-----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, Jkp0XhK6IzweKLilhoG0iqJKus8zZAf4o4vR75GTorY3FHYjZ/cOylhmnNVgEH6c kVz6YpfRI11Xnrw8CeTDaQ== 0000950136-01-000568.txt : 20010402 0000950136-01-000568.hdr.sgml : 20010402 ACCESSION NUMBER: 0000950136-01-000568 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20001230 FILED AS OF DATE: 20010330 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: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-05224 FILM NUMBER: 1586799 BUSINESS ADDRESS: STREET 1: 1000 STANLEY DR STREET 2: P O BOX 7000 CITY: NEW BRITAIN STATE: CT ZIP: 06053 BUSINESS PHONE: 8602255111 MAIL ADDRESS: STREET 1: 1000 STANLEY DR CITY: NEW BRITAIN STATE: CT ZIP: 06053 10-K405 1 0001.txt FORM 10-K WITH ITEM 405 CHECKED-OFF ON COVER UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 30, 2000 _____________ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________________ to ______________ COMMISSION FILE 1-5224 THE STANLEY WORKS (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CONNECTICUT 06-0548860 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) 1000 STANLEY DRIVE NEW BRITAIN, CONNECTICUT 06053 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (860) 225-5111 (REGISTRANT'S TELEPHONE NUMBER) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED Common Stock--Par Value $2.50 Per Share New York Stock Exchange Pacific Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [x]. The aggregate market value of Common Stock, par value $2.50 per share, held by non-affiliates (based upon the closing sale price on the New York Stock Exchange) on February 16, 2001 was approximately $2.1 billion. As of February 16, 2001, there were 85,665,115 shares of Common Stock, par value $2.50 per share, outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Shareowners for the year ended December 30, 2000 are incorporated by reference into Parts I and II. Portions of the definitive Proxy Statement dated March 20, 2001, filed with the Commission pursuant to Regulation 14A, are incorporated by reference into Part III. FORM 10-K Part I Item 1. Business 1(a) General Development of Business. (i) General. The Stanley Works ("Stanley" or the "company") was founded in 1843 by Frederick T. Stanley and incorporated in 1852. Stanley is a worldwide producer of tools and door products for professional, industrial and consumer use. Stanley(R)is a brand recognized around the world for quality and value. In 2000, Stanley had net sales of $2.749 billion and employed approximately 15,500 people worldwide. The company's principal executive office is located at 1000 Stanley Drive, New Britain, Connecticut 06053 and its telephone number is (860) 225-5111. (ii) Restructuring Activities. In 2000, the company completed the restructuring initiatives announced in 1997 and 1999 and will only be incurring certain run-off expenditures related thereto over the next few years. In 1999, the company completed an evaluation of the remaining reserves that were established in 1997 for restructuring initiatives and determined that certain projects would be cancelled in order to reapply company resources to higher payback areas. Accordingly, in the fourth quarter of 1999, the company reversed $62 million of reserves established for such actions. Net reserves of $18 million, $12 million for severance, $2 million for asset write-downs and $4 million for environmental remediation and other exit costs were remaining at the end of 1999 to be utilized for remaining costs associated with projects initiated, however, not completed. In 2000, severance of $10 million, asset write-downs of $2 million, and payments for other exit costs of $2 million reduced these reserves to $4 million by year-end. In 1999, new projects were approved to achieve improved cost productivity. These new initiatives included facility closures and the related relocation of production, a reduction in force in administrative functions and the outsourcing of non-core activities as well as the related asset impairments. The company recorded restructuring charges related to these new initiatives of $40 million, of which $30 million related to severance, $8 million related to asset write-downs and $2 million related to environmental remediation and other exit costs. In 2000, severance of $19 million, asset write-downs of $5 million and payments for other exit costs of $1 million reduced these reserves to $15 million by year end. To date the company has closed 54 facilities and reduced employment by approximately 6,200 people related to all restructuring initiatives. 1(b) Financial Information About Segments. Financial information regarding the company's business segments is incorporated herein by reference from pages 32, 33 and 36 of the company's Annual Report to Shareowners for the year ended December 30, 2000. 1(c) Narrative Description of Business. The company's operations are classified into two business segments: Tools and Doors. Tools. The Tools segment manufactures and markets carpenters, mechanics, pneumatic and hydraulic tools as well as tool sets. These products are distributed directly to retailers (including home centers, mass merchants and retail lumber yards) and end users as well as through third party distributors. Carpenters tools include hand tools such as measuring instruments, planes, hammers, knives and blades, screwdrivers, saws, garden tools, chisels, boring tools, masonry, tile and drywall tools, as well as electronic stud sensors, levels, alignment tools and elevation measuring systems. The company markets its carpenters tools under the Stanley(R), FatMax(tm), MaxGrip(tm), Powerlock(R), IntelliTools(R), Contractor Grade(tm), Dynagrip(R), AccuScape(tm) and Goldblatt(R) brands. Mechanics tools include consumer, industrial and professional mechanics hand tools, including wrenches, sockets, electronic diagnostic tools, tool boxes and high-density industrial storage and retrieval systems. Mechanics tools are marketed under the Stanley(R), Proto(R), Mac Tools(R), Husky(R), Jensen(R), Vidmar(R), ZAG(R) and Blackhawk(tm) brands. Pneumatic tools include BOSTITCH(R) fastening tools and fasteners (nails and staples) used for construction, remodeling, furniture making, pallet manufacturing and consumer use and pneumatic air tools marketed under the Stanley(R) brand (these are high performance, precision assembly tools, controllers and systems for tightening threaded fasteners used chiefly by vehicle manufacturers). Hydraulic tools include Stanley(R) hand-held hydraulic tools used by contractors, utilities, railroads and public works as well as LaBounty(R) mounted demolition hammers and compactors designed to work on skid steer loaders, mini-excavators, backhoes and large excavators. Doors. The Doors segment manufactures and markets commercial and residential doors, both automatic and manual, as well as closet doors and systems, home decor and door and consumer hardware. Products in the Doors segment include residential insulated steel, reinforced fiberglass and wood entrance door systems, vinyl patio doors, mirrored closet doors and closet organizing systems, automatic doors as well as related door hardware products ranging from hinges, hasps, bolts and latches to shelf brackets and lock sets. Door products are marketed under the Stanley(R), Magic-Door(R), Welcome Watch(R), Stanley-Acmetrack(tm), Monarch(tm) and Acme(R) brands and are sold directly to end users and retailers as well as through third party distributors. Competition. The company competes on the basis of its reputation for product quality, its well-known brands, its commitment to customer service and strong customer relationships, the breadth of its product lines and its emphasis on product innovation. The company encounters active competition in all of its businesses from both larger and smaller companies that offer the same or similar products and services or that produce different products appropriate for the same uses. The company has a large number of competitors; however, aside from a small number of competitors in the consumer hand tool and consumer hardware business, who produce a range of products somewhat comparable to the company's, the majority of its competitors compete only with respect to one or more individual products within a particular line. The company believes that it is the largest manufacturer of hand tools in the world featuring a broader line than any other toolmaker. The company also believes that it is the leader in the manufacture and sale of pneumatic fastening tools and related fasteners to the construction, furniture and pallet industries as well as the leading manufacturer of hand-held hydraulic tools used for heavy construction, railroads, utilities and public works. In the Doors segment, the company believes that it is a U.S. leader in the manufacture and sale of insulated steel residential entrance doors, commercial hardware products, mirrored closet doors and hardware for sliding, folding and pocket doors and the U.S. leader in the manufacture, sale and installation of power operated sliding doors. Customers. A substantial portion of the company's products are sold through home centers and mass merchant distribution channels in the U.S. In 2000, approximately 17% of the company's consolidated sales in the Tools and Doors segments collectively were to Home Depot. Because a consolidation of retailers in the home center and mass merchant distribution channel is occurring, these customers constitute a growing percent of the company's sales and are important to the company's operating results. While this consolidation and the domestic and international expansion of these large retailers provide the company with opportunities for growth, the increasing size and importance of individual customers creates a certain degree of exposure to potential volume loss. The loss of Home Depot as well as certain of the other larger home centers as customers would have a material adverse effect on each of the company's business segments until either such customers are replaced or the company makes the necessary adjustments to compensate for the loss of business. Despite the trend toward customer consolidation, the company has a diversified customer base and is seeking to broaden its customer base further in each business segment by identifying and seeking new channels and customers that it does not currently serve. Raw Materials. The company's products are manufactured of steel and other metals, wood and plastic. The raw materials required are available from a number of sources at competitive prices and the company has multi-year contracts with many of its key suppliers. The company has experienced no difficulties in obtaining supplies in recent periods. Backlog. At February 3, 2001, the company had $177 million in unfilled orders compared with approximately $167 million in unfilled orders at February 5, 2000. All these orders are reasonably expected to be filled within the current fiscal year. Most customers place orders for immediate shipment and as a result, the company produces primarily for inventory, rather than to fill specific orders. Patents and Trademarks. Neither business segment is dependent, to any significant degree, on patents, licenses, franchises or concessions and the loss of these patents, licenses, franchises or concessions would not have a material adverse effect on either business segment. The company owns numerous patents, none of which are material to the company's operations as a whole. These patents expire from time to time over the next 20 years. The company holds licenses, franchises and concessions, none of which individually or in the aggregate is material to the company's operations as a whole. These licenses, franchises and concessions vary in duration from one to 20 years. The company has numerous trademarks that are utilized in its businesses worldwide. The STANLEY(R) and STANLEY (in a notched rectangle)(R) trademarks are material to both business segments. These well-known trademarks enjoy a reputation for quality and value and are among the world's most trusted brand names. The company's tagline, "Make Something Great(tm)" is the centerpiece of the company's brand strategy for both segments. In the Tools segment, the Bostitch(R), Powerlock(R), Tape Rule Case Design (Powerlock)(R), LaBounty(R), MAC Tools(R), Proto(R), Jensen(R), Goldblatt(R) and Vidmar(R) trademarks are also material to the business. Environmental Regulations. The company is subject to various environmental laws and regulations in the U.S. and foreign countries where it has operations. Future laws and regulations are expected to be increasingly stringent and will likely increase the company's expenditures related to environmental matters. The company is a party to a number of proceedings before federal and state regulatory agencies relating to environmental remediation. Additionally, the company, along with many other parties, has been named as a potentially responsible party ("PRP") in a number of administrative or judicial proceedings for the remediation of various waste sites, including nine (9) active Superfund sites. Current laws potentially impose joint and severe liability upon each PRP. In assessing its potential liability at these sites, the company has considered the following: the solvency of the other PRP's, whether responsibility is being disputed, the terms of existing agreements, experience at similar sites, and the fact that its volumetric contribution at these sites is relatively small. The company's policy is to accrue environmental investigatory and remediation costs for identified sites when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. The amount of liability recorded is based on an evaluation of currently available facts with respect to each individual site and includes such factors as existing technology, presently enacted laws and regulations, and prior experience in remediation of contaminated sites. The liabilities recorded do not take into account any claims for recoveries from insurance or third parties. As assessments and remediation progress at individual sites, the amounts recorded are reviewed periodically and adjusted to reflect additional technical and legal information that becomes available. As of December 30, 2000, the company had reserves of approximately $15 million, primarily for remediation activities associated with company-owned properties as well as for Superfund sites. The amount recorded for identified contingent liabilities is based on estimates. Amounts recorded are reviewed periodically and adjusted to reflect additional technical and legal information that becomes available. Actual costs to be incurred in future periods may vary from the estimates, given the inherent uncertainties in evaluating environmental exposures. Subject to the imprecision in estimating future environmental costs, the company does not expect that any sum it may have to pay in connection with environmental matters in excess of the amounts recorded will have a materially adverse effect on its financial position, results of operations or liquidity. Power-generating Subsidiary. Under the General Statutes of Connecticut, the company is deemed to be a "holding company" that controls an electric company as a result of its being the sole shareholder of The Farmington River Power Company, a power-generating subsidiary of the company since 1916. Under such statute, no organization or person may take any action to acquire control of such a holding company without the prior approval of the Connecticut Department of Public Utility Control. Employees. At December 30, 2000, the company had approximately 15,500 employees, approximately 8,800 of whom were employed in the U.S. Of these 8,800 U.S. employees, approximately 14.8% are covered by collective bargaining agreements negotiated with 17 different local labor unions who are, in turn, affiliated with approximately 7 different international labor unions. The majority of the company's hourly-paid and weekly-paid employees outside the U.S. are not covered by collective bargaining agreements. The company's labor agreements in the U.S. expire in 2001, 2002, 2003, and 2004. There have been no significant interruptions or curtailments of the company's operations in recent years due to labor disputes. The company believes that its relationship with its employees is good. Cautionary Statements. The statements contained in this annual report to shareowners regarding the company's ability (i) to become a Great Brand 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), (ii) to lower the overall cost structure to become more competitive, (iii) to obtain sales growth from the implementation of sales and marketing programs, and (iv) to drive working capital efficiency and continue to generate cash in order to, among other things, invest in business needs, make strategic acquisitions and to fund restructuring and other initiatives are forward looking and inherently subject to risk and uncertainty. The company's ability to lower its overall cost structure is dependent on the success of various initiatives to improve manufacturing operations and to implement related cost control systems and to source from and manufacture a higher percentage of the company's products in low-cost countries. The success of these initiatives is dependent on the company's ability to increase the efficiency of its routine business processes, to develop and implement process control systems, to develop and execute comprehensive plans for facility consolidations, the availability of vendors to perform outsourced functions, the availability of lower cost raw material of suitable quality from foreign countries, the successful recruitment and training of new employees, the resolution of any labor issues related to closing facilities, the need to respond to significant changes in product demand while any facility consolidation is in process and other unforeseen events. In addition, the company's ability to leverage the benefits of gross margin improvements is dependent upon maintaining selling, general and administrative expense at 2000 levels. The company's ability to maintain the level of selling, general and administrative expenses is dependent upon various process improvement activities, the successful implementation of changes to the sales organization, the recruitment and retention of manufacturers sales representatives and the reduction of transaction costs. The company's ability to achieve sales growth is dependent upon a number of factors, including: (i) the ability to recruit and retain a sales force comprised of employees and manufacturers reps, (ii) the success of the company's sales and marketing programs to increase retail sell through and stimulate demand for the company's products, (iii) the ability of the sales force to adapt to changes made in the sales organization and achieve adequate customer coverage, (iv) the ability of the company to fulfill demand for its products, (v) the absence of pricing pressures from customers and competitors and the ability to defend market share in the face of price competition, (vi) the ability to improve the cost structure in order to fund new product and brand development and (vii) the acceptance of the company's new products in the marketplace as well as the ability to satisfy demand for these products. The company's ability to drive working capital efficiency and continue to generate cash in order to, among other things, invest in business needs, make strategic acquisitions and to fund restructuring and other initiatives is dependent on all of the factors discussed above as well as the continued success of improvements in processes to manage inventory and receivable levels. 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, 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. 1(d) Financial Information About Geographic Areas. Geographic area information on page 36 of the Annual Report to Shareowners for the year ended December 30, 2000 is incorporated herein by reference. In addition, approximately 16.2% of the company's long-lived assets are related to its Israeli operations. Item 2. Properties. As of December 30, 2000, company and its subsidiaries owned or leased facilities for manufacturing, distribution and sales offices in 28 states and 33 foreign countries. The company believes that its facilities are suitable and adequate for its business. A summary of material locations (over 50,000 square feet) that are owned by the company and its subsidiaries are: Tools. Phoenix, Arizona; Visalia, California; Clinton and New Britain, Connecticut; Shelbyville, Indiana; Two Harbors, Minnesota; Hamlet and Sanford, North Carolina; Columbus, Georgetown and Sabina, Ohio; Allentown, Pennsylvania; East Greenwich, Rhode Island; Cheraw, South Carolina; Shelbyville, Tennessee; Dallas and Wichita Falls, Texas; Pittsfield and Shaftsbury, Vermont; Richmond, Virginia; Smiths Falls, Canada; Pecky, Czech Republic; Hellaby, Northampton, Worsley and Sheffield, England; Besancon Cedex, France; Wieseth, Germany; Chihuahua and Puebla, Mexico; Wroclaw, Poland; Taichung Hsien, Taiwan; and Amphur Bangpakong, Thailand. Doors. Chatsworth, California; Farmington and New Britain, Connecticut; Richmond, Virginia; Brampton, Canada; Sheffield, England; Marquette, France and Zhongshan City, Peoples Republic of China. A summary of material locations (over 50,000 square feet) that are leased by the company and its subsidiaries are: Tools. New Britain, Connecticut; Miami, Florida; Covington, Georgia; Kannapolis, North Carolina; Cleveland and Columbus, Ohio; Milwaukie, Oregon; Carrollton, Texas; Burlington and Smiths Falls, Canada; and Ecclesfield, Worsley and Northampton, England; Biassono, Italy; Heidelberg West, Australia and Izraelim, Israel. Doors. San Dimas, California; Tupelo, Mississippi; Charlotte, North Carolina; Winchester, Virginia; and Langley and Oakville, Canada. Item 3. Legal Proceedings. In the normal course of business, the company is involved in various lawsuits, claims, including product liability and distributor claims, and administrative proceedings. The company does not expect that the resolution of these matters will have a materially adverse effect on the company's consolidated financial position, results of operations or liquidity. On November 23, 1999, the company voluntarily reported potential violations of the East Greenwich, Rhode Island facility's air emissions permit to the Rhode Island Department of Environmental Management ("RIDEM") pursuant to the Rhode Island Environmental Compliance Incentive Act (the "Act"). In the past, the facility by-passed air emissions control equipment when such equipment periodically malfunctioned. This practice may constitute a violation of the facility's air permit. Subsequent to the disclosure to RIDEM on November 23, 1999, the company retained an outside environmental consulting firm to conduct a voluntary multi-media compliance audit of the facility. The auditor discovered certain additional potential violations of environmental laws, which the company voluntarily reported to RIDEM and the United States Environmental Protection Agency (the "U.S. EPA") under the Act and the U.S. EPA's self-policing policy. The company expects to pay a penalty of less than $300,000 in respect of the foregoing violations. Item 4. Submission of Matters to a Vote of Security Holders. No matter was submitted during the fourth quarter of the company's last fiscal year to a vote of security holders. Executive Officers. The following is a list of the executive officers of the company as of December 30, 2000:
Name, Age (as of 12/30/00) Elected Birth date Office to Office J.M. Trani (55) Chairman and Chief Executive Officer. 12/31/96 (3/15/45) Joined Stanley December 31, 1996; 1986 President and Chief Executive Officer of GE Medical Systems. B.H. Beatt (48) Vice President, General Counsel and 10/13/00 (07/24/52) Secretary. Joined Stanley October 2000; 1991 Vice President, General Counsel and Secretary, Dexter Corporation. W.D. Hill (51) Vice President, Engineering. Joined 9/17/97 (9/18/49) Stanley August 1997; 1996 Director Product Management-Tool Group, Danaher Tool; 1994 Vice President, Product Development Global Accessories, The Black & Decker Corporation; 1992 Vice President Product Development-N.A. Power Tools, The Black & Decker Corporation. K.O. Lewis (47) Vice President, Marketing and Brand 11/3/97 (5/28/53) Management. Joined Stanley November 1997; 1996 Executive Vice President Strategic Alliances, Marvel Entertainment Group; 1986 Director Participant Marketing, Walt Disney Attractions. J.M. Loree (42) Vice President, Finance and Chief 7/14/99 (6/14/58) Financial Officer. Joined Stanley July 1999; 1997 Vice President, Finance & Strategic Planning, GE Capital Auto Financial Services; 1995 President & Chief Executive Officer, GE Capital Modular Space; 1993 Vice President, Corporate Sourcing and Business Services, GE Capital Corporation. M.J. Mathieu (48) Vice President, Human Resources. 9/17/97 (2/20/52) Joined Stanley September 1997; 1996 Manager-Human Resources, GE Motors & Industrial Systems; 1994 Consultant-Executive Staffing, General Electric company; 1989 Consultant-Union Relations, General Electric company. D.R. McIlnay (50) President, Consumer Sales Americas. 9/29/99 (6/11/50) Joined Stanley October 1999; 1997 President & Chief Executive Officer, The Gibson-Homans company; 1993 President, Levolor Home Fashions, a Newell company. R.L. Newcomb (57) Vice President-Operations. Joined 5/19/99 (8/1/43) Stanley June 1999; May 1998 Consultant, Huffy Corporation; January 1998 Vice President Operations Kaiser Aluminum Engineered Products; 1996 Vice President Manufacturing, Sunbeam Corporation; 1994 Vice President Operations, Black & Decker Worldwide Household Products. P.W. Russo (47) Vice President, Strategy and 9/18/95 (5/23/53) Development. Joined Stanley in 1995; 1991 Co-Chairman and Co-Chief Executive Officer, SV Corp. (formerly Smith Valve Corp.); 1988 Co-founder and Managing Director, Cornerstone Partners Limited.
