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SNAP-ON INCORPORATED
1994 FORM 10-K
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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 EXCHANGE
--- ACT OF 1934
For the fiscal year ended December 31, 1994
Commission File Number 1-7724
SNAP-ON INCORPORATED
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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
--- ----
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 28, 1995, with a closing price per share on that
date of $34.00.
Common Stock, Par Value $1 Per Share, $1,435,397,074
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of February 28, 1995.
Common Stock, Par Value $1 Per Share, 42,217,561 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 December 31, 1994, are incorporated by reference into Parts I, II and IV
of this report.
Portions of the Corporation's Proxy Statement, dated March 24, 1995, prepared
for the Annual Meeting of Shareholders scheduled for April 28, 1995, are
incorporated by reference into Part III of this report.
Exhibit Index Page 15 Page 1 of 99 Pages
<PAGE>
SNAP-ON INCORPORATED
1994 FORM 10-K
TABLE OF CONTENTS Page
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PART I
Item 1. Business 3
Item 2. Description of Properties 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters 10
Item 6. Selected Financial Data 10
Item 7. Management Discussion and Analysis of Financial Condition and
Results of Operations 10
Item 8. Financial Statements and Supplementary Data 10
Item 9. Disagreements on Accounting and Financial Disclosure 10
PART III
Item 10. Directors and Officers of Registrant 10
Item 11. Executive Compensation 10
Item 12. Security Ownership of Certain Beneficial Owners and Management 10
Item 13. Certain Relationships and Related Transactions 10
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 11
Auditor's Reports 12
Signature Pages 13
Financial Schedule 16
<PAGE>
PART I
ITEM 1: BUSINESS OVERVIEW
Snap-on Incorporated (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, diagnostics and shop equipment and information services,
primarily for use by professional technicians. In addition to individual
automotive technicians, shop owners and other professional tool users, the
Corporation's products are marketed to industrial and governmental entities, as
well as to original equipment manufacturers.
The Corporation is a multinational corporation with operations in several
countries, including the United States, Australia, Belgium, Brazil, Canada,
France, Germany, Japan, Mexico, Puerto Rico, the Netherlands, New Zealand,
Taiwan and the United Kingdom.
The Corporation conducts its business through four principal operating groups:
- SNAP-ON TOOLS focuses on the development and sale of products and services
through the Corporation's worldwide dealer direct sales programs to automotive
and transportation technicians. Subsidiaries manage dealer operations in several
countries outside the United States.
- SNAP-ON DIAGNOSTICS focuses on the development and sale of diagnostics and
shop equipment to automotive service and repair shops. Subsidiaries associated
with this operating group are: Sun Electric Corporation ("Sun"), a leading
producer of diagnostics and service equipment; Balco, Inc., a developer of
engine diagnostic and wheel-balancing equipment; and Wheeltronic Ltd.
("Wheeltronic"), a manufacturer of hoists and lifts for automotive service
shops;
- SNAP-ON INDUSTRIAL focuses on the development and sale of industrial tools and
equipment through a direct sales force as well as through industrial
distributors and other channels. Subsidiaries associated with this operating
group include: J. H. Williams Company ("Williams"), a manufacturer of hand
tools; A.T.I. Tools, Inc. ("ATI"), a producer of tools and equipment for
aerospace and industrial applications; and Sioux Tools, Inc. ("Sioux"), a
manufacturer of power tools;
- SNAP-ON FINANCIAL SERVICES, INC., through its Snap-on Credit Corporation
subsidiary, is responsible for certain credit and non-credit services used to
support sales and provide dealer financing options. Credit programs support the
sale of the Corporation's products and services, especially higher-value
products such as diagnostics and other shop equipment.
In recent years, the Corporation has expanded its product line and marketing
programs to address additional customer tool and equipment needs and to expand
internationally. The Corporation also has entered into agreements with and has
made investments (including minority investments) in information and technology
firms to strengthen its position as a leading supplier of hardware and software
for automotive service and repair.
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 foreign distributors.
PRODUCTS AND SERVICES
The Corporation offers a broad product line which it divides into four 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; and instruments developed for medical applications and
for the manufacture and servicing of electronic equipment. The Stanley Works,
Danaher Corporation, Cooper Industries and Strafor Facom are some of the many
manufacturers of hand tools.
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.
3
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DIAGNOSTICS AND SHOP EQUIPMENT -- Includes hardware and software solutions for
diagnosis and service of automotive and industrial equipment. Products include:
engine and emissions analyzers, transmission troubleshooting equipment, air
conditioning service equipment, brake service equipment, wheel balancing and
alignment equipment, battery chargers and lifts and hoists used in repair shops.
Also included are service and repair information services. Automotive
Diagnostics (a division of SPX Corporation), Hunter Engineering Company, Inc.,
Robert Bosch GmbH and Danaher are among the many other manufacturers in this
market.
The Corporation supports the sale of its diagnostic and shop equipment by
offering training programs to technician customers. These programs offer
certification in both specific automotive technologies and in the application of
specific diagnostic equipment developed and marketed by the Corporation and its
subsidiaries.
The Corporation exited the market for centralized automotive emissions testing
services in 1994 with the sale of its Systems Control subsidiary, acquired as
part of the Sun purchase in 1992.
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 full year 1993 and 1994.
TABLE 1 CONSOLIDATED SALES
<TABLE>
<CAPTION>
PRODUCT GROUP % OF SALES 1994 1993 1992
<S> <C> <C> <C>
Hand Tools 38% 37% 43%
Power Tools 7% 7% 8%
Tool storage products 11% 11% 13%
Diagnostics/Shop 44% 45% 36%
</TABLE>
The Corporation believes this analysis is representative of its consolidated net
sales mix worldwide.
Sales in the diagnostics/shop equipment product group include technical training
services and revenues for contracted emissions-testing services for various
governmental entities prior to the sale of Systems Control in 1994.
MARKETS SERVED
GEOGRAPHIC MARKETS SERVED -- Products and services are marketed and distributed
in more than 100 countries directly through the Snap-on and SNAP-ON/SUN TECH
SYSTEMS sales organizations or indirectly through industrial distributors and
foreign distributors. Table 2 shows the approximate percentage of sales by
geographic market for the past three years.
TABLE 2 CONSOLIDATED SALES
<TABLE>
<CAPTION>
MARKETS % OF SALES 1994 1993 1992
<S> <C> <C> <C>
North American Sales 79% 78% 85%
European Sales 16% 18% 11%
Other Sales 5% 4% 4%
</TABLE>
The acquisition of Sun in the fourth quarter of 1992 significantly raised the
percentage of sales outside North America. For further information on the
Corporation's international and domestic operations, see Note 13 on page 36 of
the Corporation's 1994 Annual Report, incorporated herein by reference.
MARKET SECTORS SERVED -- The Corporation markets and distributes primarily to
two market sectors, in both the U.S. and internationally:
- The professional market of individual technicians as well as automotive
service and repair shops, including independent, chain and dealership
facilities.
- The industrial market for tools and equipment used in manufacturing and
industrial maintenance and repair, as well as tools included with products sold
by original equipment manufacturers ("OEM") as instrumentation or used in OEM
and distributor equipment service programs.
Table 3 shows the approximate percentage of total sales for the last three years
for these sectors as well as for sales to foreign distributors, who sell to the
same types of customers the Corporation serves in the United States.
TABLE 3 CONSOLIDATED SALES
<TABLE>
<CAPTION>
MARKET SECTOR % OF SALES 1994 1993 1992
<S> <C> <C> <C>
Professional 82% 83% 79%
Industrial 17% 15% 18%
Foreign Distributor 1% 2% 3%
</TABLE>
PROFESSIONAL SECTOR
The professional sector has two primary customer groups: professional
technicians who purchase tools and equipment for themselves, and shop owners and
managers who purchase equipment for use by multiple technicians within a service
or repair facility. Following is a discussion of the characteristics of these
customers and the Corporation's position in their markets.
4
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PROFESSIONAL TECHNICIANS -- The Corporation markets its products and services to
professional technicians worldwide primarily through its 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 technician.
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 offered by 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 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, respectively. Other van operations include Vulcan and The Cornwell
Quality Tools Company. 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 in this sector generally
is on service and product quality, performance and productivity. Other
suppliers, outside the dealer van channel, generally compete on price.
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 and increased competition within the mobile
dealer van channel during the past decade.
SHOP OWNERS -- Through its dealers and sales representatives, the Corporation
serves owners and managers of shops where technicians work with tools, equipment
and diagnostic products.
The needs of these customers are increasingly driven by technological innovation
and government regulation. In order to remain competitive, shop owners must
purchase a growing array of sophisticated, specialized equipment that enables
their shops to service and repair computerized automotive systems and to comply
with vehicle environmental and safety regulations. The ability to recruit and
retain professional technicians also depends on the quality and sophistication
of the equipment and service and repair information available in shops.
The Corporation is continually expanding its line of automotive diagnostic and
shop equipment to address needs in this market sector, and to expand its
customer base and grow its sales.
INDUSTRIAL SECTOR
The Corporation markets its products to a wide variety of industrial customers,
including industrial maintenance and repair facilities; manufacturing and
assembly operations; industrial distributors; government facilities; schools;
and original equipment manufacturers who require instrumentation or service
tools and equipment for their products.
Customers in the industrial sector have different needs and base their purchase
decisions on a variety of 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, breadth of product offering, and service. Larger
manufacturing operations often prefer the economies and efficiencies of buying
through industrial distributors. For such large, high-volume customers, key
purchase factors include competitive pricing, one-stop shopping, single point
invoicing, and on-time delivery.
In addition to tool and equipment manufacturers previously listed, 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 equipment lines are among the largest offered for industrial
applications, they are only two of several categories of products these other
companies offer. Additionally, the Corporation's ability to provide value-added
services such as tool control programs, training, and special tools in its
direct-sales segment should also result in market penetration.
Major challenges in the industrial market include a highly competitive, cost-
conscious environment, as well as an increase in new technologies. The
Corporation believes it is currently a relatively small participant in the
market for industrial tools and equipment. However, the Corporation also
believes its ability to address the industrial distribution channel through
Williams and Sioux will result in increased market penetration over the next
decade.
5
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DISTRIBUTION
The Corporation serves customers through direct and indirect sales channels,
each of which are described more fully below.
SNAP-ON TOOLS
DEALERS
Marketing worldwide to professional technicians and shop owners is conducted
primarily through the mobile dealer van system. 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. Revolving account sales typically comprise a significant
percentage of dealer sales.
The Corporation's dealers are entitled to purchase and sell SNAP-ON brand
products and products contained in the SNAP-ON catalogs; the Corporation also
sells and/or distributes its products through a national accounts program. In
the U.S., SUN brand products are sold only through the SNAP-ON/SUN Tech Systems
sales force (Tech Reps), 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. Under certain conditions, dealers participate in the proceeds of sales of
SUN brand equipment and sales made under national account programs.
Although some dealers have sales areas defined by other methods, most dealers
and all new U.S. dealers are provided a list of calls -- addresses or places of
business -- which serve as the basis of the dealer's sales route. Weekly dealer
calls on customers for both service and sales solicitation are essential
elements of the Corporation's dealer-marketing program.
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.
FOREIGN DISTRIBUTORS
Sales to the Corporation's foreign distributors are made by its subsidiary,
Snap-on Tools International, Ltd., in those countries where the Corporation does
not have subsidiary operations. These foreign distributors operate under license
or contract with the Corporation. Their customers may include industrial and
governmental entities as well as individual technicians and shop owners. These
sales were not material to the Corporation's total sales in 1994.
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 diagnostic and shop equipment.
They are compensated primarily 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 equipment and sell SUN
equipment. They call on accounts on their own and also work with Snap-on
dealers and sales representatives to identify sales leads and to respond to
customer needs.
SNAP-ON INDUSTRIAL
Marketing to industrial and governmental 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 primarily
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.
6
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At year-end 1994, the Corporation had industrial sales representatives in
Australia, Belgium, 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 AND SIOUX TOOLS SALES REPRESENTATIVES
Williams and Sioux are operated as separate companies with separate sales forces
and distinct brands and product lines. Williams' and Sioux's 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 1994, approximately 81% 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 enable franchised dealers to obtain start-up
financing (discussed later), operate a second van to service their customers,
transfer their franchises, 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 initial and ongoing monthly license fees 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, travel and living expenses while training,
van acquisition, development of customer accounts receivable, equipment,
fixtures, computer equipment, additional funds for the initial phase of
operations, and other miscellaneous expenses.
In the United States and most foreign 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 working 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
The Corporation's customer and dealer credit programs are conducted by Snap-on
Financial Services, Inc. and its subsidiary, Snap-on Credit Corporation.
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 and converted franchise dealers which
could include the license fee, inventory, revolving account acquisition,
equipment, fixtures, other expenses and an initial checking account deposit.
Dealers are required to make a minimum down payment. Participating dealers must
enter into a Loan Security Agreement and execute a Promissory Note evidencing
the loan.
7
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The Credit Corporation operates credit programs, which provide financing for
high-value product purchases by dealers' customers, through the purchase of
paper from dealers.
FIELD SERVICES AND INVENTORY
In the U.S., the Corporation operates four regional finished-goods distribution
centers, a replacement processing center, eight regional customer service
centers, and four regional repair centers. In addition, the Corporation
operates 49 U.S. branch sales offices.
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 provided at regional repair centers,
while service for SUN product is provided through a network of more than 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 1994 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 1994 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. As of December 31, 1994, the
Corporation and its subsidiaries held approximately 354 patents and more than
211 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 are of continuing importance to the Corporation in the
marketplace. Trademarks have been registered in the U.S. and in 61 other
countries, and additional applications for trademark registrations 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, 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 18 to 22 of the Corporation's 1994 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 and has no significant backlog
of orders.
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 1994, the Corporation employed approximately 9,000 people, of whom
approximately 17% were covered by collective bargaining agreements.
Approximately one-third of all employees are engaged in manufacturing
activities.
RECENT DEVELOPMENTS
In September 1994, the Corporation filed a registration statement with the
Securities and Exchange Commission which allows the Corporation to offer for
sale from time to time up to $300 million of unsecured indebtedness. As of
December 31, 1994, the Corporation has not incurred indebtedness under this
filing.
8
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In January 1995, the Board of Directors approved a common stock repurchase
program of up to $100 million to be executed from time to time through open
market purchases and by block purchases.
ITEM 2: DESCRIPTION OF PROPERTIES
The Corporation maintains both leased and owned manufacturing, warehouse,
distribution and office facilities throughout the world.
The Corporation's principal manufacturing locations and distribution centers are
located in Escondido and San Jose, California; Columbus, Georgia; Crystal Lake,
Mt. Carmel and Ottawa, Illinois; Algona and Sioux City, Iowa; Natick,
Massassachutes; Olive Branch, Mississippi; Carson City, Nevada; Robesonia,
Pennsylvania; Johnson City and Elizabethton, Tennessee; East Troy, Kenosha and
Milwaukee, Wisconsin; Sydney, Australia; Barbara D'oeste, Brazil; Calgary,
Mississagua and Newmarket, Canada; King's Lynn, England; Shannon, Ireland;
Tokyo, Japan; and Amsterdam, the Netherlands.
The Corporation believes that its facilities are well maintained and have a
capacity adequate to meet the Corporation's present and foreseeable future
demand. The Corporation's U.S. facilities occupy approximately 3.8 million
square feet, of which approximately 3.4 million square feet are owned. The
Corporation's facilities outside the U.S. contain approximately 1.1 million
square feet, of which approximately .5 million square feet are owned.
In the fourth quarter of 1993, the Corporation completed a reorganization and
consolidation of its field services and inventory. As part of the
reorganization, the Corporation has sold 32 U.S. branch offices and 2 division
offices as of December 1994. The branches that were sold have been replaced
with smaller leased facilities.
ITEM 3: LEGAL PROCEEDINGS
Note 4 to the Financial Statements of the Corporation on page 29 of its 1994
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 December 31, 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 by the Board of Directors or
appointed by the Chief Executive Officer 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 (54)
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.
DONALD S. HUML (48)
Senior Vice President - Finance and Chief Financial Officer since August 1994.
Prior to joining Snap-on, he was Vice President and Chief Financial Officer of
Saint-Gobain Corporation from December 1990 to August 1994. Vice President and
Chief Financial Officer of CertainTeed Corporation from August 1989 to December
1990.
MICHAEL F. MONTEMURRO (46)
Senior Vice President - Financial Services and Administration since August
1994. Senior Vice President -Financial Services, Administration and Chief
Financial Officer from April 1994 to August 1994. Senior Vice President -
Finance and Chief Financial Officer from March 1990 to April 1994. Vice
President - Marketing Services from May 1989 to March 1990.
JAY H. SCHNABEL (51)
Senior Vice President - Diagnostics since April 1994 and President of Sun
Electric Corporation since December 1992. Senior Vice President -
Administration from April 1990 to April 1994. Senior Vice President -
Manufacturing and Research & Engineering from November 1988 to April 1990. A
Director since August 1989.
DR. JAMES L. SOMERS (51)
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.
9
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NAME, POSITION AND
BUSINESS EXPERIENCE AGE
-----------------------------------------------------------------------------
BRANKO M. BERONJA (60)
President - North American Operations since April 1994, and Vice President -
Sales, North America since August 1989.
GREGORY D. JOHNSON (45)
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 (46)
Vice President, Secretary and General Counsel since January 1992. Secretary and
General Counsel from November 1990 to January 1992. Prior to joining Snap-on,
she was Vice President, General Counsel and Corporate Secretary for H. B. Fuller
Company from 1987 to October 1990.
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At December 31, 1994, the Corporation had 43,128,696 shares of common stock
outstanding. Institutional shareholders had voting authority for approximately
69% of these shares.
Additional information required by Item 5 is contained on page 40 of the
Corporation's 1994 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
38 and 39 of the Corporation's 1994 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
18-22 of the Corporation's 1994 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
23-36 of the Corporation's 1994 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 24, 1995, 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 24, 1995, and is
incorporated herein by reference to said Proxy Statement on page 13.
ITEM 11: EXECUTIVE COMPENSATION
The information required by Item 11 is contained in the Corporation's Proxy
Statement, dated March 24, 1995, and is incorporated herein by reference to said
Proxy Statement on pages 5-10.
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 24, 1995, and is incorporated herein by reference to said
Proxy Statement on page 5.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
10
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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 Incorporated, and the
Auditors' Report thereon, each included in the 1994 Annual Report of the
Corporation to its shareholders for the year ended December 31, 1994, are
incorporated by reference in Item 8:
Consolidated Balance Sheets as of December 31, 1994 and January 1, 1994.
Consolidated Statements of Earnings for the years ended December 31, 1994,
January 1, 1994 and January 2, 1993.
Consolidated Statements of Shareholders' Equity for the years ended December
31, 1994, January 1, 1994 and January 2, 1993.
Consolidated Statements of Cash Flows for the years ended December 31, 1994,
January 1, 1994 and January 2, 1993.
Notes to Consolidated Financial Statements.
2. FINANCIAL STATEMENT SCHEDULE
The following consolidated financial statement schedule of Snap-on Incorporated
is included in Item 14(d) as a separate section of this report.
SCHEDULE II Valuation and Qualifying Accounts pg. 16
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 1994 Annual
Report in the Notes to Consolidated Financial Statements for the years ended
December 31, 1994, January 1, 1994 and January 2, 1993, 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, effective March 10, 1995.
(b) Bylaws of the Corporation, effective June 24, 1994.
(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 December 31, 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, filed
as Exhibit 10(b) to the Corporation's Annual Report on Form 10-K for
the fiscal year ended January 1, 1994, is incorporated herein by
reference thereto.
(c) Indemnification Agreement for Directors, contained in the Proxy
Statement dated March 23, 1990, is incorporated herein by reference
thereto.
(d) Directors' 1993 Fee Plan, contained in the Corporation's Proxy
Statement dated March 19, 1993, is incorporated by reference thereto.
(e) Snap-on Tools Corporation Supplemental Retirement Plan, filed as
Exhibit 10(d) to the Corporation's Annual Report on Form 10-K for the
fiscal year ended January 1, 1994, is incorporated herein by reference
thereto.
(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.
