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): January 24, 2003
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The Stanley Works
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(Exact name of registrant as specified in charter)
Connecticut 1-5224 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 3
Page 1 of 12 Pages
Item 7. Financial Statements and Exhibits.
(c) 20(i) Press Release dated January 24, 2003 announcing
fourth quarter 2002 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 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 first quarter of
2003 and the full year 2003 and commentary regarding
operating margin expectations. In a conference call
held today with industry analysts, shareowners and
other participants, the company reviewed earnings
guidance and commentary regarding operating margin
expectations.
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: January 24, 2003 By: /s/ Bruce H. Beatt
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Name: Bruce H. Beatt
Title: Vice President, General
Counsel and Secretary
EXHIBIT INDEX
Current Report on Form 8-K
Dated January 24, 2003
Exhibit No. Page
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20(i) 4
20(ii) 11
Page 3 of 12 Pages
Exhibit 20(i)
FOR IMMEDIATE RELEASE
Stanley Works Reports Fourth Quarter Results
Full-Year Free Cash Flow Before Dividends Of $235 Million Up 58% Over Prior Year
New Britain, Connecticut, January 24, 2003. . . The Stanley Works (NYSE: SWK)
announced that fourth quarter 2002 net income was $22 million (25 cents per
fully-diluted share), consistent with company estimates of 24-27 cents provided
on January 17. As previously reported, the current quarter's results included
pre-tax, non-cash charges totaling $22 million, or 17 cents per fully diluted
share. Aside from such charges, earnings per fully diluted share were 42 cents,
consistent with company estimates of 41-44 cents provided on January 17.
Net sales were $662 million, up 3% over last year. Sales were reduced by $7
million in the fourth quarter of 2002 and $4 million in 2001 as cooperative
advertising expenses were reclassified out of selling, general and
administrative expenses into net sales, as required by EITF 00-25. Exclusive of
the effects of the Best Access Systems acquisition, sales declined 1%, with
consumer businesses up a low-single digit percent and industrial / commercial
revenues, given depressed market conditions, down a low-single digit percent.
Gross margin, aside from special charges discussed below, was 31.0% versus 34.2%
last year. The Mechanics Tools and Mac Tools gross margin rate problems
experienced in the third quarter improved sequentially, but sales declines in
Mac Tools continued to weigh down overall performance. In addition, and as
discussed in the company's January 17 press release, several other businesses,
including Hand Tools and Fastening Systems, under-performed profit expectations,
more than offsetting those sequential rate gains.
Selling, general and administrative ("SG&A") expenses of $142 million (21.5% of
sales) were $9 million or 70 basis points above fourth quarter 2001 levels,
exclusive of one-time charges, reflecting primarily the inclusion of Best Access
Systems' expenses. Resulting operating margin was 9.6%, down 380 basis points
from 13.4% last year, aside from special charges.
Page 4 of 12 Pages
Tools sales decreased 1% to $483 million, as strong sales of hand tools into the
U.S. retail markets were offset by weak demand for industrial and Mac tools.
Operating margin was 8.8% versus 12.7% (exclusive of special charges) reflecting
reduced sales and lower than expected productivity savings.
Doors sales increased 16% to $179 million. Organic sales declined 4%, as Door
Systems weakness more than offset double-digit growth in Access Technologies.
Door Systems sales were adversely affected by the previously announced loss of
business in one region of a major retail customer. Operating margin decreased to
11.7% versus 15.6% last year, reflecting lower sales and the impact of a legal
settlement.
Net interest increased to $7.4 million versus $4.8 million in the fourth quarter
last year due to funding of the Best Access Systems acquisition. Other net
expenses decreased to $2.9 million, exclusive of special charges, versus $6.9
million in the fourth quarter last year, due primarily to the exclusion of
goodwill amortization in 2002 and net favorable impact of an environmental
insurance settlement and certain environmental charges.