Executive officers serve at the pleasure of the Board of Directors. Unless otherwise indicated, each officer has had the same position with the company for five years. Part II Item 5. Market for the company's Common Stock and Related Stockholder Matters. The company incorporates by reference the line item "Shareowners of record at end of year" from pages 26 and 27 and the material captioned "Investor and Shareowner Information" on page 53 of its Annual Report to Shareowners for the year ended December 30, 2000. Item 6. Selected Financial Data. The company incorporates by reference pages 26 and 27 of its Annual Report to Shareowners for the year ended December 30, 2000. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The company incorporates by reference pages 30 through 35 of its Annual Report to Shareowners for the year ended December 30, 2000. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. The company incorporates by reference the material captioned "Market Risk" on page 34 and Footnote I on page 44 of its Annual Report to Shareowners for the year ended December 30, 2000. Item 8. Financial Statements and Supplementary Data. The consolidated financial statements and report of independent auditors included on pages 37 to 51 and page 29, respectively, of the Annual Report to Shareowners for the year ended December 30, 2000 are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. Part III Item 10. Directors and Executive Officers of the Company. Information regarding the company's Executive Officers appears in the "Executive Officers" section at the end of Part I of this report. In addition, the company incorporates by reference pages 1 through 5 of its definitive Proxy Statement, dated March 20, 2001. Item 11. Executive Compensation. The company incorporates by reference the paragraph "Board Information-Compensation" on pages 4 and 5 and the material captioned "Executive Compensation" on pages 7 through 15 of its definitive Proxy Statement, dated March 20, 2001. Item 12. Security Ownership of Certain Beneficial Owners and Management. The company incorporates by reference the material captioned "Security Ownership" on pages 5 and 6 of its definitive Proxy Statement, dated March 20, 2001. Item 13. Certain Relationships and Related Transactions. None. Part IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. 14(a) Index to documents filed as part of this report: 1. and 2. Financial Statements and Financial Statement Schedules. The response to this portion of Item 14 is submitted as a separate section of this report (see page F-1). 3. Exhibits See Exhibit Index on page E-1. 14(b) The following reports on Form 8-K were filed during the last quarter of the period covered by this report: Date of Report Items Reported October 18, 2000 Press Release dated October 18, 2000 announcing third quarter earnings and fourth quarter dividend. 14(c) See Exhibit Index on page E-1. 14(d) The response to this portion of Item 14 is submitted as a separate section of this report (see page F-1). SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE STANLEY WORKS By /s/ John M. Trani --------------------------- John M. Trani, Chairman and Chief Executive Officer March 30, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the company and in the capacities indicated. /s/ John M. Trani /s/ James M. Loree - ---------------------------------- ----------------------------------------- John M. Trani, Chairman, Chief James M. Loree, Vice President, Executive Officer and Director Finance and Chief Financial Officer /s/ Donald Allan * - ---------------------------------- ----------------------------------------- Donald Allan, Corporate Controller John G. Breen, Director * - ---------------------------------- ----------------------------------------- Stillman B. Brown, Director Mannie L. Jackson, Director * - ---------------------------------- ----------------------------------------- James G. Kaiser, Director Eileen S. Kraus, Director * * - ---------------------------------- ----------------------------------------- John D. Opie, Director Hugo E. Uyterhoeven, Director * - ---------------------------------- Kathryn D. Wriston, Director *By: /s/ Bruce H. Beatt --------------------- Bruce H. Beatt (As Attorney-in-Fact) FORM 10-K--ITEM 14(a) (1) and (2) THE STANLEY WORKS AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES The following consolidated financial statements and report of independent auditors of The Stanley Works and subsidiaries, included in the Annual Report of the company to its Shareowners for the fiscal year ended December 30, 2000, are incorporated by reference in Item 8: Report of Independent Auditors Consolidated Statements of Operations--fiscal years ended December 30, 2000, January 1, 2000, and January 2, 1999. Consolidated Balance Sheets--December 30, 2000, January 1, 2000, and January 2, 1999. Consolidated Statements of Cash Flows--fiscal years ended December 30, 2000, January 1, 2000, and January 2, 1999. Consolidated Statements of Changes in Shareowners' Equity-- fiscal years ended December 30, 2000, January 1, 2000 and January 2, 1999. Notes to Consolidated Financial Statements. The following consolidated financial statement schedule of The Stanley Works and subsidiaries is included in Item 14(d): F-4 Schedule II--Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. F-1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of The Stanley Works of our report dated January 24, 2001. Our audits also included the consolidated financial statement schedule of The Stanley Works listed in Item 14(a). This schedule is the responsibility of the company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the following registration statements of our report dated January 24, 2001 with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the consolidated financial statement schedule included in this Annual Report (Form 10-K) of The Stanley Works. Registration Statement (Form S-8 No. 2-93025) Registration Statement (Form S-8 No. 2-96778) Registration Statement (Form S-8 No. 2-97283) Registration Statement (Form S-8 No. 33-16669) Registration Statement (Form S-3 No. 33-12853) Registration Statement (Form S-3 No. 33-19930) Registration Statement (Form S-8 No. 33-39553) Registration Statement (Form S-8 No. 33-41612) Registration Statement (Form S-3 No. 33-46212) Registration Statement (Form S-3 No. 33-47889) Registration Statement (Form S-8 No. 33-55663) Registration Statement (Form S-8 No. 33-62565) Registration Statement (Form S-8 No. 33-62567) Registration Statement (Form S-8 No. 33-62575) Registration Statement (Form S-8 No. 333-42346) Registration Statement (Form S-8 No. 333-42582) ERNST & YOUNG LLP Hartford, Connecticut March 26, 2001 F-2 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the following registration statements pertaining to The Stanley Works Account Value Plan of our report dated March 14, 2001, with respect to the financial statements and schedules of The Stanley Works Account Value Plan for the year ended December 31, 2000 included as Exhibit 99(i) to this Annual Report (Form 10-K) for the fiscal year ended December 30, 2000. Registration Statement (Form S-8 No. 2-97283) Registration Statement (Form S-8 No. 33-41612) Registration Statement (Form S-8 No. 33-55663) ERNST & YOUNG LLP Hartford, Connecticut March 26, 2001 F-3
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS THE STANLEY WORKS AND SUBSIDIARIES Fiscal years ended December 30, 2000, January 1, 2000 and January 2, 1999 (In Millions of Dollars) - ----------------------------------------------------------------------------------------------------------------- COL. A COL. B COL. C - ----------------------------------------------------------------------------------------------------------------- ADDITIONS --------------------------------------------- (1) (2) Description Balance at Beginning Charged to Costs Charged to Other of Period and Expenses Accounts-Describe - ----------------------------------------------------------------------------------------------------------------- Fiscal year ended December 30, 2000 Reserves and allowances deducted from asset accounts: Allowance for doubtful accounts: Current $43.4 $24.3 $2.2 (B) Noncurrent 0.7 - (0.1) (B) Fiscal year ended January 1, 2000 Reserves and allowances deducted from asset accounts: Allowance for doubtful accounts: Current $26.7 $31.3 $3.1 (B) Noncurrent 0.6 - 0.1 (B) Fiscal year ended January 2, 1999 Reserves and allowances deducted from asset accounts: Allowance for doubtful accounts: Current $19.8 $16.1 $0.8 (B) Noncurrent 0.7 - - Notes: (A) Represents doubtful accounts charged off, less recoveries of accounts previously charged off. (B) Represents net transfers to/from other accounts, foreign currency translation adjustments and acquisitions/divestitures. - --------------------------------------------- COL. D COL. E - --------------------------------------------- Deductions-Describe Balance at End of Period - --------------------------------------------- $28.0 (A) $41.9 0.0 0.6 $17.7 (A) $43.4 - 0.7 $10.0 (A) $26.7 0.1 (A) 0.6
F-4 EXHIBIT LIST (3) (i) Restated Certificate of Incorporation (incorporated by reference to Exhibit 3(i) to the Annual Report on Form 10-K for the year ended January 2, 1999) (ii) By-laws (incorporated by reference to Exhibit 3 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2000) (4) (i) Indenture, dated as of April 1, 1986 between the Company and State Street Bank and Trust Company, as successor trustee, defining the rights of holders of 7-3/8% Notes Due December 15, 2002 and 5.75% Notes due March 1, 2004 (incorporated by reference to Exhibit 4(a) to Registration Statement No. 33-4344 filed March 27, 1986) (ii) First Supplemental Indenture, dated as of June 15, 1992 between the Company and State Street Bank and Trust Company, as successor trustee (incorporated by reference to Exhibit (4)(c) to Registration Statement No. 33-46212 filed July 21, 1992) (a) Certificate of Designated Officers establishing Terms of 7-3/8% Notes Due December 15, 2002 (incorporated by reference to Exhibit (4)(ii) to Current Report on Form 8-K dated December 7, 1992) (b) Certificate of Designated Officers establishing Terms of 5.75% Notes due March 1, 2004 (incorporated by reference to Exhibit 4(ii)(a) to the Annual Report on Form 10-K for the year ended January 2, 1999) (iii) Rights Agreement, dated January 31, 1996 (incorporated by reference to Exhibit (4)(i) to Current Report on Form 8-K dated January 31, 1996) (iv)(a) Amended and Restated Facility A (364 Day) Credit Agreement, dated as of October 23, 1996, with the banks named therein and Citibank, N.A. as agent (incorporated by reference to Exhibit 4(iv) to the Annual Report on Form 10-K for the year ended December 28, 1996) (b) Credit Agreement, dated as of October 21, 1998, among the Company, the Lenders named therein and Citibank, N.A. as agent (incorporated by reference to Exhibit 4(iv)(c) to the Quarterly Report on Form 10-Q for the quarter ended October 3, 1998) E-1 (c) Credit Agreement, dated as of October 21, 1998, as amended and restated as of October 20, 1999, among the Company, each lender that is a signatory thereto and Citibank, N.A. as Agent for the Lenders (incorporated by reference to Exhibit 4(i) to the Quarterly Report on Form 10-Q for the quarter ended October 2, 1999) (d) Credit Agreement, dated as of October 21, 1998, as amended and restated as of October 18, 2000, among the Company, each lender that is a signatory thereto and Citibank, N.A. as Agent for the Lenders (incorporated by reference to Exhibit 10 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2000) (v) Amended and Restated Facility B (Five Year) Credit Agreement, dated as of October 23, 1996, with the banks named therein and Citibank, N.A. as agent (incorporated by reference to Exhibit 4(v) to the Annual Report on Form 10-K for the year ended December 28, 1996) (10)(i) Executive Agreements (incorporated by reference to Exhibit 10(i) to the Annual Report on Form 10-K for the year ended January 3, 1987)* (ii) Deferred Compensation Plan for Non-Employee Directors as amended December 11, 2000* (iii) 1988 Long-Term Stock Incentive Plan, as amended (incorporated by reference to Exhibit 10(iii) to the Annual Report on Form 10-K for the year ended January 3, 1998)* (iv) Management Incentive Compensation Plan effective January 4, 1998 (incorporated by reference to Exhibit 10(iii) to the Quarterly Report on Form 10-Q for the quarter ended July 4, 1998)* (v) Deferred Compensation Plan for Participants in Stanley's Management Incentive Plan effective January 1, 1996 (incorporated by reference to Exhibit 10(v) to the Annual Report on Form 10-K for the year ended December 30, 1995)* * Management contract or compensation plan or arrangement E-2 (vi) Supplemental Retirement and Account Value Plan for Salaried Employees of The Stanley Works effective as of January 1, 2000 (incorporated by reference to Exhibit 10(vi) of the Annual Report on Form 10-K for the year ended January 1, 2000)* (vii) Note Purchase Agreement, dated as of June 30, 1998, between the Stanley Account Value Plan Trust, acting by and through Citibank, N.A. as trustee under the trust agreement for the Stanley Account Value Plan, for $41,050,763 aggregate principal amount of 6.07% Senior ESOP Guaranteed Notes Due December 31, 2009 (incorporated by reference to Exhibit 10(i) to the Quarterly Report on Form 10-Q for the quarter ended July 4, 1998) (viii) New 1991 Loan Agreement, dated June 30, 1998, between The Stanley Works, as lender, and Citibank, N.A. as trustee under the trust agreement for the Stanley Account Value Plan, to refinance the 1991 Salaried Employee ESOP Loan and the 1991 Hourly ESOP Loan and their related promissory notes (incorporated by reference to Exhibit 10(ii) to the Quarterly Report on Form 10-Q for the quarter ended July 4, 1998) (ix) (a)Supplemental Executive Retirement Program effective May 20, 1997 (incorporated by reference to Exhibit 10(xi)(a) to the Annual Report on Form 10-K for the year ended January 3, 1998)* (b) Amendment to John M. Trani's supplemental Executive Retirement Program, dated September 17, 1997 (incorporated by reference to Exhibit 10(ix)(b) to the Annual Report on Form 10-K for the year ended January 3, 1998)* (x) (a) The Stanley Works Non-Employee Directors' Benefit Trust Agreement dated December 27, 1989 and amended as of January 1, 1991 by and between The Stanley Works and Fleet National Bank, as successor trustee (incorporated by reference to Exhibit (10)(xvii)(a) to the Annual Report on Form 10-K for year ended December 29, 1990) (b) Stanley Works Employees' Benefit Trust Agreement dated December 27, 1989 and amended as of January 1, 1991 by and between The Stanley Works and Fleet National Bank, as successor trustee (incorporated by reference to Exhibit (10)(xvii)(b) to the Annual Report on Form 10-K for year ended December 29, 1990) * Management contract or compensation plan or arrangement E-3 (xi) Restated and Amended 1990 Stock Option Plan (incorporated by reference to Exhibit 10(xiii) to the Annual Report on Form 10-K for the year ended December 28, 1996) (xii) Master Leasing Agreement, dated September 1, 1992 between BLC Corporation and The Stanley Works (incorporated by reference to Exhibit 10(i) to the Quarterly Report on Form 10-Q for the quarter ended September 26, 1992) (xiii) The Stanley Works Stock Option Plan for Non-Employee Directors, as amended December 18, 1996 (incorporated by reference to Exhibit 10(xvii) to the Annual Report on Form 10-K for the year ended January 3, 1998) (xiv) Employment Agreement effective December 27, 1996 between The Stanley Works and John M. Trani (incorporated by reference to Exhibit 10(i) to Current Report on Form 8-K dated January 2, 1997)* (xv) Letter Agreement, dated April 30, 1996 between The Stanley Works and Paul W. Russo (incorporated by reference to Exhibit 10(xx) to the Annual Report on Form 10-K for the year ended January 3, 1998)* (xvi) 1997 Long-Term Incentive Plan (incorporated by reference to Exhibit 99.2 to Registration Statement No. 333-42582 filed July 28, 2000)* (xvii) Agreement, dated November 16, 1998 between The Stanley Works and John A. Cosentino, Jr. (incorporated by reference to Exhibit (xviii) to the Annual Report on Form 10-K for the year ended January 2, 1999)* (xviii) Agreement, dated May 7, 1999 between The Stanley Works and Ron Newcomb (incorporated by reference to Exhibit 10(i) to the Quarterly Report on Form 10-Q for the quarter ended July 3, 1999)* (xix) Agreement, dated June 9, 1999 between The Stanley Works and James Loree (incorporated by reference to Exhibit 10(ii) to the Quarterly Report on Form 10-Q for the quarter ended July 3, 1999)* (xx) Engagement Letter, dated August 26, 1999 between The Stanley Works and Donald R. McIlnay (incorporated by reference to Exhibit 10(i) to the Quarterly Report on Form 10-Q for the quarter ended October 2, 1999)* * Management contract or compensation plan or arrangement E-4 (xxi) Agreement, dated November 16, 1998 between The Stanley Works and John Turner (incorporated by reference to Exhibit 10 (xxii) of the Annual Report on Form 10-K for the year ended January 1, 2000)* (xxii) Agreement, dated September 12, 2000 between The Stanley Works and Bruce H. Beatt* (xxiii) Agreement, dated October 6, 2000 between Stanley Works Inc., Stanley Europe BVBA, Stanley Atlantic Inc. and Mr. Stef G.H. Kranendijk* (11) Statement re computation of per share earnings (the information required to be presented in this exhibit appears in footnote J to the Company's Consolidated Financial Statements set forth in the Annual Report to Shareowners for the year ended December 30, 2000) (12) Statement re computation of ratio of earnings to fixed charges (13) Annual Report to Shareowners for the year ended December 30, 2000 (21) Subsidiaries of Registrant (23) Consents of Independent Auditors (at pages F-2 and F-3) (24) Power of Attorney (99) (i) Financial Statements and report of independent auditors for the year ended December 31, 2000, of The Stanley Works Account Value Plan (ii) Policy on Confidential Proxy Voting and Independent Tabulation and Inspection of Elections as adopted by The Board of Directors October 23, 1991 (incorporated by reference to Exhibit (28)(i) to the Quarterly Report on Form 10-Q for the quarter ended September 28, 1991) * Management contract or compensation plan or arrangement E-5 EX-10.(II) 2 0002.txt DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS (THE "PLAN") Revised December 20, 1989 Revised January 31, 1996 Amended December 11, 2000 THE STANLEY WORKS Deferred Compensation Plan For Non-Employee Directors (the "Plan") 1. Eligibility. Each member of the Board of Directors of The Stanley Works (the "Corporation") who is not an employee of the Corporation or any of its subsidiaries is eligible to participate in the Plan. 2. Participation. (a) Time of Election. Prior to the beginning of any calendar year, commencing with calendar year 1981, each eligible Director may elect to participate in the Plan by directing that all or any part of the compensation (including fees payable for services as chairman or a member of a committee of the Board) which otherwise would have been payable currently for services as a Director during such calendar year and succeeding calendar years shall be credited to a deferred compensation account (the "Director's account"). Any person who shall become a Director during any calendar year, and who was not a Director of the Corporation prior to the beginning of such calendar year, may elect, before the Director's term begins, to defer payment of all or any part of the Director's compensation for the remainder of such calendar year and for succeeding calendar years. (b) Form and Duration of Election. An election to participate in the Plan shall be made by written notice executed by the Director and filed with the Secretary of the Corporation. Such election shall continue until the Director terminates such election by written notice filed with the Secretary of the Corporation. Any such termination shall become effective as of the end of the calendar year in which such notice is given and only with respect to fees payable for services as a Director thereafter. Amounts credited to the Director's account prior to the effective date of termination shall not be affected by such termination and shall be distributed only in accordance with the terms of the Plan. (c) Adjustment of Amount Deferred. Prior to the beginning of any calendar year, a Director participating in the Plan may file another written notice with the Secretary of the Corporation electing to change the amount of compensation to be credited to the Director's account for services as a Director commencing with such calendar year. Amounts credited to the Director's account prior to the effective date of such change shall not be affected by such change and shall be distributed only in accordance with the terms of the Plan. 2 (d) Renewal. A Director who has terminated his election to participate may thereafter file another election to participate for the calendar year subsequent to the filing of such election and succeeding calendar years. 3. The Director's Account. All compensation which a Director has elected to defer under the Plan shall be credited to the Director's account, either in cash or in shares of the Corporation's Common Stock (valued for quarterly retainer payments at the mean between the highest and lowest sales prices of the Common Stock reported as New York Stock Exchange-Composite Transactions for the first business day of the calendar quarter and valued for other compensation at such mean for the date such compensation would otherwise have been paid), as elected by the Director. The Director shall not have any interest in the cash or Common Stock until distributed in accordance with the Plan. Cash amounts credited to the Director's account shall accrue interest commencing on the date such fees would otherwise have been paid, at a rate for each calendar quarter fixed by the Treasurer of the Corporation at the commencement of each such calendar quarter based upon the yield for five-year U.S. Treasury Notes as reported for the last business day of the preceding calendar quarter. Interest so determined shall be compounded at the end of each calendar quarter and credited to the Director's account. Amounts credited to the Director's account shall continue to accrue interest until distributed in accordance with the Plan. Shares credited to the Director's account shall accrue amounts equivalent to cash or stock dividends. Such amounts shall accrue interest or amounts equivalent to dividends in the same manner as other amounts which may be credited to a Director's account. 4. Distribution from Accounts. (a) Form of Election. A Director participating in the Plan shall file with the Secretary of the Corporation a written election with respect to the distribution of the aggregate amount of cash and shares credited to the Director's account. A Director may elect to receive such amount in one lump-sum payment or in a number of approximately equal installments (provided the payout period does not exceed 10 years). The lump-sum payment or the first installment shall be paid on any business day elected by the Director within the twelve-month period immediately following the 3 date on which the Director ceases to be a Director of the Corporation. Subsequent installments shall be paid on the first business day of each succeeding calendar year during the installment period until the entire amount credited to the Director's account shall have been paid. If shares have been credited to the Director's account, cash payment will be made with the final installment for any fraction of a share credited to the Director's account. (b) Adjustment of Method of Distribution. Whether or not a Director has filed a notice pursuant to paragraph 2(c) electing to change the amount of compensation to be credited to the Director's account, a Director participating in the Plan may, prior to the beginning of any calendar year, file another written notice with the Secretary of the Corporation electing to change the method of distribution of the aggregate amount of cash and shares credited to the Director's account for services as a Director commencing with such calendar year (amounts credited to the Director's account prior to the effective date of such change shall not be affected by such change and shall be distributed only in accordance with the election in effect at the time such amounts were credited to the Director's account). Once made, an election may not be changed either in amount or method of payment if the effect of such change is to accelerate the distribution of cash and shares credited to the Director's account; all other changes to a previously filed election may be made by filing a written notice with the Secretary of the Corporation setting forth in detail the change. 