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 March 30,1996
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 May 3, 1996
Common stock, $1 per value 40,679,634 shares
<PAGE>
SNAP-ON INCORPORATED
INDEX
Page
Part I. Financial Information
Consolidated Statements of Earnings -
Thirteen Weeks Ended
March 30, 1996 and April 1, 1995 3
Consolidated Balance Sheets -
March 30, 1996 and December 30, 1995 4-5
Consolidated Statements of Cash Flows -
Thirteen Weeks Ended
March 30, 1996 and April 1, 1995 6
Notes to Consolidated Financial Statements 7-8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-10
Part II. Other Information 11
<PAGE>
SNAP-ON INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in thousands except per share data)
(Unaudited)
Thirteen Weeks Ended
March 30, April 1,
1996 1995
Net sales $344,364 $309,107
Cost of goods sold 170,535 149,838
------- -------
Gross profit 173,829 159,269
Operating expenses 139,699 132,352
Net finance income (15,599) (15,874)
------- -------
Operating income 49,729 42,791
Interest expense (2,942) (2,509)
Other income 277 1,718
------- -------
Earnings before income taxes 47,064 42,000
Income taxes 17,414 15,540
------- -------
Net earnings $ 29,650 $ 26,460
======== ========
Earnings per weighted average common share $ .73 $ .62
======== =======
Dividends declared per common share $ .27 $ .27
======== =======
Weighted average common shares outstanding 40,614 42,383
======== =======
The accompanying notes are an integral part of these statements.
<PAGE>
PART I. FINANCIAL INFORMATION
SNAP-ON INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
March 30, December 30,
1996 1995
ASSETS
Current Assets
Cash and cash equivalents $ 23,549 $ 16,211
Accounts receivable, less allowances 578,143 610,064
Inventories:
Finished stock 262,258 264,184
Work in process 42,683 39,977
Raw materials 52,770 56,191
Excess of current cost over LIFO cost (112,289) (109,918)
--------- ---------
Total inventory 245,422 250,434
Prepaid expenses and other assets 79,908 69,980
--------- ---------
Total current assets 927,022 946,689
Property and equipment
Land 25,042 22,875
Buildings and improvements 150,893 149,087
Machinery and equipment 301,769 296,916
--------- ---------
477,704 468,878
Accumulated depreciation (253,341) (248,811)
--------- ---------
Total property and equipment 224,363 220,067
Deferred income tax benefits 61,864 61,471
Intangible and other assets 129,855 132,746
--------- ---------
Total assets $1,343,104 $1,360,973
========== ==========
The accompanying notes are an integral part of these statements.
<PAGE>
SNAP-ON INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
March 30, December 30,
1996 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 57,426 $ 75,603
Notes payable 25,459 26,213
Accrued compensation 27,844 37,769
Dealer deposits 62,669 65,344
Accrued income taxes 31,946 16,106
Other accrued liabilities 120,247 115,040
---------- ---------
Total current liabilities 325,591 336,075
Long-term debt 109,895 143,763
Deferred income taxes 5,877 4,760
Retiree health care benefits 81,474 80,665
Pension and other long-term liabilities 49,547 44,978
---------- ---------
Total liabilities 572,384 610,241
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 -
March 30, 1996 - 43,692,689 shares
December 30, 1995 - 43,571,363 shares 43,693 43,571
Additional contributed capital 77,641 74,250
Retained earnings 772,044 753,356
Foreign currency translation adjustment (12,971) (10,758)
Treasury stock at cost - 3,047,200 shares (109,687) (109,687)
---------- ---------
Total shareholders' equity 770,720 750,732
---------- ---------
Total liabilities and shareholder's equity $1,343,104 $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)
Thirteen Weeks Ended
March 30, April 1,
1996 1995
OPERATING ACTIVITIES
Net earnings $ 29,650 $ 26,460
Adjustments to reconcile net earnings
to net cash provided by:
Depreciation 7,388 7,109
Amortization 1,168 809
Deferred income taxes (3,861) (6,283)
(Gain) loss on sale of assets 140 (16)
Changes in operating assets and liabilities:
(Increase) decrease in receivables 33,603 (12,832)
(Increase) decrease in inventories 7,322 (2,541)
(Increase) decrease in prepaid expenses 3,417 (500)
Decrease in accounts payable (17,706) (3,228)
(Increase) decrease in accruals, deposits and
other long-term liabilities 2,274 19,194
-------- --------
Net cash provided by operating activities 63,395 28,172
INVESTING ACTIVITIES
Capital expenditures (12,282) (6,287)
Disposal of property and equipment 1,088 2,210
(Increase) decrease in other noncurrent assets (1,229) (4,793)
-------- --------
Net cash used in investing activities (12,423) (8,870)
FINANCING ACTIVITIES
Payment of long-term debt (36,631) -
Increase in long-term debt 2,095 4,450
Increase (decrease) in notes payable (1,772) 25,474
Purchase of treasury stock - (28,492)
Proceeds from stock plans 3,512 975
Cash dividends paid (10,963) (11,445)
-------- --------
Net cash used in financing activities (43,759) (9,038)
Effect of exchange rate changes 125 (1,025)
-------- --------
Increase in cash and cash equivalents 7,338 9,239
Cash and cash equivalents at beginning of year 16,211 9,015
-------- --------
Cash and cash equivalents at end of period $ 23,549 $ 18,254
======== ========
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 weeks
ended March 30, 1996 have been made. Management also believes that
the results of operations for the thirteen weeks ended March 30, 1996
are not necessarily indicative of the results to be expected for the
full year.
