-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OIe3dxrZcMhINVux5ZTEQ3lVphQq1sWzB+wPBrPkcMEkE04UbpDkRchGG+4cQ+zf ZgfaEOwnYZ/0flzsdYEdZg== 0000093556-99-000050.txt : 19991117 0000093556-99-000050.hdr.sgml : 19991117 ACCESSION NUMBER: 0000093556-99-000050 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991002 FILED AS OF DATE: 19991116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STANLEY WORKS CENTRAL INDEX KEY: 0000093556 STANDARD INDUSTRIAL CLASSIFICATION: CUTLERY, HANDTOOLS & GENERAL HARDWARE [3420] IRS NUMBER: 060548860 STATE OF INCORPORATION: CT FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-05224 FILM NUMBER: 99758597 BUSINESS ADDRESS: STREET 1: 1000 STANLEY DR STREET 2: P O BOX 7000 CITY: NEW BRITAIN STATE: CT ZIP: 06053 BUSINESS PHONE: 8062255111 MAIL ADDRESS: STREET 1: 1000 STANLEY DR CITY: NEW BRITAIN STATE: CT ZIP: 06053 10-Q 1 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 October 2, 1999. 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: shares of the company's Common Stock ($2.50 par value) were outstanding 89,424,663 as of November 12, 1999. 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) Third Quarter Nine Months 1999 1998 1999 1998 ------- ------- --------- --------- Net Sales $ 692.0 $ 689.6 $ 2,061.2 $ 2,053.3 Costs and Expenses Cost of sales 446.9 453.2 1,353.4 1,337.1 Selling, general and administrative 166.9 172.7 522.2 509.9 Interest - net 7.0 7.4 21.9 17.4 Other - net (6.2) 2.7 0.8 9.6 ------- ------- --------- --------- 614.6 636.0 1,898.3 1,874.0 ------- ------- --------- --------- Earnings before income taxes 77.4 53.6 162.9 179.3 Income Taxes 27.1 20.2 57.0 67.3 ------- ------- --------- --------- Net Earnings $ 50.3 $ 33.4 $ 105.9 $ 112.0 ======= ======= ========= ========= Net Earnings Per Share of Common Stock Basic $ 0.56 $ 0.37 $ 1.18 $ 1.25 ======= ======= ========= ========= Diluted $ 0.56 $ 0.37 $ 1.18 $ 1.24 ======= ======= ========= ========= Dividends per share $ 0.22 $ 0.215 $ 0.65 $ 0.615 ======= ======= ========= ========= Average shares outstanding (in thousands) Basic 89,687 89,367 89,532 89,413 ======= ======= ========= ========= Diluted 89,949 90,102 89,805 90,338 ======= ======= ========= ========= See notes to consolidated financial statements. -1- THE STANLEY WORKS AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited, Millions of Dollars) October 2 January 2 1999 1999 -------- -------- ASSETS Current Assets Cash and cash equivalents $ 131.5 $ 110.1 Accounts and notes receivable 576.0 517.0 Inventories 367.1 380.9 Other current assets 74.8 78.4 -------- -------- Total Current Assets 1,149.4 1,086.4 Property, Plant and Equipment 1,186.9 1,198.5 Less: Accumulated Depreciation (691.0) (687.1) -------- -------- 495.9 511.4 Goodwill and Other Intangibles 187.6 196.9 Other Assets 129.0 138.2 -------- -------- $ 1,961.9 $ 1,932.9 ======== ======== LIABILITIES AND SHAREOWNERS' EQUITY Current Liabilities Short-term borrowings $ 210.7 $ 207.8 Current maturities of long-term debt 12.2 14.2 Accounts payable 203.7 172.1 Accrued expenses 309.0 308.0 -------- -------- Total Current Liabilities 735.6 702.1 Long-Term Debt 299.2 344.8 Other Liabilities 213.5 216.6 Shareowners' Equity Common stock 230.9 230.9 Retained earnings 892.4 867.2 Accumulated other comprehensive loss (97.6) (84.6) ESOP debt (205.0) (213.2) -------- -------- 820.7 800.3 Less: cost of common stock in treasury 107.1 130.9 -------- -------- Total Shareowners' Equity 713.6 669.4 -------- -------- $ 1,961.9 $ 1,932.9 ======== ======== See notes to consolidated financial statements. -2- THE STANLEY WORKS AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, Millions of Dollars) Third Quarter Nine Months 1999 1998 1999 1998 ------ ------ ------ ------ Operating Activities Net earnings $ 50.3 $ 33.4 $ 105.9 $ 112.0 Depreciation and amortization 20.9 20.0 66.2 58.1 Other non-cash items (4.0) 1.1 9.8 11.7 Changes in operating assets and liabilities 25.2 (58.5) (29.3) (196.0) ------ ------ ------ ------ Net cash provided (used) by operating activities 92.4 (4.0) 152.6 (14.2) Investing Activities Capital expenditures (17.9) (14.4) (58.4) (35.3) Capitalized software (13.2) (4.3) (23.4) (6.1) Proceeds from sales of assets 22.1 3.4 37.0 12.2 Business acquisitions - (99.9) - (99.9) Other 2.5 (5.4) (1.6) (5.5) ------ ------ ------ ------ Net cash used by investing activities (6.5) (120.6) (46.4) (134.6) Financing Activities Payments on long-term borrowings - (1.9) (156.0) (40.0) Proceeds from long-term borrowings 0.4 60.7 121.3 60.7 Net short-term borrowings (30.7) 76.6 4.0 113.1 Proceeds from issuance of common stock 2.3 5.0 7.3 19.5 Proceeds from swap termination 13.9 - 13.9 - Purchase of common stock for treasury (4.8) (8.7) (13.7) (38.3) Cash dividends on common stock (19.6) (19.1) (57.9) (54.7) ------ ------ ------ ------ Net cash provided (used) by financing activities (38.5) 112.6 (81.1) 60.3 Effect of Exchange Rate Changes on Cash (0.7) (0.2) (3.7) 1.5 ------ ------ ------ ------ Increase (Decrease) in Cash and Cash Equivalents 46.7 (12.2) 21.4 (87.0) Cash and Cash Equivalents, Beginning of Period 84.8 77.4 110.1 152.2 ------ ------ ------ ------ Cash and Cash Equivalents, End of Third Quarter $ 131.5 $ 65.2 $ 131.5 $ 65.2 ====== ====== ====== ====== 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 Jan. 2, 1999 $230.9 $867.2 $(84.6) $(213.2) $(130.9) $669.4 Comprehensive income: Net earnings 105.9 Foreign currency translation (13.0) Total comprehensive income 92.9 Cash dividends declared (57.8) (57.8) Net common stock activity (25.5) 23.8 (1.7) Tax benefit related to stock options 0.6 0.6 ESOP debt 8.2 8.2 ESOP tax benefit 2.0 2.0 --------------------------------------------------------- Balance Oct 2, 1999 $230.9 $892.4 $(97.6) $(205.0) $(107.1) $713.6 ========================================================= Accumulated Other Compre- hensive Total Common Retained Income ESOP Treasury Shareowners' Stock Earnings (Loss) Debt Stock Equity --------------------------------------------------------- Balance Jan. 3, 1998 $230.9 $806.6 $(85.3) $(223.8) $(120.6) $607.8 Comprehensive income: Net earnings 112.0 Foreign currency translation 0.1 Total comprehensive income 112.1 Cash dividends declared (54.7) (54.7) Net common stock activity (7.4) (11.2) (18.6) Tax benefit related to stock options 3.7 3.7 ESOP debt 5.4 5.4 ESOP tax benefit 2.1 2.1 --------------------------------------------------------- Balance Oct 3,1998 $230.9 $862.3 $(85.2) $(218.4) $(131.8) $657.8 ========================================================= See notes to consolidated financial statements. -4- THE STANLEY WORKS AND SUBSIDIARIES BUSINESS SEGMENT INFORMATION (Unaudited, Millions of Dollars) Third Quarter Nine Months 1999 1998 1999 1998 ------- ------- --------- --------- INDUSTRY SEGMENTS Net Sales Tools $ 525.5 $ 535.1 $ 1,584.1 $ 1,580.3 Doors 166.5 154.5 477.1 473.0 ------- ------- --------- --------- Consolidated $ 692.0 $ 689.6 $ 2,061.2 $ 2,053.3 ======= ======= ========= ========= Operating Profit Tools $ 67.3 $ 72.0 $ 207.9 $ 218.3 Doors 10.9 17.2 32.6 46.1 ------- ------- --------- --------- 78.2 89.2 240.5 264.4 Restructuring-related transition and other non-recurring costs - (25.5) (54.9) (58.1) Interest-net (7.0) (7.4) (21.9) (17.4) Other-net 6.2 (2.7) (0.8) (9.6) ------- ------- --------- ---------- Earnings Before Income Taxes $ 77.4 $ 53.6 $ 162.9 $ 179.3 ======= ======= ========= ========== GEOGRAPHIC NET SALES United States $ 496.4 $ 493.8 $ 1,466.5 $ 1,471.2 Other Americas 51.3 51.1 150.5 163.6 Europe 119.0 118.9 372.7 348.4 Asia 25.3 25.8 71.5 70.1 ------- ------- --------- ---------- Consolidated $ 692.0 $ 689.6 $ 2,061.2 $ 2,053.3 ======= ======= ========= ========== See notes to consolidated financial statements. -5- THE STANLEY WORKS AND SUBSIDIARIES NOTES TO (Unaudited) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS October 2, 1999 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 January 2, 1999. NOTE B - Earnings Per Share Computation The following table reconciles the weighted average shares outstanding used to calculate basic and diluted earnings per share. Third Quarter Nine Months 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Net earnings - basic and diluted $ 50.3 $ 33.4 $ 105.9 $ 112.0 ========== ========== ========== ========== Basic earnings per share - weighted average shares 89,686,916 89,367,471 89,531,833 89,412,986 Dilutive effect of employee stock options 262,205 734,349 273,108 925,461 ---------- ---------- ----------- ---------- Diluted earnings per share - weighted average shares 89,949,121 90,101,820 89,804,941 90,338,447 ========== ========== =========== ========== NOTE C - Inventories The components of inventories at the end of the third quarter of 1999 and at year-end 1998, in millions of dollars, are as follows: October 2 January 2 1999 1999 ------ ------ Finished products $ 263.1 $ 273.3 Work in process 51.3 52.5 Raw materials 52.7 55.1 ------ ------ $ 367.1 $ 380.9 ====== ====== -6- NOTE D - Cash Flow Information Interest paid during the third quarters of 1999 and 1998 amounted to $7.1 million and $4.2 million, respectively. Interest paid for the nine months of 1999 and 1998 amounted to $24.5 million and $18.6 million, respectively. Income taxes refunded net of payments made for the third quarter of 1999 were $4.7 million. Income taxes paid during the third quarter of 1998 were $17.7 million. Income taxes paid (net of refund received in 1999) for the nine months of 1999 and 1998 were $16.3 million and $64.3 million, respectively. NOTE E - New Accounting Pronouncement In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting For Derivative Instruments and Hedging Activities," which was originally to be effective in fiscal year 2000. In May 1999, the Financial Accounting Standards Board deferred the effective date for one year and the standard now will be effective in fiscal year 2001. The adoption of this standard is not expected to have a material impact on the company's balance sheet, operating results or cash flows. NOTE F - Long-Term Debt In the first quarter 1999, the company issued $120 million of 5 year debt to capitalize on the current rate environment and reduce its reliance on short- term sources of funds. Note G - Other-net Other income in the third quarter of 1999 included non-recurring currency related gains of $9.2 million, $.06 per share, comprised of a gain of $11.4 million realized upon the termination of a cross-currency financial instrument partially offset by other currency related items of $2.2 million. In connection with the termination, an additional $7.8 million was deferred from current income and will be recognized as an interest yield adjustment over the remaining life of the underlying debt. -7- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The company's goal is to become one of the world's Great Brands, delivering sustained, profitable growth. To achieve this goal the company undertook 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 were targeted for reinvestment in growth initiatives such as new product and brand development. As of September 1999, most of the benefits originally anticipated from those initiatives have been realized. The company believes it has made substantial progress toward becoming a great brand and remains committed to its objective of delivering sustained, profitable growth. The company is in the process of developing new sales and marketing programs to stimulate sales growth and developing new cost reduction and restructuring initiatives to lower the company's cost structure, improve customer service, and generate earnings growth. Net sales were $692 million, a slight increase from $690 million in the same quarter last year. ZAG Industries Ltd. ("ZAG"), which was acquired in August 1998, contributed 2% to the sales growth. This growth was offset by a 1% reduction in sales from the net effect of pricing and foreign currency translation and a 1% decline due to unit volume declines. Only a nominal volume decline was experienced despite bankruptcy proceedings for a major U.S. retail customer and a work stoppage, since resolved, in the French hand tools business. In addition, the weaker Latin American market continued to negatively impact the company's sales volume. These declines in sales volume were offset, though not completely, by a double-digit volume increase in the U.S. residential doors business and volume improvements in the U.S. industrial mechanics tools and fastening systems businesses. Net sales were $2,061 million for the first nine months of 1999, a slight increase from the same period last year. ZAG contributed 3% to this sales growth, which was partially offset by reduced sales volume from ongoing businesses. Lingering effects of poor 1998 fill rates in hardware and tools continue to depress sales even though many of those operational problems have been corrected. European sales volume was negatively affected earlier in 1999 by inefficiencies stemming from the closure of a European distribution center and pricing competition in the European fastening system business. Additionally, a weak economy in Latin America and difficulties associated with the implementation of SAP software during the second quarter of 1999 in a portion of the company's doors business contributed to the lower sales volumes. These declines in sales volume were offset by a double-digit volume increase in the U.S. residential doors business and volume improvement in the U.S. fastening systems businesses. The company's restructuring initiatives have required expenditures which affect the financial statements. Restructuring-related transition costs are costs resulting from these initiatives that are classified as period operating expenses within cost of sales or selling, general and administrative expense. These include the costs of moving production equipment, operating duplicate facilities while transferring production or distribution, consulting costs incurred in planning and implementing changes, and other types of costs that have been incurred to facilitate the changes encompassed by the restructuring initiatives. Management uses its judgment to determine which costs should be classified as transition -8- costs based on whether the costs are unusual in nature, incurred only because of restructuring initiatives and are expected to cease when the transition activities end. In addition, the company is incurring costs to remediate its computer and related systems so that these systems will function properly with regard to date issues related to Year 2000 ("Y2K"). Because the presence of restructuring charges, restructuring- related transition costs and non-recurring Y2K remediation costs obscure the underlying trends within the company's business, the company also provides information on its results excluding these identifiable costs. These pro forma or "core" results are the basis of business segment information. In addition, the narrative regarding results of operations has been expanded to provide information as to the effects of these items on each financial statement category. Effective in the third quarter 1999, these costs are no longer disclosed separately as they are significantly lower than amounts previously incurred and are being phased out completely. Prior period information continues to exclude these costs for consistency with information previously disclosed. The company reported gross profit of $245 million, or 35.4% of net sales in the third quarter of 1999. This represented an increase from $236 million, or 34.3% of net sales, reported in the third quarter of 1998. Core gross profits for the third quarter of 1998 excluding $5 million of restructuring-related transition costs, primarily for plant rationalization activities, were 35.0% of net sales. The improvement in gross margins was principally due to improved cost management, principally in Mechanics Tools and Hand Tools manufacturing operations. The company reported gross profit of $708 million, or 34.3% of net sales for the first nine months of 1999 compared to 34.9% of net sales in 1998. Included in the cost of sales for 1999 was $20 million of restructuring- related transition costs, primarily for plant rationalization activities, as compared with $12 million recorded in the same period of 1998. Core gross profits were 35.3% of net sales, compared with 35.5% for the first nine months of 1998. During this period of 1999, the productivity savings from restructuring and centralized procurement activities were almost entirely offset by production and distribution inefficiencies. Selling, general and administrative expenses were $167 million, or 24.1% of net sales, in the third quarter of 1999, as compared with $173 million, or 25.0% of net sales in the third quarter of 1998. The decrease in spending is attributed to lower spending on restructuring-related transition and other non-recurring costs, which was $20 million in 1998. Selling, general and