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 22, 2003
-------------------------------
The Stanley Works
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(Exact name of registrant as specified in charter)
Connecticut 1-5244 06-0548860
---------------- ---------------- -------------------------
(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
-----------------------------
Not Applicable
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(Former name or former address, if changed since last report)
Exhibit Index is located on Page 3
Page 1 of 15 Pages
Item 7 Financial Statements and Exhibits.
(c) 20(i) Press Release dated July 22, 2003 announcing second quarter
2003 results and providing third quarter and full year 2003
guidance.
(c) 20(ii) Cautionary Statements relating to forward looking statements
included in Exhibit 20(i).
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
8-K, the company reported its results for the Second Quarter of
2003 and providing third quarter and full year 2003 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 22, 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 July 22, 2003
Exhibit No. Page
----------- ----
20(i) 4
20(ii) 15
Page 3 of 15 Pages
Exhibit 20 (i)
FOR IMMEDIATE RELEASE
Stanley Works Reports Second Quarter Results
Earnings Consistent With Management Forecasts
New Britain, Connecticut, July 22, 2003. The Stanley Works (NYSE: SWK) announced
that second quarter 2003 net income was $12 million (14 cents per fully-diluted
share) compared with $63 million (72 cents per fully-diluted share) last year,
and within the range of company estimates of 10-40 cents provided May 8.
This result included $48 million (38 cents per fully diluted share) of pre-tax
restructuring costs, impairment charges, other exit costs and certain one-time
expenses related to its CEO's previously announced retirement. Aside from such
costs, earnings per fully diluted share were 52 cents, at the upper end of the
company's estimate of 48-52 cents.
Reported results for the second quarter and first six months of 2003 and 2002
are supplemented with related amounts and percentages that exclude restructuring
costs, impairment charges, other exit costs, one-time executive retirement costs
and a 2002 pension gain. 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
pages 8-9.
Net sales were $700 million, up 8% over last year and slightly above
expectations. Exclusive of the Best Access Systems acquisition, sales declined
2% with currency adding 4%. Sales in the consumer channel decreased due to
continued customer inventory reductions and the carryover impact of a lost
region of a major customer in entry doors that occurred in the fourth quarter of
2002. In addition, soft market conditions in the industrial channels continued,
and the closure of the Mac Direct model began to be felt.
Page 4 of 15 Pages
Operating cash flow was $64 million versus $84 million last year. On a
year-to-date basis, operating cash flow was $116 million versus $105 million in
2002, and free cash flow (cash from operations less capital expenditures) of
$101 million was 37% higher than the first half of last year.
The company recently repurchased 3.9 million shares of common stock and agreed
to settle the remainder of its equity hedge via the repurchase of 4.1 million
shares over the next four years. The effects of these second quarter actions
plus a settlement resulting in the receipt of .4 million shares from the hedge
banks, were increased debt of $213 million and a 9.5% reduction of outstanding
shares. Using cash repatriated from foreign locations and operating cash flows,
$55 million of debt was repaid and, thus, total debt increased by $158 million.
Second quarter 2003 gross margin was $231 million, or 33.0% of sales, versus
$223 million in the prior year. This included $3 million of impairment charges
and other exit costs related to the termination of Mac Direct. Aside from such
costs, gross margin was 33.5% versus 34.4% last year.
Selling, general and administrative ("SG&A") expenses of $174 million were $39
million above second quarter 2002 levels. Included in 2003 costs are $12 million
relating primarily to the exiting of Mac Direct and $8 million of compensation
recorded in connection with the retirement of the company's CEO. Such retirement
expenses were comprised of severance and pension as specified in an employment
contract entered into in 2000.
Aside from the aforementioned Mac Direct exit and executive retirement costs,
SG&A expenses were $154 million, or 22.0% of sales, versus $127 million, or
19.5% of sales (exclusive of certain non-recurring charges last year),
reflecting the inclusion of Best Access Systems. On the same basis SG&A expenses
were $8 million and 230 basis points lower than the first quarter of 2003,
reflecting the benefits of Operation 15 actions.
Resulting operating income was $57 million versus $88 million last year.
