SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For quarterly period ended June 29,1996
Commission File Number 1-7724
SNAP-ON INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 39-0622040
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10801 Corporate Drive, Kenosha, Wisconsin 53141-1430
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (414) 656-5200
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 (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [ X ]
No [ ]
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
Class Outstanding at July 27, 1996
Common stock, $1 per value 40,795,598 shares
<PAGE>
SNAP-ON INCORPORATED
INDEX
Page
Part I. Financial Information
Consolidated Statements of Earnings -
Thirteen Weeks and Twenty-Six Weeks Ended
June 29, 1996 and July 1, 1995 3
Consolidated Balance Sheets -
June 29, 1996 and December 30, 1995 4-5
Consolidated Statements of Cash Flows -
Twenty-Six Weeks Ended
June 29, 1996 and July 1, 1995 6
Notes to Consolidated Financial Statements 7-8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-11
Part II. Other Information 12
<PAGE>
PART I. FINANCIAL INFORMATION
SNAP-ON INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in thousands except per share data)
(Unaudited)
Thirteen Weeks Ended Twenty-Six Weeks Ended
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
Net sales $384,554 $326,816 $728,918 $635,923
Cost of goods sold 190,425 159,569 360,960 309,407
------- ------- ------- -------
Gross profit 194,129 167,247 367,958 326,516
Operating expenses 151,731 134,484 291,430 266,836
Net finance income (15,925) (16,242) (31,524) (32,116)
------- ------- ------- -------
Operating
earnings 58,323 49,005 108,052 91,796
Interest expense (3,310) (3,069) (6,252) (5,077)
Other income
(expense) - net (207) 1,236 70 2,453
------- ------- ------- -------
Earnings before
income taxes 54,806 47,172 101,870 89,172
Income taxes 20,278 17,454 37,692 32,994
------- ------- -------- --------
Net earnings $34,528 $29,718 $ 64,178 $ 56,178
======= ======= ======== ========
Earnings per weighted
average common share $ .85 $ .73 $ 1.58 $ 1.35
====== ====== ======= =======
Dividends declared per
common share $ .57 $ .54 $ .84 $ .81
====== ====== ======= =======
Weighted average common
shares outstanding 40,729 40,774 40,671 41,579
====== ====== ====== ======
The accompanying notes are an integral part of these statements.
<PAGE>
SNAP-ON INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
June 29, December 30,
1996 1995
ASSETS
Current Assets
Cash and cash equivalents $ 26,570 $ 16,211
Accounts receivable, less allowances 609,357 610,064
Inventories:
Finished stock 277,162 264,184
Work in process 42,543 39,977
Raw materials 59,725 56,191
Excess of current cost over LIFO
cost (112,130) (109,918)
------- -------
Total inventory 267,300 250,434
Prepaid expenses and other assets 77,827 69,980
------- -------
Total current assets 981,054 946,689
Property and equipment
Land 25,753 22,875
Buildings and improvements 156,072 149,087
Machinery and equipment 306,621 296,916
------- -------
488,446 468,878
Accumulated depreciation (260,026) (248,811)
------- -------
Total property and equipment 228,420 220,067
Deferred income tax benefits 68,721 61,471
Intangible and other assets 210,870 132,746
------- -------
Total assets $1,489,065 $1,360,973
========== =========
The accompanying notes are an integral part of these statements.
<PAGE>
SNAP-ON INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
June 29, December 30,
1996 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 68,623 $ 75,603
Notes payable 31,784 26,213
Dividends payable 12,247 -
Accrued compensation 34,129 37,769
Dealer deposits 58,792 65,344
Accrued income taxes 30,809 16,106
Other accrued liabilities 133,741 115,040
------- -------
Total current liabilities 370,125 336,075
Long-term debt 119,642 143,763
Deferred income taxes 5,908 4,760
Retiree health care benefits 82,288 80,665
Pension and other long-term liabilities 125,012 44,978
------- -------
Total liabilities 702,975 610,241
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 -
June 29, 1996 - 43,931,800 shares
December 30, 1995 - 43,571,363 shares 43,932 43,571
Additional contributed capital 85,924 74,250
Retained earnings 783,342 753,356
Foreign currency translation adjustment (14,481) (10,758)
Treasury stock at cost - 3,108,700 and
3,047,200 shares (112,627) (109,687)
-------- --------
Total shareholders' equity 786,090 750,732
--------- ---------
Total liabilities and shareholder's
equity $1,489,065 $1,360,973
========= =========
The accompanying notes are an integral part of these statements.
