 1% to $153 million. Operating margin increased to 15.1%
compared with 9.6% in the same period last year. Despite lower volume and a
continuing mix shift to lower-margin retail channels, performance in both
segments reflected continuing productivity gains and SG&A expense reductions.
Page 6 of 15 Pages
Looking forward to the remainder of 2002, Mr. Trani added: "In the third
quarter, we expect flat industrial market conditions to render comparisons to
prior year results less difficult. In addition, Mac Tools has recently
demonstrated solid per-truck sales performance, and the overall truck count on a
year-over-year basis is expected to be positive for the first time in several
years. These factors should combine to yield only slightly negative
year-over-year industrial sales.
"Consumer sales are expected to benefit from the roll-out of previously
announced share gains. However, this is somewhat tempered by several major
customers taking a conservative approach towards consumer spending and managing
inventories accordingly. The net result is a positive but cautious outlook for
revenues in the second half, likely flat in the third quarter and up 1-2% for
the second half, leaving us within the previously stated range of EPS guidance
for 2002." The company provided third quarter guidance indicating that earnings
per fully- diluted share will be $.71 - $.73, an improvement of 15% - 18% over
the $.62 earned in the third quarter of 2001. The company noted that this and
all previous earnings guidance excludes any possible benefit from its proposed
re-incorporation in Bermuda.
The company also announced two small acquisitions: Senior Technologies, Inc., a
market leader of personal security systems for the nursing home market and
assets of Avnet Inc.'s Production Supplies and Test division (PSAT), a
distributor of supplies to the electronic assembly industry. Both support the
company's goal to grow industrial markets, are bolt-on to existing industrial
businesses, collectively will add $40 million of sales annually and are expected
to be completed in July.
The Stanley Works, an S&P 500 company, is a worldwide supplier of tools, door
systems and related hardware for professional, industrial and consumer use.
Contact: Gerard J. Gould
Vice President, Investor Relations
(860) 827-3833
ggould@stanleyworks.com
This press release contains forward-looking statements. Cautionary statements
accompanying these forward-looking statements are set forth, along with this
news release, in a Form 8-K filed with the Securities and Exchange Commission
today. The Stanley Works corporate press releases are available on the company's
Internet web site at www.stanleyworks.com.
Page 7 of 15 Pages
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, Millions of Dollars Except Per Share Amounts)
Second Quarter Year to Date
------------------ ------------------
2002 2001 2002 2001
-------- ------- --------- ----------
NET SALES $ 649.1 $ 671.6* $1,265.8 $1,293.2*
COSTS AND EXPENSES
Cost of sales 426.1 437.3 827.3 835.8
Selling, general
and administrative 134.9 146.1* 270.0 295.0*
Interest - net 5.9 7.5 12.3 14.1
Other - net (21.0) 5.0 (18.9) (16.1)
Restructuring charges
and asset impairments - - - 18.3
------ ------- ------- ----
$ 545.9 $ 595.9 $1,090.7 $1,147.1
------- ------- -------- --------
EARNINGS BEFORE INCOME TAXES 103.2 75.7 175.1 146.1
Income taxes 39.9 25.0 62.9 48.8
---- ---- ---- ----
NET EARNINGS $ 63.3 $ 50.7 $ 112.2 $ 97.3
======= ======= ======= =======
NET EARNINGS PER SHARE OF COMMON STOCK
Basic $ 0.74 $ 0.59 $ 1.31 $ 1.13
======== ======== ======== ========
Diluted $ 0.72 $ 0.58 $ 1.28 $ 1.12
======== ======== ======== ========
DIVIDENDS PER SHARE $ 0.24 $ 0.23 $ 0.48 $ 0.46
======== ======== ======== ========
AVERAGE SHARES OUTSTANDING (in thousands)
Basic 85,822 85,838 85,677 85,856
====== ====== ====== ======
Diluted 88,111 87,517 87,972 87,293
====== ====== ====== ======
* In January, 2002 the company adopted Emerging Issues Task Force (EITF) Issue
Number 00-25 "Vendor Income Statement Characterization of Consideration to a
Purchaser of the Vendor's Products or Services". EITF 00-25 requires the
reclassification of certain customer promotional payments previously reported in
selling, general and administrative (SG&A) expenses as a reduction of revenue,
and prior periods must be restated for comparability of results. Year to date
2001 Net Sales and SG&A are $9.5 million lower and second quarter 2001 Net Sales
and SG&A are $4.9 million lower than previously published amounts reflecting
reclassification of certain cooperative advertising (co-op) expenses. The co-op
reclassifications for 2001 will be less than 1% of previously reported Net
Sales.
