SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
_______________________
Date of Report
(Date of earliest
event reported): March 17, 1998
Snap-on Incorporated
(Exact name of registrant as specified in its charter)
Delaware 1-7724 39-0622040
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
incorporation)
10801 Corporate Drive, Kenosha, Wisconsin 53141-1430
(Address of principal executive offices, including zip code)
(414) 656-5200
(Registrant's telephone number)
<PAGE>
Item 5. Other Events.
Snap-on Incorporated, a Delaware corporation (the "Company"), is
filing as Exhibit 99 to this Current Report on Form 8-K those portions of
its fiscal 1997 Annual Report to Shareholders that the Company will
incorporate by reference into and file as Exhibit 13 to the Company's
Annual Report on Form 10-K for the fiscal year ended January 3, 1998. The
Company is doing so for the purpose of having certain precautionary
statements intended to qualify for the safe harbor from litigation
provided by the Private Securities Litigation Reform Act of 1995, which
are contained in the filed materials, on file with the Securities and
Exchange Commission.
The relevant portions of the Company's 1997 Annual Report to
Shareholders are attached hereto as Exhibit 99 and are incorporated herein
by reference.
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
Exhibit
No. Description
23 Consent of Arthur Andersen LLP
99 Portions of the Snap-on Incorporated 1997 Annual Report
to Shareholders
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
SNAP-ON INCORPORATED
Date: March 17, 1998 By: /s/ Neil T. Smith
Neil T. Smith
Controller
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
23 Consent of Arthur Andersen LLP
99 Portions of the Snap-on Incorporated 1997 Annual Report
to Shareholders
Exhibit 23
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 8-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,
33-55607, 33-58939, 33-58943, 333-14769, 333-21277, 333-21285 and 333-
41359.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 17, 1998
Exhibit 99
Snap-on Incorporated
1997 Annual Report
Financial Review
Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations
Overview: Net sales in 1997 increased 12.6%. Contributing to the growth
were acquisitions, higher unit volume, a shift in product mix in North
America to equipment (which is typically a higher price point category
than tools), and modest price increases. The translation of
foreign-currency-denominated results into U.S. dollars negatively affected
sales by two percentage points. Excluding the results of acquisitions
completed in 1997, sales rose 7%. All three geographic segments reported
higher sales in 1997. In 1996, net sales rose 14.9%, with increases
recorded in North America and Europe, and lower sales posted in the Other
segment. Sales excluding acquisitions grew 5% in 1996.
Net earnings increased 14.4% in 1997 and 16.0% in 1996. In both years, the
increase was the result of higher sales and continued improvement in
operating expenses as a percent of sales. Earnings per share - basic
increased 14.4% in 1997 and 17.4% in 1996. Earnings per share - diluted
rose 14.6% in 1997 and 16.4% in 1996. In 1996, earnings per share grew at
a higher rate than net earnings because of share repurchase programs that
reduced the number of common shares outstanding.
Operating profit before net finance income rose 23.9% in 1997 to $193.6
million, compared with a 24.5% increase in 1996. Since 1992, profits from
these manufacturing, marketing and distribution operations have increased
at a 30.1% compounded average growth rate. Net finance income rose 11.9%
in 1997 to $71.9 million, compared with growth of 1.7% in 1996. A further
discussion of the Corporation's financing activities begins at the end of
this page.
(Amounts in thousands)
except per share data)
1997 1996 1995
Sales $1,672,215 $1,485,279 $1,292,125
Net earnings 150,366 131,451 113,330
Earnings per common share - basic $ 2.47 $ 2.16 $ 1.84
Earnings per common share - diluted $ 2.44 $ 2.13 $ 1.83
The 1997 year contained 53 weeks; 1996 and 1995 were 52-week years.
Sales: In 1997, net sales in North America rose 15.8%; 1996's sales
increased 10.5%. Continued strength in the dealer organization; several
large emissions programs; the introduction of over 265 new products
including tool storage units, power tools, air conditioning service
equipment, software, and new wheel alignment technology; growth in the
Equipment Solutions equipment facilitation and distribution business;
acquisitions; and price increases all contributed to the 1997 growth. In
1996, increased sales were the result of higher sales to the dealer
channel and national accounts, acquisitions, new product introductions,
price increases and a moderately strong U.S. economy. Acquisitions
contributing to 1997's higher sales were Mitchell Repair Information
Company LLC ("MRIC"), Computer Aided Services, Inc. ("CAS"), and Nu-Tech
Industries, Inc., more commonly referred to as Brewco Collision Repair
Systems ("Brewco"). The acquisition of the business operations of the John
Bean Company ("John Bean") added to the sales growth in 1997 and 1996.
Base business sales in 1997 were 10% higher, after a gain of 5% in 1996.
Net sales in Europe advanced 2.1% for the 1997 year, following an increase
of 46.7% in 1996. The translation of European currencies into U.S. dollars
and a sluggish economy in many of the countries in the segment slowed the
growth rate in 1997, while the acquisitions of Service Equipment France,
S.A. and JPL Services, S.A. ("SEF/JPL") and Texo S.r.l. ("Texo") in 1997,
and the 1996 acquisition of John Bean, contributed to net sales. Excluding
the translation effects of foreign currency, 1997 sales rose 9%, with
acquisitions accounting for almost six percentage points of the gain.
Sales of both tools and equipment increased in 1997. The 1996 year
benefited from contributions from the 1995 acquisition of Herramientas
Eurotools, S.A. of Spain ("Eurotools") and the 1996 acquisition of John
Bean, higher sales through the dealer channel, and equipment sales related
to the start-up of an emissions-testing program in the United Kingdom. The
translation of foreign currencies into U.S. dollars negatively affected
sales by three percentage points. Excluding acquisitions, sales increased
8% in 1996.
Net sales in the Other segment increased 2.5% in 1997 after a decline of
1.1% in 1996. The 1997 sales advanced despite difficulties presented by
many of the economies in the Asia/Pacific region. Excluding the effects of
foreign currency translation, sales were 11% higher, with the 1996
acquisition of Snap-on Tools/PST Africa (Pty.), Ltd. contributing one
percentage point to the increase. Both tool and equipment sales in the
segment rose for the year. In 1996, growth in tool and equipment sales in
Australia was more than offset by a decline in sales in Japan. The
strength of the U.S. dollar against the Japanese yen was primarily
responsible for the 1996 decrease. In local currency, 1996 sales increased
5%.
(Amounts in thousands) 1997 1996 1995
North America sales $1,317,440 $1,138,016 $1,029,516
Europe sales 274,353 268,818 183,301
Other sales 80,422 78,445 79,308
Total sales $1,672,215 $1,485,279 $1,292,125
The Corporation manufactures, markets and distributes tools, equipment and
related services for automotive and industrial service customers around
the world using multiple brands sold through multiple channels of
distribution. In some instances, it finances the purchase of those
products.
The Corporation uses its financing programs to facilitate sales. Net
finance income (defined as income from the Corporation's financing
programs net of administrative costs) was $71.9 million in 1997, compared
with $64.3 million in 1996 and $63.2 million in 1995. The rise in net
finance income in 1997 and 1996 was the result of increases in extended
credit receivables and benefits from programs to control related costs. In
1996, an increase in lease receivables also contributed to the rise. The
growth was offset in part by the asset securitization program discussed in
the next paragraph.
The Corporation seeks to reduce the asset intensity of its balance sheet
that is the result of its financing activities. During 1997, the
Corporation sold $25 million in each of the first three quarters, and $50
million in the fourth quarter, of its extended credit receivables, with
the proceeds used to pay down short-term debt and for working capital and
general corporate purposes. The effect of the asset securitizations is a
decline in net finance income offset by an equivalent decline in interest
expense. In 1996, the Corporation sold $75 million of extended credit
receivables, and has sold a total of $300 million of such receivables
since the program's inception in October of 1995. In the fourth quarter of
1997, the Corporation also sold $74 million of net lease receivables. The
effect of this sale on future results is discussed in the "Outlook"
section of this Discussion. The sale of all of these extended credit and
lease receivables in the aggregate has improved the Corporation's
after-tax return on net assets by 330 basis points over the last two
years.
Sales per employee, a common measure of productivity, increased 4.9% in
1997 over 1996. Since 1992, sales per employee has grown an average of
6.3% per year.
During the year, the Corporation increased prices by varying degrees in
many of its product groups. List price increases averaged 2.9% in both
1997 and 1996. Promotional activities reduced the revenue realization of
these price increases to approximately 1%.
Operating Profit Before
Net Finance Income Sales per Employee
(in $ millions) in $ thousands
(CHART) (CHART)
93 86 93 125
94 98 94 129
95 125 95 137
96 156 96 142
97 194 97 149
Cost and profit margins: The gross profit margin was 50.5% in both 1997
and 1996, compared with 51.3% in 1995. The decline in 1996's gross margin
was due to a change in business mix resulting from several acquisitions.