11
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
We have audited, in accordance with generally accepted auditing standards, the
financial statements included in Snap-on Incorporated's (the "Corporation")
Annual Report to Shareholders, incorporated by reference in this Form 10-K, and
have issued our report thereon dated January 31, 1995. Our audit was made for
the purpose of forming an opinion on those statements taken as a whole. The
schedule listed on page 16 is the responsibility of the Corporation's management
and is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
January 31, 1995
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, 33-57898 and 33-55607.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
March 20, 1995
12
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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 INCORPORATED
------------------------
By: /s/ R. A. Cornog Date: March 21, 1995
----------------------------------------------- -----------------
R. A. Cornog, Chairman of the Board of Directors,
President and Chief Executive Officer
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.
/s/ R. A. Cornog Date: March 21, 1995
----------------------------------------------- -----------------
R. A. Cornog, Chairman of the Board of Directors,
President and Chief Executive Officer
/s/ D. S. Huml Date: March 21, 1995
----------------------------------------------- -----------------
D. S. Huml, Principal Financial Officer,
and Senior Vice President - Finance
/s/ G. D. Johnson Date: March 21, 1995
----------------------------------------------- -----------------
G. D. Johnson, Principal Accounting Officer,
and Controller
13
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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: /s/ D. W. Brinckman Date: March 21, 1995
----------------------------------------------- -----------------
D. W. Brinckman, Director
By: /s/ B. S. Chelberg Date: March 21, 1995
----------------------------------------------- -----------------
B. S. Chelberg, Director
By: /s/ R. J. Decyk Date: March 21, 1995
----------------------------------------------- -----------------
R. J. Decyk, Director
By: /s/ R. F. Farley Date: March 17, 1995
----------------------------------------------- -----------------
R. F. Farley, Director
By: /s/ A. L. Kelly Date: March 21, 1995
----------------------------------------------- -----------------
A. L. Kelly, Director
By: /s/ G. W. Mead Date: March 21, 1995
----------------------------------------------- -----------------
G. W. Mead, Director
By: /s/ E. H. Rensi Date: March 21, 1995
----------------------------------------------- -----------------
E. H. Rensi, Director
By: /s/ J. H. Schnabel Date: March 21, 1995
----------------------------------------------- -----------------
J. H. Schnabel, Director
14
<PAGE>
EXHIBIT INDEX
Item 14(c): Exhibits Page
--------------------- ----
(3) (a) Restated Certificate of Incorporation of the Corporation,
effective as of March 10, 1995. . . . . . . . . . . . . . . . . 17
(b) Bylaws of the Corporation, effective as of June 24, 1994. . . . 31
(4) Rights Agreement dated as of October 23, 1987 between the
Corporationand 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, filed as Exhibit
10(b) to the Corporation's Annual Report on Form 10-K for the
fiscal year ended January 1, 1994, is incorporated herein by
reference thereto
(c) Indemnification Agreement for Directors, contained in the Proxy
Statement dated March 23, 1990, is incorporated herein by
reference thereto
(d) Directors' 1993 Fee Plan, contained in the Corporation's Proxy
Statement dated March 19, 1993, is incorporated by reference
thereto.
(e) Snap-on Tools Corporation Supplemental Retirement Plan, filed
as Exhibit 10(d) to the Corporation's Annual Report on Form
10-K for the fiscal year ended January 1, 1994, is incorporated
herein by reference thereto.
(13) Annual Report to Shareholders. . . . . . . . . . . . . . . . . . . . 55
(22) Subsidiaries of the Corporation. . . . . . . . . . . . . . . . . . . 55
15
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Snap-on Incorporated
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
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
December 31, 1994 $14,946,208 $ 96,355 $ 8,652,343 $10,514,044(1) $13,580,593(1)
Year ended
January 1, 1994 $12,586,976 $1,443,272 $14,443,272 $13,580,593(1) $14,946,208
Year ended
January 2, 1993 $ 5,825,307 $4,547,379 $11,575,491 $ 9,361,201(1) $12,586,976
<FN>
-----------
(1) This amount represents write-offs of bad debts.
</TABLE>
16
<PAGE>
EXHIBIT (3)(A)
RESTATED
CERTIFICATE OF INCORPORATION
OF SNAP-ON INCORPORATED
SNAP-ON INCORPORATED, a corporation organized and existing under the
laws of the State of Delaware, does hereby certify as follows:
1. The name of the corporation is "SNAP-ON INCORPORATED"
(hereinafter referred to as the "Corporation"), and the name under which the
Corporation was originally incorporated is "Snap-on Tools, Inc." The date of
filing its original Certificate of Incorporation with the Secretary of State was
April 7, 1930.
2. This Restated Certificate of Incorporation was duly adopted by
the Board of Directors of the Corporation in accordance with Section 245 of the
General Corporation Law of the State of Delaware.
3. This Restated Certificate of Incorporation restates and
integrates the provisions of the Restated Certificate of Incorporation of the
Corporation as heretofore amended or supplemented and there is no discrepancy
between those provisions and the provisions of this Restated Certificate of
Incorporation.
4. The text of the Restated Certificate of Incorporation as
heretofore amended or supplemented is hereby further restated to read as herein
set forth in full:
FIRST: The name of the Corporation is Snap-on Incorporated.
SECOND: The location of its principal office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle, State of Delaware. The name of its resident agent
therein, and in charge of said office, is The Corporation Trust Company whose
address is Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware.
THIRD: The nature of the business or objects or purposes to be
transacted, promoted or carried on by the Corporation are to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is one hundred twenty-five million
(125,000,000) shares of Common Stock with the par value of one dollar ($1.00)
per share and fifteen million (15,000,000) shares of Preferred Stock with the
par value of one dollar ($1.00) per share.
The following is a description of each of the classes of stock of the
Corporation and a statement of the powers, preferences and rights of such stock,
and the qualifications and restrictions thereof:
17
<PAGE>
(a) At all meetings of the shareholders of the Corporation the
holders of the Common Stock shall be entitled to one vote for each share of
Common Stock held by them respectively.
(b) Shares of the Preferred Stock may be issued from time to time in
one or more series as may from time to time be determined by the Board of
Directors of the Corporation. Each series shall be distinctly designated.
Except as otherwise provided in the resolution setting forth the designations
and rights of the series of Preferred Stock, all shares of any one series of the
Preferred Stock shall be alike in every particular, except that there may be
different dates from which dividends (if any) thereon shall be cumulative, if
made cumulative.
The relative preferences, participating, optional and other special
rights of each such series, and limitations thereof, if any, may differ from
those of any and all other series at any time outstanding. The Board of
Directors of the Corporation is hereby expressly granted authority to fix by
resolution or resolutions adopted prior to the issuance of any shares of each
particular series of the Preferred Stock, the designation, relative preferences,
participating, optional and other special rights and limitations thereof, if
any, of such series, including, but without limiting the generality of the
foregoing, the following:
(1) the distinctive designation of, and the number of shares of
the Preferred Stock which shall constitute the series, which number
may be increased (except as otherwise fixed by the Board of Directors)
or decreased (but not below the number of shares thereof then
outstanding) from time to time by action of the Board of Directors;
(2) the rate and times at which, and the terms and conditions
upon which, dividends, if any, on shares of the series may be paid,
the extent of preferences or relation, if any, of such dividends to
the dividends payable on any other class or classes of stock of the
Corporation, or on any series of the Preferred Stock or of any other
class or classes of stock of the Corporation, and whether such
dividends shall be cumulative, partially cumulative or non-cumulative;
(3) the right, if any, of the holders of shares of the series to
convert the same into, or exchange the same for, shares of any other
class or classes of stock of the Corporation, and the terms and
conditions of such conversion or exchange;
(4) whether shares of the series shall be subject to redemption
and the redemption price or prices and the time or times at which, and
the terms and conditions upon which, shares of the series may be
redeemed;
18
<PAGE>
(5) the rights, if any, of the holders of shares of the series
upon voluntary or involuntary liquidation, merger, consolidation,
distribution or sale of assets, dissolution or winding-up of the
Corporation;
(6) the terms of the sinking fund or redemption or purchase
account, if any, to be provided for shares of the series; and
(7) the voting powers, if any, of the holders of shares of the
series which may, without limiting the generality of the foregoing,
include the right, voting as a series by itself or together with other
series of the Preferred Stock or all series of the Preferred Stock as
a class, (1) to vote more or less than one vote per share on any or
all matters voted upon by the shareholders, (2) to elect one or more
directors of the Corporation in the event there shall have been a
default in the payment of dividends on any one or more series of the
Preferred Stock or under such other circumstances and upon such
conditions as the Board of Directors may fix.
(c) The relative preferences, rights and limitations of each series
of Preferred Stock in relation to the preferences, rights and limitations of
each other series of Preferred Stock shall, in each case, be as fixed from time
to time by the Board of Directors in the resolution or resolutions adopted
pursuant to authority granted in this Article FOURTH, and the consent by class
or series vote or otherwise, of the holders of the Preferred Stock of such of
the series of the Preferred Stock as are from time to time outstanding shall not
be required for the issuance by the Board of Directors of any other series of
Preferred Stock whether the preferences and rights of such other series shall be
fixed by the Board of Directors as senior to, or on a parity with, the
preferences and rights of such outstanding series, or any of them; provided,
however, that the Board of Directors may provide in such resolution or
resolutions adopted with respect to any series of Preferred Stock that the
consent of the holders of a majority (or such greater proportion as shall be
therein fixed) of the outstanding shares of such series voting thereon shall be
required for the issuance of any or all other series of Preferred Stock.
(d) Subject to the provisions of the preceding paragraph (c), shares
of any series of Preferred Stock may be issued from time to time as the Board of
Directors shall determine and on such terms and for such consideration, not less
than the par value thereof, as shall be fixed by the Board of Directors.
RESOLVED, that pursuant to the authority vested in the Board of
Directors of this Corporation in accordance with the provisions of Article
FOURTH of its Certificate of Incorporation, a series of Preferred Stock, par
value $1.00 per share, of the Corporation be and it hereby is created, and that
the designation and amount thereof and the voting powers, preferences and
relative, participating, optional and other special rights of the shares of such
series, and the qualifications, limitations or restrictions thereof are as
follows:
19
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Section 1. DESIGNATION AND AMOUNT. The shares of such series
shall be designated as "Series A Junior Preferred Stock" (the "Series Preferred
Stock") and the number of shares constituting such series shall be 450,000.
Section 2. DIVIDENDS AND DISTRIBUTIONS.
(A) The holders of shares of Series Preferred Stock shall be entitled
to receive, when, as and if declared by the Board of Directors out of funds
legally available for the purpose, quarterly dividends payable in cash on the
fifteenth day of March, June, September and December in each year (each such
date being referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the first issuance
of a share or fraction of a share of Series Preferred Stock, in an amount per
share (rounded to the nearest cent) equal to the greater of (a) $20.00, or (b)
subject to the provision for adjustment hereinafter set forth, 100 times the
aggregate per share amount of all cash dividends, and 100 times the aggregate
per share amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock of the Corporation (the "Common Stock")
since the immediately preceding Quarterly Dividend Payment Date, or, with
respect to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series Preferred Stock. In the event the
Corporation shall at any time declare or pay any dividend on Common Stock
payable in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each of those cases
the multiplier set forth in clause (b) of the preceding sentence shall be
adjusted by multiplying such multiplier by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
The Corporation shall declare a dividend or distribution on the Series
Preferred Stock as provided in this paragraph (A) immediately after it declares
a dividend or distribution on the Common Stock (other than a dividend payable in
shares of Common Stock); provided that, in the event no dividend or distribution
shall have been declared on the Common Stock during the period between any
Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend
Payment Date, a dividend of $20.00 per share on the Series Preferred Stock shall
nevertheless be payable on such subsequent Quarterly Dividend Payment Date.
Dividends shall begin to accrue and be cumulative on outstanding
shares of Series Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Series Preferred Stock, unless the
date of issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall begin to
accrue from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series Preferred Stock entitled to receive
a quarterly dividend and before such Quarterly Dividend Payment Date, in either
of which events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series Preferred Stock in an amount
less than the total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date
for the determination
20
<PAGE>
of holders of shares of Series Preferred Stock entitled to
receive payment of a dividend or distribution declared thereon, which record
date shall be no more than 60 days prior to the date fixed for the payment
thereof.
Section 3. VOTING RIGHTS. The holders of shares of Series
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series Preferred Stock shall entitle the holder thereof to 100
votes on all matters submitted to a vote of the stockholders of the
Corporation. In the event the Corporation shall at any time declare or pay
any dividend on Common Stock payable in shares of Common Stock; or effect a
subdivision or combination of the outstanding shares of Common Stock (by
reclassification or otherwise) into a greater or lesser number of shares of
Common Stock, then in each such case the number of votes per share to which
holders of shares of Series Preferred Stock were entitled immediately prior to
such event shall be adjusted by multiplying such number by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of
shares of Series Preferred Stock and the holders of shares of Common Stock shall
vote together as one class on all matters submitted to a vote of stockholders of
the Corporation.
(C) (i) If at any time dividends on any Series Preferred Stock
shall be in arrears in an amount equal to six quarterly dividends
thereon, the occurrence of such contingency shall mark the beginning
of a period (herein called a "default period") which shall extend
until such time when all accrued and unpaid dividends for all previous
quarterly dividend periods and for the current quarterly dividend
period on all shares of Series Preferred Stock then outstanding shall
have been declared and paid or set apart for payment. During each
default period, the holders of Preferred Stock, voting as a class,
irrespective of series, shall have the right to elect two Directors,
which Directors shall be in addition to the then otherwise authorized
number of Directors.
(ii) During any default period, such voting right of the holders
of Series Preferred Stock may be exercised initially at a special
meeting called pursuant to subparagraph (iii) of this Section 3(C) or
at any annual meeting of
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stockholders, provided that such voting right shall not be exercised
unless the holders of 25% in number of shares of Preferred Stock
outstanding shall be present in person or by proxy. The absence of a
quorum of the holders of Common Stock shall not affect the exercise by the
holders of Preferred Stock of such voting right. After the holders of the
Preferred Stock shall have exercised their right to elect Directors in any
default period and during the continuance of such period, the number of
Directors shall not be increased or decreased except by vote of the
holders of Preferred Stock as herein provided.
(iii) Unless the holders of Preferred Stock shall, during an
existing default period, have previously exercised their right to
elect Directors, the Board of Directors may order, or any stockholder
or stockholders owning in the aggregate not less than 10% of the total
number of shares of Preferred Stock outstanding, irrespective of
series, may request, the calling of a special meeting of the holders
of Preferred Stock, which meeting shall thereupon be called by the
Chairman of the Board, the President, a Vice-President or the
Secretary of the Corporation. Notice of such meeting and of any
annual meeting at which holders of Preferred Stock are entitled to
vote pursuant to this paragraph (C)(iii) shall be given to each holder
of record of Preferred Stock by mailing a copy of such notice to him
at his last address as the same appears on the books of the
Corporation. Such meeting shall be called for a time not earlier than
20 days and not later than 60 days after such order or request or in
default of the calling of such meeting within 60 days after such order
or request, such meeting may be called on similar notice by any
stockholder or stockholders owning in the aggregate not less than 10%
of the total number of shares of Preferred Stock outstanding.
Notwithstanding the provisions of this paragraph (C)(iii), no such
special meeting shall be called during the period within 60 days
immediately preceding the date fixed for the next annual meeting of
the stockholders.
(iv) In any default period the holders of Common Stock, and other
classes of stock of the Corporation, if applicable, shall continue to
be entitled to elect the whole number of Directors then otherwise
authorized.
(v) The Directors elected by the holders of Preferred Stock
shall continue in office until the next annual meeting of stockholders
and until their successors shall have been elected by such holders or
until the expiration of the default period. Any vacancy in the Board
of Directors may be filled by vote of a majority of the remaining
Directors theretofore elected by the holders of the class of stock
which elected the Director whose office shall have become vacant.
References in this paragraph (C) to Directors elected by the holders
of a particular class of stock shall include Directors elected by such
Directors to fill vacancies as provided in the foregoing sentence.
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(vi) Immediately upon the expiration of a default period, (x) the
right of the holders of Preferred Stock as a class to elect Directors
shall cease, (y) the term of any Directors elected by the holders of
Preferred Stock as a class shall terminate, and (z) the number of
Directors shall be such number as may then be authorized by the Board
of Directors.
(D) Except as set forth herein, holders of Series Preferred Stock
shall have no special voting rights and their consent shall not be required
(except to the extent they are entitled to vote with holders of Common Stock as
set forth herein) for taking any corporate action.
Section 4. CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series Preferred Stock outstanding shall have been
paid in full, the Corporation shall not
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series Preferred Stock;
(ii) declare or pay dividends on or make any other distributions
on any shares of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series Preferred
Stock, except dividends paid ratably on the Series Preferred Stock and
all such parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such
shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series Preferred Stock,
provided that the Corporation may at any time redeem, purchase or
otherwise acquire shares of any such parity stock in exchange for shares
of any stock of the Corporation ranking junior (either as to dividends
or upon dissolution, liquidation or winding up) to the Series Preferred
Stock; or
(iv) purchase or otherwise acquire for consideration any shares
of Series Preferred Stock, or any shares of stock ranking on a parity
with the Series Preferred Stock, except in accordance with a purchase
offer made in writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as the Board
of Directors, after consideration of the respective annual dividend
rates and other relative rights and preferences of the
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respective series and classes, shall determine in good faith will result
in fair and equitable treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. REACQUIRED SHARES. Any shares of Series Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any
voluntary liquidation, dissolution or winding up of the Corporation, no
distribution shall be made (1) to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series Preferred Stock unless, prior thereto, the holders of shares of Series
Preferred Stock shall have received $125.00 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, provided that the holders of shares of Series
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of Common
Stock, or (2) to the holders of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series
Preferred Stock, except distributions made ratably on the Series Preferred Stock
and all other such parity stock in proportion to the total amounts to which the
holders of all such shares are entitled upon such liquidation, dissolution or
winding up. In the event the Corporation shall at any time declare or pay any
dividend on Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the aggregate amount to which holders of shares of Series
Preferred Stock were entitled immediately prior to such event under the proviso
in clause (1) of the preceding sentence shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
Section 7. CONSOLIDATION, MERGER, ETC. In case the Corporation
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case the shares
of Series Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
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hereinafter set forth) equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series Preferred Stock shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. NO REDEMPTION. The shares of Series Preferred Stock
shall not be redeemable.
Section 9. AMENDMENT. The Certificate of Incorporation of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of
two-thirds or more of the outstanding shares of Series Preferred Stock, voting
together as a single class.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: The private property of the stockholders of the
Corporation shall not be subject to the payment of corporate debts to any
extent whatever.
SEVENTH: The number of directors which shall constitute the whole
Board of Directors shall be fixed by, or in the manner provided in, the By-
laws; provided that in no event shall the total number of directors be less
than five or more than fifteen. The Board of Directors shall be divided into
three classes as nearly equal in number as may be, with the term of office of
one class expiring each year, and at the annual meeting of stockholders in 1970
directors of the first class shall be elected to hold office for a term
expiring at the next succeeding annual meeting; directors of the second class
shall be elected to hold office for a term expiring at the second succeeding
annual meeting; and directors of the third class shall be elected to hold
office for a term expiring at the third succeeding annual meeting. When the
number of directors is changed, any newly created directorships or any decrease
in directorships shall be so apportioned among the classes as to make all
classes as nearly equal in number as possible. When the number of directors is
increased by the Board of Directors and any newly created directorships are
filled by the Board of Directors, there shall be no classification of the
additional directors until the next annual meeting of stockholders.
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Subject to the foregoing, at each annual meeting of stockholders the
successors to the class of directors whose term shall then expire shall be
elected to hold office for a term expiring at the third succeeding annual
meeting.
EIGHTH: The following additional provisions are inserted for the
regulation of the business and for the conduct of the affairs of the Corporation
and its directors and stockholders:
(a) Subject to the provisions of Article SEVENTH, the Board of
Directors shall have power to make, alter, amend or repeal the By-laws of the
Corporation without the assent or vote of the stockholders.
(b) The Board of Directors, in addition to the powers and authority
expressly conferred upon it hereinbefore and by statute and by the By-laws, is
hereby empowered to exercise all such powers as may be exercised by the
Corporation, subject nevertheless to the provisions of the Statutes of the State
of Delaware, of this Certificate of Incorporation, and to any regulations that
may from time to time be made by the stockholders, provided that no regulations
so made shall invalidate any provisions of this Certificate of Incorporation or
any power or act of the Board of Directors which would have continued valid if
such regulation had not been made.