administrative expenses on a core basis for the third quarter last year were $152 million. The increase was the result of Y2K costs, the Zag acquisition, higher selling and administrative costs inherent in the Mac Direct program, implementation of new sales and marketing initiatives designed to drive sales growth in retail channels, increased information management infrastructure costs, and increased reserves for uncollectible accounts receivable. Selling, general and administrative expenses were $522 million, or 25.3% of net sales, in the nine month period of 1999, as compared with $510 million, or 24.8% of net sales in 1998. Restructuring-related transition and other non-recurring costs were $35 million in 1999 compared to $46 million in 1998. On a core basis, selling, general and administrative expenses increased to $487 million in 1999 from $464 million in 1998. This increase is primarily the result of the Zag acquisition and higher selling and administrative costs inherent in the Mac Direct program. -9- Net interest expense was $7 million in the third quarter of 1999 and $22 million for the first nine months of 1999 compared to $7 million and $17 million, respectively, for the same periods in 1998. The increase in the nine-month comparison is attributed to the increased level of debt associated with the acquisition of ZAG and the funding of working capital increases. Other-net of $6 million income in the third quarter of 1999 and $1 million expense for the nine month period of 1999 compared to expense of $3 million and $10 million, respectively, for the same periods in 1998. This reduction in 1999 expense is primarily attributed to a gain realized during the third quarter of 1999 upon the termination of a cross-currency financial instrument. The company's 1999 effective annual income tax rate was 35.0% for the third quarter and first nine months versus 37.5% for the similar periods last year. This reduction reflected the continued benefit of structural changes implemented in late 1998, as well as an increase in the company's ability to utilize foreign tax credits associated with a higher portion of the company's taxable income being earned overseas. Net earnings for the third quarter were $50 million, or $.56 per diluted share, compared with the prior year's net income of $33 million, or $.37 per diluted share. Net earnings on a core basis for 1998, would have been $49 million, or $.55 per diluted share. Net earnings for the first nine months of 1999 were $106 million, or $1.18 per diluted share, compared with the prior year's net income of $112 million, or $1.24 per diluted share. Net earnings on a core basis, would have been $142 million, or $1.58 per diluted share in the first nine months of 1999 compared with $148 million, or $1.64 per diluted share in 1998. 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. The company assesses the performance of its business segments using core operating profit, which excludes restructuring charges, restructuring-related transition and other non-recurring costs. As discussed previously, effective this quarter, these costs are no longer analyzed separately from reported results. Prior period information continues to exclude these costs for consistency with information previously disclosed. Segment eliminations are also excluded. As reflected in the table, "Business Segment Information", Tools sales in the third quarter of 1999 were $526 million, down 2% from the third quarter last year. Sales were positively impacted by the ZAG acquisition, which generated a 2% increase and by volume improvements in the U.S. industrial mechanics tools and fastening systems businesses. These increases were offset by lower unit volume in hand tools businesses in Europe and Latin America, fastening systems business in Europe, and hydraulic tools. The Tools segment core operating profit was 12.8% of net sales for the third quarter of 1999, compared with 13.5% of net sales in the same period last year. This decline in operating profit reflects the effect of higher selling, general and administrative costs, including new sales and marketing initiatives designed to drive retail sales growth and increased provisions for uncollectible accounts receivable. These cost increases combined with effects of customer service related cost -10- inefficiencies contributed to the decline in core operating profits for the nine month period which were $208 million, or 13.1% of net sales, compared to $218 million, or 13.8% of net sales in 1998. Doors segment sales increased to $166 million, approximately 8% above 1998's third quarter. This segment was led by double-digit unit volume sales of U.S. residential entry doors and U.S. home decor products. The Doors segment core operating profit decreased to 6.5% of net sales in the third quarter of 1999, compared with 11.1% of net sales in the same period last year. This decline was largely due to the Hardware business being burdened with costs of relocating production to low-cost locations, meeting customer service delivery requirements, and increased provisions for uncollectible accounts receivable due to a customer bankruptcy. These issues combined with difficulties associated with a SAP software implementation in the Access Technologies business resulted in decreased core operating profits for the nine month period of $33 million, or 6.8% of net sales, compared to $46 million, or 9.7% of net sales in 1998. Restructuring At January 2, 1999, reserve balances related to the company's restructuring initiatives were $154 million, of which $44 million related to the write-down of impaired assets. The remaining $110 million included $73 million related to severance, and $37 million to environmental remediation and other exit costs. For the nine months ended October 2, 1999, asset write-downs of $12 million, severance of $31 million and payments for other exit costs of $14 million reduced these reserves. The reserve balances at the end of the third quarter were $97 million, of which $32 million related to the write-down of impaired assets, $42 million related to severance, and $23 million to environmental remediation and other exit costs. The company is currently re-evaluating the scope of initiatives encompassed by the remaining restructuring reserves. The objective of the review is to determine which restructuring initiatives should be completed and also to identify new initiatives to further lower the company's cost structure. The outcome of this effort, which will be completed prior to year-end 1999, will be a reversal of reserves for actions the company will not complete, offset to some extent by a charge for reserves related to new initiatives. Until the detailed planning has been completed the full effect will not be known, however, based on the current stage of planning, management anticipates that the net impact will not result in a charge to operations. FINANCIAL CONDITION Liquidity and Sources of Capital In the third quarter of 1999, the company generated $92 million in operating cash flow compared to $4 million operating cash flow used in the third quarter of 1998. This significant increase was driven by better working capital management and the elimination of restructuring-related transition costs. For the nine months of 1999, the company's receivables have increased by $59 million, inventory has declined by $14 million, and accounts payable has increased by $32 million. The receivables increase is primarily attributable to the Zag, U.S. residential entry doors and Mac Tools growth. The inventory decrease is primarily attributed to SKU reductions combined with improved order fill rates that have approached customer-required levels in a number of the company's business units. The accounts payable increase is attributed to paying vendors based on estimated date of receipt of goods or services versus invoice date, which was the past practice. -11- Capital expenditures were $18 million for the third quarter of 1999 representing an increase over the $14 million in third quarter of last year. Investment in capital during 1998 was lower than traditional levels and lower than depreciation and amortization. Facility consolidations, continued outsourcing and the Stanley Production System (which focuses on continuous improvement) collectively reduced the requirement for operating capital. The level of spending has returned to more traditional levels during 1999. Strategic changes were made in the company's debt portfolio during