<PAGE>
SNAP-ON INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Twenty-Six Weeks Ended
June 29, July 1,
1996 1995
OPERATING ACTIVITIES
Net earnings $ 64,178 $ 56,178
Adjustments to reconcile net earnings
to net cash provided by:
Depreciation 15,026 14,247
Amortization 2,360 1,739
Deferred income taxes 5,975 (9,594)
(Gain) loss on sale of assets 310 (79)
Changes in operating assets and
liabilities:
(Increase) decrease in receivables 12,385 (51,723)
Increase in inventories (8,340) (11,918)
Increase in prepaid expenses (1,300) (1,240)
Decrease in accounts payable (9,021) (10,776)
Increase in accruals, deposits and
other long-term liabilities 6,917 32,923
------- -------
Net cash provided by operating
activities 88,490 19,757
INVESTING ACTIVITIES
Capital expenditures (24,337) (11,773)
Acquisitions of businesses (31,962) (19,923)
Disposal of property and equipment 1,258 2,837
(Increase) decrease in other
noncurrent assets 9,748 (3,366)
------- -------
Net cash used in investing activities (45,293) (32,225)
FINANCING ACTIVITIES
Payment of long-term debt (39,044) (150)
Increase in long-term debt 14,700 4,089
Increase in notes payable 4,565 136,532
Purchase of treasury stock (2,940) (100,375)
Proceeds from stock plans 12,035 5,853
Cash dividends paid (21,945) (22,282)
------- -------
Net cash used in financing activities (32,629) 23,667
Effect of exchange rate changes (209) (1,482)
------- -------
Increase in cash and cash equivalents 10,359 9,717
Cash and cash equivalents at beginning of year 16,211 9,015
------- -------
Cash and cash equivalents at
end of period $ 26,570 $ 18,732
======= =======
The accompanying notes are an integral part of these statements.
<PAGE>
SNAP-ON INCORPORATED
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
1. This report should be read in conjunction with the consolidated
financial statements and related notes included in Snap-on
Incorporated's Annual Report for the year ended December 30, 1995.
In the opinion of management, all adjustments (consisting only of
normal recurring adjustments) necessary to a fair statement of
financial condition and results of operations for the thirteen and
twenty-six weeks ended June 29, 1996 have been made. Management also
believes that the results of operations for the thirteen and twenty-six
weeks ended June 29, 1996 are not necessarily indicative of the results
to be expected for the full year.
2. Snap-on Incorporated normally declares and pays in cash four regular,
quarterly dividends. However, the third quarter dividend in each year
is declared in June, giving rise to two regular quarterly dividends
appearing in the second quarter statements and correspondingly, three
regular quarterly dividends appearing in the first twenty-six weeks'
statements.
3. Income tax paid for the twenty-six week periods ended June 29, 1996 and
July 1, 1995 was $31.2 million and $26.4 million.
4. Interest paid for the twenty-six week periods ended June 29, 1996 and
July 1, 1995 was $6.9 million and $5.6 million.
5. On March 31, 1996, the Corporation acquired certain assets and
liabilities of the Automotive Service Equipment Division of FMC
Corporation. The acquired division was renamed the John Bean Company.
John Bean designs, manufactures, and sells high-quality products for
the under-car market. Pro forma results of operations are not shown as
the effect would not be material.
6. Prior to the disposition of Systems Control, Inc. by a subsidiary of
the Corporation on September 29, 1994, Systems Control, Inc.'s single-
purpose subsidiaries, Tejas Testing Technology One, L.C. and Tejas
Testing Technology Two, L.C. (the "Tejas Companies"), entered into two
seven-year contracts with the Texas Natural Resources Conservation
Commission ("TNRCC"), an agency of the State of Texas, to perform
automotive emissions testing in the Dallas/Fort Worth and southeast
regions of Texas in a centralized manner in accordance with the
federal Environmental Protection Agency ("EPA") guidelines relating to
"I/M 240" test-only facilities. The Corporation guaranteed payment
(the "Guaranty") of the Tejas Companies' obligations under an
Agreement for Lease and a seven-year Lease Agreement, each dated June
22, 1994, in the amount of approximately $98.8 million plus an
interest factor (the "Lease Obligations"), pursuant to which the Tejas
Companies leased the facilities (and associated testing equipment)
necessary to perform the emissions-testing contracts. The Guaranty was
assigned to the lessor's lenders (the "Lenders") as collateral.