NINTH: (a) Except as set forth in part (b) of this Article NINTH,
the affirmative vote or consent of the holders of shares of all classes of stock
of the Corporation possessing four-fifths of the voting rights in elections of
directors, considered for the purposes of this Article NINTH as one class, shall
be required (i) for the adoption of any agreement for the merger or
consolidation of the Corporation with or into any Other Corporation (as
hereinafter defined), or (ii) to authorize any sale, lease, exchange, mortgage,
pledge or other disposition of all, or substantially all, or any Substantial
Part (as hereinafter defined) of the assets of the Corporation or any Subsidiary
(as hereinafter defined) to any Other Corporation, or (iii) to authorize the
issuance or transfer by the Corporation of any Substantial Amount (as
hereinafter defined) of securities of the Corporation in exchange for the
securities or assets of any Other Corporation. Such affirmative vote or consent
shall be in addition to the vote or consent of the holders of the stock of the
Corporation otherwise required by law, this Certificate of Incorporation or any
agreement or contract to which the Corporation is a party.
(b) The provisions of part (a) of this Article NINTH shall not be
applicable to any transaction described therein if such transaction is approved
by resolution of the Board of Directors of the Corporation, provided that a
majority of the members of the Board of Directors voting for the approval of
such transaction were duly elected and acting members of the Board of Directors
prior to the time any such Other Corporation may have become a Beneficial Owner
(as hereinafter defined) of shares of stock of the Corporation possessing more
than 10% of the voting rights in elections of directors.
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(c) For purposes of part (b) of this Article NINTH, the Board of
Directors shall have the power and duty to determine for the purposes of this
Article NINTH, on the basis of information known to such Board, if and when any
Other Corporation is the Beneficial Owner of more than 10% of the outstanding
shares of stock of the Corporation entitled to vote in elections of directors.
Any such determination shall be conclusive and binding for all purposes of this
Article NINTH.
(d) As used in this Article NINTH, the following terms shall have the
meanings as set forth below:
"Other Corporation" means any person, firm, corporation or other
entity, other than a Subsidiary of the Corporation.
"Substantial Part" means any assets having a then fair market
value, in the aggregate, of more than $5,000,000.
"Subsidiary" means any corporation in which the Corporation owns,
directly or indirectly, more than 50% of the voting securities.
"Substantial Amount" means any securities of the Corporation
having a then fair market value of more than $5,000,000.
"Beneficial Owner" of stock means a person, or an "affiliate" or
"associate" of such person (as such terms are defined in Rule 12b-2 of
the General Rules and Regulations under the Securities Exchange Act of
1934 as in effect on March 1, 1970), who directly or indirectly
controls the voting of such stock, or who has any option, warrants,
conversion or other rights to acquire such stock.
TENTH: The Corporation reserves the right to amend, alter, change
or repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation; provided that no
amendment to this Certificate of Incorporation shall amend, alter, change or
repeal any of the provisions of Article SEVENTH or Article NINTH or this Article
TENTH, unless the amendment effecting such amendment, alteration, change or
repeal shall receive the affirmative vote or consent of the holders of shares of
all classes of stock of this Corporation possessing four-fifths of the voting
rights in elections of directors, considered for this purpose as one class.
ELEVENTH: (a) The provisions of this Article ELEVENTH shall apply
independently of any other provision of this Restated Certificate of
Incorporation if any Other Corporation (as hereinafter defined) seeks to
accomplish a Business Combination (as hereinafter defined) following the date
the Acquiring Entity (as hereinafter defined) becomes an Acquiring Entity.
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(b) (1) As used in Article ELEVENTH, the following terms shall have
the meanings set forth below:
"Acquiring Entity" means any Other Corporation which is
the Beneficial Owner of more than 10% of the outstanding
shares of stock of the Corporation entitled to vote in
elections of directors.
"Beneficial Owner" of stock means a person or an
"affiliate" or "associate" of such person (as such terms are
defined in Rule 12b-2 of the General Rules and Regulations
["Regulations"] under the Securities Exchange Act of 1934 as
in effect on January 1, 1984) who is a "beneficial owner" of
stock, as that term is defined under Rule 13d-3 of the
Regulations as in effect on January 1, 1984, together with
successors or assigns of that person.
"Business Combination" means any merger or
consolidation of the Corporation with or into any Acquiring
Entity (or any affiliate of any Acquiring Entity), any sale,
lease, exchange, mortgage, pledge or other disposition of
all, or any Substantial Part (that is, assets having a then
fair market value in the aggregate of more than $5,000,000)
of the assets of the Corporation or any subsidiary of the
Corporation, to any Acquiring Entity (or any affiliate of
any Acquiring Entity), or any issuance or transfer by the
Corporation of any Substantial Amount (that is, any
securities of the Corporation having a then fair market
value of more than $5,000,000) of securities of the
Corporation in exchange for the securities or assets of any
Acquiring Entity (or any affiliate of any Acquiring Entity).
"Continuing Director" means a director duly elected to
the Board of Directors prior to the time the Acquiring
Entity becomes an Acquiring Entity, or a person recommended
to succeed a Continuing Director by a majority of the
Continuing Directors.
"Other Corporation" means any person, firm, corporation
or other entity, other than a subsidiary of the Corporation.
(2) For purposes of this Article ELEVENTH, the Board of Directors
shall have the power and duty to determine, on the basis of information known to
the Board, if and when any Other Corporation is or has become an Acquiring
Entity. Any such determination shall be conclusive and binding for all purposes
of this Article ELEVENTH.
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(c) The affirmative vote or consent of holders of 67% of the shares
of all classes of stock of the Corporation entitled to vote for directors,
considered for the purpose of this Article ELEVENTH as one class, other than
voting stock of which the Acquiring Entity is the Beneficial Owner, shall be
required for approval of any Business Combination with any Acquiring Entity (or
any affiliate of any Acquiring Entity), unless all of the following conditions
are fulfilled:
(1) The cash or fair market value of other consideration to be
received per share by common stockholders of the Corporation in the
Business Combination will not, at the time the Business Combination is
effected, be less than the greater of:
(A) the highest per share price, including brokerage
commissions and/or soliciting dealers' fees (with
appropriate adjustments for recapitalizations and for stock
splits, stock dividends and like distributions), paid by the
Acquiring Entity at any time in acquiring any of its
holdings of the Corporation's Common Stock; or
(B) the highest per share price quoted in any market
in which the Corporation's Common Stock is traded during the
12 months immediately prior to the public announcement of
the Business Combination.
(d) In connection with a proposed Business Combination, the
Continuing Directors may retain special outside legal counsel, an investment
banking firm, or such other experts as they, in their discretion, may deem
necessary or appropriate to assist them in their evaluation of the Business
Combination. In the event that an investment banking firm is retained by the
Continuing Directors to give an opinion as to the value of the other
consideration or as to the fairness (or lack of fairness) of the terms of any
Business Combination from the point of view of the remaining public stockholders
of the Corporation or otherwise, any proxy statement required to be mailed to
the public stockholders of the Corporation shall contain in a prominent place at
the front of the proxy statement any recommendation of the Continuing Directors
as to the advisability (or inadvisability) of the Business Combination. If the
Continuing Directors so determine, the opinion of the investment banking firm
shall also be included in the proxy statement. All fees and expenses of outside
legal counsel, any investment banking firm or other expert selected by the
Continuing Directors shall be paid by the Corporation.
(e) In addition to any other provision of this Restated Certificate
of Incorporation or By-laws, there shall be required to amend, alter, change or
repeal, directly or indirectly, this Article ELEVENTH the affirmative vote or
consent of 80% of the shares of all classes of stock of the Corporation entitled
to vote for directors, considered for the purpose of this Article ELEVENTH as
one class.
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(f) Nothing contained in this Article ELEVENTH shall be construed to
relieve any Acquiring Entity from any fiduciary obligation imposed by law. The
conditions and voting requirements of this Article ELEVENTH shall be in addition
to the conditions and voting requirements imposed by law or other provisions of
this Restated Certificate of Incorporation, including, without limitation, the
conditions and voting requirements imposed by Article NINTH.
TWELFTH: A director of the Corporation shall not be personally liable
to the Corporation or its shareholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its shareholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of the State of Delaware or (iv) for any transaction from which the director
derived an improper personal benefit.
If the General Corporation Law of the State of Delaware is amended
after approval of this Article by the shareholders to authorize the further
elimination or limitation of the liability of directors, then the liability of
directors shall be eliminated or limited to the full extent authorized by the
General Corporation Law of the State of Delaware, as so amended.
Any repeal or modification of this Article shall not adversely affect
any right or protection of a director of the Corporation existing at the time of
such repeal or modification.
5. The capital of said Corporation will not be reduced under or by
reason of any amendment in this Restated Certificate of Incorporation.
IN WITNESS WHEREOF, said Snap-on Incorporated has caused its corporate
seal to be hereunto affixed and this certificate to be signed by its SR. VICE
PRESIDENT and attested to by its Secretary, this 7TH day of MARCH , 1995.
SNAP-ON INCORPORATED
By: /s/ Michael F. Montemurro
---------------------------------------
Michael F. Montemurro
Sr. Vice President - Financial Services
ATTEST: and Administration
/s/ Susan F. Marrinan
----------------------------------
Susan F. Marrinan, Vice President,
Secretary and General Counsel
(CORPORATE SEAL)
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EXHIBIT (3)(B)
SNAP-ON INCORPORATED
BYLAWS
AMENDED AND RESTATED
31
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INDEX
ARTICLE I - OFFICES
1.1. Registered Office and Agent . . . . . . . . . . . . . . . . . . . . . . 36
1.2. Other Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE II - THE STOCKHOLDERS
2.1. Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.2. Annual Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.3. Quorum. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.4. Voting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
2.5. Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
2.6. List of Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . 38
2.7. Special Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . 38
2.8. Notice of Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . 38
2.9. Stockholder Nominations and Proposals . . . . . . . . . . . . . . . . 38
2.10. Voting Procedures and Inspectors of Elections. . . . . . . . . . . . 39
ARTICLE III - THE BOARD OF DIRECTORS
3.1. Powers, Number and Classification of Directors. . . . . . . . . . . . 40
3.2. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
3.3. Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . 41
3.4. Regular Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . 41
3.5. Special Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . 41
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3.6. Quorum; Voting. . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
3.7. Quorum During Emergency . . . . . . . . . . . . . . . . . . . . . . . 42
3.8. Informal Action . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
3.9. Meeting by Telephone. . . . . . . . . . . . . . . . . . . . . . . . . 42
3.10. Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
3.11. Committees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE IV - OFFICERS
4.1. Election and Removal of Chairman of the Board of Directors. . . . . . 43
4.2. Duties of the Chairman of the Board of Directors. . . . . . . . . . . 43
4.3. Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
4.4. Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
4.5. Designation of Chief Executive Officer and Chief Operating Officer. . 44
4.6. Chief Executive Officer . . . . . . . . . . . . . . . . . . . . . . . 44
4.7. Chief Operating Officer . . . . . . . . . . . . . . . . . . . . . . . 45
4.8. President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
4.9. Executive Vice Presidents . . . . . . . . . . . . . . . . . . . . . . 45
4.10. Senior Vice Presidents. . . . . . . . . . . . . . . . . . . . . . . . 45
4.11. Chief Information Officer . . . . . . . . . . . . . . . . . . . . . . 45
4.12. Chief Financial Officer . . . . . . . . . . . . . . . . . . . . . . . 45
4.13. Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
4.14. Appointed Officers . . . . . . . . . . . . . . . . . . . . . . . . . 45
4.15. Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
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4.16. Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
4.17. Controller. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
4.18. Delegation of Duties. . . . . . . . . . . . . . . . . . . . . . . . . 47
4.19. Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
4.20. Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE V - CERTIFICATES OF STOCK AND THEIR TRANSFER
5.1. Regulation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
5.2. Form of Certificates. . . . . . . . . . . . . . . . . . . . . . . . . 47
5.3. Transfer of Certificates. . . . . . . . . . . . . . . . . . . . . . . 48
5.4. Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
5.5. Lost or Destroyed Certificates. . . . . . . . . . . . . . . . . . . . 49
5.6. Stock Transfer Books; Record Date . . . . . . . . . . . . . . . . . . 49
5.7. Consent of Stockholders in Lieu of Meeting. . . . . . . . . . . . . . 50
ARTICLE VI - BOOKS AND ACCOUNTS
6.1. Location. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
6.2. Inspection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
ARTICLE VII - CHECKS, NOTES, CONTRACTS, ETC.
7.1. Checks; Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.2. Execution of Corporate Contracts. . . . . . . . . . . . . . . . . . . 51
ARTICLE VIII - MISCELLANEOUS
8.1. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
8.2. Corporate Seal. . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
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8.3. Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
8.4. Waiver of Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . 51
8.5. Voting of Stock in Other Corporations . . . . . . . . . . . . . . . . 51
ARTICLE IX - INDEMNIFICATION
9.1. Eligibility; Expenses . . . . . . . . . . . . . . . . . . . . . . . . 52
9.2. Suit to Collect . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.3. Nonexclusivity of Rights. . . . . . . . . . . . . . . . . . . . . . . 53
9.4. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.5. Expenses as a Witness . . . . . . . . . . . . . . . . . . . . . . . . 53
9.6. Indemnity Agreements. . . . . . . . . . . . . . . . . . . . . . . . . 53
9.7. Continuation of Rights. . . . . . . . . . . . . . . . . . . . . . . . 53
9.8. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
ARTICLE X - AMENDMENT OF BYLAWS
10.1. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
35
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SNAP-ON INCORPORATED
AMENDED AND RESTATED BYLAWS
ARTICLE I - OFFICES
1.1. REGISTERED OFFICE AND AGENT. The registered office shall be in the
City of Wilmington, County of New Castle, State of Delaware, and the name of the
resident agent in charge thereof is the Corporation Trust Company of America.
1.2. OTHER OFFICES. The Corporation may have its principal executive
office in the City of Kenosha, State of Wisconsin, and may also have offices at
such other places as the Board of Directors may from time to time determine or
the business of the Corporation may require.
ARTICLE II - THE STOCKHOLDERS
2.1. PLACE OF MEETINGS. All meetings of the stockholders, whether annual
or special, shall be held at the offices of the Corporation in Kenosha,
Wisconsin, or at such other place, within or without the State of Delaware, as
may be fixed from time to time by the Board of Directors.
2.2. ANNUAL MEETING. An annual meeting of stockholders shall be held on
such date and at such time as shall be designated from time to time by the Board
of Directors and stated in the notice of the meeting.
2.3. QUORUM. A majority of the outstanding stock entitled to vote, present
in person or by proxy duly authorized by the stockholder and filed with the
Secretary, shall constitute a quorum at all meetings of the stockholders except
as otherwise provided by law, by the Certificate of Incorporation or by these
Bylaws. If, however, a majority shall not be present or represented at any
meeting of the stockholders, the stockholders entitled to vote thereat, present
in person, or by proxy duly authorized by the stockholder and filed with the
Secretary, shall have power to adjourn the meeting from time to time, without
notice other than announcement at the meeting of the place, date, and hour of
the adjourned meeting, until a quorum shall be present or represented. At the
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting
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as originally notified. If the adjournment is for more than thirty (30) days,
or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting. The stockholders present at a duly
organized meeting may continue to transact business until adjournment
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
2.4. VOTING. When a quorum is present at any meeting, and subject to the
provisions of the General Corporation Law of the State of Delaware, the
Certificate of Incorporation or these Bylaws in respect of the vote that shall
be required for a specific action, the vote of the holders of a majority of the
stock having voting power, present in person or represented by proxy duly
authorized by the stockholder and filed with the Secretary, shall decide any
question brought before the meeting, unless the question is one upon which, by
express provision of the statutes or of the Certificate of Incorporation or of
these Bylaws, a different vote is required, in which case the express provision
shall govern and control the decision of such question. Directors shall be
elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
Directors. Each stockholder shall have one vote for each share of stock having
voting power registered in his name on the books of the Corporation, except as
otherwise provided in the Certificate of Incorporation.
2.5. PROXIES. At any meeting of the stockholders, every stockholder having
the right to vote shall be entitled to vote in person, or by proxy duly
authorized and bearing a date not more than three years prior to said meeting,
unless the proxy provides for a longer period. Without limiting the manner in
which a stockholder may authorize another person or persons to act for him as
proxy, the stockholder may validly grant such authority by:
(a) executing a writing to that effect, which execution may be
accomplished by the stockholder or his authorized officer, director,
employee or agent signing the writing or causing his signature to be
affixed to the writing by any reasonable means including, but not
limited to, by facsimile signature; or (b) transmitting or authorizing
the transmission of a telegram, cablegram, or other means of
electronic transmission to the person who will be the holder of the
proxy or to a proxy solicitation firm, proxy support service
organization or like agent duly authorized by the person who will be
the holder of the proxy to receive such transmission, provided that
any telegram, cablegram or other means of electronic transmission must
either set forth or be submitted with information from which it can be
determined that the telegram, cablegram or other electronic
transmission was authorized by the stockholder. If it is determined
that any telegram, cablegram or other electronic transmission
submitted pursuant to clause (b) above is valid, the inspectors shall
specify the information upon which they relied. Any copy, facsimile
telecommunication or other reliable reproduction of the writing or
transmission created pursuant to the preceding sentence may be
substituted or
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used in lieu of the original writing or transmission for any and all
purposes for which the original writing or transmission could be used,
provided that such copy, facsimile telecommunication or other
reproduction shall be a complete reproduction of the entire original
writing or transmission.
2.6. LIST OF STOCKHOLDERS. A complete list of the stockholders entitled to
vote at each meeting of stockholders, arranged in alphabetical order, with the
address of each as shown on the records of the Corporation, and the number of
voting shares registered in the name of each in the records of the Corporation,
shall be prepared by the Secretary and kept, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified at the place where the meeting is to be held
for a period of at least ten (10) days prior to the meeting. During the ten
(10) day period, during the usual business hours, and during the meeting, the
list shall be open to the examination of any stockholder.
2.7. SPECIAL MEETINGS. Special meetings of stockholders, for any purpose
or purposes, unless otherwise prescribed by statute, may be called by the Chief
Executive Officer, and shall be called by the Chief Executive Officer or
Secretary at the request in writing of a majority of the members of the Board of
Directors. Such request shall state the purpose or purposes of the proposed
meeting.
2.8. NOTICE OF MEETINGS. Written notice of each meeting of stockholders,
stating the date, time and place, and in the case of a special meeting the
object thereof, shall be mailed, postage prepaid, not less than ten (10) nor
more than sixty (60) days before the meeting, to each stockholder entitled to
vote thereat, at the address of the stockholder which appears on the books of
the Corporation.
2.9. STOCKHOLDER NOMINATIONS AND PROPOSALS.
(a) At any meeting of stockholders, no business shall be conducted
which has not been properly brought before the meeting. To be
properly brought before a meeting, business must be (i) specified in
the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors, (ii) otherwise properly brought
before the meeting by or at the direction of the Board of Directors,
or (iii) otherwise properly brought before the meeting by a
stockholder.
(b) For stockholder nominations and/or proposals to be properly
brought before a meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered
to, or mailed and received at, the principal executive offices of the
Corporation not less than sixty (60) days nor more than ninety (90)
days prior to the anniversary date of the immediately preceding annual
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meeting of stockholders; provided, however, that in the event that the
annual meeting is called for a date that is not within thirty (30)
days before or after such anniversary date, notice by the stockholder
in order to be timely must so be received not later than the close of
business on the tenth day following the day on which the notice of the
date of the meeting was mailed or public disclosure was made, which
ever first occurs.
(c) In the case of stockholder nominations for election to the Board
of Directors, the notice shall set forth (i) the name, age, business
address and, if known, residence address of each nominee proposed in
the notice, (ii) the principal occupations or employment of each
nominee for the past five (5) years, (iii) the number of shares of the
Corporation which are beneficially owned by each nominee, (iv) other
directorships held by each nominee, (v) the names of business entities
of which each nominee owns a ten percent (10%) or more beneficial
interest and (vi) all other information with respect to each nominee
as is required by the Federal proxy rules in effect at the time such
notice is submitted. In addition, the notice shall be accompanied by
a statement, over the signature of each proposed nominee, that the
nominee consents to being a nominee and that if elected intends to
serve as a Director, and confirming the information with respect to
him set forth in the notice.
