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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
Form 10-K
ANNUAL REPORT
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(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
- --- OF 1934 [FEE REQUIRED]
For the fiscal year ended January 2, 1999
---------------
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______________ to _______________
COMMISSION FILE 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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
Common Stock--Par Value $2.50 Per Share New York Stock Exchange
Pacific Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ].
The aggregate market value of Common Stock, par value $2.50 per share, held
by non-affiliates (based upon the closing sale price on the New York Stock
Exchange) on March 30, 1999 was approximately $2.2 billion. As of March 30,
1999, there were 88,874,717 shares of Common Stock, par value $2.50 per
share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareowners for the year ended January 2, 1999
are incorporated by reference into Parts I and II.
Portions of the definitive Proxy Statement dated April 1, 1999, filed with the
Commission pursuant to Regulation 14A, are incorporated by reference into Part
III.
FORM 10-K
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Part I
Item 1. Business
------------------
1(a) General Development of Business. (i) General. The Stanley Works
("Stanley" or the "Company") was founded in 1843 by Frederick T. Stanley and
incorporated in 1852. Stanley is a worldwide producer of tools and door
products for professional, industrial and consumer use. Stanley(R) is a brand
recognized around the world for quality and value.
In 1998, Stanley had net sales of $2.7 billion and employed approximately
18,000 people worldwide. The Company's principal executive office is located at
1000 Stanley Drive, New Britain, Connecticut 06053 and its telephone number is
(860) 225-5111.
(ii) July 1997 Restructuring Initiatives. In 1997, the Company began a
major restructuring to consolidate manufacturing and distribution operations,
simplify the organizational structure and make other changes to position itself
as a low cost producer. The savings associated with those changes are targeted
for reinvestment in growth initiatives such as new product and brand
development.
The Company made substantial progress on its restructuring initiatives in
1998. The plan called for spending $340 million (approximately $240 million of
restructuring charges recorded in 1997 and $100 million of transition costs
from 1997 to 1999) to generate annual savings of $145 million, all of which was
to be reinvested in growth initiatives. At the end of the 1998 fiscal year, the
Company had closed 39 facilities and reduced employment by approximately 3,000
people. Annual savings of $65 million have been generated by the initiatives,
all of which have been reinvested into funding growth.
In general the plans are progressing as originally identified, however,
there has been a shift toward closing more distribution centers, which will
result in lower severance costs offset by additional asset write offs. In
addition, the Year 2000 systems remediation activities have delayed several of
the functional centralization projects that are dependent upon achieving common
systems. Those initiatives may not be completely implemented until the end of
2000; however, the delay in timing is not expected to seriously affect the
anticipated results of the restructuring program. The Company anticipates
closing 20 additional facilities as part of the initiatives.
1(b) Financial Information About Segments. Financial information regarding
the Company's business segments is incorporated herein by reference from pages
31-32 and 36 of the
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Company's Annual Report to Shareowners for the year ended January 2, 1999.
1(c) Narrative Description of Business. The Company's operations are
classified into two business segments: Tools and Doors.
Tools. The Tools segment manufactures and markets carpenters, mechanics,
pneumatic and hydraulic tools as well as tool sets. These products are
distributed directly to retailers (including, home centers, mass merchants and
retail lumber yards) and end users as well as through third party distributors.
Carpenters tools include hand tools such as measuring instruments, planes,
hammers, knives and blades, screwdrivers, saws, garden tools, chisels, boring
tools, masonry, tile and drywall tools, as well as electronic stud sensors,
levels, alignment tools and elevation measuring systems. The Company markets
its carpenters tools under the Stanley(R), IntelliTools(TM), Contractor
Grade(TM), and Goldblatt(R) brands.
Mechanics tools include consumer, industrial and professional mechanics
hand tools, including, wrenches, sockets, electronic diagnostic tools, tool
boxes and high-density industrial storage and retrieval systems. Mechanics
tools are marketed under the Stanley(R), Proto(R), Mac(R), Zag(R) and
Blackhawk(TM) brands.
Pneumatic tools include STANLEY(R) BOSTITCH(R) fastening tools and
fasteners (nails and staples) used for construction, remodeling, furniture
making, pallet manufacturing and consumer use and pneumatic air tools (these
are high performance, precision assembly tools, controllers and systems for
tightening threaded fasteners used chiefly by vehicle manufacturers).
Hydraulic tools include Stanley(R) hand-held hydraulic tools used by
contractors, utilities, railroads and public works as well as LaBounty(R)
mounted demolition hammers and compactors designed to work on skid steer
loaders, mini-excavators, backhoes and large excavators.
Doors. The Doors segment manufactures and markets commercial and
residential doors, both automatic and manual, as well as closet doors and
systems, home decor and door and consumer hardware. Products in the Doors
segment include, residential insulated steel, reinforced fiberglass and wood
entrance door systems, vinyl patio doors, mirrored closet doors and closet
organizing systems, automatic doors as well as related door hardware products
ranging from hinges, hasps, bolts and latches to shelf brackets. Door products
are marketed under the Stanley(R), Magic-Door(R), Stanley-Acmetrack(TM),
Monarch(TM) and Acme(R) brands and are sold directly to end users and retailers
as well as through third party distributors.