early 1999. In 1998, funding for working capital and the acquisition of ZAG was provided by increased short-term borrowings. Short-term sources of funds were used at that time with the intent of subsequently securing medium term financing for the acquisition component of the requirement. In the first quarter 1999, the company issued $120 million of 5 year debt to capitalize on the current rate environment and reduce its reliance on short-term sources of funds. Year 2000 Update Since many computer systems and other equipment with embedded chips or processors use only two digits to represent the year, these business systems may be unable to process accurately certain data before, during or after the year 2000. As a result, business and governmental entities are at risk for possible miscalculations or systems failures causing disruptions in their business operations. This is commonly known as the Year 2000 or Y2K issue. The Y2K issue can arise at any point in the company's supply, manufacturing, distribution and financial chains. To address the potential impact of the Y2K problem on the company a Y2K project office, was established in September 1997, and is staffed with internal managers who are responsible for oversight and implementation of the principal portions of the Y2K project. In addition, approximately 60% of the internal information technology resources were committed to Y2K remediation efforts. The scope of the project includes: (1) ensuring the compliance of all applications, operating systems and hardware on mainframe, PC and LAN platforms; (2) addressing issues related to software and non-IT embedded systems used in plant and distribution facilities; and (3) addressing the compliance of key suppliers and customers. Each component of the project has four phases: inventory and assessment of systems and equipment affected by the Y2K issue; definition of strategies to address affected systems and equipment; remediation or replacement of affected systems and equipment; and testing that each is Y2K compliant. (1) Application of Software and Hardware With respect to ensuring the compliance of all applications, operating systems and hardware (other than PCs) on the company's various computer platforms, the assessment and definition of strategies phases have been completed. Remediation or replacement and testing phases have been completed for approximately 85% of information systems. Businesses not yet completed with remediation and testing include Mac Tools, Proto, Stanley-Vidmar, and Air Tools product lines. All remediation and testing associated with those product lines is on track or ahead of schedule for completion before the end of the year. In addition to the application software and mainframe hardware, we have completed an inventory of all PC's and related equipment and all planned remediation and testing is now completed. (2) Plant and Distribution Systems With respect to addressing issues related to software and non-IT embedded -12- systems used in the company's manufacturing and distribution facilities, the assessment and definition of strategies phases have been completed. The remediation or replacement phase, as well as such testing, as is judged appropriate, has been completed. (3) Suppliers and Vendors The company relies on numerous third party suppliers in the operation of its business. Interruption in the operations of any supplier due to Y2K issues would affect company operations. The company has initiated efforts to evaluate the status of its most critical suppliers' progress and this process is almost complete. In addition, interruptions in customers' operations due to Y2K issues would result in reduced sales, increased inventory or receivable levels and cash flow reductions. While these events are possible, the company's customer and supplier base is broad enough to minimize the impact of the failure of any single interface. The company continues to test its customer and vendor interfaces and expects to be finished by year-end. The Company is in compliance with all customer interfaces tested to date. It is currently estimated that the aggregate cost of the company's Y2K efforts, which include internal and incremental costs, will be approximately $114 million. Approximately $106 million of these costs have been spent to date. It is expected that no more than 25% of the total cost will be capitalized. All of the company's major businesses have completed a general level of contingency planning and those businesses whose remediation projects are not yet completed are developing more detailed and comprehensive contingency plans. These plans provide for process changes, alternative methods of processing including manual, temporary inventory builds, adjustments to staffing and other strategies to minimize disruption caused by any potential Y2K failure. Management expects that the company's Y2K project significantly reduces the company's level of uncertainty about the Y2K problem, and reduces the likelihood of risk of interruptions to routine business operations. Additional discussion of the risks associated with potential Y2K failures is provided in the last paragraph under Risk/Cautionary Statements. Risk/Cautionary Statements The statements contained in this Quarterly Report on Form 10-Q for the quarter ended October 2, 1999 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 manufacturing operations, implementing related control systems and consolidating multiple manufacturing and distribution facilities. The success of these initiatives is dependent on (1) the Company's ability to increase the efficiency of its routine business processes, to implement process control systems, and to develop and execute comprehensive plans for facility consolidations, (2) the availability of vendors to perform outsourced functions, (3) the successful recruitment and training of new employees, (4) the resolution of any labor issues related to closing facilities, (5) the need to respond to significant changes in product demand while any facility consolidation is in process and (6) other unforeseen events. -13- 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 and other 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 the objectives discussed above will be affected by the installation and implementation of critical business transaction systems associated with its Y2K compliance program prior to year- end and by external factors. These external factors include pricing pressure and other changes within competitive markets, the continued consolidation of customers in consumer channels, increasing competition, changes in trade, monetary and fiscal policies and laws, inflation, currency exchange fluctuations, the impact of dollar/foreign currency exchange rates on the competitiveness of products and recessionary or expansive trends in the economies of the world in which the company operates. Many statements contained in the discussion of the state of the company's Y2K readiness are forward looking and are inherently subject to risk and uncertainty. The nature, scope and cost of the company's Y2K project are 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, the availability of new computer hardware and consultants to meet the company's planned needs and the effectiveness of contingency planning and execution). Due to the level of uncertainty inherent in Y2K analysis and the complexity of the remediation activity, 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 completed project work is not effective, 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 failure and/or resulting litigation will have a material adverse impact on the company's results of operations, liquidity and financial condition. -14- PART II OTHER INFORMATION Item 2. - Changes in Securities and Use of Proceeds (c) Recent Sales of Unregistered Securities (A) During the third fiscal quarter of 1999, 23,214 shares were issued to certain participants under the Company's U.K. Savings Related Share Plan (the "Savings Plan"). Under the Savings 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. (C) The total dollar value of the shares issued during the quarter was $363,963.36. Under the Savings Plan: 22,364 shares were issued at $15.5334 per share with an aggregate value of $347,388.96. 574 shares were issued at $15.8834 per share with an aggregate value of $9,117.07. 200 shares were issued at $24.15 per share with an aggregate value of $4,830.00. 52 shares were issued at $33.1333 per share with an aggregate value of $1,722.93. 