2. Income tax paid for the thirteen week periods ended March 30, 1996
and April 1, 1995 was $3.8 million and $2.5 million.
3. Interest paid for the thirteen week periods ended March 30, 1996 and
April 1, 1995 was $4.9 million and $2.5 million.
4. 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 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.
5. 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.
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 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 has been making payments
under the Guaranty monthly since May 1995 and has paid approximately
$19 million through March 30, 1996. These payments are included in
Intangible and Other Assets in the accompanying consolidated balance
sheets. It is expected that these payments will total approximately
$36 million through December 31, 1996.
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 whole or in part in various other ways including an
arrangement negotiated among the State of Texas, the Tejas Companies,
and the Corporation under which, for example, some of the facilities
would be used in a new emissions-testing program developed in
accordance with the May 1995 legislation. However, the emissions-
testing program announced on November 10, 1995 by the governor, and
more recently by State officials, does not include significant use of
the facilities. Accordingly, satisfaction of the Lease Obligations
through significant use of the facilities in a new program is
unlikely.
If the Lenders, upon expiration of the forbearance agreement,
exercise acceleration rights or the Corporation determines it is
probable they will do so, then the remaining Lease Obligations will
be treated as a liability of the Corporation until they are
discharged. However, in such event, the Corporation believes there
are ways by which it will have the opportunity to recover funds it
has delivered or may deliver in the future under the Guaranty.
Described previously are mechanisms by which the Tejas Companies may
receive funds to enable them to discharge the Lease Obligations,
which would benefit the Corporation to the extent it has satisfied
the Lease Obligations. In addition, if the Corporation must satisfy
the Lease Obligations and the TNRCC does not reimburse costs or
otherwise honor its contractual obligations, then the Lender's
interests in the testing facilities and equipment ultimately accrue
to the Corporation.
Based upon discussions with Texas officials and management's belief
that the State of Texas will take sufficient action favorable to the
Corporation, by appropriating funds to enable the TNRCC to fulfill
its contractual obligations or otherwise, to enable the State of
Texas to honor in all material respects the TNRCC's contractual
obligations, it is management's opinion that the Guaranty is not
likely to have a material adverse effect on the Corporation's
financial condition or results of operations.
-------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview: Net earnings for the first quarter of 1996 increased 12.1% over
the year ago quarter on a net sales increase of 11.4%. Earnings per share
for the first quarter of 1996 increased 17.7% over the same period last
year. The first quarter results benefited from sales contributed by
acquisitions, sales of equipment sold in connection with the start-up of a
government mandated emissions-testing program in the United Kingdom, and
from the Corporation's ongoing cost control programs.
Sales: Net sales for the first quarter of 1996 were $344.4 million, an
increase of 11.4% over first quarter 1995 sales of $309.1 million.
Contributing to the increase were the results of acquisitions and sales of
equipment sold in connection with the start-up of an emissions-testing
program in the United Kingdom. The Corporation's dealer van channel and
national account business also contributed to the sales increase.
North American sales for the first quarter of 1996 were $259.1 million, an
increase of 4.9% over first quarter 1995 sales of $246.9 million.
Contributing to the increase were the 1995 acquisitions of Consolidated
Devices, Inc. and Edge Diagnostic Systems. In addition, the Corporation
reported increased sales in the dealer van channel and national account
business.
European sales for the first quarter of 1996 were $66.9 million, an
increase of 54.4% over first quarter 1995 sales of $43.3 million. The
sales increase resulted primarily from the 1995 acquisition of
Herramientas Eurotools, S.A. and from equipment sold in connection with
the start-up of a government mandated emissions-testing program in the
United Kingdom.