Operating margins, aside from the retirement, impairment and other exit costs
referred to above, were 11.5% versus 14.9% last year and 9.0% in the first
quarter of 2003 on volume leverage, the strength of Best Access Systems
performance, and the early-stage benefits of Operation 15. Specifically, the
organization streamlining and exit of Mac Direct were completed with employment
reductions of just over 800 people.
Page 5 of 15 Pages
John M. Trani, Chairman and Chief Executive Officer commented: "Our people
executed the second quarter Operation 15 actions very well. We came very close
to our 12% operating margin objective. Operation 15 is on track to deliver $100
million of annual savings, and the 15% rate depends, to a large extent, on sales
volume."
Tools operating margins were 5.0% versus 13.2% last year. Excluding impairment
and exit charges, Tools operating margins of 9.3% improved 60 basis points over
the first quarter of 2003 due to the impact of Operation 15. Tools sales
decreased 3% to $481 million due principally to weak consumer sales and the exit
of Mac Direct. Lower volume, pricing pressures and commodity cost inflation were
the principal causes of the lower margin versus 2002.
Doors operating margins were 15.1% versus 14.7% last year. Excluding impairment
and exit charges, Doors margins of 16.1% improved 640 basis points over the 9.7%
realized in the first quarter due to growth in Access Solutions and Operation 15
actions. Doors sales increased 43% to $219 million, but organic sales declined
4% as weakness in consumer doors more than offset growth in Access Technologies.
Door Systems were adversely affected by the previously announced loss of one
region of a major retail customer in addition to customer inventory reductions.
Improved mix due to inclusion of Best Access Systems was primarily responsible
for the margin gain versus the prior year.
A summary of pre-tax charges recorded in 2003 and referred to above follows:
Second
($ millions) First Quarter Quarter Year-To-Date
------------- ------- ------------
Op 15
Mac Direct $ 14 $ 28 $ 42
Other - 12 12
-- -- --
Total Op 15 $ 14 $ 40 $ 54
Severance 3 - 3
CEO Retirement - 8 8
-- -- --
Total $ 17 $ 48 $ 65
The charges pertaining to Operation 15 are within the expected range
communicated during the company's May 8 analyst meeting. The company expects
additional charges to be incurred in the next few quarters in connection with
this profit improvement initiative.
Page 6 of 15 Page
Due to weaker than previously expected sales, primarily in consumer tools and
entry doors, the company expects a third quarter net sales increase of only 4%
over the prior year. Accordingly, earnings per fully diluted share are expected
to be in the range of 39-51 cents and, aside from 12-21 cents of expected
charges related to Operation 15 actions, in the range of 60-63 cents versus 62
cents last year.
Full year earnings per share are expected to approximate $1.10 per fully diluted
share, with the aforementioned restructuring costs, impairment charges, other
exit costs and one-time expenses charges approximating $1.10 per share. The
current full-year 2003 First Call consensus of $2.20 per share appears
consistent with management expectations, aside from such charges. Achievement of
the stated objective of a 15% operating margin exiting 2003 requires higher
sales than expected; however, the company continues to expect solid sequential
operating margin gains.
