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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934
For the fiscal year ended January 1, 1994
Commission File Number 1-7724
SNAP-ON TOOLS CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 39-0622040
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2801 - 80th Street, Kenosha, Wisconsin 53141-1410
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(Address of principal executive offices) (ZIP Code)
Registrant's telephone number,
including Area Code - (414) 656-5200
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of Exchange on which registered
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Common stock, $1 par value New York Stock Exchange
Preferred stock purchase rights New York Stock 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
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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 the registrant's knowledge, in a definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K -----.
State the aggregate market value of the voting stock held by non-affiliates of
the registrant as of February 22, 1994, with a closing price per share on that
date of $43.875.
Common Stock, Par Value $1 Per Share, $1,865,592,000
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of February 22, 1994.
Common Stock, Par Value $1 Per Share, 42,652,946 Shares
Shares Preferred Stock Purchase Rights, None.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Corporation's Annual Report to Shareholders for the fiscal
year ended January 1, 1994, are incorporated by reference into Parts I, II,
and IV of this report.
Portions of the Corporation's Proxy Statement, dated March 18, 1994, prepared
for the Annual Meeting of Shareholders scheduled for April 22, 1994, are
incorporated by reference into Part III of this report.
Exhibit Index Page 22 Page 1 of 94 Pages
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SNAP-ON TOOLS CORPORATION
1993 FORM 10-K
TABLE OF CONTENTS PAGE
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PART I
Item 1. Business 3
Item 2. Description of Properties 11
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 13
Item 6. Selected Financial Data 14
Item 7. Management Discussion and Analysis of Financial Condition
and Results of Operations 14
Item 8. Financial Statements and Supplementary Data 14
Item 9. Disagreements on Accounting and Financial Disclosure 14
PART III
Item 10. Directors and Officers of Registrant 14
Item 11. Executive Compensation 14
Item 12. Security Ownership of Certain Beneficial Owners and
Management 14
Item 13. Certain Relationships and Related Transactions 14
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 14
Auditor's Reports 16
Signature Pages 17
Financial Schedules 20
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PART I
ITEM 1: BUSINESS OVERVIEW
Snap-on Tools Corporation (the "Corporation") was incorporated under the laws
of the State of Wisconsin in 1920 and reincorporated under the laws of the
state of Delaware in 1930. Its corporate headquarters is located in Kenosha,
Wisconsin.
The Corporation, which is in a single line of business, is a leading
manufacturer and distributor of high-quality hand tools, power tools, tool
storage products, and diagnostics and shop equipment, primarily for use by
professional mechanics and technicians. In addition to individual automotive
service technicians, shop owners and other professional tool users, the
Corporation's products are marketed to industrial and government entities.
The Corporation is a multinational corporation with operations in the United
States, Australia, Belgium, Brazil, Canada, France, Germany, Japan, Mexico,
Puerto Rico, the Netherlands, New Zealand, Taiwan, and the United Kingdom.
In 1993, shareholders approved a holding company structure for the
Corporation, allowing the Corporation to realign its operating business units
with the various needs of the customers it serves and the channels of
distribution available in the market for tools, equipment and related
services. Subsequently, the Corporation established four principal operating
units:
- - The SNAP-ON TOOLS business unit focuses on the Corporation's worldwide
dealer direct sales programs to automotive and transportation technicians.
Subsidiaries in several countries manage dealer operations outside the United
States;
- - The SNAP-ON DIAGNOSTICS business unit focuses on the development and
sale of diagnostics and shop equipment, primarily to automotive shop owners.
Subsidiaries associated with Snap-on Diagnostics include: Sun Electric
Corporation ("Sun"), a leading manufacturer and distributor of high-end
diagnostics, test and service shop equipment with subsidiaries in Australia,
Austria, Belgium, Brazil, Canada, Germany, Mexico, the Netherlands, the United
Kingdom, and the United States; and Balco, Inc., a developer of engine
diagnostic and wheel balancing equipment, with subsidiaries in Switzerland and
Ireland. Systems Control, Inc., a subsidiary of Sun, provides automotive
emissions testing under contract to government entities;
- - The SNAP-ON INDUSTRIAL business unit focuses on the sale of industrial
tools and equipment through a direct sales force as well as through industrial
distributors and other channels. Subsidiaries associated with the Snap-on
Industrial business unit include: J.H. Williams Company ("Williams"), a
manufacturer of industrial-quality hand tools sold through industrial
distributors and directly to the U.S. government and original equipment
manufacturers; and A.T.I. Tools, Inc., a producer of tools and equipment for
aerospace and industrial applications;
- - SNAP-ON FINANCIAL SERVICES, INC. holds most of the Corporation's credit
assets and, through its Snap-on Credit Corporation subsidiary, manages certain
credit services for the Corporation. Credit programs support the sale of the
Corporation's products and services, especially higher-value products such as
diagnostics and other shop equipment, when traditional lending sources are not
readily available to customers.
For further information on the Corporation's international and domestic
operations, see Note 14 on Page 33 of the Corporation's 1993 Annual Report,
incorporated herein by reference.
The Corporation believes it originated the mobile dealer van method of
marketing hand tools and equipment to automotive technicians. In recent
years, it has expanded its product line and marketing and sales programs to
address additional customer needs in the market for professional tools and
equipment and to expand in international markets. Included in the
Corporation's expanded product line are automotive shop equipment, electronic
equipment service, and tools and instrumentation for aerospace and medical
applications. It has also acquired new manufacturing operations and brands to
address additional channels of distribution, particularly for industrial
customers.
The Corporation believes it is the largest single-source manufacturer of
professional hand tools and service equipment for the U.S. automotive service
industry. In 1993 the Corporation merged its U.S. Snap-on and Sun technical
sales forces into SNAP-ON/SUN Tech Systems, creating what it also believes
to be the largest technical systems sales and service organization in the
industry. In addition, within its diagnostics and shop equipment operations,
the Corporation has formed agreements, including minority investments, with
information and technology firms to strengthen its position as a leading
supplier of diagnostic hardware and software for the service and repair of the
growing number of computerized systems employed in modern automotive design.
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In addition to direct sales to individual technicians, shop owners, industrial
and other customers at their places of business through mobile van dealers and
employee sales representatives, other methods of marketing and distribution
include both direct and indirect sales to industrial and government customers
and indirect sales through non-U.S. distributors. The Corporation's industrial
sales historically had been concentrated among small and mid-sized
manufacturing facilities, industrial maintenance and repair shops, and
government service and repair operations. With the acquisition of the assets
of J.H. Williams Industrial Products, Inc. in 1993, the Corporation entered
the industrial distributor marketing channel, which represents the largest
segment of the industrial tool market.
PRODUCTS AND SERVICES
The Corporation offers a product line of approximately 14,000 items which it
divides into four product groups -- hand tools, power tools, tool storage
products, and diagnostics and shop equipment. Following is a discussion of
the four product groups:
HAND TOOLS -- Includes wrenches, screwdrivers, sockets, pliers, ratchets,
and other similar products; hand tools developed for medical applications and
for the manufacture and servicing of electronic equipment such as computers
and photocopiers; and J.H. Williams industrial-quality hand tools. The
Stanley Works, Danaher Corporation, Cooper Industries and Strafor-Facom are
some of the many manufacturers of hand tools. Factors that influence customer
purchasing decisions vary among the Corporation's customer groups and within
distribution channels and are discussed later.
POWER TOOLS -- Includes pneumatic (air), cord-free (battery) and corded
(electric) tools such as impact wrenches, ratchets, chisels, drills, sanders,
polishers, and similar products. Makita Corporation, Atlas Copco AB,
Ingersoll-Rand Company, and The Black & Decker Corporation are some of the
many manufacturers in this product category.
TOOL STORAGE PRODUCTS -- Includes tool chests, roll cabinets, and other
similar products for automotive, industrial, aerospace, and other storage
applications. Stanley, Danaher, Waterloo Industries (a division of American
Brands, Inc.), and Kennedy Manufacturing Company are some of the many
manufacturers of tool storage products.
DIAGNOSTICS AND SHOP EQUIPMENT -- Includes both hardware and software
solutions for the diagnosis and service of automotive and industrial
equipment. Products include electronic automotive diagnostic equipment
such as engine analyzers, exhaust emissions analyzers, air conditioning
refrigerant recycling equipment, transmission troubleshooting equipment,
and anti-lock brake systems testing and service equipment. Also included
in this category are wheel balancing and aligning equipment, battery
chargers, and other similar products used in automotive service and
repair shops. SPX Corporation, Hunter Engineering Company, Inc., Robert
Bosch GmbH, and Danaher are among other manufacturers in this market.
While the Corporation historically has emphasized the development of equipment
for the automotive aftermarket, it believes some of its diagnostic
technologies may be transferable to industrial and other applications. The
Corporation believes such product extensions into additional markets represent
opportunities for future growth.
In 1994, the Corporation intends to expand its technician training services
offered through its SNAP-ON/SUN Tech Systems program, more than doubling its
number of training centers to approximately 40. These training programs offer
customers certification in both specific automotive technologies and in the
application of specific diagnostic equipment developed and marketed by the
Corporation and its subsidiaries. Technical service training for the
automotive aftermarket is a highly fragmented industry with estimated annual
sales of $800 million to $1 billion. With its strong electronic tools and
shop equipment product line and weekly sales contact with most automobile
dealerships, specialty service chains, and independent shops, the Corporation
believes it is well-positioned to grow its business in the technical training
field.
The Corporation is also a participant in the market for centralized automotive
emissions testing services. The Sun subsidiary Systems Control has a
multi-year contract to provide enhanced emission-testing services to the State
of Washington. During 1993, Systems Control and its subsidiaries also were
selected to provide centralized emissions-testing services in Maine and in
portions of Texas. Systems Control will bid on additional contracts during
1994 as additional states begin to implement requirements of the Clean Air
Act.
Revenues from Systems Control and Snap-on/Sun technical training services are
included in the diagnostic tools and shop equipment category.
The Corporation's standard line of SNAP-ON manufactured products and other
products sold by Snap-on dealers and sales representatives are described in a
general product catalog distributed to dealers and customers. Editions of the
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general catalog currently are available in English, French, German, Spanish
and Japanese. Products manufactured under the SUN brand name and sold by
SNAP-ON/SUN Tech Systems Specialists, or Tech Reps, are described in
separate literature. J.H. Williams and A.T.I Tools, Inc. also have their own
catalogs of industrial products.
Table 1 shows the approximate percentage of total consolidated sales for each
of the Corporation's product groups in each of the past three years, including
the contributions of Sun in the fourth quarter of 1992 and for the full year
in 1993.
TABLE 1 CONSOLIDATED SALES ACTUAL
<TABLE>
<CAPTION>
PRODUCT GROUP % OF SALES 1993 1992 1991
<S> <C> <C> <C>
Hand Tools 37% 43% 49%
Power Tools 7% 8% 10%
Tool storage products 11% 13% 12%
Diagnostics/Shop 45% 36% 29%
</TABLE>
The acquisition of Sun in the fourth quarter of 1992 had a material effect on
the Corporation's product sales mix. Table 2 provides a pro forma restatement
of the percentages of 1991 and 1992 sales derived from the four product groups
as if the acquisition had occurred at the beginning of 1991.
TABLE 2 PRO FORMA SALES WITH SUN
<TABLE>
<CAPTION>
PRODUCT GROUP % OF SALES 1992 1991
<S> <C> <C>
Hand Tools 37% 39%
Power Tools 7% 8%
Tool storage products 11% 10%
Diagnostics/Shop 45% 43%
</TABLE>
The Corporation believes this analysis is representative of its consolidated
net sales mix worldwide.
As stated earlier, sales in the diagnostics and shop equipment product group
include technical training services for the automotive service industry as
well as contracted emissions-testing services for various government entities.
MARKETS SERVED
GEOGRAPHIC MARKETS SERVED -- The Corporation's products and services are
marketed and distributed in more than 100 countries either directly through
Snap-on and Sun sales organizations, or indirectly through industrial
distributors and non-U.S. distributors. Table 3 shows the approximate
percentage of sales for the past three years.
TABLE 3 CONSOLIDATED SALES ACTUAL
<TABLE>
<CAPTION>
MARKETS % OF SALES 1993 1992 1991
<S> <C> <C> <C>
North American Sales 78% 85% 90%
European Sales 18% 11% 8%
Other Sales 4% 4% 2%
</TABLE>
See Note 14 of the Corporation's Annual Report for further information.
The acquisition of Sun resulted in a significantly higher percentage of sales
outside North America. Table 4 provides a pro forma restatement of the
percentages of 1991 and 1992 sales derived from North American and other
markets to reflect the acquisition as if it had occurred at the beginning of
1991.
TABLE 4 PRO FORMA SALES WITH SUN
<TABLE>
<CAPTION>
MARKETS % OF SALES 1992 1991
<S> <C> <C>
North American Sales 80% 80%
European Sales 17% 18%
Other Sales 3% 2%
</TABLE>
MARKET SECTORS SERVED -- The Corporation, which operates in a single line
of business which is the manufacture and sale of hand and power tools,
diagnostic equipment, and tool storage products, markets and distributes
primarily to two market sectors, in both the U.S. and internationally:
- - The professional market of mechanics and technicians and automotive service
and repair shops, including independent, chain, and dealership garages. The
sector also includes serious hobbyists who prefer to purchase the quality
tools used by professionals.
- - The industrial market for tools and equipment used in manufacturing and
assembly applications and in industrial maintenance and repair, as well as
tools included with products sold by original equipment manufacturers as
instrumentation or used in OEM and distributor equipment service programs.
Table 5 shows the approximate percentage of total sales for the last three
years for these sectors as well as for sales to non-U.S. distributors, who
sell to the same types of customers in the markets the Corporation serves in
the United States.
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TABLE 5 CONSOLIDATED SALES ACTUAL
<TABLE>
<CAPTION>
MARKET SECTOR % OF SALES 1993 1992 1991
<S> <C> <C> <C>
Professional 83% 79% 76%
Industrial 15% 18% 20%
Non-U.S. Distributor 2% 3% 4%
</TABLE>
PROFESSIONAL SECTOR
The professional sector has two primary customer groups: professional
mechanics and technicians who purchase tools and equipment for themselves, and
shop owners and managers who purchase equipment generally used by multiple
technicians within a service or repair garage. Following is a discussion of
the characteristics of each type of customer and the Corporation's position in
these related markets.
PROFESSIONAL TECHNICIANS -- The Corporation markets hand tools, power
tools, diagnostic equipment, and tool storage products to professional
technicians worldwide primarily through its mobile dealer van distribution
system. It provides innovative tools and equipment to meet technicians'
evolving needs, as well as technical sales support and training to meet the
information and technology needs of the professional mechanic.
Professional technician customers demand the highest quality tools and
equipment in terms of function, reliability, productivity, appearance, and
service. Most professional technicians, particularly in the transportation
service industry, are paid based on a flat rate and buy their own tools.
Thus, these customers value the time-and-place utility of the Corporation's
mobile van distribution system and productivity advantages of
professional-quality tools.
The Corporation's success with professional technicians is believed to be due
to its consistently high-quality products, its extensive product line, its
dealer and dealer-related marketing and sales programs, its frequent call
schedule, the availability of financing for major purchases, product
warranties, and service and repair programs.
The Corporation has a strong presence in this sector, although its U.S. and
worldwide market shares cannot accurately be determined. Stanley and Danaher
are active in the mobile dealer van channel through their MAC Tools and Matco
operations. Other van operations include Vulcan and Cornwell. Additionally,
technicians purchase products from other sources, including wholesalers,
hardware stores, and retail outlets such as Sears Roebuck and Co.
For the reasons stated earlier, the Corporation's focus within the mobile
dealer van system generally is on service and product quality, performance,
and productivity. Other suppliers within the market sector, but outside the
dealer van channel, generally compete on price. However, recent economic
conditions relating to consumer and mechanic confidence have made customers
more price-conscious than in previous years.
Major challenges for the Corporation and the industry include slower
automotive technician turnover, improved vehicle quality, which reduces
service and repair demand, general economic conditions relating to consumer
and mechanic confidence, and increased competition within the mobile dealer
van channel during the past decade.
SHOP OWNERS -- Through its dealers and employee sales representatives, the
Corporation serves owners of shops where technicians work with tools,
equipment, and diagnostic products. Shops include service stations, automobile
dealers and automotive repair shops.
The needs of these customers are being increasingly driven by technological
innovation and government regulation. In order to remain competitive and stay
in business, shop owners find it necessary to purchase a growing array of
sophisticated, specialized equipment that enables their shops to service and
repair a growing number of computerized automotive systems and to help comply
with vehicle environmental and safety regulations. The ability to recruit and
retain professional technicians also depends on the quality of the equipment
and service and repair information available in the shops where they work.
The Corporation has been actively expanding its line of automotive diagnostics
and service equipment to address new needs in this market sector, expand its
customer base, and grow its sales. The acquisition of Sun in 1992 enabled the
Corporation to extend its line of engine analyzers to include high-end
equipment favored by larger shops and to add new products such as air
emissions testing and air conditioner refrigerant recycling equipment. It
also accelerated the Corporation's introduction of a new line of PC-based
automotive diagnostic hardware and software products. The Sun acquisition
followed the Corporation's completion of its acquisition one year earlier of
Balco, Inc., which enhanced its product offerings in engine diagnostics and
wheel balancing and service equipment.
During 1993, Snap-on and Sun technical sales forces were merged, creating a
285-member technical sales force by year-end. SNAP-ON/SUN Tech Systems also
offers technician training and certification services.
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In many major markets, including the United States, Canada, and the United
Kingdom, automotive technicians generally buy their own tools and certain
lower-value diagnostic equipment. However, in most markets in Europe and
Asia, hand tools and higher-value equipment are most often purchased by shop
owners. One of the challenges in developing new international markets has
been to develop relationships with shop owners, who own or operate many
service and repair facilities in these markets.
INDUSTRIAL SECTOR
The Corporation markets its products to a wide variety of industrial tool and
equipment customers, including industrial maintenance and repair shops;
manufacturing and assembly operations; industrial distributors; original
equipment manufacturers who require instrumentation or service tools and
equipment for their products; and government facilities.
Customers in the industrial sector have different needs and make their
purchase decisions on a variety factors. Small- to mid-sized manufacturers and
industrial and government maintenance and repair shops and motor pools often
prefer the consultative advantages of direct selling and make their purchase
decisions based on quality, selection, and service. Large manufacturing
operations more often prefer the economies and efficiencies of buying through
industrial distributors. For these larger, higher-volume customers, key
purchase factors include competitive pricing, one-stop shopping and invoicing,
and on-time delivery.
The Corporation has been expanding its product line and service to the
industrial and government sector. In addition to the Williams acquisition, it
has expanded its SNAP-ON brand line of black-finish industrial tools and
expanded its offerings to government installations under a master purchase
agreement negotiated with the General Services Administration (GSA).
In addition to the hand tool, power tool, and tool storage producers
previously described, companies involved in the industrial sector include
industrial distribution houses such as W.W. Grainger, Inc. and McMaster Carr
Supply Company. While the Corporation's tool and storage lines are among the
largest offered for industrial applications, these are only two of several
categories of products these other companies offer.
Major challenges in the industrial tool and equipment market include a highly
competitive, cost-conscious environment, as well as an increase in new
technologies. While the Corporation believes it is currently a relatively
small competitor in the overall market for industrial tools and equipment, the
Corporation also believes its newly-acquired ability to address the industrial
distribution channel through J.H. Williams and to offer a broader product line
with additional brands at different price points will result in significant
market penetration and sales gains over the next decade.
DISTRIBUTION
The Corporation serves its many customers through both direct and indirect
sales channels. Direct sales distribution includes dealers,
Corporation-employed sales representatives, and technical representatives.
Indirect sales include distribution through industrial distributors, original
equipment manufacturers, and non-U.S. distributors. The Corporation's total
selling force numbered 5,879 at year-end 1993.
SNAP-ON TOOLS
DEALERS
Marketing worldwide to professional technicians and shop owners is conducted
primarily through the mobile dealer van system. As described earlier, dealers
operate from van-type vehicles, which house their inventory, and sell the
Corporation's products to customers, primarily auto technicians and shop
owners, at their places of business. Dealers purchase the products made
available to them at a discount from suggested retail prices and resell them
to customers at prices of the dealers' choosing. Since 1991, all new dealers
have been enrolled as franchisees of the Corporation. The franchise program is
more fully described later.
The Corporation's dealers are entitled to purchase and sell SNAP-ON brand
products and products contained in the SNAP-ON catalogs. In the U.S., SUN
brand products are sold only through the SNAP-ON/SUN Tech Systems sales
force, which is described more fully later, and a national accounts program.
Internationally, SUN products are sold by subsidiaries and through
distributors. Dealers are encouraged to provide sales leads to Tech Reps,
and under certain conditions participate in the proceeds of sales of SUN
brand equipment to their customers.
Although some dealers have sales areas defined by other methods, most dealers
are provided a list of calls -- addresses or places of business -- which serve
as the basis of the dealer's sales route. The need to provide a high level of
service is one of the factors used to establish the size of the sales route.
Weekly dealer calls on customers for both service and sales solicitation are
essential elements of the Corporation's dealer-marketing program.
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SPECIAL AND SALES REPRESENTATIVES
The Corporation makes it possible for prospective dealer candidates to work as
employee sales representatives for up to one year prior to making an
investment in a franchise (subject to the Corporation's approval). This
program is particularly useful for candidates who lack the financial resources
to become franchisees or who are not certain of their aptitude for mobile van
sales work.
As employees, sales representatives are paid a salary plus commission on
sales; however, they are responsible for certain expenses. They perform
essentially all of the functions of a dealer, including making weekly sales
and service calls, collecting customer accounts receivable, and participating
in product and business training programs.
From time to time, employees of the Corporation are assigned to perform the
functions of a dealer, making sales and service calls and collecting customer
accounts receivable. These special representatives work sales routes on a
temporary basis until the routes can be assigned to a franchised dealer.
NON-U.S. DISTRIBUTORS
Sales to the Corporation's non-U.S. distributors are made by its subsidiary,
Snap-on Tools International, Ltd., in those countries where the Corporation
does not have subsidiary operations. These non-U.S. distributors operate under
license or contract with the Corporation. Their customers may include
industrial and government entities as well as individual technicians and shop
owners. These sales were not material to the Corporation's total sales in
1993.
SNAP-ON DIAGNOSTICS
Marketing of higher-value diagnostics and shop equipment in the United States
is conducted primarily through the SNAP-ON/SUN Tech Systems group. In
addition, SUN brand equipment is marketed in Europe through both a direct
sales force and distributors and, in Canada, through distributors.
TECHNICAL SPECIALISTS
Technical Specialists, or Tech Reps, are employees of the Corporation trained
in the operation and sales of certain sophisticated equipment. They are
compensated on the basis of commission. Tech Reps help dealers demonstrate and
sell technically complex equipment, and train dealers' customers in how to use
it. Dealers receive a smaller discount than their normal discount on the
Corporation's suggested retail prices on items Tech Reps help them sell.