-2-
Competition. The Company competes on the basis of its reputation for
product quality, its well-known brands, its commitment to customer service and
strong customer relationships, the breadth of its product lines and its
emphasis on product innovation.
The Company encounters active competition in all of its businesses from
both larger and smaller companies that offer the same or similar products and
services or that produce different products appropriate for the same uses. The
Company has a large number of competitors, however, aside from a small number
of competitors in the consumer hand tool and consumer hardware business who
produce a range of products somewhat comparable to the Company's, the majority
of its competitors compete only with respect to one or more individual products
within a particular line. The Company believes that it is the largest
manufacturer of hand tools in the world featuring a broader line than any other
toolmaker. The Company also believes that it is the leader in the manufacture
and sale of pneumatic fastening tools and related fasteners to the
construction, furniture and pallet industries as well as the leading
manufacturer of hand-held hydraulic tools used for heavy construction,
railroads, utilities and public works. In the Doors segment, the Company
believes that it is a U.S. leader in the manufacture and sale of insulated
steel residential entrance doors, commercial hardware products, mirrored closet
doors and hardware for sliding, folding and pocket doors and the U.S. leader in
the manufacture, sale and installation of power operated sliding doors.
Customers. A substantial portion of the Company's products are sold through
home centers and mass merchant distribution channels in the U.S. In 1998,
approximately 14% of the Company's consolidated sales in both the Tools and
Doors segments were to The Home Depot. Because a consolidation of retailers in
the home center and mass merchant distribution channel is occurring, these
customers constitute a growing percent of the Company's sales and are important
to the Company's operating results. While this consolidation and the domestic
and international expansion of these large retailers provide the Company with
opportunities for growth, the increasing size and importance of individual
customers creates a certain degree of exposure to potential volume loss. The
loss of Home Depot as well as certain of the other larger home centers as
customers would have a material adverse effect on each of the Company's
business segments until either such customers are replaced or the Company makes
the necessary adjustments to compensate for the loss of business.
Despite the trend toward customer consolidation, the Company has a
diversified customer base and is seeking to broaden its customer base further
in each business segment by identifying and seeking new channels and customers
that it does not currently serve.
-3-
Raw Materials. The Company's products are manufactured of steel and other
metals, wood and plastic. The raw materials required are available from a
number of sources at competitive prices and the Company has multi-year
contracts with many of its key suppliers. The Company has experienced no
difficulties in obtaining supplies in recent periods.
Backlog. At February 6, 1999, the Company had $141 million in unfilled
orders compared with approximately $135 million in unfilled orders at February
7, 1998. All these orders are reasonably expected to be filled within the
current fiscal year. Most customers place orders for immediate shipment and as
a result, the Company produces primarily for inventory, rather than to fill
specific orders. In 1998, the Company experienced problems with its customer
service levels. As a result, the Company has undertaken a company wide program
to eliminate low selling stock keeping units ("SKUs") in order to streamline the
manufacturing process and is implementing a Production-Sales-Inventory system
to align production with sales plans by SKU that have been developed for the
Company's major customers.
Patents and Trademarks. No business segment is dependent, to any
significant degree, on patents, licenses, franchises or concessions and the
loss of these patents, licenses, franchises or concessions would not have a
material adverse effect on any business segment. The Company owns numerous
patents, none of which are material to the Company's operations as a whole.
These patents expire from time to time over the next 17 years. The Company
holds licenses, franchises and concessions, none of which individually or in
the aggregate is material to the Company's operations as a whole. These
licenses, franchises and concessions vary in duration from one to 17 years.
The Company has numerous trademarks that are utilized in its businesses
worldwide. The STANLEY(R) and STANLEY (in a notched rectangle)(R) trademarks
are material to both business segments. These well-known trademarks enjoy a
reputation for quality and value and are among the world's most trusted brand
names. In 1998, the Company introduced its new tagline, "Make Something
Great(TM)", which is the centerpiece of the Company's new brand strategy for
both segments. In the Tools segment, the Bostitch(R), Powerlock(R), Tape Rule
Case Design (Powerlock)(R), LaBounty(R), MAC Tools(R), Proto(R), Jensen(R),
Goldblatt(R) and Vidmar(R) trademarks are also material to the business.
Environmental Regulations. The Company is subject to various environmental
laws and regulations in the U.S. and foreign countries where it has operations.
Future laws and regulations are expected to be increasingly stringent and will
likely increase the Company's expenditures related to environmental matters.
-4-
The Company is involved with remedial and other environmental compliance
activities at some of its current and former sites. Additionally, the Company,
together with many other parties, has been named as a potentially responsible
party ("PRP") in a number of administrative or judicial proceedings for the
remediation of various waste sites, including nine Superfund sites. Current
laws potentially impose joint and several liability upon each PRP. In assessing
its potential liability at these sites, the Company has considered the
following: the solvency of the other PRP's, whether responsibility is being
disputed, the terms of existing agreements, experience at similar sites, and
the fact that its volumetric contribution at these sites is relatively small.