(d) In the case of stockholder proposals, the notice shall set forth
(i) a brief description of the proposal or business desired to be
brought before the meeting and the reasons for conducting such
business at the meeting, (ii) the name, age, business and residence
address of the stockholder submitting the proposal, (iii) the
principal occupation or employment of such stockholder, (iv) the
number of shares of the Corporation which are beneficially owned by
such stockholder and (v) any material interest of the stockholder in
such proposal. The Chairman of the Board of Directors shall, if the
facts warrant, determine and declare to the meeting that a proposal
was not properly brought before the meeting in accordance with the
provisions of this Section 2.9, and if he should so determine, and any
proposal not properly brought before the meeting shall not be
transacted. Notwithstanding anything in these Bylaws to the
contrary, no business shall be conducted at any meeting except in
accordance with the procedures set forth in this Section 2.9.
2.10. VOTING PROCEDURES AND INSPECTORS OF ELECTIONS.
(a) The Corporation, by action of the Secretary, shall, in advance of
any meeting of stockholders, appoint one or more inspectors to act at
the meeting and make a written report thereof. The Corporation may
designate one or more persons as alternate inspectors to replace any
inspector who fails to act. If no inspector or alternate is able to
act at a meeting of stockholders, the person
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presiding at the meeting shall appoint one or more inspectors to act
at the meeting. Each inspector, before entering upon the discharge of
his duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best
of his ability.
(b) The inspectors shall (i) ascertain the number of shares
outstanding and the voting power of each, (ii) determine the shares
represented at a meeting and the validity of proxies and ballots,
(iii) count all votes and ballots, (iv) determine and retain for a
reasonable period a record of the disposition of any challenges made
to any determination by the inspectors, and (v) certify their
determination of the number of shares represented at the meeting, and
their count of all votes and ballots. The inspectors may appoint or
retain other persons or entities to assist the inspectors in the
performance of the duties of the inspectors.
(c) The date and time of the opening and the closing of the polls for
each matter upon which the stockholders will vote at a meeting shall
be announced at the meeting. No ballot, proxies or votes, nor any
revocations thereof or changes thereto, shall be accepted by the
inspectors after the closing of the polls unless the Court of Chancery
upon application by a stockholder shall determine otherwise.
(d) In determining the validity and counting of proxies and ballots,
the inspectors shall be limited to an examination of the proxies, any
envelopes submitted with those proxies, any information provided in
accordance with clause (b) of Section 2.5 of these Bylaws, ballots and
the regular books and records of the Corporation, except that the
inspectors may consider other reliable information for the limited
purpose of reconciling proxies and ballots submitted by or on behalf
of banks, brokers, their nominees or similar persons which represent
more votes than the holder of a proxy is authorized by the record
owner to cast or more votes than the stockholder holds of record. If
the inspectors consider other reliable information for the limited
purpose permitted herein, the inspectors at the time they make their
certification pursuant to subsection (b)(v) of this Section shall
specify the specific information considered by them including the
person or persons from whom they obtained the information, when the
information was obtained, the means by which the information was
obtained and the basis for the inspectors' belief that the information
is accurate and reliable.
ARTICLE III - THE BOARD OF DIRECTORS
3.1. POWERS, NUMBER AND CLASSIFICATION OF DIRECTORS. The business and
affairs of the Corporation shall be managed by or under the direction of the
Board of Directors, which may
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exercise all such powers of the Corporation and do all such acts and things as
are not prohibited by the General Corporation Law of the State of Delaware nor
by the Certificate of Incorporation nor by these Bylaws directed or required to
be exercised or done by the stockholders. The number of Directors of the
Corporation shall not be less than five (5) or more than fifteen (15) and such
number may be fixed from time to time by a majority vote of the Directors then
in office. The Board of Directors shall be divided into three classes as
nearly equal in number as may be, with the term of office of one class expiring
each year. When the number of Directors is changed, any increase or decrease
in directorships shall be apportioned among the classes at the next annual
meeting of stockholders so as to make all classes as nearly equal in number as
possible. Subject to the foregoing, at each annual meeting of stockholders the
successors to the class of Directors whose term shall then expire shall be
elected to hold office for a term expiring at the third succeeding annual
meeting, and each Director shall be elected to serve until his successor shall
be elected and shall qualify.
3.2. VACANCIES. If the office of any Director or Directors becomes vacant
by reason of death, resignation, retirement, disqualification, removal from
office, creation of a new directorship, or otherwise, a majority of the
remaining Directors, though less than a quorum, shall choose a successor or
successors, or a Director to fill the newly created directorship. In no event
shall the shareholders have the right to fill such vacancies.
3.3. PLACE OF MEETINGS. The Directors may hold their meetings either
outside of Delaware or at the office of the Corporation in the City of Kenosha,
State of Wisconsin, or at such other places as they may from time to time
determine.
3.4. REGULAR MEETINGS. There shall be five (5) regular meetings of the
Board of Directors in each year, the first to be held, without other notice
than this Bylaw, immediately following and at the same place as the annual
meeting of stockholders. Subsequent regular meetings of the Board of Directors
shall be held on the fourth Fridays of June, August, October, January and on the
date of the annual meeting of stockholders, or at such other times as are
prescribed by the Board of Directors. Notice of additional regular meetings,
unless waived, shall be given by mail, telegram, telecopier, telex, telephone or
in person to each Director, at his address as the same may appear on the records
of the Corporation, or in the absence of such address, at his residence or usual
place of business, at least three (3) days before the day on which the meeting
is to be held.
3.5. SPECIAL MEETINGS. Special meetings of the Board of Directors may
be held any time on the call of the Chief Executive Officer or at the request
in writing of a majority of the members of the Board of Directors then in
office. Notice of each special meeting, unless waived, shall be given by
mail, telegram, telecopier, telex, telephone or in person to each Director at
his address as the same appears on the records of the Corporation not less
than one day prior to the day on which the meeting is to be held if the
notice is by telegram, telecopier,
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telex, telephone or in person, and not less than two days prior to the day on
which the meeting is to be held if the notice is by mail; provided, however,
that for purposes of dealing with an emergency situation, as conclusively
determined by the Officer or Directors calling the meeting, notice may be
given not less than two hours prior to the meeting. Notice of any special
meeting need not state the purpose thereof. If the Secretary shall fail or
refuse to give such notice, then the notice may be given by the Officer or
any one of the Directors making the call. Attendance at any meeting of the
Board of Directors shall constitute waiver of notice thereof unless the
Director attends the meeting for the express purpose of objecting, and the
Director objects at the beginning of the meeting, to the transaction of any
business because the meeting was not lawfully called or convened.
3.6. QUORUM; VOTING. At all meetings of the Board, a majority of the total
number of Directors then fixed pursuant to Section 3.1 of these Bylaws shall be
necessary and sufficient to constitute a quorum for the transaction of
business, and the act of a majority of the Directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the Certificate of
Incorporation or by these Bylaws. In the absence of a quorum, a majority of the
Directors present may adjourn the meeting from time to time until a quorum shall
be present. Notice of any adjourned meeting need not be given, except that
notice shall be given to all Directors if the adjournment is for more than
thirty (30) days.
3.7. QUORUM DURING EMERGENCY. During any emergency period following a
national catastrophe, due to enemy attack, a majority of the surviving members
of the Board, but in any case not less than five, who have not been rendered
incapable of acting due to physical or mental incapacity or due to the
difficulty of transportation to the place of the meeting shall constitute a
quorum for the purpose of filling vacancies in the Board of Directors and among
the elected and appointed Officers of the Corporation.
3.8. INFORMAL ACTION. Any action required or permitted to be taken at any
meeting of the Board of Directors or any Committee thereof may be taken without
a meeting, if a written consent to such action is signed by all members of the
Board or of such Committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the Board or Committee.
3.9. MEETING BY TELEPHONE. Members of the Board of Directors, or any
Committee designated by the Board, may participate in a meeting of the Board or
Committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this section shall constitute
presence in person at the meeting.
3.10. COMPENSATION. Directors, as such, may receive compensation for
their services and/or such fixed sums and expenses of attendance for attendance
at each regular or special meeting of the Board of Directors as may be
established by resolution of the Board; provided
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that nothing herein contained shall be construed to preclude any Director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of Committees may be allowed like compensation for attending
Committee meetings. The Board Affairs and Nominating Committee shall annually
recommend to the Board of Directors the appropriate compensation for the members
of the Board of Directors.
3.11. COMMITTEES. Based upon the recommendations of the Board Affairs
and Nominating Committee, the Board of Directors may, by resolution or
resolutions passed by a majority of the total number of Directors then fixed
pursuant to Section 3.1 of these Bylaws, designate one or more Committees, each
Committee to consist of one or more of the Directors of the Corporation, which
Committees, to the extent provided in said resolution or resolutions, shall have
and may exercise the powers of the Board of Directors in the management of the
business and affairs of the Corporation between meetings of the Board of
Directors. The members and the Chairman of each Committee shall be appointed,
and may be removed at any time, by resolution adopted by a majority of the total
number of Directors then fixed pursuant to Section 3.1 of these Bylaws. No such
Committee shall have the power or authority to authorize amending the
Certificate of Incorporation, adopt an agreement of merger or consolidation,
recommend to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommend to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amend the Bylaws of the Corporation; and, unless the resolution, Bylaws, or
Certificate of Incorporation expressly so provide, no Committee shall have the
power or authority to declare a dividend or to authorize the issuance of stock.
Such Committee or Committees shall have such name or names as may be determined
from time to time by resolution adopted by the Board of Directors. Each
Committee shall keep minutes of its proceedings, and shall report to the Board
of Directors when required by the Board.
ARTICLE IV - OFFICERS
4.1. ELECTION AND REMOVAL OF CHAIRMAN OF THE BOARD OF DIRECTORS. At the
regular meeting of the Directors held after the annual stockholders' meeting in
each year, one of the Directors shall be elected to be the Chairman of the Board
of Directors, which person may be removed from this position at any time by a
majority vote of the total number of Directors then fixed pursuant to Section
3.1 of these Bylaws whenever in their judgment the best interests of the
Corporation will be served by such action.
4.2. DUTIES OF THE CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the
Board of Directors shall preside at all meetings of the stockholders and of the
Directors. If he is also the Chief Executive Officer, he shall carry out those
duties as designated herein. If he is not the Chief Executive Officer, he shall
have no authority for the management and control of the business and affairs of
the Corporation other than in his capacity as a Director.
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4.3. OFFICERS. As contained within these Bylaws, except as otherwise
provided for, all references to "Officers" shall apply to both Elected and
Appointed Officers. The Elected Officers of the Corporation shall be a
President, a Chief Executive Officer, a Chief Operating Officer, one or more
Senior or Executive Vice Presidents, a Secretary, a Treasurer, a Controller, a
Chief Financial Officer, a Vice President - Information Services and a Vice
President - Human Resources. These Officers, and any other Officers which the
Directors deem should be elected, shall be elected by the Directors at the
regular meeting of the Board held after the annual stockholders' meeting in each
year and at such other times as new elected offices are created by the Chief
Executive Officer or vacancies in such elected offices must be filled. All
other Officers of the Corporation shall be appointed by the Chief Executive
Officer, as such appointed offices are deemed necessary by the Chief Executive
Officer. Any two or more offices may be held by the same person.
4.4. REMOVAL. Any Officer elected by the Directors may be removed from
office at any time by a majority vote of the total number of Directors then
fixed pursuant to Section 3.1 of these Bylaws whenever in their judgment the
best interests of the Corporation will be served by such action. Any appointed
Officer may be removed at any time by the Chief Executive Officer.
4.5. DESIGNATION OF CHIEF EXECUTIVE OFFICER AND CHIEF OPERATING OFFICER.
The Directors may, but need not, designate the Chairman of the Board of
Directors as the Chief Executive Officer. The Directors shall designate the
President as either the Chief Executive Officer or the Chief Operating Officer.
The Directors may, but need not, designate an Executive Vice President as the
Chief Operating Officer. These designations of duties may be changed at any
time by a majority vote of the total number of Directors then fixed pursuant to
Section 3.1 of these Bylaws whenever in their judgment the best interests of the
Corporation will be served by such action.
4.6. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall manage and
control the overall business and affairs of the Corporation and ensure that the
orders and resolutions of the Directors are carried into effect. He shall have
the authority to represent and act for the Corporation, to sign documents
binding the Corporation in all matters except those reserved to the Directors,
to authorize other Officers designated by him to represent, act and sign for
the Corporation and to assign to the other Officers the authority for the
management and control of such business and affairs of the Corporation as he
may designate. If the Chief Executive Officer is not a member of the Board of
Directors, he shall be, EX OFFICIO, a member of all Committees of the Board of
Directors not exercising powers of the Board other than the Audit Committee and
Organization & Executive Compensation Committee and shall have all the same
rights and duties, except the right to vote, as have all members of the
Committee. If he is a Director he shall be, EX OFFICIO, a member of all
Committees of the Board of Directors exercising powers of the Board other than
the Audit Committee and Organization & Executive Compensation Committee, and
shall have all the same rights and duties, including the right to vote, as have
all members of the Committees. The Chief Executive Officer may review
pertinent director
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compensation survey data and report these results to the Board Affairs and
Nominating Committee.
4.7. CHIEF OPERATING OFFICER. The Chief Operating Officer shall have
authority for the management and control of such business and affairs of the
Corporation as shall be assigned by the Chief Executive Officer or the Board of
Directors. In the event of the absence or disability of the Chief Executive
Officer, he shall perform those duties as designated herein of the Chief
Executive Officer.
4.8. PRESIDENT. The President shall perform the duties as designated
herein of the Chief Executive Officer or the Chief Operating Officer. In the
absence of the Chairman of the Board of Directors he shall preside at all
meetings of the stockholders and the Directors.
4.9. EXECUTIVE VICE PRESIDENTS. Executive Vice Presidents shall have
authority for the management and control of such business and affairs of the
Corporation as shall be assigned by the Chief Executive Officer or the Board of
Directors. If an Executive Vice President is the appointed Chief Operating
Officer, he shall perform those duties as designated herein. In the absence or
disability of the Chief Executive Officer and of the Chief Operating Officer, an
Executive Vice President designated by the Chief Executive Officer or the Board
of Directors shall perform the duties as designated herein of the Chief
Executive Officer.
4.10. SENIOR VICE PRESIDENTS. Senior Vice Presidents shall have
authority for the management and control of such business and affairs of the
Corporation as shall be assigned by the Chief Executive Officer or the Board of
Directors. In the event that there is no individual currently holding such
office of the Chief Executive Officer, of the Chief Operating Officer, or of the
Executive Vice President, or in the event that such individual is absent or
disabled, a Senior Vice President designated by the Chief Executive Officer or
the Board of Directors shall perform the duties as designated herein of the
Chief Executive Officer.
4.12. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall be an
Elected Officer and shall have the authority for the management and control of
such business and affairs as shall be assigned by the Chief Executive Officer or
the Board of Directors.
4.13. ELECTED VICE PRESIDENTS. The Elected Vice Presidents shall have
authority for the management and control of such business and affairs of the
Corporation as shall be assigned by the Chief Executive Officer or the Board of
Directors.
4.14. APPOINTED OFFICERS. Appointed Officers shall have authority for
the management and control of such business and affairs of the Corporation as
shall be assigned by the Chief Executive Officer.
4.15. SECRETARY. The Secretary shall attend all sessions of the Board
and all meetings of the stockholders and record all votes and the minutes of all
proceedings in a book to be kept
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for that purpose; and shall perform like duties for the standing Committees when
required. The Secretary shall give, or cause to be given, notice of all
meetings of the stockholders and of the Board of Directors, and shall perform
such other duties as from time to time may be prescribed by the Board of
Directors or the Chief Executive Officer of the Corporation. The Secretary
shall keep in safe custody the Seal of the Corporation, and when authorized by
the Board, affix it to any instrument requiring it.
4.16. TREASURER. The Treasurer shall:
(a) have the custody of the corporate funds and securities and shall
keep or cause to be kept full and accurate accounts of the financial
affairs of the Corporation;
(b) deposit or cause to be deposited all moneys and other valuable
effects in the name and to the credit of the Corporation in such
depositories as may be designated by the Board of Directors;
(c) disburse or cause to be disbursed the funds of the Corporation as
may be ordered by the Board of Directors;
(d) render to the Chief Executive Officer and Directors, at the
regular meetings of the Board or whenever they may require it, an
account of all his transactions as Treasurer and of the financial
condition of the Corporation;
(e) give the Corporation a bond, if required by the Board of
Directors, in a sum and with one or more sureties satisfactory to the
Board, for the faithful performance of the duties of his office; and
(f) perform all the duties incident to the office of Treasurer and
such other duties as from time to time may be prescribed by the Board
of Directors or by the Chief Executive Officer of the Corporation.
4.17. CONTROLLER. The Controller shall maintain proper audit control
over the operations of the Corporation and be generally responsible for the
accounting system employed by the Corporation and the accounting practices
adopted by the various departments; he shall direct the budgetary control,
general accounting, cost accounting and statistical activities of the
Corporation; and he shall supervise activities in connection with credits and
collections, taxes and physical inventories. The Controller shall prepare and
furnish such reports and statements showing the financial condition of the
Corporation as shall be required of him by the Chief Executive Officer or the
Board of Directors, and shall perform such other duties as the Chief Executive
Officer or the Board of Directors shall prescribe.
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4.18. DELEGATION OF DUTIES. In the case of the absence, incapacity, or
inability to serve of any Elected Officer of the Corporation, the Board may
delegate, for so long as may be necessary, the powers or duties, or any of them,
of the Elected Officer to any other Elected Officer, or to any Director provided
a majority of the total number of Directors then fixed pursuant to Section 3.1
of these Bylaws concurs therein. In the case of the absence, incapacity, or
inability to serve of any Appointed Officers of the Corporation, the Chief
Executive Officer may delegate, for so long as may be necessary, the powers or
duties, or any of them, of that appointed Officer to any Elected or Appointed
Officer.
4.19. COMPENSATION. The compensation, if any, of the Chairman of the
Board of Directors, the President, the Chief Executive Officer and the Chief
Operating Officer shall be fixed by the Directors after reviewing the
recommendations of the Organization and Executive Compensation Committee. The
compensation of all other Officers shall be fixed by Organization and Executive
Compensation Committee in consultation with the Chief Executive Officer.
4.20. BONDS. If the Board of Directors or the Chief Executive Officer
shall so require, any Officer or agent of the Corporation shall give bond to the
Corporation in such amount and with such surety as the Board of Directors or the
Chief Executive Officer, as the case may be, may deem sufficient, conditioned
upon the faithful performance of their respective duties and offices.
ARTICLE V - CERTIFICATES OF STOCK AND THEIR TRANSFER
5.1. REGULATION. Subject to the terms of any contract of the Corporation,
the Board of Directors may make such rules and regulations as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of stock of the Corporation, including the issuance of new certificates
for lost or destroyed certificates, and including the appointment of transfer
agents and registrars.
5.2. FORM OF CERTIFICATES. The certificates of stock of the Corporation
shall be numbered and shall be entered in the books of the Corporation as they
are issued. They shall exhibit the holder's name and number of shares and shall
be signed by the Chairman of the Board, the President or an Elected or Appointed
Vice President, and the Treasurer, or the Secretary. If the Corporation has a
transfer agent or an assistant transfer agent or a transfer clerk acting on its
behalf and a registrar, the signature of any officer may be facsimile.
Facsimile signatures may be of the Officers of the Corporation designated above
who are Officers at the time of the issuance of the certificates or who were
such at the time of the printing or engraving of the certificates whether or not
the person has continued to hold that office. The designations, preferences and
relative participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations, or restrictions of the
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preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificate which the Corporation shall issue to represent the
class or series of stock, provided that, except as provided to the contrary by
the General Corporation Law of the State of Delaware, in lieu of the foregoing
requirements there may be set forth on the certificate a statement that the
Corporation will furnish without charge to each stockholder who so requests the
preferences and rights and qualifications, limitations or restrictions.