5. Distribution on Death. If a Director should die before all amounts credited to the Director's account shall have been paid in accordance with the election referred to in paragraph 4, the balance in such account shall be paid to the beneficiary designated in writing by the Director on any business day elected by such beneficiary within the twelve-month period immediately following the date of the Director's death. Such balance shall be paid to the estate of the Director on the first business day of the calendar year following the year of the Director's death if (a) no such designation has been made or (b) the designated beneficiary shall have predeceased the Director and no further designation has been made. 6. Miscellaneous. (a) The right of a Director to receive any amount in the Director's account shall not be transferable or assignable by the Director, except by will or by the laws of descent and distribution, and no part of such amount shall be subject to attachment or other legal process. (b) The Corporation shall not be required to reserve or otherwise set aside funds or shares of Common Stock for the payment of its obligations 4 hereunder. The Corporation shall make available as and when required a sufficient number of shares of Common Stock to meet the needs of the Plan. To the extent that registration of such shares under the Securities Act of 1933 shall be required prior to their resale, the Corporation undertakes to either file a registration statement relating to such shares or include such shares in another registration statement to be filed within a reasonable time. (c) The General Counsel of the Corporation shall interpret the Plan and make all determinations deemed necessary or desirable for the Plan's implementation. (d) The Board of Directors may at any time amend or terminate the Plan. The Plan may also be amended by the Corporation with the approval of its Chief Executive Officer, provided that all such amendments shall be reported to the Board. No amendment or termination shall impair the rights of a Director with respect to amounts then in the Director's account. (e) Each Director participating in the Plan will receive an annual statement indicating the amount of cash and number of shares credited to the Director's account as of the end of the preceding calendar year. (f) If adjustments are made to outstanding shares of Common Stock or to the capital structure of the Corporation as a result of stock dividends, stock splits or combinations, recapitalizations, mergers, consolidations, exchange offers, issuer tender offers, extraordinary cash dividends, or similar events or transactions, an appropriate adjustment will also be made in the number of shares credited to the Director's account. 7. Definition of Change in Control. For purposes of this Plan, a "Change in Control of the Corporation" shall be deemed to have occurred if (a) any "person," as such term is defined in Section 3(a)(9) and modified and used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the Corporation, any trustee or other fiduciary holding securities under an employee benefit plan of the Corporation (or of any subsidiary of the Corporation), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the corporation representing 25% or more of the combined voting power of the Corporation's then outstanding securities; (b) during any period of two consecutive years (not including any period prior to the adoption of this amendment to this Plan), 5 individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Corporation to effect a transaction described in clause (a), (c), (d) or (e) of this definition) whose election by the Board or nomination for election by the corporation's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved cease for any reason to constitute at least a majority thereof; (c) the shareholders of the Corporation approve a merger or consolidation of the Corporation with any other corporation, other than (1) a merger or consolidation which would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 75% of the combined voting power of the voting securities of the Corporation or such surviving entity outstanding immediately after such merger or consolidation or (2) a merger or consolidation effected to implement a recapitalization of the Corporation (or similar transaction) in which no "person" (with the exceptions specified in clause (a) of this definition) acquires 25% or more of the combined voting power of the Corporation's then outstanding securities; (d) the shareholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of all or substantially all of the Corporation's assets; or (e) the Corporation consummates a merger, consolidation, stock dividend, stock split or combination, extraordinary cash dividend, exchange offer, issuer tender offer or other transaction effecting a recapitalization of the Corporation (or similar transaction) (the "Transaction") and, in connection with the Transaction, a Designated Downgrading occurs with respect to the unsecured general obligations of the Corporation (the "Securities"), as described below: (i) If the rating of the Securities by both Rating Agencies (defined hereinafter) on the date 60 days prior to the public announcement of the Transaction (a "Base Date") is equal to or higher than BBB Minus (as hereinafter defined), then a "Designated Downgrading" means that the rating of the Securities by either Rating Agency on the effective date of the Transaction (or, if later, the earliest date on which the rating shall reflect the effect of the Transaction) (as applicable, the "Transaction Date") is equal to or lower than BB Plus (as hereinafter defined); if the rating of the Securities by either Rating Agency on a Base Date is lower than BBB Minus, then a "Designated Downgrading" means that the rating of the Securities by either Rating Agency on the Transaction Date has decreased from the rating by such Rating Agency on the Base Date. In determining whether the rating of the securities has decreased, a decrease of one gradation (+ and - for S&P and 1, 2 and 3 for Moody's, or the equivalent thereof by any substitute rating agency referred to below) shall be taken into account; 6 (ii) "Rating Agency" means either Standard & Poor's Corporation or its successor ("S&P") or Moody's Investors Service, Inc. or its successor ("Moody's"); (iii) "BBB Minus" means, with respect to ratings by S&P, a rating of BBB- and, with respect to ratings by Moody's, a rating of Baa3, or the equivalent thereof by any substitute agency referred to below; (iv) "BB Plus" means, with respect to ratings by S&P, a rating of BB+ and, with respect to ratings by Moody's, a rating of BBB3, or the equivalent thereof by any substitute agency referred to below; and (v) The Corporation shall take all reasonable action necessary to enable each of the Rating Agencies to provide a rating for the Securities, but, if either or both of the Rating Agencies shall not make such a rating available, a nationally-recognized investment banking firm shall select a nationally-recognized securities rating agency or two nationally-recognized securities rating agencies to act as substitute rating agency or substitute rating agencies, as the case may be. 8. Accelerated Payment Following a Change in Control. Notwithstanding any of the preceding provisions of this Plan, as soon as possible following any Change in Control of the Corporation, a lump-sum payment shall be made, in cash, of the entire account hereunder of any Director. For purposes of calculating the amount of such payment, any shares of the Corporation's common stock credited to, or accrued in, any Director's account shall be valued at the higher of (i) the closing price of such shares as reported on the New York Stock Exchange - Composite Transactions on the date 7 preceding and nearest the date the Change in Control occurred or (ii) the highest per share price for the common stock of the Corporation actually paid in connection with such Change in Control; provided, however, that such value shall not exceed the amount necessary to provide a fully equitable payment of such account, taking into consideration any adjustments made pursuant to paragraph 6(f) of the Plan with respect to any events or transactions constituting a Change in Control of the Corporation, or a part thereof. THE STANLEY WORKS DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS NOTICE OF ELECTION (1) PARTICIPATION ELECTION. Pursuant to the terms of the Deferred _____ Compensation Plan for Non-Employee Directors of The Stanley Works, I hereby elect to defer receipt of all* of my annual retainer, committee chairman fees and meeting fees for calendar years commencing January 1,______.** Such election shall continue to be effective until the end of the calendar year in which I file with the Secretary of the Corporation (a) a written notice of termination or (b) a written notice changing the amount to be deferred thereafter. Such amounts shall be credited to my account in (check (a) or (b) or complete (c): (a) Cash___________________; (b) Shares of Common Stock___________; or (c) _______% cash and _______% Common Stock. (2) DISTRIBUTION ELECTION. I also hereby elect that all amounts credited to my account pursuant to the election in paragraph (1) be distributed to me in (check one): (a) a lump-sum payment___________________; (b) in _______________(specify number not exceeding 10) approximately equal annual installments; or (c) other__________________________________________ (provided payout period does not exceed 10 years). The lump-sum payment or the first installment shall be paid on the first business day of the calendar year immediately following the year in which I cease to be a Director of the Corporation or on the first business day of such later calendar year as I have designated above. Subsequent installments shall be paid on the - -------------------------- * If less than all, cross out "all" and specify portion (e.g., "half", "none" or $ amount):____________________ . ** A person electing to participate in the Plan prior to first being elected a Director should specify commencement date here:_______. first business day of each succeeding installment period until the entire amount credited to my account pursuant to the election in paragraph (1) shall have been paid. (3) BENEFICIARY DESIGNATION. If I should die before all amounts credited to my account pursuant to the election in paragraph (1) shall have been paid, I direct that the amount remaining in my account be paid pursuant to the Plan to_______________________ ______________________________________________________________________________. - ------------------------------- ------------------------------- (Witness) (Signature) ------------------------------- (Date) EX-10.(XXII) 3 0003.txt AGREEMENT, DATES SEPTEMBER 12, 2000 BETWEEN THE STANLEY WORKS AND BRUCE H. BEATT THE STANLEY John M. Trani 480 Myrtle Street Tel 860-827-3990 WORKS Chairman and CEO New Britain, CT 06053 Fax 860-827-3895 September 12, 2000 REVISED OFFER LETTER Mr. Bruce H. Beatt 10 Ledyard Road West Hartford, CT 06117 Dear Bruce: I am pleased to confirm our offer for the position of Vice President, General Counsel and Secretary. The position is based in New Britain, CT and reports to me. Your base salary will be $250,000 per year, paid monthly. You will also participate in the Corporate Management Incentive Compensation Program with a target annual bonus of $150,000 for 2001 and payable in February 2002. You will be eligible for four weeks of vacation. You will participate in our Long Term Performance Award Plan (see attached). Payment of the plan will be made in February 2003 based on actual earnings for the 3-year measurement period beginning January 1, 2000 and ending December 31, 2002. On joining the company, you will also receive a grant of a 40,000 share stock option under the terms of The Stanley Works 1997 Long-Term Incentive Plan. Fifty-percent (50%) of this stock grant will vest in 24 months following the grant date and 50% will vest in 48 months following the grant date. 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. Starting in 2001 your stock options will be targeted at the 15,000 level annually. You will also 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. 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 401 k 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. If a change of control of Stanley occurs and you elect to leave the employment of Stanley within 90 days after such change of control, you shall continue to receive, as severance compensation, your base salary at the date of termination, and shall be entitled to all the benefits which you would otherwise be entitled to receive, for and during the term of twelve months following the effective date of any such termination. If you are terminated within two years following a change of control for reason other than misconduct or gross negligence, you will be entitled to receive, as severance compensation, your base salary at the date of termination and be entitled to all of the benefits which you would otherwise be entitled to receive, for and during the term of 24 months following the effective date of any such termination. Page 2 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. 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 Claudia Mackiewicz at 860-827-3880 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. Bruce, I am delighted that you are considering joining our team. There is 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 call me. Please indicate your acceptance by signing below and return a copy to me. Sincerely, - ---------------------- ------------------------- John Trani Bruce Beatt Chairman and CEO cc: Carol L'Heureux- Executive Compensation & Relocation Enclosures: Enhanced Relocation Program Benefits Booklet FTC Consent Order Long Term Performance Award Plan Executive Life Insurance Program Financial Planning Service Executive Physical Program Smith Kline Testing Program Stanley Choice Account Executive Auto Program Stanley Employment Application EX-10.(XXIII) 4 0004.txt AGREEMENT DATED OCTOBER 6, 2000 BETWEEN STANLEY WORKS INC., STANLEY EUROPE BVBA, STANLEY ATLANTIC INC. AND MR. STEF G.H. KRANENDIJK TERMINATION AND SETTLEMENT AGREEMENT ------------------------------------------------ BY AND BETWEEN : 1. STANLEY EUROPE BVBA, with registered office at 1930 Zaventem, Belgicastraat 2, represented by Mr. Jack Foster, Special proxyholder, hereinafter referred to as "the Company" 2 STANLEY ATLANTIC INC, represented by Mr. Jack Foster, Special proxyholder, 3 STANLEY WORKS INC., a company existing under the laws of Connecticut, registered office at 1000 Stanley Drive, New Britain, Connecticut, USA represented by Mr. Jack Foster, Special proxyholder, both hereinafter referred to as "Stanley" AND 4. MR. STEF G.H. KRANENDIJK, residing at The Netherlands, Schouwweg 75, 2243 BK Wassenaar, hereinafter referred to as "the Director" IT IS WITNESSETH : WHEREAS the Company and the Director entered into a Director's Agreement dated June 29, 1998, pursuant to which the Director rendered certain management services to the Stanley group of companies in Europe, under the title "President 2 Stanley Europe Middle East and Africa", and formally accepted the mandate of "zaakvoerder" of the Company, starting September 1, 1998 (the "Director's Agreement"); WHEREAS the Company and the Director entered also into a non-competition agreement dated June 29, 1998, pursuant to which the Director undertook not to compete for a period of 14 months following the termination of the Director's Agreement (the "Non-competition Agreement"); WHEREAS Stanley Atlantic Inc. co-signed both the Director's Agreement and the Non-competition Agreement as a guarantor (bij wijze van sterkmaking) for the Company, then still in formation; WHEREAS Stanley Works Inc. signed, on June 29, 1998 a guarantee letter guaranteeing the obligations of the Company towards the Director (the "Guarantee"); WHEREAS Stanley Works Inc. and the Director entered into an agreement dated June 29, 1998, pursuant to which Stanley Works Inc. awarded certain stock options to the Director, exercisable one year and five years after the granting thereof ("Stock-Option Agreement"); WHEREAS the Company and the Director entered into a loan agreement dated August 7, 1998, pursuant to which the Company lent an amount of BEF 7,955,000 to the Director in connection with the Director's house purchase free of interest for a fixed term of 10 years (the "Loan Agreement); WHEREAS the Company and the Director signed a non-dated agreement pursuant to which the loan under the Loan Agreement can be deemed reimbursed under certain circumstances (Redemption Agreement); WHEREAS the Company and the Director have agreed to terminate by mutual consent all of their relationships and all agreements existing between them, as of the date and under the terms and conditions set forth hereunder; 3 IT HAS BEEN AGREED UPON AS FOLLOWS : ARTICLE 1 : TERMINATION OF AGREEMENTS, APPOINTMENTS AND OTHER RELATIONSHIPS 1.1. The Company and the Director hereby confirm that they have agreed to terminate, upon the request of the Company, all their relationships and all of the agreements existing between them, in whatever capacity, in writing or verbal, including but not limited to the Director's Agreement, the Non-competition Agreement, the Stock-Option Agreement, the Loan Agreement, the Redemption Agreement and the Guarantee (hereafter the "Agreements") relating to the appointment as Director and the performance of other services in whatever capacity, if any, with effect as of September 29, 2000 (the "Effective Termination Date") and that neither party owes any termination indemnity to the other party as a result of the termination of such relationships and Agreements. As of the Effective Termination Date, neither party will have any obligations or enjoy any rights under any of the Agreements existing between them, with the exception of this agreement. 1.2. The Director resigns as of the Effective Termination Date (and this agreement serves as the relevant resignation letter) from all of his corporate functions and mandates with the Company, Stanley or any company of the Stanley group of companies, including but not limited to his mandate as manager ("zaakvoerder") of the Company and undertakes to fully co-operate in executing all documents and accomplish all formalities required to that effect. Such resignations will not create any right to any indemnity other than as set forth in this agreement. 1.3. At the first meeting of the shareholders of the Company, the Company and Stanley shall see to it (bij wijze van sterkmaking) that the resignation by the Director from his functions and mandates is accepted as of the Effective Termination Date and that at the latest during the first shareholders' meeting, the discharge of the Director shall be given. 4 ARTICLE 2 : COMPENSATION 2.1 The Company undertakes to pay, in the framework of this agreement and all as in accordance with and pursuant to the terms and conditions of the Director's Agreement and the Non-competition Agreement, the following amounts to the Director no later than October 15, 2000: (1) the base remuneration for the month of September 2000, subject to the legally imposed withholdings. The Director recognizes that he already received the payment of this amount; (2) a pro-rated bonus payment of BEF 6,900,000, subject to the legally imposed withholdings; (3) a gross lump sum compensatory indemnity pursuant to the provisions of the Non-competition Agreement of BEF 33,541,666, subject to the legally imposed withholdings. 2.2 The amounts set forth in article 2.1 have been agreed upon, and will be paid, on the condition that the Company will have no further liability whatsoever vis-a-vis any person or authority as a result of or in connection with the Agreements and/or the termination thereof. 2.3 Should the Company or Stanley be, at any time in the future, held liable for the payment of any amount other than the amounts set forth in this agreement to any person(s), company or authority, as a result of or in connection with the termination of the Agreements, then the parties expressly agree that the Director shall indemnify and hold the Company and Stanley harmless and that furthermore the indemnity set forth in article 2.1 shall be automatically and retroactively reduced with the amount(s) payable and effectively paid by the Company or Stanley to such person(s), company or authority and the Director shall be required to immediately return, and the Company or Stanley shall be entitled to immediately receive from the Director, any amount(s) for which the Company or Stanley would have been liable and with which the indemnity shall have been so reduced. 5 2.4 The Director agrees with the amounts to be paid to him pursuant to article 2.1, with the immediate termination of the Agreements, with the calculation basis of the gross lump sum compensatory indemnity pursuant to the Non-competition Agreement and agrees that these amounts cover all indemnities due to the Director under all Agreements, relationships, mandates and functions, including any other agreements, relationships, mandates and functions with the Company, Stanley or any company of the Stanley group of companies. 2.5 The Director further agrees that the amounts to be paid to him pursuant to article 2.1 are all-inclusive, i.e. inclusive of all other remuneration, payments, manager compensations, premiums, bonuses, incentive payments, performance awards or similar advantages that the Company or Stanley or any company of the Stanley group of companies owe or may owe to the Director relating to any aspect of the relationship between them or the termination thereof. 2.6 The Director shall report any outstanding expenses which are due by the Company no later than October 31, 2000. 2.7 The Company will provide a tax consultant to assist to the preparation of the Belgian and Dutch annual tax return for income earned under the Director's Agreement in respect of the period of the Director's mandate until the Effective Termination Date. ARTICLE 3 : CONFIDENTIALITY, COMPANY BELONGINGS, NON SOLICITATION 3.1 The Director shall return, no later than within 3 days following the Effective Termination Date, all documents, designs, formulae, specifications, drawings, notes, reports, minutes, files, memoranda or whatever other type of document (even if not printed and existing in software format only), that he has received or drafted or that have otherwise become in his possession and that regard or is the property of the Company, Stanley or the Stanley group of companies, their activities, customers, suppliers, personnel and so forth, whether or not confidential, to the Company, without keeping or making copies thereof. The Director shall also return to the Company his mobile phones, faxes and any other Company property. 6 3.2 The Director undertakes and agrees: (1) to maintain in strictest confidence and not to disclose or appropriate for his own use or for the use of others, directly or indirectly (i) any confidential or proprietary information of knowledge of the Company, Stanley or any company of the Stanley group of companies, including matters of a technical nature such as know-how, studies and research, and matters of a business nature such as information about costs, profits, sales, marketing or business plans (existing or potential) customer lists (including members and issuers), customer requirements, internally developed methods of customer solicitation, the identity of and other facts relating to existing or prospective customers, arrangements with customers and other data not available to the public, (ii) any information regarding or relating to the services performed by the Director and/or the manner and circumstances in which these services were conducted under all Agreements, relationships, mandates and functions, and (iii) the terms and conditions of this agreement including other agreements, relationships, mandates and functions and the termination of the Agreements. (2) to refrain at all times from any acts of unfair competition against the Company or Stanley or the Stanley group of companies or complicity to such acts. (3) to continue to comply, including following the termination, with the provisions of article 8.2 and 9 of the Director's Agreement. 3.3 Any violation of the provisions of this article 3 shall, in addition to any other legal remedies available to the Company or Stanley or the Stanley group of companies, result in an obligation of the Director to immediately return, and an entitlement of the Company or Stanley or the Stanley group of companies to immediately receive, any payment made to the Director by the Company under this agreement, the other provisions of this agreement however remaining in full force and effect. ARTICLE 4 7 4.1 The Director agrees and undertakes to reasonably co-operate with the Company or Stanley or the Stanley group of companies, in all cases where there would be a need for transitional support, also after the Effective Termination Date. 4.2 The Director further agrees to co-operate in good faith with the Company or Stanley or the Stanley group of companies, and to defend the interests of the Company or Stanley of the Stanley group of companies, as a witness or in any other capacity in case of a court case, arbitration trial or any other proceeding or negotiation which is directly or indirectly related to his activities as director. 4.3 The Director shall at all times, including after the Effective Termination Date, behave correctly and professionally towards the Company, Stanley and any company of the Stanley group of companies and their customers, suppliers, employees, representatives and business contacts, and shall at no time, including after the Effective Termination Date, criticize publicly or in any other way express adverse publicity regarding the Company, Stanley, his relationship to the Company and Stanley, the termination thereof or the terms of this agreement. 4.4 The Director further agrees and covenants not to make or take, directly or indirectly, any action, attempt, statement or any other step, which could have the effect of prejudicing the business or reputation of the Company or Stanley or the Stanley group of companies. In this respect, the Director explicitly agrees to refrain from any statement or other form of communication to the press or to any third party regarding the performance of the Agreements and/or the circumstances that have led to the termination of the Agreements. 4.5 Any violation of the provisions of article 4 shall, in addition to any other legal remedies available to the Company or Stanley or the stanley group of companies, result in an obligation of the Director to immediately return, and an entitlement of the Company or Stanley or the Stanley group of companies to immediately receive, any payment made to the Director by the Company under this agreement, the other provisions of this agreement however remaining in full force and effect. 