The Company's policy is to accrue environmental investigatory and
remediation costs for identified sites when it is probable that a liability has
been incurred and the amount of loss can be reasonably estimated. The amount of
liability recorded is based on an evaluation of currently available facts with
respect to each individual site and includes such factors as existing
technology, presently enacted laws and regulations, and prior experience in
remediation of contaminated sites. The liabilities recorded do not take into
account any claims for recoveries from insurance or third parties. As
assessments and remediation progress at individual sites, the amounts recorded
are reviewed periodically and adjusted to reflect additional technical and
legal information that becomes available. As of January 2, 1999, the Company
had reserves of approximately $31 million, primarily for remediation activities
associated with company-owned or formerly owned properties as well as for
Superfund sites.
The amount recorded for identified contingent liabilities is based on
estimates. Amounts recorded are reviewed periodically and adjusted to reflect
additional technical and legal information that becomes available. Actual costs
to be incurred in future periods may vary from the estimates, given the
inherent uncertainties in evaluating environmental exposures. Subject to the
imprecision in estimating future environmental costs, the Company does not
expect that any sum it may have to pay in connection with environmental matters
in excess of the amounts recorded will have a materially adverse effect on its
financial position, results of operations or liquidity.
Power-generating Subsidiary. Under the General Statutes of Connecticut, the
Company is deemed to be a "holding company" that controls an electric company
as a result of its being the sole shareholder of Farmington River Power Co., a
power-generating subsidiary of the Company since 1916. Under such statute, no
organization or person may take any action to acquire control of such a holding
company without the prior approval of the Connecticut Department of Public
Utility Control.
-5-
Employees. During 1998, the Company had approximately 18,000 employees,
approximately 11,000 of whom were employed in the U.S. Of these U.S. employees,
approximately 16% are covered by collective bargaining agreements with
approximately 8 labor unions. The majority of the Company's hourly- and
weekly-paid employees outside the U.S. are covered by collective bargaining
agreements. The Company's labor agreements in the U.S. expire in 1999, 2000 and
2001. There have been no significant interruptions or curtailments of the
Company's operations in recent years due to labor disputes. The Company
believes that its relationship with its employees is good.
Cautionary Statements. The statements contained in the Annual Report to
Shareowners (incorporated by reference in this document) regarding the
Company's ability to achieve operational excellence and deliver sustained,
profitable growth, (e.g., sales growth at twice the industry rate, earnings
growth in the low to mid teens and dividend growth), are forward looking and
inherently subject to risk and uncertainty.
The Company's drive for operational excellence is focused on improving customer
service, consolidating multiple manufacturing and distribution facilities,
outsourcing non-core activities and converting to common systems. The ability
to implement the initiatives associated with these goals is dependent on the
Company's ability to increase the effectiveness of its routine business
processes and to develop and execute comprehensive plans for facility
consolidations, the ability of the organization to complete the transition to a
product management structure without losing focus on the business, the
availability of vendors to perform non-core functions being outsourced, 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 during the transition and other unforeseen events.
The Company's ability to generate sustained, profitable growth is dependent on
successfully freeing up resources to fund new product and brand development and
new ventures to broaden its markets and to defend market share in the face of
price competition. Success at developing new products will depend on the
ability of the new product development process to foster creativity and
identify viable new product ideas as well as the Company's ability to attract
new product engineers and to design and implement strategies to effectively
commercialize the new product ideas. The achievement of growth through new
ventures will depend upon the ability to successfully identify, negotiate,
consummate and integrate into operations acquisitions, joint ventures and/or
strategic alliances.
The Company's ability to achieve and sustain the improvements resulting from
these initiatives will be dependent on the extent
-6-
of pricing pressure and other changes in its competitive markets, the continued
consolidation of customers in consumer channels, increasing global competition,
changes in trade, monetary and fiscal policies and laws, inflation, currency
exchange fluctuations, the impact of currency exchange rates on the
competitiveness of products and recessionary or expansive trends in the
economies in which the company operates.
Many statements regarding the state of the Company's Year 2000 ("Y2K")
readiness contained in the Management's Discussion and Analysis of Financial
Condition and Results of Operations section of the Annual Report are also
forward looking and inherently subject to risk and uncertainty. The nature,
scope and cost of the Company's Y2K project is based on management's best
estimates. These estimates are based in part on information obtained from third
parties (including customers, suppliers and consultants hired to assist in the
Y2K compliance program) and in part on numerous assumptions regarding future
events (including the ability of software vendors to implement new operating
systems or deliver upgrades and repairs as promised, and the availability of
new computer hardware and consultants to meet the Company's planned needs). Due
to the general level of uncertainty inherent in Y2K analysis, the Company is
unable to determine conclusively whether the consequences of potential Y2K
failures by either the Company or its customers and key suppliers will have a
material impact on the Company's results of operations, liquidity or financial
condition. It is likely, however, that if the Company is unable to complete its
Y2K project as planned or if the Company's key suppliers and customers or a
sizable number of its smaller suppliers and customers fail to remediate their
systems, this will have a material adverse impact on the Company's results of
operations, liquidity and financial condition. The Company's Y2K project is
expected to significantly reduce the Company's level of uncertainty about the
Y2K problem, and to reduce the likelihood of risk of interruptions to routine
business operations.
