EX-99.1 3 exhibit2.htm EX-99.1 EX-99.1

THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, Millions of Dollars Except Per Share Amounts)

                                 
    Fourth Quarter   Year to Date
    2004   2003   2004   2003
NET SALES
   $ 802.9     $ 688.3     $ 3,043.4     $ 2,530.6  
COSTS AND EXPENSES
                                
Cost of sales
     509.4       466.4       1,931.1       1,673.0  
Selling, general and administrative
     183.1       151.8       694.3       615.5  
Interest-net
     9.8       6.7       34.4       27.9  
Other-net
     19.8       26.2       54.5       91.6  
 
     722.1       651.1       2,714.3       2,408.0  
 
                                
EARNINGS FROM CONTINUING OPERATIONS
                                
BEFORE INCOME TAXES
     80.8       37.2       329.1       122.6  
Income taxes
     15.6       8.3       88.9       31.7  
 
                                
NET EARNINGS FROM CONTINUING OPERATIONS
   $ 65.2     $ 28.9     $ 240.2     $ 90.9  
 
                                
Earnings from discontinued operations (including gain
                                
on disposals of $38.5 million on the quarter and of $180.7 million year to date)
     40.6       9.4       195.9       28.2  
Income taxes on discontinued operations
     17.7       3.7       69.2       11.2  
 
                                
NET EARNINGS FROM DISCONTINUED OPERATIONS
     22.9       5.7       126.7       17.0  
NET EARNINGS
   $ 88.1     $ 34.6     $ 366.9     $ 107.9  
 
                                
BASIC EARNINGS PER SHARE OF COMMON STOCK
                                
Continuing operations
   $ 0.79     $ 0.35     $ 2.93     $ 1.08  
Discontinued operations
     0.28       0.07       1.54       0.20  
 
                                
Total basic earnings per share of common stock
   $ 1.07     $ 0.42     $ 4.47     $ 1.28  
 
                                
DILUTED EARNINGS PER SHARE OF COMMON STOCK
                                
Continuing operations
   $ 0.77     $ 0.35     $ 2.85     $ 1.07  
Discontinued operations
     0.27       0.07       1.50       0.20  
 
                                
Total diluted earnings per share of common stock
   $ 1.04     $ 0.42     $ 4.36     $ 1.27  
 
                                
DIVIDENDS PER SHARE
   $ 0.28     $ 0.26     $ 1.08     $ 0.99  
 
                                
AVERAGE SHARES OUTSTANDING (in thousands)
                                
Basic
     82,487       81,514       82,058       84,143  
 
                                
Diluted
     85,020       82,572       84,244       84,839  
 
                                

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THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, Millions of Dollars)

                 
    January 1, 2005   January 3, 2004
ASSETS
                
Cash and cash equivalents
   $ 250.0     $ 204.4  
Accounts receivable
     595.8       462.8  
Inventories
     414.3       361.6  
Other current assets
     102.4       97.0  
Assets held for sale
     1.4       110.3  
 
                
Total current assets
     1,363.9       1,236.1  
 
                
Property, plant and equipment
     398.9       392.5  
Goodwill and other intangibles
     924.8       629.2  
Other assets
     184.8       166.0  
 
                
Total assets
   $ 2,872.4     $ 2,423.8  
 
                
LIABILITIES AND SHAREOWNERS’ EQUITY
                
Short-term borrowings
   $ 102.5     $ 157.7  
Accounts payable
     301.2       222.2  
Accrued expenses
     436.0       314.3  
Liabilities held for sale
     —       62.5  
 
                
Total current liabilities
     839.7       756.7  
 
                
Long-term debt
     481.8       534.5  
Other long-term liabilities
     340.1       274.0  
Shareowners’ equity
     1,210.8       858.6  
 
                
Total liabilities and shareowners’ equity
   $ 2,872.4     $ 2,423.8  
 
                

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THE STANLEY WORKS AND SUBSIDIARIES
SUMMARY OF CASH FLOW ACTIVITY
(Unaudited, Millions of Dollars)

                                 
    Fourth Quarter   Year to Date
    2004   2003   2004   2003
OPERATING ACTIVITIES
                                
Net earnings
   $ 88.1     $ 34.6     $ 366.9     $ 107.9  
Depreciation and amortization
     24.7       21.0       95.0       86.5  
Reclassify net proceeds from sale of businesses to
                                
investing activities
     (75.4 )     —       (204.9 )     —  
Changes in working capital and other
     91.0       142.1       114.5       269.9  
 