Tech Reps demonstrate and assist in the sale of SNAP-ON brand equipment and
sell SUN brand equipment. They call on accounts on their own and also work
with the Corporation's network of dealers and sales representatives to identify
sales leads and respond to customer needs. While Snap-on dealers sell only
SNAP-ON brand equipment, they share in the proceeds of certain SNAP-ON and SUN
products to their customers.
SNAP-ON INDUSTRIAL
Marketing to industrial and government customers is by direct sales through
industrial sales representatives and indirect sales through industrial
distributors.
INDUSTRIAL SALES REPRESENTATIVES
The sale of SNAP-ON products is conducted through industrial sales
representatives who are employees of the Corporation and compensated on a
commission basis. These sales representatives focus on the Corporation's
traditional industrial customers; generally those who prefer to buy on
quality, selection, and service, as well as certain OEM accounts.
At year-end 1993, the Corporation had industrial sales representatives in
Australia, Belgium, France, Germany, Japan, Mexico, Puerto Rico, the
Netherlands, the United Kingdom and the United States. U.S. industrial sales
accounted for the majority of the Corporation's total industrial sales.
J.H. WILLIAMS SALES REPRESENTATIVES
J.H. Williams is operated as a separate company with a separate sales force
and a distinct brand and product line. Williams sales representatives focus on
sales to industrial distributors as well as appropriate OEM accounts.
FRANCHISE PROGRAM
Since 1991, all new U.S. dealers, and a majority of existing U.S. dealers,
have been enrolled as franchisees of the Corporation. It is the Corporation's
belief that a franchise program facilitates and promotes a more uniform
marketing and business program, and allows the Corporation to take additional
steps to support the success of its dealers. At year-end 1993, approximately
2,600, or 77% of all U.S. dealers, were enrolled as franchisees.
As part of the franchise program, certain programs and benefits are made
available to franchised dealers. The current package of franchise benefits
includes a volume purchase discount, a stock purchase program, certain types
of insurance coverage, access to a family assistance counseling program,
discounts on cellular telephone service, and the ability to purchase a second
franchise. Additional programs and benefits introduced during 1993 also enable
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franchised dealers to obtain start-up financing (discussed in greater detail
later), operate a second van to service their customers, and establish
retirement savings programs. A National Dealer Advisory Council elected by
dealers assists the Corporation in identifying and implementing enhancements
to the franchise program.
The Corporation currently charges an initial franchise fee which did not add
material revenue to the Corporation's operations.
To qualify for a franchise, a new dealer applicant must meet minimum personal
and financial qualifications. The dealer must make an initial investment in
the business for such items as inventory, van acquisition, development of
customer accounts receivable, equipment, fixtures, a computer, and other
miscellaneous expenses.
In the United States and most non-U.S. locations, dealers lease or purchase
their vans from a third-party vendor not affiliated with the Corporation.
FIELD MANAGEMENT/SALES SUPPORT
The Corporation supports and services its dealer, sales representative, and
industrial sales network with an extensive field organization of branch
offices and service, repair, and distribution centers, which are discussed in
more detail later. Dealers are organized by field groups of seven to ten
dealers within branch operations. Each field group is headed by an employee
field manager, who provides product, sales, and business training on a
continuous basis.
The Corporation provides its dealers with instruction, training and practical
experience regarding its products, sales techniques, record keeping and
reporting, inventory control methods, and general business practices. Training
initially is conducted in branch offices and, on an ongoing basis, through
field managers riding with dealers as they service their list of calls.
The Corporation also engages in various marketing and sales promotion programs
designed to increase sales to both dealers and their customers. These
programs include advertising, sales materials, premiums, and the offering of
promotional tools.
FINANCIAL ASSISTANCE AND CREDIT
In 1993, the Corporation transferred its credit-related assets to the
newly-formed Snap-on Financial Services, Inc. and its subsidiary, Snap-on
Credit Corporation, to carry on its tradition of providing financing services to
its dealers and customers.
DEALER-RELATED FINANCIAL PROGRAMS
Financial assistance for dealer operations and dealer sales is offered by the
Corporation as part of its program of dealer support. This assistance
includes, but is not limited to, the financing of inventory; financing a new
dealer's purchase of accounts receivable from a predecessor dealer in a sales
route; and the purchase of various extended credit contracts between dealers
and their customers.
The Dealer Finance Program offered by Snap-on Credit Corporation provides
funds for the initial investment of start-up dealers which could include the
license fee, inventory, RA acquisition, equipment, fixtures, other expenses,
and initial checking account deposit. Dealers are required to make a minimum
equity or down payment. Participating dealers must enter into a Loan Security
Agreement and Promissory Note evidencing the loan.
Under the Dealer Finance Program, the dealer must lease a specified van on
terms arranged by Snap-on Credit Corporation, with no recourse to the
Corporation, or purchase a van meeting Snap-on specifications and other terms.
The Credit Corporation operates a credit program to provide financing for
high-value product purchases by dealers' customers. Dealers enter into
various credit contracts with their customers, and the Corporation, at its
sole discretion, may then accept assignment of these contracts from dealers.
Dealers are responsible for collecting these installment payments due to the
Corporation.
DEALER CREDIT TO CUSTOMER
Revolving account or "RA" sales typically comprise a significant percentage
of a dealer's sales. These are credit sales between a dealer and a dealer's
customer, involving the extension of the dealer's personal credit (usually at
no interest) to finance the customer's purchases. The Corporation may finance
the purchase of a portion of these accounts receivable when a new dealer takes
over a former dealer's sales route.
FIELD SERVICES AND INVENTORY
In the fourth quarter of 1993, the Corporation completed a reorganization and
consolidation of its field services and inventory. Four regional
finished-goods distribution centers replaced 48 U.S. branch warehouses. These
distribution centers are located in Carson City, Nev.; Olive Branch, Miss.;
Ottawa, Ill.; and Robesonia, Penn. In addition, the
9
<PAGE>
Corporation continues to operate a national parts center in Kenosha, Wis., and
a new Replacement Processing Center, to process all product returns, in
Nashville, Tenn.
In addition to cost savings, this consolidation is expected to improve
customer order-fill rates by making the full 14,000-item product line
available for same- or next-day shipment from each distribution center.
Previously, branch warehouses did not stock the full product line.
In a second phase of the field services reorganization, the Corporation
consolidated most of the administrative and credit functions formerly managed
in branch offices within eight Regional Customer Service Centers located in
Atlanta, Boston, Dallas, Kansas City, Milwaukee, Philadelphia, Sacramento, and
San Diego. Three branch offices were closed, while the remaining 48 U.S.
branches have been converted to sales offices.
The new Regional Customer Service Centers, whose offices include regional
offices of the Credit Corporation, process all dealer orders and inquiries,
including billing and accounting; manage dealer credit; and provide credit
collection assistance. Service and repair of SNAP-ON products is
consolidated at four regional repair centers, while service for SUN product
is provided through a network of approximately 200 contract service
technicians.
RAW MATERIAL & PURCHASED PRODUCT
The Corporation's supply of raw materials (various grades of steel bars and
sheets) and purchased components are readily available from numerous
suppliers.
The majority of 1993 consolidated net sales consisted of products manufactured
by the Corporation. The remainder was purchased from outside suppliers. No
single supplier's products accounted for a material portion of 1993
consolidated net sales.
PATENTS AND TRADEMARKS
The Corporation vigorously pursues and relies on patent protection to protect
its inventions and its position in the market. The Corporation and its
subsidiaries currently hold approximately 345 patents and more than 175
pending patent applications.
Patent protection covers certain products which are believed to have
significant market potential. Examples of these products include Engine
Analyzers, Serrated Jaw Open End Wrenches, Wheel Balancers, Sealed Ratchets,
Electronic Torque Wrenches, Ratcheting Screwdrivers, Emissions Sensing Devices
and Air Conditioning Equipment.
Much of the technology used in the manufacturing of automotive tools and
equipment is in the public domain. The Corporation relies primarily on trade
secret protection to protect proprietary processes used in manufacturing.
Methods and processes are patented when appropriate.
Corporation trademarks, such as SNAP-ON, BLUE-POINT, FLANK DRIVE, COUNSELOR,
ELECTROTORK, SUN, SUNTESTER, SHOPMAX, INSPECTOR, NORTRON, SUN SUPER TACH and
WILLIAMS are registered U.S. trademarks and are of continuing importance to
the Corporation in the marketplace. Trademarks have been registered in 41
other countries, and additional applications for trademark registration are
pending. Proper use of the Corporation's trademarks is rigorously policed.
The Corporation's right to manufacture and sell certain products is dependent
upon licenses from others. These products do not represent a material portion
of the Corporation's sales.
WORKING CAPITAL
Since the Corporation's business is not seasonal, and since its inventory
needs are relatively constant during the year, no unusual working capital
needs arise during the year.
The Corporation's use of working capital to extend credit to its dealers and
to purchase installment credit receivables from dealers is discussed in
"Management's Discussion and Analysis of Results of Operations and Financial
Condition," which is found on Pages 16 to 20 of the Corporation's 1993 Annual
Report and is incorporated herein by reference.
The Corporation does not depend on any single customer, small group of
customers or government for any material part of its sales. The Corporation
has no significant backlog of orders.
RESEARCH AND ENGINEERING
Each year the Corporation develops and introduces new products to advance its
diversified product line. The Corporation performs its own research and
engineering. The Corporation spent the following amounts on research and
engineering activities during the past three years.
10
<PAGE>
TABLE 7 RESEARCH AND ENGINEERING
<TABLE>
<CAPTION>
(MILLIONS $) 1993 1992 1991
<S> <C> <C> <C>
Actual $27.7 $19.6 $15.6
Pro Forma with Sun N/A $24.9 $23.4
</TABLE>
ENVIRONMENT
The Corporation complies with applicable environmental control requirements in
its operations. Compliance has not had a material effect upon the
Corporation's capital expenditures, earnings or competitive position.
EMPLOYEES
At the end of 1993, the Corporation employed approximately 9,000 people, of
whom approximately 18% were covered by collective bargaining agreements.
Approximately one-third of all employees are engaged in manufacturing
activities.
RECENT DEVELOPMENTS
Significant developments affecting the Corporation's business during the past
year included realignment of the Corporation's businesses into a holding
company format; the merger of the Snap-on and Sun technical systems sales
forces; consolidation of branch warehouse operations into four existing
regional distribution centers; the reorganization and consolidation of field
sales and credit operations into eight Regional Customer Service Centers; and
the acquisition of the assets of J.H. Williams Industrial Products, Inc.
These developments are discussed in greater detail elsewhere in this report.
At its 1994 annual meeting, shareholders will be asked to approve changing the
Corporation's name from Snap-on Tools Corporation to Snap-on Incorporated. The
change reflects the expansion of the products the Corporation offers and the
customers its serves.
ITEM 2: DESCRIPTION OF PROPERTIES
The Corporation's manufacturing facilities, all of which are well maintained
and in good operating condition, are suitable for producing the Corporation's
products. The productive capacity is adequate to meet present and foreseeable
future demand. Current utilization levels allow for increased production
through the addition of second and/or third shifts should increase in demand
necessitate such additions.
The following is a description of the principal properties of the Corporation,
which are owned in fee unless otherwise indicated.
NOTE: EXCEPT FOR THE MEDICAL TOOLS MANUFACTURING FACILITY LOCATED IN
KENOSHA, WISCONSIN, ALL MANUFACTURING FACILITIES LISTED BELOW PRODUCE PRODUCTS
FOR TRANSPORTATION AND INDUSTRIAL MARKETS.
<TABLE>
<CAPTION>
MANUFACTURING APPROXIMATE AREA
LOCATION/USE (SQ.FT.)
- ------------ ----------------
<S> <C>
U.S. MANUFACTURING AND CORPORATE OFFICE FACILITIES:
KENOSHA, WISCONSIN
Hand tools and wheel
aligning equipment. 163,300
General offices. 221,800
CRYSTAL LAKE, ILLINOIS
High-end diagnostic equipment. 275,000
Sun Electric Corporation
headquarters. 116,200
ALGONA, IOWA 410,400
Tool storage units.
MT. CARMEL, ILLINOIS 180,000
Hand tools.
MILWAUKEE, WISCONSIN 128,800
Hand tools.
(Industrial Revenue Bond obligation
maturing on May 1, 2009.)
ELIZABETHTON, TENNESSEE 117,800
Hand tools.
(Lease expires May 1, 1994, with
renewal and purchase options.)
JOHNSON CITY, TENNESSEE 65,600
Hand tools.
NATICK, MASSACHUSETTS 44,200
Pneumatic tools.
BENSENVILLE, ILLINOIS 30,000
Process development facility.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE AREA
LOCATION/USE (SQ.FT.)
- ------------ ----------------
<S> <C>
EAST TROY, WISCONSIN 63,100
Electronic test equipment.
ELKHORN, WISCONSIN 55,600
Unoccupied.
KENOSHA, WISCONSIN 20,000
Medical tools.
SAN JOSE, CALIFORNIA 40,000
Wheel service equipment and
diagnostic equipment.
(Lease expires June 14, 1995.)
ESCONDIDO, CALIFORNIA 97,800
Tools and components for the
aircraft and aerospace industry.
ESCONDIDO, CALIFORNIA 24,800
Tools and components for the
aircraft and aerospace industry.
COLUMBUS, GEORGIA
Industrial hand tools 116,500
J. H. Williams corporate headquarters 5,500
NON-U.S. MANUFACTURING AND CORPORATE OFFICE FACILITIES:
METTMANN, GERMANY 64,400
Sun International's
administrative headquarters.
(Lease expires April, 2000.)
NEWMARKET, CANADA 117,800
Tool storage units.
SHANNON, IRELAND 19,250
Wheel service equipment.
(Lease expires March 25, 1995.)
SHANNON, IRELAND 11,250
Wheel service equipment.
(Lease expires October 12, 1997.)
BARBARA D'OESTE, BRAZIL 57,000
Manufacture of Sun electronic
equipment.
KINGS LYNN, ENGLAND 65,000
Manufacture of Sun electronic
equipment. Facility contains offices.
</TABLE>
DISTRIBUTION
The Corporation has completed reorganizing and consolidating its field
services and inventory. The following distribution centers replaced the 48
U.S. continental branch warehouses:
<TABLE>
<CAPTION>
APPROXIMATE AREA
LOCATION/USE (SQ.FT.)
- ------------ ----------------
<S> <C>
CARSON CITY, NEVADA 70,200
OLIVE BRANCH, MISSISSIPPI 147,750
OTTAWA, ILLINOIS 158,700
ROBESONIA, PENNSYLVANIA 124,750
</TABLE>
The Corporation leases warehouse space in Carson City, Nevada, and Olive
Branch, Mississippi, totalling 80,000 square feet. Also, public warehousing
on an as needed basis is used in Fort Dodge, Iowa, Olive Branch, Mississippi,
Ottawa, Illinois and Kenosha, Wisconsin. The Corporation owns and operates a
73,000 square foot National Parts Distribution Center in Kenosha, Wisconsin,
and a 7,500 square foot sales/distribution facility in Honolulu, Hawaii.
SALES AND MARKETING
As of February 1, 1994, the Corporation had sold 18 branch warehouse
facilities, two division sales offices, and one repair center. Nineteen
branch sales/warehouse facilities are currently in transition, serving as
branch sales offices only and will be replaced by leased branch sales offices
as the current owned facilities are sold. Five have been retained to provide
added warehouse and office facilities. The branch sales/warehouse facilities
average 16,000 square feet. The Corporation leases 15 branch sales office
facilities averaging 6,000 square feet. Credit services and certain sales
support functions of the former branch warehouse facilities have been
consolidated in eight Regional Customer Service Centers (RCSCs) averaging
14,000 square feet. The Corporation owns seven of these RCSC facilities and
leases one RCSC facility. The Corporation also owns four repair center
facilities averaging 11,000 square feet and one replacement tool processing
center. Additionally, the Corporation leases a building in New Jersey for
medical products sales and engineering and an international sales office in
Miami totalling 4,500 square feet. Sun also leases 19 regional sales offices
averaging 4,000 square feet.
DISTRIBUTION AND SALES - NON-U.S.
The Corporation and its subsidiaries own 18 distribution/sales facilities
outside the United States. These properties are located in Canada, the U.K.,
Puerto Rico, Singapore, the Netherlands and Germany and total 303,400 square
feet of office and warehouse space. The Corporation also leases 57 non-U.S.
distribution/repair/sales facilities. These
12
<PAGE>
facilities are located in Canada, the U.K., France, Holland, Germany, Japan,
Taiwan, Guam, Greece, Mexico, New Zealand, Brazil, Austria and Australia.
These properties total 425,000 square feet.
OTHER PROPERTIES
The Corporation also leases a 23,800 square foot research and development
facility in San Jose, California. The lease expires October 31, 1994.
Currently, 12,900 square feet of this facility is subleased.
ITEM 3: LEGAL PROCEEDINGS
Note 4 to the Financial Statements of the Corporation on page 27 of its 1993
Annual Report is incorporated herein by reference. None of this litigation is
material within the meaning of Section 103 of Regulation S-K in that such
matters individually or in the aggregate do not exceed 10% of current assets.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There was no matter submitted to a vote of the shareholders during the fourth
quarter of the fiscal year ending January 1, 1994.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Corporation are listed below. All but two of
the said officers have been with the Corporation for more than five years.
There is no family relationship among the executive officers and there has
been no involvement in legal proceedings during the past five years that would
be material to the evaluation of the ability or integrity of any of the
executive officers. Executive officers may be elected/appointed by the Board
of Directors at the regular meeting of the Board which follows the Annual
Shareholders' Meeting, held on the fourth Friday of April each year, and at
such other times as new positions are created.
NAME
POSITION AND
BUSINESS EXPERIENCE AGE
- -----------------------------------------------------------------
ROBERT A. CORNOG (53)
Chairman, President and CEO since July, 1991. A Director since 1982. Prior
to joining Snap-on, he was President of Macwhyte Company from 1981 to 1991.
MICHAEL F. MONTEMURRO (45)
Senior Vice President -- Finance and Chief Financial Officer since March, 1990.
Vice President -- Marketing Services from June, 1989 to February, 1990.
Treasurer from April, 1982 to June, 1989.
NAME
POSITION AND
BUSINESS EXPERIENCE AGE
- -----------------------------------------------------------------
JAY H. SCHNABEL (51)
Senior Vice President -- Administration since April, 1990, and Acting President
and Chief Executive Officer -- Sun Electric Corporation since December, 1992.
Senior Vice President -- Manufacturing and Research & Engineering from
November, 1988 to April, 1990. A Director since August, 1989.
DR. JAMES L. SOMERS (50)
Senior Vice President -- Manufacturing and Technology since January, 1992.
Senior Vice President -- Manufacturing and Research & Engineering from April,
1990 to January, 1992. Vice President -- Corporate Manufacturing from January,
1987 to April, 1990.
BRANKO M. BERONJA (59)
Vice President -- Sales, North America since January, 1989. Vice President --
General Sales Manager from August, 1988 to January, 1989.
GREGORY D. JOHNSON (44)
Controller since April, 1992. Financial Controller -- Asia/Pacific from April,
1991 to April, 1992. Director -- Budgets, Corporate Cost and International
Accounting from April, 1984 to April, 1991.
SUSAN F. MARRINAN (45)
Vice President, Secretary and General Counsel since January, 1992. Secretary
and General Counsel since November, 1990. Prior to joining Snap-on, she was
Vice President, General Counsel and Corporate Secretary for H. B. Fuller from
1987 to November, 1990.
PART II
ITEM 5: MARKET FOR REGISTRANT'S
COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
At January 1, 1994, the Corporation had 42,568,696 shares of common stock
outstanding. Approximately 65% of these shares were in the hands of
institutional owners.
Since 1991, the Corporation has offered shareholders a no-commission dividend
reinvestment program which entitles them to reinvest the cash dividends from
all or a portion of their common stock holdings to buy additional shares. The
program also permits shareholders to invest cash (not less than $100 and not
more than $5,000 per calendar quarter) for additional shares that are
purchased for them each month. Participation is voluntary and cost-free. In
1993, 2,452 shareholders, representing approximately 1% of the Corporation's
shares outstanding, participated in the program, which is administered by the
Corporation's Transfer Agent and Registrar, Harris Trust and Savings Bank.
13
<PAGE>
Additional information required by Item 5 is contained on Page 38 of the
Corporation's 1993 Annual Report and is incorporated herein by reference to
said Annual Report.
ITEM 6: SELECTED FINANCIAL DATA
The information required by Item 6 is contained on pages 36 and 37 of the
Corporation's 1993 Annual Report and is incorporated herein by reference to
said Annual Report.
ITEM 7: MANAGEMENT DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The information required by Item 7 is contained on pages 16-20 of the
Corporation's 1993 Annual Report and is incorporated herein by reference to
said Annual Report.
ITEM 8: FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
The information required by Item 8 is contained on pages 21-34 of the
Corporation's 1993 Annual Report and is incorporated herein by reference to
said Annual Report.
ITEM 9: DISAGREEMENTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE
OFFICERS OF THE REGISTRANT
The identification of the Corporation's directors as required by Item 10 is
contained in the Corporation's Proxy Statement, dated March 18, 1994, and is
incorporated herein by reference to said Proxy Statement. In respect to
information as to the Corporation's executive officers, see caption "Executive
Officers of the Registrant" at the end of Part I of this report.
The disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
contained in the Corporation's Proxy Statement, dated March 18, 1994, and is
incorporated herein by reference to said Proxy Statement on page 12.
ITEM 11: EXECUTIVE COMPENSATION
The information required by Item 11 is contained in the Corporation's Proxy
Statement, dated March 18, 1994, and is incorporated herein by reference to said
Proxy Statement on pages 6-10.
ITEM 12: SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by Item 12 is contained in the Corporation's Proxy
Statement, dated March 18, 1994, and is incorporated herein by reference to
said Proxy Statement on page 5.
ITEM 13: CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
None.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT
SCHEDULES AND REPORTS ON FORM 8-K
ITEM 14(A): DOCUMENT LIST
1. LIST OF FINANCIAL STATEMENTS
The following consolidated financial statements of Snap-on Tools Corporation,
and the Auditors' Report thereon, included in the 1993 Annual Report of the
Corporation to its shareholders for the year ended January 1, 1994, are
incorporated by reference in Item 8:
Consolidated Balance Sheets as of January 1, 1994 and January 2, 1993.
Consolidated Statements of Earnings for the years ended January 1,
1994, January 2, 1993 and December 28, 1991.
Consolidated Statements of Shareholders' Equity for the years ended
January 1, 1994, January 2, 1993 and December 28, 1991.
Consolidated Statements of Cash Flows for the years ended January 1,
1994, January 2, 1993 and December 28, 1991.
Notes to Consolidated Financial Statements.
2. LIST OF FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statement schedules of Snap-on Tools
Corporation are included in Item 14(d) as a separate section of this report.