1(d) Financial Information About Geographic Areas. Geographic area
information on page 36 of the Annual Report to Shareowners for the year ended
January 2, 1999 is incorporated herein by reference.
In addition, approximately 14% of the Company's long-lived assets are related
to its Israeli operations.
Item 2. Properties.
-------------------
As of January 2, 1999, Registrant and its subsidiaries owned or leased
facilities for manufacturing, distribution and sales
-7-
offices in 29 states and 31 foreign countries. The Registrant believes that its
facilities are suitable and adequate for its business.
A summary of material locations (over 50,000 square feet) that are owned by
the Registrant and its subsidiaries are:
Tools
-----
Phoenix, Arizona; Visalia, California; Clinton and New Britain,
Connecticut; Shelbyville, Indiana; Kansas City, Kansas; Two Harbors, Minnesota;
Hamlet, North Carolina; Columbus, Georgetown and Sabina, Ohio; Allentown and
Royersford, Pennsylvania; East Greenwich, Rhode Island; Cheraw, South Carolina;
Shelbyville, Tennessee; Dallas and Wichita Falls, Texas; Pittsfield and
Shaftsbury, Vermont; Heidelberg West and Ingleburn, Australia; Smiths Falls,
Canada; Pecky, Czech Republic; Ecclesfield, Hellaby, Manchester and Sheffield,
England; Besancon Cedex and Maxonchamp, France; Wieseth, Germany; Chihuahua and
Puebla, Mexico; Wroclaw, Poland; Taichung Hsien, Taiwan; and Amphur Bangpakong,
Thailand.
Doors
-----
Chatsworth and San Dimas, California; Farmington and New Britain,
Connecticut; Richmond, Virginia; Brampton, Canada; Sheffield, England; and
Marquette, France.
A summary of material locations (over 50,000 square feet) that are leased
by the Registrant and its subsidiaries are:
Tools
-----
Miami, Florida; Covington, Georgia; Fernley, Nevada; Charlotte and
Kannapolis, North Carolina; Cleveland and Columbus, Ohio; Milwaukie, Oregon;
Carrollton, Texas; Burlington, Canada; and Northampton, England.
Doors
-----
Orlando, Florida; Troy, Michigan; Tupelo, Mississippi; Charlotte, North
Carolina; Winchester, Virginia; and Langley, Montreal and Oakville, Canada.
Item 3. Legal Proceedings.
---------------------------
In the normal course of business, the Company is involved in various
lawsuits, claims, including product liability and distributor claims, and
administrative proceedings. The Company
-8-
does not expect that the resolution of these matters will have a materially
adverse effect on the Company's consolidated financial position, results of
operations or liquidity.
Item 4. Submission of Matters to a Vote of Security Holders.
-------------------------------------------------------------
No matter was submitted during the fourth quarter of the Registrant's last
fiscal year to a vote of security holders.
Executive Officers. The following is a list of the executive officers of
the Registrant as of January 2, 1999:
Elected
Name, Age, Birth date Office to Office
- --------------------- ------ ---------
J.M. Trani (54) Chairman and Chief Executive Officer. 12/31/96
(3/15/45) Joined Stanley December 31, 1996;
1986 President and Chief Executive
Officer of GE Medical Systems.
W.D. Hill (49) Vice President, Engineering. Joined 9/17/97
(9/18/49) Stanley August 1997; 1996 Director
Product Management - Tool Group, Danaher
Tool; 1994 Vice President, Product
Development Global Accessories, The Black &
Decker Corporation; 1992 Vice President
Product Development - N.A. Power Tools, The
Black & Decker Corporation.
S.G.H. Kranendijk (47) President, Europe. Joined Stanley 12/16/98
(12/29/51) August 1998; 1997 Chief Executive
Officer Poland, Baltics and Belarus,
Procter & Gamble, Poland; 1994 Vice
President and General Manager laundry,
cleaning and paper, Procter & Gamble, Germany.
K.O. Lewis (45) Vice President, Marketing and Brand 11/3/97
(5/28/53) Management. Joined Stanley November
1997; 1996 Executive Vice President
Strategic Alliances, Marvel Entertainment
Group; 1986 Director Participant Marketing,
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Walt Disney Attractions.
M.J. Mathieu (47) Vice President, Human Resources. 9/17/97
(2/20/52) Joined Stanley September 1997;
1996 Manager - Human Resources,
GE Motors & Industrial Systems
(Fort Wayne, Indiana); 1994
Consultant - Executive Staffing,
General Electric Company (Fairfield,
Connecticut); 1989 Consultant -
Union Relations, General Electric
Company.