5.3. TRANSFER OF CERTIFICATES. Shares of the capital stock of the
Corporation shall be transferable on the books of the Corporation by the holder
thereof in person or by his duly authorized attorney, upon the surrender or
cancellation of a certificate or certificates for a like number of shares. As
against the Corporation, a transfer of shares can be made only on the books of
the Corporation and in the manner hereinabove provided, and the Corporation
shall be entitled to treat the registered holder of any share as the owner
thereof and shall not be bound to recognize any equitable or other claim to or
interest in such share on the part of any other person, whether or not it shall
have express or other notice thereof, save expressly provided by the statutes of
the State of Delaware.
5.4. RECORD DATE.
(a) If no record date is fixed pursuant to Section 5.6 of these
Bylaws, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day
next preceding the day on which the meeting is held. A determination
of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting,
the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which date shall not be more
than ten (10) days after the date upon which the resolution fixing the
record date is adopted by the Board of Directors. Any stockholder of
record seeking to have the stockholders authorize or take corporate
action by written consent shall, by written notice to the Secretary,
request the Board of Directors to fix a record date. The Board of
Directors shall promptly, but in all events within ten (10) days after
the date on which such a request is received, adopt a resolution
fixing the record date. If no record date has been fixed by the Board
of Directors within ten (10) days of the date on which such a request
is received, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting, when no
prior action by
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<PAGE>
the Board of Directors is required by applicable law, shall be the
first date thereafter on which a signed written consent setting forth
the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in the State of
Delaware, its principal place of business, or an officer or agent of
the Corporation having custody of the book in which proceedings of
stockholders meetings are recorded, to the attention of the Secretary
of the Corporation. Delivery shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been
fixed by the Board of Directors and prior action by the Board of
Directors is required by applicable law, the record date for
determining stockholders entitled to consent to corporate action in
writing without a meeting shall be at the close of business on the
date on which the Board of Directors adopts the resolution taking such
prior action.
5.5. LOST OR DESTROYED CERTIFICATES. Any person claiming a certificate of
stock to be lost or destroyed shall make an affidavit or affirmation of that
fact and advertise the same in such manner as the Board of Directors may
require, and the Board of Directors may, in its discretion, require the owner of
the lost or destroyed certificate or his legal representative to give the
Corporation a bond, in such sum as it may direct, not exceeding double the value
of the stock, to indemnify the Corporation against any claim that may be made
against it on account of the alleged loss of any such certificate; a new
certificate of the same tenor and for the same number of shares as the one
alleged to be lost or destroyed may be issued without requiring any bond when,
in the judgment of the Directors, it is proper to do so.
5.6. STOCK TRANSFER BOOKS; RECORD DATE. The Board of Directors shall have
power to close the stock transfer books of the Corporation for a period not
exceeding sixty (60) days preceding the date of any meeting of stockholders or
the date for payment of any dividend or the date for the allotment of rights or
the date when any change or conversion or exchange of capital stock shall go
into effect provided, however, that in lieu of closing the stock transfer books
as aforesaid the Board of Directors may by resolution fix a date, not preceding
the date of the resolution, not more than sixty (60) nor less than ten (10) days
preceding the date of any meeting of stockholders or not more than sixty (60)
days preceding the date for the payment of any dividend, or the date for the
allotment of rights, or the date when any change or conversion or exchange of
capital stock shall go into effect, as a record date for the determination of
the stockholders entitled to notice of, and to vote at, any such meeting, or
entitled to receive payment of any such dividend, or to any such allotment of
rights, or to exercise the rights in respect of any such change, conversion or
exchange of capital stock, and in such case such stockholders of record on the
date so fixed shall be entitled to such notice of, and to vote at such meeting,
or to receive payment of such dividend, or to receive such allotment of rights,
or to exercise such rights, as the case may be, notwithstanding any transfer of
any stock on the books of the Corporation after any such record date fixed as
aforesaid.
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5.7. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. In the event of the
delivery to the Corporation of a written consent or consents purporting to
authorize or take corporate action and/or related revocations (each such written
consent and any revocation thereof is referred to in this Section 5.7 as a
"Consent"), the Secretary of the Corporation shall provide for the safekeeping
of such Consents and shall as soon as practicable thereafter conduct such
reasonable investigation as he or she deems necessary or appropriate for the
purpose of ascertaining the validity of such Consents and all matters incident
thereto, including, without limitation, whether the holders of shares having the
requisite voting power to authorize or take the action specified in the Consents
have given consent; provided, however, that if the corporate action to which the
Consents relate is the removal or election of one or more members of the Board
of Directors, the Secretary of the Corporation shall designate an independent,
qualified inspector with respect to such Consents and such inspector shall
discharge the functions of the Secretary of the Corporation under this Section
5.7. If after such investigation the Secretary or the inspector (as the case
may be) shall determine that any action purportedly taken by such Consents has
been validly taken, that fact shall be certified on the records of the
Corporation kept for the purpose of recording the proceedings of meetings of the
stockholders and the Consents shall be filed with such records. In conducting
the investigation required by this Section 5.7, the Secretary or the inspector
may, at the expense of the Corporation, retain to assist them special legal
counsel and any other necessary or appropriate professional advisors, and such
other personnel as they may deem necessary or appropriate.
ARTICLE VI - BOOKS AND ACCOUNTS
6.1. LOCATION. The books, accounts, and records of the Corporation may be
kept at such place or places within or without the State of Delaware as the
Board of Directors may from time to time determine.
6.2. INSPECTION. The books, accounts, and records of the Corporation shall
be open to inspection by any member of the Board of Directors during usual
business hours for any purpose reasonably related to the Director's position as
a Director; and open to inspection by the stockholders at such times, and
subject to such regulations, as the Board of Directors may prescribe, except as
otherwise provided by statute.
ARTICLE VII - CHECKS, NOTES, CONTRACTS, ETC.
7.1. CHECKS; NOTES. All checks or demands for money and notes of the
Corporation shall be signed by such Officer or Officers or such other person or
persons as the Board of Directors may from time to time designate.
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7.2. EXECUTION OF CORPORATE CONTRACTS. Except as otherwise provided by the
Board of Directors or the Executive Committee, all contracts of the corporation
shall be executed on its behalf by the President, an Elected or Appointed Vice
President or such other person or persons as the President or Vice President may
from time to time authorize so to do. Whenever the Board of Directors or the
Executive Committee shall provide that any contract be executed or any other act
be done in any other manner and by any other officer or agent than as specified
in the Bylaws, such method or execution or action shall be as equally effective
to bind the Corporation as if specified herein.
ARTICLE VIII - MISCELLANEOUS
8.1. FISCAL YEAR. The fiscal year shall end on the Saturday nearest
December 31.
8.2. CORPORATE SEAL. The Corporate Seal shall have inscribed thereon the
name of the Corporation, and the words "Corporate Seal, Delaware." Said Seal
may be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
8.3. NOTICE. Any notice required to be given under the provisions of these
Bylaws to any Director, Officer or stockholder may be given in writing, by
depositing the same in the United States mail, postage pre-paid, addressed to
the stockholder, Officer or Director at his or her address appearing on the
books of the Corporation, and the notice shall be deemed to be given at the time
when so mailed; provided that no notice need be given to any stockholder to whom
(i) notice of two consecutive annual meetings, and all notices of meetings or of
the taking of action by written consent without a meeting to such person during
the period between the two (2) consecutive annual meetings, or (ii) all, and at
least two, payments (if sent by first class mail) of dividends during a twelve
(12) month period, have been mailed addressed to such stockholder at his address
as shown on the records of the Corporation and have been returned undeliverable.
8.4. WAIVER OF NOTICE. Any stockholder, Director or Officer may waive any
notice required to be given under these Bylaws, in writing signed by the person
entitled to notice, either before or after the meeting.
8.5. VOTING OF STOCK IN OTHER CORPORATIONS. Any shares of stock in any
other corporation which may from time to time be held by this Corporation may be
represented and voted at any meeting of shareholders of such corporation by the
Chief Executive Officer or an Elected or Appointed Vice President, or by any
other person or persons thereunto authorized by the Board of Directors, or by
any proxy designated by written instrument of appointment executed in the name
of this Corporation by its Chief Executive Officer or an Elected or Appointed
Vice President. Shares of stock belonging to the Corporation need not stand in
the name of the Corporation, but may be held for the benefit of the Corporation
in the individual
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name of the Treasurer or of any other nominee designated for the purpose by the
Board of Directors. Certificates for shares so held for the benefit of the
Corporation shall be endorsed in blank or have proper stock powers attached so
that said certificates are at all times in due form for transfer, and shall be
held for safekeeping in such manner as shall be determined from time to time by
the Board of Directors.
ARTICLE IX - INDEMNIFICATION
9.1. ELIGIBILITY; EXPENSES. Each director and officer of the Corporation
(collectively, the "Indemnitees") who was or is a party or is threatened to be
made a party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he, or a person of whom he is the legal representative,
is or was a Director or Officer of the Corporation or is or was serving at the
request of the Corporation as a Director, Officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, shall be indemnified
and held harmless by the Corporation to the fullest extent permitted by the laws
of Delaware against all costs, charges, expenses, liabilities and losses
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid or to be paid in settlement) reasonably incurred or suffered by
such Indemnitees in connection therewith. The right to indemnification
conferred in this Section shall be a contract right. Each Indemnitee shall have
the right to be paid by the Corporation the expenses incurred in defending any
such proceeding, except the amount of any settlement, in advance of such
proceeding's final disposition upon receipt by the Corporation of an
undertaking, by or on behalf of such Indemnitee, to repay all amounts so
advanced if it shall ultimately be determined that the Indemnitee is not
entitled to be indemnified under this Section or otherwise. The Corporation
may, by action of its Board of Directors, indemnify and hold harmless employees
and agents of the Corporation to the fullest extent permitted by the laws of
Delaware against all costs, charges, expenses, liabilities and losses (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) reasonably incurred or suffered by such
employees and agents in connection therewith. The Corporation may pay expenses
of any employee or agent of the Corporation incurred in defending any such
proceeding, except the amount of any settlement, in advance of such proceeding's
final disposition upon such terms and conditions, if any, as the Board of
Directors of the Corporation deems appropriate.
9.2. SUIT TO COLLECT. If a claim under Section 9.1 above is not paid in
full by the Corporation within thirty (30) days after a written claim has been
received by the Corporation, the claimant may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall also be entitled to be paid
the expense of prosecuting such claim. It shall be a defense to any action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in
52
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advance of its final disposition where the required undertaking has been
tendered to the Corporation) that the claimant has failed to meet a standard of
conduct which makes it permissible under Delaware law for the Corporation to
indemnify the claimant for the amount claimed. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is permissible in the circumstances
because he has met such standard of conduct, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such standard of conduct, nor the
termination of any proceeding by judgment, order, settlement, conviction or upon
a plea of nolo contendere or its equivalent, shall be a defense to the action or
create a presumption that the claimant has failed to meet the required standard
of conduct.
9.3. NONEXCLUSIVITY OF RIGHTS. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in these Bylaws shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, Bylaw, agreement, vote of stockholders or
disinterested Directors or otherwise.
9.4. INSURANCE. The Corporation may maintain insurance, at its expense, to
protect itself and any Director, Officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under Delaware law.
9.5. EXPENSES AS A WITNESS. To the extent that any Director, Officer,
employee or agent of the Corporation is by reason of such position, or a
position with another entity at the request of the Corporation, a witness in any
proceeding, he shall be indemnified against all costs and expenses actually and
reasonably incurred by him or on his behalf in connection therewith.
9.6. INDEMNITY AGREEMENTS. The Corporation may enter into indemnity
agreements with the persons who are members of its Board of Directors from time
to time, and with such Officers, employees and agents as the Board may
designate, providing in substance that the Corporation shall indemnify such
persons to the fullest extent permitted by Delaware law.
9.7. CONTINUATION OF RIGHTS. The indemnification and advancement of
expenses provided by this Article IX shall continue as to a person who has
ceased to be a Director, Officer, employee or agent of the Corporation and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
9.8. AMENDMENT. Any amendment, repeal or modification of any provision of
this Article IX by the stockholders or the Directors of the Corporation shall
not adversely affect any right or protection of a Director or Officer of the
Corporation existing at the time of such amendment, repeal or modification.
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ARTICLE X - AMENDMENT OF BYLAWS
10.1. AMENDMENT. The Board of Directors, by affirmative vote of a
majority of the total number of Directors then fixed pursuant to Section 3.1 of
these Bylaws, may adopt, amend, or repeal these Bylaws at any meeting, subject
to the provisions of Article Seventh of the Certificate of Incorporation.
Subject to the provisions of Article Seventh of the Certificate of
Incorporation, these Bylaws may also be amended or repealed, and new Bylaws
adopted, by the stockholders; provided, however, that any amendment or repeal of
Section 2.7, Section 2.9 or Section 3.2 hereof may be made only by vote of at
least seventy-five percent (75%) of the issued and outstanding common stock of
the Corporation of the shares entitled to vote thereon at any annual meeting or
special meeting of stockholders, and only if notice of the proposed amendment or
repeal is contained in the notice of the meeting.
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EXHIBIT (13)
ANNUAL REPORT TO SHAREHOLDERS
The Annual Report of Snap-on Incorporated fot the year ended December 31,
1994 is attached.
<PAGE>
S N A P - O N I N C O R P O R A T E D 1 9 9 4 A N N U A L R E P O R T
FINANCIAL REVIEW CONTENTS
Management's Discussion 18
Consolidated Financial Statements 23
Notes to Consolidated
Financial Statements 27
Auditor's Report 37
Eleven-year Summary 38
<PAGE>
MANAGEMENT'S RESPONSIBILITY
FOR FINANCIAL REPORTING
The management of Snap-on Incorporated 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 financial and
operational audits to evaluate the adequacy of internal controls and accounting
practices.
The Corporation's consolidated financial statements have been audited by Arthur
Andersen LLP, independent public accountants, whose report thereon appears on
page 37. As part of their audit of the Corporation's consolidated financial
statements, Arthur Andersen LLP considered the Corporation's system of internal
control to the extent they deemed necessary to determine the nature, timing and
extent of their audit tests. Management has made available to Arthur Andersen
LLP the Corporation's financial records and related data.
The Audit Committee of the Board of Directors is responsible for reviewing and
evaluating the overall performance of the Corporation's financial reporting and
accounting practices. The Committee meets periodically and independently with
management, internal auditors and the independent public accountants to discuss
the Corporation's internal accounting controls, auditing and financial reporting
matters. The internal auditors and independent public accountants have
unrestricted access to the Audit Committee.
/s/ Robert A. Cornog
--------------------
Robert A. Cornog
President and Chief Executive Officer
/s/ Donald S. Huml
------------------
Donald S. Huml
Chief Financial Officer
MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FISCAL YEARS 1994, 1993 AND 1992
RESULTS OF OPERATIONS
OVERVIEW 1994 consolidated net sales increased 5.5%, following an increase of
15.1% in 1993. 1993 sales benefited from the inclusion of full-year results for
Sun Electric Corporation ("Sun") following its acquisiton in the fourth quarter
of 1992. Overall sales gains in North America and double-digit increases in
other foreign markets were offset by a decline in 1994 European sales, due to
slower equipment sales upon completion of Germany's emissions-testing program
start-up.
Consolidated net earnings increased 14.6% in 1994 following a 30.1% increase in
1993. The 1994 earnings improvement was attributable to lower operating expenses
as a percent of net sales, primarily due to reduced legal expenses and cost
reductions associated with inventory and field service consolidations.
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS) 1994 1993 1992
----------------------------------------------------------
<S> <C> <C> <C>
Net earnings $98,314 $85,812 $65,975
----------------------------------------------------------
Earnings per common share $ 2.30 $ 2.02 $ 1.56
----------------------------------------------------------
</TABLE>
SALES Sales in North America increased 6.4% in 1994, following an increase of
4.9% in 1993. 1994 sales benefited from inclusion of full-year results for J.H.
Williams Company ("Williams"), acquired in September 1993, and partial year
results for Wheeltronic Ltd. ("Wheeltronic") and Sioux Tools, Inc. ("Sioux"),
acquired in September and November 1994, respectively. U.S. sales, exclusive of
Williams and Sioux, rose modestly. Sales in Canada increased by 8.7% in Canadian
dollars and by 2.7% in U.S. dollars after foreign currency translation.
Industrial sales, exclusive of Williams and Sioux, were flat, but including
these acquisitions increased 11.1%.
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Sales in Europe declined 3.7%, following an increase of 78.3% in 1993 that
reflected inclusion of full-year results for Sun. Strong demand for SUN
emissions-testing equipment in Germany benefited sales in 1994 and 1993,
offsetting weaker diagnostic equipment sales throughout Europe. Dealer sales in
the U.K. and Europe strengthened in the fourth quarter, reflecting improving
local economies.
Sales in other markets increased 25.9% in 1994 after increasing 60.9% in 1993
with the inclusion of Sun. Gains were primarily in Japan and Australia.
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS) 1994 1993 1992
---------------------------------------------------------------
<S> <C> <C> <C>
North American sales
(U.S., Canada, Mexico) $ 938,126 $ 881,817 $840,350
---------------------------------------------------------------
European sales 191,648 198,941 111,598
---------------------------------------------------------------
Other sales 64,522 51,252 31,852
---------------------------------------------------------------
Total sales $1,194,296 $1,132,010 $983,800
---------------------------------------------------------------
</TABLE>
The Corporation offers four primary product groups--hand tools, power tools,
storage equipment, and shop and diagnostic equipment. These product groups
experience varying unit volume levels from year to year. Hand tool volume rose
modestly, reflecting increased dealer sales in foreign markets and added sales
to industrial distributor customers as a result of the Williams acquisition.
Sales in the automotive service market remained steady, reflecting the
effectiveness of the Corporation's dealer sales program in sustaining volume
despite improved vehicle quality that results in less frequent service and
repair, simpler designs requiring fewer fasteners, and slower turnover among
technicians. Power tool sales improved sharply, reflecting a broader product
line (including part-year results for Sioux), improved product quality,
increased promotion and growing customer acceptance. Diagnostic and shop
equipment recorded double-digit increases in the U.S., reflecting the growing
effectiveness of the SNAP-ON/SUN TECH SYSTEMS PROGRAM, the introduction of new
products, the expansion of training programs, the acquisition of Wheeltronic,
and a strategic alliance with Alldata Corporation to sell automotive service and
repair information. Emissions-testing programs required under the Clean Air Act
and in the European Common Market are expected to drive growth in this category,
but the timing of such programs is uncertain. Storage equipment sales increased
modestly.
During the year, the Corporation increased prices by varying degrees in each of
its product groups. List price increases averaged 3.5% in both 1994 and 1993.
Increased promotional activities reduced the revenue realization of these price
increases.
COST AND PROFIT MARGINS Gross profit margins were 51.0% in 1994, compared with
52.6% in 1993 and 51.8% in 1992. Gross margins were lower in 1994 primarily as a
result of lower manufacturing activity to reduce inventories in the United
States following consolidation of branch warehouse inventories into four
regional distribution centers. These planned manufacturing variances were
offset, in part, by a $4.9 million favorable LIFO decrement. 1992 gross margins
benefited from a $6.1 million LIFO decrement.
Operating expenses as a percent of net sales before net finance income declined
to 42.7% compared with 45.0% in 1993, and 46.5% in 1992. In 1994, higher
expenses associated with the full-year operation of Williams and partial-year
operation of Wheeltronic and Sioux were offset by reduced legal expense and
savings associated with the inventory and customer service consolidation
programs. Total operating expenses before net finance income increased by $0.5
million, following increases of $52.5 million in 1993 (Sun integration, U.S.
inventory and customer service consolidation) and $86.7 million in 1992
(partial-year Sun expense, additional payroll related to added sales
representatives, and legal expenses). For additional information regarding
certain litigation, refer to Note 4.
Net finance income was $59.4 million in 1994, $61.1 million in 1993 and $63.6
million in 1992. The decrease in net finance income was a result of an increase
in leasing activity, which has a lower effective interest rate than extended
credit contracts.
In the first quarter of 1994, the Corporation adopted Statement of Financial
Accounting Standards (SFAS) No. 112, "Employers' Accounting for Postemployment
Benefits." This statement establishes certain accounting standards for employers
who provide certain benefits to former or inactive employees, their
beneficiaries, and covered dependents after employment but before retirement.