Pursuant to an Indemnity Agreement entered into as of September 29,
1994, the Tejas Companies agreed to reimburse the Corporation for any
payments it made under the Guaranty.
On May 1, 1995, the State of Texas enacted legislation designed to
terminate the centralized testing program described in the emissions-
testing contracts and directed the governor of the State of Texas to
implement a new program after negotiations with the EPA. On September
12, 1995, the Tejas Companies filed bankruptcy petitions under Chapter
11 of the Bankruptcy Code in the United States Bankruptcy Court for
the Western District of Texas (Austin Division). The Tejas Companies
have commenced litigation against the TNRCC and related entities to
assert their rights with respect to the emissions-testing contracts,
and the Corporation has intervened in such litigation to protect its
interests. In addition, the Corporation is a creditor in the Tejas
Companies' bankruptcy proceedings and will continue to take steps to
protect its interests in such proceedings.
The Corporation believes that it is probable that there will be
developments, prior to the end of the 1997 Texas legislative session
(approximately May 1997) to enable the Lease Obligations to ultimately
be satisfied. The 1997 legislative session is scheduled to begin
January 14, 1997. The primary basis for such a development arises
under the original contracts to perform centralized emissions testing.
Those contracts obligate the TNRCC to purchase the Tejas Companies'
testing facilities or to reimburse costs that the Tejas Companies
incurred in the construction and implementation of the centralized
testing program and have not recovered through the sale of the testing
facilities to a third party. Fulfillment of such obligations requires
an appropriation of funds by the Texas Legislature, which is subject
to the political process. The TNRCC is contractually obligated to seek
such appropriation and has affirmed such obligation. The Tejas
Companies are pursuing the cost reimbursement process described in the
emissions-testing contracts. A second potential basis is that the
TNRCC's obligation could be satisfied in part in various other ways
including a sale of some or all of the facilities.
The Corporation and the Lenders have been engaged in continuing
discussions concerning this matter, and they have reached an agreement
whereby the Lenders will forbear until at least December 31, 1996 from
exercising their rights under the terms of the Guaranty to cause the
Corporation to pay all Lease Obligations to the Lenders on an
accelerated basis. The Corporation continues to make advances under
the Guaranty of approximately $1.8 million per month. While the
Lenders have agreed to forbear until at least December 31, 1996, given
the delay in resolving this matter and other factors, the Corporation
has recognized the remaining net obligation under the Guaranty of
$67.5 million at June 29, 1996. This is included in Other Long-Term
Liabilities on the accompanying consolidated balance sheet. In
addition, the Corporation has recorded as assets the monthly advances
and the other amounts expected to be received from the Tejas Companies
under the Indemnity Agreement. These net receivables total $92.2 million
at June 29, 1996 and are included in Intangible and Other Assets.
Described previously are mechanisms by which the Tejas Companies may
receive funds to enable them to satisfy their contractual obligation
to the Corporation under the Indemnity Agreement. The Corporation
believes that recovery of the recorded receivables from the Tejas
Companies is probable, and it will make an ongoing assessment of the
likelihood of realization of such receivables. Recognition of the
liability and related asset described above will not result in any net
loss recognition in the Company's consolidated financial statements at
June 29, 1996.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview: The Corporation posted record sales, net earnings, and earnings
per share for the second quarter and first six months of 1996. Net
earnings for the second quarter of 1996 increased 16.2% over the year ago
quarter on a net sales increase of 17.7%. For the first six months, 1996
net earnings increased 14.2% over the comparable 1995 period on a net
sales increase of 14.6%. Earnings per share for the second quarter and
first six months increased 16.4% and 17.0% over 1995 comparable periods.
The second quarter's results benefited from several acquisitions and
strong performance in the Corporation's North American tool and equipment
businesses. The quarter's results also reflect continuing improvements in
operating efficiencies and benefits from the Corporation's ongoing cost
control programs.