P.W. Russo (45) Vice President, Strategy and 9/18/95
(5/23/53) Development. Joined Stanley
in 1995; 1991 Co-Chairman and
Co-Chief Executive Officer, SV
Corp. (formerly Smith Valve Corp.);
1988 Co-founder and Managing
Director, Cornerstone Partners
Limited.
J.M. Turner (52) President, Consumer Sales Americas. 12/1/98
(7/23/46) Joined Stanley December 1998;
1994 Vice President-Global Sales
Federal Express Corporation;
1987 Managing Director-Government
Sales Federal Express Corporation.
J.E. Turpin (52) Vice President, Operational Excellence. 4/23/97
(6/9/46) Joined Stanley in 1970; 1995 Vice
President Operations, The Stanley
Works; 1992 President & General
Manager, Stanley Air Tools.
S.S. Weddle (60) Vice President, General Counsel 1/1/88
(11/9/38) and Secretary. Joined Stanley in 1978.
T.F. Yerkes (43) Vice President and Controller. Joined 7/1/93
(9/9/55) Stanley in 1989; 1990 Director of
Accounting and Financial Reporting.
Executive officers serve at the pleasure of the Board of Directors. Unless
otherwise indicated, each officer has had the same position with the Registrant
for five years.
Part II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters. Registrant incorporates by
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reference the line item "Shareowners of record at end of year" from pages 26
and 27 and the material captioned "Investor and Shareowner Information" on page
53 of its Annual Report to Shareowners for the year ended January 2, 1999.
Recent Sales of Unregistered Securities
- ---------------------------------------
(A) During the fourth fiscal quarter of 1998, 1,136 shares were issued to
certain participants in the Company's German Savings Related Share Plans (the
"German Savings Plan") and 3,250 shares were issued under the Company's U.K.
Savings Related Share Plans (the "U.K. Savings Plan" and, collectively with the
German Savings Plan, the "Savings Plan"). Under the Saving Plan, shares are
issued to employees who elect at the end of the five year savings period or
upon termination of employment to receive the accumulated savings in the form
of shares of the Company's stock rather than cash.
(B) Participation in the Savings Plan is offered to all employees of the
Company's subsidiaries in the United Kingdom and Germany.
(C) The total dollar value of the shares issued during the quarter was
$75,115.13.
Under the German Savings Plan 1,136 shares were issued at $15.8834 per
share with an aggregate value of $18,043.54
Under the U.K. Savings Plan:
480 shares were issued at $18.15 per share with an aggregate value of
$8,712.00
1,238 shares were issued at $15.5334 per share with an aggregate value of
$19,230.35
1,110 shares were issued at $15.8834 per share with an aggregate value of
$17,630.57
279 shares were issued at $24.15 per share with an aggregate value of
$6,737.85
138 shares were issued at $33.1333 per share with an aggregate value of
$4,572.40
5 shares were issued at $37.6833 per share with an aggregate value of
$188.42
(D) Neither the options nor the underlying shares have been registered in
reliance on an exemption from registration found in several no-action letters
issued by the Division of Corporation Finance of the Securities and Exchange
Commission. Registration is not required because the Company is a reporting
company under the Securities Exchange Act of 1934, its shares are actively
traded, the number of shares issuable under the Savings Plans is small relative
to the number of shares outstanding, all eligible employees are entitled to
participate, the shares are being
-11-
issued in connection with the employees' compensation, not in lieu of it and
there is no negotiation between the Company and the employee regarding the
grant.
(E) Under the Savings Plans, employees are given the right to buy a specified
number of shares with the proceeds of a "Save-as-You-Earn" savings contract.
Under the savings contract, the employee authorizes 60 monthly deductions from
his or her paycheck At the end of the five year period, the employee may elect
to (i) use all or a part of the accumulated savings to buy all or some of the
shares under the employee's options, (ii) leave the accumulated savings with
the financial institution that has custody of the funds for an additional two
years or (iii) take a cash distribution of the accumulated savings. The option
to purchase shares will lapse at the end of the five year period if not
exercised at that time.
Item 6. Selected Financial Data. Registrant incorporates by reference pages
26 and 27 of its Annual Report to Shareowners for the year ended January 2,
1999.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations. Registrant incorporates by reference pages 30 through 35
of its Annual Report to Shareowners for the year ended January 2, 1999.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Registrant incorporates by reference the material captioned "Market Risk" on
page 33 and Footnote I on pages 43-44 of its Annual Report to Shareowners for
the year ended January 2, 1999.
Item 8. Financial Statements and Supplementary Data. The consolidated
financial statements and report of independent auditors included on pages 37 to
51 and page 29, respectively, of the Annual Report to Shareowners for the year
ended January 2, 1999 are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure. None.
Part III
Item 10. Directors and Executive Officers of the Registrant. Information
regarding the Company's Executive Officers appears in the "Executive Officers"
section at the end of Part I of this report. In addition, the Registrant
incorporates by reference pages 1 through 4 of its definitive Proxy Statement,
dated April 1, 1999.