Adoption of the standard had no material effect on the Corporation's financial
condition or results of operations.
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OTHER INCOME AND EXPENSES Interest expense in 1994 totaled $10.8 million
compared with $11.2 million in 1993.
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS) 1994 1993 1992
--------------------------------------------------------------------
<S> <C> <C> <C>
Interest expense $(10,806) $(11,198) $(5,969)
--------------------------------------------------------------------
Interest income 2,799 1,971 2,100
--------------------------------------------------------------------
Other income (expense) 3,781 (1,215) (2,231)
--------------------------------------------------------------------
Total other expense $ (4,226) $(10,442) $(6,100)
--------------------------------------------------------------------
</TABLE>
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.
The Corporation has recorded significant deferred tax assets related to
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) 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 has assessed the likelihood of
utilization of these losses. The U.S. NOLs are expected to be realized through
the consolidated and restructured equipment operations. 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 foreign tax NOLs of $18.3 million resulting from
operations primarily in Australia, Brazil, Canada and the Netherlands. These
losses expire as follows: 1997-$1.5 million, 1998-$0.1 million, 1999-$0.2
million, 2000-$0.2 million and 2001-$0.3 million. The remaining foreign tax net
operating losses may be carried forward indefinitely. A valuation allowance has
been established in the amount of $6.2 million. These subsidiaries produced
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 Corporation's effective tax rate was 36.0% in 1994, 37.1% in 1993 and 39.8%
in 1992. See Note 6 for the reconciliation of the Corporation's effective tax
rate.
OTHER MATTERS During 1994, the Corporation acquired Wheeltronic, a leading
manufacturer of quality above-ground lifts for the automotive repair market, and
Sioux, a leading manufacturer of quality portable power tools for the industrial
market. Wheeltronic enables the Corporation to expand its line of automotive
shop equipment products. Sioux, with a line of 4,500 pneumatic and electric
power tools and related service items, expands the Corporation's entry into the
industrial distributor channel, which began with the 1993 acquisition of
Williams.
Also in 1994, Sun introduced a line of repair-grade emissions-testing equipment
that will enable shops to meet the service and repair requirements of a new,
dynamic vehicle emissions-testing sanctioned by the Environmental Protection
Agency (EPA) to comply with the Clean Air Act Amendments of 1990. The new
program is known as I/M240, referring to the four-minute inspection and
maintenance test which may be utilized in 83 metropolitan areas to comply with
the Clean Air Act Amendments affecting some 55 million vehicles annually.
Repair-grade equipment will be sold in markets where states adopt centralized
testing programs. Sun also is seeking state approvals for inspection-grade
emission-testing equipment it has developed to enable individual automotive
service shops to participate in
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decentralized testing programs where states adopt them.
Opposition to centralized testing and certain aspects of the Clean Air Act
Amendments of 1990 has caused some states to delay implementation of centralized
programs. In addition, some political leaders have called for modifications to
certain Clean Air Act Amendments which the EPA has interpreted
as requiring such centralized programs to get the maximum state implementation
credit. The Corporation supports efforts to ensure clean air and is committed to
providing equipment needed by its customers to participate in emissions-testing
programs. The Corporation generally has not taken a position in favor of any
particular testing approach. The Corporation believes some new type of
emissions-testing (and perhaps a mix of centralized and decentralized programs)
is likely to be implemented, creating significant growth opportunity for the
Corporation.
In September 1994, the Corporation sold Systems Control Inc., a subsidiary of
Sun that provided centralized vehicle emissions-testing services to various
government entities, including the states of Maine, Michigan, Texas and
Washington. The Corporation arranged the sale, in part, to avoid any potential
appearance of a conflict of interest with its sale of repair-grade
emissions-testing equipment and emissions-testing training services to shop
customers. Refer to Note 12 for a discussion of the Corporation's guarantees
relative to Systems Control.
REPURCHASE PROGRAM " In January 1995, the Board of Directors approved and the
Corporation subsequently announced a common stock repurchase program of up to
$100 million to be executed from time to time in the open market and by block
purchases. It reflects the Corporation's belief that its shares had been
undervalued in light of the attractive opportunities in its core market and its
growth potential in both the United States and international markets. The
program provides the Corporation with an opportunity to lower its cost of
capital and create value for its shareholders.
FINANCIAL CONDITION
OVERVIEW The Corporation ended 1994 in strong financial condition. The
Corporation's capital structure remained solid, with total debt amounting to
13.5% of total capital, compared with 19.3% as of year-end 1993.
LIQUIDITY The Corporation's working capital increased by $88.6 million in 1994
and by $31.0 million in 1993. The Corporation's ratio of current assets to
current liabilities was 3.7 to 1 at the end of 1994, compared with 2.8 to 1 at
the end of 1993. Cash and short-term investments were $9.0 million, an increase
of $2.3 million from the previous year.
Accounts receivable increased by $28.4 million to $568.4 million, primarily due
to an increase in the number of high-value equipment leases provided by the
Corporation. A majority of the Corporation's 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 writeoffs for bad debts decreased 22.6% in 1994
reflecting the beneficial effects of the consolidation of billing and credit
services in regional customer service centers and a concerted effort to improve
collections.
Inventories decreased by $20.1 million to $229.0 million in 1994. U.S.
inventories decreased by $36.9 million with the completion of the Corporation's
inventory consolidation program and subsequent reduction in manufacturing
activity. These reductions were offset by additions to inventory resulting from
the Wheeltronic and Sioux acquisitions and a LIFO inventory decrement. The
Corporation anticipates returning to
21
<PAGE>
normal manufacturing levels to support
sales in 1995.
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS) 1994 1993
-----------------------------------------------------
<S> <C> <C>
Current assets $873,020 $854,598
-----------------------------------------------------
Current liabilities 237,869 308,037
-----------------------------------------------------
Working capital $635,151 $546,561
-----------------------------------------------------
Current ratio 3.7 to 1 2.8 to 1
-----------------------------------------------------
</TABLE>
Short-term debt at the end of 1994 was $10.9 million, down from $68.3 million at
the end of 1993. Current maturities of long-term debt (classified in Other
Accrued Liabilities) were $0.3 million at the end of 1994 and $2.0 million at
the end of 1993. In addition, at year-end 1994, the Corporation had $95.5
million in short-term commercial notes payable outstanding that were classified
as long-term since it is the Corporation's intent and it has the ability to
refinance this debt on a long-term basis, supported by its $100 million
revolving credit facility.
At year-end 1994, the Corporation had bank credit lines totaling $50 million for
short-term borrowing, including support of commercial paper issuance. It also
had on file a $300 million shelf registration which allows the Corporation to
offer for sale from time to time up to $300 million of unsecured indebtedness.
These sources of borrowing, coupled with cash from operations, are sufficient to
support working capital requirements, finance capital expenditures, pay
dividends and repurchase shares. The Corporation's high credit rating over the
years has ensured that external funds are available at reasonable cost. At
year-end 1994, the Corporation's long-term debt ratings established by Moody's
Investor Service and Standard and Poor's were Aa3 and AA, respectively. The
strength of the Corporation's balance sheet provides the financial flexibility
to respond to opportunities for growth internally and through acquisition.
CAPITAL EXPENDITURES Capital investments in 1994 included normal replacement
and upgrading of manufacturing facilities and equipment, upgrading and
integration of the Corporation's computer systems, and construction of a
corporate office facility. In addition, $7.9 million in capital investment was
made in support of the start-up of centralized emissions-testing facilities in
Maine prior to the sale of Systems Control. The Corporation anticipates capital
expenditures totaling $30-35 million in 1995.
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS) 1994 1993
-----------------------------------------------
<S> <C> <C>
Capital expenditures $41,788 $33,248
-----------------------------------------------
Depreciation and amortization $29,632 $32,131
-----------------------------------------------
</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 rate through continued earnings
improvement, as evidenced by the results of 1994, rather than through payout
reduction. The Corporation has paid consecutive quarterly cash dividends since
1939.
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS) 1994 1993
-----------------------------------------------------
<S> <C> <C>
Cash dividends paid $46,197 $45,942
-----------------------------------------------------
Cash dividends per common share $ 1.08 $ 1.08
-----------------------------------------------------
Cash dividends as % of net income 47.0% 53.5%
-----------------------------------------------------
</TABLE>
22
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA) FOR FISCAL YEARS 1994 1993 1992
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $1,194,296 $1,132,010 $983,800
---------------------------------------------------------------------------------------------------
Cost of goods sold 585,459 536,282 474,387
---------------------------------------------------------------------------------------------------
GROSS PROFIT 608,837 595,728 509,413
Operating expenses 510,361 509,910 457,384
---------------------------------------------------------------------------------------------------
Net finance income (59,419) (61,115) (63,646)
---------------------------------------------------------------------------------------------------
OPERATING EARNINGS 157,895 146,933 115,675
Interest expense (10,806) (11,198) (5,969)
---------------------------------------------------------------------------------------------------
Other income (expense) - net 6,580 756 (131)
---------------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES 153,669 136,491 109,575
Income taxes 55,355 50,679 43,600
---------------------------------------------------------------------------------------------------
NET EARNINGS $ 98,314 $ 85,812 $ 65,975
---------------------------------------------------------------------------------------------------
EARNINGS PER WEIGHTED AVERAGE COMMON SHARE $ 2.30 $ 2.02 $ 1.56
---------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 42,791,916 42,570,783 42,343,781
---------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
23
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS) DECEMBER 31, 1994 JANUARY 1, 1994
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 9,015 $ 6,729
----------------------------------------------------------------------------------------------------------------------------------
Accounts receivable, less allowance for doubtful accounts of $13.2 million in 1994
and $14.9 million in 1993 568,378 539,949
----------------------------------------------------------------------------------------------------------------------------------
Inventories 229,037 249,102
----------------------------------------------------------------------------------------------------------------------------------
Prepaid expenses and other assets 66,590 58,818
----------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 873,020 854,598
Property and equipment - net 209,142 224,810
----------------------------------------------------------------------------------------------------------------------------------
Deferred income tax benefits 56,695 53,819
----------------------------------------------------------------------------------------------------------------------------------
Intangible and other assets 96,048 85,706
----------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,234,905 $1,218,933
----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
----------------------------------------------------------------------------------------------------------------------------------
Accounts payable $ 56,679 $ 57,280
----------------------------------------------------------------------------------------------------------------------------------
Notes payable 10,631 66,288
----------------------------------------------------------------------------------------------------------------------------------
Accrued compensation 29,957 33,515
----------------------------------------------------------------------------------------------------------------------------------
Dealer deposits 65,494 62,153
----------------------------------------------------------------------------------------------------------------------------------
Accrued income taxes 4,744 8,474
----------------------------------------------------------------------------------------------------------------------------------
Other accrued liabilities 70,364 80,327
----------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 237,869 308,037
Long-term debt 108,980 99,683
----------------------------------------------------------------------------------------------------------------------------------
Deferred income taxes 6,264 7,413
----------------------------------------------------------------------------------------------------------------------------------
Retiree health care benefits 76,833 70,791
----------------------------------------------------------------------------------------------------------------------------------
Other long-term liabilities 38,561 31,346
----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 468,507 517,270
SHAREHOLDERS' EQUITY
----------------------------------------------------------------------------------------------------------------------------------
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 43,128,496
and 42,818,696 shares 43,128 42,819
----------------------------------------------------------------------------------------------------------------------------------
Additional contributed capital 61,827 52,153
----------------------------------------------------------------------------------------------------------------------------------
Retained earnings 684,139 632,022
----------------------------------------------------------------------------------------------------------------------------------
Foreign currency translation adjustment (13,384) (16,019)
----------------------------------------------------------------------------------------------------------------------------------
Less: Treasury stock at cost - 250,000 shares (9,312) (9,312)
----------------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 766,398 701,663
----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,234,905 $1,218,933
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
24
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS) FOR FISCAL YEARS 1994 1993 1992
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK
Amount at beginning of year $ 42,819 $ 42,415 $ 42,211
-----------------------------------------------------------------------------------------------------------------
Shares issued under stock purchase and option plans 291 389 186
-----------------------------------------------------------------------------------------------------------------
Dividend reinvestment plan 18 15 18
-----------------------------------------------------------------------------------------------------------------
AMOUNT AT END OF YEAR 43,128 42,819 42,415
ADDITIONAL CONTRIBUTED CAPITAL IN EXCESS OF PAR VALUE OF COMMON STOCK
Amount at beginning of year 52,153 40,312 35,576
-----------------------------------------------------------------------------------------------------------------
Additions from stock purchase and option plans 8,779 10,477 4,178
-----------------------------------------------------------------------------------------------------------------
Tax benefit from certain stock options and other items 264 804 -
-----------------------------------------------------------------------------------------------------------------
Dividend reinvestment plan 631 560 558
-----------------------------------------------------------------------------------------------------------------
AMOUNT AT END OF YEAR 61,827 52,153 40,312
RETAINED EARNINGS
Amount at beginning of year 632,022 592,152 571,895
-----------------------------------------------------------------------------------------------------------------
Net earnings for the year 98,314 85,812 65,975
-----------------------------------------------------------------------------------------------------------------
Dividends paid in cash - $1.08 per common share in 1994, 1993 and 1992 (46,197) (45,942) (45,718)
-----------------------------------------------------------------------------------------------------------------
AMOUNT AT END OF YEAR 684,139 632,022 592,152
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
Amount at beginning of year (16,019) (10,214) 3,037
-----------------------------------------------------------------------------------------------------------------
Net currency translation adjustment for the year 2,635 (5,805) (13,251)
-----------------------------------------------------------------------------------------------------------------
AMOUNT AT END OF YEAR (13,384) (16,019) (10,214)
-----------------------------------------------------------------------------------------------------------------
TREASURY STOCK (250,000 SHARES) AT COST (9,312) (9,312) -
-----------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY $766,398 $701,663 $664,665
------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
25
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS) FOR FISCAL YEARS 1994 1993 1992
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $98,314 $85,812 $65,975
---------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation 26,893 29,006 25,484
---------------------------------------------------------------------------------------------------------------------
Amortization 2,739 3,125 3,973
---------------------------------------------------------------------------------------------------------------------
Deferred income tax provision (1,103) (7,993) (6,005)
---------------------------------------------------------------------------------------------------------------------
Gain on sale of assets (2,938) (569) (250)
---------------------------------------------------------------------------------------------------------------------
Changes in operating assets and liabilities:
Increase in receivables (27,256) (36,869) (5,458)
---------------------------------------------------------------------------------------------------------------------
(Increase) decrease in inventories 32,331 (35,017) 5,928
---------------------------------------------------------------------------------------------------------------------
Increase in prepaid expenses (15,470) (10,938) (4,829)
---------------------------------------------------------------------------------------------------------------------
Increase (decrease) in accounts payable (1,453) 11,915 (8,202)
---------------------------------------------------------------------------------------------------------------------
Increase (decrease) in accruals, deposits and other long-term liabilities (4,882) (9,057) 23,330
---------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 107,175 29,415 99,946
INVESTING ACTIVITIES
Capital expenditures (41,788) (33,248) (21,081)
---------------------------------------------------------------------------------------------------------------------
Acquisitions of businesses (23,332) (14,657) (110,719)
---------------------------------------------------------------------------------------------------------------------
Disposition of business 26,611 - -
---------------------------------------------------------------------------------------------------------------------
Disposal of property and equipment 10,017 11,261 3,379
---------------------------------------------------------------------------------------------------------------------
Increase in other noncurrent assets (3,219) (10,163) (3,609)
---------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (31,711) (46,807) (132,030)
FINANCING ACTIVITIES
Payment of long-term debt (807) (752) (8,332)
---------------------------------------------------------------------------------------------------------------------
Increase in long-term debt 427 9,428 78,650
---------------------------------------------------------------------------------------------------------------------
Increase (decrease) in notes payable and short-term borrowings (35,826) 354 52,503
---------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock - (9,312) -
---------------------------------------------------------------------------------------------------------------------
Proceeds from stock purchase and option plans 9,983 12,245 4,940
---------------------------------------------------------------------------------------------------------------------
Cash dividends paid (46,197) (45,942) (45,718)
---------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (72,420) (33,979) 82,043
EFFECT OF EXCHANGE RATE CHANGES (758) (873) (1,916)
---------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,286 (52,244) 48,043
Cash and cash equivalents at beginning of year 6,729 58,973 10,930
---------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 9,015 $ 6,729 $58,973
---------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS 1994, 1993 AND 1992
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 consolidated financial statements include
the accounts of the Corporation and its subsidiaries, all of which are
wholly-owned. Significant intercompany accounts and transactions have been
eliminated.
B. ACCOUNTING PERIOD: The Corporation's accounting period ends on the Saturday
nearest December 31. The 1994, 1993 and 1992 fiscal years ended on December 31,
1994, January 1, 1994 and January 2, 1993.
C. 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.
D. ACCOUNTS RECEIVABLE: Accounts receivable includes installment receivable
amounts which are due subsequent to one year from balance sheet dates. These
amounts were approximately $28.2 million and $27.9 million at the end of 1994
and 1993.
Gross installment receivables amounted to $488.0 million
and $456.3 million at the end of 1994 and 1993. Of these amounts, $92.5 million
and $89.4 million represented unearned finance charges at the end of 1994 and
1993.
The Corporation has an agreement with a financial institution to sell, on an
ongoing basis and with full recourse, up to $25.0 million of dealer start-up
loan receivables. During 1994, $19.2 million of these receivables were sold to
the institution, of which $18.0 million remained outstanding at December 31,
1994.
E. 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.
F. 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:
<TABLE>
<CAPTION>
-------------------------------------------------
<S> <C>
BUILDINGS AND INPROVEMENTS 15 to 45 years
-------------------------------------------------
MACHINERY AND EQUIPMENT 3 to 15 years
-------------------------------------------------
TRANSPORTATION VEHICLES 2 to 5 years
-------------------------------------------------
</TABLE>
The costs and related accumulated depreciation of the Corporation's property and
equipment values were as follows for fiscal years ended:
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS) 1994 1993
-----------------------------------------------------
<S> <C> <C>
LAND $ 18,394 $ 27,209
-----------------------------------------------------
BUILDINGS AND IMPROVEMENTS 134,038 142,438
-----------------------------------------------------
MACHINERY AND EQUIPMENT 301,175 282,222
-----------------------------------------------------
453,607 451,869
-----------------------------------------------------
ACCUMULATED DEPRECIATION (244,465) (227,059)
-----------------------------------------------------
PROPERTY AND EQUIPMENT - NET $209,142 $224,810
-----------------------------------------------------
</TABLE>
G. 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 $52.5
million and $48.1 million at the end of 1994 and 1993. Amortization of goodwill
amounted to $3.2 million, $2.8 million and $2.4 million for 1994, 1993 and 1992.
Accumulated amortization of goodwill was $9.4 million and $6.2 million at the
end of years 1994 and 1993.
H. RESEARCH AND ENGINEERING: Research and engineering costs are charged to
expense in the year incurred. For 1994, 1993 and 1992, these costs were $30.6
million, $27.7 million and $21.1 million.
I. INCOME TAXES: Deferred income taxes are provided for 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.
J. FOREIGN CURRENCY TRANSLATION: The financial statements of the Corporation's
foreign subsidiaries are translated into U.S.
27
<PAGE>
NOTE 1 SUMMARY OF ACCOUNTING POLICIES
dollars in accordance with Statement of Financial Accounting Standards (SFAS)
No. 52, "Foreign Currency Translation." Net assets of certain foreign
subsidiaries are translated at current rates of exchange and 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. Certain other translation adjustments and
transaction gains and losses are reported in net income and were not material
in any year.
K. FRANCHISE FEE REVENUE: Franchise fee revenue is recognized as the fees are
earned. Revenue from franchise fees was not material in any year.
L. NET FINANCE INCOME: Net finance income is comprised of installment contract
and lease income net of related expenses.
M. RECLASSIFIED PRIOR-YEAR AMOUNTS: Certain prior-year amounts have been
reclassified to conform with current-year presentation.
NOTE 2 ACQUISITIONS AND DIVESTITURE
ACQUISITIONS
During 1994, 1993 and 1992, the Corporation acquired the entities described
below, which were accounted for by the purchase method of accounting. The
results of operations of the acquired companies are included in the accompanying
consolidated financial statements from their respective dates of acquisition.