24 shares were issued at $37.6833 per share with an aggregate value of $904.40. (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 Plan is small relative to the number of shares outstanding, all eligible employees are entitled to participate, the shares are being 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 Plan, 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. -15- Item 6. - Exhibits and Reports on Form 8-K (a) Exhibits (1) See Exhibit Index on page 18. (b) Reports on Form 8-K. (1) Registrant filed a Current Report on Form 8-K, dated July 15, 1999, in respect of the Registrant's press release announcing second quarter sales and discussing profit outlook. (2) Registrant filed a Current Report on Form 8-K, dated July 21, 1999, in respect of the Registrant's press release announcing second quarter results. (3) Registrant filed a Current Report on Form 8-K, dated July 23, 1999, in respect of cautionary statements relating to certain forward looking statements made at a presentation to analysts. (4) Registrant filed a Current Report on Form 8-K, dated September 30, 1999, announcing the appointment of Donald R. McIlnay as President, Consumer Sales Americas. -16- 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: November 16, 1999 By: James M. Loree James M. Loree Vice President, Finance and Chief Financial Officer By: Theresa F. Yerkes Theresa F. Yerkes Vice President and Controller (Chief Accounting Officer) -17- EXHIBIT INDEX EXHIBIT LIST (4)(i) Amended and Restated Credit Agreement, dated October 21, 1998, as amended and restated as of October 20, 1999, among The Stanley Works, each lender that is a signatory thereto and Citibank, N.A. as Agent for the Lenders. (10)(i) Engagement Letter, dated August 26, 1999, between The Stanley Works and Donald R. McIlnay. (12) Computation of Ratio of Earnings to Fixed Charges (27) Financial Data Schedule -18- EX-4 2 CONFORMED COPY ___________________________________________________________________________ AMENDED AND RESTATED CREDIT AGREEMENT Dated as of October 21, 1998 Amended and Restated as of October 20, 1999 among THE STANLEY WORKS as Borrower THE LENDERS REFERRED TO HEREIN, as Lenders and CITIBANK, N.A. as Agent SALOMON SMITH BARNEY INC. Arranger ___________________________________________________________________________ AMENDED AND RESTATED CREDIT AGREEMENT, dated as of October 21, 1998, amended and restated as of October 20, 1999, among THE STANLEY WORKS (the "Borrower"); each of the lenders that is a signatory hereto (the "Lenders"); and CITIBANK, N.A., as Agent for the Lenders (together with its successors in such capacity, the "Agent"). The Borrower, certain Lenders and the Agent are parties to a Credit Agreement dated as of October 21, 1998 (as heretofore amended and modified, the "Existing Credit Agreement"), providing, subject to the terms and conditions thereof, for extensions of credit (by the making of loans) by the Lenders to the Borrower in an aggregate principal amount not exceeding $250,000,000 at any one time outstanding. The Borrower, the Lenders and the Agent wish to amend and restate the Existing Credit Agreement; and accordingly, the parties hereto hereby agree to amend the Existing Credit Agreement as set forth herein and to restate the Existing Credit Agreement as so amended (as so amended and restated, the "Amended and Restated Credit Agreement"): Section 1. Definitions. Terms used but not otherwise defined herein have the meanings given them in the Existing Credit Agreement. Section 2. Amendments. Effective on the Effective Date (as defined below), (i) the Existing Credit Agreement is hereby amended as set forth below, and (ii) the Existing Credit Agreement is restated to read in its entirety as set forth in the Existing Credit Agreement, which is hereby incorporated herein by reference, with the amendments set forth below: A. References in the Existing Credit Agreement to "this Agreement" and words of similar import (including indirect references) shall be deemed to be references to the Existing Credit Agreement as amended and restated hereby. B. Section 1.01 of the Existing Credit Agreement is amended by inserting the following definitions (or, in the case of any definition for a term that is defined in the Existing Credit Agreement before giving effect to this Amendment and Restatement, by amending and restating such definition to read in its entirety as set forth below): "Applicable Utilization Fee Rate" means, for each day on which the Utilization Ratio exceeds 0.50 and (if the maturity of the Committed Advances has been extended as provided in Section 2.07(c)) for each day after the Termination Date regardless of the Utilization Ratio, a rate per annum equal to (i) 0.1000% if on such date the Borrower's outstanding Long-Term Indebtedness is rated A- or higher by Standard & Poor's Ratings Group, a division of McGraw- Hill, Inc. ("Standard & Poor's") and A3 or higher by Moody's Investors Service, Inc. ("Moody's"), (ii) 0.1250% if on such date clause (i) is inapplicable (including if such Long-Term Indebtedness is no longer rated by either agency); provided that if the respective levels of the Borrower's outstanding Long-Term Indebtedness credit ratings differ, the "Applicable Utilization Fee Rate" will be determined based on the level one above that level applicable to the lower of said credit ratings. "Applicable Eurodollar Margin" means, with respect to any Interest Period for each Eurodollar Rate Advance, (i) 0.1500% if on the date such Eurodollar Rate Advance is made the Borrower's outstanding Long-Term Indebtedness is rated A+ or higher by Standard & Poor's and A1 or higher by Moody's, (ii) 0.1900% if on such date clause (i) is inapplicable and the Borrower's outstanding Long-Term Indebtedness is rated A or higher by Standard & Poor's and A2 or higher by Moody's, (iii) 0.2300% if on such date clauses (i) and (ii) are inapplicable and the Borrower's outstanding Long-Term Indebtedness is rated A- or higher by Standard & Poor's and A3 or higher by Moody's, (iv) 0.4500% if on such date clauses (i), (ii) and (iii) are inapplicable and the Borrower's outstanding Long-Term Indebtedness is rated BBB+ or higher by Standard & Poor's and Baa1 or higher by Moody's, (v) 0.4750% if on such date clauses (i), (ii), (iii) and (iv) are inapplicable and the Borrower's outstanding Long-Term Indebtedness is rated BBB or higher by Standard & Poor's and Baa2 or higher by Moody's, and (vi) 0.6750% if on such date clauses (i), (ii), (iii), (iv) and (v) are inapplicable (including if such Long- Term Indebtedness is no longer rated by either agency); provided that if the maturity of any Eurodollar Rate Advance has been extended pursuant to Section 2.07(c), the Applicable Eurodollar Margin shall mean, with respect to any Interest Period for each Eurodollar Rate Advance from and after the Termination Date, the sum of (x) the rate determined according to the foregoing provisions plus (y) 0.2500%; provided further that if the respective levels of the Borrower's outstanding Long-Term Indebtedness credit ratings differ, the "Applicable Eurodollar Margin" will be determined based on the level one above that level applicable to the lower of said credit ratings. "Applicable Facility Fee Rate" means, as of any date of payment of the fee required by Section 2.03, a rate per annum equal to (i) 0.0500% if on such date the Borrower's outstanding Long-Term Indebtedness is rated A+ or higher by Standard & Poor's and A1 or higher by Moody's, (ii) 0.0600% if on such date clause (i) is inapplicable and the Borrower's outstanding Long-Term Indebtedness is rated A or higher by Standard & Poor's and A2 or higher by Moody's, (iii) 0.0700% if on such date clauses (i) and (ii) are inapplicable and the Borrower's outstanding Long-Term Indebtedness is rated A- or higher by Standard & Poor's and A3 or higher by Moody's, (iv) 0.1000% if on such date clauses (i), (ii) and (iii) are inapplicable and the Borrower's outstanding Long-Term Indebtedness is rated BBB+ or higher by Standard & Poor's and Baa1 or higher by Moody's, (v) 0.1500% if on such date clauses (i), (ii), (iii) and (iv) are inapplicable and the Borrower's outstanding Long-Term Indebtedness is rated BBB or higher by Standard & Poor's and Baa2 or higher by Moody's, and (vi) 0.2000% if on such date clauses (i), (ii), (iii), (iv) and (v) are inapplicable (including if such Long-Term Indebtedness is no longer rated by either agency); provided