8 ARTICLE 5 : NON-COMPETITION 5.1 In consideration for the payment by the Company of the amount set forth in article 2.1 (3), and in accordance with and pursuant to the terms and conditions of the Non-competition Agreement, the Director undertakes, for a period of fourteen months following the Effective Termination Date in Europe, the Middle East or Africa (i.e. the territory where the Director has been active for the Stanley group of companies), not to be active, in an independent, dependent or other form, in the tools and hardware industry in which the Company, Stanley or any company of the Stanley group of companies is active. 5.2 Any violation of the provisions of article 5.1 shall, in addition to any other legal remedies available to the Company, Stanley or any company of the Stanley group of companies, result in an obligation of the Director to immediately return, and an entitlement of the Company, Stanley or any company of the Stanley group of companies to immediately receive, the payment made to the Director by the Company of the amount set forth in article 2.1(3), the other provisions of this agreement however remaining in full force and effect. ARTICLE 6 : STOCK OPTIONS, VESTING, EXERCISE PERIOD 6.1 Pursuant to the provisions of the Stock-Option Agreement, all stock options that have been granted to the Director and that are vested at the Effective Termination Date, have become immediately exercisable and will remain exercisable until two months following the Effective Termination Date. All options not yet granted to the Director, or granted but not vested on the Effective Termination Date, will not be exercisable. 6.2 All Belgian and/or foreign personal tax and personal social security contributions, which may arise at the occasion of the vesting or the exercise of the stock options, will be borne by the Director who shall, at any time in the future, indemnify and hold the Company harmless, for any such amounts for which the Company would be held liable. 9 ARTICLE 7 : LOAN AND REDEMPTION AGREEMENT 7.1 In accordance with and pursuant to the terms and conditions of the Loan Agreement and the Redemption Agreement, the loan in the amount of BEF 7,955,000 (granted to the Director on August 7, 1998 at no interest) will be deemed to have been fully reimbursed by the Director on the Effective Termination Date. 7.2 All Belgian and/or foreign personal tax and personal social security contributions, which may arise at the occasion of the loan or the early redemption thereof, will be borne by the Director who shall, at any time in the future, indemnify and hold the Company harmless, for any such amounts for which the Company would be held liable. ARTICLE 8 : WAIVER The Director accepts the amounts to which he is entitled on the basis of this agreement as full and final settlement of all accounts, all Agreements, all arrangements and all relationships between the Director on the one hand and the Company, Stanley and any and all companies of the Stanley group of companies on the other hand, in the meaning of article 2044 a.f. of the Belgian Civil Code. The Director declares expressly that, subject to the performance of this agreement, neither the Company nor Stanley nor any company of the Stanley group of companies will have any further obligations vis-a-vis him and that he has no further rights or claims vis-a-vis the Company or Stanley or any company of the Stanley group of companies on the basis of the relationships or any of the Agreements, arrangements or documents existing between them and the Director in whatever capacity and/or the termination thereof. The Director waives any potential or actual cause of action which he has or may have relating to the performance and/or the termination of the Agreements, whether known or unknown, fixed or contingent, and for any reason whatsoever, including, but not limited to any insurance coverage, benefits, premiums, termination indemnity, departure allowance, or any other advantage, payment, incentive, accrued rights or similar advantages that are not 10 explicitly set forth in this agreement or any other provision of national, regional or local law or regulation. Any lawsuit filed on behalf of the Director in violation of this agreement, shall automatically constitute a breach of the agreement, and in addition to any other legal remedies available to the Company, Stanley or any company of the Stanley group of companies (including the right to argue that any claim raised by the Director should be dismissed on the basis of this agreement), the Director shall be required to immediately return, and the Company, Stanley or any company of the Stanley group of companies shall be entitled to immediately receive, any payment made to the Director by the Company under this agreement, the other provisions of this agreement however remaining in full force and effect. The Director knowingly and on an informed basis renounces to invoke any factual or legal error or any omission whatsoever pertaining to the existence and extent of his rights waived in this agreement. ARTICLE 9 : INVALIDITY OF A CLAUSE OF THIS AGREEMENT If any or more of the provisions of this agreement shall be held to be invalid, illegal or unenforceable, the remaining provisions shall not be affected or impaired and the relevant provision shall be restricted and/or modified only to such extent to make it a valid, legal and enforceable provision. ARTICLE 10 : PRIORITY This agreement supersedes any and all agreements of a prior date, covering the same subject, whether oral or in writing, between the parties. ARTICLE 11 : GOVERNING LAW AND COMPETENT JURISDICTION This agreement is governed by Belgian law and any dispute in connection therewith shall be subjected to arbitration, in English, before an arbitration 11 tribunal consisting of one arbitrator, appointed and working in accordance with Belgian law, without prejudice to the right for either party to initiate summary proceeding before a competent Court. Made at Zaventem, on October ....., 2000, in four original copies. Each party acknowledges receipt of a duly initialized and signed original. The Director The Company - ------------------ ------------------ Mr. G.H. Stef Kranendijk Mr. Jack Foster, Special proxyholder Stanley Atlantic Inc Stanley Works Inc - ------------------ ------------------ Mr. Jack Foster, Mr. Jack Foster, Special proxyholder Special proxyholder EX-12 5 0005.txt STATEMENT RE COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES Exhibit 12
THE STANLEY WORKS AND SUBSIDIARIES COMPUTATION OF EARNINGS TO FIXED CHARGES (in Millions of Dollars) Fiscal Year Ended ------------------------------------------------------------------------------------ December 30 January 1 January 2 January 3 December 28 2000 2000 1999 1998 1996 --------------- ---------------- ---------------- ---------------- ----------------- Earnings (loss) before income taxes and cumulative adjustment for accounting change $293.7 $230.8 $215.4 ($18.6) $174.2 Add: Interest expense $34.3 $32.9 $30.5 $24.2 $27.6 Portion of rents representative of interest factor 15.4 14.2 15.0 11.6 12.2 Amortization of expense on long-term debt 0.2 0.2 0.3 0.2 0.2 Amortization of capitalized interest 0.1 0.2 0.2 0.3 0.3 --------------- ---------------- ---------------- ---------------- ----------------- Income as adjusted $343.7 $278.3 $261.4 $17.7 $214.5 =============== ================ ================ ================ ================= Fixed charges: Interest expense $34.3 $32.9 $30.5 $24.2 $27.6 Portion of rents representative of interest factor 15.4 14.2 15.0 11.6 12.2 Amortization of expense on long-term debt 0.2 0.2 0.3 0.2 0.2 Capitalized interest - - - - 0.2 --------------- ---------------- ---------------- ---------------- ----------------- Fixed charges $49.9 $47.3 $45.8 $36.0 $40.2 =============== ================ ================ ================ ================= Ratio of earnings to fixed charges 6.89 5.88 5.71 0.49 5.34 =============== ================ ================ ================ =================
EX-13 6 0006.txt ANNUAL REPORT TO SHAREOWNERS FOR YEAR ENDED DECEMBER 30, 2000
SUMMARY OF SELECTED FINANCIAL INFORMATION (Millions of Dollars, except per share amounts) 2000 1999(A) 199(B) 1997(C) 1996(D) 1995(E) 1994 - --------------------------------------------------------------------------------------------------------------------- CONTINUING OPERATIONS(F) Net sales $ 2,749 $ 2,752 $ 2,729 $ 2,670 $ 2,671 $ 2,624 $ 2,511 Earnings (loss) 194 150 138 (42) 97 59 125 Earnings (loss) per share Basic $ 2.22 $ 1.67 $ 1.54 $ (.47) $ 1.09 $ .66 $ 1.40 Diluted $ 2.22 $ 1.67 $ 1.53 $ (.47) $ 1.08 $ .66 $ 1.38 Percent of Net Sales: Cost of sales 63.7% 65.9% 65.7% 66.8% 67.2% 68.2% 67.1% Selling, general and administrative 23.9% 25.5% 25.1% 23.5% 22.8% 22.5% 22.3% Interest-net 1.0% 1.0% .8% .6% .8% 1.2% 1.2% Other-net .7% (.1%) .5% .8% .8% .5% 1.4% Earnings (loss) before income taxes 10.7% 8.4% 7.9% (.7%) 6.5% 4.3% 8.0% Earnings (loss) 7.1% 5.5% 5.1% (1.6%) 3.6% 2.3% 5.0% - --------------------------------------------------------------------------------------------------------------------- OTHER KEY INFORMATION Total assets $ 1,885 $ 1,891 $ 1,933 $ 1,759 $ 1,660 $ 1,670 $ 1,701 Long-term debt 249 290 345 284 343 391 387 Shareowners' equity $ 737 $ 735 $ 669 $ 608 $ 780 $ 735 $ 744 Ratios: Current ratio 1.5 1.6 1.5 1.6 2.4 2.4 2.1 Total debt to total capital 38.6% 37.8% 45.8% 40.5% 31.7% 39.6% 39.2% Income tax rate 34.0% 35.0% 36.0% (125.4%) 44.4% 47.6% 37.9% Return on average equity(F,G) 26.4% 21.4% 21.6% (6.0%) 12.8% 8.0% 17.6% Common Stock Data: Dividends per share $ .90 $ .87 $ .83 $ .77 $ .73 $ .71 $ .69 Equity per share at year-end $ 8.65 $ 8.27 $ 7.54 $ 6.85 $ 8.79 $ 8.28 $ 8.37 Market price-high 31 7/8 35 57 1/4 47 3/8 32 13/16 26 11/16 22 7/16 -low 18 7/16 22 23 1/2 28 23 5/8 17 13/16 17 7/17 Average shares outstanding (in thousands) Basic 87,407 89,626 89,408 89,470 89,152 89,043 89,550 Diluted 87,668 89,887 90,193 89,470 89,804 89,839 90,656 Other Information: Earnings (loss) from continuing operations $ 194 $ 150 $ 138 $ (42) $ 97 $ 59 $ 125 Cumulative effect of accounting change - - - - - - - - --------------------------------------------------------------------------------------------------------------------- Net earnings (loss) $ 194 $ 150 $ 138 $ (42) $ 97 $ 59 $ 125 Net earnings (loss) per share(F, G) Basic $ 2.22 $ 1.67 $ 1.54 $ (.47) $ 1.09 $ .66 $ 1.40 Diluted $ 2.22 $ 1.67 $ 1.53 $ (.47) $ 1.08 $ .66 $ 1.38 Average number of employees 16,297 16,890 18,319 18,377 18,903 19,784 19,445 Shareowners of record at end of year 16,014 16,947 17,963 18,503 17,823 16,919 17,599 =====================================================================================================================
A Includes restructuring-related transition and other non-recurring costs of $54.9 million, or $.40 per share, a one-time net restructuring credit of $21.3 million, or $.15 per share, a mechanics tools' special charge of $20.1 million, or $.14 per share, and a gain realized upon the termination of a cross-currency financial instrument of $11.4 million, or $.08 per share. B Includes restructuring-related transition and other non-recurring costs of $85.9 million, or $.61 per share. C Includes charges for restructuring and asset write-offs of $238.5 million, or $2.00 per share, related transition costs of $71.0 million, or $.49 per share, and a non-cash charge of $10.6 million, or $.07 per share, for a stock option grant as specified in the company's employment contract with its chief executive officer. D Includes charges for restructuring and asset write-offs of $47.8 million, or $.43 per share, related transition costs of $32.9 million, or $.23 per share, and a non-cash charge of $7.6 million, or $.08 per share, for elements of the company's employment contract with its chief executive officer. E Includes charges for restructuring and asset write-offs of $85.5 million, or $.72 per share, and related transition costs of $9.5 million, or $.06 per share. F Excluding the cumulative after-tax effect of accounting changes for postemployment benefits of $8.5 million, or $.09 per share, in 1993 and postretirement benefits of $12.5 million, or $.14 per share, in 1991. G Earnings per share and return on average equity excluding restructuring charges, asset write-offs, related transition costs and other non-recurring charges would have ~been $2.06 per share and 16.2% in 1999, $2.14 per share and 18.7% in 1998, $2.08 per share and 19.9% in 1997, $1.83 per share and 18.9% in 1996 and $1.45 per share and 16.6% in 1995. -26-
1993 1992 1991 1990 - ------------------------------------------ $ 2,273 $ 2,196 $ 1,942 $ 1,956 93 98 97 106 $ 1.03 $ 1.07 $ 1.12 $ 1.26 $ 1.01 $ 1.06 $ 1.11 $ 1.25 68.3% 66.8% 66.0% 65.3% 22.5% 24.0% 23.8% 23.7% 1.1% 1.2% 1.3% 1.3% 1.6% .8% .8% .9% 6.5% 7.2% 8.1% 8.8% 4.1% 4.5% 5.0% 5.4% - ------------------------------------------ $ 1,577 $ 1,608 $ 1,548 $ 1,494 377 438 397 398 $ 681 $ 696 $ 689 $ 679 2.1 2.4 2.4 2.6 38.7% 40.1% 37.6% 38.7% 37.4% 37.9% 38.0% 38.4% 13.5% 14.1% 14.1% 15.8% $ .67 $ .64 $ .61 $ .57 $ 7.62 $ 7.66 $ 7.61 $ 8.25 23 15/16 24 1/16 22 19 7/8 18 15/16 16 1/4 13 13 5/16 89,871 91,405 86,532 84,384 91,296 92,842 87,552 84,770 $ 93 $ 98 $ 97 $ 106 (9) - (12) - - ------------------------------------------ $ 84 $ 98 $ 85 $ 106 $ .94 $ 1.07 $ .98 $ 1.26 $ .92 $ 1.06 $ .97 $ 1.25 18,988 18,650 17,420 17,784 20,018 20,661 21,297 22,045 ==========================================
-27- MANAGEMENT REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING The management of The Stanley Works is responsible for the preparation, integrity and objectivity of the accompanying financial statements. The statements were prepared in accordance with generally accepted accounting principles. Preparation of financial statements and related data involves our best estimates and the use of judgment. Management also prepared the other information in the Annual Report and is responsible for its accuracy and consistency with the financial statements. The company maintains a system of internal accounting controls which is designed to provide reasonable assurance, at appropriate cost, as to the reliability of financial records and the protection of assets. This system includes monitoring by an internal audit function. It is further characterized by care in the selection of competent financial managers, by organizational arrangements that provide for delegation of authority and divisions of responsibility and by the dissemination of policies and procedures throughout the company. Management is also responsible for fostering a strong, ethical climate so that the company's affairs are conducted according to the highest standards of personal and business conduct. This responsibility is reflected in the company's Business Conduct Guidelines which are publicized throughout the organization. The company has a long-established reputation of integrity in business conduct and maintains a systematic program to assess compliance with these policies. The adequacy of Stanley's internal accounting controls, the accounting principles employed in its financial reporting and the scope of independent and internal audits are reviewed by the Audit Committee of the Board of Directors, consisting solely of outside directors. Both the independent auditors and our internal auditors have unrestricted access to the Audit Committee, and they meet with it periodically, with and without management present. January 24, 2001 /s/ John M. Trani /s/ James M. Loree - ------------------------------------ ---------------------------------- John M. Trani James M. Loree Chairman and Chief Executive Officer Vice President, Finance & Chief Financial Officer -28- REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Shareowners The Stanley Works We have audited the accompanying consolidated balance sheets of The Stanley Works and subsidiaries as of December 30, 2000 and January 1, 2000, and the related consolidated statements of operations, changes in shareowners' equity, and cash flows for each of the three fiscal years in the period ended December 30, 2000. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Stanley Works and subsidiaries at December 30, 2000 and January 1, 2000, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended December 30, 2000, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP ----------------------------- Hartford, Connecticut January 24, 2001 -29- MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS OVERVIEW Stanley is a worldwide producer of tools and door products for professional, industrial and consumer use. The company's strategic goal is to become one of the world's Great Brands, delivering sustained, profitable growth. In order to achieve that goal the company has established aggressive financial targets of sales growth at two times the industry rate, earnings growth in the low- to mid-teens, operating margin in the mid-teens, operating cash flow approximately equal to earnings and return on capital in the low- to mid-twenties. While management is pleased that progress was made in 2000 toward achievement of these targets, it remains committed to driving the operational improvements necessary to fully realize these challenging goals. The company recorded a charge in 1999 to establish restructuring reserves and related asset write-offs for certain programs designed to achieve improved cost productivity. Additionally, the company has developed a myriad of other programs to continue to lower the manufacturing cost base and has implemented stronger controls over administrative expenses. RESULTS OF OPERATIONS Net sales in 2000 of $2,749 million were relatively flat to prior year. Overall unit volume growth was 2% which was completely offset by a 2% reduction from the net effect of foreign currency translation. The company experienced sales volume growth in the Tools segment which was partially offset by the effects of weakening markets on the Doors segment. The reduction in sales from foreign currency translation was primarily due to weaker European currencies. Net sales in 1999 were $2,752 million, an increase of 1% over 1998. Zag Industries Ltd. ("ZAG"), which was acquired in August 1998, and the Doors segment contributed 2% to this sales growth, which was partially offset by a 1% reduction in sales from the net effect of pricing and foreign currency translation. Financial results for 1998 and the first six months of 1999 include transition expenses related to the company's restructuring initiatives. These costs were classified as period operating expenses within cost of sales or selling, general and administrative expense. They included the costs of moving production equipment, operating duplicate facilities while transferring production or distribution, consulting costs incurred in planning and implementing changes, recruiting and relocation of employees, the cost of transition employees involved in reorganizing the functions, and other types of costs that have been incurred to facilitate restructuring. Management judgment was used to determine which costs should be classified as transition costs based on whether the costs were unusual in nature, were incurred only because of restructuring initiatives and were expected to cease when the transition activities ended. In addition, the company incurred costs to remediate its computer and related systems so that these systems would function properly with regard to date issues pertaining to the Year 2000 ("Y2K"). Because the presence of restructuring charges, -30- 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 for 1998 and the first six months of 1999 excluding these identifiable costs. These pro forma or "core" results are the basis of business segment information. The narrative regarding results of operations has also 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 were no longer disclosed separately as they were significantly lower than amounts previously incurred. Results in 1999 also included a special charge in the fourth quarter as the company recorded higher estimates for loss provisions on receivables, inventory and other assets related to its mechanics tools businesses, principally MacDirect. The changes in estimates were based on the company's evolving experience in managing a direct mobile sales force in the automotive channel as well as inefficiencies in operating mechanisms and systems. Of the total $20 million special charge to income, $3 million was included in net sales, $11 million was included in cost of sales, $11 million was included in selling, general and administrative expenses and a credit of $5 million was included in other income. The narrative regarding results of operations has also been expanded to provide information as to the effects of these charges on each financial statement category. In 2000, the company reported gross profit of $997 million, or 36.3% of net sales compared to 34.1% in 1999. Included in cost of sales for 1999 were $20 million of restructuring-related transition costs, primarily for plant rationalization activities, and the mechanic tools' special charges of $11 million. Gross profit in 1999, excluding these restructuring-related and special charges was 35.3% of net sales. This significant improvement in gross profit is attributable to a combination of the company's improved ability to adjust employment and production plans as market demand fluctuates, improved cost controls in operations, the benefits of the company's restructuring programs, and continued progress on purchased material costs despite inflationary pressures. In 1999, the company reported gross profit of $938 million, or 34.1% of net sales compared to 34.3% in 1998. Cost of sales in 1998 included $17 million of restructuring-related transition costs. Gross profit in 1999, excluding these restructuring-related and special charges was 35.3% of net sales compared with 34.9% for 1998. This improvement was attributable to a combination of improved cost controls in operations, accelerating in the second half of 1999, and the benefits of the company's 1997 restructuring. Selling, general and administrative expenses were $657 million, or 23.9% of net sales, in 2000, as compared with $703 million, or 25.5% of net sales in 1999. Included in 1999 were $35 million of restructuring-related transition and other non-recurring costs and fourth quarter special charges related to mechanics' tools of $11 million. Excluding these costs and the fourth quarter 1999 special charges, selling, general and administrative expenses were $657 million in 1999 or 23.9% of net sales. The company has made significant strides in the latter half of 2000 in its continual effort to reduce selling, general and administrative expenses. In the first half of 2000, the company's expenses were 6% higher than 1999 core expenses for the same period, primarily the result of increased distribution costs, information management infrastructure costs, and selling and administrative costs related to an increased number of sales representatives in the MacDirect program. However, in the second half of 2000, the company's expenses were 6% lower than 1999 expenses for the same period. Significant cost reductions were achieved pertaining to information management infrastructure, distribution, and administrative activities. -31- Selling, general and administrative expenses were $703 million in 1999, as compared with $685 million, or 25.1% of net sales in 1998. In 1998 restructuring-related transition and other non-recurring costs were $69 million. Excluding these costs and the fourth quarter special charges, selling, general and administrative expenses increased to $657 million in 1999 from $616 million in 1998. This increase was primarily the result of the ZAG acquisition, higher selling and administrative costs related to an increased number of sales representatives in the MacDirect program, and higher sales and marketing costs associated with the company's larger retail customers. Net interest expense of $27 million in 2000 represented a slight decrease from $28 million in 1999 as debt levels were relatively consistent from year to year. Net interest expense increased in 1999 from $23 million in 1998 primarily due to increased levels of debt associated with funding the acquisition of ZAG and higher levels of working capital. Other net was $20 million of expense in 2000 compared with $2 million in income for 1999 and $13 million of expense for 1998. The company experienced lower gains from asset sales in 2000 and incurred a write-off of the remaining interest in a previously disposed equipment rental business. Additionally, included in 1999 results were non-recurring currency related gains of $11 million realized upon the termination of a cross-currency financial instrument. The company's 2000 effective annual income tax rate was 34% reflecting continued benefit of tax structural changes implemented during the last few years. The company's effective tax rate was 35% in 1999 and 36% 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 information presented below excludes restructuring charges, restructuring-related transition and other non-recurring costs for 1998 and the first half of 1999. Segment eliminations are also excluded. Special fourth quarter 1999 charges related to Mechanics' Tools of $25 million are reflected in Tools 1999 segment results. TOOLS (Millions of Dollars) 2000 1999 1998 - ------------------------------------------------------------------------- Net Sales $ 2,143 $ 2,116 $ 2,108 Core Operating Profit $ 286 $ 248 $ 279 % of Net Sales 13.3% 11.7% 13.2% - ------------------------------------------------------------------------- Tools sales increased 1% in 2000 primarily from unit volume improvements in the consumer hand tools, industrial mechanical tools and specialty tool catalog businesses. Additionally, the ZAG business was a large contributor to the sales volume growth. These