14
<PAGE>
SCHEDULE VIII Valuation and Qualifying Accounts pg. 20
SCHEDULE IX Short-Term Borrowings 21
SCHEDULE X Supplementary Income
Statement Information 22
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are inapplicable and,
therefore, have been omitted, or are included in the Corporation's 1993 Annual
Report in the Notes to Consolidated Financial Statements for the years ended
January 1, 1994, January 2, 1993 and December 28, 1991, which are incorporated
by reference in Item 8.
3. LIST OF EXHIBITS
THE FOLLOWING EXHIBITS ARE FILED AS A SEPARATE SECTION OF THIS REPORT.
(3) (a) Restated Certificate of Incorporation, filed as Exhibit 3(a) to the
Corporation's Quarterly Report on Form 10-Q for the quarterly period
ended March 28, 1992, is incorporated herein by reference thereto.
(b) Bylaws of the Corporation, filed as Exhibit 3(b) to the Corporation's
Quarterly Report on Form 10-Q for the quarterly period ended June 27,
1992, is incorporated herein by reference thereto.
(4) Rights Agreement dated as of October 23, 1987, between the Corporation and
Harris Trust and Savings Bank, as Rights Agent, filed as Exhibit 1 to the
Corporation's Registration Statement on Form 8-A dated October 26, 1987, is
incorporated herein by reference thereto. A Form 8-K, dated June 4, 1992, was
filed reporting an amendment to this Rights Agreement and is incorporated
herein by reference. No financial statements were filed. On January 28,
1994, the Board of Directors adopted amendments to the Rights Agreement. A
Form 8-K dated January 28, 1994 reporting these amendments was filed and is
incorporated herein by reference. No financial statements were filed. The
Corporation and its subsidiaries have no long-term debt agreement for which
the related outstanding debt exceeds 10% of consolidated total assets as of
January 1, 1994. Copies of debt instruments for which the related debt is
less than 10% of consolidated total assets will be furnished to the Commission
upon request.
(10) Material Contracts
(a) Incentive Stock Option Plan, filed as Exhibit 10(a) to the
Corporation's Annual Report on Form 10-K for the fiscal year ended
December 29, 1990, is incorporated herein by reference thereto.
(b) Executive and Senior Officer Agreements, amended and restated, and
effective as of January 28, 1994.
(c) Indemnification Agreement for Directors, contained in the Proxy
Statement dated March 23, 1990, Commission File No. 1-7724 mailed on
March 23, 1990, is incorporated herein by reference thereto.
(d) Snap-on Tools Corporation Supplemental Retirement Plan, amended as of
January 28, 1994.
(13) Annual Report to Shareholders
(22) Subsidiaries of the Corporation
ITEM 14(B): REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
15
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
We have audited, in accordance with generally accepted auditing standards, the
financial statements included in Snap-on Tools Corporation's (the
"Corporation") Annual Report to Shareholders, incorporated by reference in
this Form 10-K, and have issued our report thereon dated February 4, 1994.
Our report on the financial statements includes an explanatory paragraph with
respect to the change in its method of accounting for postretirement health
benefits other than pensions in 1991, as discussed in Note 1c to the financial
statements. Our audit was made for the purpose of forming an opinion on those
statements taken as a whole. The schedules listed on pages 22 to 24 are the
responsibility of the Corporation's management and are presented for purposes
of complying with the Securities and Exchange Commission's rules and are not
part of the basic financial statements. These schedules have been subjected
to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly state in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN & CO.
Milwaukee, Wisconsin
February 4, 1994
- - - - - - - - - - - - - - - -
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included (or incorporated by reference) in this Form 10-K, into
the Corporation's previously filed Registration Statement File Nos. 2-53663,
2-53578, 33-7471, 33-22417, 33-37924, 33-39660 and 33-57898.
ARTHUR ANDERSEN & CO.
Milwaukee, Wisconsin
March 14, 1994
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange
Act of 1934, the Corporation has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SNAP-ON TOOLS CORPORATION
- --------------------------------------------------
By: Date:
---------------------------------------------- ---------------
R. A. Cornog, Chairman of the Board,
President, Chief Executive Officer, and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Corporation
and in the capacities as indicated.
Date:
---------------------------------------------- ---------------
R. A. Cornog, Chairman of the Board,
President, Chief Executive Officer, and Director
Date:
---------------------------------------------- ---------------
J. H. Schnabel, Senior Vice President -- Administration,
and Director
Date:
---------------------------------------------- ---------------
M. F. Montemurro, Principal Financial Officer,
and Senior Vice President -- Finance
Date:
---------------------------------------------- ---------------
G. D. Johnson, Principal Accounting Officer,
and Controller
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange
Act of 1934, the Corporation has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Corporation
and in the capacities as indicated.
By: Date:
---------------------------------------------- ---------------
R. F. Farley, Director
By: Date:
---------------------------------------------- ---------------
A. L. Kelly, Director
By: Date:
---------------------------------------------- ---------------
R. J. Decyk, Director
By: Date:
---------------------------------------------- ---------------
B. S. Chelberg, Director
By: Date:
---------------------------------------------- ---------------
G. W. Mead, Director
By: Date:
---------------------------------------------- ---------------
E. H. Rensi, Director
By: Date:
---------------------------------------------- ---------------
D. W. Brinckman, Director
18
<PAGE>
EXHIBIT INDEX
ITEM 14(C): EXHIBITS PAGE
(13) (a) Restated Certificate of Incorporation of the
Corporation, filed as Exhibit 3(a) to the
Corporation's Quarterly Report on Form 10-Q
for the quarterly period ended March 28, 1992,
is incorporated herein by reference thereto.
(b) Bylaws of the Corporation, filed as Exhibit 3(b)
to the Corporation's Quarterly Report on Form
10-Q for the quarterly period ended June 27,1992,
is incorporated herein by reference thereto.
(4) Rights Agreement dated as of October 23, 1987 between
the Corporation and Harris Trust and Savings Bank, as
Rights Agent, filed as Exhibit 1 to the Corporation's
Registration Statement on Form 8-A dated
October 26, 1987, is incorporated herein by reference
thereto. A Form 8-K, dated June 4, 1992, was filed
reporting an amendment to this Rights Agreement and is
incorporated herein by reference. No financial
statements were filed. On January 28, 1994, the Board
of Directors adopted amendments to the Rights
Agreement. A Form 8-K dated January 28, 1994 reporting
these amendments was filed and is incorporated herein
by reference. No financial statements were filed.
The Corporation and its subsidiaries have no long-term
debt agreement for which the related outstanding debt
exceeds 10% of consolidated total assets as of
January 1, 1994. Copies of debt instruments for which
the related debt is less than 10% of consolidated total
assets will be furnished to the Commission upon request.
(10)Material Contracts
(a) Incentive Stock Option Plan, filed as Exhibit 10(a)
to the Corporation's Annual Report on Form 10-K for
the fiscal year ended December 29, 1990, is
incorporated herein by reference thereto.
(b) Executive and Senior Officer Agreements, amended and
restated, and effective as of January 28, 1994. . . . . . . . . . . .23
(c) Indemnification Agreement for Directors, contained
in the Proxy Statement dated March 23, 1990,
Commission File No. 1-7724 mailed on March 23, 1990,
is incorporated herein by reference thereto.
(d) Snap-on Tools Corporation Supplemental Retirement
Plan, amended as of January 28, 1994. . . . . . . . . . . . . . . . .49
(13) Annual Report to Shareholders . . . . . . . . . . . . . . . . . . . . . .56
(22) Subsidiaries of the Corporation . . . . . . . . . . . . . . . . . . . . .55
19
<PAGE>
<TABLE>
<CAPTION>
Snap-On Tools Corporation
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Balance of
Balance at Subsidiary Charged to Balance at
beginning at time of costs and end of
Description Of Year Acquisition Expenses Deductions Year
----------- --------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
- -------------------------------
Year ended
(1) January 1, 1994 $12,586,976 $1,443,272 $14,496,553 $13,580,593(1) $14,946,208
Year ended
(1) January 2, 1993 $ 5,825,307 $4,547,379 $11,575,491 $ 9,361,201(1) $12,586,976
Year ended
(1) December 28, 1991 $ 3,972,949 -- $ 9,327,458 $ 7,475,100(1) $ 5,825,307
<FN>
(1) This amount represents write-offs of bad debts.
</TABLE>
<TABLE>
<CAPTION>
VALUATION ALLOWANCE FOR DEFERRED TAX ASSET(2)
- ---------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended
January 1, 1994 $11,797,000 -- -- $ 2,258,000 $ 9,539,000
Year ended
January 2, 1993 $ 4,000,000(3) $4,978,000 $ 2,819,000 -- $11,797,000
<FN>
(2) The Corporation adopted Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes" effective the beginning of 1992. Therefore no prior year
information is applicable for 1991.
(3) This amount represents the valuation allowance established at the time of adoption.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Snap-On Tools Corporation
SCHEDULE IX - SHORT-TERM BORROWINGS
Years Ended January 1, 1994, January 2, 1993 and December 28, 1991
Weighted
Maximum Average Average
Weighted Amount Amount Interest
Balance Average Outstanding Outstanding Rate
Category of Aggregate At End Interest During the During the During the
Short-Term Borrowings Of Period Rate Period Period Period
--------------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Year Ended January 1, 1994:
Commercial Paper $65,250,000 3.34% $ 75,000,000 $24,416,209 3.22%
Notes Payable Banks 1,037,644 8.87% 38,812,195 16,442,023 8.00%
-----------
$66,287,644
-----------
-----------
Year Ended January 2, 1993:
Commercial Paper $41,000,000 3.58% $108,000,000 $19,538,462 3.26%
Notes Payable Banks 25,902,586 9.10% 39,807,473 18,351,143 8.83%
-----------
$66,902,586
-----------
-----------
Year Ended December 28, 1991:
Commercial Paper $ -- --% $ 75,000,000 $35,017,184 6.52%
Notes Payable Banks -- --% 21,000,000 3,947,802 6.16%
-----------
$ --
-----------
-----------
</TABLE>
The additional information required by this schedule is contained in Note 5 to
the Financial Statements of the Corporation on page 28 of its 1993 Annual Report
and is incorporated herein by reference.
21
<PAGE>
<TABLE>
<CAPTION>
Snap-on Tools Corporation
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
Column A Column B
-------- --------
Item Amount
---- ------
<S> <C>
Maintenance and Repairs
Year Ended January 1, 1994 $16,794,068
Year Ended January 2, 1993 $15,517,000
Year Ended December 28, 1991 $15,119,000
Amortization of intangible assets, royalties, advertising
costs and taxes, other than payroll and income taxes, are
not included on this schedule since each of the items is
less than 1% of total sales and revenues.
</TABLE>
22
<PAGE>
EXHIBIT 10(b)
RESTATED EXECUTIVE AGREEMENT
THIS RESTATED EXECUTIVE AGREEMENT ("Agreement") is entered into this
28th day of January, 1994, by and between SNAP-ON TOOLS CORPORATION, a
Delaware corporation (the "Company") and , an executive of the
Company (the "Executive").
WHEREAS, the Company and the Executive had entered into an Agreement
effective as of January 4, 1991, and amended and restated this Agreement
effective as of January 22, 1993;
WHEREAS, the Board of Directors of the Company has determined that the
Executive has made, and is expected to continue to make, an essential
contribution to the profitability, growth and financial strength of the
Company;
WHEREAS, the Company wishes to amend and restate the Executive's
Restated Executive Agreement to continue to encourage the Executive to devote
his entire time and attention to the pursuit of Company matters without
distractions relating to his employment security;
WHEREAS, the Company intends that this Agreement will provide the
Executive with certain minimum compensation rights in the event of the
termination of his employment by the Company without cause or in the event the
Company adversely changes the terms and conditions of his employment in a
manner which would constitute constructive termination following a Change of
Control of the Company.
NOW, THEREFORE, in consideration of the respective terms and conditions
set forth herein, the Company and the Executive hereby agree as follows:
- 1 -
<PAGE>
1. DEFINITIONS. As used in this Agreement, the following terms
shall have the following meanings when used herein:
a. CAUSE. The term "Cause" shall mean that the Executive
shall, prior to any Termination of Employment (as that term is hereafter
defined) have:
(i) engaged in any act of fraud, embezzlement, or theft in
connection with his duties as an Executive or in the course of employment with
the Company or its subsidiaries;
(ii) wrongfully disclosed any secret process or confidential
information of the Company or its subsidiaries; or
(iii) engaged in any Competitive Activity (as that term is
hereafter defined); and the act or failure to act shall have been determined
by the Board of Directors to have been materially harmful to the Company.
b. COMPETITIVE ACTIVITY. The term "Competitive Activity"
shall mean the Executive's participation without the written consent of the
Board of Directors of the Company in the management of any business enterprise
which manufactures or sells any product or service competitive with any
product or service of the Company or its subsidiaries. Competitive Activity
shall not include the ownership of less than five (5) percent of the
securities in any enterprise and exercise of any ownership rights related
thereto.
c. CHANGE OF CONTROL. "Change of Control" shall be deemed to
have occurred if (1) any person (as such term is used in Section 13(d) of the
Securities Exchange Act of 1934 (the "1934 Act"), excluding the Company or any
of its subsidiaries, a trustee or any fiduciary holding securities under an
employee benefit plan of the Company or any of its subsidiaries, an
underwriter temporarily holding securities pursuant to an offering of such
- 2 -
<PAGE>
securities or a corporation owned, directly or indirectly, by stockholders of
the Company in substantially the same proportions as their ownership of the
Company) shall become the beneficial owner (within the meaning of Rule 13d-3
under the 1934 Act) of 50 percent or more of the outstanding voting securities
of the Company, (2) the Company shall be merged or consolidated with another
corporation and as a result of such merger or consolidation less than 50 percent
of the outstanding voting securities of the surviving or resulting corporation
shall be owned in the aggregate by the former stockholders of the Company, (3)
the Company shall sell 50 percent or more of its assets (in one transaction or a
series of related transactions within any period of 24 consecutive months) or
the stockholders approve a plan of complete liquidation of the Company, or (4)
during any period of 24 consecutive months individuals who at the beginning of
such period constituted the entire Board of Directors of the Company shall cease
for any reason to constitute a majority thereof unless the election or the
nomination for election by the Company's stockholders of each new director was
approved by a vote of at least two-thirds of the directors then still in office
who were directors at the beginning of the period or whose election or
nomination for election was previously so approved.
d. TERMINATION OF EMPLOYMENT. The term "Termination of
Employment" shall mean:
(i) any termination by the Company of the employment of the
Executive for any reason other than for Cause within a period of two (2) years
following a Change of Control of the Company;
(ii) voluntary termination by the Executive of his
employment within a period of two (2) years following a Change of Control of
the Company and subsequent to the
- 3 -
<PAGE>
occurrence, following a Change of Control of the Company and without the
Executive's consent, of (A) a material and adverse change in the Executive's
status, authority, duties, function, or benefits, (B) any reduction in the
Executive's base salary or percentage of base salary available as an incentive
bonus opportunity or the failure to pay the Executive's base salary or earned
bonus when due, (C) the relocation of the Company's principal executive
offices or the Executive's place of employment to a location more than 35
miles from their respective locations immediately prior to a Change of Control
of the Company, or (D) the failure of the Company to obtain from a successor
the assumption and agreement to perform this Agreement (as described in
Section 4.a.) prior to the effectiveness of any such succession; or
(iii) voluntary termination by the Executive of his
employment following completion of one year of service after a Change of
Control of the Company; provided that the voluntary termination must be
effected by the Executive within six (6) months after the completion of that
one year of service.
Any election by the Executive to terminate his employment as
contemplated by this section shall not be deemed a voluntary termination of
employment by the Executive for the purpose of any other employee benefit or
other plan.
The Executive may not be terminated for Cause prior to the
receipt by the Executive of a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters (3/4) of the entire
membership of the Board of Directors at a meeting of the Board of Directors
called and held for the purpose of considering such termination (after
reasonable notice to the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before the Board of
Directors) finding that, in the good faith opinion of the Board
- 4 -
<PAGE>
of Directors, the Executive was guilty of conduct set forth in the definition of
Cause herein, and specifying the particulars thereof in detail.
2. COMPENSATION AND BENEFITS. In the event of a Termination of
Employment of the Executive, the Company shall provide the Executive with the
following compensation and benefits:
a. GENERAL COMPENSATION AND BENEFITS. If the Executive's
employment shall be terminated for any reason following a Change in Control
and during the term of this Agreement, the Company shall pay the Executive's
full salary to the Executive through the date of termination at the rate in
effect at the time notice of termination is given, together with all
compensation and benefits payable to the Executive through the date of
termination under the terms of any compensation or benefit plan, program or
arrangement maintained by the Company during such period. Such payments shall
be made in a lump sum not later than five (5) days after such termination. If
the Executive's employment shall be terminated for any reason following a
Change in Control and during the term of this Agreement, the Company shall pay
the Executive's normal post-termination compensation and benefits to the
Executive as such payments become due. Such post-termination compensation and
benefits shall be determined under, and paid in accordance with, the Company's
retirement, insurance and other compensation or benefit plans, programs and
arrangements.
b. INCENTIVE COMPENSATION. Notwithstanding any provision of
any cash bonus incentive plan of the Company, the Company shall pay to the
Executive, within five (5) days after the Executive's date of termination, a
lump sum amount, in cash, equal to the sum of (i) any bonus or incentive
compensation which has been allocated or awarded to the Executive for
- 5 -
<PAGE>
a completed fiscal year or other measuring period preceding the date of
termination under the plan but has not yet been paid (pursuant to Section 2.a.
hereof or otherwise), and (ii) a pro rata portion to the date of termination
of the aggregate value of all contingent incentive compensation awards to the
Executive for all uncompleted periods under the plan calculated as to each
such award as if the "GOAL" with respect to such incentive compensation
award had been attained.
c. COMPENSATION. The Company shall pay to the Executive, a
lump sum equal to two (2) times the sum of (a) the highest per annum base rate
of salary in effect with respect to the Executive during the 3-year period
immediately prior to Termination of Employment plus (b) the highest annual
bonus earned by the Executive under any cash incentive compensation plan of
the Company during the three (3) fiscal years of the Company immediately
preceding Termination of Employment; PROVIDED, HOWEVER, if the Executive had
not been eligible to earn a bonus under a cash incentive compensation plan of
the Company prior to the fiscal year in which Termination of Employment
occurs, the amount for this clause (b) shall be the higher of (i) the
Executive's incentive compensation "GOAL" for the fiscal year in which
Termination of Employment occurs or (ii) the highest average annual bonus
earned during the three (3) fiscal years of the Company immediately preceding
Termination of Employment under any cash incentive compensation plan of the
Company by the group of executives of the Company participating under such
plan during such fiscal years at the level at which the Executive would have
participated pursuant to his position as of Termination of Employment. The
lump sum shall be paid to the Executive not later than five (5) days after
such termination.
d. BENEFITS. For a 3-year period following Termination of
Employment, the Company shall provide the Executive with health, disability,
life and other insurance benefits
- 6 -
<PAGE>
substantially similar to the benefits received by the Executive pursuant to
the Company's benefit programs as in effect immediately prior to a Change of
Control (or, if more favorable to the Executive, as in effect immediately prior
to the Executive's Termination of Employment) provided, however, that no
compensation or benefits provided hereunder shall be treated as compensation
for purposes of any of the programs or shall result in the crediting of
additional service thereunder.
e. ADDITIONAL PAYMENTS. Notwithstanding any other provisions
of this Agreement, in the event that any payment or benefit received or to be
received by the Executive in connection with a Change of Control of the Company
or the termination of the Executive's employment, whether pursuant to the terms
of this Agreement or any other plan, arrangement or agreement with the Company,
any entity whose actions result in a Change of Control of the Company or any
entity affiliated with the Company or such entity (all such payments and
benefits being hereinafter called "Total Payments"), would be subject (in
whole or part) to the excise tax (the "Excise Tax") under Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), then the Company shall
pay to the Executive an additional amount (the "Gross-Up Payment") such that
the net amount retained by the Executive, after deduction of any Excise Tax on
the Total Payments and any federal, state and local income tax and Excise Tax
upon the payment provided for by this Section 2.e., shall be equal to the
Total Payments. For purposes of determining the amount of the Gross-Up
Payment, the Executive shall be deemed to pay federal income taxes at the
highest marginal rate of federal income taxation in the calendar year in which
the Gross-Up Payment is to be made and state and local income taxes at the
highest marginal rate of taxation in the state of locality of the Executive's
residence on
- 7 -
<PAGE>
the date of termination, net of the maximum reduction in federal income taxes
which could be obtained from deduction of such state and local taxes. In the
event that the Excise Tax is subsequently determined to be less than the amount
taken into account hereunder at the time of termination of Executive's
employment, the Executive shall repay to the Company, at the time that the
amount of such reduction in Excise Tax is finally determined, the portion of
the Gross-Up Payment attributable to such reduction (plus that portion of the
Gross-Up Payment attributable to the Excise Tax and federal, state and local
income tax imposed on the Gross-Up Payment being repaid by the Executive to
the extent that such repayment results in a reduction in Excise Tax and/or a
federal, state or local income tax deduction) plus interest on the amount of
such repayment at the rate provided in section 1274 (b) (2) (B) of the Code.
In the event that the Excise Tax is determined to exceed the amount taken into
account hereunder at the time of the termination of the Executive's employment
(including by reason of any payment the existence or amount of which cannot be
determined at the time of the Gross-Up Payment), the Company shall make an
additional Gross-Up Payment in respect of such excess (plus any interest,
penalties or additions payable by the Executive with respect to such excess)
at the time that the amount of such excess is finally determined.
For purposes of determining whether and the extent to which the Total
Payments will be subject to the Excise Tax under this Section 2.e., (i) no
portion of the Total Payments the receipt or enjoyment of which the Executive
shall have effectively waived in writing prior to the date of termination
shall be taken into account, (ii) no portion of the Total Payments shall be
taken into account which in the opinion of tax counsel selected by the Company
does not constitute a "parachute payment" within the meaning of Section
280G(b) (2) of the Code, (including by
- 8 -
<PAGE>
reason of Section 280G(b) (4) (A) of the Code) and, in calculating the Excise
Tax, no portion of such Total Payments shall be taken into account which
constitutes reasonable compensation for services actually rendered, within the
meaning of Section 280G(b) (4) (B) of the Code, in excess of the "base amount"
(as defined in Section 280G(b) (3) of the Code) allocable to such reasonable
compensation, and (iii) the value of any noncash benefit or any deferred payment
or benefit included in the Total Payments shall be determined by the Company in
accordance with the principles of Sections 280G(d) (3) and (4) of the Code. The
Executive and the Company shall each reasonably cooperate with the other in
connection with any administrative or judicial proceedings concerning the
existence or amount of liability for Excise Tax with respect to the
Total Payments. Notwithstanding anything to the contrary in this Agreement,
the Board of Directors of the Company, by written notice to the Executive, may
cause the provisions of this Section 2.e. to be deleted from this Agreement.