Total operating expenses as a percent of net sales continued to decline.
The 1997 percentage was 38.9% compared with 40.0% in 1996 and 41.6% in
1995. Continued improvement in processes and in productivity and a change
in business mix contributed to the declines in both years. Total operating
expenses were $55.7 million higher in 1997, compared with increases of
$56.5 million in 1996 and $27.7 million in 1995. All years' increases were
primarily due to acquisitions.
The operating income margin improved to 15.9% in 1997 from 14.8% in 1996
and 14.6% in 1995. The 1997 increase was the result of a reduction in
operating expenses as a percent of sales. In 1996, lower operating
expenses as a percent of sales more than offset the lower gross margin.
Research & Development Operating Expenses as a
in $ millions Percent of Net Sales
(CHART) (CHART)
93 28 93 45.0
94 31 94 42.7
95 34 95 41.6
96 42 96 40.0
97 47 97 38.9
Margin Analysis Net Sales Gross Operating
(CHART) (in $ Profit Income
millions) Margin Margin
93 1,132 532.6% 13.0%
94 1,194 51.0% 13.3%
95 1,292 51.3% 14.6%
96 1,485 50.5% 14.8%
97 1,672 50.5% 15.9%
In 1997, the Corporation adopted Statement of Financial Accounting
Standards (SFAS) No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," and SFAS No. 128,
"Earnings per Share." The adoption of these standards did not have a
material impact on the consolidated financial statements.
Other income and expenses: Interest expense recorded in 1997 was $17.7
million, compared with $12.6 million in 1996 and $13.3 million in 1995.
The 1997 increase was due to higher average levels of debt outstanding.
The decrease in 1996 was primarily due to the effects of the asset
securitization program. The increase in Other Expense in 1997 was
primarily because of the deduction of minority interest income in
connection with the Corporation's 50% ownership of MRIC, and an increase
in the loss from foreign currency transactions.
Foreign currency: The Corporation operates in a number of countries and,
as a result, is exposed to changes in exchange rates. Most of these
exposures are managed on a consolidated basis to take advantage of natural
offsets through netting. To the extent that the net exposures are hedged,
forward contracts are used. Refer to Note 7 for a discussion of the
Corporation's accounting policies for the use of derivative instruments.
(Amounts in thousands) 1997 1996 1995
Interest expense $(17,654) $(12,649) $(13,327)
Interest income 1,163 2,134 3,222
Other income (expense) (10,370) (1,358) 1,350
Total other expense $(26,861) $(11,873) $ (8,755)
Income taxes: The Corporation's effective tax rate was 37.0% in 1997, 1996
and 1995. For additional information about the Corporation's tax position
and activities, see Note 6.
Other matters: During 1997, the Corporation acquired full or partial
ownership of six new business operations for an aggregate purchase price
of $62.9 million. These operations are a 50% interest in The Thomson
Corporation's Mitchell Repair Information business, a 70% interest in
Texo, and 100% interest in SEF/JPL, CAS, Brewco and the Hofmann
Werkstatt-Technik GmbH ("Hofmann") business operations.
MRIC is a major provider of print and electronic versions of vehicle
mechanical and electrical system repair information to repair and service
establishments throughout North America. The acquisition enables the
Corporation to offer a complete package of integrated information and
business services to vehicle repair centers around the world. The
integration of the vehicle repair database into the Corporation's
diagnostics equipment is also an important benefit of the relationship.
Snap-on will purchase the remainder of MRIC within the next four years.
SEF, which was merged with Snap-on Equipment France, is a distributor of
automotive service and repair equipment in France. Its subsidiary, JPL, is
a French provider of service and repair for equipment products.
CAS is a developer of repair shop management systems, point-of- sale
systems and diagnostics equipment sold in the United States.
Texo is an Italian manufacturer of lifts for motor vehicles including
automobiles, heavy-duty trucks and motorcycles. It sells its products
primarily in Europe, with a growing presence in other regions of the
world.
Brewco is a U.S. manufacturer and marketer of frame-straightening and
other collision repair equipment with leading technology, providing the
Corporation with an entry into this large, important industry.
Hofmann is a German-based leading producer of under-car equipment
including wheel balancers, lifts, tire changers and aligners. Hofmann's
product line has minimal overlap with Snap-on's current product and
geographic footprint. Its products are sold in Europe, North America and
the Asia/Pacific region.
Subsequent to the end of 1997, there was a settlement of litigation
related to the 1995 termination of an emissions-testing program and
related contracts in the State of Texas. As a result, the obligation under
a guaranty previously recorded by the Corporation in Other Long-term
Liabilities has been satisfied. The Corporation also will be receiving
payments toward the remaining receivables previously recorded, which
reflect amounts expected to be received under an indemnity. Refer to Note
12 for an expanded discussion of this subject.
The Corporation is conducting a comprehensive review of its products,
computer systems and software to identify those that may require
modification so that they will function properly in the Year 2000. This
review is being conducted through a committee, which has the
responsibility to identify, evaluate and implement necessary changes to
achieve a Year 2000 date conversion with no disruption to business
operations. The committee has communicated with suppliers, dealers,
financial institutions and others with whom the Corporation does business,
to coordinate the Year 2000 conversion. Conversion efforts are under way,
and for a significant portion of the Corporation's internal systems this
conversion is an incidental consequence of the ongoing implementation of a
new enterprise-wide client/server computing system in North America.
However, some internal testing and conversion is required at other
geographic locations. Based upon its review and analysis to date, the
Corporation believes that the Year 2000 conversion will not have a
material effect on the Corporation's financial position or results of
operations.
Stock repurchase program: At its June 1997 meeting, the board of directors
authorized the repurchase of up to $100 million of the Corporation's
common stock. At the end of 1997, substantially all of the authorization
remained available. In addition, an authorization by the board of
directors is currently in effect to repurchase common shares of the
Corporation in an amount equivalent to the number of shares issued in
connection with the exercise of options, employee and dealer stock
purchase programs, and other similar issuances. The intent of this
authorization is to prevent dilution of shareholders' interests. In 1997,
986,333 shares of the Corporation's common stock were repurchased,
following the buyback of 615,750 shares in 1996.
Financial Condition
Overview: The Corporation continued its commitment to a strong financial
position and solid capital structure in 1997. At the end of 1997, the
ratio of total debt to total capital declined to 16.4% from 17.3% as of
year-end 1996, reflecting strong cash flow from the sale of extended
credit and lease receivables that enabled the Corporation to invest in its
businesses and satisfy its obligations without increasing its total debt.
Return on Net Assets
Employed Before
Interest and Taxes Total Debt to Total Capital
in percent in percent
(CHART) (CHART)
93 18.6 93 19.3
94 18.7 94 13.5
95 21.1 95 18.5
96 24.4 96 17.3
97 25.1 97 16.4
Liquidity: In 1997, the Corporation's working capital decreased by $6.8
million following an increase of $65.3 million in 1996. The sale of
extended credit and lease receivables during 1997 more than offset the
negative effects of several other components of working capital, primarily
inventories. Acquisitions accounted for most of the increase in 1996. The
ratio of current assets to current liabilities was 2.9 to 1 at the end of
1997, compared with 3.0 to 1 at the end of 1996. Cash and cash equivalents
were $25.7 million at the end of 1997, an increase of $10.3 million from
year-end 1996's $15.4 million.
Accounts receivable decreased $112.1 million to $539.6 million. The
decline in accounts receivable was the result of the extended credit
receivables securitization program discussed previously and in Note 4.
Exclusive of the asset securitization effected in 1997, receivables
increased by $86.9 million, reflecting acquisitions and continued strong
growth in extended credit installment contracts and lease originations
generated by the Corporation. At the end of 1997, these financing
instruments represented approximately one-third of the Corporation's
accounts receivable. The majority of accounts receivable at the end of
1997 included those from dealers, industrial customers and governments.
The percentage of total write-offs for bad debts represented 2.0% of
average accounts receivable in 1997, an increase from 1.5% in 1996,
reflecting a more difficult environment for credit collections. The
Corporation's ratio, however, remains significantly below that of the
credit industry.
Inventories increased by $103.4 million to $373.2 million, primarily
because of acquisitions, the need to build the majority of
emissions-testing equipment well in advance of its sale, and
higher-than-planned inventory of product purchased from outside sources.
Excluding acquisitions, inventories were $78.7 million higher at the end
of 1997 than the $269.8 million reported at the close of 1996.
(Amounts in thousands) 1997 1996
Current assets $1,021,709 $1,017,324
Current liabilities 352,530 341,371
Working capital $ 669,179 $ 675,953
Current ratio 2.9 to 1 3.0 to 1
Short-term debt at the end of 1997 was $24.0 million, a slight increase
over the $23.3 million at the 1996 year-end. Current maturities of
long-term debt at the end of 1997 and 1996 were $0.4 million and $0.3
million, respectively. In addition, at year-end 1997, the Corporation had
$51.0 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. The Corporation has on file a $300
million shelf registration that allows the Corporation to issue from time
to time up to $300 million of unsecured indebtedness. Of this amount, $100
million aggregate principal amount of its notes has been issued to the
public.