that if the respective levels of the Borrower's outstanding Long-Term Indebtedness credit ratings differ, the "Applicable Facility Fee Rate" will be determined based on the level one above that level applicable to the lower of said credit ratings. "Termination Date" means the earlier of (a) October 18, 2000 or (b) the date of termination in whole of the Commitments pursuant to Section 2.01(b) or 6.01. "Utilization Ratio" means, at any time, the ratio of (i) the aggregate outstanding principal amount of the Advances at such time to (ii) the aggregate amount of the Commitments at such time. C. Section 2.03(a) of the Existing Credit Agreement is amended by (i) inserting "or (if the maturity of the Committed Advances has been extended as provided in Section 2.07(c)) the Term Date" after the first reference to "Termination Date" thereof and (ii) inserting "and (if the maturity of the Committed Advances has been extended as provided in Section 2.07(c)) the Term Date" after the second reference to "Termination Date" thereof. D. Section 2.03 of the Existing Credit Agreement is amended by adding new clause (c) at the end thereof as follows: "(c) Utilization Fee. The Borrower shall pay to the Agent for the pro rata account of the Lenders a utilization fee on the outstanding principal amount of the Advances, for each day on which the Utilization Ratio exceeds 0.50 and (if the maturity of the Committed Advances has been extended as provided in Section 2.07(c)) for each day after the Termination Date regardless of the Utilization Ratio, at a rate per annum equal to the Applicable Utilization Fee Rate, payable on each day on which a payment of interest is due under Section 2.05." E. Section 2.07(c) of the Existing Credit Agreement is amended by deleting the "." at the end thereof and adding new language at the end thereof as follows: "; and provided further that the outstanding principal amount of any Committed Advances whose maturity has been extended to the Term Date pursuant to this Section 2.07(c) shall bear interest at a rate per annum equal to the sum of 0.2500% plus the interest rate otherwise applicable hereunder to such principal amount in effect from time to time, payable on each day on which a payment of interest is otherwise due hereunder." F. Sections 4.01 of the Existing Credit Agreement is amended by adding new clause (m) at the end thereof as follows: "(m) Year 2000. The Borrower has (i) initiated a review and assessment of all areas within its and each of its Subsidiaries' business and operations (including those materially affected by suppliers and vendors) that could be adversely affected by the risk that computer applications used by the Borrower or any of its Subsidiaries (or suppliers and vendors) may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999 (the "Year 2000 Problem"), (ii) developed plans and timetables for addressing the Year 2000 Problem on a timely basis and (iii) to date, implemented those plans in accordance with such timetables as amended to date. Based on the foregoing (x) each material supplier and vendor contacted for such purpose by the Borrower or a Subsidiary of the Borrower has represented to the Borrower or such Subsidiary, as the case may be, that the computer applications of such supplier or vendor, as the case may be, that are material to the Borrower's or any of its Subsidiaries' business or operations are reasonably expected on a timely basis to be able to perform properly date- sensitive functions for all dates before, on and after January 1, 2000 and (y) the Borrower believes that except as set forth in the Borrower's report on Form 10-Q for the period ending July 3, 1999, all of the Borrower's and each of its Subsidiaries' computer applications that are material to its or any of its Subsidiaries' business and operations are reasonably expected on a timely basis to be able to perform properly date-sensitive functions for all dates before, on and after January 1, 2000, except to the extent that a failure to do so could not reasonably be expected to have a Material Adverse Effect." G. Schedule I of the Existing Credit Agreement is amended to read in its entirety as set forth in Schedule I hereto. Section 3. Representations and Warranties. The Borrower represents and warrants to the Lenders as of the Effective Date that (i) the representations and warranties set forth in Section 4.01 of the Existing Credit Agreement are true and correct on and as of the Effective Date as though made on and as of the Effective Date (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date) and as if each reference in said Section 4.01 to "this Agreement" included reference to the Amended and Restated Credit Agreement and as if each reference in said Section 4.01 to "December 30, 1995" were instead a reference to "January 3, 1999" and (ii) no event has occurred and is continuing that constitutes a Default or Event of Default (and the parties agree that breach of any of the representations and warranties in this Section 3 shall constitute an Event of Default under Section 6.01(b) of the Amended and Restated Credit Agreement). Section 4. Conditions to Effectiveness. The amendment and restatement set forth in Section 2 hereof shall become effective on the date (the "Effective Date") on which the Agent shall notify the Borrower that the following conditions precedent have been satisfied (and the Agent shall promptly notify the Lenders of the occurrence of the Effective Date): (a) Documents. The Agent shall have received the following documents (with sufficient copies for each Lender), each of which shall be satisfactory to the Agent in form and substance: (1) Execution by All Parties. Counterparts of this Amendment and Restatement, duly executed and delivered by the Borrower, the Agent and the Lenders. (2) Authority and Approvals. Certified copies of the resolutions of the Board of Directors of the Borrower (or equivalent documents) authorizing and approving this Amendment and Restatement and the Notes, authorizing Borrowings under the Amended and Restated Credit Agreement in an aggregate principal amount up to but not exceeding $250,000,000 at any one time outstanding, and certified copies of all documents evidencing other necessary action (corporate, partnership or otherwise) and governmental approvals, if any, with respect to this Amendment and Restatement and the Notes. (3) Secretary's or Assistant Secretary's Certificate. A certificate of the Secretary or an Assistant Secretary of the Borrower, dated the Effective Date, certifying the names and true signatures of the officers of the Borrower authorized to execute and deliver this Amendment and Restatement and the Notes and the other documents to be delivered hereunder. (4) Opinion of Borrower's Counsel. A favorable opinion of counsel to the Borrower, in substantially the form of Exhibit A hereto, and as to such other matters as the Agent or any Lender acting through the Agent may reasonably request. (5) Closing Certificate. A certificate of a senior financial officer of the Borrower, dated the Effective Date, certifying the representations and warranties set forth in Section 3 hereof are true on such date as if made on and as of such date. (b) Approvals. The Agent shall have received evidence satisfactory to it of receipt of all third party consents and approvals necessary in connection with this Amendment and Restatement (without the imposition of any conditions except those that are acceptable to the Lenders) and that the same remain in effect. (c) Fees and Expenses. The Agent shall have received evidence satisfactory to it that (i) the Borrower shall have paid in full all accrued fees, expenses and interest due and payable to the Agent and the Lenders under the Existing Credit Agreement, (ii) the Borrower shall have paid all accrued fees and expenses of the Agent (including the reasonable fees and expenses of counsel to the Agent) in connection with this Amendment and Restatement and (iii) the Borrower shall have paid to the Agent for account of the Lenders such up-front fees in connection with the execution of this Amendment and Restatement as the Borrower and the Agent shall have agreed upon. Section 5. Pro Rata Adjustments. The Borrower shall, on the Effective Date (but only if any Advances are outstanding on said date), borrow Advances from certain of the Lenders and/or (notwithstanding (i) the second sentence of Section 2.07(a) of the Amended and Restated Credit Agreement requiring that prepayments