Any such notice shall be given at least 15 days prior to the effective date of
such deletion, provided that such deletion may not be effective prior to
February 1, 1997.
f. NEW EMPLOYMENT. If the Executive secures new employment during
the three (3) year period following Termination of Employment, the amount of
any benefit being provided pursuant to Section 2.d. hereof shall be reduced to
the extent that any such benefit is being provided by the Executive's new
employer. The Executive, however, shall be under no obligation to seek new
employment and, in any event, no amounts payable pursuant to Section 2.c.
hereof shall be reduced or offset by any compensation received from new
employment or by any amounts claimed to be owed by the Executive to the
Company.
- 9 -
<PAGE>
g. LEGAL FEES. The Company shall also pay to the Executive
all reasonable legal fees and expenses incurred by the Executive in disputing
in good faith any termination of employment or in seeking in good faith to
obtain or enforce any benefit or right provided by this Agreement or in
connection with any tax audit or proceeding to the extent attributable to the
application of Section 4999 of the Code to any payment or benefit provided
hereunder. Such payments shall be made within five (5) business days after
delivery of the Executive's written requests for payment accompanied with such
evidence of fees and expenses incurred as the Company reasonably may require.
3. TERM. This Agreement shall commence on the date hereof January
28, 1994 and shall continue in effect through January 31, 1996; provided,
however, that commencing on February 1, 1997 and each February 1 thereafter,
the term of this Agreement shall automatically be extended for one (1)
additional year unless not later than October 31 of the preceding year, the
Company or the Executive shall have given notice not to extend this Agreement;
provided, further, however, if a Change of Control of the Company shall have
occurred during the initial or extended term of this Agreement, this Agreement
shall continue in effect for a period of twenty-four (24) months beyond the
month in which such Change of Control of the Company occurred. Notwithstanding
anything herein to the contrary, this Agreement shall terminate upon the
termination of the Executive's employment with the Company as a result of death,
disability or Cause (as defined in Section 1.a.) or by the Executive other than
pursuant to Sections 1.d.(ii) or (iii).
- 10 -
<PAGE>
4. SUCCESSORS AND BINDING AGREEMENTS.
a. The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidated, reorganization or otherwise) to
all or substantially all of the business and/or assets of the Company
expressly to assume and to agree to perform this Agreement in the same manner
and to the same extent the Company would be required to perform if no
succession had taken place. This Agreement shall be binding upon and inure to
the benefit of the Company and any such successor and such successor shall
thereafter be deemed the "Company" for the purposes of this Agreement.
b. This Agreement shall inure to the benefit of and be
enforceable by the Executive's respective personal or legal representative,
executor, administrator, successor, heirs, distributees and/or legatees.
c. Neither the Company nor the Executive may assign, transfer
or delegate this Agreement or any rights or obligations hereunder except as
expressly provided in this section. Without limiting the generality of the
foregoing, the Executive's right to receive payments hereunder shall not be
assignable or transferable, whether by pledge, creation of a security interest
or otherwise other than by a transfer by will or the laws of descent and
distribution or transfer contrary to this section, the Company shall have no
liability to pay any amount so attempted to be assigned or transferred.
5. NOTICES. All communications provided for herein shall be in
writing and shall be deemed to have been duly given when delivered or five (5)
business days after having been mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed to the
Company (to the attention of the Secretary of the Company) at its principal
- 11 -
<PAGE>
executive office and to the Executive at his principal residence or to such
other address as any party may have furnished to the other in writing in
accordance herewith except that notices of a change of address shall be
effective only upon receipt.
6. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Wisconsin without giving effect to the principles of conflict of laws of such
state.
7. SETTLEMENT OF DISPUTES; ARBITRATION. Any dispute or controversy
arising under or in connection with this Agreement shall be settled
exclusively by arbitration in Chicago, Illinois in accordance with the rules
of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that the Executive shall be entitled, during the pendency of any such
dispute or controversy, to continue to receive compensation and benefits as an
active employee.
8. VALIDITY. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement which shall remain in full force and effect.
9. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding and agreement of the parties with respect to the matters
discussed herein and supersedes all other prior agreements and understandings,
written or oral, between the parties with respect thereto. There are no
representations, warranties or agreements of any kind relating thereto that
are not set forth in this Agreement.
10. WITHHOLDING. The Company may withhold from any amounts payable
under this Agreement all federal, state and other taxes as shall be legally
required.
- 12 -
<PAGE>
11. CERTAIN LIMITATIONS. Nothing in this Agreement shall grant the
Executive any right to remain an executive, director or employee of the
Company or of any of its subsidiaries for any period of time.
* * *
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and date first written above.
SNAP-ON TOOLS CORPORATION
By:
-------------------------------------------
Robert A. Cornog
Its: Chairman, President and Chief Executive
Officer
----------------------------------------
Executive
- 13 -
<PAGE>
RESTATED SENIOR OFFICER AGREEMENT
THIS RESTATED SENIOR OFFICER AGREEMENT ("Agreement") is entered into
this 28th day of January, 1994, by and between SNAP-ON TOOLS CORPORATION, a
Delaware corporation (the "Company") and , a senior officer of
the Company (the "Executive").
WHEREAS, the Company and the Executive had entered into a Senior Officer
Agreement effective as of January 4, 1991, and amended and restated this
Agreement effective as of January 22, 1993;
WHEREAS, the Board of Directors of the Company has determined that the
Executive has made, and is expected to continue to make, an essential
contribution to the profitability, growth and financial strength of the
Company;
WHEREAS, the Company wishes to amend and restate the Executive's
Restated Senior Officer Agreement to continue to encourage the Executive to
devote his entire time and attention to the pursuit of Company matters without
distractions relating to his employment security;
WHEREAS, the Company intends that this Agreement will provide the
Executive with certain minimum compensation rights in the event of the
termination of his employment by the Company without cause or in the event the
Company adversely changes the terms and conditions of his employment in a
manner which would constitute constructive termination following a Change of
Control of the Company.
NOW, THEREFORE, in consideration of the respective terms and conditions
set forth herein, the Company and the Executive hereby agree as follows:
- 1 -
<PAGE>
1. DEFINITIONS. As used in this Agreement, the following terms
shall have the following meanings when used herein:
a. CAUSE. The term "Cause" shall mean that the Executive
shall, prior to any Termination of Employment (as that term is hereafter
defined) have:
(i) engaged in any act of fraud, embezzlement, or theft in
connection with his duties as an executive or in the course of employment with
the Company or its subsidiaries;
(ii) wrongfully disclosed any secret process or
confidential information of the Company or its subsidiaries; or
(iii) engaged in any Competitive Activity (as that term is
hereafter defined); and the act or failure to act shall have been determined
by the Board of Directors to have been materially harmful to the Company.
b. COMPETITIVE ACTIVITY. The term "Competitive Activity"
shall mean the Executive's participation without the written consent of the
Board of Directors of the Company in the management of any business enterprise
which manufactures or sells any product or service competitive with any
product or service of the Company or its subsidiaries. Competitive Activity
shall not include the ownership of less than five (5) percent of the
securities in any enterprise and exercise of any ownership rights related
thereto.
c. CHANGE OF CONTROL. "Change of Control" shall be deemed to
have occurred if (1) any person (as such term is used in Section 13(d) of the
Securities Exchange Act of 1934 (the "1934 Act"), excluding the Company or any
of its subsidiaries, a trustee or any fiduciary holding securities under an
employee benefit plan of the Company or any of its
- 2 -
<PAGE>
subsidiaries, an underwriter temporarily holding securities pursuant to an
offering of such securities or a corporation owned, directly or indirectly, by
stockholders of the Company in substantially the same proportions as their
ownership of the Company) shall become the beneficial owner (within the
meaning of Rule 13d-3 under the 1934 Act) of 50 percent or more of the
outstanding voting securities of the Company, (2) the Company shall be merged
or consolidated with another corporation and as a result of such merger or
consolidation less than 50 percent of the outstanding voting securities of the
surviving or resulting corporation shall be owned in the aggregate by the
former stockholders of the Company, (3) the Company shall sell 50 percent or
more of its assets (in one transaction or a series of related transactions
within any period of 24 consecutive months) or the stockholders approve a plan
of complete liquidation of the Company, or (4) during any period of 24
consecutive months individuals who at the beginning of such period constituted
the entire Board of Directors of the Company shall cease for any reason to
constitute a majority thereof unless the election or the nomination for
election by the Company's stockholders of each new director was approved by a
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period or whose election or nomination for
election was previously so approved.
d. TERMINATION OF EMPLOYMENT. The term "Termination of
Employment" shall mean:
(i) any termination by the Company of the employment of
the Executive for any reason other than for Cause within a period of two (2)
years following a Change of Control of the Company;
- 3 -
<PAGE>
(ii) voluntary termination by the Executive of his
employment within a period of two (2) years following a Change of Control of
the Company and subsequent to the occurrence, following a Change of Control of
the Company and without the Executive's consent, of (A) a material and adverse
change in the Executive's status, authority, duties, function, or benefits, (B)
any reduction in the Executive's base salary or percentage of base salary
available as an incentive bonus opportunity or the failure to pay the
Executive's base salary or earned bonus when due, (C) the relocation of the
Company's principal executive offices or the Executive's place of employment
to a location more than 35 miles from their respective locations immediately
prior to a Change of Control of the Company, or (D) the failure of the Company
to obtain from a successor the assumption and agreement to perform this
Agreement (as described in Section 4.a.) prior to the effectiveness of any
such succession; or
(iii) voluntary termination by the Executive of his
employment following completion of one year of service after a Change of
Control of the Company; provided that the voluntary termination must be
effected by the Executive within six (6) months after the completion of that
one year of service.
Any election by the Executive to terminate his employment as
contemplated by this section shall not be deemed a voluntary termination of
employment by the Executive for the purpose of any other employee benefit or
other plan.
The Executive may not be terminated for Cause prior to the
receipt by the Executive of a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters (3/4) of the entire
membership of the Board of Directors at a meeting of the Board of Directors
called and held for the purpose of considering such termination (after
reasonable notice
- 4 -
<PAGE>
to the Executive and an opportunity for the Executive, together with the
Executive's counsel, to be heard before the Board of Directors) finding that,
in the good faith opinion of the Board of Directors, the Executive was guilty
of conduct set forth in the definition of Cause herein, and specifying the
particulars thereof in detail.
2. COMPENSATION AND BENEFITS. In the event of a Termination of
Employment of the Executive, the Company shall provide the Executive with the
following compensation and benefits:
a. GENERAL COMPENSATION AND BENEFITS. If the Executive's
employment shall be terminated for any reason following a Change in Control
and during the term of this Agreement, the Company shall pay the Executive's
full salary to the Executive through the date of termination at the rate in
effect at the time notice of termination is given, together with all
compensation and benefits payable to the Executive through the date of
termination under the terms of any compensation or benefit plan, program or
arrangement maintained by the Company during such period. Such payments shall
be made in a lump sum not later than five (5) days after such termination. If
the Executive's employment shall be terminated for any reason following a
Change in Control and during the term of this Agreement, the Company shall pay
the Executive's normal post-termination compensation and benefits to the
Executive as such payments become due. Such post-termination compensation and
benefits shall be determined under, and paid in accordance with, the Company's
retirement, insurance and other compensation or benefit plans, programs and
arrangements.
b. INCENTIVE COMPENSATION. Notwithstanding any provision of
any cash bonus incentive plan of the Company, the Company shall pay to the
Executive, within five (5) days
- 5 -
<PAGE>
after the Executive's date of termination, a lump sum amount, in cash, equal to
the sum of (i) any bonus or incentive compensation which has been allocated or
awarded to the Executive for a completed fiscal year or other measuring period
preceding the date of termination under the plan but has not yet been paid
(pursuant to Section 2.a. hereof or otherwise), and (ii) a pro rata portion
to the date of termination of the aggregate value of all contingent incentive
compensation awards to the Executive for all uncompleted periods under the plan
calculated as to each such award as if the "GOAL" with respect to such incentive
compensation award had been attained.
c. COMPENSATION. The Company shall pay to the Executive, a
lump sum equal to three (3) times the sum of (a) the highest per annum base
rate of salary in effect with respect to the Executive during the 3-year
period immediately prior to Termination of Employment plus (b) the highest
annual bonus earned by the Executive under any cash incentive compensation
plan of the Company during the three (3) fiscal years of the Company
immediately preceding Termination of Employment; PROVIDED, HOWEVER, if the
Executive had not been eligible to earn a bonus under a cash incentive
compensation plan of the Company prior to the fiscal year in which Termination
of Employment occurs, the amount for this clause (b) shall be the higher of
(i) the Executive's incentive compensation "GOAL" for the fiscal year in
which Termination of Employment occurs or (ii) the highest average annual
bonus earned during the three (3) fiscal years of the Company immediately
preceding Termination of Employment under any cash incentive compensation plan
of the Company by the group of executives of the Company participating under
such plan during such fiscal years at the level at which the Executive would
have participated pursuant to his position as of Termination of Employment.
The lump sum shall be paid to the Executive not later than five (5) days after
such termination.
- 6 -
<PAGE>
d. BENEFITS. For a 3-year period following Termination of
Employment, the Company shall provide the Executive with health, disability,
life and other insurance benefits substantially similar to the benefits received
by the Executive pursuant to the Company's benefit programs as in effect
immediately prior to a Change of Control (or, if more favorable to the
Executive, as in effect immediately prior to the Executive's Termination of
Employment); provided, however, that no compensation or benefits provided
hereunder shall be treated as compensation for purposes of any of the programs
or shall result in the crediting of additional service thereunder.
e. ADDITIONAL PAYMENTS. Notwithstanding any other provisions
of this Agreement, in the event that any payment or benefit received or to be
received by the Executive in connection with a Change of Control of the
Company or the termination of the Executive's employment, whether pursuant to
the terms of this Agreement or any other plan, arrangement or agreement with
the Company, any entity whose actions result in a Change of Control of the
Company or any entity affiliated with the Company or such entity (all such
payments and benefits being hereinafter called "Total Payments"), would be
subject (in whole or part) to the excise tax (the "Excise Tax") under Section
4999 of the Internal Revenue Code of 1986, as amended (the "Code"), then the
Company shall pay to the Executive an additional amount (the "Gross-Up
Payment") such that the net amount retained by the Executive, after deduction
of any Excise Tax on the Total Payments and any federal, state and local
income tax and Excise Tax upon the payment provided for by this Section 2.e.,
shall be equal to the Total Payments. For purposes of determining the amount
of the Gross-Up Payment, the Executive shall be deemed to pay federal income
taxes at the highest marginal rate of federal income taxation in the
- 7 -
<PAGE>
calendar year in which the Gross-Up Payment is to be made and state and local
income taxes at the highest marginal rate of taxation in the state of locality
of the Executive's residence on the date of termination, net of the maximum
reduction in federal income taxes which could be obtained from deduction of
such state and local taxes. In the event that the Excise Tax is subsequently
determined to be less than the amount taken into account hereunder at the time
of termination of Executive's employment, the Executive shall repay to the
Company, at the time that the amount of such reduction in Excise Tax is
finally determined, the portion of the Gross-Up Payment attributable to such
reduction (plus that portion of the Gross-Up Payment attributable to the
Excise Tax and federal, state and local income tax imposed on the Gross-Up
Payment being repaid by the Executive to the extent that such repayment
results in a reduction in Excise Tax and/or a federal, state or local income
tax deduction) plus interest on the amount of such repayment at the rate
provided in section 1274 (b) (2) (B) of the Code. In the event that the
Excise Tax is determined to exceed the amount taken into account hereunder at
the time of the termination of the Executive's employment (including by reason
of any payment the existence or amount of which cannot be determined at the
time of the Gross-Up Payment), the Company shall make an additional Gross-Up
Payment in respect of such excess (plus any interest, penalties or additions
payable by the Executive with respect to such excess) at the time that the
amount of such excess is finally determined.
For purposes of determining whether and the extent to which the Total
Payments will be subject to the Excise Tax under this Section 2.e., (i) no
portion of the Total Payments the receipt or enjoyment of which the Executive
shall have effectively waived in writing prior to the date of termination
shall be taken into account, (ii) no portion of the Total Payments shall be
taken
- 8 -
<PAGE>
into account which in the opinion of tax counsel selected by the Company
does not constitute a "parachute payment" within the meaning of Section 280G(b)
(2) of the Code, (including by reason of Section 280G(b) (4) (A) of the Code)
and, in calculating the Excise Tax, no portion of such Total Payments shall be
taken into account which constitutes reasonable compensation for services
actually rendered, within the meaning of Section 280G(b) (4) (B) of the Code,
in excess of the "base amount" (as defined in Section 280G(b) (3) of the Code)
allocable to such reasonable compensation, and (iii) the value of any noncash
benefit or any deferred payment or benefit included in the Total Payments shall
be determined by the Company in accordance with the principles of Sections
280G(d) (3) and (4) of the Code. The Executive and the Company shall each
reasonably cooperate with the other in connection with any administrative or
judicial proceedings concerning the existence or amount of liability for
Excise Tax with respect to the Total Payments. Notwithstanding anything to
the contrary in this Agreement, the Board of Directors of the Company, by
written notice to the Executive, may cause the provisions of this Section 2.e.
to be deleted from this Agreement. Any such notice shall be given at least 15
days prior to the effective date of such deletion, provided that such deletion
may not be effective prior to February 1, 1997.
f. NEW EMPLOYMENT. If the Executive secures new employment
during the three (3) year period following Termination of Employment, the
amount of any benefit being provided pursuant to Section 2.d. hereof shall be
reduced to the extent that any such benefit is being provided by the
Executive's new employer. The Executive, however, shall be under no
obligation to seek new employment and, in any event, no amounts payable
pursuant to Section
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<PAGE>
2.c. hereof shall be reduced or offset by any compensation received from new
employment or by any amounts claimed to be owed by the Executive to the Company.
g. LEGAL FEES. The Company shall also pay to the Executive
all reasonable legal fees and expenses incurred by the Executive in disputing
in good faith any termination of employment or in seeking in good faith to
obtain or enforce any benefit or right provided by this Agreement or in
connection with any tax audit or proceeding to the extent attributable to the
application of Section 4999 of the Code to any payment or benefit provided
hereunder. Such payments shall be made within five (5) business days after
delivery of the Executive's written requests for payment accompanied with such
evidence of fees and expenses incurred as the Company reasonably may require.
3. TERM. This Agreement shall commence on the date hereof January
28, 1994, and shall continue in effect through January 31, 1996; provided,
however, that commencing on February 1, 1997 and each February 1 thereafter,
the term of this Agreement shall automatically be extended for one (1)
additional year unless not later than October 31 of the preceding year, the
Company or the Executive shall have given notice not to extend this Agreement;
provided, further, however, if a Change of Control of the Company shall have
occurred during the initial or extended term of this Agreement, this Agreement
shall continue in effect for a period of 24 months beyond the month in which
such Change of Control of the Company occurred. Notwithstanding anything
herein to the contrary, this Agreement shall terminate upon the termination of
the Executive's employment with the Company as a result of death, disability
or Cause (as defined in Section 1.a.) or by the Executive other than pursuant
to Sections 1.d.(ii) or (iii).
- 10 -
<PAGE>
4. SUCCESSORS AND BINDING AGREEMENTS.
a. The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidated, reorganization or otherwise) to
all or substantially all of the business and/or assets of the Company expressly
to assume and to agree to perform this Agreement in the same manner and to the
same extent the Company would be required to perform if no succession had
taken place. This Agreement shall be binding upon and inure to the benefit of
the Company and any such successor and such successor shall thereafter be
deemed the "Company" for the purposes of this Agreement.
b. This Agreement shall inure to the benefit of and be
enforceable by the Executive's respective personal or legal representative,
executor, administrator, successor, heirs, distributees and/or legatees.
c. Neither the Company nor the Executive may assign, transfer
or delegate this Agreement or any rights or obligations hereunder except as
expressly provided in this section. Without limiting the generality of the
foregoing, the Executive's right to receive payments hereunder shall not be
assignable or transferable, whether by pledge, creation of a security interest
or otherwise other than by a transfer by will or the laws of descent and
distribution or transfer contrary to this section, the Company shall have no
liability to pay any amount so attempted to be assigned or transferred.
5. NOTICES. All communications provided for herein shall be in
writing and shall be deemed to have been duly given when delivered or five (5)
business days after having been mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed to the
Company (to the attention of the Secretary of the Company) at its principal
- 11 -
<PAGE>
executive office and to the Executive at his principal residence or to such
other address as any party may have furnished to the other in writing in
accordance herewith except that notices of a change of address shall be
effective only upon receipt.
6. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Wisconsin without giving effect to the principles of conflict of laws of such
state.
7. SETTLEMENT OF DISPUTES; ARBITRATION. Any dispute or controversy
arising under or in connection with this Agreement shall be settled
exclusively by arbitration in Chicago, Illinois in accordance with the rules
of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that the Executive shall be entitled, during the pendency of any such
dispute or controversy, to continue to receive compensation and benefits as an
active employee.
8. VALIDITY. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement which shall remain in full force and effect.
9. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding and agreement of the parties with respect to the matters
discussed herein and supersedes all other prior agreements and understandings,
written or oral, between the parties with respect thereto. There are no
representations, warranties or agreements of any kind relating thereto that
are not set forth in this Agreement.
10. WITHHOLDING. The Company may withhold from any amounts payable
under this Agreement all federal, state and other taxes as shall be legally
required.
- 12 -
<PAGE>
11. CERTAIN LIMITATIONS. Nothing in this Agreement shall grant the
Executive any right to remain an executive, director or employee of the
Company or of any of its subsidiaries for any period of time.
* * *
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and date first written above.
SNAP-ON TOOLS CORPORATION
By:
--------------------------------------------
Robert A. Cornog
Its: Chairman, President and Chief Executive
Officer
----------------------------------------
Executive
- 13 -
<PAGE>
SNAP-ON TOOLS CORPORATION
SUPPLEMENTAL RETIREMENT PLAN FOR OFFICERS
As Amended June 28, 1991
SECTION 1 -- INTRODUCTION
1.1 PLAN. SNAP-ON TOOLS SUPPLEMENTAL RETIREMENT PLAN FOR OFFICERS (the
"Plan") was originally established by Snap-on Tools Corporation for the
benefit of eligible employees of that corporation and its subsidiaries that
adopted the Plan with that corporation's consent. The Plan is intended to
constitute an unfunded "excess benefit plan" as defined in Section 3(36) of
the Employee Retirement Income Security Act of 1974 ("ERISA") and an unfunded
Plan maintained primarily for the purpose of providing deferred compensation
for a select group of management or highly compensated employees as defined in
Section 201(2) of ERISA. Benefits payable from the Plan will be paid solely
from the general assets of the Corporation or other employers under the Plan
(6/28/91).
1.2 EFFECTIVE DATE. The "effective date" of the Plan as set forth below
is August 26, 1983.