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 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
---------------- ----------------
2003 2002 2003 2002
------- ------ ------- -------
NET SALES $ 699.7 $ 649.1 $1,365.9 $1,265.8
COSTS AND EXPENSES
Cost of sales 468.7 426.1 916.4 827.3
Selling, general
and administrative 173.8 134.9 346.1 270.0
Interest - net 6.7 5.9 14.7 12.3
Other - net 10.7 (21.0) 18.3 (18.9)
Restructuring charges
and asset impairments 21.9 - 25.0 -
--------- --------- --------- ---------
681.8 545.9 1,320.5 1,090.7
-------- --------- --------- ---------
EARNINGS BEFORE INCOME TAXES 17.9 103.2 45.4 175.1
Income taxes 5.5 39.9 13.8 62.9
-------- --------- --------- ---------
NET EARNINGS $ 12.4 $ 63.3 $ 31.6 $ 112.2
======= ========= ========= =========
NET EARNINGS PER SHARE OF COMMON STOCK
Basic $ 0.14 $ 0.74 $ 0.37 $ 1.31
======== ====== ======== =======
Diluted $ 0.14 $ 0.72 $ 0.36 $ 1.28
======== ====== ======== =======
DIVIDENDS PER SHARE $ 0.26 $ 0.24 $ 0.51 $ 0.48
======== ====== ======== =======
AVERAGE SHARES OUTSTANDING (in thousands)
Basic 85,555 85,822 86,407 85,677
====== ====== ====== ======
Diluted 86,002 88,111 86,988 87,972
====== ====== ====== ======
Page 8 of 15 Pages
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, Millions of Dollars)
June 28, 2003 December 28, 2002
-------------- -----------------
ASSETS
Cash and cash equivalents $ 127.7 $ 121.7
Accounts receivable 516.1 548.0
Inventories 448.0 414.7
Other current assets 108.1 106.0
----- -----
Total current assets 1,199.9 1,190.4
------- -------
Property, plant and equipment 465.5 494.8
Goodwill and other intangibles 621.6 544.9
Other assets 183.5 188.1
----- -----
$2,470.5 $2,418.2
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Short-term borrowings $ 268.6 $ 149.6
Accounts payable 248.2 260.3
Accrued expenses 276.9 271.0
----- -----
Total current liabilities 793.7 680.9
----- -----
Long-term debt 635.0 564.3
Other long-term liabilities 264.6 189.2
Shareowners' equity 777.2 983.8
----- -----
$ 2,470.5 $2,418.2
========= ========
Page 9 of 15 Pages
THE STANLEY WORKS AND SUBSIDIARIES
SUMMARY OF CASH FLOW ACTIVITY
(Unaudited, Millions of Dollars)
Second Quarter Year to Date
---------------- ------------------
2003 2002 2003 2002
------- ------ ------- ---------
OPERATING ACTIVITIES
Net earnings $ 12.4 $ 63.3 $ 31.6 $ 112.2
Depreciation and amortization 21.9 16.0 44.5 32.7
Restructuring charges and
asset impairments 21.9 - 25.0 -
Other non-cash items 40.8 (2.6) 58.9 (17.7)
Changes in working capital (25.6) 12.8 (46.1) 6.9
Changes in other operating
assets and liabilities (7.3) (5.5) 1.9 (29.6)
---- ---- --- -----
Net cash provided by
operating activities 64.1 84.0 115.8 104.5
INVESTING AND FINANCING ACTIVITIES
Capital and software expenditures (7.8) (12.5) (15.3) (31.2)
Business acquisitions and
asset disposals 2.6 5.6 (12.3) 9.3
Cash dividends on common stock (21.8) (20.5) (44.0) (40.9)
Other net investing and financing
activity (65.4) (26.9) (38.2) (17.3)
----- ----- ----- -----
Net cash used in investing
and financing activities (92.4) (54.3) (109.8) (80.1)
Increase (Decrease) in Cash
and Cash Equivalents (28.3) 29.7 6.0 24.4
Cash and Cash Equivalents,
Beginning of Period 156.0 109.9 121.7 115.2
----- ----- ----- -----
Cash and Cash Equivalents,
End of Period $ 127.7 $ 139.6 $ 127.7 $ 139.6
