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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 29, 2002.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from [ ] to [ ]
Commission file number 1-5224
THE STANLEY WORKS
(Exact name of registrant as specified in its charter)
CONNECTICUT 06-0548860
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1000 Stanley Drive
New Britain, Connecticut 06053
(Address of principal executive offices) (Zip Code)
(860) 225-5111
(registrant's telephone number)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 85,630,653 shares of the
company's Common Stock ($2.50 par value) were outstanding as of August 9, 2002.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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 expense 6.9 9.1 14.0 17.4
Interest income (1.0) (1.6) (1.7) (3.3)
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
========= ========= ========= =========
See notes to consolidated financial statements.
-1-
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED, MILLIONS OF DOLLARS)
June 29 December 29
2002 2001
-------- --------
ASSETS
Current assets
Cash and cash equivalents $ 139.6 $ 115.2
Accounts and notes receivable 560.0 551.3
Inventories 401.8 410.1
Other current assets 170.0 64.8
-------- --------
Total current assets 1,271.4 1,141.4
Property, plant and equipment 1,248.7 1,229.7
Less: accumulated depreciation (756.2) (735.4)
-------- --------
492.5 494.3
Goodwill, net 219.3 216.2
Other intangibles assets 20.6 19.9
Other assets 161.7 183.9
-------- --------
$2,165.5 $2,055.7
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities
Short-term borrowings $ 152.1 $ 177.3
Current maturities of long-term debt 118.5 120.1
Accounts payable 261.9 247.7
Accrued expenses 293.6 280.4
-------- --------
Total current liabilities 826.1 825.5
Long-term debt 208.1 196.8
Other liabilities 189.6 201.1
Shareowners' equity
Common stock 230.9 230.9
Retained earnings 1,249.5 1,184.9
Accumulated other comprehensive loss (125.3) (138.9)
ESOP debt (184.3) (187.7)
-------- --------
Less: cost of common stock in treasury 229.1 256.9
-------- --------
Total shareowners' equity 941.7 832.3
-------- --------
$2,165.5 $2,055.7
======== ========
See notes to consolidated financial statements.
-2-
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(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 activities
Capital expenditures (12.5) (20.1) (31.2) (36.0)
Proceeds from sales of assets 5.6 1.2 9.3 1.2
Business acquisitions -- (79.3) -- (79.3)
Other (1.8) (1.6) (5.3) (3.5)
------ ------ ------ ------
Net cash used in
investing activities (8.7) (99.8) (27.2) (117.6)
Financing activities
Payments on long-term borrowings (0.9) (2.3) (0.9) (2.3)
Proceeds from long-term borrowings -- -- 0.5 --
Net short-term borrowings (30.4) 116.8 (26.0) 189.5
Proceeds from issuance of common stock 4.3 6.0 12.4 11.2
Purchase of common stock for treasury -- (0.1) (0.1) (0.2)
Cash dividends on common stock (20.5) (19.6) (40.9) (39.3)
------ ------ ------ ------
Net cash provided by (used in)
financing activities (47.5) 100.8 (55.0) 158.9
Effect of exchange rate changes on cash 1.9 (6.2) 2.1 (7.5)
------ ------ ------ ------
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 second quarter $139.6 $162.2 $139.6 $162.2
====== ====== ====== ======
See notes to consolidated financial statements.
-3-
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREOWNERS' EQUITY
(UNAUDITED, MILLIONS OF DOLLARS)
Accumulated
Other Compre-
hensive Total
Common Retained Income ESOP Treasury Shareowners'
Stock Earnings (Loss) Debt Stock Equity
----------------------------------------------------------------------------------------
Balance Dec 30, 2001 $230.9 $1,184.9 $(138.9) $(187.7) $(256.9) $832.3
Comprehensive income:
Net earnings 112.2 112.2
Foreign currency
translation & other 13.6 13.6
----
Total comprehensive
income 125.8
Cash dividends
declared (40.9) (40.9)
Net common stock
activity (11.3) 27.8 16.5
ESOP debt 3.4 3.4
ESOP and stock option
tax benefit 4.6 4.6
----------------------------------------------------------------------------------------
Balance June 29, 2002 $230.9 $1,249.5 $(125.3) $(184.3) $(229.1) $941.7
========================================================================================
Accumulated
Other Compre-
hensive Total
Common Retained Income ESOP Treasury Shareowners'
Stock Earnings (Loss) Debt Stock Equity
----------------------------------------------------------------------------------------
Balance Dec. 30, 2000 $230.9 $1,039.6 $(124.5) $(194.8) $(214.7) $ 736.5
Comprehensive income:
Net earnings 97.3 97.3
Foreign currency
translation & other (16.7) (16.7)
------
Total comprehensive
income 80.6
Cash dividends
declared (39.3) (39.3)
Net common stock
activity 30.8 (17.1) 13.7
ESOP debt 3.5 3.5
ESOP and stock option
tax benefit 2.4 2.4
----------------------------------------------------------------------------------------
Balance June 30, 2001 $230.9 $1,130.8 $(141.2) $(191.3) $(231.8) $ 797.4
========================================================================================
See notes to consolidated financial statements.