Page 8 of 15 Pages
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, Millions of Dollars)
June 2002 June 2001
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ASSETS
Cash and cash equivalents $ 139.6 $ 162.2
Accounts receivable 560.0 538.0
Inventories 401.8 439.2
Other current assets 170.0 79.8
----- ----
Total current assets 1,271.4 1,219.2
------- -------
Property, plant and equipment 492.5 500.4
Goodwill and other intangibles 239.9 234.8
Other assets 161.7 152.2
----- -----
$ 2,165.5 $2,106.6
========= ========
LIABILITIES AND SHAREOWNERS' EQUITY
Short-term borrowings $ 270.6 $ 401.6
Accounts payable 261.9 237.0
Accrued expenses 293.6 247.6
----- -----
Total current liabilities 826.1 886.2
----- -----
Long-term debt 208.1 234.3
Other long-term liabilities 189.6 188.7
Shareowners' equity 941.7 797.4
----- -----
$2,165.5 $2,106.6
======== ========
Page 9 of 15 Pages
THE STANLEY WORKS AND SUBSIDIARIES
SUMMARY OF CASH FLOW ACTIVITY
(Unaudited, Millions of Dollars)
Second Quarter Year to Date
---------------- --------------
2002 2001 2002 2001
------ ------ ----- -----
OPERATING ACTIVITIES
Net earnings $ 63.3 $ 50.7 $112.2 $ 97.3
Depreciation and amortization 16.0 19.9 32.7 42.2
Restructuring charges and
asset impairments - - - 18.3
Other non-cash items (2.6) 6.8 (17.7) (23.6)
Changes in working capital 12.8 (18.3) 6.9 (64.3)
Changes in other operating
assets and liabilities (5.5) (3.1) (29.6) (35.1)
---- ---- ----- -----
Net cash provided by
operating activities 84.0 56.0 104.5 34.8
INVESTING AND FINANCING ACTIVITIES
Capital and software expenditures (12.5) (20.1) (31.2) (36.0)
Business acquisitions/dispositions 5.6 (78.1) 9.3 (78.1)
Cash dividends on common stock (20.5) (19.6) (40.9) (39.3)
Other net investing and financing
activity (26.9) 112.6 (17.3) 187.2
----- ----- ----- -----
Net cash provided by (used in)
investing and financing activities (54.3) (5.2) (80.1) 33.8
Increase in Cash and Cash Equivalents 29.7 50.8 24.4 68.6
Cash and Cash Equivalents,
Beginning of Period 109.9 111.4 115.2 93.6
----- ----- ----- ----
Cash and Cash Equivalents,
End of Period $ 139.6 $ 162.2 $ 139.6 $ 162.2
======= ======= ======= =======
Page 10 of 15 Pages
THE STANLEY WORKS AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(Unaudited, Millions of Dollars)
Second Quarter Year to Date
---------------- ------------------
2002 2001 2002 2001
------ ------ ------ -------
INDUSTRY SEGMENTS
Net Sales
Tools $ 496.5 $ 521.2 $ 974.5 $ 1,009.2
Doors 152.6 150.4 291.3 284.0
----- ----- ----- -----
Consolidated $ 649.1 $ 671.6 $1,265.8 $ 1,293.2
======= ======= ======== =========
Operating Profit
Tools $ 65.6 $ 73.7 $ 127.4 $ 136.4
Doors 22.5 14.5 41.1 26.0
---- ---- ---- ----
Consolidated $ 88.1 $88.2 $ 168.5 $ 162.4
====== ===== ======= ========
Page 11 of 15 Pages
THE STANLEY WORKS AND SUBSIDIARIES
Consolidated Statements of Operations and Business Segment Information
Excluding 2002 Severance & Pension Gain
Second Quarter 2002 & 2001
(Unaudited, Millions of Dollars Except Per Share Amounts)
2002 2001
------------------------------------- ------------
Excluding Severance/
Severance & Pension
Pension Gain Gain Reported Reported
------------ ---------- ----------- ------------
Net sales $ 649.1 $ - $649.1 $671.6
Cost of sales 426.1 - 426.1 437.3
----- ----- ----- -----
Gross margin 223.0 - 223.0 234.3
34.4% 34.4% 34.9%
SG&A expenses 126.5 8.4 134.9 146.1
----- ----- ----- -----
19.5% 20.8% 21.8%
Operating profit 96.5 (8.4) 88.1 88.2
14.9% 13.6% 13.1%
Interest-net 5.9 - 5.9 7.5
Other-net (2.6) (18.4) (21.0) (5.0)
----- ----- ----- -----
Earnings before income taxes 93.2 10.0 103.2 75.7
Income taxes 29.9 10.0 39.9 25.0
---- ---- ---- ----
32.0% 38.7% 33.0%
Net earnings $ 63.3 $ - $ 63.3 $ 50.7
====== ====== ====== ======
Average shares outstanding
(diluted) 88,111 88,111 88,111 87,517
Earnings per share
(diluted) $ 0.72 $ - $ 0.72 $ 0.58
======== ====== ====== ======