Sales: Net sales for the second quarter of 1996 were $384.6 million, an
increase of 17.7% over second quarter 1995 sales of $326.8 million. Net
sales for the first six months of 1996 were $728.9 million, an increase of
14.6% over 1995 six-month sales of $635.9 million.
North American sales for the second quarter of 1996 were $294.5 million,
an increase of 14.2% over second quarter 1995 sales of $257.8 million.
North American sales for the first six months of 1996 were $553.6 million,
an increase of 9.7% over six-month 1995 sales of $504.7 million. The
second quarter's results reflect higher sales in both the dealer van
channel and the industrial channel. In addition, the acquisition of the
John Bean Company contributed to the second quarter increase.
European sales for the second quarter of 1996 were $69.4 million, an
increase of 46.4% over second quarter 1995 sales of $47.4 million.
European sales for the first six months of 1996 were $136.3 million, an
increase of 50.3% over six-month 1995 sales of $90.7 million. The second
quarter's sales increase was due to the acquisitions of Herramientas
Eurotools S.A. and the John Bean Company. Excluding acquisitions, sales
decreased 7% for the second quarter. The temporary suspension of the
United Kingdom's emissions testing program and a delay in new product
introductions negatively affected the second quarter. The emissions
testing program in the United Kingdom, and related equipment sales, are
expected to resume in the third quarter of 1996.
Other International sales for the second quarter of 1996 were $20.6
million, a decrease of 4.6% from second quarter 1995 sales of $21.6
million. Other International sales for the first six months of 1996 were
$39.0 million, a decrease of 3.7% from six-month 1995 sales of $40.5
million. For the second quarter, sales in Japan were negatively affected
by the strengthening of the U.S. dollar relative to the yen. Sales in
Australia increased in the quarter. Excluding the negative effects of the
yen, sales in this region would have reported an increase.
Earnings: Earnings for the second quarter of 1996 were $34.5 million, an
increase of 16.2% over second quarter 1995 earnings of $29.7 million.
Second quarter earnings per share increased to $.85, a 16.4% increase over
second quarter 1995 earnings per share of $.73. Earnings for the first six
months of 1996 were $64.2 million, an increase of 14.2% over six-month
1995 earnings of $56.2 million. Earnings per share for the first six
months of 1996 rose to $1.58 per share, a 17.0% increase over six-month
1995 earnings per share of $1.35.
Operating expenses: As a percentage of net sales, second quarter total
operating expenses decreased to 39.5% in 1996 from 41.2% in 1995. As a
percentage of net sales, six-month operating expenses decreased to 40.0%
in 1996 from 42.0% in 1995. Benefits from continuing general cost
reduction activities, from facilities consolidations implemented over the
past several years, and from a change in business mix because of recent
acquisitions all contributed to the improvement.
FINANCIAL CONDITION
Liquidity: Cash and cash equivalents increased to $26.6 million at the
end of the second quarter from $16.2 million at the end of 1995. Working
capital was $610.9 million at the end of the second quarter versus $610.6
million at the end of 1995. At the end of the quarter, the Corporation
had a $100 million revolving credit facility to support the issuance of
commercial paper.
In September 1994, the Corporation filed a registration statement with the
Securities and Exchange Commission that allows the Corporation to issue
from time to time up to $300 million of unsecured indebtedness. In
October 1995, the Corporation issued $100 million of its notes to the
public. The shelf registration gives the Corporation financing flexibility
to operate the business.
The Corporation has sufficient sources of liquidity to support current and
future working capital requirements, finance capital expenditures and pay
dividends.
Accounts receivable: Accounts receivable decreased to $609.4 million at
the end of the second quarter from $610.1 million at the end of 1995. In
the first quarter of 1996, the Corporation executed an additional $50.0
million securitization of its receivables discussed below.
In October 1995, the Corporation entered into agreements that provide for
the sale, without recourse, of an undivided interest in a pool of certain
of its accounts receivable to a third party financing institution. These
agreements provide for a maximum of $150 million of such accounts
receivable to be sold and remain outstanding at any one time. Under these
agreements, $100.0 million of interest-bearing installments were sold, on
a revolving basis, in October 1995. During the first quarter of 1996, the
Corporation sold an additional $50.0 million of interest-bearing
receivables under these agreements on a revolving basis. The proceeds were
used to pay down debt, and for working capital and general corporate
purposes.
