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): October 16, 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 No.)
incorporation)
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 13 Pages
Item 7. Financial Statements and Exhibits.
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(c) 20(i) Press Release dated October 16, 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.
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In a press release attached to this 8-K, the company provided
earnings guidance for the fourth quarter and full year 2002 and
for the full year 2003 and commentary regarding gross margin
projections and consumer and industrial sales expectations. In
a conference call with industry analysts, shareowners and other
participants, the company reviewed the earnings guidance and
commentary regarding gross margin projections and consumer and
industrial sales expectations.
Page 2 of 13 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: October 16, 2002 By: /s/ Bruce H. Beatt
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Name: Bruce H. Beatt
Title: Vice President, General
Counsel and Secretary
Page 3 of 13 Pages
EXHIBIT INDEX
Current Report on Form 8-K
Dated October 16, 2002
Exhibit No. Page
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20(i) 5
20(ii) 12
Page 4 of 13 Pages
Exhibit 20(i)
FOR IMMEDIATE RELEASE
Stanley Works Reports Third Quarter Results
First Nine Months' Free Cash Flow Before Dividends Tops $166 Million
New Britain, Connecticut, October 16, 2002 . . . The Stanley Works (NYSE: SWK)
announced that third quarter net income was $55 million (62 cents per
fully-diluted share), consistent with company estimates of 61 cents - 63 cents
provided on October 10. As previously reported, the current quarter's results
included a favorable foreign tax development that reduced income taxes by $5.5
million, or 6 cents per fully-diluted share.
Operating cash flow was $104 million, up 50% over the third quarter a year-ago,
and free cash flow before dividends (cash from operations less capital
expenditures) was $93 million, nearly double the $49 million realized last year.
On a year-to-date basis, operating cash flow was $208 million, double last year.
The company's debt was reduced by $49 million during the quarter, and debt to
capital dropped to 31%.
Operating cash flow included a net cash receipt (after payment of excise taxes)
of $69 million representing the final settlement from termination of a defined
benefit plan. After paying income taxes in the fourth quarter, the company will
have received approximately $40 million this year.
Net sales were $666 million, 1% lower than last year. Sales were reduced by $5
million in the third quarters of 2002 and 2001 as cooperative advertising
expenses were reclassified out of selling, general and administrative expenses
into net sales, as required by EITF 00-25.
John M. Trani, Chairman and Chief Executive Officer, commented: "We continue to
benefit from recent retail share gains and strong sell-through of Stanley
products. As a consequence, our consumer business was up a mid-single digit
percent again this quarter. Industrial revenues, given depressed market
conditions, were down a mid-single digit percent. Continued weakness prevailed
across industrial tool channels and sales were negatively impacted by $14
million in our Proto and Mac Tools businesses as a result of previously reported
operational issues in our Mechanics Tools business."
Gross margin was 31.5% versus 34.9% last year primarily from a flawed execution
in consolidating two domestic manufacturing plants and other related production
activities in Mechanics Tools. Measures to restore these operations to normal
Page 5 of 13 Pages
shipment and profit levels have been taken; a new team has been charged with
correcting the problems; and the production issues are gradually subsiding.
Selling, general and administrative ("SG&A") expenses of $133 million (20.0% of
sales) were $9 million or 120 basis points below third quarter 2001 levels,
exclusive of one-time charges recorded in 2001. Resulting operating margin was
11.5%, down 220 basis points from 13.7% last year, aside from the above-noted
2001 one-time charges.
Tools sales decreased 3% to $497 million. Operating margin was 10.4% versus
14.4% exclusive of one-time charges in the same period last year. Lower
industrial sales from the Mechanics Tools problem and continued slow industrial
markets amplified an ongoing mix shift to the retail channel.
Doors segment sales increased 5% to $169 million. Operating profit increased 36%
to $25 million and was 14.8% of sales versus 11.5% last year. Performance
reflected solid sales growth in the Hardware and Access Technologies businesses,
and productivity gains and SG&A expense reductions in entry doors. This segment
has substantial potential to expand sales both organically and through
acquisitions.
Mr. Trani added: "Consumer sales are expected to grow again in the fourth
quarter as market share is increasing, and Hand Tools sales are recording
double-digit gains at major retailers. However, that expectation is tempered by
continued uncertainty about consumer spending and customer inventory management
as well as lingering backlogs in Mechanics Tools and Mac Tools. Current business
trends indicate no recovery in the industrial businesses. A cautious outlook is
clearly prudent, and we expect fourth quarter sales to be at levels essentially
flat with last year, with the retail businesses up and industrial revenues down
a similar amount."