INDUSTRY SEGMENTS
Net sales
Tools $ 496.5 - $ 496.5 $ 521.2
Doors 152.6 $ - 152.6 150.4
----- ----- ----- -----
Consolidated $ 649.1 $ - $ 649.1 $ 671.6
======= ===== ======= =======
Operating profit
Tools $ 73.4 $ (7.8) $ 65.6 $ 73.7
Doors 23.1 (0.6) 22.5 14.5
---- ---- ---- ----
Consolidated $ 96.5 $ (8.4) $ 88.1 $ 88.2
------- ------- ------- ------
Interest-net 5.9 - 5.9 7.5
Other-net (2.6) (18.4) (21.0) 5.0
----- ------- ------- ------
Earnings before income taxes $ 93.2 $ 10.0 $ 103.2 $ 75.7
====== ======= ======= ======
Page 12 of 15 Pages
THE STANLEY WORKS AND SUBSIDIARIES
Consolidated Statements of Operations and Business Segment Information
Excluding 2002 Severance & Pension Gain & 2001 Restructuring Charges,
Asset Impairments and Special Charges and Credits
YTD 2002 vs. 2001
(Unaudited, Millions of Dollars Except Per Share Amounts)
2002 2001
--------------------------- ----------------------------------
Excluding
Restructuring, Restructuring,
Asset Impairments Asset Impairments
Excluding Severance/ & Special & Special
Severance & Pension Charges and Charges and
Pension Gain Gain Reported Credits Credits Reported
------------ ------- -------- -------- --------- ----------
Net sales $1,265.8 $ - $1,265.8 $1,293.9 $ (0.7) $1,293.2
Cost of sales 827.3 - 827.3 830.3 5.5 835.8
----- ----- ----- ----- --- -----
Gross margin 438.5 - 438.5 463.6 (6.2) 457.4
34.6% - 34.6% 35.8% 35.4%
SG&A expenses 261.6 8.4 270.0 291.7 3.3 295.0
----- --- ----- ----- --- -----
20.7% 21.3% 22.5% 22.8%
Operating profit 176.9 (8.4) 168.5 171.9 (9.5) 162.4
14.0% 13.3% 13.3% 12.6%
Interest-net 12.3 - 12.3 14.1 - 14.1
Other-net (0.5) (18.4) (18.9) 11.5 (27.6) (16.1)
Restructuring charges
and asset impairments - - - - 18.3 18.3
----- ---- ---- ---- ------ ------
Earnings before
income taxes 165.1 10.0 175.1 146.3 (0.2) 146.1
Income Taxes 52.9 10.0 62.9 48.3 0.5 48.8
---- ---- ---- ---- --- ----
32.0% 35.9% 33.0% 33.4%
Net earnings $ 112.2 $ - $112.2 $ 98.0 $ (0.7) $ 97.3
======= ==== ====== ====== ====== ======
Average shares
outstanding (diluted) 87,972 87,972 87,972 87,293 87,293 87,293
Earnings per share
(diluted) $ 1.28 $ - $ 1.28 $ 1.12 $ - $ 1.12
======== ====== ====== ====== ====== =======
INDUSTRY SEGMENTS
Net sales
Tools $ 974.5 $ - $ 974.5 $1,009.9 $ (0.7) $1,009.2
Doors 291.3 - 291.3 284.0 - 284.0
----- ----- ----- ------ ----- ---------
Consolidated $1,265.8 $ - $1,265.8 $l,293.9 $ (0.7) $1,293.2
======== ===== ======== ======= ======= ========
Operating profit
Tools $ 135.3 $ (7.8) $ 127.4 $ 145.6 $ (9.2) $ 136.4
Doors 41.7 (0.6) 41.1 26.3 (0.3) 26.0
---- ---- ---- ---- ---- ----
Consolidated 176.9 (8.4) 168.5 171.9 (9.5) 162.4
----- ---- ----- ----- ---- -----
Interest-net 12.3 - 12.3 14.1 - 14.1
Other-net (0.5) (18.4) (18.9) 11.5 (27.6) (16.1)
Restructuring charges
and asset impairments - - - - 18.3 18.3
---- ----- ---- ---- ----- --------
Earnings before income
taxes $ 165.1 $ 10.0 $ 175.1 $ 146.3 $ (0.2) $ 146.1
======== ====== ======= ======= ====== =======
Page 13 of 15 Pages
Exhibit 20(ii)
CAUTIONARY STATEMENTS
Under the Private Securities Litigation Reform Act of 1995
Statements in the company's press release attached to this Current Report on
Form 8-K regarding the company's ability to (i) deliver revenues that are flat
in the third quarter and up 1-2% for the second half of the year; (ii) deliver
earnings per fully-diluted share within the previously stated range of EPS
guidance for the full year 2002; (iii) deliver third quarter earnings per fully-
diluted share of $.71 -$.73, an improvement of 15-18% over the $.62 earned in
the third quarter of 2001, and (iv) add $40 million of sales annually from the
acquisitions of Senior Technologies, Inc. and assets of Avnet's Production and
Supplies Test division, are forward looking and inherently subject to risk and
uncertainty.
The company's ability to achieve the earnings objectives identified in the