These sources of borrowing, coupled with cash from operations, are
sufficient to support working capital requirements, finance capital
expenditures, make acquisitions, repurchase common stock and pay
dividends. The Corporation's high credit rating over the years has ensured
that external funds are available at a reasonable cost. At the end of
1997, the Corporation's long-term debt was rated Aa3 and AA by Moody's
Investor Service and Standard & Poor's, respectively. The strength of the
Corporation's balance sheet provides the financial flexibility to respond
to both internal growth opportunities and those existing through
acquisition.
Cash Flow* Capital Expenditures
in $ millions in $ millions
(CHART) (CHART)
93 118 93 33
94 128 94 42
95 145 95 32
96 163 96 52
97 189 97 55
*Net income plus depreciation and amortization
Capital expenditures/Depreciation and amortization: Capital expenditures
for 1997 totaled $55.4 million, an increase of $3.1 million over 1996.
Investments for the year included the upgrade and integration of the
Corporation's computer systems, and the normal addition, replacement and
upgrade of manufacturing and distribution facilities and equipment. The
Corporation anticipates that capital expenditures in 1998 will total $45
million to $50 million.
Depreciation for 1997 was $29.7 million, up $3.1 million from 1996. The
growth was driven by increased capital spending in 1996 and by
acquisitions. Amortization expense in 1997 was $8.7 million, an increase
of $3.5 million from 1996. Acquisitions accounted for the higher expense.
(Amounts in thousands) 1997 1996
Capital expenditures $55,442 $52,333
Depreciation 29,724 26,644
Amortization 8,653 5,235
Dividends: At its June 1997 meeting, the board of directors declared a
5.0% increase in the quarterly dividend on the Corporation's common stock,
raising the annual dividend rate to $.84 per share. The Corporation has
paid consecutive quarterly dividends since 1939.
1997 1996
Cash dividends paid (in thousands) $49,888 $46,323
Cash dividends per common share $ .82 $ .76
Cash dividends as a % of net income 33.2% 35.2%
Outlook: Subsequent to the end of 1997, the Corporation announced that it
expects increased operating results and strong sales growth in 1998,
despite the presently anticipated negative effect of foreign currency.
First quarter 1998 earnings per share, however, could be approximately
even with the year-ago period.
The primary factors affecting the first quarter include a temporary change
in the Corporation's business mix due to its leading participation in
several large state emissions programs that are expected to be completed
early in 1998. Emissions equipment carries lower margins than the
corporate average but provides an important installed base on which future
revenues can be generated through software updates, add-on sales and
equipment service. Also, the fourth quarter 1997 acquisition of Hofmann is
expected to be dilutive in the first quarter. Finally, the Corporation's
fourth quarter 1997 sale of a majority of its lease portfolio will have a
short-term negative impact on earnings, particularly in the first quarter.
This transaction did, however, contribute to the 330-basis-point
improvement over the last two years in the Corporation's after-tax return
on net assets.
The Corporation's present exposure to economic uncertainty in the
Asia/Pacific region is not material to its consolidated results or
financial position.
"Safe Harbor": "Forward-looking statements" in this document are
statements that are not historical facts, including statements that
include the words "believes," "expects," "anticipates," "estimates" or
words with similar meanings with reference to the Corporation or
management; specifically identified as forward-looking; or describing the
Corporation's or management's future plans, objectives or goals. The
Corporation or its representatives may also make similar forward-looking
statements from time to time orally or in writing. The Corporation
cautions the reader that these statements are subject to risks,
uncertainties and other factors that could cause (and in some cases have
caused) actual results to differ materially from those described in any
such statement. Some of those factors are discussed below, as well as
elsewhere in this document, and in the Corporation's Securities and
Exchange Commission filings. The Corporation operates in a continually
changing business environment, and new factors emerge from time to time.
The Corporation cannot predict such factors, nor can it assess the impact,
if any, of such factors on the Corporation or its results. Accordingly,
forward-looking statements should not be relied upon as a prediction of
actual results. The failure of the Corporation to be successful in
addressing these factors could cause actual results to differ from those
discussed in any forward-looking statement.
The Corporation's ability to meet its performance objectives and to
achieve results that may be described in any forward-looking statement is
dependent upon both macro-environmental factors and factors related
specifically to the Corporation or the industries in which it
participates. These include, but are not limited to, the following:
The Corporation's ability to withstand external negative factors including
changes in trade, monetary and fiscal policies, laws and regulations, or
other activities of governments or their agencies; significant changes in
the current competitive environment; inflation; or currency exchange
fluctuations;
The degree of the Corporation's success in executing its multiple
brands/multiple channels strategy on a global basis and in integrating its
acquisitions;
The maintenance of the positive relationship between the Corporation and
its franchisees that currently exists;
The Corporation's achievement of a high level of productivity
improvements, which could be attained through activities that would
include cost savings programs, changes in the composition of the work
force, and realization of synergies related to both its base business and
acquisitions;
The continuation of good relations with the Corporation's employees;
The implementation of government-mandated, emissions-testing programs in
those U.S. states, especially California and New York, which would provide
a return on the prior investment that was necessary in order for the
Corporation to participate in such programs; and
The Corporation's ability to manufacture, distribute and/or record the
sale of products during the implementation of a new computer system
involving the replacement of hardware and software components and the
enterprise-wide linking of all functions.
Consolidated Statements of Earnings
(Amounts in thousands except share data) 1997 1996 1995
Net sales $1,672,215 $1,485,279 $1,292,125
Cost of goods sold 828,387 734,495 628,634
---------- ---------- ----------
Gross profit 843,828 750,784 663,491
Operating expenses 650,182 594,527 538,021
---------- ---------- ----------
Operating profit before net
finance income 193,646 156,257 125,470
Net finance income 71,891 64,269 63,174
---------- ---------- ----------
Operating income 265,537 220,526 188,644
Interest expense (17,654) (12,649) (13,327)
Other income (expense) - net (9,207) 776 4,572
---------- ---------- ----------
Earnings before income taxes 238,676 208,653 179,889
Income taxes 88,310 77,202 66,559
---------- ---------- ----------
Net earnings $ 150,366 $ 131,451 $ 113,330
========== ========== ==========
Earnings per weighted average
common share - basic $ 2.47 $ 2.16 $ 1.84
Earnings per weighted average
common share - diluted $ 2.44 $ 2.13 $ 1.83
---------- ---------- ----------
Weighted average common shares
outstanding - basic 60,845,467 60,967,865 61,510,500
Common stock equivalents 840,841 624,947 394,473
---------- ---------- ----------
Weighted average common shares
outstanding - diluted 61,686,308 61,592,812 61,904,973
---------- ---------- ----------
The accompanying notes are an integral part of these statements.
<PAGE>
Consolidated Balance Sheets
(Amounts in thousands except share data) Jan. 3, 1998 Dec. 28, 1996
Assets
Current assets
Cash and cash equivalents $ 25,679 $ 15,350
Accounts receivable, less allowance
for doubtful accounts of $20.6 million
in 1997 and $16.9 million in 1996 539,589 651,739
Inventories 373,155 269,750
Prepaid expenses and other assets 83,286 80,485
---------- ----------
Total current assets 1,021,709 1,017,324
Property and equipment - net 265,765 245,294
Deferred income tax benefits 55,699 55,413
Intangible and other assets 298,184 202,757
---------- ----------
Total assets $1,641,357 $1,520,788
========== ==========
Liabilities and shareholders' equity
Current liabilities
Accounts payable $ 91,553 $ 89,310
Notes payable and current maturities
of long-term debt 23,951 23,274
Accrued compensation 43,712 36,467
Dealer deposits 43,848 51,036
Accrued income taxes 14,831 11,366
Deferred subscription revenue 29,265 -
Other accrued liabilities 105,370 129,918
---------- ----------
Total current liabilities 352,530 341,371
Long-term debt 151,016 149,804
Deferred income taxes 11,824 7,027
Retiree health care benefits 86,936 84,593
Pension and other long-term liabilities 146,914 109,832
---------- ----------
Total liabilities 749,220 692,627
Shareholders' equity
Preferred stock - authorized 15,000,000
shares of $1 par value; none outstanding - -
Common stock - authorized 250,000,000
shares of $1 par value; issued 66,472,127
and 65,971,917 shares 66,472 65,972
Additional paid-in capital 82,758 66,506
Retained earnings 938,963 838,484
Foreign currency translation adjustment (30,385) (13,930)
Treasury stock at cost - 5,956,313 and
5,186,550 shares (165,671) (128,871)
---------- ----------
Total shareholders' equity 892,137 828,161
---------- ----------
Total liabilities and shareholders'
equity $1,641,357 $1,520,788
========== ==========
The accompanying notes are an integral part of these statements.
