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): April 29, 2003
------------------------------
The Stanley Works
-------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Connecticut 1-5224 06-0548860
---------------- ---------------- -------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
1000 Stanley Drive, New Britain, Connecticut 06053
-------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(860) 225-5111
-----------------------------
Not Applicable
-------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
Exhibit Index is located on Page 3
Page 1 of 12 Pages
Item 7. Financial Statements and Exhibits.
(c) 20(i) Press Release dated April 29, 2003
announcing first quarter results.
(c) 20(ii) Cautionary Statements relating to
forward looking statements included in
Exhibit 20(i) and made today in a
conference call with industry anlaysts,
shareowners and other participants.
Item 9. Regulation FD Disclosure.
The following information is being furnished under
both Item 9 and Item 12 of Form 8-K. In a press release
attached to this Form 8-K, the company reported its
results for the First Quarter of 2003. In a conference
call held today with industry analysts, shareowners
and other participants, the company reviewed its
results and guidance as set forth in the press release.
Page 2 of 12 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: April 29, 2003 By: /s/ Bruce H. Beatt
---------------- ---------------------------------
Name: Bruce H. Beatt
Title: Vice President, General
Counsel and Secretary
EXHIBIT INDEX
Current Report on Form 8-K
Dated April 29, 2003
Exhibit No. Page
----------- ------
20(i) 4
20(ii) 11
Page 3 of 12 Pages
Exhibit 20(i)
FOR IMMEDIATE RELEASE
Stanley Works Reports First Quarter Results
$44 Million Free Cash Flow Is 1st Quarter Record
New Britain, Connecticut, April 29, 2003. The Stanley Works (NYSE: SWK)
announced that first quarter 2003 net income was $19 million (22 cents per
fully-diluted share) compared with $49 million (56 cents per fully-diluted
share) last year. First quarter 2003 results included pre-tax restructuring
costs, impairment charges and other exit costs totaling $17 million pre-tax, or
13 cents per fully diluted share. Aside from such costs, earnings per fully
diluted share were 35 cents, consistent with company estimates of 33-36 cents
provided on April 9.
Reported earnings are supplemented with related amounts and percentages that
exclude restructuring costs, impairment charges and other exit costs. Management
believes these supplemental financial measures provide useful information by
removing the effect of variances in reported results that are not indicative of
fundamental changes in the company's earnings capacity. A full reconciliation
with reported amounts is included on page 7.
Net sales were $666 million, up 8% over last year. Exclusive of the Best Access
Systems acquisition, sales declined 2%. Sales in the consumer channel declined
for the first time in three years, due to unusually adverse weather in certain
regions of the U.S. and mass merchant inventory reductions. Meanwhile, soft
market conditions continued to be prevalent in the industrial channels.
Gross profit was $219 million, or 32.8% of sales, versus $216 million in the
prior year. First quarter 2003 included $4 million of impairment charges and
other exit costs related to the termination of the Mac Direct distribution
model. Aside from such costs, gross margin was 33.3% versus 34.9% last year.
Selling, general and administrative ("SG&A") expenses of $172 million (25.9% of
sales) were $37 million above first quarter 2002 levels. Aside from $10 million
of costs relating primarily to the exiting of Mac Direct, SG&A was $162 million,
or 24.3% of sales, versus 21.9% last year, reflecting the inclusion of Best
Access Systems as well as the absence of pension income and stronger foreign
currency.
Aside from the impairment charges and other exit costs referred to above,
operating margins were 9.0% versus 13.0% last year.
Page 4 of 12 Pages
Tools sales decreased 2% to $467 million due to weak demand for industrial and
Mac tools. Exclusive of $14 million of impairment charges and exit costs,
operating margin was 8.7% vs. 12.9% in 2002. Lower volume, inefficiencies in Mac
Direct, pricing pressures and commodity cost inflation were the principal causes
of the lower margin.
Doors sales increased 43% to $199 million, but organic sales declined 6% as
weakness in consumer doors more than offset double-digit growth in Access
Technologies. Door Systems were adversely affected by the previously announced
loss of one region of a major retail customer in addition to weather-related
softness. Operating margin decreased to 9.7% versus 13.4% last year from
commodity cost increases and increased SG&A expenses.
Operation 15, an initiative to achieve a 15% operating margin run rate as the
company exits 2003, was announced on April 9. Annual benefits of $105 million
are expected to be partially offset by approximately $20 million of lost margin
from the Mac Direct exit. The company indicated that it expects severance
payments, certain asset impairments and other exit costs of approximately $60
million in connection with Operation 15, of which $10-$15 million are expected
to be non-cash, exclusive of the Mac Direct exit.
Additionally, the exit of Mac Direct requires the liquidation of certain assets
whose aggregate net book value was approximately $85 million. Management
believes that a substantial portion of these assets are recoverable. Exit costs
include the $14 million incurred in the first quarter, and the company believes
that additional impairments and exit costs could be possible, however the
amounts cannot be determined at this time, as they depend on future events and
actions which have not been finalized.