-4-
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
------- ------- -------- --------
$ 88.1 $ 88.2 $ 168.5 $ 162.4
======= ======= ======== ========
See notes to consolidated financial statements.
-5-
THE STANLEY WORKS AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 29, 2002
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial statements and with the instructions to Form 10-Q and Article 10 of
Regulation S-X and do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments
considered necessary for a fair presentation of the results of operations for
the interim periods have been included. For further information, refer to the
consolidated financial statements and footnotes included in the company's Annual
Report on Form 10-K for the year ended December 29, 2001.
NOTE B - EARNINGS PER SHARE COMPUTATION
The following table reconciles the weighted average shares outstanding used to
calculate basic and diluted earnings per share.
Second Quarter Six Months
2002 2001 2002 2001
---------- ---------- ---------- ----------
Net earnings -
basic and diluted $ 63.3 $ 50.7 $112.2 $ 97.3
========== ========== ========== ==========
Basic earnings per share -
weighted average shares 85,821,784 85,838,839 85,676,669 85,855,588
Dilutive effect of
employee stock options 2,289,587 1,678,487 2,294,893 1,437,848
---------- ---------- ---------- ----------
Diluted earnings per share -
weighted average shares 88,111,371 87,517,326 87,971,562 87,293,436
========== ========== ========== ==========
NOTE C - INVENTORIES
The components of inventories at the end of the second quarter of 2002 and at
year-end 2001, in millions of dollars, are as follows:
June 29 December 29
2002 2001
------ --------
Finished products $309.1 $308.0
Work in process 51.3 49.1
Raw materials 41.4 53.0
------ -------
$401.8 $410.1
====== =======
-6-
NOTE D - GOODWILL AND OTHER INTANGIBLES
The components of goodwill and other intangibles at the end of the second
quarter of 2002 and at year-end 2001, in millions of dollars, are as follows:
June 29 December 29
2002 2001
------ --------
Goodwill, net $219.3 $216.2
Other intangibles 47.5 54.3
Accumulated amortization (26.9) (34.4)
-------- -------
$239.9 $236.1
======== =======
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets", there is no amortization of goodwill
recorded in 2002. The company records amortization expense for its other
intangibles, primarily patents, copyrights and trademarks. Second quarter
amortization expense for these assets totaled $0.4 million in 2002 and $0.7
million in 2001. Year-to-date amortization for these assets totaled $0.8 million
in 2002 and $1.4 million in 2001.
NOTE E - OTHER-NET
Other-net for the second quarter and year to date period in 2002, includes an
$18.4 million gain related to the settlement of the company's U.S. defined
benefit pension plan, or $0.6 per share, net of taxes. Other-net for the 2001
year to date period includes a curtailment gain of $29.3 million, or $0.22 per
share, net of taxes. These gains were recorded in accordance with SFAS No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination of Benefits". See Note H for a further
discussion as it relates to other-net.
NOTE F - RESTRUCTURING AND ASSET IMPAIRMENTS
In June 2002, the company recorded $8.4 million in severance charges as the
company continues to rationalize its headcount to provide further SG&A expense
reductions. $0.7 million was expended in June. The Company anticipates the
$7.7 million balance of payments will be made by March 2003.
In the first quarter of 2001, the Company recorded additional restructuring
reserves of $18.3 million for initiatives pertaining to the further reduction of
its cost structure and executed several business repositionings intended to
improve its competitiveness.