As indicated on January 17, higher estimates were established for loss
provisions and for specific impaired manufacturing equipment. The company
recorded non-cash special charges totaling $22 million, or 17 cents per
fully-diluted share. These charges include: (1) a reassessment of Mac Direct
inventory and accounts receivable valuations as a result of a new retail control
system just implemented; (2) an inventory valuation adjustment in the Fastening
Systems business associated with recent cost estimation process improvements;
and (3) impairment of certain fixed assets related primarily to the Wichita
Falls and Dallas plant consolidation.
Operating cash flow was $81 million versus $118 million in the fourth quarter a
year ago, and free cash flow before dividends (cash from operations less capital
expenditures) was $69 million versus $101 million in the fourth quarter a year
ago. Both operating and free cash flow included $31 million of expected income
tax payments made in the fourth quarter related to the net cash receipt (after
payment of excise taxes) of $69 million in the third quarter from the final
settlement upon termination of a defined benefit plan.
For the full year 2002 sales of $2,594 million were less than 1% lower than
2001. Organic sales, aside from acquisitions, decreased 2%. Net income was $189
million, or $2.14 per fully-diluted share, versus $158 million or $1.81 per
share in 2001. Exclusive of special charges and credits, net income was $204
million versus $202 million last year, and earnings per fully-diluted share of
$2.31 were flat.
Page 5 of 12 Pages
Operating cash flow for 2002 was $289 million versus $222 million a year ago;
and free cash flow before dividends (cash from operations less capital
expenditures) was $235 million versus $149 million last year. These are
increases of 30% and 58%, respectively.
The company's debt increased by $350 million upon the November issuance of
five-year and ten-year notes to finance the Best Access Systems acquisition. In
addition, fourth-quarter payments reduced debt by $81 million. Ending debt to
capital was 42%.
The company reiterated its recent earnings guidance. First quarter 2003 earnings
per fully-diluted share are expected to be in the range of 44-46 cents and
full-year 2003 earnings per fully diluted share are expected to grow by a low
double-digit percentage over the $2.31 (exclusive of special charges) earned in
2002. Operating margins are expected to achieve previous high levels of 14-15%
in the third quarter of 2003.
The company has scheduled a conference call with investors for 2pm EDT this
afternoon to discuss the matters detailed above. The call is accessible by
telephone at (800) 267-8424 and from outside the U.S. at (706) 634-0695; also,
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 by entering the conference identification number 7028841.
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 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". 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)
Fourth Quarter Year-to-Date
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2002 2001 2002 2001
NET SALES $ 662.2 $ 642.0* $2,593.5 $ 2,606.6*
COSTS AND EXPENSES
Cost of sales 469.9 428.7 1,752.8 1,701.3
Selling, general
and administrative 143.8 133.5* 547.2 575.9*
Interest - net 7.4 4.8 24.5 25.6
Other - net 10.3 6.9 (9.1) (5.3)
Restructuring charge - 54.1 - 72.4
-------- -------- -------- --------
631.4 628.0 2,315.4 2,369.9
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EARNINGS BEFORE INCOME TAXES 30.8 14.0 278.1 236.7
Income taxes 8.9 7.5 89.3 78.4
--- --- ---- ----
NET EARNINGS $ 21.9 $ 6.5 $ 188.8 $ 158.3
====== ======= ======== =======
NET EARNINGS PER SHARE OF COMMON STOCK
Basic $ 0.25 $ 0.08 $ 2.18 $ 1.85
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Diluted $ 0.25 $ 0.07 $ 2.14 $ 1.81
====== ======= ======= ======
DIVIDENDS PER SHARE $ 0.26 $ 0.24 $ 0.99 $ 0.94
====== ======= ======= ======
AVERAGE SHARES OUTSTANDING (in thousands)
Basic 87,906 85,811 86,453 85,761
====== ====== ====== ======
Diluted 89,007 87,748 88,246 87,467
====== ====== ====== ======
*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 $17.8 million lower and fourth quarter 2001 Net
Sales and SG&A are $3.6 million lower than previously published amounts,
reflecting reclassification of certain cooperative advertising (co-op) expenses.