preceding paragraph is dependent on both internal and external factors,
including the success of the company's marketing and sales efforts, continuing
improvements in productivity and cost reductions, including inventory
reductions, and continued reduction of selling, general and administrative
expenses as a percentage of sales, the strength of the United States economy and
the strength of foreign currencies, including, without limitation, the Euro.
The company's ability to achieve the expected level of revenues is dependent
upon a number of factors, including (i) the ability to recruit and retain a
sales force comprised of employees and manufacturers representatives, (ii) the
success of The Home Depot and Wal-Mart programs and of other initiatives to
increase retail sell through and stimulate demand for the company's products,
(iii) the success of recruiting programs and other efforts to deliver positive
overall Mac Tools truck count versus the prior year; (iv) the ability of the
sales force to adapt to changes made in the sales organization and achieve
adequate customer coverage, (v) the ability of the company to fulfill demand for
its products, (vi) the absence of increased pricing pressures from customers and
competitors and the ability to defend market share in the face of price
competition, and (vii) the acceptance of the company's new products in the
marketplace as well as the ability to satisfy demand for these products.
The company's ability to deliver inventory reductions and otherwise improve its
productivity and to lower the cost structure is dependent on the success of
various initiatives that are underway or are being developed to improve
Page 14 of 15 Pages
manufacturing and sales operations and to implement related control systems,
which initiatives include certain facility closures and related workforce
reductions expected to be completed in 2002. The success of these initiatives is
dependent on the company's ability to increase the efficiency of its routine
business processes, to develop and implement process control systems, to
mitigate the effects of any material cost inflation, to develop and execute
comprehensive plans for facility consolidations, the availability of vendors to
perform outsourced functions, the successful recruitment and training of new
employees, the resolution of any labor issues related to closing facilities, the
need to respond to significant changes in product demand while any facility
consolidation is in process and other unforeseen events.
The company's ability to continue to reduce selling, general and administrative
expenses as a percentage of sales is dependent on various process improvement
activities, the continued success of changes to the sales organization and the
reduction of transaction costs.
The company's ability to add $40 million of sales annually from the acquisitions
of Senior Technologies, Inc. and assets of Avnet's Production and Supplies Test
division is dependent upon a number of factors, including the fulfillment of
closing requirements and completion of the acquisitions, the successful
integration of these businesses with existing businesses of the company, and the
achievement of the sales plans for these businesses.
The company's ability to achieve the objectives discussed above will also be
affected by external factors. These external factors include pricing pressure
and other changes within competitive markets, the continued consolidation of
customers in consumer channels, increasing competition, changes in trade,
monetary and fiscal policies and laws, inflation, currency exchange
fluctuations, the impact of dollar/foreign currency exchange rates on the
competitiveness of products, the impact of the events of September 11, 2001, and
recessionary or expansive trends in the economies of the world in which the
company operates.
Page 15 of 15 Pages