be made in accordance with said Section 2.07(a) and (ii) Section 2.09(a) of the Amended and Restated Credit Agreement requiring that payments be made ratably in accordance with the principal amounts of the Advances held by the Lenders) prepay Advances (together with all accrued and unpaid interest thereon) such that, after giving effect thereto, the Advances (including, without limitation, the principal amounts and Interest Periods thereof) shall be held by the Lenders ratably in accordance with their respective Commitments (after giving effect to this Amendment and Restatement). Section 6. Miscellaneous. Except as herein provided, the Existing Credit Agreement shall remain unchanged and in full force and effect. This Amendment and Restatement may be executed in any number of counterparts, all of which taken together shall constitute one and the same agreement and any of the parties hereto may execute this Amendment and Restatement by signing any such counterpart. This Amendment and Restatement shall be governed by, and construed in accordance with, the law of the State of New York. IN WITNESS WHEREOF, the parties hereto have caused this Amendment and Restatement be duly executed and delivered as of the day and year first above written. BORROWER THE STANLEY WORKS By ___ /s/ C.A. Douglas_____________________ Name: C.A. Douglas Title: Treasurer AGENT CITIBANK, N.A. By __/s/ Carolyn A. Kee Name: Carolyn A. Kee Title: Vice President LENDERS CITIBANK, N.A. By __/s/ Carolyn A. Kee Name: Carolyn A. Kee Title: Vice President WACHOVIA BANK, N.A. By __/s/ Terence A. Snellings____________ Name: Terence A. Snellings Title: Senior Vice President BANQUE NATIONALE DE PARIS By __/s/ Sophie Revillard Kaufman_____ Name: Sophie Revillard Kaufman Title: Vice President By __/s/ Gwen Abbott_______________________ Name: Gwen Abbott Title: Assistant Vice President BARCLAYS BANK PLC By __/s/ Terance Bullock_____________________ Name: Terance Bullock Title: Vice President FLEET NATIONAL BANK By __/s/ Jeff Lynch______________ Name: Jeff Lynch Title: Senior Vice President ROYAL BANK OF CANADA By __/s/ Lynne M. Litterini___________________ Name: Lynne M. Litterini Title: Manager MORGAN GUARANTY TRUST COMPANY OF NEW YORK By __/s/ Robert Bottamedi____________________ Name: Robert Bottamedi Title: Vice President MELLON BANK, N.A. By __/s/ R. Jane Westrich___________ Name: R. Jane Westrich Title: Vice President THE NORTHERN TRUST COMPANY By __/s/ James F.T. Monhart__________________ Name: James F.T. Monhart Title: Senior Vice President BANKERS TRUST COMPANY By __/s/ Mary Kay Coyle_____________________ Name: Mary Kay Coyle Title: Managing Director SCHEDULE I Lenders and Commitments Lenders Commitment CITIBANK, N.A. $30,000,000.00 BANQUE NATIONALE DE PARIS $27,500,000.00 FLEET NATIONAL BANK $37,500,000.00 MELLON BANK, N.A. $27,500,000.00 MORGAN GUARANTY TRUST COMPANY OF NEW YORK $27,500,000.00 WACHOVIA BANK, N.A. $27,500,000.00 BANKERS TRUST COMPANY $25,000,000.00 BARCLAYS BANK PLC $20,000,000.00 ROYAL BANK OF CANADA $17,500,000.00 THE NORTHERN TRUST COMPANY $10,000,000.00 EXHIBIT A [FORM OF OPINION OF GENERAL COUNSEL] October 20, 1998 To each of the Lenders parties to the Amended and Restated Credit Agreement referred to below and to Citibank, N.A., as Agent for said Lenders Ladies and Gentlemen: I am the General Counsel of The Stanley Works, a Connecticut corporation (the "Borrower"), and have acted as counsel to the Borrower in connection with the Amendment and Restatement dated as of October 20, 1999 (the "Amendment and Restatement") to the Credit Agreement dated as of October 21, 1998 (the "Existing Credit Agreement and, as amended by the Amendment and Restatement, the "Amended and Restated Credit Agreement"), among the Borrower, certain Lenders parties thereto (the "Lenders"), and Citibank, N.A., as Agent for said Lenders. This opinion is being delivered to you pursuant to Section 4(a)(4) of the Amendment and Restatement. Capitalized terms used herein and not otherwise defined herein shall have the meanings set forth in the Amendment and Restatement. In rendering the opinions set forth herein, I have examined and relied on originals or copies of the following: (a) a counterpart executed by the Borrower of the Amendment and Restatement; (b) copies of the Certificate of Incorporation and Bylaws of the Borrower; (c) a certified copy of certain resolutions of the Board of Directors of the Borrower; (d) certificates from public officials in the State of Connecticut as to the good standing of the Borrower in the State of Connecticut; and (e) such other documents as I have deemed necessary or appropriate as a basis for the opinions set forth below. In my examination, I have assumed the genuineness of all signatures, the legal capacity of all natural persons, the authenticity of all documents submitted to me as originals, the conformity to original documents of all documents submitted to me as certified or photostatic copies, and the authenticity of the originals of such copies. As to any facts material to this opinion which I did not independently establish or verify, I have relied upon written statements and certificates of the Borrower and its officers and other representatives and of public officials. Unless otherwise indicated, references in this opinion to the "Loan Documents" shall mean the Amendment and Restatement and the Amended and Restated Credit Agreement. In addition, references to (i) "Applicable Laws" shall mean the laws and regulations of the States of Connecticut and New York and the United States of America (including, without limitation, Regulations U and X of the Board of Governors of the Federal Reserve System) which are applicable to the transactions contemplated by the Loan Documents; (ii) the term "Governmental Authorities" means any Connecticut, New York and federal executive, legislative, judicial, administrative or regulatory body; (iii) the term "Applicable Contracts" shall mean the agreements and instruments set forth in the index of exhibits to the Borrower's Annual Report on Form 10K for the year ended , 19 filed with the Securities and Exchange Commission and (iv) the term "Governmental Approval" means any consent, approval, license, authorization or validation of, or filing, recording or registration with, any Governmental Authority pursuant to any Applicable Law. I am admitted to the bar in the States of Connecticut and New York. This opinion is limited to the laws of the State of Connecticut, the State of New York and the United States of America to the extent specified herein. In rendering this opinion, I have assumed, with your consent, that: (a) the execution, delivery or performance by the Borrower of the Loan Documents does not and will not conflict with, contravene, violate or constitute a default under any rule, law or regulation to which the Borrower is subject (other than applicable laws, orders and decrees as to which I express my opinion in paragraph 5 herein) or any agreement or instrument to which the Borrower or the Borrower's property is subject (except and to the extent that I express my opinion in paragraph 5 herein); (b) and no authorization, consent or other approval of, notice to or filing with any court, governmental authority or regulatory body (other than Governmental Approvals as to which I express my opinion in paragraph 6 herein) is required to authorize or is required in connection with the execution, delivery or performance by the Borrower of any Loan Document or the transactions contemplated thereby. My opinions are also subject to the following assumptions and qualifications: (a) each Loan Document constitutes the valid and binding obligation of the Lenders and is enforceable against the Lenders in accordance with its terms; and (b) I express no opinion as to the effect on the opinions herein stated of (i) the compliance or noncompliance of the Lenders with any state, federal or other laws or regulations applicable to the Lenders or (ii) the legal or regulatory status or the nature of the business of the Lenders. Based upon the foregoing and such investigations that I have deemed necessary, and subject to the limitations, qualifications, exceptions and assumptions set forth herein, I am of the opinion that: 1. The Borrower has been duly incorporated, is validly existing and in good standing under the laws of the State of Connecticut. 2. The Borrower has the corporate power and corporate authority to execute, deliver and perform all of its obligations under the Loan Documents. 