As expected, plans to reduce outstanding shares by over 9% had no impact in the
first quarter. On April 14, the company completed the settlement of the first
$100 million of its equity hedge in early April.
Operating cash flow was $52 million versus $21 million in the first quarter a
year ago. Free cash flow before dividends (cash from operations less capital
expenditures) was $44 million versus $2 million in the first quarter a year ago,
reflecting cash flow from operations and lower capital expenditures.
The company plans to provide earnings guidance for the second quarter and the
full year 2003 in early May.
The company has scheduled a conference call with investors for 2pm EDT this
afternoon for the purpose of clarifying details and answering questions about
the financial information in this release. The call is accessible by telephone
Page 5 of 12 Pages
at (800) 267-8424 and via the Internet at www.stanleyworks.com by selecting
"Investor Relations". A replay will also be available two hours after the call
and can be accessed at 800-642-1687 or 706-645-9291 by entering the conference
identification number 78324.
The Stanley Works, an S&P 500 company, is a worldwide supplier of tools,
hardware and door systems for professional, industrial and consumer use. More
information about The Stanley Works can be found at http://www.stanleyworks.com.
Contact: Gerry Gould
Vice President - Investor Relations
(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".
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 6 of 12 Pages
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, Millions of Dollars Except Per Share Amounts)
First Quarter
------------------
2003 2002
-------- --------
NET SALES $ 666.2 $ 616.7
COSTS AND EXPENSES
Cost of sales 447.7 401.2
Selling, general
and administrative 172.3 135.1
Interest - net 8.0 6.4
Other - net 7.6 2.1
Restructuring charge 3.1 -
-------- --------
638.7 544.8
-------- --------
EARNINGS BEFORE INCOME TAXES 27.5 71.9
Income taxes 8.3 23.0
-------- --------
NET EARNINGS $ 19.2 $ 48.9
======== ========
NET EARNINGS PER SHARE OF COMMON STOCK
Basic $ 0.22 $ 0.57
======== =========
Diluted $ 0.22 $ 0.56
======== =========
DIVIDENDS PER SHARE $ 0.26 $ 0.24
======== =========
AVERAGE SHARES OUTSTANDING (in thousands)
Basic 87,815 85,518
======== =========
Diluted 88,478 87,889
======== =========
Page 7 of 12 Pages
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, Millions of Dollars)
March 29, 2003 December 28, 2002
---------------- -------------------
ASSETS
Cash and cash equivalents $ 156.0 $ 121.7
Accounts receivable 521.6 548.0
Inventories 438.1 414.7
Other current assets 110.5 106.0
--------- ---------
Total current assets $ 1,226.2 $ 1,190.4
--------- ---------
Property, plant and equipment 481.0 494.8
Goodwill and other intangibles 558.6 544.9
Other assets 173.4 188.1
--------- ---------
$ 2,439.2 $ 2,418.2
========= =========
LIABILITIES AND SHAREOWNERS' EQUITY
Short-term borrowings $ 198.7 $ 149.6
Accounts payable 250.0 260.3
Accrued expenses 273.9 271.0
--------- ---------
Total current liabilities 722.6 680.9
--------- ---------
Long-term debt 546.6 564.3
Other long-term liabilities 185.1 189.2
Shareowners' equity 984.9 983.8
--------- ---------
$ 2,439.2 $ 2,418.2
========= =========
Page 8 of 12 Pages
THE STANLEY WORKS AND SUBSIDIARIES
SUMMARY OF CASH FLOW ACTIVITY
(Unaudited, Millions of Dollars)
First Quarter
-----------------
2003 2002
------- --------
OPERATING ACTIVITIES
Net earnings $ 19.2 $ 48.9
Depreciation and amortization 22.6 16.7
Restructuring charge 3.1 -
Other non-cash items 18.1 (15.1)
Changes in working capital (20.5) (5.9)
Changes in other operating
assets and liabilities 9.2 (24.1)
------ ------
Net cash provided by
operating activities 51.7 20.5
INVESTING AND FINANCING ACTIVITIES
Capital and software expenditures (7.5) (18.7)
Business acquisitions and asset disposals (14.9) 3.7
Cash dividends on common stock (22.2) (20.4)
Other net investing and
financing activity 27.2 9.6
------ ------
Net cash used in investing and
financing activities (17.4) (25.8)
Increase (Decrease) in Cash
and Cash Equivalents 34.3 (5.3)
Cash and Cash Equivalents,
Beginning of Period 121.7 115.2
------ ------
Cash and Cash Equivalents,
End of Period $ 156.0 $109.9
====== ======
Page 9 of 12 Pages
THE STANLEY WORKS AND SUBSIDIARIES
Consolidated Statements of Operations and Business Segment Information
Reconcillation to GAAP Earnings
First Quarter 2003 vs. 2002
(Unaudited, Millions of Dollars Except Per Share Amounts)
2003
-------------------------------
Excluding (a)
Charges Charges Reported 2002
---------- ---------- -------- --------
Net sales $ 666.2 $ - $ 666.2 $ 616.7
Cost of sales 444.1 3.6 447.7 401.2
---------- ---------- -------- --------
Gross margin 222.1 (3.6) 218.5 215.5
33.3% 32.8% 34.9%
SG&A expenses 162.1 10.2 172.3 135.1
---------- ---------- -------- --------
24.3% 25.9% 21.9%
Operating profit 60.0 (13.8) 46.2 80.4
9.0% 6.9% 13.0%
Interest, net 8.0 - 8.0 6.4