1.3 EMPLOYERS. The term "Corporation" means Snap-on Tools Corporation
until such date that name "Snap-on Tools Corporation" is changed to "Snap-on
Incorporated" by shareholder approval, and on such date "Corporation" shall
mean Snap-on Incorporated or any successor thereto, and all rights and
obligations under this Plan shall be transferred to Snap-on Incorporated or
any successor thereto. The Corporation and any subsidiary of the Corporation
which adopts the Plan with the consent of the Corporation is referred to
herein individually as an "employer" and collectively as the "employers."
1.4 PURPOSE. The Plan has been established to supplement retirement
benefits provided by the Snap-on Tools Retirement Plan for Administrative and
Field Employees (the "Administrative and Field Plan") in the event that
benefits provided under the Administrative and Field Plan are limited by the
benefit restrictions imposed under ERISA and/or limited due to participation
in Snap-on Tools Corporation Deferred Compensation Plan.
SECTION 2 -- PARTICIPATION AND SUPPLEMENTAL BENEFITS
2.1 ELIGIBILITY. Each employee of Snap-on Tools Corporation or any
subsidiary employer who was a participant in the Plan will continue to be
eligible to participate in the Plan in accordance with the terms of the Plan.
Each employee of the Corporation will become a participant in the Plan and
eligible for benefits in accordance with subsection 2.2, provided that such
participant meets the following requirements:
(a) The employee is an elected officer of the Corporation, as
determined under the Bylaws of the Corporation; and
(b) Such employee is a member of the Administrative and Field
Plan.
- 1 -
<PAGE>
2.2 SUPPLEMENTAL BENEFITS. Supplemental benefits payable to or on behalf
of a participant under the Plan shall be equal to the difference (if any)
between the full amount of the retirement income or pre-retirement spouse's
benefit computed for the participant or his surviving spouse under the
Administrative and Field Plan benefit formula (disregarding any benefit or
compensation limitations contained in ERISA and/or limited due to
participation in Snap-on Tools Corporation Deferred Compensation Plan), and
the amount of retirement income or pre-retirement spouse's benefit which is
actually payable under the Administrative and Field Plan, subject to the
following limitations (6/28/91):
(a) Should employment continue after service as an officer
terminates, retirement benefits under this Plan will not accrue
after the calendar year in which service as an officer terminates
(4/26/85).
(b) The maximum supplemental benefits payable annually under this
Plan for any participant who retired under the Plan prior to
January 28, 1994 are limited to $150,000.
(c) Supplemental benefits will be payable in accordance with
Subsection 2.3.
(d) Deferred compensation will be considered as eligible earnings
only for the year payment is deferred for purposes of determining
retirement benefits (8/22/86).
2.3 PAYMENT OF BENEFITS. Subject to the provisions of this Plan,
supplemental benefits shall be payable to or on behalf of a participant as
follows;
(a) NORMAL FORM. Supplemental benefits to a participant who
retires on a normal, deferred or early retirement date will be
made monthly, will commence on his retirement date and continue
thereafter for life and, if the participant dies within a period
of five years after his retirement date, a continuing payment of
the same amount will be made to his eligible spouse (as defined in
Subsection 5.2) if then surviving spouse or such eligible spouse
is not living or dies prior to the expiration of such five-year
period, to his beneficiary for the balance of said period.
(b) PAYMENTS TO SURVIVING SPOUSE. If, at the later to occur of
the death of a retired participant or the completion of the
applicable five-year period specified in Paragraph (a) above, such
participant's eligible spouse (as defined in Subsection 5.2) is
living, such spouse shall be entitled to receive a monthly
supplemental benefit on the first day of the next month, equal to
50 percent of the monthly supplemental benefit which the
participant or such eligible spouse was receiving under Paragraph
(a). Such spouse's monthly benefit will be paid on the first day
of each month thereafter with the last payment being the payment
due on the first day of the month in which such spouse's death
occurs. If such spouse is more than ten years younger than the
participant, the amount of monthly benefit payable to such spouse
shall be reduced by an appropriate percentage (determined
actuarially) for each full month by which such spouse's age is
more than ten years less than the participant's age.
- 2 -
<PAGE>
(c) RETIREMENT DATE. For purposes of this subsection, a
participant's "retirement date" will be the first day of the month
coincident with or next following the date as of which a
participant actually retires or is retired from the employ of all
of the employers (i) on or after attaining age 65 years, (ii) on
or after attaining age 50 years if he has completed ten or more
years of continuous employment under the Administrative and Field
Plan or (iii) on the date he is retired because of total and
permanent disability if he has completed ten or more years of
continuous employment under the Administrative and Field Plan.
(d) PRE-RETIREMENT SPOUSE'S BENEFIT. In the event a
participant who has a spouse to whom he is legally married at the
time he satisfied the requirements of Paragraph 2.3(c)(ii) above
dies leaving an eligible spouse, there shall be payable to such
participant's eligible spouse the supplemental amount that would
have been payable to his spouse under Paragraph (b) above had the
participant retired on the first day of the month coincident with
or next following the month in which his death occurred and had
received payment commencing on such date in the form described in
Paragraphs (a) and (b) above. Such monthly spouse's benefit will
be paid to such spouse on the first day of the month coincident
with or next following the date of the participant's death and
will be payable on the first day of each month thereafter, with
the final payment being the payment due on the first day of the
month in this such spouse's death occurs.
The computation and payment of such benefits by the Corporation shall be
conclusive on the participant, his eligible spouse and his beneficiary
(6/23/89).
2.4 BENEFITS PROVIDED BY EMPLOYERS. Benefits under this Plan to a
participant, his surviving spouse or his beneficiary may be paid directly by
the participant's employer. No employee shall be required to segregate any
assets or establish any trust or fund to provide for the payment of benefits
under this Plan (6/23/89).
SECTION 3 -- OTHER EMPLOYMENT
A participant or other person receiving supplemental benefits under the Plan
will continue to be entitled to receive such payments regardless of other
employment or self-employment.
SECTION 4 -- FORFEITURE FOR CAUSE
Notwithstanding any provisions of the Plan to the contrary, a retired officer
will be disqualified for benefits under this Plan if he, during his term of
employment with the Corporation, or within two years of the date his
employment terminates:
(a) Uses or discloses trade secrets for the benefit of someone
other than the Corporation or its subsidiaries;
- 3 -
<PAGE>
(b) Embezzles or steals cash or other property of the Corporation
or its subsidiaries or performs other similar dishonest acts
against the Corporation or its subsidiaries; or
(c) Enters into a business in direct competition with the
Corporation or its subsidiaries as either an employee, director,
proprietor, consultant, partner or joint venturer of such business
(1/6/84).
SECTION 5 -- GENERAL
5.1 ADMINISTRATION. The Plan will be administered by the Corporation.
The Board of Directors of the Corporation will designate the person or persons
authorized to act on behalf of the Corporation in the administration of the
Plan.
5.2 SPOUSE OR BENEFICIARY. Any benefits payable to an eligible spouse or
beneficiary under the Plan shall be paid to such spouse or beneficiary
eligible to receive the participant's benefits under the Administrative and
Field Plan as provided in Subsection 2.3 or, if no such beneficiary has been
designated, to the participant's estate. For purposes of this Plan, an
"eligible spouse" of a participant is a spouse of the participant as of the
participant's retirement date (or, if applicable, the participant's date of
death) resulting from a legally recognized marriage (6/23/89).
5.3 INTERESTS NOT TRANSFERABLE. Except as to any withholding of tax under
the laws of the United States or any state, the interest of any participant or
other person under the Plan shall not be subject to the claims of creditors
and may not be voluntarily or involuntarily sold, transferred, assigned,
alienated or unencumbered.
5.4 FACILITY OF PAYMENT. Any amounts payable hereunder to any person
under legal disability or who, in the judgement of the Corporation, is unable
to properly manage his financial affairs may be paid to the legal
representative of such person (6/23/89).
5.5 GENDER AND NUMBER. Words in the masculine gender shall include the
feminine gender and, where the context admits, the plural shall include the
singular and the singular shall include the plural.
5.6 CONTROLLING LAW. Except to the extent superseded by the laws of the
United States, the laws of Wisconsin shall be controlling in all matters
relating to the Plan.
5.7 SUCCESSORS. This Plan is binding on each employer and will inure to
the benefit of any successor of an employer, whether by way of purchase,
merger, consolidation or otherwise.
5.8 NOT A CONTRACT. This Plan does not constitute a contract of
employment, and shall not be construed to give any participant the right to be
retained in any employer's employ. No participant shall have any rights under
this Plan except those specifically provided herein. Such participant shall
not have any right or security interest in any specific asset of the
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<PAGE>
employers or any trust, it being understood that any assets set aside shall be
available for the claims of an employer's creditors (6/23/89).
- 5 -
<PAGE>
5.9 LITIGATION BY PARTICIPANT. If a legal action relating to the Plan is
begun against the Corporation or an employer by or on behalf of any person, or
if a legal action arises because of conflicting claims to a participant's or
other person's benefits, the cost to the Corporation or the employer of
defending the action shall be charged to the extent permitted by law to the
sum, if any, which were involved in the action or were payable to the
participant or other person concerned, or to the supplemental benefits payable
to the participant under the Plan.
SECTION 6 -- AMENDMENT AND TERMINATION
While the employer expects to continue the Plan indefinitely, the right to
amend or terminate the Plan by action of the Board of Directors of the
corporation is hereby reserved, provided that in no event shall any
participant's supplemental benefits accrued to the date of such amendment or
termination be reduced or modified by such action. Any supplemental benefits
accrued to the date of such amendment or termination shall be payable under
Subsection 2.3 (8/28/87) (6/23/89).
* * * * *
- 6 -
<PAGE>
SNAP-ON TOOLS CORPORATION
FINANCIAL REVIEW CONTENTS
Managment's Discussion----------16
Consolidated
Financial Statements------------21
Notes to Consolidated
Financial Statements------------25
Auditor's Report----------------35
Eleven-year Summary-------------36
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
===============================================================================
The management of Snap-on Tools Corporation is responsible for the preparation
and integrity of all financial statements and other information contained in
this Annual Report. The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and necessarily include
amounts based on judgments and estimates by management giving due consideration
to materiality. The Corporation maintains internal control systems designed to
provide reasonable assurance that the Corporation's financial records reflect
the transactions of the Corporation and that its assets are protected from loss
or unauthorized use. A staff of internal auditors conducts operational audits to
evaluate the adequacy of internal controls and accounting practices.
The Corporation's consolidated financial statements have been audited by Arthur
Andersen & Co., independent public accountants, whose report thereon appears on
page 35. As part of its audit of the Corporation's consolidated financial
statements, Arthur Andersen & Co. considered the Corporation's system of
internal controls to the extent it deemed necessary to determine the nature,
timing, and extent of its audit tests. Management has made available to Arthur
Andersen & Co. the Corporations financial records and related data.
The Audit Committee of the Board of Directors is responsible for reviewing and
evaluating the overall performance of the Corporations financial reporting and
accounting practices. The Committee meets periodically and independently with
management, internal auditors, and the independent public accountants to discuss
the Corporations internal accounting controls, auditing, and financial reporting
matters. The internal auditors and independent public accountants have
unrestricted access to the Audit Committee.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Fiscal Years 1993, 1992, 1991
RESULTS OF OPERATIONS
===============================================================================
OVERVIEW - 1993 consolidated net sales increased 15.1% following an increase of
11.6% in 1992.Sales in 1993 benefited from full-year results for Sun Electric
Corporation ("Sun"), which has been included only in the fourth quarter of
1992.Sales gains were strongest in Europe (largely attributable to Sun) and in
other non-U.S. markets, particularly Japan.North American sales grew modestly,
reflecting the inclusion of Sun sales and improved demand for power tools and
diagnostic equipment.
Consolidated net earnings increased 30.1% in 1993, reflecting a more favorable
sales mix of Snap-on manufactured product, lower operating expenses as a percent
of net sales, and a break-even year for Sun, which reported a loss in 1992.Net
earnings for 1992 increased 92.5% over 1991, including the effect of a 1991
accounting change for Statement of Financial Accounting Standards (SFAS) No.
106, "Employers' Accounting for Postretirement Benefits Other than
Pensions. "Excluding the charge, net warnings for 1992 decreased 9.9% from
1991. The 1992 earnings benefited from a LIFO inventory adjustment.
<TABLE>
<CAPTION>
(Amounts in thousands) 1993 1992 1991*
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
NET EARNINGS $85,812 $65,975 $34,277
- -------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE $2.02 $1.56 $0.82
- -------------------------------------------------------------------------------
<FN>
* 1991 net earnings excluding the SFAS 106 accounting change were $73.2 million
or $1.75 per share.
</TABLE>
Sales - Sales in North America increased 4.9% in 1993, reflecting the inclusion
of Sun revenues for the full year. North American sales, excluding Sun, declined
0.5%. U.S. sales were virtually unchanged, while sales in Canada rose 3.0% and
Mexico declined 6.7%.
The Corporations sales in Europe were up 78.3%, again due to the full-year
inclusion of Sun and strong demand for Suns vehicle emissions test equipment in
Germany, which became the first Common Market country to implement a new
emissions testing regulation in 1993. The 1993 revenue generated by the start-up
of the Germany program was a one-time occurrence. However, the Corporation
expects additional countries to begin similar programs over the next several
years. Unit volume increased in the United Kingdom. Excluding Sun, net U.K.
revenue rose in local currency, but declined in U.S. dollars after adjustments
for currency translations.
Sales in other markets increased 60.9% after increasing 110.8% in 1992. Sales
in 1993 increased strongly in Japan and Australia and benefited from the
full-year inclusion of Sun as well as the expansion of the Corporations Japanese
dealer force.
<TABLE>
<CAPTION>
(Amounts in thousands) 1993 1992 1991
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
NORTH AMERICAN SALES (U.S., CANADA, MEXICO) $881,817 $840,350 $794,768
- ------------------------------------------------------------------------------
EUROPEAN SALES 198,941 111,598 71,711
- ------------------------------------------------------------------------------
OTHER SALES 51,252 31,852 15,112
- ------------------------------------------------------------------------------
TOTAL SALES $1,132,010 $983,800 $881,591
- ------------------------------------------------------------------------------
</TABLE>
The Corporations four product groups experience varying unit volume levels from
year to year. Hand tool volume, which declined slightly in 1993, is expected to
grow slowly within the U.S. automotive service market due to improved vehicle
quality, vehicle designs requiring fewer fasteners, and reduced turnover within
a maturing technician population. Storage unit volume was flat during 1993 after
a year of heavy promotion in 1992. Growth for both the hand tool and tool
storage product groups will be driven by penetration of international
markets,expansion in the industrial market, and development of new products and
brands. Power tools volume increased, benefiting from an expanded product line,
improved quality, and greater market acceptance.Diagnostics and shop equipment
recorded strong, double-digit gains,reflecting the inclusion of a full year of
Sun and the successful introduction of an expanded line of products and
technologies to diagnose and service air conditioning systems and transmissions,
and to test vehicle emissions. Strong demand for emissions equipment and related
diagnostics in Germany offset soft demand in this product
page
- ----
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Fiscal Years 1993, 1992, 1991
RESULTS OF OPERATIONS continued
===============================================================================
category elsewhere in Europe. Adoption of new vehicle technologies,product
extensions, and new government regulations are expected to drive growth in this
category. Additional sales will also come from expanded technician training
services offered by the Corporation.
During the year, the Corporation increased prices by varying degrees in each of
its product groups. List price increases averaged 3.5% in 1993 and 4.1% in 1992.
However, promotional activities reduced the revenue benefit of these price
increases.
COST AND PROFIT MARGINS - Gross profit margins were 52.6% in 1993, compared with
51.8% in 1992 and 49.6% in 1991. Three factors were primarily responsible for
the higher 1993 gross margin: a more favorable mix of Snap-on-manufactured
product; continued manufacturing cost reduction efforts; and a modest increase
in the number of Corporation-employed sales representatives. Sales made by the
Corporations employed sales force are recorded at full retail prices rather than
the discounted prices charged to dealers. This employed sales force has been
expanded to permit prospective franchised dealers to work in the business before
committing to a franchise investment, and as a result of the expanded
Snap-on/Sun Tech Systems sales force. While higher sales prices recorded for
employee representatives improved gross margins, the gain was offset by higher
payroll expenses.
Operating expenses as a percent of net sales declined to 39.6% compared with
40.0% in 1992 and 35.6 % in 1991. However, operating expenses increased by $55.1
million in 1993 following an increase of $79.9 million in 1992. Factors
contributing to these increased operating expenses in 1993 included full-year
operating costs associated with Sun; additional payroll expense with the
addition of more sales representatives and expansion of the Snap-on/Sun Tech
Systems sales force; expenses of J.H. Williams, acquired in September, 1993;
one-time expense associated with the consolidation of inventory in four regional
distribution centers and customer service into eight regional centers; and
expanded selling effort in international markets. These expense increases were
partially offset by reduced legal expenses.
Factors contributing to increased operating expenses in 1992 included costs
associated with Sun, new payroll expenses related to the addition of sales
representatives and the expansion of Tech Systems, and legal expenses.
Changes in the discount rate and actuarial assumptions used in computing
pension and postretirement health care, along with other factors, will increase
these costs by approximately $6.5 million in 1994 compared with 1993 with the
majority of the increase appearing in operating expenses.
In November, 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 112, "Employers Accounting for
Postemployment Benefits." This statement establishes accounting standards for
employers who provide certain benefits to former or inactive employees, their
beneficiaries, and covered dependents after employment but before retirement.
The Corporation will adopt this statement in the first quarter of 1994. The
Corporation believes the effect of adopting this new standard will not be
material to its financial condition or results of operations.
OTHER INCOME AND EXPENSES - Interest expense in 1993 totaled $11.2 million,
largely as a result of the long-term debt incurred from the acquisition of Sun.
The Corporation anticipates lower interest expense in 1994.
<TABLE>
<CAPTION>
(Amounts in thousands) 1993 1992 1991
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST EXPENSE $(11,198) $(5,969) $(5,250)
- ------------------------------------------------------------------------------
INTEREST INCOME 1,971 2,100 1,209
- ------------------------------------------------------------------------------
OTHER INCOME (EXPENSE) (1,215) (2,231) (1,300)
- ------------------------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSE) $(10,442) $(6,100) $(5,341)
- ------------------------------------------------------------------------------
</TABLE>
page
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Fiscal Years 1993, 1992, 1991
RESULTS OF OPERATIONS continued
===============================================================================
INCOME TAXES - The Corporation adopted in the first quarter of 1992 Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
Under SFAS 109, the balance sheet reflects deferred tax assets and liabilities
and the tax benefit of net operating loss carryforwards at enacted tax rates to
the extent that realization of such benefits is more likely than not.
As a result of the enactment of the Budget Reconciliation Act of 1993,the
Corporation was required to pay federal income taxes at 35% rather than 34%
retroactive to January 1, 1993. In accordance with SFAS No.109, the Corporation
adjusted its deferred income tax balances and current taxes payable on the
enactment date. The impact of adjusting net deferred tax benefits to the current
federal rate resulted in a reduction in the tax provision of $2.2 million or
approximately $.05 per share.
The Corporation has recorded significant deferred tax assets related to costs
absorbed in inventories, employee benefits, reserves and accruals not currently
deductible, and other items. Based upon the historical performance of the
Corporation, it is expected that these items will be realized through future
taxable income.
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. The Corporation has U.S.
tax net operating loss carryforwards (NOLs) as a result of the Sun acquisition
totaling $68.0 million which expire as follows: 1998 - $15.7 million; 2000 -
$11.3 million; 2001 - $13.4 million; 2002 - $1.3 million; 2004 - $14.0 million;
2006 - $11.9 million; and 2007 - $0.4 million. The Corporation has assessed the
likelihood of utilization of these losses. The U.S. NOLs are expected to be
realized through restructuring of equipment operations. The merger of the
Snap-on and Sun technical systems sales teams has been completed. It is expected
that synergies between product lines and sales efforts will produce expanded
sales and service support at lower cost. A $3.7 million valuation allowance has
been established based upon an analysis of future utilization of these NOLs. The
valuation allowance offsets a portion of the deferred income tax benefits
recorded as a long-term asset.
The Corporation also has non-U.S. NOLs of $17.9 million primarily resulting
from operations in Australia, Brazil, and the Netherlands. These losses may be
carried forward indefinitely. A valuation allowance has been established in the
amount of $5.8 million. These subsidiaries have a history of prior operating
losses during a period of aggressive new market development. If the realization
of these benefits becomes more likely than not in the future, the valuation
allowance will be reduced or eliminated.
The Corporations effective tax rate was 37.1% in 1993, 39.8% in 1992, and 38.2%
in 1991 (before the cumulative effect of the accounting change for
postretirement benefits). See Note 6 for the reconciliation of the Corporations
effective tax rate.
OTHER MATTERS - During 1993, the Corporation refocused its business on its key
markets and services automotive and transportation service; diagnostics and shop
equipment; industrial; and financial services. Following shareholder approval of
a holding company business format at the 1993 annual meeting, operating units
were created to address these markets Snap-on Tools, Snap-on Diagnostics,
Snap-on Industrial, and Snap-on Financial Services. This organizational change
is intended to make the Corporation more responsive to the different needs of
the markets it serves, while improving its focus on asset utilization and value
creation.
Assets relating to customer and dealer financing activities were transferred to
Snap-on Financial Services, Inc., a new corporation, at mid-year. Subsequently,
Snap-on Credit Corporation, a subsidiary company, was formed to manage certain
credit services for the Corporation. Credit and leasing programs
page
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Fiscal Years 1993, 1992, 1991
RESULTS OF OPERATIONS continued
===============================================================================
support the sale of the Corporations products and services, especially
higher-value products such as diagnostics and other shop equipment, when
traditional lending sources are not readily available to customers.
In September, 1993, the Corporation acquired the assets of J.H. Williams
Industrial Products, Inc., and formed a new company named J.H. Williams Company.
Williams is a manufacturer of industrial-quality hand tools sold through
industrial distributors and directly to the U.S. Government and original
equipment manufacturers. The acquisition of Williams will enable the Corporation
to enter the industrial distribution channel and pursue additional opportunities
in markets not previously served. The Corporation intends to operate Williams as
a separate company, with its own manufacturing facilities, sales force, and
brand name.
Also during 1993, the Corporation continued to focus on its dealer program.
Among the steps taken were a program to convert existing dealers to its
franchise program, which the Corporation started in 1991 (resulting in
approximately 2,600 U.S. dealers being franchised at year-end); the first
elections for a National Dealer Advisory Council; and a new program allowing
franchised dealers, under certain conditions, to operate a second van within
their franchise, and to acquire additional franchises. The Corporation, through
Snap-on Credit Corporation, also developed new, optional financing and vehicle
programs for new dealers.
FINANCIAL CONDITION
==============================================================================
OVERVIEW - The Corporation ended 1993 in strong financial condition. The
Corporations balance sheet remained solid, with long-term debt amounting to a
modest 14.2% of shareholders equity.