Other International sales for the first quarter of 1996 were $18.4
million, a decrease of 2.6% from first quarter 1995 sales of $18.9
million. Japan's sales were impacted by a soft economic environment and
the relative strength of the U.S. dollar versus the yen. Sales in
Australia continued to be strong. Expansion into new Asian markets
contributed modestly to sales.
Earnings: Earnings for the first quarter of 1996 were $29.7 million, an
increase of 12.1% over first quarter 1995 earnings of $26.5 million.
First quarter earnings per share increased to $.73, a 17.7% increase over
first quarter 1995 earnings per share of $.62. The larger percentage
increase in earnings per share versus net income was due to the reduction
in the number of shares outstanding resulting from the completion of a
$100 million share repurchase program in the second quarter of 1995.
Gross margins: First quarter 1996 gross margins decreased as a result of
a shift in product mix.
Operating expenses: As a percentage of net sales, first quarter total
operating expenses decreased to 40.6% in 1996 from 42.8% in 1995. This
improvement resulted from increased sales and from the Corporation's
ongoing cost control programs.
FINANCIAL CONDITION
Liquidity: Cash and cash equivalents increased to $23.5 million at the
end of the first quarter from $16.2 million at the end of 1995. Working
capital was $601.4 million at the end of the first quarter versus $610.6
million at the end of 1995. The decrease was due primarily to more
aggressive working capital management practices. 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 $578.1 million at
the end of the first quarter from $610.1 million at the end of 1995. The
decrease was due primarily to an additional $50.0 million securitization
of 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 1995, the
Corporation sold an additional $50.0 million of interest-bearing
receivables under these agreements on a revolving basis. The impact of
the sale on the 1996 first quarter consolidated statement of earnings was
not material. 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 and international
customers, and government.
Inventories: Inventories decreased to $245.4 million at the end of the
first quarter from $250.4 million at the end of 1995.
Liabilities: Total short-term and long-term debt was $136.0 million at
the end of the first 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 40.6
million for the first quarter of 1996 compared with 42.4 million in last
year's comparable quarter. The decrease was due to the completion of the
Corporation's $100 million share repurchase program in the second quarter
of 1995.
Other matters: Refer to Note 5 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 guarantee.
PART II. OTHER INFORMATION
Item 4: Submission of matters to a vote of security holders
The Corporation held its Annual Meeting of Shareholders on April 26, 1996.
The following is a summary of the matters voted on at that meeting.
There were 40,612,563 outstanding shares eligible to vote.
a) The shareholders elected three members of the Corporation's Board of
Directors to serve until the 1999 Annual Meeting. The persons
elected to the Corporation's Board of Directors, the number of shares
cast for, and the number of shares withheld, with respect to each of
these persons were as follows:
Director For Withheld
Donald W. Brinckman 35,208,046 80,490
George W. Mead 35,208,693 79,843
Jay H. Schnabel 35,206,545 81,991
b) Shareholders approved a proposal to amend and restate the 1986
Incentive Stock Program.
For Against Abstained
30,376,047 2,781,258 214,948
Item 6: Exhibits and reports on Form 8-K
Item 6(a): Exhibits
Exhibit 27 - Financial Data Schedule
Item 6(b): Reports on Form 8-K
No reports on Form 8-K for the three months ended March 30, 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: May 14, 1996 /s/ R. A. Cornog
R. A. CORNOG
(Chairman, President and Chief Executive Officer)
Date: May 14, 1996 /s/ G. D. Johnson
G. D. JOHNSON
(Principal Accounting Officer and Controller)
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
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 MARCH 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> MAR-30-1996
<CASH> 23,549
<SECURITIES> 0
<RECEIVABLES> 592,539
<ALLOWANCES> 14,396
<INVENTORY> 245,422
<CURRENT-ASSETS> 927,022
<PP&E> 477,704
<DEPRECIATION> 253,341
<TOTAL-ASSETS> 1,343,104
<CURRENT-LIABILITIES> 325,591
<BONDS> 109,895
0
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<COMMON> 43,693
<OTHER-SE> 727,027
<TOTAL-LIABILITY-AND-EQUITY> 1,343,104
<SALES> 344,364
<TOTAL-REVENUES> 344,364
<CGS> 170,535
<TOTAL-COSTS> 170,535
<OTHER-EXPENSES> 139,699
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,942
<INCOME-PRETAX> 47,064
<INCOME-TAX> 17,414
<INCOME-CONTINUING> 29,650
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<EPS-PRIMARY> .73
<EPS-DILUTED> .73
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