===== ===== ===== =====
Page 10 of 15 Pages
THE STANLEY WORKS AND SUBSIDIARIES
Consolidated Statements of Operations and Business Segment Information
Reconciliation to GAAP Earnings
Second Quarter 2003 vs. 2002
(Unaudited, Millions of Dollars Except Per Share Amounts)
2003 2002
----------------------------- ----------------------------
Excluding (a) Excluding (b)
Charges Charges Reported Charges Charges Reported
-------- ------- -------- ------- ------- --------
Net sales $ 699.7 $ - $ 699.7 $ 649.1 $ - $ 649.1
Cost of sales 465.3 3.4 468.7 426.1 - 426.1
----- --- ----- ----- ----- --------
Gross margin 234.4 (3.4) 231.0 223.0 - 223.0
33.5% 33.0% 34.4% 34.4%
SG&A expenses 154.2 19.6 173.8 126.5 8.4 134.9
----- ---- ----- ----- --- -------
22.0% 24.8% 19.5% 20.8%
Operating profit 80.2 (23.0) 57.2 96.5 (8.4) 88.1
11.5% 8.2% 14.9% 13.6%
Interest, net 6.7 - 6.7 5.9 - 5.9
Other, net 7.7 3.0 10.7 (2.6) (18.4) (21.0)
Restructuring and asset
impairment charges - 21.9 21.9 - - -
---- ---- ------ ----- ------ ------
Earnings before
income taxes 65.8 (47.9) 17.9 93.2 10.0 103.2
Income taxes 21.0 (15.5) 5.5 29.9 10.0 39.9
---- ---- ----- ---- ---- ----
Net earnings $ 44.8 $(32.4) $ 12.4 $ 63.3 $ - $ 63.3
======= ====== ====== ====== ==== =======
Average shares outstanding
(diluted, in thousands) 86,002 86,002 86,002 88,111 88,111 88,111
Earnings per share
(diluted) $ 0.52 $ (0.38) $ 0.14 $ 0.72 $ - $ 0.72
======== ======= ====== ======== ====== ======
(Continued)
Page 11 of 15 Pages
(Continued)
2003 2002
----------------------------- ----------------------------
Excluding (a) Excluding (b)
Charges Charges Reported Charges Charges Reported
-------- ------- -------- ------- ------- --------
BUSINESS SEGMENTS
Net sales
Tools $ 481.0 $ - $ 481.0 $ 496.5 $ - $ 496.5
Doors 218.7 - 218.7 152.6 - 152.6
----- -------- ----- ----- ------ -----
Consolidated $ 699.7 $ - $ 699.7 $ 649.1 $ - $ 649.1
======= ======== ======= ======== ======= ======
Operating profit
Tools $ 44.9 $ (20.7) $ 24.2 $ 73.4 $ (7.8) $ 65.6
Doors 35.3 (2.3) 33.0 23.1 (0.6) 22.5
---- ---- ---- ---- ---- ----
Consolidated 80.2 (23.0) 57.2 96.5 (8.4) 88.1
------- -------- ------ -------- ------ -------
Interest, net 6.7 - 6.7 5.9 - 5.9
Other, net 7.7 3.0 10.7 (2.6) (18.4) (21.0)
Restructuring and asset
impairment charges - 21.9 21.9 - - -
------- --------- -------- -------- ------- --------
Earnings before
income taxes $ 65.8 $ (47.9) $ 17.9 $ 93.2 $ 10.0 $ 103.2
======= ======= ====== ======== ====== =======
(a) Includes Operation 15 restructuring costs, asset impairment charges, other
exit costs, and CEO retirement costs. Aggregate charges of $27.9 million arising
from the exit of Mac Direct retail channel are classified as follows: Cost of
sales - $3.4 million; SG&A - $11.4 million; Other, net - $3.0 million;
Restructuring and asset impairment charges - $10.1 million. In addition, $7.5
million in compensation and benefit costs associated with the CEO's announced
retirement plans. The $11.8 million in remaining restructuring and asset
impairment charges is mainly attributable to severance and related benefits for
headcount reductions pertaining to other Operation 15 initiatives.
(b) Reflects $8.4 million for severance and related expenses associated with
SG&A reductions, and $18.4 million in Other, net for the final settlement of a
defined benefit pension plan.