Restructuring reserves as of the beginning of 2002 were $38.5 million. These
reserves consisted of $26.1 million related to severance, $5.8 million related
to asset impairments and $6.6 million related to other exit costs. Of this
amount, $2 million was for certain run-off expenditures of initiatives announced
in 1997 and 1999 primarily related to noncancelable leases. For the 2002 year to
date period, the Company charged $28.1 million against these reserves; $19.9
million for severance, $0.5 million for asset impairments and $7.7 million for
other exit costs.
NOTE G - CONTACT EAST ACQUISITION
During the second quarter of 2001, the Company completed the acquisition of
Contact East, a leading business to business distributor of mission critical
tools and supplies for assembling, testing and repairing electronics in the
United States, at a total cost of $79.3 million.
The transaction was accounted for using the purchase method of accounting.
Results of operations of Contact East have been included in the Company's
consolidated financial statements from the date of purchase. Pro forma amounts
are not presented because the impact on the Company's results are not material.
-7-
NOTE H - RECENT ACCOUNTING PRONOUNCEMENTS
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. Second quarter
and year to date 2002 net sales include $5.8 million and $10.7 million,
respectively, of co-operative advertising ("co-op") amounts that would have been
recorded to SG&A under the company's previous accounting policy. In addition,
second quarter and year to date 2001 net sales and SG&A are $4.9 million and
$9.5 million, lower than previously published amounts, respectively, reflecting
reclassification of co-op expenses.
In June 2001, the Financial Accounting Standards Board issued SFAS No. 142. This
statement requires that goodwill and intangible assets deemed to have an
indefinite life not be amortized. Instead of amortizing goodwill and intangible
assets deemed to have an indefinite life, the statement requires a test for
impairment to be performed annually, or immediately if conditions indicate that
such an impairment could exist. The Company adopted the statement effective
January 1,2002. As a result of adopting SFAS No. 142, the Company no longer
records goodwill amortization. Goodwill amortization included in other-net for
the second quarter of 2001 was $1.9 million, ($1.7 million, net of taxes) or
$0.02 per share. Thus, second quarter 2001 proforma net income and diluted
earnings per share, excluding goodwill amortization, are $52.4 million and
$0.60, respectively. Year to date goodwill amortization included in other-net in
2001 is $3.2 million ($2.6 million, net of taxes), or $0.03 per share. Thus,
year to date 2001 proforma net income and diluted earnings per share, excluding
goodwill amortization, are $99.9 million and $1.15, respectively.
NOTE I - SUBSEQUENT EVENTS
In July 2002, the company completed the acquisitions of Senior Technologies,
Inc., a market leader of personal security systems for the nursing home market,
and certain assets of Avnet, Inc's Production Supplies and Test division, a
distributor of supplies to the electronic assembly industry. The total cost of
these acquisitions was $34 million.
On August 2, 2002, management of the company, with approval from the Board of
Directors, withdrew plans for the proposed reincorporation in Bermuda.
-8-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales are $649.1 million for the second quarter of 2002, as compared to
$671.6 million for the second quarter of 2001, representing a decline of $22.5
million, or 3.4%. The decrease in net sales is attributable to the Tools segment
where continued weakness in the industrial tools channels and inventory
reductions at major retail customers drove unit volume declines year over year.
Year to date net sales are $1,265.8 million in 2002 as compared to $1,293.2 for
the same period in 2001. The year to date decline in sales is primarily
attributable to the quarterly discussion above as net sales for the first
quarter of 2002 were relatively static against first quarter sales of 2001
(decline of less than 1%).
Gross profit for the second quarter of 2002 of $223 million is $11.3 million
lower than the $234.3 million reported in the second quarter of 2001. The
decline in gross profit is primarily a result of the decline in net sales noted
above. To a lesser extent, a decline in the gross profit percentage of 50 basis
points from 34.9% in the 2001 second quarter to 34.4% in the 2002 second quarter
also contributed to the decline in gross profit. Year to date gross profit for
2002 amounts to $438.5 million as compared with $457.4 million for the same
period in 2001, representing 34.6% and 35.4% of net sales, respectively.
Included in year to date gross profit for 2001 is $6.2 million in special
charges related to repositioning primarily at Mechanics Tools incurred in the
first quarter of 2001. Excluding these special charges, year to date 2001 gross
profit totaled $463.6 million, or 35.8% of net sales. Year to date gross profit
for 2002 declined by $25.1 million and gross profit as a percent of sales
declined by 120 basis points when excluding the special charges. The drivers for
the decline in year to date gross profit in 2002 as compared to 2001 are
consistent with the explanations for the second quarter. In addition, the
decline in gross profit as a percentage of sales for the 2002 second quarter and
year to date period as compared to the same periods in 2001 are primarily a
result of a mix shift from higher margin to lower margin activities (industrial
to retail).
