SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 9, 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 10 Pages
Item 7. Financial Statements and Exhibits.
(c) 20(i) Press Release dated April 9, 2003.
(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. The following
information is being provided under both
Item 9 and Item 12 of Form 8-K.
In a press release attached to this Form 8-K, the
company announced plans to improve operating
margin and reduce outstanding shares and
provided earnings guidance for the first quarter
of 2003 and the full year 2003. In a conference
call held today with industry analysts,
shareowners and other participants, the company
reviewed its plans and guidance as set forth in
the press release.
Page 2 of 10 Pages
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE STANLEY WORKS
Date: April 9, 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 April 9, 2003
Exhibit No. Page
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20(i) 4
20(ii) 9
Page 3 of 10 Pages
Exhibit 20(i)
FOR IMMEDIATE RELEASE
Stanley Works Announces "Operation 15" Margin Improvement Initiative And Plans
To Reduce Outstanding Shares By Over 9%
Substantially Reduces Equity Forward Position; Also Updates Earnings Outlook
New Britain, CT, April 9, 2003 - The Stanley Works (NYSE: "SWK") today announced
that its Board of Directors yesterday approved plans to execute Operation 15, a
margin improvement program that is consistent with the company's objective of
achieving a 15% operating margin as it exits 2003, and to reduce its share count
by over 9%.
Share Count Reduction
The share count reduction is expected to be achieved in two steps through
settlement of the company's equity hedge. The first step of approximately $100
million will be executed within days in transactions that will be accomplished
through block trades with certain major financial institutions with which the
company has equity forward contracts.
This action will reduce the company's outstanding shares by approximately 4
million or 5%. These transactions are expected to close within several days
using borrowings under existing lines of credit. No open market purchases of
shares will occur.
The second step of approximately $113 million should occur in the next few
months, again with no open market purchases, and will have the effect of further
reducing the company's outstanding shares. Several alternatives are being
evaluated to accomplish this second step and the company will await the issuance
of the FASB's "Limited Scope Final Statement On Liabilities and Equity"
(expected in late May).
The company has maintained an equity forward hedge program for several years
with the objective of minimizing exposure to earnings dilution from future share
price appreciation causing stock options to come "into-the-money." However, when
the company's share price declines to below certain thresholds, the share
settlement structure can result in significant earnings per share dilution.
Execution of the transactions announced today will eliminate this dilution risk
while still providing a partial hedge against the cash outflow that would
accompany potential share price increases.
Page 4 of 10 Pages
John M. Trani, Chairman and Chief Executive Officer, commented: "This is an
opportune way for our shareowners to benefit from our strong free cash flow.
These planned transactions will reduce risk associated with the equity forward
hedge and reduce outstanding shares. As we have stated previously, cash flow
generation is at the heart of successful businesses, and our record cash flow
has enabled us to take this action. Despite our reluctance to embark upon share
repurchases, the reality of our depressed share price warranted a forceful
response."
First Quarter Results
The company also indicated today that its first quarter 2003 sales increased
approximately 8%. Aside from the Best Access Systems acquisition, sales declined
1% - 2%. Sales were pressured by the effects of the weak global economy,
unusually adverse weather particularly in the Northeast, and light sales to
retail customers upon their recent inventory reductions.
Three factors - (1) the lower sales volume, (2) a sequential increase in
selling, general and administrative expenses that included severance costs, and
(3) accelerating commodity price pressures - will cause a lower than expected
earnings level of 33 cents -36 cents per fully-diluted share, excluding any
amounts which may be recorded in connection with the Mac Direct exit discussed
below. Severance costs of $3 million or 2 cents per fully diluted share were
incurred in the first quarter, and employment levels were reduced by over 300
people. Management's assessment of these results led to the conclusion that,
absent immediate corrective actions, 2003 earnings would fall short of
expectations, likely approximating $2.00 per share.