Item 11. Executive Compensation. Registrant incorporates by reference
the last paragraph of "Information Concerning Directors Continuing in Office"
on page 4 and the material captioned "Executive Compensation" on pages 6
through 14 of its definitive Proxy Statement, dated April 1, 1999.
-12-
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Registrant incorporates by reference the material captioned "Security
Ownership" on pages 5 and 6 of its definitive Proxy Statement, dated April 1,
1999.
Item 13. Certain Relationships and Related Transactions. None.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
14(a) Index to documents filed as part of this report:
1. and 2. Financial Statements and Financial Statement Schedules.
The response to this portion of Item 14 is submitted as a separate section of
this report (see page F-1).
3. Exhibits
See Exhibit Index on page E-1.
14(b) The following reports on Form 8-K were filed during
the last quarter of the period covered by this report:
Date of Report Items Reported
-------------- --------------
October 21, 1998 Press Release dated October
21, 1998 announcing third
quarter results and fourth
quarter dividend.
November 5, 1998 Press Release dated November
5, 1998 announcing the
appointment of John M. Turner
and the retirement of Thomas
E. Mahoney, Jr.
-13-
14(c) See Exhibit Index on page E-1.
14(d) The response to this portion of Item 14 is submitted as a separate
section of this report (see page F-1).
-14-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By John M. Trani
-----------------------------------------
John M. Trani, Chairman
and Chief Executive Officer
February 24, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on February 24, 1999 by the following persons on
behalf of the Registrant and in the capacities indicated.
John M. Trani James G. Kaiser
- ------------------------------ ------------------------------
John M. Trani, Chairman, James G. Kaiser, Director
Chief Executive Officer and
Director
Theresa F. Yerkes Eileen S. Kraus
- ------------------------------ ------------------------------
Theresa F. Yerkes, Vice President Eileen S. Kraus, Director
and Controller (Chief Financial
Officer and Chief Accounting
Officer)
Stillman B. Brown Hugo E. Uyterhoeven
- ------------------------------ ------------------------------
Stillman B. Brown, Director Hugo E. Uyterhoeven, Director
Edgar R. Fiedler Walter W. Williams
- ------------------------------ ------------------------------
Edgar R. Fiedler, Director Walter W. Williams, Director
Mannie L. Jackson Kathryn D. Wriston
- ------------------------------ ------------------------------
Mannie L. Jackson, Director Kathryn D. Wriston, Director
-15-
FORM 10-K--ITEM 14(a) (1) and (2)
THE STANLEY WORKS AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements and report of independent
auditors of The Stanley Works and subsidiaries, included in the Annual Report
of the Registrant to its Shareowners for the fiscal year ended January 2, 1999,
are incorporated by reference in Item 8:
Report of Independent Auditors
Consolidated Statements of Operations--fiscal years ended January 2, 1999,
January 3, 1998 and December 28, 1996.
Consolidated Balance Sheets--January 2, 1999 and January 3, 1998.
Consolidated Statements of Cash Flows--fiscal years ended January 2, 1999,
January 3, 1998 and December 28, 1996.
Consolidated Statements of Changes in Shareowners' Equity--fiscal years
ended January 2, 1999, January 3, 1998 and December 28, 1996
Notes to Consolidated Financial Statements.
The following consolidated financial statement schedule of The Stanley
Works and subsidiaries is included in Item 14(d):
F-4 Schedule II--Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.
F-1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of The Stanley Works of our report dated January 28, 1999, except for the
second paragraph of Note H, as to which the date is February 24, 1999, included
in the 1998 Annual Report to Shareowners of The Stanley Works.
Our audits also included the consolidated financial statement schedule of The
Stanley Works listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the following registration
statements of our report dated January 28, 1999, except for the second
paragraph of Note H, as to which the date is February 24, 1999, with respect to
the consolidated financial statements incorporated herein by reference, and our
report included in the preceding paragraph with respect to the consolidated
financial statement schedule included in this Annual Report (Form 10-K) of The
Stanley Works.
Registration Statement (Form S-8 No. 2-93025)
Registration Statement (Form S-8 No. 2-96778)
Registration Statement (Form S-8 No. 2-97283)
Registration Statement (Form S-8 No. 33-16669)
Registration Statement (Form S-3 No. 33-12853)
Registration Statement (Form S-3 No. 33-19930)
Registration Statement (Form S-8 No. 33-39553)
Registration Statement (Form S-8 No. 33-41612)
Registration Statement (Form S-3 No. 33-46212)
Registration Statement (Form S-3 No. 33-47889)
Registration Statement (Form S-8 No. 33-55663)
Registration Statement (Form S-8 No. 33-62565)
Registration Statement (Form S-8 No. 33-62567)
Registration Statement (Form S-8 No. 33-62575)
ERNST & YOUNG LLP
Hartford, Connecticut
March 29, 1999
F-2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following registration
statements pertaining to The Stanley Works Account Value Plan of our report
dated March 19, 1999, with respect to the financial statements and schedules of
The Stanley Works Account Value Plan for the year ended December 31, 1998
included as Exhibit 99(i) to this Annual Report (Form 10-K) for the fiscal year
ended January 2, 1999.