<PAGE>
Consolidated Statements of Shareholders' Equity
(Amounts in thousands except share data) 1997 1996 1995
Common stock
Amount at beginning of year $ 65,972 $ 43,571 $ 43,128
Shares issued under stock
purchase and option plans 480 410 425
Three-for-two stock split - 21,971 -
Dividend reinvestment plan 20 20 18
-------- ------- -------
Amount at end of year 66,472 65,972 43,571
Additional paid-in capital
Amount at beginning of year 66,506 74,250 61,827
Additions from stock purchase
and option plans 10,940 12,436 11,778
Tax benefit from certain stock
options and other items 2,128 1,031 -
Treasury reissuances 2,380 - -
Three-for-two stock split - (21,971) -
Dividend reinvestment plan 804 760 645
-------- ------- -------
Amount at end of year 82,758 66,506 74,250
Retained earnings
Amount at beginning of year 838,484 753,356 684,139
Net earnings for the year 150,366 131,451 113,330
Dividends per share paid in
cash - $.82 in 1997, $.76 in
1996 and $.72 in 1995 (49,887) (46,323) (44,113)
-------- ------- -------
Amount at end of year 938,963 838,484 753,356
Foreign currency translation adjustment
Amount at beginning of year (13,930) (10,758) (13,384)
Net currency translation
adjustment for the year (16,455) (3,172) 2,626
-------- ------- -------
Amount at end of year (30,385) (13,930) (10,758)
Treasury stock at cost
Amount at beginning of year (128,871) (109,687) (9,312)
Treasury stock reissued 5,524 - -
Treasury stock purchased (42,324) (19,184) (100,375)
-------- ------- -------
Amount at end of year (165,671) (128,871) (109,687)
-------- ------- -------
Total shareholders' equity $892,137 $828,161 $750,732
======== ======== ========
The accompanying notes are an integral part of these statements.
<PAGE>
Consolidated Statements of Cash Flows
(Amounts in thousands) 1997 1996 1995
Operating activities
Net earnings $150,366 $131,451 $113,330
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation 29,724 26,644 25,503
Amortization of intangibles 8,653 5,235 6,031
Deferred income tax provision 11,814 8,398 (10,098)
(Gain) loss on sale of assets 114 (876) (236)
Changes in operating assets and
liabilities, net of effects of
acquisitions:
(Increase) decrease in receivables 133,171 (29,591) (18,267)
(Increase) in inventories (87,502) (10,543) (121)
(Increase) decrease in
prepaid expenses (770) 3,361 (3,989)
(Increase) decrease in other
noncurrent assets (19,129) 6,679 (7,627)
Increase (decrease) in accounts
payable (16,562) 12,069 10,786
Increase (decrease) in accruals,
deposits and other long-term
liabilities (14,985) (16,427) 49,961
-------- -------- --------
Net cash provided by operating activities 194,894 136,400 165,273
Investing activities
Capital expenditures (55,442) (52,333) (31,581)
Acquisitions of businesses (62,947) (38,553) (37,965)
Disposal of property and equipment 2,159 3,317 5,961
-------- -------- --------
Net cash used in investing activities (116,230) (87,569) (63,585)
Financing activities
Payment of long-term debt (7,802) (9,902) (150)
Increase in long-term debt - 3,205 100,013
Increase (decrease) in short-term
borrowings - net 10,579 7,888 (62,391)
Purchase of treasury stock - net (36,800) (19,184) (100,375)
Proceeds from stock purchase and
option plans 16,752 14,656 12,866
Cash dividends paid (49,888) (46,323) (44,113)
-------- -------- --------
Net cash used in financing activities (67,159) (49,660) (94,150)
Effect of exchange rate changes on cash (1,176) (32) (342)
-------- -------- --------
Increase (decrease) in cash and
cash equivalents 10,329 (861) 7,196
Cash and cash equivalents at
beginning of year 15,350 16,211 9,015
-------- -------- --------
Cash and cash equivalents at
end of year $ 25,679 $ 15,350 $ 16,211
========= ========= =========
The accompanying notes are an integral part of these statements.
<PAGE>
Notes to Consolidated Financial Statements
Note 1 - Summary of Accounting Policies
A summary of significant accounting policies applied in the preparation of
the accompanying consolidated financial statements follows:
a. Nature of operations: The Corporation is a leading global developer,
manufacturer and distributor of hand tools, power tools, tool storage
products, shop equipment, under-hood diagnostics equipment, under-car
equipment, emissions and safety equipment, collision repair equipment,
vehicle service information, and business management systems and services.
The Corporation's customers include professional automotive technicians,
shop owners, franchised service centers, national accounts, original
equipment manufacturers, and industrial tool and equipment users
worldwide.
b. Use of estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
c. Principles of consolidation: The consolidated financial statements
include the accounts of the Corporation and its subsidiaries, all of which
are wholly owned with the exception of Mitchell Repair Information Company
("MRIC"), Edge Diagnostic Systems, Texo S.r.l., and Snap-on Tools/PST
Africa (Pty) Ltd. Significant intercompany accounts and transactions have
been eliminated.
d. Accounting period: The Corporation's accounting period ends on the
Saturday nearest December 31. The 1997, 1996 and 1995 years ended on
January 3, 1998, December 28, 1996 and December 30, 1995. The 1997 year
contained 53 weeks; 1996 and 1995 were 52-week years.
e. 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.
f. Inventories: Inventories, consisting of manufactured products and
merchandise for resale, are stated at the lower of cost or market.
Inventories accounted for using the last-in, first-out (LIFO) method
approximated 65% and 73% of total inventory as of year-end 1997 and 1996.
Remaining inventories are generally determined using the first-in,
first-out (FIFO) cost method. For detailed inventory information, refer to
Note 2.
g. Property and equipment: Property and equipment is stated at cost less
accumulated depreciation and amortization. Depreciation and amortization
are provided on a straight-line basis over estimated useful lives.
Accelerated depreciation methods are used for income tax purposes.
Capitalized software included in property and equipment reflects costs
related to internally developed or purchased software for internal use
that are capitalized and amortized on a straight-line basis over periods
not exceeding seven years. For detailed property and equipment
information, refer to Note 3.
h. Intangibles: During 1997, the Corporation made six acquisitions with an
aggregate purchase price of $62.9 million. During 1996, the Corporation
made three acquisitions with an aggregate purchase price of $38.6 million.
Pro forma results of operations are not presented, as the effect of these
acquisitions is not material. Goodwill arising from business acquisitions
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. Should an impairment be identified, the loss would
be measured as the difference between the current fair value of the asset
and the carrying value.
In the first quarter of 1997, the Corporation acquired a 50% interest in
The Thomson Corporation's Mitchell Repair Information business at a
purchase price of $40.2 million. The Corporation is obligated to purchase
the remainder of this business within the next four years.
Goodwill, net of accumulated amortization, was $121.3 million and $80.8
million at the end of 1997 and 1996. Goodwill amortization was $6.9
million, $4.8 million and $3.9 million for 1997, 1996 and 1995.
Accumulated amortization of goodwill was $25.0 million and $18.1 million
at the end of 1997 and 1996.
i. Research and engineering: Research and engineering costs are charged to
expense in the year incurred. For 1997, 1996
and 1995, these costs were $46.5 million, $42.4 million and $33.9 million.
j. Income taxes: Deferred income taxes are provided for temporary
differences arising from differences in the bases of assets and
liabilities for tax and financial reporting purposes. Deferred income
taxes are recorded on temporary differences at the tax rate expected to be
in effect when the temporary differences reverse. For detailed tax
information, refer to Note 6.
k. Foreign currency translation: The financial statements of the
Corporation's foreign subsidiaries are translated into U.S. dollars in
accordance with Statement of Financial Accounting Standards (SFAS) No. 52,
"Foreign Currency Translation." Net assets of certain 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.
l. Revenue recognition: The Corporation recognizes revenues at the time
that products are shipped or the time that services are performed.
Franchise fee revenue is recognized as the fees are earned. Revenue from
franchise fees was not material in any year. Subscription revenue is
recognized over the life of the subscription. The total amount of
subscription revenue was not material in any year.
m. Net finance income: Net finance income consists of installment contract
income, dealer start-up loan receivable income and lease income, all net
of related administrative expenses.
n. Advertising and promotion expense: Production costs of future media
advertising are deferred until the advertising occurs. All other
advertising and promotion costs are generally expensed when incurred.
o. Warranty expense policy: The Corporation provides product warranties
for specific product lines and accrues for estimated future warranty costs
in the period that the sale was recorded.
p. Accounting standards: In 1997, the Corporation adopted Statement of
Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities," and
SFAS No. 128, "Earnings per Share." The adoption of these standards had no
material impact on the consolidated financial statements.
q. Reclassified prior-year amounts: Certain prior-year amounts have been
reclassified to conform with current-year presentation.
r. Per share data: In June of 1996, the board of directors approved a
three-for-two split of the Corporation's common stock, which was
distributed on September 10, 1996, to shareholders of record on August 20,
1996. All prior-year per-share and weighted average share information has
been retroactively restated.