increases were almost completely offset by a 2% reduction in sales from the net effect of foreign currency translation, primarily due to weaker European currencies. Operating profit in 2000 for the tools segment was 13.3% of net sales compared to 1999 core operating profit, excluding the special charges, of 12.9% of net sales. The increase from prior year is due to improved cost controls in operations, the benefits of the company's restructuring initiatives, and higher unit volumes. While 1999 tools sales overall were relatively flat compared to 1998, they included a 2% increase from the acquisition of ZAG and volume improvements in the U.S. hand and mechanics tools businesses. These increases were offset by lower volume in Europe and Latin America, and a decline in industrial mechanics tools. European sales volume was negatively affected by inefficiencies stemming from the closure of a European distribution center and strong competition in the European fastening system business. Core operating profit for the tools segment excluding the special charges was 12.9% of net sales, a slight decline from 1998 due to higher selling, general and administrative expenses. DOORS (Millions of Dollars) 2000 1999 1998 - ------------------------------------------------------------------------- Net Sales $ 606 $ 636 $ 621 Core Operating Profit $ 55 $ 42 $ 59 % of Net Sales 9.1% 6.6% 9.5% - ------------------------------------------------------------------------- Net sales decreased 5% in 2000, driven by declining hardware sales due to the weakening of demand for appliance hardware, residential entry doors and home decor products. These declines were partially offset by sales unit volume growth in automated door products. Operating profit in 2000 for the doors segment was 9.1% of net sales compared to core operating profit of 6.6% for 1999. This increase is due primarily to realization of benefits associated with the movement of hardware products to low cost countries, improved performance in the company's entry door manufacturing operations, and the recovery of automated door business operations following a major systems implementation in 1999. -32- Net sales increased 2% in 1999, driven by strong unit volume increases in residential entry doors and home decor products. This growth was substantially offset by declining hardware sales from the loss of the major U.S. retail customer and the lingering effects of poor 1998 fill rates. Core operating profit declined by $17 million in 1999 due to costs associated with relocating hardware production to lower-cost locations and increased provisions for uncollectible accounts receivables. RESTRUCTURING ACTIVITIES In 2000, the company completed the restructuring initiatives announced in 1997 and 1999 and will only be incurring certain run-off expenditures over the next few years. In 1999, the company completed an evaluation of the remaining reserves that were established in 1997 for restructuring initiatives and determined that certain projects would be cancelled in order to reapply company resources to higher payback areas. Accordingly, in the fourth quarter of 1999, the company reversed $62 million of reserves established for such actions. Net reserves of $18 million, $12 million for severance, $2 million for asset write-downs and $4 million for environmental remediation and other exit costs were remaining at the end of 1999 to be utilized for remaining costs associated with projects initiated, however, not completed. In 2000, severance of $10 million, asset write-downs of $2 million, and payments for other exit costs of $2 million reduced these reserves to $4 million by year-end. In 1999, new projects were approved to achieve improved cost productivity. These new initiatives included facility closures and the related relocation of production, a reduction in force in administrative functions and the outsourcing of non-core activities as well as the related asset impairments. The company recorded restructuring charges related to these new initiatives of $40 million, of which $30 million related to severance, $8 million related to asset write-downs, and $2 million related to environmental remediation and other exit costs. In 2000, severance of $19 million, asset write-downs of $5 million, and payments for other exit costs of $1 million reduced these reserves to $15 million by year-end. To date the company has closed 54 facilities and reduced employment by approximately 6,200 people related to all restructuring initiatives. FINANCIAL CONDITION LIQUIDITY, SOURCES AND USES OF CAPITAL The company has historically generated strong cash flows from operations. During 2000 the company generated $236 million in operating cash flow, versus $222 million in 1999. This increase resulted primarily from a significant reduction in restructuring-related transition costs, which was offset partially by higher working capital requirements. In 2000, the company's receivables decreased by $14 million, inventory increased by $17 million, and accounts payable increased by $15 million. The receivables decrease was primarily attributed to the doors segment as volume declined. The increased inventory was in the tools and fastening businesses. The accounts payable increase resulted from renegotiation of vendor terms and increased attention to payment management. The company made cash payments of $32 million for its restructuring activities, primarily severance. Cash outflows relating to the restructuring activities are expected to continue, although at a reduced level, throughout 2001. Capital expenditures were $60 million in 2000 down from $78 million last year. Investment in capital was lower than traditional levels as a result of facility consolidations, continued outsourcing and the Stanley Production System. In 2000, the company's overall debt increased by $15 million as certain short-term borrowings were utilized to partially fund common stock repurchases and working capital needs. In 1999, the company issued $120 million of 5 year debt to capitalize on favorable interest rates and reduce its reliance on short-term sources of funds. The debt to capital ratio was relatively flat to the prior year. The company's objective is to increase dividends by at least one-half the company's earnings growth rate, ultimately reaching a dividend payout ratio of 25%. Dividends increased 3.5% in 2000 and 5% in 1999. -33- The company repurchased 4.3 million shares of its common stock in 2000. The net effect was a decrease in equity of $111 million. These repurchases were funded primarily by cash flow from operations. The company has indicated that it may continue to repurchase its shares when deemed appropriate. MARKET RISK Market risk is the potential economic loss that may result from adverse changes in the fair value of financial instruments. The company is exposed to market risk from changes in foreign currency exchange rates and interest rates. Exposure to foreign currency risk results because the company, through its global businesses, enters into transactions and makes investments denominated in multiple currencies. The company's predominant exposures are in European, Canadian and Asian currencies. From time to time, certain cross-currency trade flows arising from sales and procurement activities are consolidated and netted prior to obtaining risk protection, primarily purchased basket options. The company is thus able to capitalize on its global positioning by taking advantage of naturally offsetting exposures to reduce the cost of purchasing protection. At times, the company also enters into forward exchange contracts and purchased options to reduce the earnings and cash flow impact of non-functional currency denominated receivables and payables, predominately intercompany transactions. Gains and losses from these hedging instruments offset the gains or losses on the underlying net exposures, assets and liabilities being hedged. Management determines the nature and extent of currency hedging activities, and in certain cases, may elect to allow certain currency exposures to remain unhedged, such as in the case of the Euro in 2000. The company has also entered into several cross-currency interest rate swaps, primarily to reduce overall borrowing costs, but also to provide a partial hedge of the net investments in certain subsidiaries. Sensitivity to foreign currency exposure risk from these financial instruments at the end of 2000 would have been immaterial based on the potential loss in fair value from a hypothetical 10% adverse movement in all currencies. The company's exposure to interest rate risk results from its outstanding debt obligations, short-term investments and derivative financial instruments employed in the management of its debt portfolio. The debt portfolio is managed to achieve capital structure targets and reduce the overall cost of borrowing by using a combination of fixed and floating rate debt as well as interest rate swaps, caps and cross-currency interest rate swaps. The company's primary exposure to interest risk comes from its floating rate debt in the US, Canada and Europe and is fairly represented by changes in LIBOR rates. At December 30, 2000, the result of a hypothetical one percentage point increase in short term LIBOR rates would not have resulted in a material impact on the pretax profit of the company. The company has access to financial resources and borrowing capabilities around the world. The company believes that its strong financial position, operating cash flows and borrowing capacity provide the financial flexibility necessary to continue its record of annual dividend payments, to invest in the routine needs of its businesses, to make strategic acquisitions and to fund the restructuring and other initiatives encompassed by its growth strategy. OTHER MATTERS ENVIRONMENTAL The company incurs costs related to environmental issues as a result of various laws and regulations governing current operations as well as the remediation of previously contaminated sites. Future laws and regulations are expected to be increasingly stringent and will likely increase the company's expenditures related to routine environmental matters. The company accrues for anticipated costs associated with investigatory and remediation efforts in accordance with appropriate accounting guidelines which address probability and the ability to reasonably estimate future costs. The liabilities are reassessed whenever circumstances become better defined or remediation efforts and their costs can be better estimated. Subject to the imprecision in estimating future environmental costs, the company believes that any sum it may pay in connection with environmental matters in excess of the amounts recorded will not have a materially adverse effect on its financial position, results of operations or liquidity. NEW ACCOUNTING STANDARDS 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 -34- the effective date for one year and the standard now will be effective January 1, 2001. The adoption of this standard will not have a material impact on the company's balance sheet, operating results or cash flows. SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities", replaces SFAS No. 125. SFAS No. 140 clarifies issues that arose from SFAS No. 125 regarding securitizations of financial assets and special purpose entities and collateralizations of transferred financial assets. The new standard is effective for transfers after March 31, 2001. We believe the adoption of this standard will not have a material effect on the results of operations or financial position. CAUTIONARY STATEMENTS The statements contained in this annual report to shareowners regarding the company's ability (i) to become a Great Brand 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), (ii) to lower the overall cost structure to become more competitive, (iii) to obtain sales growth from the implementation of sales and marketing programs, (iv) to drive working capital efficiency and continue to generate cash to, among other things, invest in business needs, make strategic acquisitions and to fund restructuring and other initiatives are forward looking and inherently subject to risk and uncertainty. The company's ability to lower its overall cost structure is dependent on the success of various initiatives to improve manufacturing operations and to implement related cost control systems and to source from and manufacture a higher percentage of the company's products in low-cost countries. The success of these initiatives is dependent on the company's ability to increase the efficiency of its routine business processes, to develop and implement process control systems, to develop and execute comprehensive plans for facility consolidations, the availability of vendors to perform outsourced functions, the availability of lower cost raw material of suitable quality from foreign countries, the successful recruitment and training of new employees, the resolution of any labor issues related to closing facilities, the need to respond to significant changes in product demand while any facility consolidation is in process and other unforeseen events. In addition, the company's ability to leverage the benefits of gross margin improvements is dependent upon maintaining selling, general and administrative expense at 2000 levels. The company's ability to maintain the level of selling, general and administrative expenses is dependent upon various process improvement activities, the successful implementation of changes to the sales organization, the recruitment and retention of manufacturers sales representatives and the reduction of transaction costs. The company's ability to achieve sales growth is dependent upon a number of factors, including: (i) the ability to recruit and retain a sales force comprised of employees and manufacturers reps, (ii) the success of the company's sales and marketing programs to increase retail sell through and stimulate demand for the company's products, (iii) the ability of the sales force to adapt to changes made in the sales organization and achieve adequate customer coverage, (iv) the ability of the company to fulfill demand for its products, (v) the absence of pricing pressures from customers and competitors and the ability to defend market share in the face of price competition, (vi) the ability to improve the cost structure in order to fund new product and brand development and (vii) the acceptance of the company's new products in the marketplace as well as the ability to satisfy demand for these products. The company's ability to drive working capital efficiency and continue to generate cash to, among other things, invest in business needs, make strategic acquisitions and to fund restructuring and other initiatives is dependent on all of the factors discussed above, as well as the continued success of improvements in processes to manage inventory and receivable levels. 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, 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. -35- BUSINESS SEGMENT INFORMATION BUSINESS SEGMENTS The company operates worldwide in two reportable business segments: Tools and Doors. 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. BUSINESS SEGMENTS (Millions of Dollars) 2000 1999 1998 - ------------------------------------------------------------------------- NET SALES Tools $ 2,142.5 $ 2,116.2 $ 2,107.8 Doors 606.4 635.6 621.3 Consolidated $ 2,748.9 $ 2,751.8 $ 2,729.1 - ------------------------------------------------------------------------- Operating Profit Tools $ 285.7 $ 248.1 $ 278.6 Doors 55.1 41.7 58.9 - ------------------------------------------------------------------------- 340.8 289.8 337.5 Restructuring, transition and other costs - (33.6) (85.9) Interest-net (27.1) (27.9) (23.1) Other-net (20.0) 2.5 (13.1) - ------------------------------------------------------------------------- Earnings before income taxes $ 293.7 $ 230.8 $ 215.4 - ------------------------------------------------------------------------- SEGMENT ASSETS Tools $ 1,502.4 $ 1,455.1 $ 1,462.9 Doors 260.3 306.4 279.6 1,762.7 1,761.5 1,742.5 Corporate assets 122.1 129.1 190.4 Consolidated $ 1,884.8 $ 1,890.6 $ 1,932.9 CAPITAL EXPENDITURES Tools $ 44.5 $ 90.2 $ 53.1 Doors 19.9 12.7 11.6 DEPRECIATION AND AMORTIZATION Tools $ 66.2 $ 70.1 $ 64.7 Doors 17.1 15.5 15.0 ========================================================================= BUSINESS SEGMENT INFOMATION GENERAL INFORMATION The company assesses the performance of its reportable business segments using operating profit, which follows the same accounting policies as those described in Note A to the Financial Statements. Operating profit excludes interest-net, other-net, and income tax expense. In addition, operating profit excludes restructuring and asset write-offs, restructuring-related transition costs associated with the company's restructuring plans and other non-recurring costs. Corporate and shared expenses are allocated to each segment. Sales between segments are not material. Segment assets primarily include accounts receivable, inventory, other current assets, property, plant and equipment, intangible assets and other miscellaneous assets. Corporate assets and unallocated assets are cash, deferred income taxes and certain other assets. Geographic net sales and long-lived assets are attributed to the geographic regions based on the geographic location of the Stanley subsidiary. Sales to one customer in both the Tools and Doors segments were approximately 17%, 15% and 14% of consolidated net sales in 2000, 1999 and 1998, respectively. GEOGRAPHIC AREAS (Millions of Dollars) 2000 1999 1998 - ------------------------------------------------------------------------- NET SALES United States $ 1,984.0 $ 1,962.5 $ 1,953.4 Other Americas 203.3 199.0 211.9 Europe 459.3 493.2 467.5 Asia 102.3 97.1 96.3 - ------------------------------------------------------------------------- Consolidated $ 2,748.9 $ 2,751.8 $ 2,729.1 - ------------------------------------------------------------------------- LONG-LIVED ASSETS United States $ 458.3 $ 442.1 $ 461.1 Other Americas 31.3 28.1 25.4 Europe 266.7 286.3 284.3 Asia 34.2 36.7 41.7 Other - 6.4 34.0 Consolidated $ 790.5 $ 799.6 $ 846.5 ========================================================================= -36- CONSOLIDATED STATEMENTS OF OPERATIONS Fiscal years ended December 30, 2000, January 1, 2000 and January 2, 1999 (Millions of Dollars, except per share amounts) 2000 1999 1998 - ------------------------------------------------------------------------- NET SALES $ 2,748.9 $ 2,751.8 $ 2,729.1 COSTS AND EXPENSES Cost of sales 1,751.5 1,813.9 1,792.8 Selling, general and administrative 656.6 703.0 684.7 Interest-net 27.1 27.9 23.1 Other-net 20.0 (2.5) 13.1 Restructuring and asset write-offs - (21.3) - - ------------------------------------------------------------------------- 2,455.2 2,521.0 2,513.7 - ------------------------------------------------------------------------- EARNINGS BEFORE INCOME TAXES 293.7 230.8 215.4 - ------------------------------------------------------------------------- INCOME TAXES 99.3 80.8 77.6 - ------------------------------------------------------------------------- NET EARNINGS $ 194.4 $ 150.0 $ 137.8 - ------------------------------------------------------------------------- NET EARNINGS PER SHARE OF COMMON STOCK BASIC $ 2.22 $ 1.67 $ 1.54 - ------------------------------------------------------------------------- DILUTED $ 2.22 $ 1.67 $ 1.53 ========================================================================= See notes to consolidated financial statements. -37- CONSOLIDATED BALANCE SHEETS
December 30, 2000 and January 1, 2000 (Millions of Dollars) 2000 1999 - ------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 93.6 $ 88.0 Accounts and notes receivable 531.9 546.1 Inventories 398.1 381.2 Deferred taxes 29.6 34.2 Other current assets 41.1 41.5 - ------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 1,094.3 1,091.0 PROPERTY, PLANT AND EQUIPMENT 503.7 520.6 GOODWILL AND OTHER INTANGIBLES 175.9 185.2 OTHER ASSETS 110.9 93.8 - ------------------------------------------------------------------------------------- TOTAL ASSETS $ 1,884.8 $ 1,890.6 - ------------------------------------------------------------------------------------- LIABILITIES AND SHAREOWNERS' EQUITY CURRENT LIABILITIES Short-term borrowings $ 207.6 $ 145.3 Current maturities of long-term debt 6.1 11.7 Accounts payable 239.8 225.0 Accrued expenses 253.8 311.0 - ------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 707.3 693.0 - ------------------------------------------------------------------------------------- LONG-TERM DEBT 248.7 290.0 RESTRUCTURING RESERVES 1.3 1.3 OTHER LIABILITIES 191.0 170.9 SHAREOWNERS' EQUITY Preferred stock, without par value: Authorized and unissued 10,000,000 shares Common stock, par value $2.50 per share: Authorized 200,000,000 shares; issued 92,343,410 shares in 2000 and 1999 230.9 230.9 Retained earnings 1,039.6 926.9 Accumulated other comprehensive loss (124.5) (99.2) ESOP debt (194.8) (202.2) - ------------------------------------------------------------------------------------- 951.2 856.4 Less: cost of common stock in treasury (7,155,158 shares in 2000 and 3,398,235 shares in 1999) 214.7 121.0 - ------------------------------------------------------------------------------------- TOTAL SHAREOWNERS' EQUITY 736.5 735.4 TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $ 1,884.8 $ 1,890.6 ===================================================================================== See notes to consolidated financial statements.
-38- CONSOLIDATED STATEMENTS OF CASH FLOWS Fiscal years ended December 30, 2000, January 1, 2000 and January 2, 1999
(Millions of Dollars) 2000 1999 1998 - -------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net earnings $194.4 $150.0 $137.8 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 83.3 85.6 79.7 Provision for bad debts 24.3 31.3 16.1 Restructuring and asset write-offs - (21.3) - Other non-cash items 17.9 26.4 16.4 Changes in operating assets and liabilities: Accounts and notes receivable (15.8) (66.9) (41.7) Inventories (29.2) (12.5) (78.0) Accounts payable and accrued expenses (42.0) 18.1 (61.8) Income taxes 9.8 19.8 (5.4) Other (6.5) (8.2) (6.9) - -------------------------------------------------------------------------------------------------- Net cash provided by operating activities 236.2 222.3 56.2 - -------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES: Capital expenditures (59.8) (77.9) (56.9) Capitalized software (4.6) (25.0) (7.8) Proceeds from sales of assets 14.1 35.1 9.8 Proceeds from sales of businesses - - 3.0 Business acquisitions - - (99.9) Other (19.7) (0.1) .7 - -------------------------------------------------------------------------------------------------- Net cash used by investing activities (70.0) (67.9) (151.1) - -------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES: Payments on long-term debt (32.7) (156.7) (40.0) Proceeds from long-term borrowings - 121.3 60.9 Net short-term financing 59.7 (61.1) 126.7 Proceeds from swap terminations - 13.9 - Proceeds from issuance of common stock 8.9 10.0 21.9 Purchase of common stock for treasury (108.6) (21.4) (42.0) Cash dividends on common stock (78.3) (77.5) (73.9) - -------------------------------------------------------------------------------------------------- Net cash provided (used) by financing activities (151.0) (171.5) 53.6 - -------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash (9.6) (5.0) (.8) - -------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5.6 (22.1) (42.1) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 88.0 110.1 152.2 - -------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 93.6 $ 88.0 $110.1 - -------------------------------------------------------------------------------------------------- See notes to consolidated financial statements.
-39- CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNER'S EQUITY Fiscal years ended December 30, 2000, January 1, 2000 and January 2, 1999
ACCUMULATED OTHER COMMON RETAINED COMPREHENSIVE ESOP TREASURY SHAREOWNERS' (Millions of Dollars, except per STOCK EARNINGS INCOME (LOSS) DEBT STOCK EQUITY share amounts) - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE JANUARY 3, 1998 $230.9 $ 806.6 $ (85.3) $(223.8) $(120.6) $607.8 Comprehensive income: Net earnings 137.8 Currency translation adjustment 2.1 Minimum pension liability (1.4) Total comprehensive income 138.5 Cash dividends declared-$.83 per share (73.9) (73.9) Issuance of common stock (8.5) 33.8 25.3 Purchase of common stock (44.1) (44.1) Tax benefit related to stock options 2.4 2.4 ESOP debt 10.6 10.6 ESOP tax benefit 2.8 2.8 - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE JANUARY 2, 1999 230.9 867.2 (84.6) (213.2) (130.9) 669.4 Comprehensive income: Net earnings 150.0 Currency translation adjustment (15.6) Minimum pension liability 1.0 Total comprehensive income 135.4 Cash dividends declared-$.87 per share (77.5) (77.5) Issuance of common stock (16.3) 29.4 13.1 Purchase of common stock (19.5) (19.5) Tax benefit related to stock options .8 .8 ESOP debt 11.0 11.0 ESOP tax benefit 2.7 2.7 - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE JANUARY 1, 2000 230.9 926.9 (99.2) (202.2) (121.0) 735.4 Comprehensive income: Net earnings 194.4 Currency translation adjustment (24.6) Minimum pension liability (.7) Total comprehensive income 169.1 Cash dividends declared-$.90 per share (78.3) (78.3) Issuance of common stock (6.8) 17.8 11.0 Purchase of common stock (111.5) (111.5) Tax benefit related to stock options .8 .8 ESOP debt 7.4 7.4 ESOP tax benefit 2.6 2.6 - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE DECEMBER 30, 2000 $230.9 $1,039.6 $ (124.5) $(194.8) $(214.7) $736.5 - ------------------------------------------------------------------------------------------------------------------------------------ See notes to consolidated financial statements.