The company reiterated its recent fourth quarter guidance of earnings per
fully-diluted share at approximately the same level in 2002 as in 2001 when the
company earned 57 cents exclusive of one-time charges. Resulting full-year 2002
earnings are expected to approximate $2.47 per fully-diluted share. Management
expects full recovery of gross margin rates to first-half 2002 levels in the
first quarter of 2003 and, including earnings accretion expected as a result of
the Best Access Systems acquisition, expressed confidence that 2003 earnings per
fully diluted share would grow by a solid double-digit percent.
Page 6 of 13 Pages
Mr. Trani continued: "This was a disappointing quarter as our twelve-quarter
string of delivering consensus earnings was interrupted, due mainly to factors
within our control. We continue to take the steps needed to restore our
Mechanics Tools and Mac Tools businesses to normal operations.
"On the other hand our company took a significant step forward in bolstering the
Access Technologies group. With the completed acquisition of Senior
Technologies, Inc., a market leader of personal security systems for the nursing
home market and the announced acquisition of Best Access Systems, the
positioning element of our strategy has moved beyond rhetoric."
Best Access Systems is a global provider of security access control systems with
$250 million in sales. Its products include mechanical access hardware and
electronic access controls that are used in government offices, military
facilities, entertainment venues, office buildings and educational facilities
worldwide. Each acquired business - Senior Technologies and Best Access Systems
- is in growth markets, serves customers directly and has an important service
component. Both will be immediately accretive to earnings per share and more
importantly will generate returns above the cost of capital within twelve
months. This is a platform to build upon in a myriad of ways over the next
several years.
The company's regularly scheduled quarterly conference call with its financial
analysts will be held at 2:00pm EDT today. At that time management will discuss
the matters above in further detail. The call is accessible to any investor who
wishes to listen via the Internet at http://www.stanleyworks.com, by selecting
"Events and Webcasts" from the "Investor Relations" section of the web page.
The Stanley Works, an S&P 500 company, is a worldwide supplier of tools,
hardware and doors for professional, industrial and consumer use. More
information about The Stanley Works can be found at http://www.stanleyworks.com.
Contact: Gerry Gould, VP-Investor Relations at (860) 827-3833
ggould@stanleyworks.com
The Stanley Works corporate press releases are available on the company's
corporate web site at http://www.stanleyworks.com. Click on "Investor Relations"
and then on "News Releases".
Page 7 of 13 Pages
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, Millions of Dollars Except Per Share Amounts)
Third Quarter Year to Date
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2002 2001 2002 2001
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NET SALES $ 665.5 $ 671.4* $1,931.3 $1,964.6*
COSTS AND EXPENSES
Cost of sales 455.6 436.8 1,282.9 1,272.6
Selling, general
and administrative 133.4 147.4* 403.4 442.4*
Interest - net 4.8 6.7 17.1 20.8
Other - net (0.5) 3.9 (19.4) (12.2)
Restructuring charge - - - 18.3
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$ 593.3 $ 594.8 $1,684.0 $1,741.9
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EARNINGS BEFORE INCOME TAXES 72.2 76.6 247.3 222.7
Income taxes 17.5 22.1 80.4 70.9
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NET EARNINGS $ 54.7 $ 54.5 $ 166.9 $ 151.8
======= ======= ======== ========
NET EARNINGS PER SHARE OF COMMON STOCK
Basic $ 0.63 $ 0.64 $ 1.94 $ 1.77
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Diluted $ 0.62 $ 0.62 $ 1.90 $ 1.74
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DIVIDENDS PER SHARE $ 0.26 $ 0.24 $ 0.74 $ 0.70
======== ======== ======== ========
AVERAGE SHARES OUTSTANDING (in thousands)
Basic 86,582 85,439 85,991 85,744
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Diluted 88,041 87,419 87,985 87,346
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* 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 $14.2 million lower and third quarter 2001 Net Sales
and SG&A are $4.7 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 13 Pages
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, Millions of Dollars)
September 2002 December 2001
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ASSETS
Cash and cash equivalents $ 132.6 $ 115.2
Accounts receivable 578.5 551.3
Inventories 404.6 410.1
Other current assets 75.2 64.8
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Total current assets 1,190.9 1,141.4
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Property, plant and equipment 488.4 494.3
Goodwill and other intangibles 265.5 236.1
Other assets 156.1 183.9
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$ 2,100.9 $2,055.7
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LIABILITIES AND SHAREOWNERS' EQUITY
Short-term borrowings $ 225.7 $ 297.4
Accounts payable 259.8 247.7
Accrued expenses 265.1 280.4
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Total current liabilities 750.6 825.5
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Long-term debt 204.5 196.8
Other long-term liabilities 171.3 201.1