Page 7 of 12 Pages
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, Millions of Dollars)
December 28, 2002 December 29, 2001
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ASSETS
Cash and cash equivalents $ 121.7 $ 115.2
Accounts receivable 548.0 551.3
Inventories 414.7 410.1
Other current assets 84.9 64.8
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Total current assets 1,169.3 1,141.4
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Property, plant and equipment and
other assets 693.0 678.2
Goodwill and other intangibles 545.4 236.1
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2,407.7 $ 2,055.7
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LIABILITIES AND SHAREOWNERS' EQUITY
Short-term borrowings $ 149.6 $ 372.4
Accounts payable 258.1 247.7
Accrued expenses 258.9 280.4
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Total current liabilities 666.6 900.5
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Long-term debt 564.3 121.8
Other long-term liabilities 188.9 201.1
Shareowners' equity 987.9 832.3
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2,407.7 $ 2,055.7
======= ===========
The December, 2002 balance sheet is subject to change for refinement of Best
acquisition purchase accounting prior to the company's 10-K filing.
Page 8 of 12 Pages
THE STANLEY WORKS AND SUBSIDIARIES
SUMMARY OF CASH FLOW ACTIVITY
(Unaudited, Millions of Dollars)
Fourth Quarter Year to Date
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2002 2001 2002 2001
------- -------- ------- --------
OPERATING ACTIVITIES
Net earnings $ 21.9 $ 6.5 $ 188.8 $ 158.3
Depreciation and amortization 20.3 22.1 68.8 82.9
Restructuring charges
and asset impairments - 54.1 - 72.4
Other non-cash items 49.7 42.9 42.1 17.3
Changes in working capital 29.9 29.8 5.0 (45.5)
Changes in other operating
assets and liabilities (41.3) (37.7) (15.8) (63.8)
----- ----- ----- -----
Net cash provided by
operating activities 80.5 117.7 288.9 221.6
INVESTING AND FINANCING ACTIVITIES
Capital and software expenditures (11.9) (17.1) (53.8) (73.1)
Business acquisitions/dispositions (321.7) 8.4 (343.6) (69.5)
Cash dividends on common stock (22.8) (20.6) (85.6) (80.5)
Other net investing and
financing activity 265.0 (125.4) 200.6 23.1
----- ------ ----- ----
Net cash used in investing and
financing activities (91.4) (154.7) (282.4) (200.0)
Increase (Decrease) in Cash
and Cash Equivalents (10.9) (37.0) 6.5 21.6
Cash and Cash Equivalents,
Beginning of Period 132.6 152.2 115.2 93.6
----- ----- ----- ----
Cash and Cash Equivalents,
End of Period 121.7 115.2 121.7 115.2
===== ===== ===== =====
Page 9 of 12 Pages
THE STANLEY WORKS AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(Unaudited, Millions of Dollars)
Fourth Quarter Year to Date
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2002 2001 2002 2001
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BUSINESS SEGMENTS
Net Sales
Tools $ 483.1 $ 487.9 $ 1,954.6 $2,007.9
Doors 179.1 154.1 638.9 598.7
----- ----- ----- -----
Consolidated $ 662.2 $ 642.0 $ 2,593.5 $2,606.6
======= ===== ======= =======
Operating Profit
Tools $ 27.5 $ 60.4 $ 206.4 $ 265.6
Doors 21.0 19.4 87.1 63.8
---- ---- ---- ----
Consolidated $ 48.5 $ 79.8 $ 293.5 $ 329.4
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Page 10 of 12 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 first quarter 2003
earnings in the range of $.44-.46 per fully diluted share; (ii) deliver 2003
earnings per fully diluted share growth by a low double-digit percentage over
the $2.31 (exclusive of special charges) 2002 earnings levels; and (iii) deliver
operating margins of 14-15% in the third quarter of 2003 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, continued improvement in the payment terms under which the company
buys and sells goods, materials and product, the success of planned migrations
to low-cost countries 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 operating
margins 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 and the successful unwinding of the Mac Direct element of
the business; (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; and (ix) the successful integration of Best Access
Systems and other recent acquisitions with existing businesses of the company,
and the achievement of the sales plan for the combined businesses.
Page 11 of 12 Pages
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 2003. 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 maintain or improve its
current tax rate, 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, 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 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 12 of 12 Pages