Note 2 - Inventories
The components of the Corporation's inventory were as follows:
(Amounts in thousands) 1997 1996
Finished stock $ 366,324 $ 271,785
Work in process 42,384 42,483
Raw materials 66,008 62,057
Excess of current cost over LIFO cost (101,561) (106,575)
--------- ---------
Total inventory $ 373,155 $ 269,750
Note 3 - Property and Equipment
The Corporation's property and equipment values, which are carried at
cost, were as follows:
(Amounts in thousands) 1997 1996
Land $ 23,980 $ 24,337
Buildings and improvements 163,596 166,764
Machinery and equipment 341,875 319,138
--------- ---------
529,451 510,239
Less: accumulated depreciation (263,686) (264,945)
--------- ---------
Property and equipment - net $ 265,765 $ 245,294
The estimated service lives of property and equipment are principally as
follows:
Buildings and improvements 5 to 50 years
Machinery and equipment 3 to 15 years
Computer software 3 to 7 years
Transportation vehicles 2 to 5 years
Note 4 - Receivables
Accounts receivable include installment receivable amounts that are due
beyond one year from balance sheet dates. These amounts were approximately
$15.6 million and $47.6 million at the end of 1997 and 1996. Gross
installment receivables amounted to $174.0 million and $422.2 million at
the end of 1997 and 1996. Of these amounts, $14.6 million and $42.4
million represented unearned finance charges at the end of 1997 and 1996.
In 1997, the Corporation created CreditCorp SPC, LLC ("CreditCorp"), a
bankruptcy remote, special purpose entity, the sole purpose of which is to
sell to various financial institutions dealer loan receivables, extended
credit customer accounts receivable and equipment lease receivables. These
receivables are secured by the underlying inventory, tools or equipment
financed. CreditCorp is a separate corporate entity with its own separate
creditors that will be entitled to be satisfied out of its assets prior to
the distribution of any value to its shareholders.
CreditCorp has an agreement with a financial institution to sell, on an
ongoing basis and with full recourse to the Corporation, up to $77.0
million of secured dealer loan receivables. These receivables are created
through the financing of franchise dealer operations. During 1997 and
1996, the Corporation sold $31.5 million and $31.6 million of these
receivables to the financial institution. At the end of 1997 and 1996,
$67.4 million and $56.5 million remained outstanding.
CreditCorp has also entered into a facility that provides for the sale,
with limited recourse, of an undivided interest in a pool of secured
extended credit customer accounts receivable to a third-party financial
institution. As of January 3, 1998, $300.0 million of interest-bearing
installment receivables were sold under this facility on a revolving
basis. As of December 28, 1996, $175.0 million of receivables were sold
under this facility. The agreement for revolving purchases terminates in
October 1998.
In December 1997, CreditCorp sold, with limited recourse, $73.7 million of
equipment lease receivables to a third-party financial institution.
Generally, the recourse provisions for the above securitizations require
the Corporation to provide for the deficiency, if any, that results from
the repossession and subsequent sale of collateral in a default situation.
The Corporation maintains credit reserves, pursuant to these recourse
provisions which are based on the Corporation's best estimates of probable
losses under such provisions. The reserves were not material as of January
3, 1998, and December 28, 1996. The Corporation does not receive
collateral from any party to the securitizations, nor does the Corporation
have any risk of counterparty non-performance.
In December 1996, the Corporation made the determination to sell on an
ongoing basis equipment lease receivable originations to a third-party
financial institution. During 1997, the Corporation sold, with no
recourse, $50.9 million of these lease receivables.
All transactions are reflected as sales of accounts receivable in the
accompanying Consolidated Balance Sheets and as increases to operating
cash flows in the accompanying Consolidated Statements of Cash Flows. The
impact of these sales on the Consolidated Statements of Earnings was not
material.
Note 5 - Short-term and Long-term Debt
Notes payable to banks under bank lines of credit totaled $23.6 million
and $22.9 million at the end of 1997 and 1996.
Commercial notes payable totaled $51.0 million and $42.0 million at the
end of 1997 and 1996. The 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 million revolving credit facility) to
refinance the debt on a long-term basis.
Under the terms of a $100 million revolving credit commitment entered into
by the Corporation in 1997, borrowings can be made at the London Interbank
Offered Rate in effect at the time of such borrowings plus .095% and may
be fixed for periods ranging from one to 12 months under reborrowing
provisions of the commitment. Under the commitment, the Corporation must
also maintain a specific level of consolidated tangible net worth and meet
certain leverage and subsidiary indebtedness ratios. In addition, certain
capital transactions are restricted. At the end of 1997, the Corporation
was in compliance with all covenants of the commitment. This commitment
terminates on September 5, 2002. There were no borrowings under this
revolving credit commitment as of January 3, 1998 and December 28, 1996.
Maximum short-term debt outstanding at the end of any month was $177.4
million in 1997 and $64.9 million in 1996. The average short-term debt
outstanding was $117.6 million in 1997 and $41.9 million in 1996. The
weighted average interest rates on short-term debt were 5.5% in 1997 and
6.0% in 1996. The weighted average interest rates on long-term and
short-term debt outstanding at January 3, 1998 and December 28, 1996 were
6.3% and 6.4%.
The Corporation's long-term debt consisted of the following:
(Amounts in thousands) 1997 1996
Senior unsecured indebtedness $100,000 $100,000
Borrowings supported by a
revolving credit commitment 51,000 42,000
Other long-term debt 368 8,129
-------- --------
151,368 150,129
Less: current maturities (352) (325)
-------- --------
Total long-term debt $151,016 $149,804
The annual maturities of the Corporation's long-term debt due in the next
five years are $0.4 million in 1998 and $51.0 million in 2002.
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 $300.0 million of unsecured indebtedness. In
October 1995, the Corporation issued $100.0 million of its notes to the
public. The notes require payment of interest on a semiannual basis at a
rate of 6.625% and mature in their entirety on October 1, 2005. The
proceeds of this issuance were used to repay a portion of the
Corporation's outstanding commercial paper and for working capital and
general corporate purposes.
Interest payments on debt and on other interest-bearing obligations were
$17.5 million, $13.2 million and $13.0 million for 1997, 1996 and 1995.
Note 6 - Income Taxes
Earnings before income taxes consisted of the following:
(Amounts in thousands) 1997 1996 1995
U.S. $210,966 $172,553 $153,423
Foreign 27,710 36,100 26,466
-------- -------- --------
Total $238,676 $208,653 $179,889
The provision for income taxes consisted of the following:
(Amounts in thousands) 1997 1996 1995
Current:
Federal $60,551 $55,949 $ 57,328
Foreign 7,555 13,803 10,250
State 8,390 8,997 9,079
-------- -------- --------
Total current 76,496 78,749 76,657
Deferred:
Federal 8,493 (615) (8,895)
Foreign 1,865 (428) (176)
State 1,456 (504) (1,027)
-------- -------- --------
Total deferred 11,814 (1,547) (10,098)
-------- -------- --------
Total income tax provision $88,310 $77,202 $ 66,559
A reconciliation of the Corporation's effective income tax rate to the
statutory federal tax rate follows:
1997 1996 1995
Statutory federal income
tax rate 35.0% 35.0% 35.0%
Increase (decrease) in tax
rate resulting from:
State income taxes,
net of federal benefit 2.8 2.4 2.5
Foreign sales corporation
tax benefit (1.2) (1.5) (1.8)
Other 0.4 1.1 1.3
-------- -------- --------
Effective tax rate 37.0% 37.0% 37.0%
Temporary differences that give rise to the net deferred tax benefit are
as follows:
(Amounts in thousands) 1997 1996 1995
Current deferred income
tax benefit:
Inventories $ 18,294 $ 14,599 $ 16,534
Accruals and reserves not
currently deductible 26,820 36,372 15,136
Other (491) 56 2,956
-------- -------- --------
Total current (included in
prepaid expenses) 44,623 51,027 34,626
Long-term deferred income
tax benefit:
Employee benefits 61,017 57,299 50,017
Net operating losses 23,277 23,585 30,313
Depreciation (22,363) (13,409) (18,118)
Other (3,398) (6,528) 4,661
Valuation allowance (14,658) (12,561) (10,162)
-------- -------- --------
Total long-term 43,875 48,386 56,711
-------- -------- --------
Net deferred income
tax benefit $ 88,498 $ 99,413 $ 91,337
At January 3, 1998, the Corporation had tax net operating loss
carryforwards ("NOLs") totaling $67.6 million as follows:
(Amounts in millions) U.S. Foreign Total
Year of Expiration:
1999 $ - $ 0.4 $ 0.4
2000 3.7 0.8 4.5
2001 - 1.7 1.7
2002 1.3 2.2 3.5
2003 10.2 - 10.2
2004 1.6 - 1.6
2005 14.0 0.4 14.4
2006 9.3 0.2 9.5
2007 1.1 - 1.1
2009 - 0.5 0.5
2010 3.8 1.7 5.5
2011 - 2.3 2.3
Indefinite - 12.4 12.4
-------- -------- --------
$45.0 $22.6 $67.6
In accordance with current accounting standards, a valuation allowance
totaling $14.7 million, $12.6 million and $10.2 million in 1997, 1996 and
1995 has been established for deferred income tax benefits related to
certain subsidiary loss carryforwards that may not be realized. Included
in this valuation allowance is $6.7 million that relates to the deferred
tax assets recorded from acquisitions. Any tax benefits subsequently
recognized for these deferred tax assets will be allocated to goodwill.