                                
Net cash provided by operating activities
     128.4       197.7       371.5       464.3  
INVESTING AND FINANCING ACTIVITIES
                                
Capital and software expenditures
     (18.4 )     (11.7 )     (54.8 )     (39.4 )
Proceeds (taxes paid) from sale of businesses
     75.4       —       204.9       —  
Business acquisitions
     (43.2 )     (1.4 )     (301.2 )     (22.3 )
Cash dividends on common stock
     (22.8 )     (21.1 )     (89.4 )     (86.1 )
Other
     (125.7 )     (128.7 )     (85.4 )     (233.8 )
 
                                
Net cash used in investing and financing activities
     (134.7 )     (162.9 )     (325.9 )     (381.6 )
Increase(Decrease) in Cash and Cash Equivalents
     (6.3 )     34.8       45.6       82.7  
Cash and Cash Equivalents, Beginning of Period
     256.3       169.6       204.4       121.7  
 
                                
Cash and Cash Equivalents, End of Period
   $ 250.0     $ 204.4     $ 250.0     $ 204.4  
 
                                
Free Cash Flow Computation
                                
Operating Cash Flow
   $ 128.4     $ 197.7     $ 371.5     $ 464.3  
Less: capital and software expenditures
     (18.4 )     (11.7 )     (54.8 )     (39.4 )
 
                                
Free Cash Flow from Operations (before dividends)
   $ 110.0     $ 186.0     $ 316.7     $ 424.9  
 
                                

Free cash flow is defined as cash flow from operations less capital expenditures; the company believes this is an important measure of its liquidity, as well as its ability to fund future growth and to provide a return to the shareowners.

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THE STANLEY WORKS AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(Unaudited, Millions of Dollars)

                                 
    Fourth Quarter   Year to Date
    2004   2003   2004   2003
BUSINESS SEGMENTS
                                
Net Sales
                                
Consumer products
   $ 296.2     $ 275.5     $ 1,073.1     $ 958.2  
Industrial tools
     331.7       285.7       1,292.5       1,098.3  
Security solutions
     175.0       127.1       677.8       474.1  
 
                                
Consolidated
   $ 802.9     $ 688.3     $ 3,043.4     $ 2,530.6  
 
                                
Operating Profit
                                
Consumer products
   $ 49.4     $ 47.3     $ 175.4     $ 149.4  
Industrial tools
     34.1       5.4       131.9       17.0  
Security solutions
     26.9       17.4       110.7       75.7  
 
                                
Consolidated
   $ 110.4     $ 70.1     $ 418.0     $ 242.1  
 
                                

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THE STANLEY WORKS AND SUBSIDIARIES
Consolidated Statements of Operations and Business Segment Information
Reconciliation to GAAP Earnings
Fourth Quarter 2003
(Unaudited, Millions of Dollars Except Per Share Amounts)

                         
    2003
 
             (a)          
 
   Pro-forma Excludes Charges
  Charges   Reported
 
                        
Net sales
   $ 688.3     $ —     $ 688.3  
Cost of sales
     453.8       12.6       466.4  
 
                        
Gross Margin
     234.5       (12.6 )     221.9  
 
     34.1 %             32.2 %
Selling, general & administrative
     144.8       7.0       151.8  
 
                        
 
     21.0 %             22.1 %
Subtotal
     89.7       (19.6 )     70.1  
 
     13.0 %             10.2 %
Interest, net
     6.7       —       6.7  
Other, net
     8.5       17.7       26.2  
Earnings from continuing operations before income taxes
     74.5       (37.3 )     37.2  
Income taxes
     20.2       (11.9 )     8.3  
 
                        
 
     27.1 %             22.3 %
Net earnings from continuing operations
   $ 54.3     $ (25.4 )   $ 28.9  
Earnings from discontinued operations
     9.4       —       9.4  
Income taxes on discontinued operations
     3.7       —       3.7  
 
                        
Net earnings
   $ 60.0     $ (25.4 )   $ 34.6  
 
                        
Average shares outstanding (diluted, in thousands)
     82,572       82,572       82,572  
Earnings per share (diluted)
   $ 0.73     $ (0.31 )   $ 0.42  
 
                        
BUSINESS SEGMENTS
                        
Net sales
                        
Consumer products
   $ 275.5     $ —     $ 275.5  
Industrial tools
     285.7       —       285.7  
Security solutions
     127.1       —       127.1  
 
                        
Consolidated
   $ 688.3     $ —     $ 688.3  
 
                        
Operating profit (loss)
                        