Other, net 7.6 - 7.6 2.1
Restructuring charges - 3.1 3.1 -
--------- ---------- --------- --------
Earnings before
income taxes 44.4 (16.9) 27.5 71.9
Income taxes 13.5 (5.2) 8.3 23.0
--------- ---------- --------- --------
30.4% 30.2% 32.0%
Net earnings $ 30.9 $(11.7) $ 19.2 $ 48.9
========= ========== ========= =========
Average shares
outstanding (diluted) 88,478 88,478 88,478 87,889
Earnings per
share (diluted) $ 0.35 $(0.13) $ 0.22 $ 0.56
========= ========== ========== ==========
BUSINESS SEGMENTS
Net sales
Tools $ 467.1 $ - $ 467.1 $ 478.0
Doors 199.1 - 199.1 138.7
--------- ---------- ---------- ----------
Consolidated $ 666.2 $ - $ 666.2 $ 616.7
========= ========== ========== ==========
Operating profit
Tools $ 40.6 $ (13.8) $ 26.8 $ 61.8
Doors 19.4 - 19.4 18.6
--------- ---------- ---------- ----------
Consolidated 60.0 (13.8) 46.2 80.4
--------- ---------- ---------- ----------
Interest, net 8.0 - 8.0 6.4
Other, net 7.6 - 7.6 2.1
Restructuring charges - 3.1 3.1 -
--------- ---------- ---------- ----------
Earnings before
income taxes $ 44.4 $ (16.9) $ 27.5 $ 71.9
========= ========== ========== ==========
(a) Includes restructuring costs, impairment charges and other exit costs.
Cost of sales reflects $3.6 million of inventory losses and SG&A reflects
$10.2 million in receivables losses associated with the Mac Direct exit.
Restructuring costs are comprised of severance for termination of
appromixately 150 employees.
Page 10 of 12 Pages
Exhibit 20 (ii)
CAUTIONARY STATEMENTS
Under the Private Securities Litigation Reform Act of 1995
Certain statements including the statements in the company's press release
attached to this Current Report on Form 8-K regarding the company's ability to
(i) raise operating margins to 15% as the company exists 2003 and generate
benefits of approximately $105 million annually partially offset by
approximately $20 million of lost margin and (ii) repurchase an additional 5% of
outstanding shares are forward looking and are based on current expectations and
involve inherent risks and uncertainties, including factors listed below and
other factors that could delay, divert, or change any of them, and could cause
actual outcomes and results to differ materially from current expectations.
The company's ability to raise operating margins to 15% as the company exits
2003 and generate benefits of approximately $105 million annually partially
offset by approximately $20 million of lost margin is dependent on (i) the
success of the company's efforts to decentralize its operations functions,
primarily into its Tools and Access Solutions business groups; (ii) the success
of the company's efforts to reduce its workforce and close certain facilities,
including the resolution of any labor issues and the predictability of severance
payments related to such activities, the need to respond to significant changes
in product demand while any facility consolidation is in process and other
unforeseen events; (iii) the success of the company's efforts to restructure its
Mac Tools organization in order to return it to profitability, including,
without limitation, the company's ability to liquidate certain Mac Tools assets
at a satisfactory price; (iv) the success of the company's marketing and sales
efforts; (v) continued improvements in productivity and cost reductions; (vi)
the continued improvement in the payment terms under which the company buys and
sells goods, materials and products; (vii) the reduction of selling, general and
administrative expenses as a percentage of sales; (viii) the success of
recruiting programs and other efforts to maintain or expand overall Mac Tools
truck count; (ix) the company's ability to fulfill demand for its products in a
timely manner; and (x) the absence of increased pricing pressures from customers
and competitors.
In addition to the factors listed above, the company's ability to reduce its
outstanding shares by an additional 5% is dependent on the content of FASB's
"Limited Scope Final Statement On Liabilities and Equity" when issued.
Page 11 of 12 Pages
The company's ability to achieve the objectives discussed above will also be
affected by external factors. These external factors include the continued
consolidation of customers in consumer channels, inventory management pressures
on the company's customers, changes in trade, monetary, tax and fiscal policies
and laws, inflation, currency exchange fluctuations, the impact of
dollar/foreign currency exchange and interest rates on the competitiveness of
products and the company's debt program, the strength of the U.S. Economy and
the strength of foreign currencies, including but not limited to the Euro, the
impact of events that cause or may cause disruption in the company's
distribution and sales networks such as the effects of Severe Acute Respiratory
Syndrome ("SARS"), war, terrorist activities, political unrest and recessionary
or expansive trends in the economies of the world in which the company operates.
Page 12 of 12 Pages