Shareowners' equity 974.5 832.3
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$2,100.9 $2,055.7
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Page 9 of 13 Pages
THE STANLEY WORKS AND SUBSIDIARIES
SUMMARY OF CASH FLOW ACTIVITY
(Unaudited, Millions of Dollars)
Third Quarter Year to Date
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2002 2001 2002 2001
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OPERATING ACTIVITIES
Net earnings $ 54.7 $ 54.5 $ 166.9 $ 151.8
Depreciation and amortization 15.8 18.6 48.5 60.8
Restructuring charges and
asset impairments - - - 18.3
Other non-cash items 10.1 (2.0) (7.6) (25.6)
Changes in working capital (31.8) (11.0) (24.9) (75.3)
Changes in other operating
assets and liabilities 55.1 9.0 25.5 (26.1)
---- --- ---- -----
Net cash provided by
operating activities 103.9 69.1 208.4 103.9
INVESTING AND FINANCING ACTIVITIES
Capital and software expenditures (10.7) (20.0) (41.9) (56.0)
Business acquisitions/dispositions (31.2) 0.2 (21.9) (77.9)
Cash dividends on common stock (21.9) (20.6) (62.8) (59.9)
Other net investing and financing
activity (47.1) (38.7) (64.4) 148.5
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Net cash used in investing
and financing activities (110.9) (79.1) (191.0) (45.3)
Increase (Decrease) in Cash and
Cash Equivalents (7.0) (10.0) 17.4 58.6
Cash and Cash Equivalents,
Beginning of Period 139.6 162.2 115.2 93.6
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Cash and Cash Equivalents,
End of Period $ 132.6 $ 152.2 $132.6 $ 152.2
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Page 10 of 13 Pages
THE STANLEY WORKS AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(Unaudited, Millions of Dollars)
Third Quarter Year to Date
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2002 2001 2002 2001
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INDUSTRY SEGMENTS
Net Sales
Tools $ 497.0 $ 510.8 $1,471.5 $ 1,520.0
Doors 168.5 160.6 459.8 444.6
----- ----- ----- -----
Consolidated $ 665.5 $ 671.4 $1,931.3 $ 1,964.6
======= ======= ======== =========
Operating Profit
Tools $ 51.5 $ 68.8 $ 178.9 $ 205.2
Doors 25.0 18.4 66.1 44.4
---- ---- ---- ----
Consolidated $ 76.5 $ 87.2 $ 245.0 $ 249.6
======= ====== ======== =========
Page 11 of 13 Pages
Exhibit 20(ii)
CAUTIONARY STATEMENTS
Under the Private Securities Litigation Reform Act of 1995
Statements in the company's press release attached as Exhibit 20(i) to this
Current Report on Form 8-K regarding the company's ability to (i) deliver fourth
quarter sales essentially flat with the fourth quarter 2001, with the retail
businesses up and industrial revenues down a similar amount; (ii) deliver fourth
quarter 2002 earnings that approximate prior year fourth quarter levels
(exclusive of one-time charges) of $.57 per fully diluted share, (iii) deliver
full year 2002 earnings of approximately $2.47 per fully diluted share; (iv)
deliver first quarter 2003 gross margin rates equal to first half 2002 levels;
(v) grow 2003 earnings per fully diluted share by a solid double-digit
percentage over expected 2002 earnings; and (vi) generate revenue from two
acquisitions, Senior Access Technologies and Best Access Systems, that will be
immediately accretive to earnings and generate returns above the cost of capital
within twelve months, 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 and gross margin
rates is dependent upon a number of factors, including (i) the success of the
company's efforts to redress production problems in its Mechanics Tools
business; (ii) the ability to recruit and retain a sales force comprised of
employees and manufacturers representatives; (iii) 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; (iv) the success of recruiting
programs and other efforts to deliver positive overall Mac Tools truck count
versus the prior year; (v) the ability of the sales force to adapt to changes
made in the sales organization and achieve adequate customer coverage; (vi) the
ability of the company to fulfill demand for its products; (vii) the absence of
increased pricing pressures from customers and competitors and the ability to
defend market share in the face of price competition; (viii) the acceptance of
the company's new products in the marketplace as well as the ability to satisfy
demand for these products; (ix) the successful integration of Senior
Technologies, Inc., which the company recently acquired, with existing
businesses of the company and the achievement of the sales plans for this
business; and (x) the receipt of regulatory and other approvals required to
close the Best Access transaction, the fulfillment of other closing requirements
and completion of the acquisition, the successful integration of Best Access
Page 12 of 13 Pages
with existing businesses of the company, and the achievement of the sales plan
for the combined businesses.
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
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 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, inventory management pressures on the company's
customers, 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,
decreases in consumer spending, the impact of events that cause or may cause
disruption in the company's distribution and sales networks such as the recent
closure of ports on the West Coast, the events of September 11, 2001, political
unrest and recessionary or expansive trends in the economies of the world in
which the company operates.
Page 13 of 13 Pages