LIQUIDITY - The Corporations working capital increased by $31.0 million in 1993
and by $25.6 million in 1992. Its ratio of current assets to current liabilities
stood at 2.8 at the end of 1993 compared with 2.6 at the end of 1992. Cash and
short-term investments stood at $6.7 million, a decrease of $52.2 million from
the previous year. The major reasons for the reduction in the net cash provided
by operating activities was an increase in accounts receivable and inventories.
Accounts receivable increased by $31.9 million, to $539.9 million, primarily as
a result of increased sales of higher-value equipment. A majority of the
Corporations accounts receivable reflects the purchase of dealers customers
extended credit purchase agreements. These installment contracts currently
average approximately 18 months in duration. The remaining accounts receivable
include those from dealers, industrial customers, and governments. Total
write-offs for bad debts increased in 1993 to 2.6% of average accounts
receivable from 1.9% of average accounts receivable in 1992. The increase
reflected an interruption in collection efforts during the transition to eight
regional customer service centers and a slight reduction in the number of
dealers available to collect amounts owed. The Corporation believes that the
creation of its new credit company and consolidation of billing and credit
services in regional customer service centers will enhance its ability to manage
credit risks and reduce the 1993 bad debt experience rate.
Inventories increased by $32.8 million in 1993. The increase primarily
reflected expansion of inventories during the transfer from 48 branch warehouses
for consolidation in
page
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Fiscal Years 1993, 1992, 1991
RESULTS OF OPERATIONS continued
===============================================================================
four regional distribution centers. Inventory levels declined by $27.0 million
in the fourth quarter following completion of the consolidation program. The
Corporation expects a further reduction in inventory during 1994.
<TABLE>
<CAPTION>
(Amounts in thousands) 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS $854,598 $832,603
- ------------------------------------------------------------------------------
CURRENT LIABILITIES (308,037) (317,074)
- ------------------------------------------------------------------------------
WORKING CAPITAL $546,561 $515,529
- ------------------------------------------------------------------------------
CURRENT RATIO 2.8 TO 1 2.6 TO 1
- ------------------------------------------------------------------------------
</TABLE>
Short-term debt at the end of 1993 was $66.3 million, down slightly from
$66.9 million at the end of 1992. Current maturities of long-term debt
(classified in Other Accrued Liabilities) were $2.0 million at the end of 1993
and $.6 million at the end of 1992. In addition, at year-end 1993, the
Corporation had $75.0 million of short-term commercial notes payable outstanding
that was classified as long-term since it is the Corporations intent to
refinance this debt on a long-term basis. The Corporation expects to retire the
debt classified as short-term in 1994 through cash generated from operations.
At year-end 1993, the Corporation had bank credit lines totaling $96.1
million for short-term borrowing, including support of commercial paper
issuance. These sources of borrowing, coupled with cash from operations, are
sufficient to support working capital requirements, finance capital
expenditures, and pay dividends. The Corporations high credit rating over the
years has ensured that external funds are available at reasonable cost. At
year-end 1993, the Corporations long-term debt ratings established by Moodys
Investors Service and Standard and Poors were Aa3 and AA, respectively. The
strength of the Corporations balance sheet, as evidenced below, provides ample
opportunity to expand operations and make strategic acquisitions.
<TABLE>
<CAPTION>
(Amounts in thousands) 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C>
LONG-TERM DEBT AS A % OF
SHAREHOLDERS EQUITY 14.2% 14.0%
- ------------------------------------------------------------------------------
TOTAL DEBT AS A % OF TOTAL CAPITAL 19.3% 19.5%
- ------------------------------------------------------------------------------
TOTAL DEBT AS A % OF SHAREHOLDERS EQUITY 23.9% 24.2%
- ------------------------------------------------------------------------------
</TABLE>
CAPITAL EXPENDITURES - Capital investments in 1993 included development and
reconfiguration of regional customer service centers, enlargement of a
distribution center in Robesonia, Pa., normal replacement and upgrading of
manufacturing facilities and equipment, and the development by Systems Control,
Inc., a subsidiary of Sun, of vehicle emissions test sites in the state of
Washington as well as preliminary site work for similar test facilities for a
contract awarded by the state of Maine. The Corporation anticipates capital
expenditures totaling approximately $35 million in 1994.
<TABLE>
<CAPTION>
(Amounts in thousands) 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C>
CAPITAL EXPENDITURES $33,248 $21,081
- ------------------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION $32,131 $29,457
- ------------------------------------------------------------------------------
</TABLE>
DIVIDENDS - The Corporation currently maintains a policy which calls for the
payment of approximately 35% of net earnings in dividends. Although earnings
results in recent years have resulted in a payout in excess of this percentage,
the Corporation has maintained its current dividend rate. The Corporation
anticipates returning to its historical payout ratio through continued earnings
improvement, as evidenced by results for 1993, rather than through payout
reduction. The Corporation has paid consecutive quarterly cash dividends since
1939.
<TABLE>
<CAPTION>
(Amounts in thousands) 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C>
CASH DIVIDENDS PAID $45,942 $45,718
- ------------------------------------------------------------------------------
CASH DIVIDENDS PER COMMON SHARE $1.08 $1.08
- ------------------------------------------------------------------------------
CASH DIVIDENDS AS % OF NET INCOME 53.5% 69.3%
- ------------------------------------------------------------------------------
</TABLE>
page
20
<PAGE>
SNAP-ON TOOLS CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
===============================================================================
<TABLE>
<CAPTION>
(Amounts in thousands except share data) for fiscal years 1993 1992 1991
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $1,132,010 $983,800 $881,591
COST OF GOODS SOLD 536,282 474,387 443,906
- ------------------------------------------------------------------------------------------------------
Gross profit 595,728 509,413 437,685
OPERATING EXPENSES
Selling 327,451 298,380 252,476
Marketing and distribution 76,688 79,780 67,651
Research and engineering (Note 1i) 27,700 21,142 16,569
Administrative 78,071 58,082 34,012
Installment contract income, net of operating expenses (61,115) (63,646) (56,890)
- ------------------------------------------------------------------------------------------------------
Total operating expenses 448,795 393,738 313,818
- ------------------------------------------------------------------------------------------------------
Earnings from operations 146,933 115,675 123,867
OTHER INCOME (EXPENSE)
Interest expense (11,198) (5,969) (5,250)
Other income (expense)-net 756 (131) (91)
- ------------------------------------------------------------------------------------------------------
Total other income (expense) (10,442) (6,100) (5,341)
- ------------------------------------------------------------------------------------------------------
Earnings before income taxes 136,491 109,575 118,526
INCOME TAXES (Note 1j and 6) 50,679 43,600 45,300
- ------------------------------------------------------------------------------------------------------
Net earnings before cumulative effect of accounting change 85,812 65,975 73,226
Cumulative effect of accounting change, net of $23.9 million
of income taxes (Note 1c) - - (38,949)
- ------------------------------------------------------------------------------------------------------
NET EARNINGS $ 85,812 $65,975 $34,277
- ------------------------------------------------------------------------------------------------------
EARNINGS PER WEIGHTED AVERAGE COMMON SHARE:
Before cumulative effect of accounting change $2.02 $1.56 $1.75
Cumulative effect of accounting change, net of taxes (Note 1c) - - (.93)
- ------------------------------------------------------------------------------------------------------
EARNINGS PER WEIGHTED AVERAGE COMMON SHARE $2.02 $1.56 $.82
- ------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 42,570,783 42,343,781 41,821,768
- ------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
page
21
<PAGE>
CONSOLIDATED BALANCE SHEETS
===============================================================================
<TABLE>
<CAPTION>
(Amounts in thousands) January 1, 1994 January 2, 1993
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Note 1d) $ 6,729 $ 58,973
Accounts receivable, less allowance for doubtful accounts of $14.9
million in 1993 and $12.6 million in 1992 (Note 1e) 539,949 508,092
Inventories (Notes 1f and 3) 249,102 216,262
Prepaid expenses and other assets 58,818 49,276
- -------------------------------------------------------------------------------------------------------
Total current assets 854,598 832,603
PROPERTY AND EQUIPMENT, NET (NOTE 1G) 224,810 226,498
DEFERRED INCOME TAX BENEFITS (NOTES 1J AND 6) 53,819 49,192
INTANGIBLE AND OTHER ASSETS 85,706 64,120
- -------------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,218,933 $1,172,413
- -------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES
Accounts payable $ 57,280 $ 45,009
Notes payable 66,288 66,903
Accrued compensation 33,515 40,061
Dealer deposits 62,153 62,756
Accrued income taxes 8,474 17,364
Other accrued liabilities 80,327 84,981
- -------------------------------------------------------------------------------------------------------
Total current liabilities 308,037 317,074
LONG-TERM DEBT (NOTE 5) 99,683 93,106
DEFERRED INCOME TAXES (NOTES 1J AND 6) 7,413 4,867
RETIREE HEALTH CARE BENEFITS (NOTE 9) 70,791 67,870
OTHER LONG-TERM LIABILITIES (NOTE 8) 31,346 24,831
- -------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 517,270 507,748
- -------------------------------------------------------------------------------------------------------
SHAREHOLDERS EQUITY (NOTES 10 AND 11)
Preferred stock-authorized 15,000,000 shares of $1 par value;
none outstanding - -
Common stock-authorized 125,000,000 shares of $1 par value;
issued 42,818,696 and 42,414,962 shares 42,819 42,415
Additional contributed capital 52,153 40,312
Retained earnings 632,022 592,152
Foreign currency translation adjustment (Note 1k) (16,019) (10,214)
Less: Treasury stock at cost 250,000 shares (9,312) -
- -------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 701,663 664,665
- -------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,218,933 $1,172,413
- -------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
page
- ----
22
<PAGE>
SNAP-ON TOOLS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
===============================================================================
<TABLE>
<CAPTION>
(Amounts in thousands) for fiscal years 1993 1992 1991
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK
Amount at beginning of year $42,415 $42,211 $41,277
Shares issued under stock purchase and option plans 389 186 230
Dividend reinvestment plan 15 18 15
Acquisition of Balco, Inc. (Note 2) - - 689
- ---------------------------------------------------------------------------------------------------
Amount at end of year 42,819 42,415 42,211
ADDITIONAL CONTRIBUTED CAPITAL
Amount at beginning of year 40,312 35,576 9,333
Additions from stock purchase and option plans 10,477 4,178 4,872
Tax benefit from certain stock options and other items 804 - 440
Dividend reinvestment plan 560 558 457
Acquisition of Balco, Inc. (Note 2) - - 20,474
- ---------------------------------------------------------------------------------------------------
Amount at end of year 52,153 40,312 35,576
RETAINED EARNINGS
Amount at beginning of year 592,152 571,895 582,704
Net earnings for the year 85,812 65,975 34,277
Dividends paid in cash $1.08 per common share in 1993,
1992 and 1991 (45,942) (45,718) (45,086)
- ---------------------------------------------------------------------------------------------------
Amount at end of year 632,022 592,152 571,895
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
Amount at beginning of year (10,214) 3,037 3,089
Net currency translation adjustment for the year (5,805) (13,251) (52)
- ---------------------------------------------------------------------------------------------------
Amount at end of year (16,019) (10,214) 3,037
- ---------------------------------------------------------------------------------------------------
TREASURY STOCK (250,000 SHARES) AT COST (9,312) - -
- ---------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY $701,663 $664,665 $652,719
- ---------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
page
----
23
<PAGE>
SNAP-ON TOOLS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
===============================================================================
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
(Amounts in thousands) for fiscal years 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 85,812 $65,975 $34,277
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Cumulative effect of accounting change (Note 1c) - - 38,949
Depreciation (Note 1g) 29,006 25,484 24,041
Amortization 3,125 3,973 1,578
Deferred income tax provision (Notes 1j and 6) (7,993) (6,005) (7,134)
Gain on sale of assets (569) (250) (737)
Changes in operating assets and liabilities net of effects of
acquisitions:
(Increase) decrease in accounts receivable (36,869) (5,458) 1,839
(Increase) decrease in inventories (35,017) 5,928 27,312
Increase in prepaid expenses (10,938) (4,829) (1,627)
Increase (decrease) in accounts payable 11,915 (8,202) (5,700)
Increase (decrease) in accruals, deposits, and other long-term
liabilities (9,057) 23,330 19,185
- ------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 29,415 99,946 131,983
- ------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital expenditures (33,248) (21,081) (23,447)
Acquisition of businesses (14,657) (110,719) -
Disposal of property and equipment 11,261 3,379 5,796
(Increase) decrease in other noncurrent assets (10,163) (3,609) 1,474
- ------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (46,807) (132,030) (16,177)
- ------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Payment of long-term debt (Note 5) (752) (8,332) (448)
Increase in long-term debt 9,428 78,650 -
Increase (decrease) in notes payable (Note 5) 354 52,503 (76,500)
Purchase of treasury stock (9,312) - -
Proceeds from stock purchase and option plans (Note 10) 12,245 4,940 10,626
Cash dividends paid (45,942) (45,718) (45,086)
- ------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (33,979) 82,043 (111,408)
- ------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes (873) (1,916) (52)
- ------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (52,244) 48,043 4,346
Cash and cash equivalents at beginning of year 58,973 10,930 6,584
- ------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 6,729 $58,973 $10,930
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
page
- ----
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FISCAL YEARS 1993, 1992, 1991
===============================================================================
Note 1 Summary of Accounting Policies
A summary of the significant accounting policies applied in the preparation of
the accompanying consolidated financial statements follows:
A. PRINCIPLES OF CONSOLIDATION: The Corporation consolidates the accounts of
all its subsidiaries, all of which are wholly owned. Significant intercompany
transactions are eliminated.
B. ACCOUNTING PERIOD: The Corporations accounting period ends on the Saturday
nearest December 31. The 1993, 1992, and 1991 fiscal years ended on January 1,
1994, January 2, 1993, and December 28, 1991.
C. ADOPTION OF NEW ACCOUNTING PRINCIPLES: In 1991, the Corporation elected
early adoption of the accounting provisions of the Statement of Financial
Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions." This standard, issued in 1990, requires that the
expected cost of retiree health benefits be charged to expense during the years
that the employees render service rather than the Corporations past practice of
recognizing these costs on a cash basis. As part of adopting the standard, the
Corporation recorded in the first quarter, 1991, a one-time, non-cash charge
against earnings of $62.8 million before taxes and $38.9 million after taxes,
or $.93 per share. This cumulative adjustment as of the beginning of 1991
represents the discounted present value of expected future retiree health
benefits attributed to employees' service rendered prior to that date.
Effective the beginning of 1992, the Corporation elected early adoption of
SFAS No. 109, "Accounting for Income Taxes." Under this statement, deferred
income taxes are recorded on temporary differences at the tax rate expected to
be in effect when the temporary differences reverse. The adoption of this
statement did not have a material effect on the 1992 consolidated results of
operations or financial condition of the Corporation.
D. CASH EQUIVALENTS: The Corporation considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents. Cash
equivalents are stated at cost, which approximates market value.
E. ACCOUNTS RECEIVABLE: Accounts receivable includes installment receivable
amounts which are due subsequent to one year from balance sheet dates. These
amounts were approximately $27.9 million and $25.2 million at the end of 1993
and 1992.
Gross installment receivables amounted to $456.3 million and $463.2
million at the end of 1993 and 1992. Of these amounts, $89.4 million and $95.4
million, represented unearned finance charges at the end of 1993 and 1992.
F. INVENTORIES: Inventories are stated at the lower of cost or market. Cost
elements include the cost of raw materials, direct labor, and overhead incurred
in the manufacturing process. For detailed inventory information, refer to Note
3.
G. PROPERTY AND EQUIPMENT: Land, buildings, and machinery and equipment are
carried at cost. Depreciation and amortization are provided for primarily using
the straight-line depreciation method.
The estimated service lives of property and equipment are principally
as follows:
- --------------------------------------------------------------------------------
BUILDINGS AND IMPROVEMENTS 15 to 45 years
- --------------------------------------------------------------------------------
MACHINERY AND EQUIPMENT 3 to 15 years
- --------------------------------------------------------------------------------
TRANSPORTATION VEHICLES 2 to 5 years
- --------------------------------------------------------------------------------
The costs and related accumulated depreciation of the Corporations
property and equipment values were as follows for fiscal years ended:
<TABLE>
<CAPTION>
(Amounts in thousands) 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C>
LAND $27,209 $25,647
- -------------------------------------------------------------------------------
BUILDINGS AND IMPROVEMENTS 142,438 139,573
- -------------------------------------------------------------------------------
MACHINERY AND EQUIPMENT 282,222 279,064
- -------------------------------------------------------------------------------
451,869 444,284
- -------------------------------------------------------------------------------
LESS ACCUMULATED DEPRECIATION (227,059) (217,786)
- -------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT - NET $224,810 $226,498
- -------------------------------------------------------------------------------
</TABLE>
H. INTANGIBLES: The excess of the purchase cost over the fair value of net
assets acquired in an acquisition (goodwill) is included in intangible and
other assets in the accompanying consolidated balance sheets and is being
amortized principally over 20 years on a straight-line basis. The Corporation
continually evaluates the existence of goodwill impairment on the basis of
whether the goodwill is fully recoverable from projected, undiscounted net cash
flows of the related business unit. Goodwill (net of accumulated amortization)
was $48.1 million and $38.9 million at the end of 1993 and 1992. Amortization
of goodwill amounted to $2.8 million, $2.4 million, and $.5 million for 1993,
1992, and 1991. Accumulated amortization of goodwill was $6.2 million, and $3.4
million at the end of fiscal years 1993 and 1992.
page
----
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years 1993, 1992, 1991
===============================================================================
I. RESEARCH AND ENGINEERING: Research and engineering costs are charged
to expense in the year incurred.
J. INCOME TAXES: Deferred income taxes are provided on temporary differences
arising from differences in bases of assets and liabilities for tax and
financial reporting purposes. For detailed tax information, refer to Note 6.
K. FOREIGN CURRENCY TRANSLATION: The financial statements of the corporations
non-U.S. subsidiaries are translated into U.S. dollars in accordance with
Statement of Financial Accounting Standards (SFAS) NO. 52, "Foreign Currency
Translation." Net assets of certain non-U.S. subsidiaries whose "functional"
currencies are other than the U.S. dollar are translated at current rates of
exchange. Income and expense items are translated at the average exchange rate
for the year. The resulting translation adjustments are recorded directly into
a separate component of shareholders' equity. Transaction gains and losses are
reported in net income and were not material in any year.
L. FRANCHISE FEE REVENUE: Franchise fee revenue is recognized as the fees are
received. Revenue from franchise fees was not material in any year.
M. RECLASSIFIED PRIOR YEAR AMOUNTS: Certain prior year amounts have been
reclassified to conform with current year presentation.
NOTE 2 ACQUISITIONS
On October 2, 1992, the Corporation acquired Sun Electric Corporation ("Sun").
Sun is primarily engaged in the design, manufacture, marketing and service of
diagnostic, test, and service equipment, together with information and
management systems, for the motor vehicle service industry and for motor
vehicle manufacturers. The total purchase price of approximately $115 million
was financed with available cash of approximately $40 million and the issuance
of debt of approximately $75 million. The acquisition was accounted for as a
purchase, and the results of Sun have been included in the accompanying
consolidated financial statements since the date of acquisition. The cost of
the acquisition has been allocated on the basis of the estimated fair market
value of the assets acquired and the liabilities assumed. This allocation
resulted in goodwill of approximately $30 million, which is being amortized over
20 years.
The unaudited consolidated results of operations on a pro forma basis as
though Sun had been acquired as of the beginning of 1992 and 1991 are as
follows:
<TABLE>
<CAPTION>
(Amounts in thousands except per share data) 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C>
NET SALES $1,140,591 $1,102,025
- -------------------------------------------------------------------------------
GROSS PROFIT 564,951 536,230
- -------------------------------------------------------------------------------
NET INCOME 52,480 65,375*
- -------------------------------------------------------------------------------
NET INCOME PER WEIGHTED AVERAGE
COMMON SHARE $ 1.24 $ 1.56*
- -------------------------------------------------------------------------------
<FN>
*NET INCOME AND NET INCOME PER WEIGHTED AVERAGE COMMON SHARE FOR 1991
EXCLUDE THE CUMULATIVE EFFECT OF AN ACCOUNTING CHANGE (NOTE 1C).
</TABLE>
The pro forma financial information is presented for informational purposes
only and is not necessarily indicative of the operating results that would have
occurred had the Sun acquisition been consummated as of the above dates, nor
are they necessarily indicative of future operating results.
On May 21, 1991, the Corporation completed the acquisition of Balco, Inc.,
increasing its ownership from approximately 34% to 100%. The acquisition was
made through the issuance of 689,082 shares of common stock of the Corporation.
The common stock exchanged was valued at approximately $21.2 million, the
average market value at the time of the acquisition. Goodwill of approximately
$14.6 million was recorded as a result of this acquisition. Pro forma results
of operations are not shown as the effect would not be material.
On September 29, 1993, the Corporation acquired the assets of J.H. Williams
Industrial Products, Inc. and formed a new company named J.H. Williams Company.
The total cost of the acquisition was $14.7 million. The acquisition has been
accounted for using the purchase method of accounting and the results of
operations of J.H. Williams have been included in the accompanying consolidated
financial statements since the date of acquisition. Goodwill of approximately
$3.8 million has been recorded as a result of this acquisition. Pro forma
results of operations are not shown as the effect would not be material.
page
- ----
26
<PAGE>
SNAP-ON TOOLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years 1993, 1992, 1991
===============================================================================
NOTE 3 INVENTORIES
The components of the Corporations inventory were as follows for
fiscal years ended:
<TABLE>
<CAPTION>
(Amounts in thousands) 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C>
FINISHED STOCK $185,260 $161,974
- -------------------------------------------------------------------------------
WORK IN PROCESS 19,293 12,983
- -------------------------------------------------------------------------------
RAW MATERIALS 44,549 41,305
- -------------------------------------------------------------------------------
TOTAL INVENTORY $249,102 $216,262
- -------------------------------------------------------------------------------
</TABLE>
Inventories accounted for using the last-in, first-out (LIFO) cost method
approximated 58% of total inventory as of year-end, 1993 and 52% as of
year-end, 1992. Inventories for Sun, which was acquired by the Corporation
during 1992 (as described in Note 2), were $65.9 million as of year-end 1993
and $65.4 million as of year-end 1992, and are accounted for on the first-in,
first-out (FIFO) cost method.
During 1992, the Corporation liquidated inventories that were carried at
lower costs prevailing in prior years. The effect of this liquidation was to
increase income before taxes by $6.1 million. Replacement costs of inventory,
which approximate FIFO costs, were $362.9 million and $334.6 million for years
ended 1993 and 1992.