-40- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The consolidated financial statements include the accounts of the company and its majority-owned subsidiaries which require consolidation, after the elimination of intercompany accounts and transactions. The company's fiscal year ends on the Saturday nearest to December 31. There were 52 weeks in fiscal years 2000, 1999 and 1998. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as certain financial statement disclosures. While management believes that the estimates and assumptions used in the preparation of the financial statements are appropriate, actual results could differ from these estimates. FOREIGN CURRENCY TRANSLATION For foreign operations with functional currencies other than the U.S. dollar, asset and liability accounts are translated at current exchange rates; income and expenses are translated using weighted average exchange rates. Resulting translation adjustments, as well as gains and losses from certain intercompany transactions, are reported in a separate component of shareowners' equity. Translation adjustments for operations in highly inflationary economies and exchange gains and losses on transactions are included in earnings, and amounted to net losses for 2000, 1999 and 1998 of $2.3 million, $4.8 million and $.9 million, respectively. CASH EQUIVALENTS Highly liquid investments with original maturities of three months or less are considered cash equivalents. INVENTORIES U.S. inventories are valued at the lower of last-in, first-out (LIFO) cost or market. Other inventories are valued generally at the lower of first-in, first-out (FIFO) cost or market. LONG-LIVED ASSETS Property, plant and equipment are stated on the basis of historical cost less accumulated depreciation. Depreciation is provided using a combination of accelerated and straight-line methods over the estimated useful lives of the assets. Goodwill is amortized on a straight-line basis over periods not exceeding forty years. The company periodically evaluates the existence of goodwill impairment on the basis of whether amounts recorded are recoverable from projected undiscounted cash flows of related businesses. Impairment losses are valued by comparing the carrying value of the goodwill to its fair value, determined by the discounted cash flow method. Impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Impairment losses were charged to operations in 1999 and were included in Restructuring and asset write-offs on the statement of operations. FINANCIAL INSTRUMENTS To manage interest rate exposure, the company enters into interest rate swap agreements. The net interest paid or received on the swaps is recognized as interest expense. Gains resulting from the early termination of interest rate swap agreements are deferred and amortized as adjustments to interest expense over the remaining period originally covered by the terminated swap. The company manages exposure to fluctuations in foreign exchange rates by creating offsetting positions through the use of forward exchange contracts or currency options. The company enters into forward exchange contracts to hedge intercompany loans and enters into purchased foreign currency options to hedge anticipated transactions. Gains and losses on forward exchange contracts are deferred and recognized as part of the underlying transactions. Changes in the fair value of options, representing a basket of foreign currencies purchased to hedge anticipated cross-currency cash flows, are included in cost of sales. The company does not use financial instruments for trading or speculative purposes. In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting For Derivative Instruments and Hedging Activities," which established new accounting and reporting standards for derivative instruments. This standard, as amended by SFAS 137 and SFAS 138, becomes effective for the company in fiscal year 2001. The adoption of SFAS 133, as amended, will not have a material impact on the company's balance sheet, operating results or cash flows. -41- REVENUE RECOGNITION Revenue is recognized when the earning process is complete and the risks and rewards of ownership have transferred to the customer, which is generally considered to have occurred upon shipment of the finished product. The company enters into arrangements licensing its brand name on specifically approved products. The licensees pay the company royalties as products are sold, subject to annual minimum guaranteed amounts. For those arrangements where the company has continuing involvement with the licensee, royalty revenues are recognized as they are earned over the life of the agreement. For certain agreements, where the company has no further continuing involvement with the licensee, the company recognizes the guaranteed minimum royalties at the time the arrangement becomes effective and all applicable products have been approved. RECEIVABLES The company accounts for the securitization of its trade receivables in accordance with SFAS 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." In September, 2000, the FASB issued SFAS 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," that replaces in its entirety SFAS 125. The company has adopted the disclosure requirements of SFAS 140 effective December, 2000 and will apply the new accounting rules prospectively to transactions beginning in the second quarter of 2001. Based on current circumstances, the company believes the application of the new accounting rules will not have a material impact on its consolidated financial statements. Income Taxes Income tax expense is based on reported earnings before income taxes. Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes, and are measured by applying enacted tax rates in effect in years in which the differences are expected to reverse. Earnings per Share Basic earnings per share equals net earnings divided by weighted average shares outstanding during the year. Diluted earnings per share include the impact of common stock equivalents using the treasury stock method when the effect is dilutive. STOCK-BASED COMPENSATION The company accounts for its employee stock compensation plans under Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly, no compensation cost is recognized for stock-based compensation unless the quoted market price of the stock at the grant date is in excess of the amount the employee must pay to acquire the stock. Pro forma disclosures of net earnings and earnings per share, as if the fair value based method of accounting had been applied, are presented in Note J. RECLASSIFICATIONS Certain prior years amounts have been reclassified to conform with the current year presentation. B. ACQUISITIONS In August 1998, the company acquired ZAG Industries Ltd. (ZAG), an innovator and producer of plastic storage products, for $129.3 million. The purchase price included a cash payment of $114.4 million, contingent payments based on ZAG's estimated earnings over a five year period and acquisition related costs. The purchase price was allocated to the fair market value of the assets acquired and liabilities assumed and resulted in goodwill of $94.3 million, which is being amortized over a 40 year period. The aforementioned acquisition was accounted for as a purchase transaction and, accordingly, the operating results have been included in the company's consolidated financial statements since the date of acquisition. The acquisition did not have a material pro forma impact on 1998 operations. C. ACCOUNTS AND NOTES RECEIVABLE Trade receivables are dispersed among a large number of retailers, distributors and industrial accounts in many countries. Adequate provisions have been established to cover anticipated credit losses. At December 30, 2000 and January 1, 2000, allowances for doubtful receivables of $41.9 million and $43.4 million, respectively, were applied as a reduction of current accounts and notes receivable. The company believes it has no significant concentrations of credit risk as of December 30, 2000. The company has agreements to sell, on a revolving basis, undivided interests in defined pools of accounts and notes receivable. At December 30, 2000, the defined pools of receivables amounted to $286.5 million. The proceeds from sales of such eligible receivables, primarily to Qualifying Special Purpose Entities (QSPE's), in revolving-period securitizations were $86.7 million in 2000 and $93.6 million in 1999, and these amounts have been deducted from receivables in the December 30, 2000 and January 1, 2000 consolidated balance sheets. There were no gains or losses on these sales. The company is responsible for servicing and collecting the receivables sold and held in the QSPE's. Any incremental additional costs related to such servicing and collection efforts are not significant. -42- D. INVENTORIES (Millions of Dollars) 2000 1999 - ----------------------------------------------------------------------- Finished products $ 281.4 $ 269.0 Work in process 53.8 48.3 Raw materials 62.9 63.9 - ----------------------------------------------------------------------- $ 398.1 $ 381.2 ======================================================================= Inventories in the amount of $252.5 million at December 30, 2000 and $231.6 million at January 1, 2000 were valued at the lower of LIFO cost or market. If the LIFO method had not been used, inventories would have been $84.0 million and $114.4 million higher than reported at December 30, 2000 and January 1, 2000, respectively. E. PROPERTY, PLANT AND EQUIPMENT (Millions of Dollars) 2000 1999 - ----------------------------------------------------------------------- Land $ 25.4 $ 27.2 Buildings 218.3 218.3 Machinery and equipment 913.8 886.0 Computer software 74.7 76.5 - ----------------------------------------------------------------------- 1,232.2 1,208.0 Less: accumulated depreciation and amortization 728.5 687.4 - ----------------------------------------------------------------------- $ 503.7 $ 520.6 ======================================================================= The provisions for depreciation and amortization for 2000, 1999 and 1998 were $75.9, $75.6 million and $71.4 million, respectively. F. GOODWILL AND OTHER INTANGIBLES Goodwill and other intangibles at the end of each fiscal year, net of accumulated amortization of $79.0 million and $86.0 million, were as follows: (Millions of Dollars) 2000 1999 - ----------------------------------------------------------------------- Goodwill $ 160.4 $ 168.2 Other 15.5 17.0 - ----------------------------------------------------------------------- $ 175.9 $ 185.2 ======================================================================= G. ACCRUED EXPENSES (Millions of Dollars) 2000 1999 - ----------------------------------------------------------------------- Payroll and related taxes $ 29.7 $ 41.9 Insurance 31.3 32.2 Restructuring 12.1 46.7 Income taxes 54.8 45.7 Other 125.9 144.5 - ----------------------------------------------------------------------- $ 253.8 $ 311.0 ======================================================================= H. LONG-TERM DEBT AND FINANCING ARRANGEMENTS (Millions of Dollars) 2000 1999 - ----------------------------------------------------------------------- Notes payable in 2002 7.4% $ 100.0 $ 100.0 Notes payable in 2004 5.8% 120.0 120.0 Notes payable due semiannually to 2005 6.3% - 27.5 Industrial Revenue Bonds due in varying amounts to 2010 5.8-6.8% 19.6 19.6 ESOP loan guarantees, payable in varying monthly installments through 2009 6.1% 27.9 33.6 Other, including net swap receivables (12.7) 1.0 - ----------------------------------------------------------------------- 254.8 301.7 Less: current maturities 6.1 11.7 - ----------------------------------------------------------------------- $ 248.7 $ 290.0 ======================================================================= The company has unused short and long-term credit arrangements with several banks to borrow up to $350.0 million at the lower of prime or money market rates. Of this amount, $150.0 million is long-term. Commitment fees range from .06% to .07%. In addition, the company has short-term lines of credit with numerous foreign banks aggregating $116.7 million, of which $97.5 million was available at December 30, 2000. Short-term arrangements are reviewed annually for renewal. Of the long-term and short-term lines, $350.0 million is available to support the company's commercial paper program. The weighted average interest rates on short-term borrowings at December 30, 2000 and January 1, 2000 were 6.5% and 5.1%, respectively. To manage interest costs and foreign exchange risk, the company maintains a portfolio of interest rate swap agreements. The portfolio includes currency swaps that convert $90.5 million of fixed rate United States dollar debt into 4.4% fixed rate Euro debt. The company also has currency swaps that convert $39.0 million of variable rate United States dollar debt to variable rate Euro debt (5.0% weighted average rate). See Note I for more information regarding the company's interest rate and currency swap agreements. Aggregate annual maturities of long-term debt for the years 2002 to 2005 are $120.0 million, $7.0 million, $107.4 million and $3.2 million, respectively. Interest paid during 2000, 1999 and 1998 amounted to $36.1 million, $30.8 million and $31.2 million, respectively. -43- On October 18, 2000, the company set up a new Extendible Commercial Notes (ECN) program. Under the ECN program, the company can issue up to $50 million of senior unsecured short-term debt. The ECN's provide the company a new source of short-term funding in addition to the commercial paper program and other short term arrangements. As of December 30, 2000, the company had issued $49.4 million of ECN's. Commercial paper and ECN's, utilized to support working capital requirements, were $187.8 million and $145.2 million, as of December 30, 2000 and January 1, 2000, respectively. I. FINANCIAL INSTRUMENTS The company's objectives in using debt related financial instruments are to obtain the lowest cost source of funds within an acceptable range of variable to fixed-rate debt proportions and to minimize the foreign exchange risk of obligations. To meet these objectives the company enters into interest rate swap and currency swap agreements. A summary of instruments and weighted average interest rates follows. The weighted average variable pay and receive rates are based on rates in effect at the balance sheet dates. Variable rates are generally based on LIBOR or commercial paper rates with no leverage features. (Millions of Dollars) 2000 1999 - ----------------------------------------------------------------------- Currency swaps $112.0 $112.8 pay rate 4.6% 4.1% receive rate 6.0% 5.8% maturity dates 2004-2005 2004 - ----------------------------------------------------------------------- The company uses purchased currency options and forward exchange contracts to reduce exchange risks arising from cross-border cash flows expected to occur over the next one year period. In addition, the company enters into forward exchange contracts to hedge intercompany loans and royalty payments. The objective of these practices is to minimize the impact of foreign currency fluctuations on operating results. At December 30, 2000 and January 1, 2000, the company had forward contracts hedging intercompany loans and royalty payments totaling $11.3 million and $8.8 million, respectively. At December 30, 2000 and January 1, 2000, currency options hedged anticipated transactions totaling $174.7 million and $200.1 million, respectively. The forward contracts and options are primarily denominated in Canadian dollars, Australian dollars, Taiwanese dollars, Israeli Shekels and major European currencies and generally mature within the next one year period. The counterparties to these interest rate and currency financial instruments are major international financial institutions. The company is exposed to credit risk for net exchanges under these agreements, but not for the notional amounts. The company considers the risk of default to be remote. A summary of the carrying values and fair values of the company's financial instruments at December 30, 2000 and January 1, 2000 is as follows:
(Millions of Dollars) 2000 1999 - ------------------------------------------------------------------------------------- Carrying Fair Carrying Fair Value Value Value Value - ------------------------------------------------------------------------------------- Long-term debt, including current portion $272.2 $270.5 $311.2 $297.9 Currency and interest rate swaps (17.4) (19.5) (9.5) (8.2) - ------------------------------------------------------------------------------------- $254.8 $251.0 $301.7 $289.7 =====================================================================================
Generally, the carrying value of the debt related financial instruments is included in the balance sheet in long-term debt. The fair values of long-term debt are estimated using discounted cash flow analyses, based on the company's marginal borrowing rates. The fair values of foreign currency and interest rate swap agreements are based on current settlement values. The carrying amount of cash equivalents and short-term borrowings approximates fair value. J. CAPITAL STOCK EARNINGS PER SHARE COMPUTATION The following table reconciles the weighted average shares outstanding used to calculate basic and diluted earnings per share. (Millions of Dollars, except per share amounts) 2000 1999 1998 - -------------------------------------------------------------------------- Net earnings $194.4 $150.0 $137.8 - -------------------------------------------------------------------------- Basic earnings per share- weighted average shares 87,407,282 89,626,424 89,407,980 Dilutive effect of employee stock options 260,499 260,177 785,342 - -------------------------------------------------------------------------- Diluted earnings per share- weighted average shares 87,667,781 89,886,601 90,193,322 - -------------------------------------------------------------------------- Earnings per share: Basic $ 2.22 $ 1.67 $ 1.54 Diluted $ 2.22 $ 1.67 $ 1.53 - -------------------------------------------------------------------------- -44- COMMON STOCK SHARE ACTIVITY The activity in common shares for each year, net of treasury stock, was as follows: 2000 1999 1998 - -------------------------------------------------------------------------- Outstanding, beginning of year 88,945,175 88,771,928 88,788,081 Issued 557,490 1,139,671 977,865 Purchased (4,314,413) (966,424) (994,018) - -------------------------------------------------------------------------- Outstanding, end of year 85,188,252 88,945,175 88,771,928 ========================================================================== COMMON STOCK RESERVED At December 30, 2000 and January 1, 2000, the number of shares of common stock reserved for future issuance under various employee and director stock plans was as follows: 2000 1999 - ----------------------------------------------------------------------- Employee Stock Purchase Plan 4,070,937 4,171,306 Stock Option Plans 6,452,150 6,817,346 Long-term incentive plans 6,677,064 6,718,596 - ----------------------------------------------------------------------- 17,200,151 17,707,248 ======================================================================= PREFERRED STOCK PURCHASE RIGHTS Each outstanding share of common stock has one half of a share purchase right. Each purchase right may be exercised to purchase one two-hundredth of a share of Series A Junior Participating Preferred Stock at an exercise price of $220.00, subject to adjustment. The rights, which do not have voting rights, expire on March 10, 2006, and may be redeemed by the company at a price of $.01 per right at any time prior to the tenth day following the public announcement that a person has acquired beneficial ownership of 10% or more of the outstanding shares of common stock. In the event that the company is acquired in a merger or other business combination transaction, provision shall be made so that each holder of a right (other than a holder who is a 10%-or-more shareowner) shall have the right to receive, upon exercise thereof, that number of shares of common stock of the surviving company having a market value equal to two times the exercise price of the right. Similarly, if anyone becomes the beneficial owner of more than 10% of the then outstanding shares of common stock (except pursuant to an offer for all outstanding shares of common stock which the independent directors have deemed to be fair and in the best interest of the company), provision will be made so that each holder of a right (other than a holder who is a 10%-or-more shareowner) shall thereafter have the right to receive, upon exercise thereof, common stock (or, in certain circumstances, cash, property or other securities of the company) having a market value equal to two times the exercise price of the right. At December 30, 2000, there were 42,594,126 outstanding rights. There are 250,000 shares of Series A Junior Participating Preferred Stock reserved for issuance in connection with the rights. STOCK OPTIONS AND AWARDS The company has a stock option plan for all employees and a Long-Term Incentive Plan (LTIP) for key executives. Each provides for the grant of stock options. The LTIP also provides for the grant of restricted stock and other awards. The company also has a stock option plan that provides for option grants to outside directors of the company. Options are granted at the market price of the company's stock on the date of grant and have a maximum term of 10 years. Generally stock options are 50% exercisable on the one year anniversary of the grant and the remaining 50% are exercisable on the two year anniversary of the grant. Information regarding the company's stock option plans is summarized below:
2000 1999 1998 - --------------------------------------------------------------------------------------------------------------------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price - --------------------------------------------------------------------------------------------------------------------------------- Outstanding, beginning of year 6,413,578 $28.89 4,824,891 $29.56 4,244,013 $28.49 Granted 4,142,650 23.89 2,158,350 27.12 1,358,467 29.10 Exercised (356,160) 20.12 (341,263) 21.58 (498,339) 21.55 Forfeited (210,627) 22.97 (228,400) 37.15 (279,250) 43.20 - --------------------------------------------------------------------------------------------------------------------------------- Outstanding, end of year 9,989,441 27.19 6,413,578 $28.89 4,824,891 $29.56 - --------------------------------------------------------------------------------------------------------------------------------- Options exercisable, end of year 6,192,691 $27.28 3,608,261 $29.06 3,627,424 $29.02 - ---------------------------------------------------------------------------------------------------------------------------------
Options outstanding as of December 30, 2000 had exercise prices as follows: 4,319,574 options ranging from $18.53 to $24.97, 4,757,667 options ranging from $25.31 to $32.81 and 912,200 options ranging from $38.25 to $55.98. The weighted average remaining contractual life of these options is 9.1 years. -45- EMPLOYEE STOCK PURCHASE PLAN The Employee Stock Purchase Plan enables substantially all employees in the United States, Canada and Belgium to subscribe at any time to purchase shares of common stock on a monthly basis at the lower of 85% of the fair market value of the shares on the first day of the plan year ($21.17 per share for fiscal year 2000 purchases) or 85% of the fair market value of the shares on the last business day of each month. A maximum of 6,000,000 shares are authorized for subscription. During 2000, 1999 and 1998 shares totaling 100,369, 127,447 and 367,498, respectively, were issued under the plan at average prices of $20.82, $22.85 and $35.16 per share, respectively. LONG-TERM STOCK INCENTIVE PLAN The Long-Term Stock Incentive Plan (LTSIP) provides for the granting of awards to senior management employees for achieving company performance measures. The Plan is administered by the Compensation and Organization Committee of the Board of Directors consisting of non-employee directors. Awards are payable in shares of common stock as directed by the Committee. Shares totaling 41,532, 46,746 and 67,993 were issued in 2000, 1999 and 1998, respectively. LTSIP expense was $.8 million in 2000, $.3 million in 1999 and $1.6 million in 1998. STOCK COMPENSATION PLAN The company accounts for stock option grants under its two stock-based compensation plans and stock purchases under the Employee Stock Purchase Plan in accordance with APB No. 25. Accordingly, no compensation cost has been recognized for the majority of stock option grants since the options have exercise prices equal to the market value of the company's common stock at the date of grant. If compensation cost for the company's stock-based compensation plans had been determined based on the fair value at the grant dates consistent with the method prescribed by SFAS No. 123, "Accounting for Stock-Based Compensation", the company's net earnings and earnings per share would have been adjusted to the pro forma amounts indicated below: 2000 1999 1998 - ----------------------------------------------------------------------- Pro forma net earnings (in millions) $ 173.2 $ 141.4 $ 128.9 Pro forma earnings per share: Basic $ 1.98 $ 1.58 $ 1.44 Diluted $ 1.97 $ 1.57 $ 1.43 ======================================================================= Pro forma compensation cost relating to the stock options is recognized over the six month vesting period, while Employee Stock Purchase Plan compensation cost is recognized on the first day of the plan year. The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2000, 1999 and 1998, respectively: dividend yield of 3.8%, 3.5% and, 3.1%; expected volatility of 40% for 2000 and 1999, and 35% for 1998; risk-free interest rates of 6.1%, 7.0% and 5.4%; and expected lives of 7 years. The weighted average fair value of stock options granted in 2000, 1999 and 1998 was $8.15, $9.92 and $10.90, respectively. The fair value of the employees' purchase rights under the Employee Stock Purchase Plan was estimated using the following assumptions for 2000, 1999 and 1998, respectively: dividend yield of 5.2%, 3.5% and 3.1%, expected volatility of 40% for 2000 and 1999, and 35% for 1998; risk-free interest rates of 6.0%, 6.4% and 4.8%, and expected lives of 1.0 years. The weighted average fair value of those purchase rights granted in 2000, 1999 and 1998 was $5.68, $10.09 and $7.21, respectively. K. EMPLOYEE BENEFIT PLANS Employee Stock Ownership Plan (ESOP) The Account Value Plan provides opportunities for tax-deferred savings, enabling eligible U.S. employees to acquire a proprietary interest in the company. Such employees may contribute from 1% to 15% of their salary to the plan. The company contributes an amount equal to one-half of the employee contribution up to the first 7% of their salary, all of which is invested in the company's common stock. The amounts in 2000, 1999 and 1998 under this matching arrangement were $7.0 million, $7.1 million and $7.9 million, respectively. Beginning in 1998, the investment options for plan participant contributions were enhanced to include a variety of investment funds in addition to the company's common stock. -46- In 1998, the ESOP was expanded to include an additional non-contributory benefit for U.S. salaried and non-union hourly employees to replace the pre-existing defined benefit plan. Under the new benefit arrangement, the company contributes amounts ranging from 2% to 9% of employee compensation based on age, ($13.0 million in 2000, $13.9 million in 1999 and $9.5 million in 1998). Assets of the new defined contribution benefit are invested in equity securities and bonds. Shares of the company's common stock held by the ESOP were purchased with the proceeds of external borrowings in 1989 and borrowings from the company in 1991, both of which were refinanced in 1998. The external ESOP borrowings are guaranteed by the company and are included in long-term debt. Shareowners' equity reflects both the internal and the external borrowing arrangements. Shares are released to participant accounts based on principal and interest payments of the underlying debt. These shares along with allocated dividends and shares purchased on the open market are assigned to fund share requirements of the employee contributions, employer contributions and the dividends earned on participant account balances. Net ESOP activity recognized is based on total debt service and share purchase requirements less employee contributions and dividends on ESOP shares. The company's net ESOP activity resulted in expense of $8.6 million in 2000, $10.7 million in 1999, and income of $5.1 million in 1998. Dividends on ESOP shares, which are charged to shareowners' equity as declared, were $14.2 million in 2000, $14.7 million in 1999 and $15.2 million in 1998. Interest costs incurred by the ESOP on external debt for 2000, 1999 and 1998 were $1.9 million, $2.2 million and $2.9 million, respectively. ESOP shares not yet allocated to participants are treated as outstanding for purposes of computing earnings per share. As of December 30, 2000 the number of ESOP shares allocated to participant accounts was 9,056,081 and the number of unallocated shares was 8,135,176. Pension And Other Benefit Plans The company sponsors noncontributory pension plans covering substantially all employees. Benefits for salaried and non-union hourly employees are generally based on salary and years of service, while those for collective bargaining employees are based on a stated amount for each year of service. In 1998, the company replaced the defined benefit plan for U.S. salaried and non-union hourly employees with a defined contribution plan, which was incorporated into the ESOP. The new plan was actuarially designed to replace the benefits of the pre-existing defined benefit plan. Additional service benefits under the pre-existing plan were frozen as of January 31, 1998, resulting in a net $3.1 million curtailment loss. Contributions under the new plan began in February, 1998. The company's funding policy for its defined benefit plans is to contribute amounts determined annually on an actuarial basis to provide for current and future benefits in accordance with federal law and other regulations. Plan assets are invested in equity securities, bonds, real estate and money market instruments. If the plans are terminated or merged with another plan within three years following a change in control of the company, any excess plan assets are to be applied to increase the benefits of all participants. The components of net periodic pension cost are as follows: (Millions of Dollars) 2000 1999 1998 - ------------------------------------------------------------------------ Service cost $ 8.6 $ 8.4 $ 11.1 Interest cost 28.1 29.4 31.6 Expected return on plan assets (48.5) (45.8) (43.4) Amortization of transition asset (.7) (.7) (1.2) Amortization of prior service cost 1.2 1.1 1.4 Other (5.0) 1.7 2.0 Curtailment (gain) loss (1.4) (.5) 3.1 - ------------------------------------------------------------------------ Net periodic pension cost (income) $ (17.7) $ (6.4) $ 4.6 ======================================================================== The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $21.8 million, $18.1 million and $1.5 million, respectively, as of December 30, 2000, and $22.1 million, $16.6 million and $2.0 million, respectively, as of January 1, 2000. The company provides medical and dental benefits for certain retired employees in the United States. In addition, domestic employees who retire from active service are eligible for life insurance benefits. Net periodic postretirement benefit expense was $1.7 million in 2000, $2.3 million in 1999 and $1.9 million in 1998. -47- The components of the pension and other postretirement benefit obligations, as well as the net benefit obligation recognized in the consolidated balance sheets, are shown below:
(Millions of Dollars) 2000 1999 2000 1999 Pension Benefits Other Benefits - -------------------------------------------------------------------------------------- CHANGE IN BENEFIT OBLIGATION Benefit obligation at end of prior year $426.3 $512.6 $ 16.3 $ 17.4 Service cost 8.6 8.4 .7 1.1 Interest cost 28.1 29.4 1.0 1.1 Actuarial (gains) losses (13.1) (72.6) (1.9) (1.6) Plan amendments 2.6 1.5 - - Foreign currency exchange rates (9.3) (1.0) - - Benefits paid (60.5) (52.0) (1.7) (1.7) - -------------------------------------------------------------------------------------- Benefit obligation at end of year 382.7 426.3 14.4 16.3 - -------------------------------------------------------------------------------------- CHANGE IN PLAN ASSETS Fair value of plan assets at end of prior year 583.2 534.1 - - Actual return on plan assets 36.2 98.3 - - Foreign currency exchange rate changes (11.9) (1.1) - - Employer contribution 2.7 3.9 1.7 1.7 Benefits paid (60.5) (52.0) (1.7) (1.7) - -------------------------------------------------------------------------------------- Fair value of plan assets at end of year 549.7 583.2 - - - -------------------------------------------------------------------------------------- Funded status-assets in excess (less than) benefit obligation 167.0 156.9 (14.4) (16.3) Unrecognized prior service cost 10.6 10.1 .2 .2 Unrecognized net actuarial (gain) loss (138.8) (141.7) (1.7) .3 Unrecognized net asset at transition (2.0) (2.7) - - - -------------------------------------------------------------------------------------- Net amount recognized $ 36.8 $ 22.6 $(15.9) $(15.8) - -------------------------------------------------------------------------------------- AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEET Prepaid benefit cost $ 52.1 $ 37.4 $ - $ - Accrued benefit liability (17.8) (16.6) (15.9) (15.8) Intangible asset 1.4 1.4 - - Accumulated other comprehensive income 1.1 .4 - - - -------------------------------------------------------------------------------------- Net amount recognized $ 36.8 $ 22.6 $(15.9) $(15.8) ======================================================================================
Assumptions used for significant pension benefit plans were as follows: 2000 1999 - ----------------------------------------------------------------------- Discount rate 7.5% 7.5% Average wage increase 4.0% 4.0% Expected return on plan assets 9.0% 10.0% ======================================================================= In 1999, changing the discount rate used for measuring the benefit obligation from 6.5% to 7.5% resulted in an actuarial gain of approximately $73 million, included in the change in benefit obligation. The weighted average annual assumed rate of increase in the per-capita cost of covered benefits (i.e., health care cost trend rate) is assumed to be 8.0% for 2001 reducing gradually to 6% by 2010 and remaining at that level thereafter. A one percentage point increase or decrease in the assumed health care cost trend rate would have an immaterial effect on the accumulated postretirement benefit obligation and net periodic postretirement benefit cost for fiscal 2000. A discount rate of 7.5% was used in measuring the accumulated benefit obligations for 2000 and 1999. L. OTHER COSTS AND EXPENSES Interest-net for 2000, 1999 and 1998 included interest income of $7.5, $5.4 million and $7.9 million, respectively. Other-net in 1999 includes a gain on the termination of a cross-currency financial instrument of $11.4 million ($.08 per share). Advertising costs are expensed as incurred and amounted to $48.7 million in 2000, $50.2 million in 1999 and $46.2 million in 1998. Marketing costs for 2000, 1999 and 1998 amounted to $62.4 million, $59.7 million and $61.4 million, respectively. M. RESTRUCTURING AND ASSET WRITE-OFFS In the fourth quarter of 1999, the company completed an evaluation of remaining reserves established in 1997 for restructuring initiatives designed to streamline its manufacturing, sales, distribution and administration operations. The company determined that certain actions contemplated at the time of the original restructuring would not occur. Accordingly, the company recorded -48- one-time special credits to income of $61.8 million, reversing excess reserves remaining from 1997. Reserves of $17.8 million were set aside for this purpose, consisting of $12.2 million for severance, $4.1 million for other exit costs and $1.5 million for the write-down of impaired assets. As of December 30, 2000, reserve balances related to this initiative were $3.6 million for severance, and other exit costs, and $0.3 million for the write-down of impaired assets. In the fourth quarter of 1999, plans were approved for new restructuring initiatives designed to achieve productivity gains. These include the closing of eight facilities and the related relocation of production, reductions in administrative and sales force personnel, outsourcing of non-core activities and related asset impairments. These actions are expected to require severance benefits for approximately 1,900 people. The cost of these initiatives is expected to be $40.5 million, of which $31.7 million relates to severance and other exit costs and $8.8 million is for the write-down of impaired assets. As of December 30, 2000, reserve balances related to this initiative were $12.2 million for severance and other exit costs, and $3.0 million for the write-down of impaired assets. At December 30, 2000 and January 1, 2000, reserve balances for all restructuring were $19.1 million and $58.3 million, of which $3.3 million and $10.3 million relate to the write-down of impaired assets, respectively. As of December 30, 2000, 54 manufacturing and distribution facilities have been closed. In 2000, 1999 and 1998, approximately 908, 2,300 and 2,100 employees have been terminated as a result of restructuring initiatives, respectively. Severance payments of $29.1 million, $44.4 million and $26.1 million and other exit payments of $3.1 million, $17.0 million and $6.2 million were made in 2000, 1999 and 1998, respectively. Write-offs of impaired assets were $7.0 million, $13.2 million and $19.7 million in 2000, 1999 and 1998, respectively. In 2000, the company completed the restructuring initiatives announced in 1997 and 1999 and will be incurring certain run-off expenditures over the next two years. N. BUSINESS SEGMENT AND GEOGRAPHIC AREA Business Segment and Geographic Area information included on page 36 of this report is an integral part of the financial statements. O. INCOME TAXES Significant components of the company's deferred tax liabilities and assets as of the end of each fiscal year were as follows: (Millions of Dollars) 2000 1999 - ------------------------------------------------------------------------ Deferred tax liabilities: Depreciation $ 82.4 $ 70.6 Other 16.4 9.8 - ------------------------------------------------------------------------ Total deferred tax liabilities 98.8 80.4 - ------------------------------------------------------------------------ Deferred tax assets: Employee benefit plans 26.4 36.2 Doubtful accounts 16.1 15.7 Inventories 13.8 6.5 Amortization of intangibles 16.4 18.7 Accruals 13.9 13.6 Restructuring charges 20.7 30.3 Foreign and state operating loss carryforwards 16.1 15.2 Other 6.9 - - ------------------------------------------------------------------------ 130.3 136.2 Valuation allowance (16.1) (15.2) - ------------------------------------------------------------------------ Total deferred tax assets 114.2 121.0 - ------------------------------------------------------------------------ Net deferred tax assets $ 15.4 $ 40.6 ======================================================================== Valuation allowances reduced the deferred tax asset attributable to foreign and state loss carryforwards to the amount that, based upon all available evidence, is more likely than not to be realized. Reversal of the valuation allowance is contingent upon the recognition of future taxable income and capital gains in specific foreign countries and specific states, or changes in circumstances which cause the recognition of the benefits to become more likely than not. Income tax expense consisted of the following: (Millions of Dollars) 2000 1999 1998 - ------------------------------------------------------------------------ Current: Federal $ 40.1 $ 25.3 $ 55.5 Foreign 16.7 13.7 13.9 State 7.0 5.6 7.6 - ------------------------------------------------------------------------ Total current 63.8 44.6 77.0 - ------------------------------------------------------------------------ Deferred (benefit): Federal 34.7 32.1 (.9) Foreign (2.9) .8 1.4 State 3.7 3.3 .1 - ------------------------------------------------------------------------ Total deferred (benefit) 35.5 36.2 .6 - ------------------------------------------------------------------------ Total $ 99.3 $ 80.8 $ 77.6 ======================================================================== Income taxes paid during 2000, 1999 and 1998 were $59.7 million, $22.4 million and $71.0 million, respectively. -49- The reconciliation of federal income tax at the statutory federal rate to income tax at the effective rate was as follows: (Millions of Dollars) 2000 1999 1998 - ------------------------------------------------------------------------ Tax at statutory rate $102.8 $ 80.8 $ 75.4 State income taxes, net of federal benefits 6.7 5.8 5.0 Difference between foreign and federal income tax (7.0) (4.5) (.4) Other-net (3.2) (1.3) (2.4) - ------------------------------------------------------------------------ Income taxes $ 99.3 $ 80.8 $ 77.6 ======================================================================== The components of earnings before income taxes consisted of the following: (Millions of Dollars) 2000 1999 1998 - ------------------------------------------------------------------------ United States $267.5 $201.0 $148.6 Foreign 26.2 29.8 66.8 - ------------------------------------------------------------------------ Total pretax earnings $293.7 $230.8 $215.4 ======================================================================== Undistributed foreign earnings of $153.4 million at December 30, 2000 are considered to be invested indefinitely or will be remitted substantially free of additional tax. Accordingly, no provision has been made for taxes that might be payable upon remittance of such earnings, nor is it practicable to determine the amount of this liability. P. COMMITMENTS Future minimum lease payments under noncancelable operating leases, principally related to facilities, vehicles, machinery and equipment, in millions of dollars, as of December 30, 2000 were $20.7 in 2001, $15.1 in 2002, $22.1 in 2003, $19.3 in 2004, $3.7 in 2005 and $10.0 thereafter. Minimum payments have not been reduced by minimum sublease rentals of $6.9 million due in the future under noncancelable subleases. Rental expense for operating leases amounted to $46.3 million in 2000, $42.7 million in 1999, and $45.1 million in 1998. The company has entered into certain outsourcing arrangements, principally related to information systems, telecommunications and freight, which expire at various dates through 2009. The future estimated minimum payments under these commitments, in millions of dollars, as of December 30, 2000 were $27.1 in 2001, $26.7 in 2002, $21.2 in 2003, $19.9 in 2004, $18.7 in 2005 and $67.2 thereafter. Q. CONTINGENCIES In the normal course of business, the company is involved in various lawsuits and claims. In addition, the company is a party to a number of proceedings before federal and state regulatory agencies relating to environmental remediation. Also, the company, along with many other companies, has been named as a potentially responsible party (PRP) in a number of administrative proceedings for the remediation of various waste sites, including nine active Superfund sites. Current laws potentially impose joint and several liability upon each PRP. In assessing its potential liability at these sites, the company has considered the following: the solvency of the other PRPs, whether responsibility is being disputed, the terms of existing agreements, experience at similar sites, and the fact that the company's volumetric contribution at these sites is relatively small. The company's policy is to accrue environmental investigatory and remediation costs for identified sites when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. The amount of liability recorded is based on an evaluation of currently available facts with respect to each individual site and includes such factors as existing technology, presently enacted laws and regulations, and prior experience in remediation of contaminated sites. The liabilities recorded do not take into account any claims for recoveries from insurance or third parties. As assessments and remediation progress at individual sites, the amounts recorded are reviewed periodically and adjusted to reflect additional technical and legal information that becomes available. As of December 30, 2000, the company had reserves of $15.0 million, primarily for remediation activities associated with company-owned properties as well as for Superfund sites. The amount recorded for identified contingent liabilities is based on estimates. Amounts recorded are reviewed periodically and adjusted to reflect additional technical and legal information that becomes available. Actual costs to be incurred in future periods may vary from the estimates, given the inherent uncertainties in evaluating certain exposures. Subject to the imprecision in estimating future contingent liability costs, the company does not expect that any sum it may have to pay in connection with these matters in excess of the amounts recorded will have a materially adverse effect on its financial position, results of operations or liquidity -50-
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (Millions of Dollars, except per share amounts) QUARTER FIRST SECOND THIRD FOURTH YEAR 2000 - ------------------------------------------------------------------------------------------------------------------------------------ NET SALES $695.4 $702.8 $684.4 $666.3 $2,748.9 GROSS PROFIT 257.4 255.7 245.0 239.3 997.4 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 171.9 168.1 162.2 154.4 656.6 NET EARNINGS $ 48.2 $ 50.6 $ 48.7 $ 46.9 $ 194.4 NET EARNINGS PER SHARE: BASIC $ .54 $ .58 $ .56 $ .54 $ 2.22 DILUTED $ .54 $ .58 $ .56 $ .54 $ 2.22 ==================================================================================================================================== 1999 Net sales $ 683.7 $685.5 $692.0 $690.6 $2,751.8 Gross profit 232.3 230.4 245.1 230.1 937.9 Selling, general and administrative expenses 173.1 182.2 166.9 180.8 703.0 Restructuring and asset write-offs - - - (21.3) (21.3) Net earnings $ 30.3 $ 25.3 $ 50.3 $ 44.1 $ 150.0 Net earnings per share: Basic $ .34 $ .28 $ .56 $ .49 $ 1.67 Diluted $ .34 $ .28 $ .56 $ .49 $ 1.67 ====================================================================================================================================
Note:The third quarter of 1999 includes a gain realized upon the termination of a cross-currency financial instrument of $11.4 million, or $.08 per share. The fourth quarter of 1999 includes a mechanics tools' special charge of $20.1 million, or $.14 per share. -51- CORPORATE INFORMATION BOARD OF DIRECTORS [Director's Photo] John G. Breen 2, 4 Retired; former Chairman The Sherwin Williams Company [Director's Photo] Stillman B. Brown 1, 4, 5 Managing General Partner Harcott Associates Investments [Director's Photo] Mannie L. Jackson 2, 4 Chairman Harlem Globetrotters International, a division of MJA, Inc. [Director's Photo] Eileen S. Kraus 1, 2, 5 Retired; former Chairman, Connecticut Fleet National Bank [Director's Photo] John D. Opie 3, 5 Retired; former Vice Chairman of the Board and Executive Officer General Electric Company [Director's Photo] John M. Trani 1 Chairman and Chief Executive Officer [Director's Photo] Hugo E. Uyterhoeven 3, 5 Professor emeritus, Graduate School of Business Administration Harvard University [Director's Photo] Kathryn D. Wriston 1, 2, 3 Director of various organizations 1 Member of the Executive Committee 2 Member of the Audit Committee 3 Member of the Board Affairs Committee 4 Member of the Finance and Pension Committee 5 Member of the Compensation and Organization Committee Corporate Officers Bruce H. Beatt Vice President, General Counsel & Secretary (2000) William D. Hill Vice President, Engineering & Technology (1997) Kenneth O. Lewis Vice President, Marketing & Brand Development (1997) James M. Loree Vice President, Finance & Chief Financial Officer (1999) Mark J. Mathieu Vice President, Human Resources (1997) Donald R. McIlnay President, Consumer Sales Americas (1999) Ronald L. Newcomb Vice President, Operations (1999) Paul W. Russo Vice President, Strategy & Development (1995) John M. Trani Chairman & Chief Executive Officer (1997) [PHOTO OF OPENING BELL RINGING] On February 9, 2001 Stanley management rang the opening bell for trading and held an analyst meeting at the NYSE. Pictured left to right, Richard Grasso, NYSE Chairman, John Trani, Chairman & CEO, Gerry Gould, Vice President, Investor Relations and Jim Loree, Chief Financial Officer. -52- INVESTOR AND SHAREOWNER INFORMATION COMMON STOCK The Stanley Works common stock is listed on the New York and Pacific Stock Exchanges under the abbreviated ticker symbol "SWK"; and is a component of the S&P 500 Composite Stock Price Index. Common Stock (Dollars per Share)
Price Price Dividends Dividends 2000 1999 2000 1999 - ------------------------------------------------------------------------------------------------------------- High Low High Low First Quarter 30 1/8 22 1/4 28 3/4 23 1/4 $.22 $.215 Second Quarter 30 3/8 23 35 25 3/4 .22 .215 Third Quarter 28 7/16 22 1/4 32 5/16 24 3/16 .23 .22 Fourth Quarter 31 7/8 18 7/16 33 5/8 22 .23 .22 $.90 $.87 =============================================================================================================
DIVIDENDS The Stanley Works has an impressive and truly unique dividend record over the long haul: Our record of annual dividend payments is unmatched by any industrial company listed on the New York Stock Exchange--124 consecutive years. Our quarterly dividend record is the longest of any industrial company listed on the New York Stock Exchange--423 consecutive quarters. We have increased dividends in each of the past 33 years, and in that same period, an investment in Stanley stock grew at a compound annual rate of 13%. Increased dividends every year since 1968--[graph showing $.193 per share dividend in 1979 growing to $.90 per share dividend in 2000]. TRANSFER AGENT AND REGISTRAR All shareowner inquiries, including transfer-related matters, should be directed to: EquiServe Limited Partnership, Servicing Agent for State Street Bank and Trust Company, P.O. Box 8200, Boston, MA 02266-8200 - (800) 543-6757. http://www.equiserve.com CORPORATE OFFICES The company's principal corporate offices are located at: 1000 Stanley Drive, New Britain, CT 06053 (860) 225-5111 ANNUAL MEETING The annual meeting of The Stanley Works will be held at 9:30 a.m. CST on Wednesday, April 18, 2001, at the Renaissance Dallas Hotel, 2222 Stemmons Freeway, Dallas, Texas. A formal notice of the meeting together with a proxy statement has been mailed to shareowners with this annual report. INDEPENDENT AUDITORS Ernst & Young LLP, 225 Asylum Street, Hartford, Connecticut 06103. FINANCIAL & INVESTOR COMMUNICATIONS The Stanley Works investor relations department provides information to shareowners and the financial community. We encourage inquiries and will provide services which include: * Fulfilling requests for annual reports, proxy statements, Form 10-Q, Form 10-K, copies of press releases and other company information. * Meetings with securities analysts and fund managers. Contact The Stanley Works investor relations department at our corporate offices by calling Gerard J. Gould, Vice President, Investor Relations at (860) 827-3833. We make quarterly new releases available on-line on the Internet on the day that results are released to the news media. The Stanley Works releases and a variety of shareowner information can be found at the company's website://www.stanleyworks.com. Stanley shareowners are also able to call toll-free (800) 499-9202 to request a copy of the most recent quarterly release. DIVIDEND REINVESTMENT PLAN AND STOCK PURCHASE PROGRAM Shareowners may invest funds, have dividends automatically reinvested in Stanley common stock and/or make optional cash payments to increase their common stock investment. Inquiries regarding this service should be directed to: InvestLink(R) Program State Street Bank and Trust Company, P.O. Box 8200, Boston, MA 02266-8200 - (800) 543-6757. http://www.equiserve.com -53- EX-21 7 0007.txt SUBSIDIARIES OF REGISTRANT Page 1 of 4 Pages EXHIBIT 21 (All subsidiaries are included in the Consolidated Financial Statements of The Stanley Works) Jurisdiction of Incorporation/ Corporate Name Organization The Stanley Works Connecticut The Farmington River Power Company Connecticut Stanley Foreign Sales Corporation Virgin Islands Jensen Tools, Inc. Delaware Stanley-Bostitch Holding Corporation Delaware Stanley Logistics, Inc. Delaware Stanley Fastening Systems, L.P. Delaware Stanley Receivables Corporation Delaware Stanley Funding Corporation Delaware Stanley Manufacturing Company, L.L.C. Delaware The Stanley Works C.V. Netherlands Stanley Canada Inc. Ontario, Canada Stanley Tools (N.Z.) Ltd. New Zealand Ferramentas Stanley Ltda. Brazil Herramientas Stanley S.A. de C.V. Mexico Stanley-Bostitch, S.A. de C.V. Mexico Stanley Atlantic, Inc. Delaware Stanley Israel Investments, Inc. Delaware Stanley Israel Investments B.V. Netherlands T.S.W. Israel Investments Ltd. Israel ZAG Industries Ltd. (90%) Israel Page 2 of 4 Pages EXHIBIT 21 (All subsidiaries are included in the Consolidated Financial Statements of The Stanley Works) Jurisdiction of Incorporation/ Corporate Name Organization Stanley International Holdings, Inc. Delaware Stanley Pacific Inc. Delaware Stanley Svenska A.B. Sweden Stanley Works (Europe) A.G. Switzerland Stanley European Holdings, B.V. Netherlands Stanley Fastening Systems Poland Sp.zo.o. Poland Stanley Tools Poland Sp.zo.o. Poland Bostitch G.m.b.H. Germany Friess G.m.b.H. Germany Stanley Germany Sales G.m.b.H. Germany Stanley European Holdings, L.L.C. Delaware Stanley Europe B.V.B.A. Belgium S.A. Stanley Works Belgium B.V.B.A. Belgium Stanley Works (Nederland) B.V. Netherlands Stanley Doors France, S.A.S. France Stanley Tools France, S.A.S. France Stanley France, S.A.S. France Societe De Fabrications Bostitch S.A.S. (Simax) France Stanley France Services, S.A.S. France Page 3 of 4 Pages EXHIBIT 21 (All subsidiaries are included in the Consolidated Financial Statements of The Stanley Works) Jurisdiction of Incorporation/ Corporate Name Organization Stanley Iberia S.L. Spain Stanley Nordic ApS Denmark Stanley Suomen OY Finland Stanley Italia S.r.l. Italy FIPA DUE S.r.l. Italy Stanley Tools S.r.l. Italy Stanley U.K. Holding Limited U.K. Stanley U.K. Sales Ltd. U.K. The Stanley Works Ltd. U.K. Stanley U.K. Ltd. U.K. Stanley U.K. Services Ltd. U.K. The Stanley Works Pty. Ltd. Australia Stanley Works Asia Pacific Pte. Ltd. Singapore The Stanley Works Sales (Philippines), Inc. Philippines The Stanley Works (Bermuda) Ltd. Bermuda The Stanley Works Japan K.K. Japan Stanley Works (Thailand) Ltd. Thailand TONA a.s. (LTD) (86.67%) Czech Republic Stanley Works Malaysia Sdn. Bhd. Malaysia Stanley de Chihuahua, S. de R.L. de C.V. Mexico Page 4 of 4 Pages EXHIBIT 21 (All subsidiaries are included in the Consolidated Financial Statements of The Stanley Works) Jurisdiction of Incorporation/ Corporate Name Organization Stanley Works China Investments Ltd. (80%) Virgin Islands Stanley (Zhongshan) Hardware Co. Ltd.(65%) China Stanley Chiro International Ltd. Taiwan Beijing Daxing Stanley-Bostitch Metal Industries Company Limited (98%) China Stanley (Tianjin) International Trading Company, Ltd. China EX-24 8 0008.txt POWER OF ATTORNEY POWER OF ATTORNEY We, the undersigned officers and directors of The Stanley Works, a Connecticut corporation (the "Corporation"), hereby severally constitute Bruce H. Beatt, David S. Winakor, and Kathryn Partridge our true and lawful attorneys with full power of substitution, to sign for us and in our names in the capacities indicated below, the Annual Report on Form 10-K for the year ended December 30, 2000 of the Corporation filed herewith (the "Form 10-K"), and any and all amendments thereof, and generally to do all such things in our name and on our behalf in our capacities as officers and directors to enable the Corporation to comply with the annual filing requirements under the Securities Act of 1934, as amended, including, all requirements of the Securities and Exchange Commission, and all requirements of any other applicable law or regulation, hereby ratifying and confirming our signatures as they may be signed by our said attorneys, or any of them, to such Form 10-K and any and all amendments thereto. SIGNATURE TITLE DATE - --------- ----- ---- /s/ John M. Trani Chairman, January 25, 2001 - ---------------------- Chief John M. Trani Executive Officer and Director SIGNATURE TITLE DATE - --------- ----- ---- /s/ John G. Breen Director January 25, 2001 - ----------------------- John G. Breen /s/ Stillman B. Brown Director January 25, 2001 - ----------------------- Stillman B. Brown Director January 25, 2001 - ----------------------- Mannie L. Jackson Director January 25, 2001 - ----------------------- James G. Kaiser /s/ Eileen S. Kraus Director January 25, 2001 - ----------------------- Eileen S. Kraus /s/ John D. Opie Director January 25, 2001 - ----------------------- John D. Opie /s/ Hugo E. Uyterhoeven Director January 25, 2001 - ----------------------- Hugo E. Uyterhoeven /s/ Kathryn D. Wriston Director January 25, 2001 - ------------------------ Kathryn D. Wriston EX-99.(I) 9 0009.txt FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT AUDITORS FOR THE YEAR ENDED DECEMBER 31, 2000 OF THE STANLEY WORKS ACCOUNT VALUE PLAN AUDITED FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES THE STANLEY ACCOUNT VALUE PLAN Years ended December 31, 2000 and 1999 The Stanley Account Value Plan Audited Financial Statements and Supplemental Schedules Years ended December 31, 2000 and 1999 CONTENTS