Realization of the net deferred tax assets is dependent on generating
sufficient taxable income prior to their expiration. Although realization
is not assured, management believes it is more likely than not that the
net deferred tax asset will be realized. The amount of the net deferred
tax asset considered realizable, however, could be reduced in the near
term if estimates of future taxable income during the carryforward period
are reduced.
The undistributed earnings of all subsidiaries were $117.0 million, $120.3
million and $100.2 million at the end of 1997, 1996 and 1995. 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 $76.0 million, $69.7 million
and $63.5 million in 1997, 1996 and 1995.
Note 7 - Financial Instruments
The Corporation uses derivative instruments to manage well-defined
interest rate and foreign currency exposures. The Corporation does not use
derivative instruments for trading purposes. The criteria used to
determine if hedge accounting treatment is appropriate are (i) the
designation of the hedge to an underlying exposure, (ii) whether or not
overall risk is being reduced, and (iii) if there is a correlation between
the value of the derivative instrument and the underlying obligation.
Foreign Currency Derivative Instruments: The Corporation has operations in
a number of countries and has intercompany transactions among them and, as
a result, is exposed to changes in foreign currency exchange rates. The
Corporation manages most of these exposures on a consolidated basis, which
allows netting certain exposures to take advantage of any natural offsets.
To the extent the net exposures are hedged, forward contracts are used.
Gains and/or losses on these foreign currency hedges are included in
income in the period in which the exchange rates change. Gains and/or
losses have not been material to the consolidated financial statements.
At January 3, 1998, the Corporation had forward exchange contracts to
exchange Australian dollars, British pounds, Dutch guilders, French
francs, German marks, Irish punts, Italian lira and Spanish pesetas for a
U.S. dollar equivalent of $79.8 million.
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.
The Corporation has interest rate swap agreements in place to pay fixed
interest rates in exchange for floating interest rate payments. At
January 3, 1998 and December 28, 1996, the notional principal amounts
outstanding of these agreements was $32.1 million and $35.7 million.
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 other security to support financial instruments subject to
credit risk, but monitors the credit standing of the counterparties and
enters into agreements only with financial institution counterparties with
a credit rating of A- or better.
While the Corporation primarily sells to professional technicians and shop
owners, the Corporation's accounts receivable do not represent significant
concentrations of credit risk because of the diversified portfolio 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 January 3, 1998, and December 28, 1996, the
fair value was approximately $168.2 million and $408.2 million versus
a book value of $159.4 million and $379.7 million.
Interest rate swap agreements: The fair value of the agreements was
based on a quote from the financial institution with which the
Corporation executed the transactions. As of January 3, 1998, and
December 28, 1996, the cost to terminate the agreements was $1.0
million and $0.9 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 non-contributory pension plans covering most
employees, including certain employees in foreign countries. Retirement
benefits are generally 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, with most using the
actuarially computed entry age normal cost method, which includes, in
certain defined retirement benefit plans, amortization of past service
cost over a maximum of 30 years.
The Corporation has several non-U.S. subsidiary pension plans that do not
report pension expense in accordance with SFAS No. 87, as these plans and
the related pension expense are not material.
The Corporation's net pension expense included the following components:
(Amounts in thousands) 1997 1996 1995
Service cost - benefits
earned during year $ 14,630 $ 13,191 $ 10,813
Interest cost on
projected benefits 28,047 25,657 23,764
Less actual return
on plan assets (76,768) (40,788) (53,895)
Net amortization and deferral:
Actual return on plan
assets in excess of (less
than) projected return 46,641 14,226 28,721
Amortization of net
assets at transition (1,193) (1,084) (1,401)
Other 1,170 865 1,431
-------- -------- --------
Net pension expense $ 12,527 $ 12,067 $ 9,433
The funded status of the Corporation's U.S. pension plans was as follows:
1997 1996
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
(Amounts in thousands) Benefits Assets Benefits Assets
Actuarial present value of
accumulated benefits:
Vested benefits $277,217 $ 6,589 $249,753 $ 6,166
Non-vested benefits 39,745 3,836 38,221 2,348
--------- -------- --------- -------
Accumulated benefit
obligation 316,962 10,425 287,974 8,514
Effect of projected
future salary increases 58,175 3,152 48,485 2,946
--------- -------- --------- -------
Projected benefit obligation 375,137 13,577 336,459 11,460
Plan assets at market value 439,235 - 370,058 -
--------- -------- --------- -------
Plan assets in excess of
(less than) projected
benefit obligation 64,098 (13,577) 33,599 (11,460)
Unrecognized net assets
at year-end (6,054) 32 (7,119) 91
Unrecognized net (gain) or
loss from experience
different from assumed (120,749) 4,189 (82,238) 3,292
Unrecognized prior
service cost 9,048 435 9,708 493
Additional minimum
liability - (553) - (640)
--------- -------- --------- -------
Pension liability $ (53,657) $ (9,474) $ (46,050) $(8,224)
The actuarial present value of the projected benefit obligation was
determined using a discount rate of 7.50% for 1997 and 7.75% for 1996. The
projected future salary increase assumption was 5.0% and the expected
long-term rate of return on plan assets was 9.0% for the two years
reported.
Plan assets are stated at market value and primarily consist of corporate
equities and various debt securities.
The pension liability for 1997 consists of a current liability of $3.5
million and a long-term liability of $59.6 million. The long-term
liability represents pension obligations that 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 early 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, most 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, and these plans contain provisions allowing
for benefit and coverage changes. The plans require retirees to contribute
either the full cost of the coverage, or amounts estimated to exceed a
capped per-retiree annual cost commitment by the Corporation. Most
employees hired since 1994 are required to pay the full cost. 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 Benefits Other than
Pensions."
The components of the expense for postretirement health care benefits are
as follows:
(Amounts in thousands) 1997 1996 1995
Net periodic cost
Service cost - benefits attributed
service during the period $1,945 $2,012 $1,707
Interest cost on accumulated
postretirement benefit obligation 5,467 5,273 5,228
Amortization of unrecognized
net gain (527) (487) (622)
Net postretirement health
care expense $6,885 $6,798 $6,313
The components of the accumulated postretirement benefit obligation are as
follows:
(Amounts in thousands) 1997 1996
Accumulated postretirement
benefit obligation:
Retirees $36,741 $35,329
Fully eligible active plan participants 13,537 11,481
Other active plan participants 27,502 26,205
-------- -------
Accumulated postretirement
benefit obligation 77,780 73,015
Unrecognized net gain 13,040 15,067
-------- -------
Postretirement liability $90,820 $88,082
The accumulated postretirement benefit obligation at the end of 1997
consists of a current liability of $3.9 million and a long-term liability
of $86.9 million. The weighted average discount rate used in determining
the accumulated postretirement benefit obligation was 7.50% at the end of
1997 and 7.75% at the end of 1996.
The actuarial calculation assumes a health care trend rate of 8.5% in 1998
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 7.7% was assumed in 1998, decreasing
to 5.0% in the year 2007 and thereafter.
As of January 3, 1998, a one percentage point increase in the health care
cost trend rate for future years would not materially affect the
accumulated postretirement benefit obligation or the service cost and
interest cost components.
Note 10 - Stock Option and Purchase Plans
On June 28, 1996, the board of directors approved a three-for-two stock
split of the Corporation's common stock. Distribution of shares in
connection with the stock split was made on September 10, 1996. All
share-related amounts in these financial statements reflect that split.
The Corporation has a stock option plan for directors, officers and key
employees with expiration dates on the options ranging from 1999 to 2007.
The plan provides that options be granted at exercise prices equal to
market value on the date the option is granted.
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
1997, 1996 and 1995, shares issued under the dividend reinvestment and
stock purchase plan totaled 19,764, 24,283 and 26,567. At January 3, 1998,
1,979,090 shares were available for purchase under this plan. Subsequent
to the end of 1997, the plan was amended to add more features, including
initial investments from new investors and weekly stock purchases.
Employees of the Corporation are entitled to participate in an employee
stock ownership plan. The purchase price of the common stock is the lesser
of the mean of the high and low price of the stock on the beginning date
(May 15) or ending date (May 14) of each plan year. The board of directors
may terminate this plan at any time. For 1997, 1996 and 1995, shares
issued under the employee stock ownership plan totaled 120,978, 131,432
and 73,409. At January 3, 1998, shares totaling 790,605 were reserved for
issuance to employees under this plan, and the Corporation held
contributions of $1.9 million for the purchase of common stock.