NOTE 4 LITIGATION
The Corporation has been involved in a number of dealer claims in the ordinary
course of its business for a number of years, with respect to both its United
States and non-U.S. operations. Dealer claims in non-U.S. jurisdictions in the
aggregate are not material. Dealer claims in the U.S., both filed and
threatened, have increased in recent years and the discussion in this note is
limited to U.S. claims. Also exclud-ed from this note are confidential matters
pending in the Corporations internal grievance program, which are not
significant. Since the Corporation maintains a worldwide network of
approximately 5,000 dealers, some dealer disputes and resulting claims are to be
expected.
At January 31, 1994, the Corporation was a party to a number of pending
legal proceedings in which approximately 70 former dealers and, in some cases,
their spouses and/or creditors, have asserted claims against the Corporation.
These proceedings are now pending before courts and arbitration panels at
various stages in a number of states, including some in appellate courts. In
addition, at January 31, 1994, approximately 72 current or former dealers have
threatened to assert claims against the Corporation. This compares with
approximately 70 pending and approximately 88 threatened dealer claims at
January 31, 1993. In most instances, these claims include allegations that the
Corporation made misrepresentations, violated statutes or contract rights, and
caused distress. The Corporation generally denies liability and intends to
vigorously defend itself against these claims, but considers settlements where
appropriate. The Corporation is also involved in litigation against certain of
its insurance carriers as to coverage in connection with various dealer claims.
During 1993, 26 former dealers asserted claims and 139 dealers (almost all
of whom are former dealers) threatened to assert claims against the
Corporation. This compares with 50 asserted claims and approximately 51
threatened claims in 1992. Approximately 64% of the aggregate claims asserted
during 1993 were by dealers who are parties to arbitration agreements with the
Corporation, as compared with approximately 78% during 1992. The percentage of
dealer claims asserted in 1993 that were subject to arbitration decreased from
1992 because a number of those dealers either started or terminated their
dealerships before the Corporation began using arbitration clauses. In the
Corporations experience, the expenditures in arbitration claims are less than
those in court cases. Based on current information, the Corporation presently
intends to assert as a defense to a substantial number of the claims made
during 1993 that such claims are time-barred under applicable statutory or
contractual limitation periods.
Since 1991, the Corporation has taken steps to resolve new and pending
dealer claims and to enhance the dealer program and its relationships
with dealers.
To resolve new and pending dealer claims, where appropriate, the
Corporation: (1) has accelerated its review of both newly asserted and existing
claims, and pursued resolution of those claims by settlement, judgment, or
dismissal; and (2) developed alternative dispute resolution procedures to
expeditiously resolve certain dealer claims more cost-effectively.
Steps taken to improve dealer relationships and the dealer program include:
(1) efforts to convert dealers to franchisees thereby providing them additional
benefits; (2) establishing a Dealer Ombudsman Program to encourage prompt and
cost-effective resolution of disputes internally with current and former
dealers; (3) providing a transition program which began in 1993 for terminating
dealers; (4) creating the National Dealer Advisory Council consisting of
elected dealers who meet with company management to discuss issues of
importance to dealers; and, (5) enhancing the dealer-training skills of field
management.
Since 1991, through legal counsel, the services of a nationally recognized
actuarial firm were engaged to assist in an evaluation of the reserves
established for dealer claims. Based in part on the advice from such counsel
and actuarial firm, the Corporation believes that it has established reasonable
reserves and the Corporation does not expect the costs, losses, and
page
----
27
<PAGE>
SNAP-ON TOOLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years 1993, 1992, 1991
===============================================================================
settlements of these claims to exceed probable insurance recoveries together
with the reserves established.
During the three fiscal years 1993, 1992, and 1991, the Corporation charged
earnings a total of approximately $17.8 million, $28.9 million, and $16.2
million, for settlement costs, including the establishment of related reserves,
legal fees, and expenses with respect to dealer claims. Although it is not
possible to predict the outcome of the existing dealer claims with any
certainty, it is managements opinion, based in part on advice from its legal
counsel and its actuarial consultant, that the costs, losses and settlement of
these claims are not expected to have a material adverse effect on the
Corporations financial condition and results of operations.
NOTE 5 SHORT-TERM AND LONG-TERM DEBT
At January 1, 1994, the Corporation had bank lines of credit totaling $96.1
million for short-term borrowing, including support for commercial paper
issuance. Of this amount, $29.8 million was unused at year-end. Notes payable
to banks totaled $1.0 million as of January 1, 1994, and $25.9 million as of
January 2, 1993. Commercial notes payable totaled $140.3 million as of January
1, 1994, and $41.0 million as of January 2, 1993. Of the $140.3 million of
commercial paper outstanding at year-end 1993, $75.0 million is classified as
long-term debt since it is the Corporations intent (supported by a $75.0
million revolving credit facility) to refinance the debt on a long-term basis.
Maximum short-term borrowings outstanding at the end of any month in 1993
and 1992 were $69.3 million and $146.0 million. The average outstanding
borrowings were $40.9 million in 1993 and $37.9 million in 1992. The weighted
average daily interest rates for 1993 and 1992 were 5.1% and 5.7%. The weighted
average interest rate on outstanding borrowings at January 1, 1994, was 3.4%.
Interest payments on debt and on other interest bearing obligations
approximated $11.9 million, $5.5 million, and $4.6 million for 1993, 1992, and
1991.
The Corporations long-term debt consisted of the following for fiscal years
ended:
<TABLE>
<CAPTION>
(Amounts in thousands) 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C>
BORROWINGS UNDER OR SUPPORTED
BY A REVOLVING CREDIT COMMITMENT $75,000 $75,000
- -------------------------------------------------------------------------------
OTHER LONG-TERM DEBT 26,735 18,738
- -------------------------------------------------------------------------------
101,735 93,738
- -------------------------------------------------------------------------------
LESS: CURRENT MATURITIES (2,052) (632)
- -------------------------------------------------------------------------------
TOTAL LONG-TERM DEBT $99,683 $93,106
- -------------------------------------------------------------------------------
</TABLE>
In December, 1992, the Corporation entered into a five-year, $75.0
million revolving credit commitment. Under the terms of the commitment,
borrowings can be made at the then current London Interbank Offered
Rate (LIBOR) plus .25% and may be fixed for periods ranging from one to
nine months under reborrowing provisions of the commitment. This
commitment automatically reduces by $25.0 million annually on December
15th of 1995, 1996, and 1997, at which time the commitment terminates.
At January 1, 1994, the $75.0 million of commercial paper outstanding
that was classified as long-term and supported by this commitment had
an average interest rate of 3.3%.
Under the terms of the commitment, the Corporation must maintain a
specific level of consolidated tangible net worth and meet certain
leverage and interest coverage ratios. The commitment also restricts
certain capital transactions. At year-end, 1993, the Corporation was in
compliance with all covenants of the commitment.
In November, 1992, the Corporation entered into a five-year, interest rate
swap agreement with a United States branch of a major non-U.S. bank covering
the $75.0 million revolving credit commitment, which amortizes in approximately
the same fashion as the $75.0 million revolving credit commitment, at an
interest rate of 6.05%.
The Corporations annual maturities on its long-term debt due in the
next five years are $2.1 million in 1994, $27.1 million in 1995, $27.1
million in 1996, $33.8 million in 1997, and $2.3 million in 1998.
NOTE 6 INCOME TAXES
Effective at the beginning of 1992, the Corporation elected early adoption of
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes."
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
(Amounts in thousands) 1993 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
CURRENT:
- -------------------------------------------------------------------------------
Federal $33,452 $25,998 $33,635
- -------------------------------------------------------------------------------
Non-U.S. 17,741 14,473 10,206
- -------------------------------------------------------------------------------
State 7,479 9,134 8,593
- -------------------------------------------------------------------------------
TOTAL CURRENT 58,672 49,605 52,434
- -------------------------------------------------------------------------------
DEFERRED:
- -------------------------------------------------------------------------------
Federal (6,568) (4,238) (7,110)
- -------------------------------------------------------------------------------
Non-U.S. (919) (1,259) 739
- -------------------------------------------------------------------------------
State (506) (508) (763)
- -------------------------------------------------------------------------------
TOTAL DEFERRED (7,993) (6,005) (7,134)
- -------------------------------------------------------------------------------
TOTAL INCOME TAX PROVISION $50,679 $43,600 $45,300
- -------------------------------------------------------------------------------
</TABLE>
page
- ----
28
<PAGE>
===============================================================================
The Corporation made income tax payments of $73.6 million, $49.8
million, and $50.6 million in 1993, 1992, and 1991.
A reconciliation of the Corporations effective income tax rate to the
statutory federal tax rate follows for fiscal years:
<TABLE>
<CAPTION>
1993 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
STATUTORY FEDERAL INCOME TAX RATE 35.0% 34.0% 34.0%
- -------------------------------------------------------------------------------
INCREASE (DECREASE) IN TAX RATE RESULTING FROM:
- -------------------------------------------------------------------------------
Foreign sales corporation tax benefit (1.9) (2.3) (2.8)
- -------------------------------------------------------------------------------
Non-U.S. losses without tax benefits 0.9 2.1 2.6
- -------------------------------------------------------------------------------
State income taxes, net of federal benefit 3.2 4.8 4.2
- -------------------------------------------------------------------------------
Adjustment for rate change on deferred taxes (1.6)
- -------------------------------------------------------------------------------
Other 1.5 1.2 .2
- -------------------------------------------------------------------------------
EFFECTIVE TAX RATE 37.1% 39.8% 38.2%
- -------------------------------------------------------------------------------
</TABLE>
Temporary differences which gave rise to the net deferred tax asset are
as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
(Amounts in thousands) 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C>
CURRENT DEFERRED INCOME TAX BENEFITS:
- -------------------------------------------------------------------------------
Costs absorbed into inventory $9,946 $4,092
- -------------------------------------------------------------------------------
Accruals and reserves not currently deductible 21,846 22,021
- -------------------------------------------------------------------------------
Other (201) 1,927
- -------------------------------------------------------------------------------
TOTAL CURRENT 31,591 28,040
- -------------------------------------------------------------------------------
LONG-TERM DEFERRED INCOME TAX BENEFITS:
- -------------------------------------------------------------------------------
Employee benefits 41,922 38,205
- -------------------------------------------------------------------------------
Depreciation (15,477) (18,156)
- -------------------------------------------------------------------------------
Other (150) 2,568
- -------------------------------------------------------------------------------
Net operating losses 29,650 33,505
- -------------------------------------------------------------------------------
Valuation Allowance (9,539) (11,797)
- -------------------------------------------------------------------------------
TOTAL LONG-TERM 46,406 44,325
- -------------------------------------------------------------------------------
NET DEFERRED INCOME TAX BENEFITS $77,997 $72,365
- -------------------------------------------------------------------------------
</TABLE>
The net deferred income tax benefit is classified in the consolidated
balance sheets as follows:
<TABLE>
<CAPTION>
(Amounts in thousands) 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C>
PREPAID EXPENSES AND OTHER ASSETS $31,591 $28,040
- -------------------------------------------------------------------------------
DEFERRED INCOME TAX BENEFITS 53,819 49,192
- -------------------------------------------------------------------------------
DEFERRED INCOME TAXES (7,413) (4,867)
- -------------------------------------------------------------------------------
NET LONG-TERM DEFERRED INCOME
TAX BENEFITS 46,406 44,325
- -------------------------------------------------------------------------------
NET DEFERRED INCOME TAX BENEFITS $77,997 $72,365
- -------------------------------------------------------------------------------
</TABLE>
The valuation allowance required under SFAS No. 109 has been established for
deferred income tax benefits related to certain subsidiary loss carryforwards
which may not be realized. Included in the valuation allowance is $4.5 million
which relates to the deferred tax assets recorded in the acquisition of Sun.
Any tax benefits subsequently recognized for these deferred tax assets will be
allocated to reduce goodwill.
Deferred income taxes provided on timing differences prior to the adoption of
SFAS No. 109 were:
<TABLE>
<CAPTION>
(Amounts in thousands) 1991
- -------------------------------------------------------------------------------
<S> <C>
INVENTORY $(3,385)
- -------------------------------------------------------------------------------
DEPRECIATION 672
- -------------------------------------------------------------------------------
OTHER (4,421)
- -------------------------------------------------------------------------------
TOTAL DEFERRED TAX PROVISION $(7,134)
- -------------------------------------------------------------------------------
</TABLE>
The Corporation has U.S. tax net operating loss carry-forwards (NOLs)
acquired in the Sun acquisition totaling $68.0 million which expire as follows:
1998-$15.7 million; 2000-$11.3 million; 2001-$13.4 million; 2002-$1.3 million;
2004-$14.0 million; 2006-$11.9 million; and 2007-$0.4 million. The Corporation
also has non-U.S. tax NOLs of $17.9 million resulting from operations primarily
in Australia, Brazil, and the Netherlands. These losses may be carried forward
indefinitely.
The undistributed earnings of all subsidiaries were approximately $66.9
million, $64.1 million, and $74.9 million for fiscal years 1993, 1992, and
1991. The Corporation does not expect that additional income taxes will be
incurred on future distributions of such earnings and, accordingly, no deferred
income taxes have been provided for the distribution of these earnings to the
parent company.
NOTE 7 FORWARD EXCHANGE CONTRACTS
In order to limit exposure from foreign currency fluctuations on intercompany
accounts denominated in foreign currencies, the Corporation entered into
forward exchange contract transactions beginning in 1993. Gains and losses on
these contracts are recognized currently and were not material. These forward
exchange contract transactions generally mature monthly at which time they are
replaced with new contracts. At January 1, 1994, the Corporation had forward
exchange contracts to exchange pounds sterling, Netherlands guilders and German
marks for U.S. dollars aggregating the U.S. dollar equivalent of approximately
$18 million. These forward exchange contract transactions matured in January,
1994.
page
----
29
<PAGE>
SNAP-ON TOOLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FISCAL YEARS 1993, 1992, 1991
===============================================================================
NOTE 8 PENSION PLANS
The Corporation, including its subsidiaries, has several noncontributory
pension plans covering substantially all its employees, including certain
employees in non-U.S. countries. Retirement benefits are provided based on
employees years of service and average earnings or stated amounts for years of
service. Normal retirement age is 65 with provisions for earlier retirement.
The Corporation recognizes retirement plan expenses in accordance with
Statement of Financial Accounting Standards (SFAS) No. 87, "Employers'
Accounting for Pensions," and contributes amounts to the plans using the
actuarially computed entry age normal cost method, which includes, as to certain
defined retirement benefit plans, amortization of past service costs over
30 years.
The Corporation has several non-U.S. subsidiary pension plans which do not
report pension expense in accordance with SFAS No. 87, as these plans and the
related pension expense are not material.
The Corporations net pension expense included the following
components:
<TABLE>
<CAPTION>
(Amounts in thousands) 1993 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
SERVICE COST-BENEFITS EARNED DURING YEAR $9,331 $ 8,516 $8,340
- -------------------------------------------------------------------------------
INTEREST COST ON PROJECTED BENEFITS 20,012 17,339 16,237
- -------------------------------------------------------------------------------
LESS ACTUAL RETURN ON PLAN ASSETS (31,069) (19,790) (49,909)
- -------------------------------------------------------------------------------
NET AMORTIZATION AND DEFERRAL:
- -------------------------------------------------------------------------------
Actual return on assets in excess of
projected return 9,950 1,160 34,076
- -------------------------------------------------------------------------------
Amortization of net assets at transition (1,092) (1,102) (1,110)
- -------------------------------------------------------------------------------
OTHER 458 9 1,102
- -------------------------------------------------------------------------------
NET PENSION EXPENSE $7,590 $6,132 $8,736
- -------------------------------------------------------------------------------
</TABLE>
The funded status of the Corporations U.S. pension plans was as follows:
<TABLE>
<CAPTION>
1993 1992
-------------------------- -------------------------
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
(Amounts in thousands) Benefits Assets Benefits Assets
- -------------------------------------------------------------------------------------------------------------------------------
ACTUARIAL PRESENT VALUE OF ACCUMULATED BENEFITS:
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Vested benefits $149,232 $57,775 $130,292 $19,122
- -------------------------------------------------------------------------------------------------------------------------------
Non-vested benefits 26,244 7,014 23,675 2,358
- -------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED BENEFIT OBLIGATION 175,476 64,789 153,967 21,480
- -------------------------------------------------------------------------------------------------------------------------------
EFFECT OF PROJECTED FUTURE SALARY INCREASES 45,430 4,516 38,322 4,067
- -------------------------------------------------------------------------------------------------------------------------------
PROJECTED BENEFIT OBLIGATION 220,906 69,305 192,289 25,547
- -------------------------------------------------------------------------------------------------------------------------------
PLAN ASSETS AT MARKET VALUE 227,892 55,888 247,205 15,393
- -------------------------------------------------------------------------------------------------------------------------------
PLAN ASSETS IN EXCESS OF (LESS THAN) PROJECTED
BENEFIT OBLIGATION 6,986 (13,417) 54,91 (10,154)
- -------------------------------------------------------------------------------------------------------------------------------
UNRECOGNIZED NET ASSETS AT YEAR-END (7,960) (836) (11,377) 565
- -------------------------------------------------------------------------------------------------------------------------------
UNRECOGNIZED NET (GAIN) OR LOSS FROM EXPERIENCE
DIFFERENT THAN ASSUMED (31,232) 2,887 (73,376) 1,282
- -------------------------------------------------------------------------------------------------------------------------------
UNRECOGNIZED PRIOR SERVICE COST 6,175 4,101 9,639 474
- -------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL MINIMUM LIABILITY 0 (3,176) 0 (859)
- -------------------------------------------------------------------------------------------------------------------------------
PENSION LIABILITY $(26,031) $(10,441) $(20,198) $(8,692)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
page
- ----
30
<PAGE>
===============================================================================
The actuarial present value of the projected benefit obligation was
determined using a discount rate of 7.25% for 1993 and 9.0% for 1992 and 1991.
The projected future salary increase assumption was 5.0% for 1993 and 6.0% for
both 1992 and 1991. The expected long-term rate of return on plan assets was
9.0% for the three years reported. The net effect of the two changes in
actuarial assumptions in 1993 on the Corporations results of operations and
financial condition was not material.
Plan assets are stated at market value and comprise primarily corporate
equities and U.S. government debt securities.
The pension liability for 1993 comprises a current liability of $5.9 million
and a long-term liability of $30.6 million. The long-term liability represents
pension obligations which are not expected to be funded during the next 12
months.
NOTE 9 RETIREE HEALTH CARE
The Corporation provides certain health care benefits for most of its retired
U.S. employees. The majority of the Corporations U.S. employees become eligible
for those benefits if they reach normal retirement age while working for the
Corporation; however, the age and service requirements for eligibility under
the plans have been increased for certain employees hired on and after
specified dates since 1992. Generally, the plans pay stated percentages of
covered expenses after a deductible is met. There are several plan designs,
with more recent retirees (since 1989) being covered under a comprehensive
major medical plan. In determining benefits, the plans take into consideration
payments by Medicare and other coverages.
For employees retiring under the comprehensive major medical plans, there
are contributions required under certain circumstances, and these plans contain
provisions allowing for benefit and coverage changes. The plans include
provisions for retirees to contribute amounts estimated to exceed a capped per
retiree annual cost commitment by the Corporation. The Corporation does not fund
the retiree health care plans.
The Corporation recognizes postretirement health care expense in accordance
with Statement of Financial Accounting Standards (SFAS) No. 106, "Employers'
Accounting for Postretirement Employment Benefits Other than Pensions." The
Corporation adopted SFAS No. 106 effective the beginning of fiscal year 1991, as
discussed in Note 1c.
The components of the expense for postretirement health care benefits are as
follows:
<TABLE>
<CAPTION>
(Amounts in thousands) 1993 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
NET PERIODIC COSTS
SERVICE COST - BENEFITS ATTRIBUTED TO
SERVICE DURING THE PERIOD $1,613 $1,570 $1,185
- -------------------------------------------------------------------------------
INTEREST COST ON ACCUMULATED
POSTRETIREMENT BENEFIT OBLIGATION 4,888 5,882 5,761
- -------------------------------------------------------------------------------
AMORTIZATION OF UNRECOGNIZED NET GAIN (331)
- -------------------------------------------------------------------------------
NET POSTRETIREMENT HEALTH CARE COST $6,170 $7,452 $6,946
- -------------------------------------------------------------------------------
</TABLE>
The weighted average discount rate used to measure interest cost on the
accumulated postretirement benefit obligation was 8.5% for 1993 and 9%
for 1992 and 1991.
The components of the accumulated postretirement benefit obligation are
as follows:
<TABLE>
<CAPTION>
(Amounts in thousands) 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C>
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION
RETIREES $37,375 $41,266
- -------------------------------------------------------------------------------
FULLY ELIGIBLE ACTIVE PLAN PARTICIPANTS 9,746 14,646
- -------------------------------------------------------------------------------
OTHER ACTIVE PLAN PARTICIPANTS 23,890 15,552
ACCUMULATED POSTRETIREMENT
BENEFIT OBLIGATION 71,011 71,464
- -------------------------------------------------------------------------------
UNRECOGNIZED NET (LOSS) GAIN 3,280 (94)
- -------------------------------------------------------------------------------
ACCRUED POSTRETIREMENT BENEFIT COST $74,291 $71,370
- -------------------------------------------------------------------------------
</TABLE>
The accumulated postretirement benefit obligation at the end of 1993
comprises a current liability of $3.5 million and a long-term liability of
$70.8 million. The weighted average discount rates used in determining the
accumulated postretirement benefit obligation as of fiscal year-end 1993 and
1992 were 7.25% and 9.0%.
The actuarial calculation assumes a health care trend rate of 11.3% in 1994
for pre-age 65 benefits, decreasing gradually to 5.0% in the year 2003 and
thereafter, and a rate of 10.4% in 1994 for post-age 65 benefits, decreasing to
5.0% in the year 2007 and thereafter.
The health care cost trend rate has a significant effect on the amounts
reported for those plans which do not include a capped per retiree annual cost
commitment by the Corporation. For example, a one percentage point increase in
the health care cost trend rate for future years would increase the accumulated
postretirement benefit obligation by $1.8 million and increase net periodic cost
by $.1 million.
page
----
31
<PAGE>
SNAP-ON TOOLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FISCAL YEARS 1993, 1992, 1991
===============================================================================
NOTE 10 COMPANY STOCK PURCHASE AND OPTION PLANS
The Corporation has a stock option plan for directors, officers, and
key employees with expiration dates on the options ranging from 1996 to
2003.