Selling, general and administrative ("SG&A") expenses for the second quarter of
2002 are $134.9 million or 20.8% of net sales. The reported amount includes $8.4
million in severance charges as the company continues to rationalize its
headcount to provide further SG&A expense reductions. SG&A expenses for the 2001
second quarter were $146.1 million, or 21.8% of net sales. Excluding the impact
of the 2002 severance charges noted above, SG&A expenses declined $19.6 million,
or 230 basis points as a percentage of net sales in the second quarter of 2002
as compared to the same period in 2001. 2002 year to date SG&A expenses are
$270.0 million, or 21.3% of net sales as compared with $295.0 million, or 22.8%
of net sales, for the same period in 2001. As indicated, SG&A expenses in 2002
include $8.4 million in severance charges incurred in the second quarter of
2002. In addition, year to date 2001 SG&A expenses include $3.3 million in
special charges from the Mechanic Tools repositioning. Excluding these items,
year to date SG&A expenses declined $30.1 million from $291.7 in 2001 to $261.6
million in 2002, resulting in a 180 basis point decline in SG&A expenses as a
percentage of net sales from 22.5% in 2001 to 20.7% in 2002. The decline in 2002
SG&A expenses for both the quarterly and year to date periods are primarily from
headcount reductions and the result of the company's previous restructuring
actions. Partially offsetting the declines in SG&A expenses are $2 million and
$4 million incurred in the 2002 second quarter and year to date period,
respectively, for expenses related to the proposed Bermuda re-incorporation.
Interest expense for the 2002 second quarter declined by $2.2 million as
compared with the 2001 second quarter from $9.1 million to $6.9 million. 2002
year to date interest expense declined by $3.4 million, from $17.4 million in
2001 to $14.0 million in 2002. These decreases are a result of declines in both
the weighted-average debt balance and the company's borrowing rates.
-9-
Other-net for the second quarter of 2002 represents income of $21.0 million.
Included in this amount is a gain of $18.4 million for the company's settlement
of its U.S. defined benefit pension plan. Excluding this gain, other-net
represents income of $2.6 million as compared to expense of $5.0 million for the
second quarter of 2001. The fluctuation in other-net is a result of a decrease
in the amortization of goodwill and other intangible assets of $2.2 million,
primarily as a result of the implementation of SFAS No. 142 and a $3.3 million
gain from the sale of a parcel of real estate. The remaining change in other-net
was primarily the result of an improvement in the company's MAC Advantage
financing program in the second quarter of 2002 as compared to the same period
in 2001. Year to date, other-net represents income of $18.9 million in 2002 as
compared with income of $16.1 million in 2001. As indicated, 2002 includes $18.4
million for a U.S. pension settlement gain. Year to date 2001, other-net
includes a gain on the curtailment of that same pension plan of $29.3 million
and $1.7 million of business repositioning one time charges. Excluding these
items, other-net for the year to date period in 2002 represents income of $0.5
million and year to date 2001 other-net represents expense of $11.5 million. The
improvement in other-net for the year to date period is the result of a decrease
in the amortization of goodwill and other intangibles of $3.8 million, primarily
as a result of the implementation of SFAS No. 142. The remaining improvement in
other-net for the 2002 year to date period is consistent with that of the
quarterly period noted above (gain on the sale of an asset and the improvement
in the company's MAC Advantage financing program).
The company incurred $18.3 million in restructuring charges and asset
impairments in the first quarter of 2001 that are reflected in the 2001 year to
date results. These charges were incurred as the company took new initiatives to
reduce its cost structure. Restructuring reserves as of the beginning of 2002
are $38.5 million. These reserves consist of $26.1 million related to severance,
$5.8 million related to asset impairments and $6.6 million related to other exit
costs. Of this amount, $2 million was for certain run-off expenditures of
initiatives announced in 1997 and 1999 primarily related to noncancelable
leases. Year to date in 2002, the Company charged $28.1 million against these
reserves; $19.9 million for severance, $0.5 million for asset impairments and
$7.7 million for other exit costs.