Franchised dealers are entitled to participate in a dealer stock ownership
plan. The purchase price of the common stock is the lesser of the mean of
the high and low price of the stock on the beginning date (May 15) or
ending date (May 14) of each plan year. The board of directors may
terminate this plan at any time. For 1997, 1996 and 1995, shares issued
under the dealer stock ownership plan totaled 133,679, 117,902 and 84,701.
At January 3, 1998, 630,984 shares were reserved for issuance to
franchised dealers under this plan, and the Corporation held contributions
of $2.8 million for the purchase of common stock.
Non-employee directors receive a mandatory minimum of 25% and an elective
maximum of up to 100% of their fees and retainer in shares of the
Corporation's stock. Directors may elect to defer receipt of all or part
of these shares. For 1997, 1996 and 1995, shares issued under the
Directors' Fee Plan totaled 3,008, 3,140 and 8,613. Additionally, receipt
of 3,226, 6,327 and 2,588 shares were deferred in 1997, 1996 and 1995. At
January 3, 1998, 268,096 shares were reserved for issuance to directors
under this plan.
The Corporation adopted Statement of Financial Accounting Standards (SFAS)
No. 123, "Accounting for Stock-Based Compensation," effective January
1996. As permitted, the Corporation continued its current method of
accounting for stock-based compensation plans in accordance with
Accounting Principles Board (APB) Opinion No. 25.
In accordance with SFAS No. 123, the fair value of each option grant was
estimated as of the date of grant using an option pricing model. The
Corporation used the following weighted average assumptions, under the
Black-Scholes option pricing model, for options granted in 1997, 1996 and
1995, respectively: expected volatility of 17.9%, 21.6% and 21.3%;
risk-free interest rates of 6.4%, 5.7% and 7.5%; dividend yield of 2.8%,
3.1% and 3.3%; and expected option lives of 5.8 years, 6.9 years and 5.7
years. If the Corporation had elected to recognize compensation cost for
stock-based compensation consistent with the methodology prescribed by
SFAS No. 123, net earnings and net earnings per share for 1997, 1996 and
1995 would have changed to the pro forma amounts in the right column.
(Amounts in thousands
except per share data) 1997 1996 1995
Net earnings:
As reported $150,366 $131,451 $113,330
Pro forma 148,354 130,595 111,375
Earnings per share - basic:
As reported $ 2.47 $ 2.16 $ 1.84
Pro forma 2.44 2.14 1.81
Stock option activity was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
Weighted Weighted Weighted
Average Average Average
Options Exercise Price Options Exercise Price Options Exercise Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period 2,007,423 $21.90 2,498,742 $21.54 2,329,826 $20.99
Granted 480,125 37.13 72,000 30.52 714,750 21.06
Exercised (364,802) 21.64 (370,146) 20.78 (516,044) 18.40
Canceled (8,518) 31.24 (193,173) 22.56 (29,790) 21.51
--------- ------ --------- ------ --------- ------
Outstanding at end of period 2,114,228 $25.37 2,007,423 $21.90 2,498,742 $21.54
========= ====== ========= ====== ========= ======
Exercisable at end of period 1,663,253 $22.18 1,792,859 $21.88 2,122,736 $21.52
Available for grant at end of period 3,071,746 3,543,353 1,892,390
</TABLE>
The weighted average fair value of options, calculated using the
Black-Scholes option pricing model, granted during the years ended January
3, 1998, December 28, 1996, and December 30, 1995, were $7.86, $6.99 and
$4.91. The following table summarizes information about stock options
outstanding as of January 3, 1998:
1997 Options Outstanding 1997 Options Exercisable
Weighted Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
$19 to $25 1,555,664 5.0 $21.53 1,555,664 $21.53
$25 to $31 62,589 7.4 29.37 62,589 29.37
$31 to $38 495,975 9.0 36.91 45,000 34.76
--------- --- ------ --------- ------
Totals 2,114,228 6.0 $25.37 1,663,253 $22.18
Note 11 - Capital Stock
On June 27, 1997, the Corporation's board of directors authorized the
repurchase of $100.0 million of the Corporation's common stock over a
two-year period. At the end of 1997, substantially all of the
authorization remained available. In 1996, the Corporation's board of
directors approved an ongoing authorization to repurchase stock in an
amount equivalent to that necessary to prevent dilution created by shares
issued for stock options, employee and dealer stock purchase plans, and
other corporate purposes. In 1997, the Corporation repurchased 986,333
shares of its common stock at an average price of $42.91. In 1996, the
Corporation repurchased 615,750 shares of its common stock at an average
price of $31.12.
On August 22, 1997, the board of directors declared 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 15% or more of the Corporation's common stock
("Acquiring Person") or publicly announces a tender offer to become an
Acquiring Person. Each right may then be exercised to purchase one
one-hundred-and- fiftieth of a share of Series A Junior Preferred Stock
for $190, but if a person or group becomes an Acquiring Person, then each
right entitles the holder (other than an Acquiring Person) to acquire
common stock of the Corporation having a market value equivalent to two
times the current purchase price. If the Corporation is acquired in a
merger or other business combination not approved by the board of
directors, then each holder of a right will be entitled to purchase common
stock of the surviving company having a market value equivalent to two
times the current purchase price. The effect of the rights is to cause
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, 2007, and may be redeemed by the Corporation
at a price of $.01 per right under certain circumstances.
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:
Year Ending (Amounts in thousands)
1998 $17,757
1999 12,487
2000 7,667
2001 5,435
2002 4,401
2003 and thereafter 14,208
Rent expenses for worldwide facilities and computer equipment were $18.6
million, $18.0 million and $14.4 million in 1997, 1996 and 1995.
Tejas Testing Technology One, L.C. and Tejas Testing Technology Two, L.C.
(the "Tejas Companies"), former subsidiaries of the Corporation,
previously entered into contracts with the Texas Natural Resources
Conservation Commission ("TNRCC"), an agency of the State of Texas, to
perform automotive emissions-testing services. The Corporation guaranteed
payment (the "Guaranty") of the Tejas Companies' obligations under a seven
year lease agreement in the amount of approximately $98.8 million plus an
interest factor, pursuant to which the Tejas Companies leased the
facilities necessary to perform the contracts. The Guaranty was assigned
to the lessor's lenders. The Tejas Companies agreed to indemnify the
Corporation for any payments it must make under the Guaranty.
The State of Texas subsequently terminated the emissions program described
in the contracts. The Tejas Companies filed for bankruptcy, and commenced
litigation in state and federal court against the TNRCC and related
entities. As a result, the Corporation recognized the obligation under the
Guaranty, which as of January 3, 1998, is $38.5 million, in Other
Long-term Liabilities on the accompanying Consolidated Balance Sheets. In
addition, the Corporation has recorded as assets the net amounts paid or
payable under the Guaranty, which are expected to be received from the
State of Texas. These net receivables total $93.7 million as of January 3,
1998, and are included in Intangible and Other Assets on the accompanying
Consolidated Balance Sheets.
Subsequent to January 3, 1998, the settlement agreement was approved by
the U.S. Bankruptcy Court. Pursuant to this settlement agreement, the
obligation under the Guaranty previously recorded as a contingent
liability has been satisfied. The remaining net receivable of $55.2
million represents the expected reimbursement of funds paid by the
Corporation on the Guaranty. The Corporation expects to receive $19.0
million toward the net receivable in settlement payments by May 31, 1999,
which payments have been appropriated by the Texas Legislature. The
Corporation expects to receive further payments in an amount sufficient to
satisfy the balance of the net receivables by August 31, 2001, which
payments are subject to appropriation. The Corporation believes that
ultimate recovery of the net receivables is probable.
Note 13 - Reporting Segments
The Corporation operates predominantly in a single industry as a
manufacturer and distributor of tools and equipment for the professional
technician and other customers.
The following table presents information about the Corporation by
geographic area:
(Amounts in North
thousands) America Europe Other Eliminations Consolidated
Net sales to
unaffiliated
customers
1997 $1,317,440 $274,353 $80,422 $ - $1,672,215
1996 1,138,016 268,818 78,445 - 1,485,279
1995 1,029,516 183,301 79,308 - 1,292,125
Transfers between
geographic areas
1997 $ 109,325 $ 3,540 $ 4 $(112,869) $ -
1996 106,224 2,907 6 (109,137) -
1995 98,531 2,478 123 (101,132) -
Operating income
1997 $ 246,909 $ 18,055 $ 3,020 $ (2,447) $ 265,537
1996 196,866 20,994 4,235 (1,569) 220,526
1995 180,438 6,201 6,446 (4,441) 188,644
Identifiable assets
1997 $1,359,120 $262,063 $41,932 $ (21,758) $1,641,357
1996 1,274,908 226,286 39,748 (20,154) 1,520,788
1995 1,144,938 206,177 36,413 (26,555) 1,360,973
Transfers between geographic areas primarily represent intercompany export
sales of U.S.-produced goods and are accounted for based on established
sales prices between the related companies. Export sales to foreign
unaffiliated customers represent less than 10% of consolidated net sales.