Consumer products
   $ 47.4     $ (0.1 )   $ 47.3  
Industrial tools
     24.8       (19.4 )     5.4  
Security Solutions
     17.5       (0.1 )     17.4  
 
                        
Consolidated
   $ 89.7     $ (19.6 )   $ 70.1  
 
                        
Interest, net
     6.7       —       6.7  
Other, net
     8.5       17.7       26.2  
Earnings from continuing operations before income taxes
   $ 74.5     $ (37.3 )   $ 37.2  
 
                        

(a) Includes $37.3 million of pre-tax Operation 15 restructuring costs, asset impairment charges and other exit costs. Aggregate restructuring charges of $17.4 million include the following: $11.5 million attributable to asset impairments, $3.1 million in severance and related benefits for headcount reductions pertaining to Operation 15 initiatives, and $2.5 million other. Cost of sales reflects a $12.6 million inventory charge associated with the planned closure of a U. S. distribution facility. Costs of $7.0 million and $0.6 million related to the Mac Direct retail channel exit and other Operation 15 costs are classified in SG&A and Other, net, respectively.

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THE STANLEY WORKS AND SUBSIDIARIES
Consolidated Statements of Operations and Business Segment Information
Reconciliation to GAAP Earnings
Year 2003
(Unaudited, Millions of Dollars Except Per Share Amounts)

                         
    2003
 
             (a)          
 
   Pro-forma Excludes Charges
  Charges   Reported
 
                        
Net sales
   $ 2,530.6     $ —     $ 2,530.6  
Cost of sales
     1,653.4       19.6       1,673.0  
 
                        
Gross Margin
     877.2       (19.6 )     857.6  
 
     34.7 %             33.9 %
Selling, general & administrative
     578.3       37.2       615.5  
 
                        
 
     22.9 %             24.3 %
Subtotal
     298.9       (56.8 )     242.1  
 
     11.8 %             9.6 %
Interest, net
     27.9       —       27.9  
Other, net
     29.9       61.7       91.6  
Earnings from continuing operations before income taxes
     241.1       (118.5 )     122.6  
Income taxes
     69.6       (37.9 )     31.7  
 
                        
 
     28.9 %             25.9 %
Net earnings from continuing operations
   $ 171.5     $ (80.6 )   $ 90.9  
Earnings from discontinued operations
     28.2       —       28.2  
Income taxes on discontinued operations
     11.2       —       11.2  
 
                        
Net earnings
   $ 188.5     $ (80.6 )   $ 107.9  
 
                        
Average shares outstanding (diluted, in thousands)
     84,839       84,839       84,839  
Earnings per share (diluted)
   $ 2.22     $ (0.95 )   $ 1.27  
 
                        
BUSINESS SEGMENTS
                        
Net sales
                        
Consumer products
   $ 958.2     $ —     $ 958.2  
Industrial tools
     1,098.3       —       1,098.3  
Security solutions
     474.1       —       474.1  
 
                        
Consolidated
   $ 2,530.6     $ —     $ 2,530.6  
 
                        
Operating profit (loss)
                        
Consumer products
   $ 153.0     $ (3.6 )   $ 149.4  
Industrial tools
     68.6       (51.6 )     17.0  
Security Solutions
     77.3       (1.6 )     75.7  
 
                        
Consolidated
   $ 298.9     $ (56.8 )   $ 242.1  
 
                        
Interest, net
     27.9       —       27.9  
Other, net
     29.9       61.7       91.6  
Earnings from continuing operations before income taxes
   $ 241.1     $ (118.5 )   $ 122.6  
 
                        

(a) Includes $118.5 million of pre-tax Operation 15 restructuring costs, asset impairment charges, other exit costs and Chief Executive Officer (CEO) retirement costs. Aggregate charges of $52.7 million arising from the Mac Direct retail channel exit are classified as follows: Cost of sales - $7.0 million; SG&A – 26.1 million; Other, net — $9.5 million; and Restructuring and asset impairment charges — $10.1 million. Cost of sales also reflects a $12.6 million inventory charge related to the planned closure of a U. S. distribution facility. In addition, $7.6 million in compensation and benefit costs associated with the CEO’s announced retirement plans and $3.5 million other are classified in SG&A. Restructuring and asset impairment charges, aside from the $10.1 million for Mac Direct, are comprised of the following: asset impairments of $21.9 million, contract termination charges of $2.8 million, and $17.4 million mainly attributable to severance and related benefits for Operation 15 headcount reduction initiatives.

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