3. The execution and delivery of each Loan Document has been duly authorized by all requisite corporate action on the part of the Borrower. 4. Each Loan Document has been duly executed and delivered by the Borrower, constitutes a valid and binding obligation of the Borrower and is enforceable against the Borrower in accordance with its terms, subject to the following qualifications: (i) enforcement may be limited by applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other similar laws affecting creditors' rights generally and by general principles of equity (regardless of whether enforcement is sought in equity or at law); (ii) I express no opinion as to the enforceability of any rights to indemnification provided for in the Loan Documents which may violate the public policy underlying any law, rule or regulation (including any federal or state securities law, rule or regulation); and (iii) I express no opinion as to the enforceability of Section 8.05 of the Amended and Restated Credit Agreement insofar as this provision purports to authorize a Person who has purchased a participation in Advances under the Amended and Restated Credit Agreement to set off, appropriate or apply any deposit or property or indebtedness of the Borrower against any obligation of the Borrower. 5. Neither the execution, delivery or performance by the Borrower of the Loan Documents nor the compliance by the Borrower with the terms and provisions thereof will conflict with, contravene, violate or constitute a default under (i) any provision of any Applicable Contract or, to the best of my knowledge, after due investigation, any other agreement or instrument to which the Borrower or the Borrower's property is subject, (ii) any provision of any Applicable Law, (iii) to the best of my knowledge, after due investigation, any judicial or administrative order or decree of any Governmental Authority or (iv) its Certificate of Incorporation and By-laws. As used in this paragraph, "due investigation" means solely that, as to agreements and instruments, I have interviewed the officers of the Borrower responsible for its financing activities, and, as to orders and decrees, I have interviewed the lawyers under my supervision. 6. Based on my review of Applicable Laws, but without my having made any special investigation concerning any other law, rule or regulation, no Governmental Approval which has not been obtained or taken and is not in full force and effect, is required to authorize or is required in connection with the execution, delivery or performance of the Loan Documents by the Borrower. This opinion is being furnished only to you and is solely for your benefit in connection with the transactions contemplated by the Loan Documents and is not to be used, circulated, quoted, relied upon or otherwise referred to for any other purpose without my prior written consent. Very truly yours, EX-10 3 August 26, 1999 Mr. Donald R. McIlnay 150 James Way Advance, NC 27006 Dear Don: I am pleased to confirm our offer for the position of President Consumer Sales, for The Stanley Works. The position is based in Charlotte, NC and will report to me. Your base salary will be $300,000 per year, paid monthly. You will also participate in the Corporate Management Incentive Compensation Program with a guaranteed incentive payout of $120,000 for the year 2000, which is payable in February 2001. You will also receive a pro-rated incentive payment for 1999, which is payable in February 2000. An additional payment of up to $70,000 may be made in February 2000 if required, so that the sum of the pro-rated bonus, this additional payment, and the value of the 100,000 share stock option grant above the option purchase price equals $100,000. You will be eligible for four weeks of vacation. On joining the Company, you will receive a grant of a 100,000 share stock option under the terms of the Special Stock Option Plan. The Option Purchase Price will be the price of the stock on the date of grant, which will be within 60 days of your first day of work. Fifty-percent of this grant will vest 36 months following the grant date and 50% will vest 60 months following the grant date. Starting in 2000, your stock options will be targeted at the 13,000 level annually. In addition, you will participate in our Long -Term Incentive Plan at the senior level. Payment of this plan will be made in February 2003. As an Officer of The Stanley Works, you will participate in current and future executive benefit programs including our Financial Planning Service, Executive Life Insurance Program, and the Executive Physical Program. The Company will also lease and insure a car for your use. You may select any make and model up to a Fair Market Value of $60,000.00. Details of the executive benefit programs are attached. In addition, the Company's Employee Stock Purchase Program (ESPP) allows you to purchase company stock up to 15% of your base pay annually (capped at $25,000), at 15% below the market price. The Company's 401k Plan will match 50% of employee contributions up to 7% of your pay and the Company Defined Contribution Pension Plan contributes either 3%, 5% or 9% of pay each year depending upon your age. Enclosed is a copy of a Consent Order with the Federal Trade Commission regarding "Made in USA". Please read and sign the attached and return it to the address indicated. Page 2 Should a future relocation be required, the Company will cover the standard relocation costs associated with the sale of your current home and the purchase of a home at the new location. You should be aware that your employment with Stanley will continue as long as mutually acceptable, and as such is terminable by either the Company, or by yourself, at any time and for any reason. Commencing employment is contingent upon our Medical Department determining that you are physically suited for the duties of the position. This includes a drug-screening test. Please contact Skip Proctor, at 860-827-3935 to make the necessary arrangements. The Stanley Works Health Plans become effective on the first of the month following your date of employment. They will be explained to you in detail on your first day of employment. You can usually extend your existing medical coverage for a limited period of time to cover any lapse between the plans. Don, I am delighted that you will join our team. There's a lot of exciting work to be done and I know that you will make a great contribution to our success. If you have any questions, please give me a call at 860-827-3990 or Mark Mathieu at 860-827-3818. Please indicate your acceptance by signing below and return a copy to me. Sincerely, __________________________ _____________________________ John M. Trani Donald McIlnay Chairman & CEO cc: Carol L'Heureux, Executive Compensation & Relocation Skip Proctor, Director HR - Sales America Enclosures: Deferred Compensation Plan (December 19, 1995) 1990 Stock Option Plan (April 23, 1997) Executive Life Insurance Program Financial Planning Service Executive Physical Program Employee Benefits Booklet FTC Consent Order Executive Car Program EX-12 4 THE STANLEY WORKS AND SUBSIDIAIRES COMPUTATION OF EARNINGS TO FIXED CHARGES (In Millions of Dollars) THIRD QUARTER NINE MONTHS 1999 1998 1999 1998 ------ ------ ------ ------ Earnings before income taxes $77.4 $53.6 $162.9 $179.3 Add: Interest expense 8.2 8.7 25.5 22.0 Portion of rents representative of interest factor 3.8 2.9 11.3 8.7 Amortization of expense on long- term debt 0.1 - 0.2 0.1 ------ ------ ------ ------ Income as adjusted $89.5 $65.2 $199.9 $210.1 ====== ====== ====== ====== Fixed charges: Interest expense $8.2 $8.7 $25.5 $22.0 Portion of rents representative of interest factor 3.8 2.9 11.3 8.7 Amortization of expense on long- term debt 0.1 - 0.2 0.1 ------ ------ ------ ------ Fixed charges $12.1 $11.6 $37.0 $30.8 ====== ====== ====== ====== Ratio of earnings to fixed charges 7.40 5.62 5.40 6.82 ====== ====== ====== ====== EX-27 5
5 This schedule contains summary financial information extracted from The Stanley Works and Subsidiaries Consolidated Balance Sheets and Statements of Operations and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS JAN-01-2000 OCT-02-1999 131,500 0 576,000 0 367,100 1,149,400 1,186,900 691,000 1,961,900 735,600 299,200 0 0 230,900 482,700 1,961,900 2,061,200 2,061,200 1,353,400 1,353,400 0 0 21,900 162,900 57,000 105,900 0 0 0 105,900 1.18 1.18
-----END PRIVACY-ENHANCED MESSAGE-----