Registration Statement (Form S-8 No. 2-97283)
Registration Statement (Form S-8 No. 33-41612)
Registration Statement (Form S-8 No. 33-55663)
ERNST & YOUNG LLP
Hartford, Connecticut
March 29, 1999
F-3
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
THE STANLEY WORKS AND SUBSIDIARIES
Fiscal years ended January 2, 1999, January 3, 1998 and December 28, 1996
(In Millions of Dollars)
- ------------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
----------------------------------------
Balance at (1) (2)
Description Beginning Charged to Costs Charged to Other Deductions- Balance at End
of Period and Expenses Accounts-Describe Describe of Period
- -----------------------------------------------------------------------------------------------------------------------------------
Fiscal year ended January 2, 1999
Reserves and allowances deducted from asset
accounts:
Allowance for doubtful accounts:
Current $19.8 $16.1 $0.8 (B) $10.0 (A) $26.7
Noncurrent 0.7 - - 0.1 (A) 0.6
Fiscal year ended January 3, 1998
Reserves and allowances deducted from asset
accounts:
Allowance for doubtful accounts:
Current $22.5 $20.2 ($6.8) (B) $16.1 (A) $19.8
Noncurrent 0.8 (0.2) 0.1 (B) - 0.7
Fiscal year ended December 28, 1996
Reserves and allowances deducted from asset
accounts:
Allowance for doubtful accounts:
Current $18.2 $21.1 - $16.8 (A) $22.5
Noncurrent 0.8 - - - 0.8
Notes: (A) Represents doubtful accounts charged off, less recoveries of accounts
previously charged off.
(B) Represents net transfers to/from other accounts, foreign currency
translation adjustments and acquisitions/divestitures.
F-4
EXHIBIT LIST
------------
(3) (i) Restated Certificate of Incorporation
(ii) By-laws (incorporated reference to Exhibit 3(i) to the Quarterly
Report on Form 10-Q for the quarter ended July 4, 1998)
(4) (i) Indenture, dated as of April 1, 1986 between the
Company and State Street Bank and Trust Company, as successor
trustee, defining the rights of holders of 7-3/8% Notes Due
December 15, 2002 and 5.75% Notes Due March 1, 2004 (incorporated
by reference to Exhibit 4(a) to Registration Statement No.
33-4344 filed March 27, 1986)
(ii) First Supplemental Indenture, dated as of June 15, 1992 between
the Company and State Street Bank and Trust Company, as successor
trustee(incorporated by reference to Exhibit (4)(c) to
Registration Statement No. 33-46212 filed July 21, 1992)
(a) Certificate of Designated Officers establishing Terms of 7-3/8%
Notes Due December 15, 2002 (incorporated by reference to Exhibit
(4)(ii) to Current Report on Form 8-K dated December 7, 1992)
(b) Certificate of Designated Officers establishing Terms of 5.75%
Notes Due March 1, 2004
(iii) Rights Agreement, dated January 31, 1996 (incorporated by
reference to Exhibit (4)(i) to Current Report on Form 8-K dated
January 31, 1996)
(iv)
(a) Amended and Restated Facility A (364 Day) Credit Agreement, dated
as of October 23, 1996, with the banks named therein and
Citibank, N.A. as agent (incorporated reference to Exhibit 4(iv)
to the Annual Report on Form 10-K for the year ended December 28,
1996)
(b) Credit Agreement, dated as of October 21, 1998, among the
Company, the Lenders named therein and Citibank, N.A. as agent
(incorporated reference to Exhibit 4(iv)(c) to the Quarterly
Report on Form 10-Q for the quarter ended October 3, 1998).