On October 2, 1992, the Corporation acquired Sun Electric Corporation. 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 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.
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.
Williams is a full-line tool manufacturer for wholesale industrial customers. On
September 14, 1994, the Corporation acquired the assets and assumed certain
liabilities of Wheel Tronic, a division of Derlan Manufacturing, Inc., and
formed a new company named Wheeltronic Ltd. Wheeltronic manufactures high
quality, above-ground lifts for the automotive repair market. On November 10,
1994, the Corporation acquired Sioux Tools, Inc., a leading maker of portable
electric and pneumatic tools primarily for the industrial market. Pro forma
results of operations are not shown, as the effect of these acquisitions is not
material.
DIVESTITURE
Systems Control, Inc., acquired as part of the Sun purchase in 1992, was sold on
September 29, 1994. The gain recognized on this divestiture was not material.
The sale of this business will not significantly impact ongoing results of
operations.
NOTE 3 INVENTORIES
The components of the Corporation's inventory were as follows for years ended:
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS) 1994 1993
-------------------------------------------
<S> <C> <C>
FINISHED STOCK $266,792 $280,512
-------------------------------------------
WORK IN PROCESS 26,316 30,534
-------------------------------------------
RAW MATERIALS 43,907 52,052
-------------------------------------------
EXCESS OF CURRENT COST
OVER LIFO COST (107,978) (113,996)
-------------------------------------------
TOTAL INVENTORY $229,037 $249,102
-------------------------------------------
</TABLE>
Inventories accounted for using the last-in, first-out (LIFO) cost method
approximated 48% of total inventory as of year-end 1994 and 58% as of year-end
1993. Inventories for Sun were $65.6 million as of year-end 1994 and $65.9
million as of year-end 1993, and are accounted for on the first-in, first-out
(FIFO) cost method.
During 1994 and 1992, the Corporation liquidated inventories that were carried
at lower costs prevailing in prior years. The effect of these liquidations was
to increase income before taxes by $4.9 million and $6.1 million in 1994 and
1992.
28
<PAGE>
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 foreign operations. Dealer claims in foreign jurisdictions in the
aggregate are not material. The discussion in this note is limited to U.S.
claims. Also excluded from this note are confidential matters pending in the
Corporation's Ombudsman Program, which are not significant. Since the
Corporation maintains a worldwide network of approximately 4,800 dealers, some
dealer disputes and resulting claims are to be expected.
At January 31, 1995, the Corporation was a party to a number of pending legal
proceedings in which approximately 26 dealers (most of whom are former dealers)
and, in some cases, their spouses 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, 1995, approximately 81 current or former dealers have
threatened to assert claims against the Corporation. This compares with
approximately 70 pending and approximately 72 threatened dealer claims at
January 31, 1994. 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 1994, nine former and two current dealers asserted claims and 60 dealers
(almost all of whom are former dealers) threatened to assert claims against the
Corporation. This compares with 26 asserted claims and approximately 139
threatened claims in 1993. Approximately 76% of the aggregate claims asserted
during 1994 were by dealers who are parties to arbitration agreements with the
Corporation, as compared with approximately 64% during 1993. In the
Corporation's 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 certain of the claims made during 1994 that
such claims are time-barred under applicable statutory or contractual limitation
periods.
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 settlements
of these claims to exceed probable insurance recoveries together with the
reserves established.
During the three fiscal years 1994, 1993 and 1992, the Corporation charged
earnings a total of approximately $7.9 million, $17.8 million and $28.9 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
management's 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 Corporation's financial
condition and results of operations.
NOTE 5 SHORT-TERM AND LONG-TERM DEBT
At December 31, 1994, the Corporation had committed bank lines of credit
totaling $50.0 million for short-term borrowing, including support for
commercial paper issuance. As of year-end, the entire $50.0 million was
available to the Corporation. Notes payable to banks from non-committed bank
lines of credit totaled $10.6 million as of December 31, 1994 and $1.0 million
as of January 1, 1994.
Commercial notes payable totaled $95.5 million as of December 31, 1994 and
$140.3 million as of January 1, 1994. The $95.5 million of commercial paper
outstanding at year-end is classified as long-term debt since it is the
Corporation's intent and it has the ability (supported by a $100.0 million
revolving credit facility as described below) to refinance the debt on a
long-term basis.
Maximum short-term borrowings outstanding at the end of any month in 1994 and
1993 were $73.4 million and $69.3 million. The average outstanding borrowings
were $52.6 million in 1994 and $40.9 million in 1993. The weighted average
interest rates for 1994 and 1993 were 4.5% and 5.1%. The weighted average
interest rate on outstanding borrowings at December 31, 1994 was 7.5%.
29
<PAGE>
NOTES TO CONSOLIDATE FINANCIAL STATEMENTS (countinued)
FISCAL YEARS 1994,1993, AND 1992
The Corporation's long-term debt consisted of the following for fiscal years
ended:
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS) 1994 1993
-----------------------------------------------------
<S> <C> <C>
BORROWINGS UNDER OR SUPPORTED BY
A REVOLVING CREDIT COMMITMENT $ 95,500 $ 75,000
-----------------------------------------------------
OTHER LONG-TERM DEBT 13,795 26,735
-----------------------------------------------------
109,295 101,735
-----------------------------------------------------
CURRENT MATURITIES (315) (2,052)
-----------------------------------------------------
TOTAL LONG-TERM DEBT $108,980 $ 99,683
-----------------------------------------------------
-----------------------------------------------------
</TABLE>
In December 1994, the Corporation entered into a $100 million revolving credit
commitment. Under the terms of the commitment, borrowings can be made at the
then current London Interbank Offered Rate (LIBOR) plus .14% and may be fixed
for periods ranging from one to twelve months under reborrowing provisions of
the commitment. This commitment terminates on January 2, 2000. At December 31,
1994, the $95.5 million of commercial paper outstanding that was classified as
long-term and supported by this credit commitment had an average interest rate
of 6.1%.
The Corporation must maintain a specific level of consolidated tangible net
worth, meet certain leverage and interest coverage ratios, and certain capital
transactions are restricted. At year-end 1994, the Corporation was in compliance
with all covenants of the commitment.
The annual maturities of the Corporation's long-term debt due in the next five
years are $.3 million in 1995, $.3 million in 1996, $7.6 million in 1997, $.2
million in 1998 and $.2 million in 1999.
On September 23, 1994, the Corporation filed a registration statement with the
Securities and Exchange Commission, effective November 13, 1994, which allows
the Corporation to offer for sale from time to time up to $300 million of
unsecured indebtedness. As of December 31, 1994, the Corporation has not
incurred indebtedness under this filing.
Interest payments on debt and on other interest bearing obligations approximated
$11.6 million, $11.9 million and $5.5 million for 1994, 1993 and 1992.
NOTE 6 INCOME TAXES
Effective at the beginning of 1992, the Corporation adopted Statement of
Financial Accounting Standards (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.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS) 1994 1993 1992
---------------------------------------------------------
<S> <C> <C> <C>
CURRENT:
Federal $36,279 $33,452 $25,998
---------------------------------------------------------
Foreign 14,091 17,741 14,473
---------------------------------------------------------
State 6,088 7,479 9,134
---------------------------------------------------------
Total current 56,458 58,672 49,605
DEFERRED:
Federal (684) (6,568) (4,238)
---------------------------------------------------------
Foreign (517) (919) (1,259)
---------------------------------------------------------
State 98 (506) (508)
---------------------------------------------------------
TOTAL DEFERRED (1,103) (7,993) (6,005)
---------------------------------------------------------
TOTAL INCOME TAX PROVISION $55,355 $50,679 $43,600
---------------------------------------------------------
---------------------------------------------------------
</TABLE>
A reconciliation of the Corporation's effective income tax rate
to the statutory federal tax rate follows for fiscal years:
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------------------------------------
<S> <C> <C> <C>
STATUTORY FEDERAL INCOME
TAX RATE 35.0% 35.0% 34.0%
------------------------------------------------------
INCREASE (DECREASE) IN TAX
RATE RESULTING FROM:
State income taxes, net of
federal benefit 2.7 3.2 4.8
------------------------------------------------------
Foreign sales corporation
tax benefit (1.9) (1.9) (2.3)
------------------------------------------------------
Foreign losses without
tax benefit 0.2 0.9 2.1
------------------------------------------------------
Adjustment for rate change
on deferred taxes - (1.6) -
------------------------------------------------------
Other - 1.5 1.2
------------------------------------------------------
EFFECTIVE TAX RATE 36.0% 37.1% 39.8%
------------------------------------------------------
------------------------------------------------------
</TABLE>
30
<PAGE>
Temporary differences which give rise to the net deferred tax benefit are as
follows:
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS) 1994 1993 1992
---------------------------------------------------------
<S> <C> <C> <C>
CURRENT DEFERRED INCOME
TAX BENEFIT:
Inventories $15,007 $ 9,946 $ 4,092
---------------------------------------------------------
Accruals and reserves
not currently deductible 19,217 21,846 22,021
---------------------------------------------------------
Other 302 (201) 1,927
---------------------------------------------------------
TOTAL CURRENT (INCLUDED IN
PREPAID EXPENSES) 34,526 31,591 28,040
LONG-TERM DEFERRED
INCOME TAX BENEFIT:
Employee benefits 44,215 41,922 38,205
---------------------------------------------------------
Net operating losses 30,124 29,650 33,505
---------------------------------------------------------
Depreciation (17,239) (15,477) (18,156)
---------------------------------------------------------
Other 3,200 (150) 2,568
---------------------------------------------------------
Valuation Allowance (9,869) (9,539) (11,797)
---------------------------------------------------------
TOTAL LONG-TERM 50,431 46,406 44,325
---------------------------------------------------------
NET DEFERRED INCOME
TAX BENEFIT $84,957 $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 goodwill.
The Corporation has U.S. tax net operating loss carryforwards (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
foreign tax NOLs of $18.3 million resulting from operations primarily in
Australia, Brazil, Canada and the Netherlands. These losses expire as follows:
1997-$1.5 million, 1998-$0.1 million, 1999-$0.2 million, 2000-$0.2 million and
2001-$0.3 million. The remaining foreign tax net operating losses may be carried
forward indefinitely.
The undistributed earnings of all subsidiaries were approximately $66.6 million,
$66.9 million and $64.1 million for 1994, 1993 and 1992. 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.
The Corporation made income tax payments of $65.9 million, $73.6 million and
$49.8 million in 1994, 1993 and 1992.
NOTE 7 FINANCIAL INSTRUMENTS
FOREIGN EXCHANGE CONTRACTS: The Corporation enters into foreign currency
contracts to manage its exposure to foreign currency fluctuations in
intercompany payables denominated in foreign currencies. 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 December 31, 1994, the Corporation had forward
exchange contracts to exchange British pounds, Netherlands guilden and German
marks for U.S. dollar equivalents of approximately $10.4 million. These forward
exchange contract transactions matured in January 1995. The amount of foreign
exchange contracts outstanding throughout 1994 ranged from $10.4 million to
$19.9 million in U.S. dollar equivalents.
INTEREST RATE SWAP AGREEMENTS: The Corporation enters into interest rate swap
agreements to manage interest costs and risks associated with changing interest
rates. The differentials paid or received on interest rate agreements are
accrued and recognized as adjustments to interest expense. Gains and losses
realized upon settlement of these agreements are deferred and amortized to
interest expense over a period relevant to the agreement if the underlying
hedged instrument remains outstanding, or immediately if the underlying hedged
instrument is settled.
In December 1994, the Corporation sold $50 million of a five-year interest rate
swap agreement entered into in November 1992. Additionally during 1994, the
Corporation entered into ten-year interest rate swap agreements totalling $20
million involving the exchange of floating interest rate payment obligations for
fixed rate payment obligations without the exchange of the underlying principal
amounts. At December 31, 1994 and January 1, 1994, the notional principal amount
totalled $44.5 million and $75.0 million. The counterparty to these agreements
is a United States branch of a major foreign bank.
CREDIT CONCENTRATIONS: The Corporation is exposed to credit losses in the event
of non-performance by the counterparties to its interest rate swap and foreign
exchange contracts. The Corporation does not anticipate non-performance by the
counterparties. The Corporation does not obtain collateral or
31
<PAGE>
other security to support financial instruments subject to credit risk but
enters into agreements only with high quality financial institutions.
While the Corporation primarily sells to professional technicians and shop
owners, the Corporation's accounts receivable do not represent significant
concentrations of credit risk due to the wide variety of individual customers
and geographic areas.
FAIR VALUE OF FINANCIAL INSTRUMENTS: Statement of Financial Accounting Standards
(SFAS) No. 107, "Disclosure about Fair Value of Financial Instruments" requires
the Corporation to 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 following methods and assumptions were used in
estimating the fair value for financial instruments:
INSTALLMENT CONTRACTS: A discounted cash flow analysis was performed over
the average life of a contract using a discount rate currently available to the
Corporation adjusted for credit quality, cost and profit factors. As of December
31, 1994, the fair value was approximately $450.0 million versus a book value of
$395.5 million. As of January 1, 1994, the fair value was approximately $425.0
million versus a book value of $367.0 million.
INTEREST RATE SWAP AGREEMENT(S): The fair value of the agreement(s) was
based on a quote from the financial institution with which the Corporation
executed the transaction(s). As of December 31, 1994, the Corporation would
have realized a gain of $1.0 million upon termination of the agreement(s). As
of year-end 1993, the cost to terminate the agreement(s) would have been $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 8 PENSION PLANS
The Corporation has several noncontributory pension plans covering substantially
all employees including certain employees in foreign 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 cost over 30 years.
The Corporation has several foreign subsidiary pension plans which do not report
pension expense in accordance with SFAS No. 87, as these plans and their related
pension expense are not material.
The Corporation's net pension expense included the following components:
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS) 1994 1993 1992
--------------------------------------------------------
<S> <C> <C> <C>
SERVICE COST-BENEFITS
EARNED DURING YEAR $12,146 $9,331 $8,516
--------------------------------------------------------
INTEREST COST ON
PROJECTED BENEFITS 22,112 20,012 17,339
--------------------------------------------------------
LESS ACTUAL RETURN ON
PLAN ASSETS (1,949) (31,069) (19,790)
--------------------------------------------------------
NET AMORTIZATION AND DEFERRAL:
Actual return on assets in
excess of (less than)
projected return (20,226) 9,950 1,160
--------------------------------------------------------
Amortization of net assets
at transition (1,082) (1,092) (1,102)
OTHER 591 458 9
--------------------------------------------------------
NET PENSION EXPENSE $11,592 $7,590 $6,132
--------------------------------------------------------
</TABLE>
The funded status of the Corporation's U.S. pension plans was as follows:
32
<PAGE>
<TABLE>
<CAPTION>
1994 1993
--------------------------- --------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
(AMOUNTS IN THOUSANDS) BENEFITS ASSETS BENEFITS ASSETS
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ACTUARIAL PRESENT VALUE OF ACCUMULATED BENEFITS:
Vested benefits $173,250 $22,450 $149,232 $ 57,775
--------------------------------------------------------------------------------------------------------------------
Non-vested benefits 29,212 1,654 26,244 7,014
--------------------------------------------------------------------------------------------------------------------
ACCUMULATED BENEFIT OBLIGATION 202,462 24,104 175,476 64,789
--------------------------------------------------------------------------------------------------------------------
EFFECT OF PROJECTED FUTURE SALARY INCREASES 38,393 3,574 45,430 4,516
--------------------------------------------------------------------------------------------------------------------
PROJECTED BENEFIT OBLIGATION 240,855 27,678 220,906 69,305
--------------------------------------------------------------------------------------------------------------------
PLAN ASSETS AT MARKET VALUE 254,517 18,725 227,892 55,888
--------------------------------------------------------------------------------------------------------------------
PLAN ASSETS IN EXCESS OF (LESS THAN) PROJECTED
BENEFIT OBLIGATION 13,662 (8,953) 6,986 (13,417)
--------------------------------------------------------------------------------------------------------------------
UNRECOGNIZED NET ASSETS AT YEAR-END (9,248) (2,680) (7,960) (836)
--------------------------------------------------------------------------------------------------------------------
UNRECOGNIZED NET (GAIN) OR LOSS FROM EXPERIENCE DIFFERENT
THAN ASSUMED (47,239) 1,583 (31,232) 2,887
--------------------------------------------------------------------------------------------------------------------
UNRECOGNIZED PRIOR SERVICE COST 8,957 724 6,175 4,101
--------------------------------------------------------------------------------------------------------------------
ADDITIONAL MINIMUM LIABILITY 0 (1,066) 0 (3,176)
--------------------------------------------------------------------------------------------------------------------
PENSION LIABILITY $(33,868) $(10,392) $(26,031) $(10,441)
--------------------------------------------------------------------------------------------------------------------
</TABLE>
The actuarial present value of the projected benefit obligation was determined
using a discount rate of 8.5% for 1994, 7.25% for 1993 and 9.0% for 1992. The
projected future salary increase assumption was 5.0% for 1994 and 1993 and 6.0%
for 1992. The expected long-term rate of return on plan assets was 9.0% for the
three years reported.
Plan assets are stated at market value and are comprised primarily of corporate
equities and various debt securities.
The pension liability for 1994 is comprised of a current liability of $5.7
million and a long-term liability of $38.6 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 retired U.S.
employees. The majority of the Corporation's 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 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 components of the expense for postretirement health care benefits are as
follows:
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS) 1994 1993 1992
<S> <C> <C> <C>
-------------------------------------------------------------
NET PERIODIC COST
SERVICE COST - BENEFITS
ATTRIBUTED TO SERVICE
DURING THE PERIOD $2,139 $1,613 $1,570
-------------------------------------------------------------
INTEREST COST ON ACCUMULATED
POSTRETIREMENT BENEFIT
OBLIGATION 5,081 4,888 5,882
-------------------------------------------------------------
AMORTIZATION OF
UNRECOGNIZED NET GAIN - (331) -
-------------------------------------------------------------
NET POSTRETIREMENT HEALTH
CARE EXPENSE $7,220 $6,170 $7,452
-------------------------------------------------------------
</TABLE>
33
<PAGE>
The components of the accumulated postretirement benefit obligation are as
follows:
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS) 1994 1993
--------------------------------------------------------------
<S> <C> <C>
ACCUMULATED POSTRETIREMENT
BENEFIT OBLIGATION
Retirees $37,030 $37,375
--------------------------------------------------------------
Fully eligible active plan participants 9,281 9,746
--------------------------------------------------------------
Other active plan participants 20,938 23,890
--------------------------------------------------------------
ACCUMULATED POSTRETIREMENT
BENEFIT OBLIGATION 67,249 71,011
--------------------------------------------------------------
UNRECOGNIZED NET GAIN 12,847 3,280
--------------------------------------------------------------
POSTRETIREMENT LIABILITY $80,096 $74,291
--------------------------------------------------------------
</TABLE>
The accumulated postretirement benefit obligation at the end of 1994 is
comprised of a current liability of $3.3 million and a long-term liability of
$76.8 million. The weighted average discount rate used in determining the
accumulated postretirement benefit obligation as of year-end 1994 and 1993 was
8.5% and 7.25%.
The actuarial calculation assumes a health care trend rate of 10.6% in 1995 for
benefits paid on pre-Medicare retirees decreasing gradually to 5.0% in the year
2003 and thereafter. For benefits paid on Medicare eligible retirees, a health
care trend rate of 8.9% was assumed in 1995 decreasing to 5.0% in the year 2007
and thereafter.
As of December 31, 1994, a one percentage point increase in the health care cost
trend rate for future years would increase the accumulated postretirement
benefit obligation by $2.0 million and the service cost and interest cost
component by $.1 million.
NOTE 10 CORPORATION STOCK OPTION AND PURCHASE PLANS
The Corporation has a stock option plan for directors, officers and key
employees with expiration dates on the options ranging from 1996 to 2004. The
plan provides that options be granted at exercise prices equal to market value
on the date the option is granted.