The company's effective tax rate for the second quarter of 2002 is 38.7% as
compared with 33.0% in the second quarter of 2001. The 2002 effective rate
includes the impact of the tax expense related to the settlement of the defined
benefit plan that increased the effective rate by 6.7% for the period. Excluding
this transaction, the company's effective tax rate for the second quarter of
2002 is 32.0%. The decline in the rate from 33.0% in 2001 to 32.0% in 2002 is
the result of organizational and structural changes, primarily in Europe. For
the year to date periods, the effective tax rate in 2002 totaled 35.9% as
compared with 33.4% in 2001. Excluding the pension settlement in 2002 and the
2001 special charges and credits, which include the Mechanics Tools
repositionings, restructuring charges and asset impairments and the pension
curtailment, all discussed previously, the 2002 year to date effective tax rate
was 32.0% as compared with 33.0% for the same period in 2001. The year to date
decline in the effective tax rate is also a result of organizational and
structural changes.
-10-
BUSINESS SEGMENT RESULTS
The Tools segment includes carpenters, mechanics, pneumatic and hydraulic tools
as well as tool sets. The Doors segment includes commercial and residential
doors, both automatic and manual, as well as closet doors and systems, home
decor and door and consumer hardware. Segment eliminations are excluded.
Tools sales declined in the second quarter from $521.2 million in 2001 to $496.5
million in 2002, a decrease of 4.7%. For the 2002 year to date period, net sales
are down by 3.4%, from $1,009.2 million in 2001 to $974.5 million in 2002. The
decrease in net sales for the Tools segment for both the quarter and year to
date is primarily the result of unit volume declines. Tools operating profit
declined $8.1 million from the second quarter of 2001 as compared to the second
quarter of 2002. Included in operating profit, however, was $7.8 million in
severance incurred in the 2002 second quarter. Excluding these charges,
operating profit for the Tools segment is $73.4 million, or 14.8% of net sales
in the second quarter of 2002 as compared with operating profit of $73.7
million, or 14.1% of net sales for the same period in 2001. Year to date
operating profit for the Tools segment is $127.4 million in 2002 as compared
with $136.4 million in 2001. As indicated, the 2002 year to date period,
includes severance charges of $7.8 million that were incurred in the 2002 second
quarter. In addition, operating profit for the 2001 year to date period includes
a special charge for business repositionings of $9.2 million that were incurred
in the first quarter of 2001. Excluding these items, year to date operating
profit in 2002 for the Tools segment is $135.2 million, or 13.9% of net sales
and is $145.6 million, or 14.4% of net sales, for the same period in 2001.
Doors sales were $152.6 million in the second quarter of 2002 as compared to
$150.4 million in the second quarter of 2001 and $291.3 million for the 2002
year to date period versus $284.0 million for the same period in 2001. Excluding
$0.6 million in severance charges related to Doors in the second quarter of
2002, operating profit improved $8.6 million to $23.1 million as compared with
$14.5 million in the second quarter of 2001. Year to date operating profit,
excluding the $0.6 million in severance charges incurred in the second quarter
of 2002 is $41.7 million in 2002 as compared with $26.3 million in 2001. The
2001 year to date amount excludes $0.3 million in special charges attributable
to the Doors segment related to business repositionings. Excluding severance and
special charges, operating profit for Doors totals 15.1% of net sales in the
second quarter of 2002 as compared to 9.6% for the second quarter of 2001 and is
14.3% of total net sales for the 2002 year to date period as compared with 9.3%
for the same period in 2001. The improvement in operating profit as a percentage
of sales for the Doors segment is attributable to improved productivity from the
movement of production within the segment to low cost countries and the
continued reduction of SG&A expenses.
FINANCIAL CONDITION
LIQUIDITY AND SOURCES OF CAPITAL
For the quarter and year to date period ended June 29, 2002, operating cash
flows are $84.0 million and $104.5 million, respectively as compared with $56.0
million and $34.8 million for the 2001 second quarter and year to date period,
respectively. The improvement is primarily the result of improvements in working
capital.
-11-
PART II OTHER INFORMATION
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
The Company's Annual Meeting was held on May 9, 2002.