Commenting further on the first quarter results, which will be announced on
April 29, management cited the company's positive operating cash flow and a
strong performance from newly acquired Best Access Systems. Specifically, Best
Access had approximately $60 million of revenues (up 8% over 2002), added 3-4
cents of earnings per fully diluted share and generated free cash flow. Its
assimilation into Stanley is progressing extremely well.
Since the current economic environment may be "normal" for the foreseeable
future, the company plans to assume that sales, ex-acquisitions, will remain
flat. As a result, a swift set of actions will be undertaken to align the
company's cost structure with that assumption.
Page 5 of 10 Pages
Operation 15
Operation 15 consists of three elements designed to increase operating margin to
a 15% run rate entering the fourth quarter of 2003: (1) restructuring the
operations footprint, (2) reframing the organization structure and (3)
reconfiguring the business portfolio:
* The company will have a workforce reduction of over 1,000 people, the majority
of which are immediate. Included in this reduction are the closures of 4
manufacturing plants and 5 warehouses.
* Given the formation of the Tools Group and with processes for new product
development and productivity well established, the organization structure will
become more decentralized as several corporate staff positions will be
eliminated or reconfigured. As a result the following management changes were
announced:
* Donald R. McIlnay was named President, Stanley Door
Systems; he was formerly President, Consumer Sales Americas.
Mr. McIlnay will remain a corporate officer and a member of
the Corporate Executive Council.
* William D. Hill, Vice President - Engineering & Technology
and Paul Isabella, Vice President - Operations will continue
in those roles as members of the Tools Group. Mr. Hill and
Mr. Isabella will remain corporate officers and members of
the Corporate Executive Council.
* Corporate Councils ranging from new product development to
logistics have been formed to assure continuing process
consistency and best practice sharing. Mr. Hill and Mr.
Isabella will oversee two of these councils.
* Kenneth O. Lewis, Vice President Marketing and Brand
Development, and Paul E. Haviland, Vice President, Corporate
Planning & Development, will leave the company to pursue
other career opportunities.
* Reconfiguring the business portfolio will occur in Mac Tools, the objective of
which is its return to profitability. Programs to improve performance will be
implemented in the second quarter, including exiting the Mac Direct business.
Management stressed it remains highly committed to Mac Tools' independent
distributor model, which is solidly profitable, and sees it as an integral part
of the corporation's portfolio.
The company expects that these measures (excluding the Mac Direct exit) will
require severance payments and other exit costs, and will be accompanied by
Page 6 of 10 Pages
certain asset impairments. In addition to approximately $3 million of severance
incurred in the first quarter, these actions are expected to require pre-tax
charges of approximately $60 million during the year, of which $10-$15 million
are expected to be non-cash.
In addition, the exit of Mac Direct will require the liquidation of certain
assets such as inventories, accounts receivable, trucks and other items. The
aggregate net book value of these assets and certain lease obligations is
approximately $85 million. Management is formulating plans to maximize the
economic value associated with these items. Potential impairment charges related
to Mac Direct, as necessary, will be recorded in the appropriate period. The
first quarter GAAP earnings outlook excludes any such amounts which may be
recorded in first quarter results, as appropriate.
Management expects that the Operation 15 actions will generate benefits of
approximately $85 million annually and that, in doing so, will raise operating
margin to a record 15% as the company exits the year. Calendar year 2003
benefits are estimated at 40 cents-45 cents per share.
Considering all matters discussed above - the reduction of shares and both the
costs and benefits of Operation 15 - as well as other ongoing profit improvement
programs, the company expects the aforementioned $2.00 per share earnings level
currently inherent in the business to be augmented by 40 cents-45 cents per
share savings within 2003, offset by 40 cents-45 cents from the charges
discussed above. Mac Direct related impairment charges, as necessary, would
further reduce 2003 earnings per share.
In making these estimates, management assumes no net sales growth in 2003 aside
from the inclusion of Best Access Systems. The company expects to exit 2003 at a
$2.75 per share earnings run rate.
Mr. Trani stated: "This is a pervasive and rapid response to a clearly
unacceptable situation. The confluence of these actions is expected to deliver a
record 15% operating margin as we exit this year. Cash generation allows us to
have flexibility to grow our company organically and through business
development, to increase dividends annually and to repurchase shares when the
financial markets make that an attractive alternative.