<TABLE>
<CAPTION>
Number of Price
Shares Range
<S> <C> <C>
- -------------------------------------------------------------------------------
OPTIONS OUTSTANDING AT
DECEMBER 29, 1990 2,095,630 $20.56 - 38.13
- -------------------------------------------------------------------------------
Granted 47,720 30.38 - 34.00
- -------------------------------------------------------------------------------
Exercised (194,603) 20.56 - 29.88
- -------------------------------------------------------------------------------
Surrendered (58,715) 29.88 - 35.50
- -------------------------------------------------------------------------------
OPTIONS OUTSTANDING AT
DECEMBER 28, 1991 1,890,032 20.56 - 38.13
- -------------------------------------------------------------------------------
Granted 150,025 33.75 - 34.75
- -------------------------------------------------------------------------------
Exercised (151,116) 20.56 - 35.50
- -------------------------------------------------------------------------------
Surrendered (54,934) 20.56 - 38.13
- -------------------------------------------------------------------------------
OPTIONS OUTSTANDING AT
JANUARY 2, 1993 1,834,007 20.56 - 38.13
- -------------------------------------------------------------------------------
Granted 532,619 31.75 - 35.00
- -------------------------------------------------------------------------------
Exercised (361,057) 20.56 - 35.50
- -------------------------------------------------------------------------------
Surrendered (106,905) 20.56 - 35.50
- -------------------------------------------------------------------------------
OPTIONS OUTSTANDING AT
JANUARY 1, 1994 1,898,664 $20.56 - 38.13
- -------------------------------------------------------------------------------
SHARES EXERCISABLE AT
JANUARY 1, 1994 1,625,003
- -------------------------------------------------------------------------------
SHARES RESERVED FOR FUTURE GRANTS 1,596,091
- -------------------------------------------------------------------------------
</TABLE>
The Corporations common stock outstanding increased from the issuance of
shares under the stock option plan by 338,819, 119,119, and 165,701 for 1993,
1992, and 1991. Common stock surrendered in exchange for shares issued under
the stock option plan totaled 22,238, 31,997, and 28,902 for 1993, 1992, and
1991.
On June 22, 1990, the Board of Directors approved the Dividend Reinvestment
and Stock Purchase Plan and reserved 1 million shares of common stock for
issuance under this plan. Under this plan, shareholders who elect to
participate can invest all or a portion of their cash dividends and additional
optional cash payments in shares of common stock of the Corporation based upon
the market price of the stock on the dividend payment date or investment date
in the case of additional optional cash payments. Common shares issued under
this plan totaled 15,485, 17,587, and 15,436 for 1993, 1992, and 1991.
Employees of the Corporation are entitled to participate in an employee
stock purchase plan up to a maximum of 100 shares each year. The purchase price
of the common stock is the lesser of the closing market quotation on the May 15
beginning, or the May 14 ending date, of each plan year. The Board of Directors
may terminate this plan at any time. For 1993, 1992, and 1991, shares issued
under the employee stock purchase plan totaled 44,563, 66,554, and 63,856. At
January 1, 1994, shares totaling 137,487 were reserved for issuance to employees
under this plan, and the Corporation held contributions of approximately $1.0
million for the purchase of common stock which had a closing market quotation of
$36.63 per share on May 14, 1993.
On October 26, 1990, the Board of Directors approved a Dealer Stock Purchase
Plan for franchised dealers and reserved 200,000 shares of common stock for
issuance under this plan. The date of the first offering under this plan was
May 15, 1991, with an additional and separate offering on May 15 in each
following year until the plan is terminated by the Board of Directors or all
shares reserved under the plan have been purchased. The purchase price of the
common stock is the lesser of the closing market price of the stock on the
offering date of a plan year or the succeeding offering date. Shares issued
under the Dealer Stock Purchase Plan totaled 4,683 and 348 in 1993 and 1992,
leaving 194,969 shares reserved for issuance under this plan as of January 1,
1994.
On April 23, 1993, the shareholders approved the Directors 1993 Fee Plan.
Under this plan, non-employee Directors receive a mandatory minimum of 25% and
an elective maximum of up to 100% of their fees and retainer in shares of the
Corporations stock. Directors may elect to defer receipt of all or part of
these shares. During 1993, 184 shares of common stock were issued under this
plan, leaving 199,816 reserved for issuance as of January 1, 1994.
NOTE 11 CAPITAL STOCK
The Board of Directors declared on October 23, 1987, and amended on May 22,
1992, and January 28, 1994, a dividend distribution of one preferred stock
purchase right for each share of the Corporations outstanding common stock. The
rights are exercisable only if a person or group acquires or publicly announces
a tender offer for 15% or more of the Corporations common stock ("Acquiring
Person"). Each right may then be exercised to purchase one one-hundredth of a
share of Series A Junior Preferred Stock for $125. Investors who acquire more
than 15% and less than 25% of the Corporations stock without the intent or
purpose to change or influence the control of the Corporation are exempt from
the definition of Acquiring Person. If the Corporation is acquired in a merger
or other business combination not approved by the Board of Directors, each
holder of a right, other than those held by the acquiring person or group, will
be entitled to purchase one share of common stock of the
page
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32
<PAGE>
surviving company having a market value equivalent to two times the current
purchase price, thereby causing ownership dilution to a person or group
attempting to acquire the Corporation without approval of the Corporations
Board of Directors. The rights expire on November 3, 1997, and may be redeemed
by the Corporation at a price of $.05 per right at any time prior to 10 days
after a person or group acquires 15% or more of the Corporations common stock.
The rights of redemption may be reinstated in connection with the consummation
of a merger or other business combination which has been approved by 67% of the
outstanding shares not held by 15% shareholders and their affiliates.
NOTE 12 COMMITMENTS
The Corporation has entered into certain lease agreements on facilities and
computer equipment, which extend for varying amounts of time.
The Corporations lease commitments require future payments as follows:
<TABLE>
<CAPTION>
Year Ending (Amounts in thousands)
- -----------------------------------------------------------------
<S> <C>
1994 $9,750
- -----------------------------------------------------------------
1995 8,373
- -----------------------------------------------------------------
1996 4,462
- -----------------------------------------------------------------
1997 3,345
- -----------------------------------------------------------------
1998 2,730
- -----------------------------------------------------------------
1999-2016 8,379
- -----------------------------------------------------------------
</TABLE>
Rent expenses for worldwide facilities and computer equipment were
$10.1 million in 1993, $8.5 million in 1992, and $5.6 million in 1991.
As a result of the Sun acquisition, the Corporation assumed certain
third-party leasing obligations. Prior to the 1990 expiration of an operating
agreement between Sun and a third-party leasing corporation, certain lease
sales were placed with a third party with recourse. This leasing corporation
provided customer financing on sales of Sun products in the United States.
Under terms of an associated remarketing agreement with the third party, Sun
continues to be required to repurchase, under certain conditions, equipment on
defaulted leases at predetermined prices. Suns maximum contingent liability
under the remarketing agreement (assuming 100% default by customers on all
existing leases) was $13.3 million as of January 1, 1994. It is expected that
any losses actually incurred due to default would be partially offset by the
repossession and resale of the leased equipment.
NOTE 13 FAIR VALUE OF FINANCIAL INSTRUMENTS
In December of 1991, Statement of Financial Accounting Standards (SFAS) No.
107, "Disclosure about Fair Value of Financial Instruments," was issued. This
standard requires that the Corporation disclose the fair value of financial
instruments for both on- and off-balance sheet assets and liabilities for which
it is practicable to estimate that value. The techniques used for this
valuation are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. The calculated fair value
estimates, therefore, cannot be substantiated by comparison to independent
markets.
The following methods and assumptions were used in estimating the fair
value for financial instruments:
INSTALLMENT CONTRACTS: A discounted cash flow analysis was made over the
average life of a contract using a discount rate currently available to the
Corporation adjusted for credit quality, cost, and profit factors. This
resulted in a fair value of approximately $425 million versus a carrying amount
of $367 million.
INTEREST RATE SWAP AGREEMENT: The fair value of the agreement was based on a
quote from the financial institution with which it is made. As of January 1,
1994, the cost to the Corporation to terminate this agreement was $3.5 million.
ALL OTHER FINANCIAL INSTRUMENTS: The carrying amounts approximate fair value
based on quoted market prices or discounted cash flow analysis for cash
equivalents, debt, forward exchange contracts, and other financial instruments.
NOTE 14 REPORTING SEGMENTS
The Corporation operates predominantly in a single industry as a manufacturer
and distributor of tools and other products for the professional technician.
Operations are conducted in the United States and through non-U.S. subsidiaries
located in Canada, the United Kingdom, Mexico, Germany, Australia, Japan, the
Netherlands, and Brazil. Transfers between geographic areas primarily represent
inter-company export sales of U.S.-produced goods and are accounted for based
on established sales prices between the related companies. In computing
earnings from operations for non-U.S. subsidiaries, no allocations of general
corporate expenses, interest, or income taxes have been made.
page
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33
<PAGE>
SNAP-ON TOOLS CORPORATION
NOTES TO CONSOLIDATED STATEMENTS FISCAL YEARS 1993, 1992, 1991
===============================================================================
Identifiable assets of European and other non-U.S. subsidiaries are those
assets related to the operations of those subsidiaries. United States assets
consist of all other operating assets of the Corporation. European operations
became significant in 1992, reflecting the inclusion of Sun Electric
Corporation acquired on October 2, 1992. Prior to the acquisition, European
operations were not significant, and, therefore, 1991 segment data for Europe is
not shown separately.
<TABLE>
<CAPTION>
Other Non-U.S.
(Amounts in thousands) United States Europe Subsidiaries Eliminations Consolidated
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1993
- --------------------------------------------------------------------------------------------------------------------
SALES TO UNAFFILIATED CUSTOMERS $ 807,469 $198,941 $125,600 - $1,132,010
- --------------------------------------------------------------------------------------------------------------------
TRANSFERS BETWEEN GEOGRAPHIC AREAS 105,846 2,595 10,486 (118,927) -
- --------------------------------------------------------------------------------------------------------------------
TOTAL REVENUE 913,315 201,536 136,086 (118,927) 1,132,010
- --------------------------------------------------------------------------------------------------------------------
EARNINGS FROM OPERATIONS 112,323 22,023 14,560 (1,974) 146,932
- --------------------------------------------------------------------------------------------------------------------
IDENTIFIABLE ASSETS $1,007,269 $140,735 $ 96,655 $(25,726) $1,218,933
- --------------------------------------------------------------------------------------------------------------------
1992
- --------------------------------------------------------------------------------------------------------------------
SALES TO UNAFFILIATED CUSTOMERS $ 770,766 $111,598 $101,436 - $ 983,800
- --------------------------------------------------------------------------------------------------------------------
TRANSFERS BETWEEN GEOGRAPHIC AREAS 73,062 2,185 7,324 (82,571) -
- --------------------------------------------------------------------------------------------------------------------
TOTAL REVENUE 843,828 113,783 108,760 (82,571) 983,800
- --------------------------------------------------------------------------------------------------------------------
EARNINGS FROM OPERATIONS 105,874 2,157 8,133 (489) 115,675
- --------------------------------------------------------------------------------------------------------------------
IDENTIFIABLE ASSETS $ 978,902 $120,295 $ 98,737 $(25,521) $1,172,413
- --------------------------------------------------------------------------------------------------------------------
1991
- --------------------------------------------------------------------------------------------------------------------
SALES TO UNAFFILIATED CUSTOMERS $ 727,875 - $153,716 - $ 881,591
- --------------------------------------------------------------------------------------------------------------------
TRANSFERS BETWEEN GEOGRAPHIC AREAS 65,206 - 7,365 (72,571)
- --------------------------------------------------------------------------------------------------------------------
TOTAL REVENUE 793,081 - 161,081 (72,571) 881,591
- --------------------------------------------------------------------------------------------------------------------
EARNINGS FROM OPERATIONS 119,707 - 6,238 (2,078) 123,867
- --------------------------------------------------------------------------------------------------------------------
IDENTIFIABLE ASSETS $ 791,662 - $148,142 $(24,430) $ 915,374
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
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34
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and
Shareholders of Snap-on Tools Corporation:
We have audited the accompanying consolidated balance sheets of Snap-on Tools
Corporation (a Delaware Corporation) as of January 1, 1994, and January 2, 1993,
and the related consolidated statements of earnings, shareholders' equity, and
cash flows for each of the three years in the period ended January 1, 1994.
These consolidated financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Snap-On
Tools Corporation as of January 1, 1994, and January 2, 1993, and the
consolidated results of its operations and cash flows for each of the three
years in the period ended January 1, 1994, in conformity with generally accepted
accounting principles.
As discussed in Note 1c to the consolidated financial statements, effective the
beginning of 1991, the Corporation changed its method of accounting for
postretirement health benefits other than pensions.
/s/ Arthur Andersen & Co.
ARTHUR ANDERSON & CO.
Milwaukee, Wisconsin
February 4, 1994
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35
<PAGE>
SNAP-ON TOOLS CORPORATION
QUARTERLY FINANCIAL
INFORMATION (Unaudited)
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Amounts in thousands
except per share data) 1993 1992 1991
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES
1st Quarter $ 270,674 $226,253 $222,991
2nd Quarter 272,718 232,907 225,304
3rd Quarter 271,096 225,554 215,464
4th Quarter 317,522 299,086 217,832
- ----------------------------------------------------------------------------
$1,132,010 $983,800 $881,591
- ----------------------------------------------------------------------------
GROSS PROFIT
1st Quarter $ 138,938 $114,262 $107,890**
2nd Quarter 146,839 117,842 109,437
3rd Quarter 140,759 114,544 107,365
4th Quarter 169,192 162,765 112,993
- ----------------------------------------------------------------------------
$ 595,728 $509,413 $437,685
- ----------------------------------------------------------------------------
NET EARNINGS
1st Quarter $ 18,504 $ 18,475 $(22,134)**
2nd Quarter 22,362 19,589 19,144
3rd Quarter 20,536 15,155 18,495
4th Quarter 24,410 12,756* 18,772
- ----------------------------------------------------------------------------
$ 85,812 $ 65,975 $ 34,277
- ----------------------------------------------------------------------------
EARNINGS PER
COMMON SHARE
1st Quarter $ .44 $ .44 $ (.52)**
2nd Quarter .52 .46 .46
3rd Quarter .48 .36 .44
4th Quarter .58 .30* .44
- ----------------------------------------------------------------------------
Net Earnings $ 2.02 $ 1.56 $ .82
- ----------------------------------------------------------------------------
<FN>
* Increased dealer litigation expenses during the fourth quarter, 1992
compared with the fourth quarter, 1991 reduced net earnings by $7.4 million
or $.17 per share.
** First quarter, 1991 information reflects the adoption of Statement of
Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions." At the beginning of the 1991
fiscal year, the cumulative effect of this accounting change after taxes
was an additional expense of $38.9 million. See Note 1c for additional
information on this accounting change.
</TABLE>
ELEVEN YEAR-SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Amounts in thousands except share data) 1993
- -----------------------------------------------------------------------
<S> <C>
SUMMARY OF OPERATIONS
Net sales $1,132,010
Gross profit 595,728
Operating expenses 448,795
Interest expense 11,198
Other income (expense)-net 756
Pre-tax earnings 136,491
Income taxes 50,679
Net earnings 85,812
Net earnings before cumulative effect
of accounting change (Note 1c) N/A
FINANCIAL POSITION
- -----------------------------------------------------------------------
Current assets $854,598
Current liabilities 308,037
Working capital 546,561
Accounts receivable 539,949
Inventories 249,102
Property and equipment-net 224,810
Total assets 1,218,933
Long-term debt 99,683
Shareholders' equity 701,663
COMMON SHARE SUMMARY*
- -----------------------------------------------------------------------
Shareholders' equity per share $16.48
Net earnings per share 2.02
Net earnings per share before cumulative effect
of accounting change (Note 1c) N/A
Cash dividends paid per share 1.08
Average shares outstanding 42,570,783
OTHER FINANCIAL STATISTICS
- -----------------------------------------------------------------------
Cash dividends paid $45,942
% dividends paid to net earnings 53.5%
Capital expenditures 33,248
Depreciation and amortization 32,131
Current ratio 2.8
% of long-term debt to shareholders' equity 14.2%
Effective tax rate 37.1%
Pre-tax earnings as a % of net sales 12.1%
Net earnings as a % of net sales 7.6%
After-tax return on average shareholders' equity 12.6%
Common stock price range* 44 1/2-30 1/2
- -----------------------------------------------------------------------
<FN>
*Adjusted for two-for-one stock split in 1986.
**Based on net earnings before cumulative effect of accounting change (Note 1c).
</TABLE>
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36
<PAGE>
<TABLE>
<CAPTION>
(Amounts in thousands except share data) 1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------------------
Net sales $983,800 $881,591 $931,533 $890,792
Gross profit 509,413 437,685 469,149 439,861
Operating expenses 393,738 313,818 306,084 272,976
Interest expense 5,969 5,250 6,762 3,298
Other income (expense)-net (131) (91) 3,557 1,923
Pre-tax earnings 109,575 118,526 159,860 165,510
Income taxes 43,600 45,300 59,100 60,800
Net earnings 65,975 34,277 100,760 104,710
Net earnings before cumulative effect
of accounting change (Note 1c) N/A 73,226 N/A N/A
FINANCIAL POSITION
- ---------------------------------------------------------------------------------------------------------------------------------
Current assets $832,603 $666,623 $675,038 $564,623
Current liabilities 317,074 176,650 236,802 179,476
Working capital 515,529 489,973 438,236 385,147
Accounts receivable 508,092 461,596 459,381 403,926
Inventories 216,262 160,148 182,065 137,106
Property and equipment-net 226,498 206,481 210,414 195,020
Total assets 1,172,413 915,374 907,854 777,603
Long-term debt 93,106 7,179 7,275 7,700
Shareholders' equity 664,665 652,719 636,403 572,657
COMMON SHARE SUMMARY*
- ---------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity per share $15.67 $15.46 $15.42 $13.93
Net earnings per share 1.56 .82 2.45 2.55
Net earnings per share before cumulative effect
of accounting change (Note 1c) N/A 1.75 N/A N/A
Cash dividends paid per share 1.08 1.08 1.08 1.04
Average shares outstanding 42,343,781 41,821,768 41,207,563 41,038,978
OTHER FINANCIAL STATISTICS
- ---------------------------------------------------------------------------------------------------------------------------------
Cash dividends paid $45,718 $45,086 $44,505 $42,655
% dividends paid to net earnings 69.3% 61.6%** 44.2% 40.7%
Capital expenditures 21,081 23,447 44,353 72,136
Depreciation and amortization 29,457 25,619 25,914 21,865
Current ratio 2.6 3.8 2.9 3.1
% of long-term debt to shareholders' equity 14.0% 1.1% 1.1% 1.3%
Effective tax rate 39.8% 38.2% 37.0% 36.7%
Pre-tax earnings as a % of net sales 11.1% 13.4% 17.2% 18.6%
Net earnings as a % of net sales 6.7% 8.3%** 10.8% 11.8%
After-tax return on average shareholders' equity 10.0% 11.4%** 16.7% 19.4%
Common stock price range* 40-27 34 1/2-27 3/8 38-26 1/4 41 7/8-28 7/8
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
page
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37
<PAGE>
INVESTOR INFORMATION
<TABLE>
<CAPTION>
COMMON STOCK PRICES
Quarter 1993 1992
- --------------------------------------------------
<S> <C> <C>
First $34 3/4-30 1/2 $40 -32 1/4
Second 39 1/4-33 1/4 38 3/4-29 1/8
Third 44 1/2-38 33 1/4-30 1/2
Fourth 40 1/2-36 3/8 32 5/8-27
- ---------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DIVIDENDS PER COMMON SHARE
Quarter 1993 1992
- --------------------------------------------------
<S> <C> <C>
First $ .27 $ .27
Second .27 .27
Third .27 .27
Fourth .27 .27
- --------------------------------------------------
$1.08 $1.08
- --------------------------------------------------
</TABLE>
INVESTOR INFORMATION
Snap-on Tools Corporation common stock is traded on the New York Stock Exchange,
Ticker Symbol - SNA.
TRANSFER AGENT AND REGISTRAR
Harris Trust and Savings Bank
311 West Monroe Street
Eleventh Floor
Chicago, Illinois 60690
SHAREHOLDER INQUIRIES
Shareholders with questions may call the Transfer Agent, Harris Bank, toll-free
at 1-800-524-0687.
DIVIDEND RECORD AND PAY DATES FOR 1994
<TABLE>
<CAPTION>
Quarter Record Date Pay Date
- ----------------------------------------------
<S> <C> <C>
First Feb. 18 Mar. 10
Second May 20 June 10
Third Aug. 19 Sept. 9
Fourth Nov. 18 Dec. 9
- ----------------------------------------------
</TABLE>
SHAREHOLDERS
The number of shareholder accounts of record as of December 31, 1993, was 9,047.
DIVIDEND REINVESTMENT
Snap-on shareholders may increase their investment in the Corporation through a
no-commission dividend reinvestment plan. For information, write to:
Harris Trust and Savings Bank
Dividend Reinvestment Plan Services
P.O. Box A3309
Chicago, Illinois 60690-0735
Or phone: 1-800-524-0687
FINANCIAL INFORMATION
Refer specific financial questions to Denis J. Loverine, Treasurer, (414)656-
5421.
FORM 10K AND OTHER FINANCIAL PUBLICATIONS
Available without charge from the Public Relations Department, General Offices,
(414)656-4808 (recorded message).
ANNUAL MEETING
The Annual Meeting of Shareholders will be held at the Racine Marriott, 7111
Washington Avenue, Racine, Wisconsin, at 10:00 a.m., April 22, 1994.
GENERAL OFFICES
2801-80th Street
Kenosha, Wisconsin 53141-1410
Phone (414)656-5200
SUBSIDIARIES
Snap-on Tools of Canada Ltd
Snap-on Tools Limited
Snap-on Tools International, Ltd.
Herramientas Snap-on de Mexico, S.A.
Snap-on Tools GmbH
Snap-on Tools (Australia) Pty. Ltd.
Snap-on Financial Services, Inc.
Snap-on Tools Japan, K.K.
Snap-on Tools Worldwide, Inc.
A.T.I. Tools, Inc.
Balco, Inc.
Sun Electric Corporation
J.H. Williams Company
SNAP-ON-R- IS A REGISTERED TRADEMARK OF SNAP-ON TOOLS CORPORATION
SUN-R- IS A REGISTERED TRADEMARK OF SUN ELECTRIC CORPORATION
WILLIAMS-R- IS A REGISTERED TRADEMARK OF J.H. WILLIAMS COMPANY
page
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38
<PAGE>
Exhibit (22)
SUBSIDIARIES OF THE CORPORATION
State or other jurisdiction
Name of organization
- ---------------------------------------- --------------------------
Snap-on Tools of Canada Ltd Canada
Snap-on Tools Limited United Kingdom
Snap-on Tools International, Ltd. (F.S.C.) U.S. Virgin Islands
Herramientas Snap-on de Mexico, S.A. Mexico
Snap-on Tools GmbH Germany
Snap-on Tools (Australia) Pty. Ltd. Australia
Snap-on Tools Netherlands B.V. Netherlands
Snap-on Tools Japan, K.K. Japan
Snap-on Tools Worldwide, Inc. Michigan
ATI Tools, Inc. Delaware
Balco, Inc. California
J. H. Williams Company Delaware
Sun Electric Corporation Delaware
(Has 7 U.S. subsidiaries and 16 non-U.S. subsidiaries)