In computing operating income for foreign subsidiaries, no allocations of
general corporate expenses, interest or income taxes have been made.
Quarterly Financial Information
Unaudited
(Amounts in thousands
except per share data) 1997 1996 1995
Net sales
1st Quarter $ 375,299 $ 344,364 $ 309,107
2nd Quarter 409,231 384,554 326,816
3rd Quarter 391,162 347,202 309,065
4th Quarter 496,523 409,159 347,137
---------- ---------- ----------
$1,672,215 $1,485,279 $1,292,125
Gross profit
1st Quarter $ 192,967 $ 173,829 $ 159,269
2nd Quarter 207,667 194,129 167,247
3rd Quarter 199,294 176,478 158,039
4th Quarter 243,900 206,348 178,936
---------- ---------- ----------
$ 843,828 $ 750,784 $ 663,491
Net earnings
1st Quarter $ 33,854 $ 29,650 $ 26,460
2nd Quarter 38,971 34,528 29,718
3rd Quarter 35,514 30,765 26,329
4th Quarter 42,027 36,508 30,823
---------- ---------- ----------
$ 150,366 $ 131,451 $ 113,330
Earnings per weighted
average common
share - basic*
1st Quarter $ .56 $ .49 $ .42
2nd Quarter .64 .56 .48
3rd Quarter .58 .51 .43
4th Quarter .69 .60 .51
---------- ---------- ----------
$ 2.47 $ 2.16 $ 1.84
Earnings per weighted
average common
share - diluted*
1st Quarter $ .55 $ .48 $ .42
2nd Quarter .63 .56 .48
3rd Quarter .58 .50 .43
4th Quarter .68 .59 .50
---------- ---------- ----------
$ 2.44 $ 2.13 $ 1.83
*Adjusted for the three-for-two stock split in 1996.
(CHART)
Six-year Data
<TABLE>
<CAPTION>
(Amounts in thousands except share data) 1997 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Summary of operations
Net sales $1,672,215 $1,485,279 $1,292,125 $1,194,296 $1,132,010 $983,800
Gross profit 843,828 750,784 663,491 608,837 95,728 509,413
Operating expenses 650,182 594,527 538,021 510,361 509,910 457,384
Operating profit before net finance income 193,646 156,257 125,470 8,476 85,818 52,029
Net finance income 71,891 64,269 63,174 60,458 1,115 63,646
Operating income 265,537 220,526 188,644 158,934 46,933 115,675
Interest expense 17,654 12,649 13,327 10,806 1,198 5,969
Other income (expense) - net (9,207) 776 4,572 5,541 756 (131)
Earnings before income taxes 238,676 208,653 179,889 153,669 36,491 109,575
Income taxes 88,310 77,202 66,559 55,355 0,679 43,600
Net earnings 150,366 131,451 113,330 98,314 5,812 65,975
---------- ---------- ---------- ---------- ---------- --------
Financial position
Current assets $1,021,709 $1,017,324 $ 946,689 $ 873,020 $ 854,598 $832,603
Current liabilities 352,530 341,371 336,075 237,869 08,037 317,074
Working capital 669,179 675,953 610,614 635,151 46,561 515,529
Accounts receivable 539,589 651,739 610,064 568,378 39,949 508,092
Inventories 373,155 269,750 250,434 229,037 49,102 216,262
Property and equipment - net 265,765 245,294 220,067 209,142 24,810 226,498
Total assets 1,641,357 1,520,788 1,360,973 1,234,905 ,218,933 1,172,413
Long-term debt 151,016 149,804 143,763 108,980 9,683 93,106
Shareholders' equity 892,137 828,161 750,732 766,398 01,663 664,665
---------- ---------- ---------- ---------- ---------- --------
Common share summary*
Net earnings per share - basic $ 2.47 $ 2.16 $ 1.84 $ 1.53 $ 1.34 $ 1.04
Cash dividends paid per share .82 .76 .72 .72 .72 .72
Shareholders' equity per share 14.74 13.62 12.35 11.91 10.99 10.45
Weighted average shares
outstanding - basic 60,845,467 60,967,865 61,510,500 64,187,874 3,856,175 63,515,672
---------- ---------- ---------- ---------- ---------- --------
Other statistics
Cash dividends paid $ 49,888 $ 46,323 $ 44,113 $ 46,197 $ 45,942 $ 45,718
Dividends paid as a percent
of net earnings 33.2% 35.2% 38.9% 7.0% 53.5% 69.3%
Capital expenditures 55,442 52,333 31,581 41,788 3,248 21,081
Depreciation and amortization 38,377 31,879 31,534 29,632 2,131 29,457
Current ratio 2.9 3.0 2.8 3.7 2.8 2.6
Percent of total debt to total capital 16.4% 17.3% 18.5% 13.5% 9.3% 19.5%
Effective tax rate 37.0% 37.0% 37.0% 36.0% 7.1% 39.8%
Operating income as a percent of net sales 15.9% 14.8% 14.6% 3.3% 13.0% 11.8%
Net earnings as a percent of net sales 9.0% 8.9% 8.8% 8.2% 7.6% 6.7%
Return on average shareholders' equity 17.5% 16.7% 14.9% 13.4% 2.6% 10.0%
Shareholders of record 10,738 10,556 9,657 9,292 9,047 9,173
Common stock price range* 46.31-34.25 38.25-27.33 31.50-20.67 29.58-19.33 9.67-20.33 26.67-18.00
*Adjusted for the three-for-two stock split in 1996.
</TABLE>
<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 operational and financial
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 below. 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.
Robert A. Cornog Donald S. Huml
Chairman, President and Senior Vice President -
Chief Executive Officer Finance and Chief Financial Officer
<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) and subsidiaries as of January 3,
1998, and December 28, 1996, and the related consolidated statements of
earnings, shareholders' equity and cash flows for each of the three years
in the period ended January 3, 1998. 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 and subsidiaries as of January 3, 1998,
and December 28, 1996, and the consolidated results of their operations
and cash flows for each of the three years in the period ended January 3,
1998, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 27, 1998
<PAGE>
Investor Information
Common Stock High/Low Prices*
Quarter 1997 1996
First $42.38 - $34.25 $31.67 - $28.50
Second 41.00 - 35.25 32.92 - 30.00
Third 44.88 - 39.19 32.63 - 27.33
Fourth 46.31 - 41.50 38.25 - 31.88
Dividends Paid per Common Share*
Quarter 1997 1996
First $.20 $.18
Second .20 .18
Third .21 .20
Fourth .21 .20
---- ----
Total $.82 $.76
Exchange Listing
Snap-on Incorporated common stock is listed on the New York Stock
Exchange, Ticker Symbol SNA.
Transfer Agent and Registrar
First Chicago Trust Company of New York
P.O. Box 2500
Jersey City, NJ 07303-2500
or
525 Washington Boulevard
Jersey City, NJ 07310
Shareholder Inquiries
Shareholders with questions may call the Transfer Agent, First Chicago
Trust Company of New York, toll-free at 1-800-446-2617 or e-mail
[email protected]. The deaf and hearing-impaired can call (201) 222-4955.
Dividend Record and Pay Dates for 1998
Quarter Record Date Pay Date
First February 17 March 10
Second May 20 June 10
Third August 20 September 10
Fourth November 19 December 10
Dividend Reinvestment and Direct Stock Purchase Plan
Investors may purchase stock directly from the company and increase their
investment through a no-commission dividend reinvestment and direct stock
purchase plan. For information write to:
First Chicago Trust Company of New York
Snap-on Dividend Reinvestment and Direct Stock Purchase Plan
P.O. Box 2598
Jersey City, NJ 07303-2598
Or call: 1-800-446-2617
Form 10-K and Other Financial Publications
These publications are available without charge. Contact the public
relations department at P.O. Box 1410, Kenosha, WI 53141-1410, call (414)
656-4808 (recorded message), or e-mail [email protected].
Analyst Contact
Securities analysts and other investors seeking information about the
corporation should contact Lynn McHugh, vice president investor
relations, (414) 656-6488.
Independent Auditors
Arthur Andersen LLP
33 West Monroe Street
Chicago, Illinois 60603
(312) 580-0033
Annual Meeting
The Annual Meeting of Shareholders will be held at the Racine Marriott,
7111 Washington Avenue, Racine, Wisconsin, at 10:00 a.m. on Friday,
April 24, 1998.
Corporate Offices
P.O. Box 1430
Kenosha, Wisconsin 53141-1430
(414) 656-5200
Internet address: www.snapon.com
*Adjusted for the three-for-two stock split in 1996.