(v) Amended and Restated Facility B (Five Year) Credit Agreement,
dated as of October 23, 1996, with the banks named therein and
Citibank, N.A. as agent (incorporated reference to Exhibit 4(v)
to the
E-1-
Annual Report on Form 10-K for the year ended December 28, 1996)
(10) (i) Executive Agreements (incorporated by reference to Exhibit 10(i)
to the Annual Report on Form 10-K for the year ended January 3,
1987)*
(ii) Deferred Compensation Plan for Non-Employee Directors as amended
January 31, 1996 (incorporated by reference to Exhibit 10(i) to
Current Report on Form 8-K dated January 31, 1996)*
(iii) 1988 Long-Term Stock Incentive Plan, as amended (incorporated by
reference to Exhibit 10(iii) to the Annual Report on Form 10-K
for the year ended January 3, 1998)*
(iv) Management Incentive Compensation Plan effective January 4, 1998
(incorporated by reference to Exhibit 10(iii) to the Quarterly
Report on Form 10-Q for the quarter ended July 4, 1998)*
(v)
Deferred Compensation Plan for Participants in Stanley's
Management Incentive Plan effective January 1, 1996 (incorporated
by reference to Exhibit 10(v) to the Annual Report on Form 10-K
for the year ended December 30, 1995)*
(vi) Supplemental Retirement and Savings Plan for Salaried Employees
of The Stanley Works effective as of January 1, 1997
(incorporated by reference to Exhibit 10(vi) to the Annual Report
on Form 10-K for the year ended January 3, 1998)*
(vii) Note Purchase Agreement, dated as of June 30, 1998, between the
Stanley Account Value Plan Trust, acting by and through Citibank,
N.A. as trustee under the trust agreement for the Stanley Account
Value Plan, for $41,050,763 aggregate principal amount of 6.07%
Senior ESOP Guaranteed Notes Due December 31, 2009 (incorporated
by reference to Exhibit 10(i) to the Quarterly Report on Form
10-Q for the quarter ended July 4, 1998)
(viii) New 1991 Loan Agreement, dated June 30, 1998, between The Stanley
Works, as lender, and Citibank, N.A., as trustee under the trust
agreement for the Stanley Account Value Plan, to refinance the
1991 Salaried Employee ESOP Loan and the 1991 Hourly ESOP Loan
and
* Management contract or compensation plan or arrangement
E-2-
their related promissory notes (incorporated by reference to
Exhibit 10(ii) to the Quarterly Report on Form 10-Q for the
quarter ended July 4, 1998)
(ix) (a) Supplemental Executive Retirement Program effective May 20,
1997 (incorporated by reference to Exhibit 10(xi)(a) to the
Annual Report on Form 10-K for the year ended January 3, 1998)*
(b) Amendment to John M. Trani's Supplemental Executive Retirement
Program, dated September 17, 1997 (incorporated by reference to
Exhibit 10(xi)(b) to the Annual Report on Form 10-K for the
year ended January 3, 1998)*
(x)(a) The Stanley Works Non-Employee Directors' Benefit Trust Agreement
dated December 27, 1989 and amended as of January 1, 1991 by and
between The Stanley Works and Fleet National Bank, as successor
trustee (incorporated by reference to Exhibit (10)(xvii)(a) to
Annual Report on Form 10-K for year ended December 29, 1990)
(b) Stanley Works Employees' Benefit Trust Agreement dated December
27, 1989 and amended as of January 1, 1991 by and between The
Stanley Works and Fleet National Bank, as successor trustee
(incorporated by reference to Exhibit (10)(xvii)(b) to Annual
Report on Form 10-K for year ended December 29, 1990)
(xi) Restated and Amended 1990 Stock Option Plan (incorporated by
reference to Exhibit 10 (xiii) to Annual Report on Form 10-K for
the year ended December 28, 1996)
(xii) Master Leasing Agreement, dated September 1, 1992 between BLC
Corporation and The Stanley Works (incorporated by reference to
Exhibit (10)(i) to Quarterly Report on Form 10-Q for quarter
ended September 26, 1992)
(xiii) The Stanley Works Stock Option Plan for Non- Employee Directors,
as amended December 18, 1996 (incorporated by reference to
Exhibit 10(xvii) to the Annual Report on Form 10-K for the year
ended January 3, 1998)
(xiv) Employment Agreement effective December 27, 1996 between The
Stanley Works and John M. Trani (incorporated by reference to
Exhibit 10(i) to Current Report on Form 8-K dated January 2,
1997)*
* Management contract or compensation plan or arrangement
E-3-
(xv) Letter Agreement, dated April 30, 1996 between The Stanley Works
and Paul W. Russo (incorporated by reference to Exhibit 10(xx) to
the Annual Report on Form 10-K for the year ended January 3,
1998)*
(xvi) 1997 Long-Term Incentive Plan (incorporated by reference to
Exhibit 10(xxi) to the Annual Report on Form 10-K for the year
ended January 3, 1998)*
(xvii) Agreement, dated June 28, 1998 between The Stanley Works and Stef
G.H. Kranendijk
(xviii) Agreement, dated November 16, 1998 between The Stanley Works and
John A. Cosentino, Jr.
(11) Statement re computation of per share earnings (the information
required to be presented in this exhibit appears in footnote J to
the Company's Consolidated Financial Statements set forth in the
Annual Report to Shareholders for the year ended January 2, 1999)
(12) Statement re computation of ratio of earnings to fixed charges
(13) Annual Report to Shareowners for the year ended January 2, 1999
(21) Subsidiaries of Registrant
(23) Consents of Independent Auditors (at pages F-2 and F-3)
(27) Financial Data Schedule for 1998 Fiscal Year End
(99) (i) Financial Statements and report of independent auditors for the
year ended December 31, 1998, of The Stanley Works Account Value
Plan
(ii) Policy on Confidential Proxy Voting and Independent Tabulation
and Inspection of Elections as adopted by The Board of Directors
October 23, 1991 (incorporated by reference to Exhibit (28)(i) to
the Quarterly Report on Form 10-Q for the quarter ended September
28, 1991)
* Management contract or compensation plan or arrangement
E-4-