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
----------------------------------------------------------------
<S> <C> <C>
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
----------------------------------------------------------------
Granted 40,500 36.75 - 37.25
----------------------------------------------------------------
Exercised (203,445) 20.56 - 35.00
----------------------------------------------------------------
Surrendered (182,502) 20.56 - 31.75
----------------------------------------------------------------
OPTIONS OUTSTANDING AT
DECEMBER 31, 1994 1,553,217 $20.56 - 38.73
----------------------------------------------------------------
SHARES RESERVED FOR
FUTURE GRANTS 1,738,093
----------------------------------------------------------------
SHARES EXERCISABLE AT
DECEMBER 31, 1994 1,498,004
----------------------------------------------------------------
</TABLE>
The Corporation offers shareholders a convenient way to increase their
investment in the Corporation through a no-commission dividend reinvestment and
stock purchase plan. Participating shareholders may invest the cash dividends
from all or a portion of their common stock to buy additional shares. The
program also permits shareholders to invest cash for additional shares that are
purchased for them each month. For 1994, 1993 and 1992, shares issued under the
dividend reinvestment and stock purchase plan totaled 17,991, 15,485 and 17,587.
At December 31, 1994, 933,501 shares were reserved for issuance to shareholders
under this plan.
Employees of the Corporation are entitled to participate in an employee stock
purchase plan and are entitled to purchase shares up to the maximum allowed by
the Internal Revenue Code. The purchase price of the common stock is the lesser
of the closing market price of the stock on the beginning date (May 15th) or
ending date (May 14th) of each plan year. The Board of Directors may terminate
this plan at any time. For 1994, 1993 and 1992, shares issued under the employee
stock purchase plan totaled 43,205, 44,563 and 66,554. At December 31, 1994,
shares totaling 94,282 were reserved for issuance to employees under this plan
and the Corporation held contributions of approximately $1.3 million for the
purchase of common stock.
34
<PAGE>
Franchised dealers are entitled to participate in a dealer stock purchase plan.
The purchase price of the common stock is the lesser of the closing market price
of the stock on the beginning date (May 15th) or ending date (May 14th) of each
plan year. For 1994, 1993 and 1992, shares issued under the dealer stock
purchase plan totaled 50,126, 4,683 and 348. At December 31, 1994, 144,843
shares were reserved for issuance to franchised dealers under this plan and the
Corporation held contributions of approximately $1.5 million for the purchase of
common stock.
In 1993, 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 Corporation stock.
Directors may elect to defer receipt of all or part of these shares. For 1994
and 1993, shares issued under the Directors' Fee Plan totaled 1,545 and 184.
Additionally, receipt of 602 and 1,004 shares were deferred in 1994 and 1993. At
December 31, 1994, 196,665 shares were reserved for issuance to directors under
this plan.
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 Corporation's 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 Corporation's 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 Corporation's 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 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 Corporation's 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 Corporation's 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.
In January 1995, the Board of Directors approved and the Corporation
subsequently announced a common stock share repurchase program of up to $100
million to be executed from time to time through open market purchases and by
block purchases.
NOTE 12 COMMITMENTS AND CONTINGENCIES
The Corporation has entered into certain operating lease agreements on
facilities and computer equipment which extend for varying amounts of time.
The Corporation's lease commitments require future payments as follows:
<TABLE>
<CAPTION>
Year Ending (Amounts in Thousands)
------------------------------------------
<S> <C>
1995 $11,514
------------------------------------------
1996 7,018
------------------------------------------
1997 5,126
------------------------------------------
1998 4,574
------------------------------------------
1999 3,136
------------------------------------------
2000-2017 11,376
------------------------------------------
</TABLE>
Rent expenses for worldwide facilities and computer equipment were $11.8 million
in 1994, $10.1 million in 1993 and $8.5 million in 1992.
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, under certain conditions, to repurchase equipment on defaulted leases
at predetermined prices. Sun's maximum contingent liability under the
remarketing agreement (assuming 100% default by customers on all existing
leases) was $4.6 million as of December 31, 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.
Prior to Sun's disposition of Systems Control, Inc. on September 29, 1994, the
Corporation guaranteed the performance of Systems Control's single-purpose
subsidiaries, Tejas Testing
35
<PAGE>
Technology One, L.C. and Tejas Testing Technology
Two, L.C. (the "Tejas Companies"), under two seven-year contracts to perform
automotive emissions-testing in the Dallas/Fort Worth and Southeast regions of
Texas. To finance the Tejas Companies' performance under the emissions
contracts, the Corporation guaranteed payment of the Tejas Companies' $98.8
million obligations under an Agreement for Lease and Lease Agreement, each dated
June 22, 1994 (the "Lease Obligations"), pursuant to which the Tejas Companies
acquired the equipment and facilities necessary to perform the emission
contracts. The value of such equipment and facilities and the value of any
continuing operations will accrue to the Corporation in the event the
Corporation is required to satisfy the Lease Obligations. The guarantee of
payment will terminate at such time as the Tejas Companies meet certain
financial ratios for 6 consecutive months. Pursuant to a Capital Subscription
Agreement dated June 22, 1994, the Corporation is also obligated, for the
duration of the emission-testing contracts, to make a subordinated loan to the
Tejas Companies sufficient in amount to enable the Tejas Companies to satisfy
the Lease Obligations in the event the emissions-testing program is terminated
as a result of a court order or by repeal of the implementing legislation, or
where the program is terminated as a result of a performance default by the
Tejas Companies and the Texas Natural Resources Conservation Commission
exercises its option to purchase the equipment and facilities at a price that is
insufficient to satisfy the Lease Obligations. The emission-testing program was
suspended for 90 days by the Texas Legislature on February 1, 1995. The program
is presently scheduled to resume on May 2, 1995.
Based upon conditions as they presently exist, it is management's opinion that
the guarantees and Capital Subscription Agreement referred to above are not
likely to have a material adverse effect, if any, on the Corporation's financial
condition or results of operations.
NOTE 13 REPORTING SEGMENTS
The Corporation operates predominantly in a single industry as a manufacturer
and distributor of tools and other products for the professional mechanic. The
Corporation is a multinational corporation with operations in many countries
including the United States, Australia, Belgium, Brazil, Canada, France,
Germany, Japan, Mexico, Puerto Rico, the Netherlands, New Zealand, Taiwan and
the United Kingdom. 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 foreign subsidiaries, no allocations of general corporate
expenses, interest or income taxes have been made.
Identifiable assets of European and other foreign subsidiaries are those assets
related to the operations of those subsidiaries. United States assets consist of
all other operating assets of the Corporation.
<TABLE>
<CAPTION>
Other Foreign
United States Europe Subsidiaries Eliminations Consolidated
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994
SALES TO UNAFFILIATED CUSTOMERS $ 862,189 $191,648 $140,459 $ - $1,194,296
-------------------------------------------------------------------------------------------------------------------------------
TRANSFERS BETWEEN GEOGRAPHIC AREAS 149,986 2,670 9,793 (162,449) -
-------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUE 1,012,175 194,318 150,252 (162,449) 1,194,296
-------------------------------------------------------------------------------------------------------------------------------
EARNINGS FROM OPERATIONS 126,834 21,444 14,217 (4,600) 157,895
-------------------------------------------------------------------------------------------------------------------------------
IDENTIFIABLE ASSETS $1,015,208 $137,340 $108,083 $(25,726) $1,234,905
-------------------------------------------------------------------------------------------------------------------------------
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 112,324 22,023 14,560 (1,974) 146,933
-------------------------------------------------------------------------------------------------------------------------------
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
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND
SHAREHOLDERS OF SNAP-ON INCORPORATED:
We have audited the accompanying consolidated balance sheets of Snap-on
Incorporated (a Delaware Corporation) as of December 31, 1994 and January 1,
1994, and the related consolidated statements of earnings, shareholders' equity
and cash flows for each of the three years in the period ended December 31,
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
Incorporated as of December 31, 1994 and January 1, 1994, and the consolidated
results of its operations and cash flows for each of the three years in the
period ended December 31, 1994, in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
-----------------------
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
January 31, 1995
37
<PAGE>
QUARTERLY FINANCIAL
INFORMATION (Unaudited)
<TABLE>
<CAPTION>
(Amounts in thousands
except per share data) 1994 1993 1992
<S> <C> <C> <C>
-----------------------------------------------------------------
NET SALES
1st Quarter $ 298,777 $ 270,674 $226,253
2nd Quarter 298,752 272,718 232,907
3rd Quarter 278,359 271,096 225,554
4th Quarter 318,408 317,522 299,086
-----------------------------------------------------------------
$1,194,296 $1,132,010 $983,800
-----------------------------------------------------------------
-----------------------------------------------------------------
GROSS PROFIT
1st Quarter $ 153,470 $ 138,938 $114,262
2nd Quarter 156,087 146,839 117,842
3rd Quarter 140,771 140,759 114,544
4th Quarter 158,509 169,192 162,765
-----------------------------------------------------------------
$ 608,837 $ 595,728 $509,413
-----------------------------------------------------------------
-----------------------------------------------------------------
NET EARNINGS
1st Quarter $ 22,834 $ 18,504 $ 18,475
2nd Quarter 26,099 22,362 19,589
3rd Quarter 22,706 20,536 15,155
4th Quarter 26,675 24,410 12,756
-----------------------------------------------------------------
$ 98,314 $ 85,812 $ 65,975
-----------------------------------------------------------------
-----------------------------------------------------------------
EARNINGS PER
COMMON SHARE
1st Quarter $ .54 $ .44 $ .44
2nd Quarter .61 .52 .46
3rd Quarter .53 .48 .36
4th Quarter .62 .58 .30
-----------------------------------------------------------------
$ 2.30 $ 2.02 $ 1.56
-----------------------------------------------------------------
-----------------------------------------------------------------
</TABLE>
ELEVEN-YEAR DATA
<TABLE>
<CAPTION>
(Amounts in thousands except share data) 1994 1993 1992 1991 1990 1989
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net sales $1,194,296 $1,132,010 $983,800 $881,591 $931,533 $890,792
Gross profit 608,837 595,728 509,413 437,685 469,149 439,861
Operating expenses 510,361 509,910 457,384 370,708 359,266 320,178
Net finance income 59,419 61,115 63,646 56,890 53,182 47,202
Interest expense 10,806 11,198 5,969 5,250 6,762 3,298
Other income (expense)-net 6,580 756 (131) (91) 3,557 1,923
Pre-tax earnings 153,669 136,491 109,575 118,526 159,860 165,510
Income taxes 55,355 50,679 43,600 45,300 59,100 60,800
Net earnings 98,314 85,812 65,975 34,277 100,760 104,710
Net earnings before cumulative effect of
accounting change** N/A N/A N/A 73,226 N/A N/A
----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Current assets $ 873,020 $854,598 $832,603 $666,623 $675,038 $564,623
Current liabilities 237,869 308,037 317,074 176,650 236,802 179,476
Working capital 635,151 546,561 515,529 489,973 438,236 385,147
Receivables 568,378 539,949 508,092 461,596 459,381 403,926
Inventories 229,037 249,102 216,262 160,148 182,065 137,106
Property and equipment-net 209,142 224,810 226,498 206,481 210,414 195,020
Total assets 1,234,905 1,218,933 1,172,413 915,374 907,854 777,603
Long-term debt 108,980 99,683 93,106 7,179 7,275 7,700
Shareholders' equity 766,398 701,663 664,665 652,719 636,403 572,657
----------------------------------------------------------------------------------------------------------------------------------
COMMON SHARE SUMMARY*
Shareholders' equity per share $17.87 $16.48 $15.67 $15.46 $15.42 $13.93
Net earnings per share 2.30 2.02 1.56 .82 2.45 2.55
Net earnings per share before cumulative
effect of accounting change** N/A N/A N/A 1.75 N/A N/A
Cash dividends paid per share 1.08 1.08 1.08 1.08 1.08 1.04
Average shares outstanding 42,791,916 42,570,783 42,343,781 41,821,768 41,207,563 41,038,978
----------------------------------------------------------------------------------------------------------------------------------
OTHER FINANCIAL STATISTICS
Cash dividends paid $ 46,197 $ 45,942 $ 45,718 $ 45,086 $ 44,505 $ 42,655
% dividends paid to net earnings 47.0% 53.5% 69.3% 61.6%** 44.2% 40.7%
Capital expenditures 41,788 33,248 21,081 23,447 44,353 72,136
Depreciation and amortization 29,632 32,131 29,457 25,619 25,914 21,865
Current ratio 3.7 2.8 2.6 3.8 2.9 3.1
Total debt to total capital 13.5% 19.3% 19.5% 1.2% 11.7% 7.3%
Effective tax rate 36.0% 37.1% 39.8% 38.2% 37.0% 36.7%
Pre-tax earnings as % of net sales 12.9% 12.1% 11.1% 13.4% 17.2% 18.6%
Net earnings as % of net sales 8.2% 7.6% 6.7% 8.3%** 10.8% 11.8%
After-tax return on average shareholders'
equity 13.4% 12.6% 10.0% 11.4%** 16.7% 19.4%
Common stock price range* 44 3/8-29 44 1/2-30 1/2 40-27 34 1/2-27 3/8 38-26 1/4 41 7/8-28 7/8
38
<PAGE>
<CAPTION>
(Amounts in thousands except share data) 1988 1987 1986 1985 1984
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net sales $854,592 $754,303 $670,086 $591,278 $539,933
Gross profit 431,748 377,167 331,950 298,056 283,216
Operating expenses 287,712 252,115 230,489 205,984 183,741
Net finance income 37,991 30,508 25,443 19,748 14,573
Interest expense 2,637 2,788 2,672 2,703 2,747
Other income (expense)-net 3,432 3,024 2,264 2,715 3,428
Pre-tax earnings 182,822 155,796 126,496 111,832 114,729
Income taxes 69,500 67,200 61,000 52,100 55,100
Net earnings 113,322 88,596 65,496 59,732 59,629
Net earnings before cumulative effect of
accounting change** N/A N/A N/A N/A N/A
----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Current assets $504,980 $470,516 $392,172 $360,813 $331,298
Current liabilities 142,337 131,420 112,303 92,506 89,558
Working capital 362,643 339,096 279,869 268,307 241,740
Receivables 336,588 277,357 226,551 197,689 164,901
Inventories 139,460 120,083 124,845 113,061 112,664
Property and equipment-net 146,371 128,082 115,144 98,134 86,529
Total assets 667,538 615,817 526,580 459,854 418,922
Long-term debt 8,125 12,622 16,061 17,674 20,190
Shareholders' equity 505,202 457,536 382,952 337,328 298,574
----------------------------------------------------------------------------------------------------------------------------------
COMMON SHARE SUMMARY*
Shareholders' equity per share $12.35 $10.97 $9.28 $8.24 $7.33
Net earnings per share 2.72 2.13 1.59 1.46 1.46
Net earnings per share before cumulative
effect of accounting change** N/A N/A N/A N/A N/A
Cash dividends paid per share .88 .70 .61 .58 .465
Average shares outstanding 41,603,128 41,525,145 41,168,798 40,873,186 40,703,024
----------------------------------------------------------------------------------------------------------------------------------
OTHER FINANCIAL STATISTICS
Cash dividends paid $36,681 $ 29,060 $ 25,110 $ 23,700 $ 18,931
% dividends paid to net earnings 32.4% 32.8% 38.3% 39.7% 31.7%
Capital expenditures 37,949 30,921 32,319 24,587 19,871
Depreciation and amortization 18,699 16,597 14,862 12,787 11,178
Current ratio 3.5 3.6 3.5 3.9 3.7
Total debt to total capital 1.7% 3.4% 5.1% 5.6% 7.1%
Effective tax rate 38.0% 43.1% 48.2% 46.6% 48.0%
Pre-tax earnings as % of net sales 21.4% 20.7% 18.9% 18.9% 21.2%
Net earnings as % of net sales 13.3% 11.7% 9.8% 10.1% 11.0%
After-tax return on average shareholders'
equity 23.5% 21.1% 18.2% 18.8% 21.4%
Common stock price range* 44 7/8-32 3/4 46 1/2-24 1/4 32 1/8-20 3/8 21-16 18 3/4-13 1/2
----------------------------------------------------------------------------------------------------------------------------------
<FN>
* Adjusted for two-for-one stock split in 1986.
** Based on net earnings before cumulative effect of accounting change. 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."
</TABLE>
39
<PAGE>
INVESTOR INFORMATION
COMMON STOCK PRICES
<TABLE>
<CAPTION>
QUARTER 1994 1993
----------------------------------------------------------------------
<S> <C> <C>
First $44 3/8-37 5/8 $34 3/4-30 1/2
Second 41 3/8-34 3/4 39 1/4-33 1/4
Third 38 3/8-33 1/4 44 1/2-38
Fourth 35 1/8-29 40 1/2-36 3/8
----------------------------------------------------------------------
</TABLE>
DIVIDENDS PER COMMON SHARE
<TABLE>
<CAPTION>
QUARTER 1994 1993
----------------------------------------------------------------------
<S> <C> <C>
First $ .27 $ .27
Second .27 .27
Third .27 .27
Fourth .27 .27
----------------------------------------------------------------------
$1.08 $1.08
----------------------------------------------------------------------
</TABLE>
INVESTOR INFORMATION
Snap-on Incorporated 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 1995
<TABLE>
<CAPTION>
QUARTER Record Date Pay Date
----------------------------------------------------------------------
<S> <C> <C>
First February 17th March 10th
Second May 19th June 9th
Third August 21st September 11th
Fourth November 20th December 11th
----------------------------------------------------------------------
</TABLE>
SHAREHOLDERS
The approximate number of shareholder accounts of record as of December 31,
1994, was 9,292.
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 on the Lake Civic
Center, 5 Fifth Street, Racine, Wisconsin, at 10:00 a.m., April 28th, 1995.
GENERAL OFFICES
2801-80th Street
Kenosha, Wisconsin 53141-1410
Phone (414) 656-5200
SUBSIDIARIES
A.T.I. Tools, Inc.
Balco, Inc.
Herramientas Snap-on de Mexico, S.A.
J. H. Williams Company
Sioux Tools, Inc.
Snap-on Financial Services, Inc.
Snap-on Tools (Australia) Pty. Ltd.
Snap-on Tools of Canada Ltd.
Snap-on Tools GmbH
Snap-on Tools International, Ltd.
Snap-on Tools Japan, K.K.
Snap-on Tools Limited
Snap-on Tools Worldwide, Inc.
Sun Electric Corporation
Wheeltronic Ltd.
40
<PAGE>
EXHIBIT (22)
SUBSIDIARIES OF THE CORPORATION
State or other jurisdiction
Name of organization
_____________________________________ ___________________________
A.T.I. Tools, Inc. Delaware
Balco, Inc. California
Herramientas Snap-on de Mexico, S.A. Mexico
J. H. Williams Company Delaware
Sioux Tools, Inc. Iowa
Snap-on Financial Services, Inc. Nevada
Snap-on Tools (Australia) Pty. Ltd. Australia
Snap-on Tools of Canada Ltd. Canada
Snap-on Tools GmbH Germany
Snap-on Tools International, Ltd. U.S. Virgin Islands
Snap-on Tools Japan, K.K. Japan
Snap-on Tools Limited United Kingdom
Snap-on Tools Worldwide, Inc. Michigan
Sun Electric Corporation Delaware
Wheeltronic Ltd. Ontario
55
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets and Consolidated Statement of Earnings found on
pages 23, 24 and 25 of the Corporation's Annual Report for the year ended
December 31, 1994 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000091440
<NAME> SNAP-ON INCORPORATED
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-02-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<CASH> 9,015
<SECURITIES> 0
<RECEIVABLES> 581,559
<ALLOWANCES> 13,181
<INVENTORY> 229,037
<CURRENT-ASSETS> 873,020
<PP&E> 453,607
<DEPRECIATION> 244,465
<TOTAL-ASSETS> 1,234,905
<CURRENT-LIABILITIES> 237,869
<BONDS> 108,980
<COMMON> 43,128
0
0
<OTHER-SE> 723,270
<TOTAL-LIABILITY-AND-EQUITY> 1,234,905
<SALES> 1,194,296
<TOTAL-REVENUES> 1,194,296
<CGS> 585,459
<TOTAL-COSTS> 608,837
<OTHER-EXPENSES> 510,361
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,806
<INCOME-PRETAX> 153,669
<INCOME-TAX> 55,355
<INCOME-CONTINUING> 98,314
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 98,314
<EPS-PRIMARY> 2.30
<EPS-DILUTED> 2.30
</TABLE>