The majority of the Corporation's accounts receivable involve customers'
extended credit and lease purchases of higher-value products. Other
receivables include those from dealers, industrial customers, and
government entities.
Inventories: Inventories increased to $267.3 million at the end of the
second quarter from $250.4 million at the end of 1995. The increase was
primarily due to acquisitions.
Liabilities: Total short-term and long-term debt was $151.5 million at
the end of the second quarter compared with $170.9 million at the end of
1995. The decrease was due primarily to the $50.0 million of
securitization of receivables discussed previously.
Average shares outstanding: Average shares outstanding decreased to 40.7
million in 1996's second quarter compared with 40.8 million in last year's
second quarter. For the first six months of 1996, average shares
outstanding declined to 40.7 million versus 41.6 million in the comparable
six months of 1995. During the first half of 1995, the Corporation
completed a $100 million share repurchase program, thereby reducing the
number of shares outstanding.
Stock split and dividend increase:
On June 28, 1996, the Corporation's Board of Directors declared an 11.1%
increase in the quarterly dividend on common stock and approved a three-
for-two stock split.
The new quarterly dividend of $.30 per share, on a pre-split basis, is
equivalent to an annual rate of $1.20 per share. On a post-split basis,
the new quarterly dividend is equivalent to $.20 per share, or $.80 per
share annually.
The three-for-two stock split will result in one additional share issued
for every two shares of the Corporation's stock outstanding. Cash will be
distributed in lieu of fractional shares.
Dividend payments and additional shares both will be distributed on
September 10, 1996, to shareholders of record on August 20, 1996.
Other matters: Refer to Note 6 for discussion of a guaranty of lease
obligations relating to emissions testing facilities that were to be used
under a contract with the State of Texas to perform testing services.
Texas has terminated the program to conduct such testing services, and the
Corporation is making payments monthly under such guaranty.
<PAGE>
PART II. OTHER INFORMATION
Item 6: Exhibits and reports on Form 8-K
Item 6(a): Exhibits
Exhibit 4.1 - Amendment to Rights Agreement dated as of June 28,
1996 (incorporated by reference to Exhibit 1.1 to the
Corporation's Current Report on Form 8-A dated June
28, 1996 (Commission File No. 1-7724))
Exhibit 27 - Financial Data Schedule
Item 6(b): Reports on Form 8-K
No reports on Form 8-K for the three months ended June 29, 1996 were
required to be filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Snap-on Incorporated has duly caused this report to be signed on its
behalf by the undersigned duly authorized persons.
SNAP-ON INCORPORATED
Date: August 13, 1996 /s/ R. A. Cornog
R. A. CORNOG
(Chairman, President and Chief
Executive Officer)
Date: August 13, 1996 /s/ G. D. Johnson
G. D. JOHNSON
(Principal Accounting Officer
and Controller)
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
4.1 Amendment to Rights Agreement dated as of June 28,
1996 (incorporated by reference to Exhibit 1.1 to the
Corporation's Current Report on Form 8-A dated June
28, 1996 (Commission File No. 1-7724))
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF SNAP-ON INCORPORATED AS OF AND
FOR THE PERIOD ENDED JUNE 29, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER<F1>
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> JUN-29-1996
<CASH> 26,570
<SECURITIES> 0
<RECEIVABLES> 624,850
<ALLOWANCES> 15,493
<INVENTORY> 267,300
<CURRENT-ASSETS> 981,054
<PP&E> 488,446
<DEPRECIATION> 260,026
<TOTAL-ASSETS> 1,489,065
<CURRENT-LIABILITIES> 370,125
<BONDS> 119,642
0
0
<COMMON> 43,932
<OTHER-SE> 742,158
<TOTAL-LIABILITY-AND-EQUITY> 1,489,065
<SALES> 728,918
<TOTAL-REVENUES> 728,918
<CGS> 360,960
<TOTAL-COSTS> 360,960
<OTHER-EXPENSES> 291,430
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,252
<INCOME-PRETAX> 101,870
<INCOME-TAX> 37,692
<INCOME-CONTINUING> 64,178
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64,178
<EPS-PRIMARY> 1.58
<EPS-DILUTED> 1.58
<FN>
<F1> 26 weeks
</TABLE>