(i) The following directors were elected:
Shares Voted Shares
For Withheld Non-Votes
Robert G. Britz 71,500,791 7,330,094 0
Stillman B. Brown 71,499,641 7,331,243 0
Emmanuel A. Kampouris 71,517,947 7,312,937 0
Derek V. Smith 71,538,457 7,292,428 0
Kathryn D. Wriston 71,489,572 7,341,313 0
(ii) Ernst & Young LLP was approved as the Company's independent auditors by the
following vote:
FOR 72,493,344 AGAINST 3,886,062
ABSTAIN 2,451,478 NOT VOTED 0
(iii) The company's reincorporation to Bermuda was approved by the following
vote:
FOR 57,308,010 AGAINST 14,886,827
ABSTAIN 1,002,439 NOT VOTED 5,633,608
NOTE: At the company's annual meeting on May 9, 2002, shareholders voted, among
other things, to approve the previously announced proposal to reincorporate in
Bermuda. At the annual meeting certain shareholders who were participants in the
company's 401(k) plan expressed some confusion with respect to voting procedures
for shares held in the plan. Although the company believed that the shareholder
vote at the annual meeting was fair and appropriate, it acknowledged concerns
that participants in the company's 401(k) plan may have been confused about
401(k) plan voting procedures. In order to eliminate any confusion and even the
appearance of impropriety and to ensure that the company acts in accordance with
its shareholders' wishes, on May 10, 2002, the company's Board of Directors
authorized a revote on the reorganization.
On August 2, 2002, management of the company, with approval from the Board of
Directors, withdrew plans for the proposed reincorporation in Bermuda.
ITEM 5. OTHER INFORMATION.
STANLEY ACCOUNT VALUE PLAN VOTING PROCEDURES
The following description of certain provisions relating to voting of The
Stanley Account Value Plan (the "Plan") is included in order to ensure Stanley's
compliance with the Securities and Exchange Commission Order File No. 4-460. The
Plan operates as a leveraged employee stock ownership plan and is designed to
comply with Sections 401(a), 401(k) and 4975(e)(7) of the Internal Revenue Code
of 1986, as amended, and is subject to the applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended. The Plan is a defined
contribution plan for eligible United States salaried and hourly paid employees
of Stanley.
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The trust agreement governing the Plan provides that the trustee will vote the
shares of Stanley common stock in the Stanley Stock Fund attributable to a
participant's Choice Account in the Plan in accordance with such participant's
directions. The trust agreement governing the Plan provides that, if the trustee
does not receive voting instructions with respect to shares of Stanley common
stock in the Stanley Stock Fund attributable to a participant's Choice Account
in the Plan, the trustee will vote such shares in the same proportion as it
votes the allocated shares for which instructions are received from Plan
participants. The trust agreement also provides that shares held in the Stanley
Stock Fund which are not allocated to Plan participants are to be voted by the
trustee in the same proportion as it votes the shares of Stanley common stock in
the Stanley Stock Fund attributable to Choice Accounts for which instructions
are received from Plan participants. Therefore, by providing voting instructions
with respect to shares of Stanley Stock in the Stanley Stock Fund attributable
to a participant's Choice Account in the Plan, a Plan participant will in effect
be providing instructions with respect to a portion of the shares in the Stanley
Stock Fund which are unallocated to Plan participants and a portion of the
shares of Stanley Stock in the Stanley Stock Fund attributable to Choice
Accounts in the Plan for which instructions were not provided as well. The
foregoing provisions are subject to applicable law which requires the trustee to
act as a fiduciary for Plan participants. Therefore, it is possible that the
trustee may vote shares of Stanley Stock in the Stanley Stock Fund attributable
to Choice Accounts in the Plan for which it does not receive instructions (as
well as shares held in the Stanley Stock Fund which are not allocated to Plan
participants) in a manner other than the proportionate method described above if
it believes that proportionate voting would violate applicable law.
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ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Exhibit 99.1 Certification pursuant to 18 U.S.C. section 1350, as adopted
pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 99.2 Certification pursuant to 18 U.S.C. section 1350, as adopted
pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
(B) REPORTS ON FORM 8-K.
(1) Company filed a Current Report on Form 8-K, dated April 3,
2002, providing earnings guidance for the first quarter,
second quarter and full year 2002 and commentary regarding
cash generation.
(2) Company filed a Current Report on Form 8-K, dated April 24,
2002, in respect of the Company's press release announcing
first quarter 2002 results.
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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: August 13, 2002 By: James M. Loree
James M. Loree
Vice President, Finance and
Chief Financial Officer
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