Report of Independent Auditors...................................................................................1 Audited Financial Statements Statement of Financial Condition at December 31, 2000............................................................2 Statement of Financial Condition at December 31, 1999............................................................3 Statement of Income and Changes in Plan Equity for the Year Ended December 31, 2000............................................................................................4 Statement of Income and Changes in Plan Equity for the Year Ended December 31, 1999............................................................................................5 Notes to Financial Statements....................................................................................6 Supplemental Schedules Schedule H, Line 4(i)--Schedule of Assets Held for Investment Purposes At End of Year...........................12 Schedule H, Line (j)--Schedule of Reportable Transactions.......................................................13
Report of Independent Auditors Pension Committee of The Board of Directors The Stanley Works We have audited the accompanying statements of financial condition of The Stanley Account Value Plan as of December 31, 2000 and 1999, and the related statements of income and changes in plan equity for the years then ended. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial condition of the Plan at December 31, 2000 and 1999, and its income and changes in plan equity for the years then ended in conformity with accounting principles generally accepted in the United States. Our audits were performed for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying supplemental schedules of assets held for investment purposes at end of year as of December 31, 2000, and reportable transactions for the year then ended, are presented for purposes of additional analysis and are not a required part of the financial statements but are supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. These supplemental schedules are the responsibility of the Plan's management. The supplemental schedules have been subjected to the auditing procedures applied in our audits of the financial statements and, in our opinion, are fairly stated in all material respects in relation to the financial statements taken as a whole. Ernst & Young LLP Hartford, Connecticut March 14, 2001 1 The Stanley Account Value Plan Statement of Financial Condition December 31, 2000
STANLEY STOCK CORNERSTONE FUND FUND LOAN FUND ------------------ ----------------- ------------------ ASSETS Investments, at current market value: The Stanley Works Common Stock: 68,402 shares (cost $1,096,439) $ 2,133,322 7,236,426 shares (cost $151,677,907) $ 225,689,654 8,129,686 shares (cost $141,026,106) Short-term investments 1,831,359 1,863,331 Mutual Funds 18,607,094 ------------------ ------------------ 227,521,013 22,603,747 Cash 1,224,843 $ 82,780 Contributions receivable 13,557,664 Dividends and interest receivable 7,888 540,184 Debt issuance costs, net of accumulated amortization of $235,948 Loans to participants 8,000,490 ------------------ ----------------- ------------------ $ 228,753,744 $ 8,083,270 $ 36,701,595 ================== ================= ================== LIABILITIES AND PLAN EQUITY Liabilities: Debt Accounts payable $ 506,635 ------------------ 506,635 Plan equity $ 228,753,744 $ 8,083,270 $ 36,194,960 ------------------ ----------------- ------------------ $ 228,753,744 $ 8,083,270 $ 36,701,595 ================== ================= ================== See accompanying notes. UNALLOCATED STANLEY STOCK FUND MUTUAL FUNDS TOTAL - ------------------ ------------------ ------------------- $ 2,133,322 225,689,654 $ 253,548,287 253,548,287 5,490 $ 9,740 3,709,920 17,018,314 35,625,408 - ------------------ ------------------ ------------------- 253,553,777 17,028,054 520,706,591 1,307,623 13,557,664 1,079 30,872 580,023 2,595,430 2,595,430 8,000,490 - ------------------ ------------------ ------------------- $ 256,150,286 $ 17,058,926 $ 546,747,821 ================== ================== =================== $ 194,836,244 $ 194,836,244 $ 102,563 609,198 - ------------------ ------------------ ------------------- 194,836,244 102,563 195,445,442 61,314,042 16,956,363 351,302,379 - ------------------ ------------------ ------------------- $ 256,150,286 $ 17,058,926 $ 546,747,821 ================== ================== ===================
2 The Stanley Account Value Plan Statement of Financial Condition December 31, 1999
UNALLOCATED STANLEY STOCK STANLEY STOCK FUND LOAN FUND CORNERSTONE FUND FUND ------------------ ----------------- ------------------ ------------------ ASSETS Investments, at current market value: The Stanley Works Common Stock: 115,279 shares (cost $1,522,548) $ 3,472,780 7,792,914 shares (cost $155,425,879) $ 234,761,535 8,646,238 shares (cost $149,295,384) $ 260,467,920 Short-term investments 3,290,939 835,157 4,815 Mutual Funds 8,999,619 ------------------ ------------------ ------------------ 238,052,474 13,307,556 260,472,735 Cash 998,363 $ 161,756 Contributions receivable 12,778,512 Dividends and interest receivable 6,881 7,588 13 Debt issuance costs, net of accumulated amortization of $141,569 2,039,809 Loans to participants 9,569,989 ------------------ ----------------- ------------------ ------------------ $ 239,057,718 $ 9,731,745 $ 26,093,656 $ 263,162,557 ================== ================= ================== ================== LIABILITIES AND PLAN EQUITY Liabilities: Debt $ 202,236,608 Accounts payable ------------------ 202,236,608 Plan equity $ 239,057,718 $ 9,731,745 $ 26,093,656 60,925,949 ------------------ ----------------- ------------------ ------------------ $ 239,057,718 $ 9,731,745 $ 26,093,656 $ 263,162,557 ================== ================= ================== ================== See accompanying notes. MUTUAL FUNDS TOTAL - ------------------ ------------------- $ 3,472,780 234,761,535 260,467,920 $ 137 4,131,048 11,219,928 20,219,547 - ------------------ ------------------- 11,220,065 523,052,830 1,160,119 12,778,512 1,083 15,565 2,689,809 9,569,989 - ------------------ ------------------- $ 11,221,148 $ 549,266,824 ================== =================== $ 202,236,608 $ 2,248 2,248 - ------------------ ------------------- 2,248 202,238,856 11,218,900 347,027,968 - ------------------ ------------------- $ 11,221,148 $ 549,266,824 ================== ===================
3 The Stanley Account Value Plan Statement of Income and Changes in Plan Equity Year ended December 31, 2000
UNALLOCATED STANLEY STOCK STANLEY STOCK FUND LOAN FUND CORNERSTONE FUND FUND ------------------ ----------------- ------------------ ------------------ Investment income: Dividends $ 5,040,212 $ 1,711,552 $ 7,536,145 Interest 102,864 $ 28,889 75,391 1,742 ------------------ ----------------- ------------------ ------------------ 5,143,076 28,889 1,786,943 7,537,887 Net realized and unrealized appreciation (depreciation) 4,896,909 (3,262,247) 1,350,045 Employee contributions 9,124,783 Employer contribution 4,633,497 20,724,584 Withdrawals (42,538,567) Administrative expenses (248,437) (74) (93,964) Amortization expense (94,379) Interest expense (12,103,340) Interfund transfers - net 8,684,765 (1,677,290) (9,054,012) 3,697,880 ------------------ ----------------- ------------------ ------------------ Net increase (decrease) (10,303,974) (1,648,475) 10,101,304 388,093 Plan equity at beginning of year 239,057,718 9,731,745 26,093,656 60,925,949 ------------------ ----------------- ------------------ ------------------ Plan equity at end of year $ 228,753,744 $ 8,083,270 $ 36,194,960 $ 61,314,042 ================== ================= ================== ================== See accompanying notes. MUTUAL FUNDS TOTAL - ------------------ ------------------- $ 197,942 $ 14,485,851 302,106 510,992 - ------------------ ------------------- 500,048 14,996,843 (1,482,965) 1,501,742 8,424,265 17,549,048 25,358,081 (42,538,567) (52,542) (395,017) (94,379) (12,103,340) (1,651,343) - - ------------------ ------------------- 5,737,463 4,274,411 11,218,900 347,027,968 - ------------------ ------------------- $ 16,956,363 $ 351,302,379 ================== ===================
4 The Stanley Account Value Plan Statement of Income and Changes in Plan Equity Year ended December 31, 1999
UNALLOCATED STANLEY STOCK STANLEY STOCK FUND LOAN FUND CORNERSTONE FUND FUND ------------------ ----------------- ------------------ ------------------ Investment income: Dividends $ 6,969,975 $ 343,615 $ 7,467,322 Interest 162,473 $ 1,069,054 20,638 3,309 ------------------ ----------------- ------------------ ------------------ 7,132,448 1,069,054 364,253 7,470,631 Net realized and unrealized appreciation 12,201,319 5,997,054 14,427,856 Employee contributions 14,726,094 Employer contribution 7,626,379 11,814,036 Withdrawals (33,614,516) (2,085,052) Administrative expenses (368,689) (196,041) Amortization expense (94,379) Interest expense (12,671,027) Interfund transfers - net (3,253,377) (3,900,117) 699,406 5,238,187 ------------------ ----------------- ------------------ ------------------ Net increase (decrease) 4,449,658 (2,831,063) 16,593,656 14,371,268 Plan equity at beginning of year 234,608,060 12,562,808 9,500,000 46,554,681 ------------------ ----------------- ------------------ ------------------ Plan equity at end of year $ 239,057,718 $ 9,731,745 $ 26,093,656 $ 60,925,949 ================== ================= ================== ================== See accompanying notes. MUTUAL FUNDS TOTAL - ------------------ ------------------- $ 112,053 $ 14,892,965 357 1,255,831 - ------------------ ------------------- 112,410 16,148,796 1,495,767 34,121,996 5,873,932 20,600,026 19,440,415 (1,173,455) (36,873,023) (26,772) (591,502) (94,379) (12,671,027) 1,215,901 - - ------------------ ------------------- 7,497,783 40,081,302 3,721,117 306,946,666 - ------------------ ------------------- $ 11,218,900 $ 347,027,968 ================== ===================
5 The Stanley Account Value Plan Notes to Financial Statements December 31, 2000 1. DESCRIPTION OF THE PLAN The Stanley Account Value Plan (the "Plan"), which operates as a leveraged employee stock ownership plan, is designed to comply with the Internal Revenue Code of 1986, as amended, and is subject to the applicable provisions of the Employee Retirement Income Security Act of 1974, as amended. The Plan is a defined contribution plan for eligible United States salaried and hourly paid employees of The Stanley Works (the "Company"). Each year, participants may contribute, through pre-tax payroll deductions up to 15% of their compensation, as defined in the Plan Agreement. Such contributions are matched by the Company in an amount equal to 50% of the participant's contribution up to a maximum matching contribution of 3 1/2% of the participant's compensation. Prior to 1998, participant and Company contributions were invested in the Stanley Stock Fund. In 1998, the investment options for plan participant contributions were enhanced to include four investment funds in addition to the Company's common stock. Participants may invest in one fund, divide the account value among the funds or choose one of three pre-mixed blended investment options. Participant and Company contributions, prior to July 1, 1998, invested in the Stanley Stock Fund are guaranteed, if necessary, by the Retirement Plan for Salaried Employees of The Stanley Works or by the Pension Plan for Hourly Paid Employees of The Stanley Works, providing that the investment return on such stock acquired with employee contributions will not be less than an investment return based on two-year U.S. Treasury notes. For employee contributions and related Company match, the following investment funds are offered: STANLEY STOCK FUND--Consists of common stock of The Stanley Works. This stock is traded on the New York and Pacific Stock Exchanges under the symbol SWK. MUTUAL FUNDS BT PYRAMID EQUITY INDEX FUND--Seeks long-term growth, subject to the short-term fluctuations characteristic of the stock market. The fund invests in most of the Standard & Poors 500 (S&P 500), as well as other investments whose value is based on S&P 500 stocks. INVESCO RETIREMENT TRUST STABLE VALUE FUND--Seeks liquidity and safety of principal, while providing a higher return than is typically offered by money market funds. The fund invests in a diversified portfolio of investment contracts with insurance companies, banks and other financial institutions. 6 The Stanley Account Value Plan Notes to Financial Statements (continued) 1. DESCRIPTION OF THE PLAN (CONTINUED) AMERICAN FUNDS EUROPACIFIC GROWTH FUND--Seeks long-term growth, subject to the risks involved in investing outside of the United States, such as currency fluctuations, political instability, differing securities regulations and periods of liquidity. FIDELITY MANAGEMENT TRUST COMPANY SELECT SMALL CAP FUND--Seeks long-term growth, subject to the short-term fluctuations characteristic of the small stock market. The fund invests in securities of small capitalization companies in various industries. CORNERSTONE FUND In 1998, the Plan was amended to provide an additional non-contributory benefit for U.S. salaried and non-union hourly employees ("Cornerstone Fund"). Under this benefit arrangement, the Company contributes amounts ranging from 3% to 9% of employee compensation based on age. Assets of this benefit feature are invested in Stanley stock, mutual funds and other short-term investments. Employees are fully vested as to amounts in their savings accounts attributable to their own contributions and earnings thereon and amounts transferred from the other qualified plans on their behalf. All participants are vested in 100% of the value of the Company matching contributions made on their behalf after five years of service, with no vesting in the matching contributions during the first through fifth years of service. Benefits generally are distributed upon termination of employment. Normally, a lump-sum distribution is made in cash or shares of the Company's Common Stock (hereinafter referred to as Common Stock, Stanley Stock, or shares), at the election of the participant, from the Stanley Stock Fund. During active employment, subject to financial hardship rules, participants may withdraw, in cash only, all or a portion of vested amounts in their accounts. 7 The Stanley Account Value Plan Notes to Financial Statements (continued) 1. DESCRIPTION OF THE PLAN (CONTINUED) LOAN FUND Participants may borrow from their savings account up to an aggregate amount equal to the lesser of $50,000 or 50% of the value of their vested interest in such accounts with a minimum loan of $1,000. The $50,000 loan amount limitation is reduced by the participant's highest outstanding loan balance during the 12 months preceding the date the loan is made. Each loan is evidenced by a negotiable promissory note bearing a rate of interest equal to the prime rate as reported in The Wall Street Journal on the first business day of the month in which the loan request is processed, which is payable, through payroll deductions, over a term of not more than five years. Participants are allowed ten years to repay the loan if the proceeds are used to purchase a principal residence. Only one loan per participant may be outstanding at any time. If a loan is outstanding at the time a distribution becomes payable to a participant (or beneficiary), the distribution is made net of the loan outstanding, and the distribution shall fully discharge the Plan with respect to the participant's account value attributable to the outstanding loan balance. UNALLOCATED STANLEY STOCK FUND The Plan borrowed $95,000,000 in 1989 from a group of financial institutions and $180,000,000 in 1991 from the Company (see Notes 3 and 4) to acquire 5,868,088 and 9,696,968 shares, respectively, of Common Stock from the Company's treasury and previously unissued shares. The shares purchased from the proceeds of the loans were placed in the Unallocated Stanley Stock Fund (the "Unallocated Fund"). Under the 1989 loan agreement, the Company guaranteed the loan and is obligated to make annual contributions sufficient to enable the Plan to repay the loan plus interest. The Unallocated Fund makes monthly transfers of shares, in accordance with the Plan provisions, to the Stanley Stock Fund in return for proceeds equivalent to the average fair market value of the shares for the month subsequent to the last transfer. These proceeds, along with dividends received on allocated and unallocated shares and additional employee and Company contributions, if necessary, are used to make monthly payments of principal and interest on the debt. If dividends on the allocated shares are applied to the payment of debt service, a number of shares having a fair market value at least equal to the amount of the dividends so applied are allocated to the savings accounts of participants who would otherwise have received cash dividends. The excess of unallocated dividends over the amount necessary for principal and interest along with forfeitures of nonvested employee accounts are used to reduce future Company matching contributions. 8 The Stanley Account Value Plan Notes to Financial Statements (continued) 1. DESCRIPTION OF THE PLAN (CONTINUED) The fair market value of shares released from the Unallocated Fund pursuant to loan repayments made during any year may exceed the total of employee contributions and Company matching contributions for that year. If that occurs, all participants who made contributions at any time during that year and who are employed by the Company on the last day of that year receive, on a pro rata basis, such excess value as an additional allocation of Stanley Stock for that year. Each participant is entitled to exercise voting rights attributable to the shares allocated to their account. The Trustee is not permitted to vote participant shares for which instructions have not been given by the participant. Shares in the Unallocated Fund are voted by the Trustee in the same proportion as allocated shares. The Company reserves the right to terminate the Plan at any time, subject to its provisions. Upon such termination of the Plan, the interest of each participant in the trust fund will become vested and be distributed to such participant or his or her beneficiary at the time prescribed by the Savings Plan terms and the Internal Revenue Code. The Plan sponsor has engaged Hewitt Associates, to maintain separate accounts for each participant. Such accounts are credited with each participant's contributions, the allocated portion of the Company's matching contributions, related gains, losses and dividend income, and loan activity. At December 31, 2000 and 1999, benefits payable to terminated vested participants amounted to $1,201,101 and $236,282, respectively. 2. SIGNIFICANT ACCOUNTING POLICIES INVESTMENTS The Plan investments consist primarily of shares of Stanley Stock. Stanley Stock is traded on a national exchange and is valued at the last reported sales price on the last business day of the plan year. Mutual funds are stated at fair value which equals the quoted market price on the last business day of the plan year. Short-term investments consist of short-term bank-administered trust funds which earn interest daily at rates approximating U.S. Government securities; cost approximates market value. The assets of the Plan are held in trust by an independent corporate trustee, Citibank, N. A. (the "Trustee") pursuant to the terms of a written Trust Agreement between the Trustee and the Company. 9 The Stanley Account Value Plan Notes to Financial Statements (continued) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) DIVIDEND INCOME Dividend income is accrued on the ex-dividend date. GAINS OR LOSSES ON SALES OF INVESTMENTS Gains or losses realized on the sales of investments are determined based on average cost. EXPENSES Administrative expenses not paid by the Company are paid by the Plan. RECLASSIFICATIONS Certain 1999 amounts have been reclassified to conform to the current year presentation. 3. DEBT Debt consisted of the following at December 31:
2000 1999 -------------------- -------------------- Notes payable in monthly installments to 2009 with interest at 6.07% $ 27,910,763 $ 33,610,763 Notes payable to the Company in monthly installments to 2028 with interest at 6.09% 166,925,481 168,625,845 -------------------- -------------------- $ 194,836,244 $ 202,236,608 ==================== ====================
During 1998, notes payable to financial institutions were refinanced, resulting in a reduction in the interest rate, extension of the maturity and a prepayment penalty of $2,831,378, which is being amortized over the remaining term of the debt. Concurrently, notes payable to the Company were restructured, resulting in a reduction in the interest rate and extension of the maturity. Additionally, the Plan borrowed funds from the Company to pay the prepayment penalty. The scheduled maturities of debt for the next five years are as follows: 2001--$7,100,000; 2002--$6,900,000; 2003--$7,000,000; 2004--$6,900,000 and 2005--$7,150,999. 10 The Stanley Account Value Plan Notes to Financial Statements (continued) 3. DEBT (CONTINUED) The notes payable to the Company are secured by shares held in the Unallocated Stock Fund. The number of shares held as security is reduced as shares are released to Stanley Stock Fund pursuant to principal and interest payments. During the year, 259,096 shares were released and at December 31, 2000, 7,377,800 shares are pledged as security. Payment of the Plan's debt has been guaranteed by the Company. Should the principal and interest due exceed the dividends paid on shares in the Stanley Stock and Unallocated Stock Funds, and employee and Company matching contributions, the Company is responsible for funding such shortfall. 4. TRANSACTIONS WITH PARTIES-IN-INTEREST Fees paid during 2000 and 1999 for management and other services rendered by parties-in-interest were based on customary and reasonable rates for such services. The majority of such fees were paid by the Plan. Fees incurred and paid by the Plan during 2000 and 1999 were $395,017 and $591,502, respectively. In 1991, the Plan borrowed $180,000,000 from the Company, the proceeds of which were used to purchase 9,696,968 shares of stock for the Plan. In 1998, the Plan borrowed $2.8 million from the Company, the proceeds of which were used to pay a prepayment penalty incurred in connection with debt refinancing. The Plan made $11,921,749 and $15,433,595 of principal and interest payments related to such debt in 2000 and 1999, respectively. At December 31, 2000, $166,925,481 was outstanding on such debt. 5. INCOME TAX STATUS The Internal Revenue Service has ruled that the Plan and the trust qualify under Sections 401(a) and 401(k) of the Internal Revenue Code (IRC) and are therefore not subject to tax under present income tax law. Once qualified, the Plan is required to operate in accordance with the IRC to maintain its qualification. The Pension Committee is not aware of any course of action or series of events that have occurred that might adversely affect the Plan's qualified status. 11 The Stanley Account Value Plan Schedule H, Line 4(i)--Schedule of Assets Held for Investment Purposes At End of Year EIN-06-0548860 December 31, 2000
DESCRIPTION OF INVESTMENT, INCLUDING IDENTITY OF ISSUE, BORROWER, OR MATURITY DATE, RATE OF INTEREST, PAR SIMILAR PARTY OR MATURITY VALUE COST CURRENT VALUE - ---------------------------------------------------------------------------------------------------------------------- Common Stock: The Stanley Works* 15,434,514 shares of Common Stock; par value $2.50 per share $ 293,800,452 $ 481,371,263 Citibank, N.A.* Short-Term Investment Fund- Pooled Bank Fund 3,709,920 3,709,920 Mutual Funds: BT S&P Index Fund Pyramid Equity Index Fund 7,401,189 7,362,997 Invesco Retirement Trust Stable Value Fund Invesco Retirement Trust 3,870,121 3,870,121 American Funds Euro Pacific Growth Fund Euro Pacific Growth Fund 3,170,484 2,785,062 Fidelity Management Trust Company Select Small Cap Fund Fidelity Select Small Capitalization Pool 2,764,665 3,000,134 BT Pyramid Russell 3000 Fund Russell 300 Fund 13,231,125 13,023,458 BT Pyramid Broad Market Fixed Income Fund Fixed Income Fund 4,972,843 5,583,636 Loans to participants Promissory notes at prime rate with maturities of five years or ten years 8,000,490 8,000,490 ---------------------------------------- Total investments $ 340,921,289 $ 528,707,081 ========================================
*Indicates party-in-interest to the Plan. 12 The Stanley Account Value Plan Schedule H, 4(j)--Schedule of Reportable Transactions EIN 06-0548860 Year ended December 31, 2000
CURRENT VALUE OF ASSET ON IDENTITY OF PARTY PURCHASE DESCRIPTION OF TRANSACTION NET GAIN INVOLVED ASSETS SELLING PRICE COST OF ASSET DATE (LOSS) - --------------------------------------------------------------------------------------------------------------------- Category (iii) - Series of transactions in excess of 5 percent of plan assets Citibank, N.A.* Short-Term Investment Fund- United States Government Securities $ 29,575,941 $ 29,575,941 Citibank, N.A.* Short-Term Investment Fund- United States Government Securities $ 28,548,338 28,548,338 28,548,338 There were no category (i), (ii) or (iv) reportable transactions during 2000. * Indicates party-in-interest to the Plan. 13
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