Page 12 of 15 Pages
THE STANLEY WORKS AND SUBSIDIARIES
Consolidated Statements of Operations and Business Segment Information
Reconciliation to GAAP Earnings
YTD 2003 vs. 2002
(Unaudited, Millions of Dollars Except Per Share Amounts)
2003 2002
----------------------------- ----------------------------
Excluding (a) Excluding (b)
Charges Charges Reported Charges Charges Reported
--------- -------- -------- -------- ------- --------
Net sales $1,365.9 $ - $1,365.9 $1,265.8 $ - $1,265.8
Cost of sales 909.4 7.0 916.4 827.3 - 827.3
----- ----- ----- ----- ------ -------
Gross margin 456.5 (7.0) 449.5 438.5 - 438.5
33.4% 32.9% 34.6% - 34.6%
SG&A expenses 316.3 29.8 346.1 261.6 8.4 270.0
----- ---- ----- ----- --- -----
23.2% 25.3% 20.7% 21.3%
Operating profit 140.2 (36.8) 103.4 176.9 (8.4) 168.5
10.3% 7.6% 14.0% 13.3%
Interest, net 14.7 - 14.7 12.3 - 12.3
Other, net 15.3 3.0 18.3 (0.5) (18.4) (18.9)
Restructuring and asset
impairment charges - 25.0 25.0 - - -
---- ---- ------ ------ ------ -----
Earnings before income
taxes 110.2 (64.8) 45.4 165.1 10.0 175.1
Income Taxes 34.5 (20.7) 13.8 52.9 10.0 62.9
---- ----- ---- ---- ---- ----
Net earnings $ 75.7 $(44.1) $ 31.6 $ 112.2 $ - $112.2
======== ====== ======= ======== ====== ======
Average shares outstanding
(diluted, in thousands) 86,988 86,988 86,988 87,972 87,972 87,972
Earnings per share
(diluted) $ 0.87 $ (0.51) $ 0.36 $ 1.28 $ - $ 1.28
========= ======= ======== ======== ====== ======
BUSINESS SEGMENTS
Net sales
Tools $ 948.1 $ - $ 948.1 $ 974.5 $ - $ 974.5
Doors 417.8 - 417.8 291.3 - 291.3
----- ------- ------- ------ ------ -----
Consolidated $ 1,365.9 $ - $1,365.9 $1,265.8 $ - $1,265.8
========= ====== ======= ========= ====== =======
Operating profit
Tools $ 85.5 $ (34.5) $ 51.0 $ 135.2 $ (7.8) $ 127.4
Doors 54.7 (2.3) 52.4 41.7 (0.6) 41.1
---- ---- ---- ---- ---- ----
Consolidated 140.2 (36.8) 103.4 176.9 (8.4) 168.5
----- ----- ----- ----- ---- -----
Interest, net 14.7 - 14.7 12.3 - 12.3
Other, net 15.3 3.0 18.3 (0.5) (18.4) (18.9)
Restructuring and asset
impairment charges - 25.0 25.0 - - -
---- ---- ------ ----- ------ -------
Earnings before income
taxes $ 110.2 $ (64.8) $ 45.4 $ 165.1 $ 10.0 $ 175.1
======== ======= ======= ========= ======= =======
(Continued)
Page 13 of 15 Pages
(Continued)
(a) Includes Operation 15 restructuring costs, asset impairments charges, other
exit costs, and CEO retirement costs. Aggregate charges of $41.7 million arising
from the exit of Mac Direct retail channel are classified as follows: Cost of
sales - $7.0 million; SG&A - $21.6 million; Other, net - $3.0 million;
Restructuring and asset impairment charges - $10.1 million. In addition, $7.5
million in compensation and benefit costs associated with the CEO's announced
retirement plans. The $14.9 million in remaining restructuring and asset
impairment charges is mainly attributable to severance and related benefits for
headcount reductions pertaining to other Operation 15 initiatives.
(b) Reflects $8.4 million in second quarter 2002 severance and related expenses
associated with SG&A reductions, and $18.4 million in Other, net for the final
settlement of a defined benefit pension plan.
Page 14 of 15 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 exits 2003 and generate
benefits of approximately $100 million annually; (ii) increase third quarter net
sales 4% over the prior year and realize earnings per fully diluted share in the
third quarter of 39-51 cents (60-63 cents aside from the stated charges) and
(iii) achieve full year earnings per fully diluted share of $1.10 ($2.20 per
share aside from the stated charges) 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 realize the results described above 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,
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; (x) the absence of increased pricing pressures from customers and
competitors and the ability to defend market share in the face of price
competition; and (xi) the company's ability to identify and engage a successor
CEO on a timely basis.
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
of the company's customers, changing demand for the company's products, 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, war, terrorist activities,
political unrest and recessionary or expansive trends in the economies of the
world in which the company operates.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements to reflect events or circumstances that may arise
after the date hereof.
Page 15 of 15 Pages