"The early results at Best Access are on plan, and we intend to build upon our
recently formed Access Solutions platform. Although this year's free cash flow
Page 7 of 10 Pages
will be deployed primarily toward share repurchase activities, there are a
number of acquisition opportunities to expand this platform. That will require
further restructuring of our business portfolio. It is likely that a very
different Stanley Works will emerge over the next several years."
The company has scheduled a conference call with investors for 2pm EST today 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 7603285.
The Stanley Works, an S&P 500 company, is a worldwide supplier of tools, door
systems and related hardware for professional, industrial and consumer use. The
company reported sales of $2.6 billion in 2002 and employs approximately 15,000
people.
Contact: Gerry Gould, Vice President - Investor Relations,
(860) 827-3833
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 8 of 10 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 $.33 - .36 per fully diluted share; (ii) deliver 2003
earnings per fully diluted share of approximately $2.00, augmented by $.40 - .45
per share savings, offset by $.40 - .45 in charges, exit 2003 at a run rate of
$2.75 annual earnings per fully diluted share; (iii) maintain current sales
levels; (iv) raise operating margins to 15% and generate benefits of
approximately $85 million annually and $.40 - .45 cents per share for the
calendar year 2003; and (v) repurchase over 9% of outstanding shares are forward
looking and inherently subject to risk and uncertainty.
The company's ability to deliver first quarter 2003 earnings in the range of
$.33 - .36 per fully diluted share is subject to the completion of the company's
routine audit processes with respect to such period.
The company's ability to deliver 2003 earnings per fully diluted share of
approximately $2.00, augmented by $.40 - .45 per share savings, offset by $.40 -
..45 in charges and exit 2003 at a run rate of $2.75 annual earnings per fully
diluted share 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 those outlined in the accompanying
press release and those related to resolving production problems related to
the Mechanics Tools business, continued inventory reductions, continued
improvement in the payment terms under which the company buys and sells goods,
materials and products, the success of planned migrations to low-cost countries
and the continued reduction of selling, general and administrative expenses as a
percentage of sales.
The company's ability to maintain its current level of sales is dependent upon a
number of factors, including (i) the ability to recruit and retain an adequate
sales force; (ii) the continued success of The Home Depot and Wal-Mart sales
initiatives as well as other programs to stimulate demand for company products;
(iii) the success of recruiting programs and other efforts to deliver positive
overall Mac Tools truck count versus prior years; (iv) the ability of the sales
Page 9 of 10 Pages
force to adapt to changes made in the sales organization and achieve adequate
customer coverage; (v) the ability of the company to fulfill demand for its
products; (vi) the absence of increased pricing pressures from customers and
competitors and the ability to defend market share in the face of price
competition; and (vii) the acceptance of the company's new products in the
marketplace.
In addition to the factors listed above, the company's ability to raise
operating margins to 15% and generate benefits of approximately $85 million
annually and $.40 - .45 cents per share for the calendar year 2003 is dependent
on (i) the success of the company's efforts to decentralize its operations
functions, primarily into its Tools and Access Solutions business groups; (ii)
the success of the company's efforts to reduce its workforce and close certain
facilities, including the resolution of any labor issues related to such
activities; (iii) the need to respond to significant changes in product demand
while any facility consolidation is in process; and (iv) the success of the
company's efforts to restructure its Mac Tools organization in order to return
it to profitability, including, without limitation, the company's ability to
liquidate certain Mac Tools assets at a satisfactory price.
In addition to the factors listed above, the company's ability to reduce its
outstanding shares by 9% will depend upon the content of FASB's "Limited Scope
Final Statement On Liabilities and Equity" if and when issued.
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 strength of the U.S. Economy and
the strength of foreign currencies, including but not limited to the Euro, the
impact of events that cause or may cause disruption in the company's
distribution and sales networks such as the recent closure of ports on the West
Coast, war, 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 10 of 10 Pages